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Review – Doing Business In Mexico

Overview of Mexico

By 2020 Mexico is widely projected to be a top 10 economy. (Source Euromonitor International ).  Mexico is expected to be the 6th largest trading nation in the world by 2050.

Mexico is a politically stable country with prudent management of its economy. It has a population of 125 million with 46% of the population under 25 years of age (source cia.gov)

Mexico’s main export commodities are manufactured goods, oil and oil products, silver, fruits, vegetables, coffee, cotton

Mexico’s main import commodities are metalworking machines, steel mill products, and agricultural machinery, and electrical equipment, automobile parts for assembly and repair, aircraft, aircraft parts

Mexico is a favourite for foreign direct investment attraction, as companies seek to nearshore operations to the world’s largest economy, the United States. Its relationship with the US turns over at US$1 million a minute. It is responsible for two-thirds of the region’s advanced manufactured exports and is a world-class producer of minerals, petroleum and agricultural products.

Mexico’s Business culture

Business in Mexico is built on relationships. It is often expected that a social relation is required to be established in order to develop a business relationship. However it is worth noting that commercial reasons will supersede the social relationship when a business relationship is developed.

Spanish is the language of choice when negotiations are conducted.

Mexico’s approach to business is increasingly sophisticated. This is a reflection of Mexico’s extensive agenda for economic reform, its maturing trade relationships (especially as a result of NAFTA, but also the EU and the Pacific Alliance) and the general rise in the education attainment levels.

Mexico accounted for 35% of the entire region’s foreign direct investment in 2015.

Setting up in Mexico

For companies seeking to create a presence in Mexico by using an agent or distributor, this will require patience and work. Though there may be many qualified candidates, companies should use high standards in selecting an agent or distributor.

Most Mexican firms usually distribute in local areas, foreign companies should consider appointing representatives in multiples cities to broaden the distribution, and take caution if considering an exclusive, national agreement. Providing the appropriate training, marketing support, samples, product support, and timely supply of spare parts is critical for success.

Many companies use a distributor and/or a retailer to distribute their products in Mexico. This channel can be used to distribute products in various regions or to distribute to several lines of business. Usually a sales agent is a freelancer; however, some Mexican firms are interested in serving as sales agents for foreign companies. This channel can be efficient for reaching smaller cities or more remote locations.

The approach to setting up in market will differ significantly according to the sector(s) in which your company operates.

Banking and Finance

Mexico’s commercial banks offer a full spectrum of services within one institution. These services range from offering deposits accounts, consumer and commercial lending, corporate finance, and the operation of trust and mutual funds, to foreign exchange and money market trading.

 

Tariffs and Regulations

Mexican Tariffs and duty rates are constantly revised and are subject to change without notice. For further information please visit the

Tariffs and non-tariff barriers

Tariff

Mexican import tariff controls have been significantly eased in recent years. Most products no longer require prior import permits and import duties & taxes have also been reduced. Duties are generally assessed based on the transaction value of the products imported into Mexico.

Mexico is also a member of the Trans Pacific Partnership (TPP). This agreement was signed in February 2016 but has not yet entered into force. Mexico is an active member of a number of trade multilateral organisations, including the WTO, APEC, OCDE and ALADI. (Source: ProMexico).

Non-tariff barriers

For companies wishing to export products into Mexico, the product labels are required to be in Spanish. The labels are to contain information such as the contents of the product, name and country of origin of the producer, and information about the importer, port of entry, etc.

All imported merchandise should meet minimum sanitary and safety standards and many products must also comply with the Mexican Standards of Quality, referred to as Mexican Official Norms (NOM).

Mexican Regulations stipulate that the minimum required information to be included on labels is:

  • description of the goods
  • importer’s name and address
  • warnings or precautionary information in the case of hazardous products
  • instructions for use and storage
  • Expiration date (if applicable).

Certain imports and exports are also subject to regulations by the Ministry of the Environment and Natural Resources (SEMARNAT).

Some imported products must receive sanitary or phytosanitary authorisations issued by the Ministry of Health (MH). There are also rules establishing the classification of goods whose importation is subject to regulation by the Commission for the Control of Pesticides, Fertilisers and Toxic Substances. (Source: PWC, Doing Business in Mexico, January 2015).

 

Product certification, labelling and packaging

Special certificates

Mexican Authorities wants the importer to re-label the products in Spanish and include the relevant information about the contents name and country of origin of the producer and information about the import, port of entry, etc. All imported merchandise should meet minimum sanitary and safety standards.

A wide variety of products must comply with the Mexican Standards of Quality, referred to as Mexican Official Norms (NOM). Certain imports and exports are subject to regulations by the Ministry of Environment and Natural Resources (SEMARNAT). Some imported products must receive sanitary or phytosanitary authorisations issued by the Ministry of Health. There are also rules establishing the classification of goods whose importation is subject to regulation by the Commission for the Control of Pesticides, Fertilizers and Toxic Substances. (Source: PWC, Doing Business in Mexico, January 2015).

Methods of quoting and payment

Quoting and payment terms vary dependant on the industry sector and customer. Companies should scrutinise all payment terms as they can differ markedly. There have been recent examples where state-owned enterprises have made decisions to alter payment terms to as much as 180 days without prior consultation.

Documentary & Clearance Requirements

Essential customs information and procedures to consider.

Documentation required:

  • waybill
  • commercial invoice with value breakdown
  • instructions letter
  • import and broker licence
  • Specific requirements according to commodity code for goods.

 Customs process:

  • clearance process time depends on commodity code
  • The importer must be a registered person or legal entity.

 Duties and taxes for formal entry clearance:

  • VAT – 16%
  • customs fees
  • Import duties will depend on the HS code (Harmonized Tariff Code) of the product
  • Customs Broker fee (depends on shipment value).

 All commercial invoices must meet the following requirements:

  • tax ID for the importer
  • full goods description and Harmonized System Code (HS) – if shipment origin is a Mercosur country it must include the Mercosur Common Nomenclature number (NCM)
  • merchandise unit cost, quantity and currency
  • Applicable incoterms used.

(Source: DHL, Mexico Fact Sheet, 3 February 2015)

 

Business risks

It is recommended that all companies wishing to do business in Mexico are advised to spend time investigating the market, obtain professional advice where appropriate and thoroughly investigate the issues in entering the market and before establishing business relationships.

Companies wishing to operate in Mexico should commit to the highest level of corporate behaviour and familiarise themselves with the laws of their country and the penalties pertaining to bribery of foreign officials.

Intellectual property protection

The 1991 Industry Property Law covers intellectual property. This law regulates, amongst other things, patents, trademarks, industrial designs, licenses, slogans, franchises, etc.

It is not necessary to submit for prior approval and registration contracts for the use of patents, trademarks or trade names or for providing technical assistance or know-how.

However, for due protection of patents, trademarks and copyrights, license agreements for these should be registered with the proper Mexican authorities, particularly to ensure enforceability vis-a-vis third parties. (Source: PwC Mexico – Doing Business in Mexico 2015).

 

Dispute resolution

The Mexican legal system is a written law based on the Roman or civil law tradition. Mexico is a federal country and its legal system has federal, as well as local laws, for each of the 31 states and for the Federal District (Mexico City, and Federal District, or DF) that forms the country.

The Mexican legal system is integrated by federal laws (i.e. Commercial Code, Federal Code of Civil Procedures and Federal Civil Code) and by local laws of each of the Mexican states (i.e. Civil Code for the Federal District and Code of Civil Procedures for the Federal District).

The scope of local laws is limited to the state that enacted them, and the scope of federal laws applies to all Mexican states, including the Federal District. However, it will be necessary to address the nature of the act in question and the specific area of law to determine whether it is a local or a federal matter (i.e. the Commercial Code, which is a federal law, contains substantive and procedural rules; it regulates commercial acts in general and establishes the rules governing the commercial court proceedings, which can be processed by local courts [ordinary] and/or federal courts because, under Mexico’s Constitution, there is concurrent jurisdiction between local and federal courts with respect to disputes involving the application of the Commercial Code). (Source: ICLG – Litigation and Dispute Resolution Mexico 2016).

 

About the Author

Aidan Conaty is founder of TCI China & Goodada. Aidan’s background is in Supply Chain Consultancy and he is a qualified accountant.

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