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DOING BUSINESS IN MEXICO EDMUNDO GONZALEZ TRADE COMMISSION OF MEXICO QUEENS LIBRARY, JANUARY 7, 2006 BANCOMEXT- TRADE COMMISSION OF MEXICO The Mexican Eximbank An entity of the Mexican government Promotes Mexican exports Promotes and attracts foreign direct investment in Mexico

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DOING BUSINESS IN MEXICO

EDMUNDO GONZALEZ

TRADE COMMISSION OF MEXICO

QUEENS LIBRARY, JANUARY 7, 2006


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BANCOMEXT-TRADE COMMISSION OF MEXICO

  • The Mexican Eximbank

  • An entity of the Mexican government

  • Promotes Mexican exports

  • Promotes and attracts foreign direct investment in Mexico

  • 25 offices in Mexico, 31 trade

    offices abroad


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TRADE OFFICES:

ASSISTANCE SERVICES FOR U.S. FIRMS

  • Identify Mexican suppliers

  • Match-making with Mexican firms

  • Subcontracting

  • Buyers’ missions

Trade

  • Legal and economic information

  • Identify potential partners

  • Contacts with government officials

  • Business Tours to Mexico

  • Investment- Industry Seminars

  • Publications: Industrial costs

  • www.investinmexico.com

Partnerships & Investment


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CONTENTS

  • ECONOMIC AND POLITICAL ENVIRONMENT

  • BILATERAL TRADE AND INVESTMENT

  • MEXICAN MARKET

  • SECTORS OF OPPORTUNITY

  • DOING BUSINESS IN MEXICO

  • LEGAL ASPECTS

  • USEFUL WEBSITES

  • Q&A SESSION


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THE MEXICAN ECONOMYIN A GLOBAL CONTEXT

  • Twelfth in the world economy MEX. GDP: $670 Bn

    U.S. GDP: $11,750 Bn

  • First Latin American Exporter

    • Mexico: $190 Bn

    • Brazil: $97 Bn

    • Argentina: $34 Bn

  • 13th Exporter: $190 Bn

    • Total Trade: $386 Bn

  • 2nd largest recipient of FDI in Latin America: $17 Bn

    Note: 2004 data.

2004 2005e

$189b $200b


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Fundamentals of the Mexican Economy

Inflation Rate

1. ECONOMIC STABILITY

  • Low Inflation

  • Economic growth

  • Investment grade status by S&P, Moody’s and Fitch.

  • Strong domestic financial market

  • Integration to the U.S. economy

Growth Rate


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Fundamentals of the Economy:

2. Free Trade Agreements

NAFTA:

Entry into force: Jan. 1, 1994.

Liberalization of automotive sector: Jan. 1, 2004.

AELC FTA:

Switzerland, Liechtenstein, Norway & Island

Negotiation: November 1, 2000

UE FTA:

Entry into force: July 1, 2000.

Trade liberalization in 2007

FTA Israel:

Entry into force: July 1, 2000

FTA Bolivia:

Entry into force: Jan. 1, 1995.

Trade liberalization in 2002

NT FTA (North Triangle):

Guatemala, Honduras & El Salvador

Entry into force:Jan. 1, 2001.

FTA Chile:

Entry into forcer: Jan. 1,1992.

Trade liberalization in 1998

FTA Nicaragua:

Entry into force: July 1, 1998.

Trade liberalization in 2002

FTA Colombia & Venezuela (G3):

Entry into force: Jan. 1, 1995.

Liberalization for heavy trucks and buses will be 2007

FTA Japan

2005

FTA Costa Rica:

Entry into force: Jan 1, 1995.

Trade liberalization in 1999.


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Fundamentals of the Mexican Economy: 3. The Institutions

  • Central Bank

  • Electoral Institute

  • Nafta

  • More transparency and accountability of the government

  • Free press

  • Political balance


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RECENT ECONOMIC DEVELOPMENTS

STRENGHTS

  • High level of reserves: $60 Bn

  • No external debt service pressure

  • The U.S. is to grow in 2006:3.5%

  • High oil prices

  • High level remittances: $20 bn 2005

  • Deep financial market

  • Inflation historically low: 3%

    RISKS

  • Political uncertainty

  • A slowdown of the U.S. economy


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BILATERAL TRADEAND INVESTMENT


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BILATERAL OVERVIEW

SECOND TRADE PARTNER OF THE U.S.

2004

$267 bn

2ND LARGEST BUYER OF U.S. PRODUCTS : $111 bn in 2004

FDI: 1994-2005: $90 bn / US COMPANIES IN MEXICO: 16,830

Mexico and U.S.: Industrial Production


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NAFTA

  • Most prominent trade agreement

  • Signed in 1994

  • Between Mexico, Canada and the U.S.

  • By 2008, all products are duty free

    NAFTA FACTS

  • The U.S.-Mexico border is the busiest in the world

  • Two way trade has almost tripled to reach 232 billion dollars annually

  • Daily transactions average 640 million dollars

  • Each year, around 90 million cars and 4.3 million trucks cross the border


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Mexico-U.S. Bilateral Trade

$40 billion (1993)

$155 billion (2004)

Exports

$42 billion (1993)

$ 110 billion (2004)

Imports

Source: SE w/ BANXICO


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MEXICO IS THE 2ND LARGEST MARKET FOR THE U.S.

U.S. exports

Billions of dollars 2004

Source: SE with USDOC


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TRADE BETWEEN THE U.S. AND MEXICO

EXPORTS TO THE US

  • Electrical equipment (TV, cables,)

  • Vehicles and parts (cars, trucks, motor)

  • Oil

  • Machinery (computers and components, engines, air cond.)

  • Medical Instruments

  • Clothes

  • Food and beverage

  • Furniture (seats, lamps)

  • Plastics

  • Steel and Iron products

177

155

138


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TRADE BETWEEN THE U.S. AND MEXICO

IMPORTS FROM THE US

  • Electrical machinery (integrated circuits,

    transmission eq.)

  • Machinery (compression, computers and components, parts of engines)

  • Vehicles ( Autos, trucks, parts)

  • Plastics

  • Natural gas

  • Iron and steel products

  • Organic chemicals

  • Medical instruments

  • Paper (cardboard, etc)

  • Food and beverage


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NAFTA BENEFITS

MORE THAN A FREE TRADE AGREEMENT

  • Liberalizes and protects investment

    • Promotes fair competition

    • Provides protection of intellectual property rights

    • Mechanisms for Resolution of Disputes

    • U.S. direct investments

    • U.S. – Mexico industrial integration

Encourage


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U.S. FDI IN MEXICO

Source: Secretaría de Economía


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TRENDS

Strong recovery of FDI in manufacturing in 2004

26% surge in new investments in the Maquiladora Industry in 2004

Shift from labor-intensive industries to higher value- added products

Clusters Development

INCENTIVES

Reduction in the income tax from 40% to 27% in 2007

Immediate deduction of new investments

Special tax-reduction for Maquiladoras

Recent Trends in Manufacturing in Mexico



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MEXICO STRONGCOMPETITIVE ADVANTAGES

Stable Economic Environment

Proximity to

the U.S.

Competitive and skilled labor force

FTA with 43

Countries

Familiar Business Culture

Protection for investment and

I.P. rights

Diverse Regions


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CHARACTERISTICS

100 million inhabitants

Diverse

Middle class growing

Employment growth

Consumer spending is growing

Firms are spending

GDP/capita:

1995: $6900 PPP

2004: $9600 PPP

MAIN DRIVERS

OF DEMAND

Strong remittances

More consumer credit

Mortgages available

Lower interest rates

High price of oil

Growing pension funds available to financing projects

MEXICAN MARKET


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OPPORTUNITY SECTORS IN THE MEXICAN MARKET

  • Maquiladora (assembly) Industry

    • Automobile parts and electronic components

  • Housing construction

  • Public Infrastructure

  • Energy

    • (Technology and equipment)

  • Tourism

    • Services

    • Transportation Equipment


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    More efficient and secure border

    with the U.S.

    Reducing Income Tax

    Partial exemption for assembly plants

    Free Trade Zones

    RECENT ACTIONS TO INCREASE COMPETITIVENESS


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    DOING BUSINESS IN MEXICO


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    SOME BUSINESS

    PRACTICES

    Friendly environment

    Business based on relationship

    LEGAL ASPECTS

    Legal system differs

    Foreign investment is allowed, with very few exceptions

    Common type of business form: corporations

    Labor law: minimum wages: $2 – 2.4

    DOING BUSINESS IN MEXICO


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    CUSTOMS

    No duties for NAFTA made products

    No duties under FTA

    if manufacturing in Mexico

    TAXES

    VAT: 15%

    Asset tax: 2%

    Payroll tax

    Income tax: 29%

    Real Estate tax

    Social Security

    Housing Fund

    DOING BUSINESS IN MEXICO

    ESPECIAL PROGRAMS

    PITEX MAQUILA

    CUSTOMS Duty Free Duty Free

    TAXES No VAT No Vat

    Reduced Income tax


    Bancomext trade commission of mexico in n y l.jpg

    BANCOMEXTTRADE COMMISSION OF MEXICO IN N.Y.

    Edmundo González

    [email protected]


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