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  1. DOING BUSINESS IN MEXICO EDMUNDO GONZALEZ TRADE COMMISSION OF MEXICO QUEENS LIBRARY, JANUARY 7, 2006

  2. 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

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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.

  8. Fundamentals of the Mexican Economy: 3. The Institutions • Central Bank • Electoral Institute • Nafta • More transparency and accountability of the government • Free press • Political balance

  9. 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

  10. BILATERAL TRADEAND INVESTMENT

  11. 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

  12. 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

  13. Mexico-U.S. Bilateral Trade $40 billion (1993) $155 billion (2004) Exports $42 billion (1993) $ 110 billion (2004) Imports Source: SE w/ BANXICO

  14. MEXICO IS THE 2ND LARGEST MARKET FOR THE U.S. U.S. exports Billions of dollars 2004 Source: SE with USDOC

  15. 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

  16. 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

  17. 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

  18. U.S. FDI IN MEXICO Source: Secretaría de Economía

  19. 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

  20. BUSINESS OPPORTUNITIES

  21. 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

  22. 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

  23. 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

  24. 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

  25. DOING BUSINESS IN MEXICO

  26. 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

  27. 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

  28. BANCOMEXTTRADE COMMISSION OF MEXICO IN N.Y. Edmundo González egonzalez@nybancomext.com