Mexico

Originally published: Oct-28-2009

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Official Name: United Mexican States

Internet Domain: .mx
International Dialing Code: +52
Time Zone: UTC-6

Table of Contents

Location and Size

Mexico is located in North America with the United States to the north and Guatemala and Belize to the south. It is approximately three times the size of Texas (1,972,550 sq. km. or 761,600 sq. mi.). Ocean borders include the Gulf of Mexico, Caribbean Sea and North Pacific Ocean.

Government

Federal republic established in 1824. Independence from Spain was proclaimed September 16, 1810.

Branches:

• Executive: President Felipe CALDERÓN Hinojosa (chief of state and head of government)
• Legislative: bicameral
• Judicial: Supreme Court, local and federal systems

Legal System

Mexico’s legal system is a mixture of US constitutional theory and civil law. It provides judicial review of legislative acts and accepts compulsory International Court of Justice (ICJ) jurisdiction with reservations. (What does this mean?)

People

Mexico is the most populous Spanish-speaking country in the world and the second most-populous country in Latin America after Portuguese-speaking Brazil. About 76% of the population lives in urban areas. The population of and around Mexico City is almost 22 million.

Mexico has made great strides in improving access to education and literacy rates over the past few decades. According to a 2006 World Bank report, enrollment at the primary level is nearly universal, and more children are completing primary education.

A persistent issue has been the pressure for greater rights for Mexico's indigenous people. A law passed in 2001 fell short of giving Mexico's Indians political autonomy. Demands for indigenous rights have been largely peaceful since 1994.

• Population: 111,211,789
• Population growth rate: 1.13%
• Languages: Spanish only 92.7%, Spanish and indigenous languages 5.7%, indigenous only 0.8%, unspecified 0.8%; note - indigenous languages include various Mayan, Nahuatl, and other regional languages
• Literacy: 91%
• Ethnic Make-up: mestizo (Amerindian-Spanish) 60%, Amerindian or predominantly Amerindian 30%, white 9%, other 1%
• Religions: Roman Catholic 76.5%, Protestant 6.3% (Pentecostal 1.4%, Jehovah's Witnesses 1.1%, other 3.8%), other 0.3%, unspecified 13.8%, none 3.1% (2000 census)

Economy

Mexico has a free market economy and is highly dependent on exports to the U.S., which represent more than a quarter of the country's GDP. The result is that the Mexican economy is strongly linked to the U.S. business cycle and has suffered from the economic slowdown in the United States. Mexico is a major oil producer and exporter. Though production has fallen in the last few years, about one-third of government revenue still comes from the industry. The economy is also heavily dependent on the money sent home by the millions of migrant workers in the US.

Mainly due to the economic recession in the United States, but also because of the international financial crisis, Mexico is expected to suffer a more severe recession in 2009 than during the 1995 economic and financial crisis despite fiscal stimulus measures taken by the government. The anti-crisis measures developed by Calderón's government are not discernable to the whole of the population. Additionally, the country's growing security issues discourage investments and tourism.

However, since the 1995 crash, successive Mexican governments have improved the country's macroeconomic fundamentals. Inflation and public sector deficits are under control, while the current account balance and public debt profile have improved.

• Currency: Peso (MXN)
• Leading Markets (2008): US 73.1%, Canada 6.2%, Germany 1.9%
• Leading Exports-commodities: manufactured goods, oil and oil products, silver, fruits, vegetables, coffee, cotton
• Leading Suppliers (2008): US 55%, China 7.1%, South Korea 5.2%
• Leading Imports-commodities: metalworking machines, steel mill products, agricultural machinery, electrical equipment, car parts for assembly, repair parts for motor vehicles, aircraft, and aircraft parts
• Top Industries: food and beverages, tobacco, chemicals, iron and steel, petroleum, mining, textiles, clothing, motor vehicles, consumer durables, tourism
• Top Agricultural Products: corn, wheat, soybeans, rice, beans, cotton, coffee, fruit, tomatoes; beef, poultry, dairy products; wood products

Economic Indicators

(e) estimate (f) forecast

Comparative Economic Indicators - 2008

* 2009 estimates
** PPP – Purchasing Power Parity

Credit and Collections

ABC-Amega’s collection experience in Mexico

Riki-Lee Ritz, Asst. VP, International: Debt collection is easiest when the creditor performs specific due diligence before engaging in commercial transactions with customers in Mexico.

• Ask the customer to complete a thorough credit application.
• If a separate contract is not in place, terms of the sale should be included either in the credit application or as part of a purchase order signed by the customer.
• Be sure to document each step of the sale; including the purchase, the customer’s agreement to the purchase, proof of shipment and receipt of goods or acceptance and rendering of services.
• Of particular importance in Mexico is the pagaré, which is essentially a promissory note. Possession of this document makes enforcement in a Mexican court much simpler should the transaction go awry.

The most significant challenges arise when a creditor attempts to file a lawsuit against a Mexican customer. Mexico does not follow a common law system as in the United States, and judgments from a court in the United States do not transfer easily to Mexican courts. A creditor can avoid most problems by clearly indicating the choice of law and choice of venue in the terms of sale or contract. If judgment is obtained on behalf of a creditor outside of Mexico and outside of the Mexican court system, be sure to consult with an attorney or other legal expert in Mexico to ensure that you are taking the correct actions to have the judgment transferred to Mexican courts for enforcement at a later date.

In-depth articles on Reducing Risks on Credit Sales Into Mexico by Romelio Hernández, one of ABC-Amega's affiliate Mexican attorneys:

• Part #1
• Part #2
• Part #3
• Part #4

Also see Enforcing Foreign Judgments in Mexico by Sr. Hernández.

Dispute Resolution

The Mexican government and courts recognize and enforce arbitral awards. In addition, Chapter Eleven of NAFTA contains provisions designed to protect cross-border investors and facilitate the settlement of investment disputes. For example, each NAFTA Party must accord investors from the other NAFTA Parties national treatment, and may not expropriate investments of those investors except in accordance with international law.

Investors may initiate arbitration against the NAFTA Party under the Arbitration Rules of the United Nations Commission on International Trade Law ("UNCITRAL Arbitration Rules") or the Arbitration (Additional Facility) Rules of the International Center for Settlement of Investment Disputes ("ICSID Additional Facility Rules"). Alternatively, a NAFTA investor may choose to use the registering country's court system.

Risk Assessment

Coface Country Rating: A4 -- Rating watch listed with negative implications since March 2009. A somewhat shaky political and economic outlook and a relatively volatile business environment can affect corporate payment behavior. Corporate default probability is still acceptable on average.

Coface Business Climate Rating: A4 -- The business environment is acceptable. Corporate financial information is sometimes neither readily available nor sufficiently reliable. Debt collection is not always efficient and the institutional framework has shortcomings. Intercompany transactions may thus run into appreciable difficulties in the acceptable but occasionally unstable environments rated A4.

Coface Risk Assessment: The business environment leaves room for improvement and the credit crunch handicaps companies. Large private firms are faced with the drying up of international liquidity.

Belgian Export Credit Agency (ONDD):

• Political Risk Rating: Short term=1; Medium-long term=2; Special transactions=1 (1 lowest risk to 7 highest risk)
• Commercial Risk: C highest risk (A-B-C)

Ducroire Delcredere Political Risk Rating: 1– Lowest risk (1-7)
Ducroire Delcredere Commercial Risk Rating: C – Highest risk (A, B, C)

Fitch Rating: BBB+
Moody’s: Baa1
Standard & Poors: BBB+

Business Climate

Mexico's trade regime is among the most open in the world, with free trade agreements with the U.S., Canada, the EU, and many other countries. Mexico is also an active member of the World Trade Organization (WTO).

A lack of investment and skilled labor has hindered moves toward higher value added production. Mexico suffers from substantial social inequality and poverty and from a business environment that needs improvement.

In June 2007, President Calderon created ProMexico, a federal entity charged with promoting Mexican exports around the world and attracting foreign direct investment. Through ProMexico, federal and state government efforts, as well as related private sector activities, are coordinated with a goal of harmonizing programs, strategies and resources in support of globalization. ProMexico maintains an extensive network of offices abroad as well as a multi-lingual website which provides information on establishing a corporation, rules of origin, labor issues, owning real estate in Mexico, sectoral promotion plans, among other topics.

Free Trade Agreements: Mexico has 12 free trade agreements with more than 40 countries. 90% of the country's export trade is under these free trade agreements.

Intellectual Property Rights: Two different laws provide the core legal basis for protection of intellectual property rights (IPR) in Mexico -- the Industrial Property Law and the Federal Copyright Law. Multiple federal agencies are responsible for various aspects of IPR protection. Despite strengthened enforcement efforts by federal authorities over the past several years, weak penalties and other obstacles have failed to deter the rampant piracy and counterfeiting found throughout the country.

Transparency of Regulatory System: In order to stimulate private sector growth, Mexico's federal government has introduced several measures to eliminate non-transparent practices in its public and private sectors. Compared to other countries in the region, Mexico's regulatory environment is very efficient. However, business surveys reveal that companies cite corruption and inefficient government bureaucracy as major obstacles for doing business in Mexico.

Expropriation and Compensation: Under NAFTA, Mexico may not expropriate property, except for a public purpose and on a non-discriminatory basis. Expropriations are governed by international law, and require rapid fair market value compensation, including accrued interest. Investors have the right to international arbitration for violations of this or any other rights included in the investment chapter of NAFTA.

Conversion and Transfer Policies: Mexico has open conversion and transfer policies as a result of its membership in NAFTA and the OECD. In general, capital and investment transactions, remittance of profits, dividends, royalties, technical service fees, and travel expenses are handled at market-determined exchange rates. Peso/dollar foreign exchange is available on same-day, 24- and 48-hour settlement bases. Most large foreign exchange transactions are settled in 48 hours. In June 2003, the U.S. Federal Reserve Bank and the Bank of Mexico announced the establishment of an automated clearinghouse for cross-border financial transactions. The International Electronic Funds Transfer System (TEFI) began operating in 2004.

Economic Freedom: According to The Heritage Foundation’s 2009 Index of Economic Freedom, Mexico’s freedom score is currently 65.8, making its economy the 49th freest in the Index. Mexico’s score is well above the world average and the third highest in Latin America.

Corruption: Anti-corruption initiatives, activities and legislation have increased significantly since 2000. However, reports and surveys indicate that corruption is rampant in several economic sectors. There are variations in the level and impact of corruption within the different Mexican states, as well as between the federal, state and municipal level. Mexico has a strong anti-corruption legal framework; however, enforcement of legislation is still a problem.

President Calderón has stated that his government intends to continue the fight against corruption. Aggressive investigations and operations have exposed corruption at the highest levels of government.

Violence: While political violence has been relatively minimal, narcotics and organized criminal violence has spiked over the past three years. Violent crime is a major concern. Mexico has one of the highest rates of kidnappings in the world. Turf wars between rival drug cartels are said to lie behind many gangland killings.

For more detailed information on these topics, visit the 2009 Investment Climate Statement – Mexico, of the U.S. Department of State.

Business Protocol

The right connections facilitate business success. Demonstrating trustworthiness, sincerity, and integrity are crucial to building relationships. Expect to answer questions about your personal background, family and life interests.

Business Cards: Business cards are exchanged with everyone during introductions at a meeting. Have one side of your business card in Spanish and make sure both sides contain both your professional and educational qualifications.

Business Attire: Men should wear conservative, dark colored suits. Women should wear business suits or conservative dresses.

Names and Titles: First names are reserved for family and closer acquaintances so wait to be invited before using first names. Professional titles are an extremely important part of Mexican business protocol. Doctors, professors, engineers, lawyers, CPAs, and architects are always addressed by their professional titles. During initial meetings, use a professional title [i.e. Ingeniero, meaning “engineer”] followed by a surname. Anyone without a professional title should be addressed by a courtesy title such as “Mr.” (Señor), “Mrs.” (Señora) or “Miss” (Señorita) followed by a surname. If you don't know someone's last name, just use the courtesy title. When you develop a closer acquaintance with a Mexican professional, you may be invited to use the title without the surname.

Conversation: Mexicans are often curious about comparing the relative prices of items sold in Mexico and other countries. Consequently, don't be surprised if you are asked about the price of certain goods in your home country. Expect to be asked about your family and other personal information.

Gifts: Gift giving is not usually a requirement in Mexican business culture. Presenting a small gift, however, will generally be appreciated as a gesture of good will.

Meetings: Since the initial meeting is generally with someone of high stature, it is important that your delegation include an upper-level executive. After the initial getting-to-know-you meeting, the senior executive may not attend meetings or be visible. This indicates you are now getting down to business.

Negotiations: Since Mexicans are status conscious, you should always have someone on your negotiating team who is an executive. If you do not speak Spanish, hire an interpreter. Face-to-face meetings are preferred over telephone, letters or email. Negotiations and decisions take a long time and will include a fair amount of haggling. Do not give your best offer first. Do not include an attorney on your negotiating team.

Acceptable Public Conduct: Conversations occur at a much closer physical distance than you may be accustomed to in the United States. Moving away to establish distance is considered unfriendly. Eye contact should be infrequent; avoid looking at others too intently. Men should avoid putting their hands in their pockets when in public. Putting your hands on your hips signifies that you're making a challenge. Using the Lord's name in vain is considered deeply offensive. Pay for purchases by placing the money directly in the clerk's hand, rather than on the counter. Leaving a payment on the counter is considered rude.

Articles of Interest on Mexico

• Brazil-envy is rife in Latin America’s other big economy, Economist, October 13, 2009
• U.S. Arrests Hundreds in Raids on Drug Cartel, The New York Times, October 22, 2009

Sources for further information on doing business in Mexico

• AmCham Mexico
• Doing Business in Mexico, U.S. Commercial Service
• Embassy of Mexico in Washington, DC
• Mexican American Chamber of Commerce
• Mexico Ministry of the Economy
• Selling and buying in Mexico, The Federation of International Trade Associations (FITA)
• Business in Mexico, SolutionsAbroad.com
• U.S. Embassy in Mexico City, Mexico

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This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countries including Mexico. For further information, contact info@abc-amega.com.

This report represents a compilation of information from a wide variety of reputable sources.

Economic Indicators: Variety of sources including the CIA World Factbook, Coface Country Rating, Economist Country Briefings, Federation of International Trade Associations (FITA) Country Profiles.

Risk Assessment information: Provided with permission by Coface Country Rating. Also Belgian credit insurance company Ducroire Delcredere

Historical Exchange Rates: OANDA.com The Currency Site.