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U.S. Department of State
Mexico Country Commercial Guide
Office of the Coordinator for Business Affairs
MEXICO COUNTRY COMMERCIAL GUIDE
TABLE OF CONTENTS
CHAPTER I ...............................EXECUTIVE SUMMARY
CHAPTER II ..............................ECONOMIC TRENDS AND OUTLOOK
CHAPTER III .............................POLITICAL ENVIRONMENT
CHAPTER IV ..............................MARKETING U.S. PRODUCTS
AND SERVICES
CHAPTER V ...............................LEADING SECTORS FOR U.S.
EXPORTS AND INVESTMENT
CHAPTER VI ..............................TRADE REGULATIONS AND STANDARDS
CHAPTER VII .............................INVESTMENT CLIMATE
CHAPTER VIII ............................TRADE AND PROJECT FINANCING
CHAPTER IX ..............................BUSINESS TRAVEL
CHAPTER X ...............................APPENDICES
COUNTRY COMMERCIAL GUIDE
Mexico
1996
This Country Commercial Guide (CCG) presents a comprehensive look at
Mexico's commercial environment through economic, political and market
analyses.
The CCGs were established by recommendation of the Trade Promotion
Coordinating Committee (TPCC), a multi-agency task force, to consolidate
various reporting documents prepared for the U.S. business community.
Country Commercial Guides are prepared annually at U.S. Embassies
through the combined efforts of several U.S. government agencies.
U.S. Embassy Mexico
Paseo de la Reforma 305
Col. Cuauhtemoc
06500 Mexico D.F.
Phone (5) 211-0042
Fax (5)511-9980
CHAPTER I
EXECUTIVE SUMMARY
U.S. exports to Mexico have increased dramatically since the late-1980s,
and in 1994 the U.S. enjoyed a growth rate of more than twenty percent
in the sale of its products. A variety of factors including the North
American Free Trade Agreement (NAFTA) combined to produce a truly
impressive increase in U.S. trade with Mexico. At the end of 1994,
however, the overvalue of the Mexican peso provoked a crisis of
confidence among investors. A sharp devaluing of the peso and the
Mexican Government's aggressive stabilization program set off a serious
recession. With significant international support the Zedillo
Administration is addressing this crisis and it is expected that the
Mexican economy will present renewed opportunities next year.
As Mexico moved to dismantle its trade barriers, demand for imported
goods increased dramatically. The country experienced a growing current
account deficit, covered until 1994 by strong foreign investment
inflows. The government failed to make some difficult policy choices in
response to the growing deficit. Meanwhile, other factors such as
rising interest rates in other countries and political events which
raised the perception of risk in Mexico, combined to accelerate the
flight of capital from Mexican financial markets. By mid-December 1994
the Mexican Central Bank was unable to continue its support of the peso
and the currency was allowed to float.
In early 1995 Mexican financial markets behaved erratically as foreign
investor confidence waned and the peso depreciated as much as fifty four
percent. An economic austerity package introduced by the Mexican
Government comprised of tight credit policies put tremendous pressure on
Mexican businesses. As expected, inflation will rise in 1995 (projected
at 42-54 percent annually) and the economy should experience negative
growth through the end of 1995. However, a financial assistance package
arranged by the U.S. made available nearly $50 billion and appeared to
have restored stability to the financial markets as of mid-year.
The peso devaluation transformed Mexico's trade deficit to a surplus
which immediately reduced pressure on the country's foreign exchange
reserves. Additionally, the government planned to further expand its
trade surplus by increasing tariffs on imports from those countries with
which Mexico has no standing trade agreement.
In the wake of the devaluation, American exports to Mexico have
declined. The impact on each exporter, however, has varied depending on
the nature of the product. As one would expect, non-essential products
such as consumer goods have experienced the greatest decline in 1995.
Many of these items have simply been under-priced by Mexican substitutes
in the price-sensitive recessionary market. Other product sectors, such
as intermediate goods, have fared much better while experiencing slower,
yet positive, growth rates.
There are considerable opportunities for U.S. products related to the
new strength of Mexican exports. U.S. firms would do well to target
those Mexican companies which are gearing up to export and which will
require increasing amounts of capital and intermediate goods. Some
government measures to improve the country's infrastructure will also
provide opportunities for U.S. firms as Mexico continues its plans to
privatize its airports, railroads, utilities and other state-run
enterprises. U.S. companies considering capital investments in Mexico
might find the cost advantages especially pronounced over the short-
term.
Despite the problems, there are still plenty of opportunities in this
important market. Mexico's economic fundamentals are still sound.
Public finances are in balance. The private sector, not the government,
is the driving force in an increasingly deregulated economy. The NAFTA
has locked in many of the reforms in progress and there has been no
turning back from the agreement on the part of the Mexican Government.
U.S. exporters should keep in mind that over 60 percent of U.S. goods
now enter Mexico duty free, and that Mexico is our third largest trading
partner.
Mexico is evolving toward a multi-party democracy after 60 years of
uninterrupted rule by the PRI. The Zedillo Administration is committed
to advancing this process through a political reform program. The
financial crisis which began shortly after President Zedillo took office
has complicated the reform process. Nonetheless, the government has made
good on its commitment by holding free and fair elections in which
opposition parties have won important vacancies. The reform process,
which favors underlying social stability, is expected to continue.
CHAPTER II
ECONOMIC TRENDS AND OUTLOOK
MAJOR TRENDS AND OUTLOOK:
The year 1994 proved to be the most difficult in recent memory for
Mexico. During 1994 the economy was recovering from slow growth in
1993, but a series of unpredictable political shocks, a massive current
account imbalance, and international interest rate trends, among other
factors, caused a drain on Mexico's foreign exchange reserves that
accelerated late in the year. This forced the Government to abandon its
longstanding policy of a predictable foreign exchange rate and in
December the government let the Mexican peso float. This devaluation
presented the newly-inaugurated Zedillo Administration with a severe
financial crisis.
Mexico's immediate economic outlook is defined by the austere emergency
economic program that it introduced in early 1995 to manage the effects
of the devaluation. Unlike Mexico's economic programs from late 1987
through 1994, the current strategy does not fall within the framework of
the Economic Pact (Pacto Economico), an agreement among government,
labor, business and the rural sector. The nongovernmental sectors did
not officially endorse the program.
The year 1995 will be a year of large-scale retrenchment as the
government implements tight credit and fiscal policies to reduce
inflation and correct the current account imbalance. Annual inflation,
which was brought down to 7.1 percent in 1994 from 159 percent in 1987,
is expected to fall between 42-54 percent for 1995. Domestic credit
growth will be curtailed sharply to a rate of 17.5 percent to dampen
domestic demand.
In response to the devaluation and the resulting financial crisis,
Mexico negotiated a package of international support in early 1995 to
bolster its balance of payments position. Under this program, the
International Monetary Fund will provide up to USD 17.8 billion in funds
to Mexico and the U.S. Government will provide up to USD 20 billion in
short and medium term funds and guarantees.
While the emergency economic program focuses on the short term, over the
medium and long term the Government is continuing a program of
structural reform and economic modernization. The National Development
Plan presented in May 1995 defined a policy direction for the next six
years. The objectives of the plan are consistent with economic policy
of recent years although it
reflects lessons learned from the financial crisis. On the economic
side, the plan stresses the importance of increasing domestic savings to
reduce Mexico's dependence on foreign investment and to accelerate
domestic growth to generate jobs.
The NAFTA was implemented in January 1994. During the first year of the
NAFTA, U.S.-Mexico trade increased by 23 percent to over USD 100
billion. Because the NAFTA locked in trade advantages for U.S. firms,
U.S. exports to Mexico in the first quarter of 1995 did well in
comparison to the performance of other countries. The NAFTA is also
bearing fruit in financial services, although expectations for 1995 are
modest. As of June 1995, eight U.S. banks, three insurance companies,
and one brokerage house had opened Mexican subsidiaries.
Mexico is continuing with its program of trade and investment
liberalization. Trade agreements with Bolivia, Colombia, Costa Rica and
Venezuela, took effect on January 1, 1995. Negotiations between the
NAFTA signatories and Chile began in June 1995 to establish the terms
for Chile's accession to the agreement.
Mexico has undergone substantial structural changes over the past decade
and the need for economic adjustment will promote further change.
Structural reforms - privatization and deregulation - will be
accelerated in the areas of banking, communications, and transportation.
The Government expects to raise USD 12-14 billion from privatization by
1997.
PRINCIPAL GROWTH SECTORS:
From 1992 to 1994 the economic sectors showing the strongest average
growth were transportation, communications, construction, and
electricity, followed closely by financial services. Strong activity in
these areas reflected the emphasis on infrastructure development. The
manufacturing subsectors of basic metals and metal products were strong
although manufacturing growth overall was below the growth rate in the
economy. The agricultural sector proved the weakest growth, reflecting
problems of low credit availability, foreign competition, and production
inefficiencies.
Sectors that performed the best in the first quarter of 1995 that are
likely to stand out in the recessionary environment are those that are
important to Mexico's manufactured export industries, such as basic
metals, chemicals, and electricity. Other promising areas include
communications, financial services, and transportation, reflecting
structural changes in those sectors.
GOVERNMENT ROLE IN THE ECONOMY:
The role of the public sector in the economy has been declining since
the 1980's when the Mexican Government began to sell or otherwise
dispose of some 1,155 state-owned enterprises. As of the end of 1994,
only 216 parastatals were in the hands of the government. Certain
strategic monopolies such as the oil sector, run by Petroleos de Mexico
(PEMEX), and the Federal Electricity Commission (CFE), will remain in
state hands, but the Government is pushing ahead with its privatization
and concessioning program.
BALANCE OF PAYMENTS SITUATION:
Mexico began running a deficit on its current account in 1988 and this
grew to USD 29 billion in 1994, equivalent to eight percent of Gross
Domestic Product (GDP). The greatest single factor behind this
imbalance was the growing trade deficit, primarily with Asia and Europe.
Imports grew faster than exports due to Mexico's strides in trade
liberalization, which permitted goods to be imported, and a surplus on
the capital account that paid for these imports. The sizeable inflows
of capital were due to an explosion in portfolio investment in Mexico,
primarily in short-term government debt. The flows also reflected, to a
lesser degree, growing direct investment and the ease with which Mexican
companies could borrow money internationally at affordable rates.
The heavy current account deficit and the reversal of short-term capital
flows in 1995 combined to force the December devaluation. As part of
its 1995 economic program, the Government is committed to a dramatic
reduction in the current account deficit, which will be achieved through
export growth and severe import shrinkage. During the first quarter of
1995, Mexico's current account deficit was a negative 1.2 billion,
compared to a deficit of USD 6.7
billion for this period in 1994.
INFRASTRUCTURE SITUATION:
The Mexican government has been making a concerted effort to improve the
country's infrastructure which deteriorated during the several economic
crises of the 1980's. In 1993 Mexico had nearly 55,300 miles of paved
road, with an additional 6,000 kilometers of superhighway planned for
the year 2000.
There are 16,520 miles of government owned railways and Mexico ranks
ninth in the number of tons transported per kilometer.
The major domestic privately-owned airlines (notably Aeromexico and
Mexicana) are the 13th largest in the world in passenger transport.
Plans are underway to concession various aspects of airport operations
to the private sector. U.S. aviation companies are expected to do very
well in this area in association with Mexican companies.
There are 76 maritime ports in Mexico with 35,000 meters of docking
facilities. Since June 1993, private sector involvement has been
allowed in port operations and development.
There were 7.6 million telephone lines in service in 1993. Mexico is in
the process of fostering competition in telecommunications, and will
grant concessions to companies who offer competing long-distance and
local telephone service starting on January 1, 1997. U.S. companies are
expected to have strong opportunities in association with Mexican
partners.
CHAPTER III
POLITICAL ENVIRONMENT
POLITICAL SYSTEM, ELECTIONS, PARTIES:
Mexico has enjoyed political stability for most of this century, a
phenomenon unique in Latin America and largely due to the political
system set up after Mexico's bloody 1910-1917 revolution. The anchor of
the system has been the ruling Institutional Revolutionary Party (PRI),
which has held power since its founding in 1929. The PRI successfully
adapted to changes in Mexican society over the years by alternating
populist and conservative policies.
The key parties in the opposition lie to either side of the PRI in the
political spectrum. The center-right National Action Party (PAN)
advocates private sector-oriented policies, normalizing Church-state
relations, more sensitive social policies, and more honesty in
government. The PAN has increased its political presence in recent
years. As of June 1995, it held four state governorships -- before
1989, governors were always PRI members -- and it had many more
officeholders at lower levels of government. Strong victories in the
Governor's race, in Jalisco in February 1995, and in Guanajuato in May
1995, have given the party momentum. The leftist Party of Democratic
Revolution (PRD) espouses a populist outlook and believes in more
government intervention in the economy. PRD's founder -- and former PRI
member, Cuauhtemoc Cardenas, nearly defeated Salinas in the
controversial 1988 Presidential race. The party has not duplicated its
electoral showing in subsequent state, local and federal races. Mexico
has other small political parties with limited public appeal that run
the gamut from Catholic Church-oriented conservatives, to ardent
ecologists, to unreconstructed socialists.
The Mexican government is modeled closely on the U.S. structure with
three branches but with a dominant executive. In the bicameral
legislature, the PRI currently holds 95 Senate seats, while the PAN
has 25 and the PRD 8. In the Chamber of Deputies, the PRI has 298
seats, the PAN 118, the PRD 73 and the Worker's Party (PT) has 10.
Traditionally a rubber-stamp body, the Congress gradually is becoming
more outspoken as the number of opposition representatives increases.
The Mexican judiciary has suffered from a poor career system and
corruption, although the Congress has recently approved major judicial
reforms that include the creation of a merit-based Judicial career.
Although the PRI has been the dominant force in Mexican politics
throughout this century, successive political reforms have opened more
space for opposition parties. The PRI's traditional advantages have
included its vast nationwide organization and access to government
resources, which in turn have prompted complaints of unfairness and
fraud in elections. As pressure for reform increased, the government
has responded gradually. For example, in the late 1970s, opponents had
more opportunities to compete in federal elections with a specific
number of seats set aside for them in the lower houses. In 1989-1990,
the Congress passed reform legislation that revamped the entire federal
electoral system, creating a semi-autonomous Federal Electoral Institute
and a separate Federal Electoral Tribunal to adjudicate election
disputes. The government has issued voter credentials with photographs
to combat fraudulent voting practices.
Nonpartisan counselors dominate the decision making bodies of the
Federal Electoral Institute. Violation of the ballot's secrecy,
coercion on voting day, manipulation of the results, and use of
government resources for electoral purposes are now among those
practices explicitly prohibited by law and sanctioned by criminal
penalties. The recent reforms also have enshrined in law the right of
Mexicans to observe the electoral process from start to finish and in an
unprecedented concession, and permit foreign "visitors" to witness
Mexican elections.
Mexico held elections on August 21, 1994 to choose a new president and
congress. In an unprecedented atmosphere of competition and openness,
the PRI's Ernesto Zedillo won. Zedillo is a former cabinet secretary in
the Salinas administration. Other candidates were the PAN's Diego
Fernandez, a lawyer and legislator, and the PRD's Cuauhtemoc Cardenas,
son of one of Mexico's most revered presidents.
NATURE OF BILATERAL RELATIONSHIP:
The relationship of the United States with Mexico is important and
complex. It is shaped by a mixture of mutual interests, shared
problems, growing interdependence, and differing national perceptions.
Historical factors, cultural differences, and economic disparities add
further intricacy to the relationship.
The scope of U.S.-Mexican relations goes far beyond diplomatic and
official contacts, entailing extensive commercial, cultural, and
educational ties. Along our 2,000-mile border, state and local
governments interact closely. The two countries cooperate to resolve
many issues, including trade, finance, narcotics, immigration,
environment, science and technology, and cultural relations.
An independent, strong, and economically healthy Mexico is a fundamental
U.S. interest. Both governments actively discuss ways to improve
cooperation on an array of bilateral issues. Since 1981, this process
has been formalized in the U.S.-Mexico Binational Commission, composed
of U.S. cabinet members and their Mexican counterparts. The Commission
holds annual plenary meetings, and many subgroups meet during the course
of the year to discuss a range of
topics, including trade negotiations, investment opportunities,
financial cooperation, narcotics, migration, law enforcement, cultural
relations, education, border cooperation, environment, labor,
agriculture, housing and urban development, fisheries, and tourism.
The most outstanding feature of our bilateral relationship in recent
years, however, has been the achievement of a the NAFTA between Mexico,
the United States, and Canada. Greater interaction between our nations
on the trade front will foster more understanding of each other's
political systems, greater appreciation for cultural differences, and a
more open atmosphere for conducting our full range of relations.
MAJOR POLITICAL ISSUES AFFECTING BUSINESS CLIMATE:
In his first year in office, President Zedillo has faced a number of
challenges, ranging from the recession to the continuing conflict in
Chiapas. There has not been fighting in Chiapas since the first few
days of 1994, and the Government and the insurgent leaders (the
Zapatistas or EZLN) are engaged in negotiations. To date, the Chiapas
uprising has not been repeated elsewhere in Mexico, and the government
seems to have the situation well under control.
While the recession and the events in Chiapas have underscored for the
Clinton Administration -- and for the Mexican Government -- the depth of
socio-economic and political problems still present in Mexico, they have
not changed our overall perception of Mexico's dramatic economic changes
over the last decade, its current status as a developing industrial
nation, or its potential for the future. The Zedillo administration is
focusing additional efforts on antipoverty programs to ameliorate the
effects of wide disparities in income distribution, while a more open
political system allows the people to vent their frustration at the
ballot box in local elections.
U.S. support for full implementation of the NAFTA has not been affected
by the recession, Chiapas or other recent events in Mexico. The
U.S.Government is confident that the NAFTA will improve economic
prosperity for all three of the agreement's trading partners. Indeed,
the economic growth that the NAFTA will bring to Mexico may help
alleviate some socioeconomic conditions that contributed to the turmoil.
The election results, a virtual NAFTA referendum, showed that the
electorate is firmly behind the agreement.
Other events that rocked the Mexican political scene were the
assassinations of PRI presidential candidate Luis Donaldo Colosio on
March 23, 1994 and of PRI Secretary General Jose Francisco Ruiz Massieu
on September 28, 1994. Despite the shock and horror of these events,
the Mexican system held together well, and the opposition parties put
partisan politics aside to show solidarity with the nation as a whole.
In an unprecedented move, President Zedillo named PAN party member
Antonio Lozano as Attorney General. His office has announced
significant advances in the investigations of these assassinations.
The recession, the uprising in Chiapas, and the assassinations have
augmented uncertainty in Mexico, but the U.S.Government is confident
that Mexico's political institutions will weather the crisis. While
these events were indeed a shock to the Mexican system, which has
enjoyed over a half century of stability, the resiliency and flexibility
of the various institutions -- both political and governmental -- to
respond to the events and move forward were heartening. Admittedly,
Mexico is in a period of change and it is inevitable that it will
experience some bumps along the road as it makes the transition from a
closed economy to an open market and from one-party dominance to a
multiparty system. A key factor in Mexico's continued stability is the
willingness of the political actors to maintain a dialogue about the
future of the country and to work together to bring about change in an
orderly and peaceful fashion. Mexico took this approach not only in the
presidential election but in the local elections held in 1995. These
are manifestations of a maturing political system and the culmination of
many years of struggle by the opposition to have greater access to
government.
CHAPTER IV
MARKETING U.S. PRODUCTS AND SERVICES
DEMOGRAPHICS:
Mexico's population is approximately 90 million with 80 percent under
the age of 40 years, and 50 percent under the age of 25. The birth rate
has fallen from 3.3 percent to 2.0 percent since 1980. Nearly 70 percent
of the population lives in urban areas specifically Mexico City (15
million), Guadalajara (3.2 million), Monterrey (2.9 million), Puebla
(1.5 million), Leon (1.2 million), and in some 70 other cities with
populations ranging between 100 to 900 thousand.
One third of the population (30 million) work in some 1.3 million
establishments mainly (97 percent) in micro, small and medium size
firms. A large firm employs 500 or more workers.
The Mexican consumers are: a) the upper class (2 percent of the
population) characterized by a high level of education, luxury housing,
multiple vehicles, and international travel; b) upper middle class
(about 20 percent of the population), university educated, who serve as
professionals or company managers, who own homes, autos, buy a wide
range of household appliances and travel internationally occasionally;
c) lower middle class (about 49 percent of the population), live in
smaller homes, and spend a greater percentage of their income on basic
necessities; and d) the rural, the underemployed, or the unemployed.
MARKETING AREAS:
The major marketing areas are:
-The central area around Mexico City (population of 18.2 million) that
includes the cities of Puebla, Toluca, Cuernavaca, and Pachuca. This is
the political, commercial, financial, and cultural center of the
country.
-The Bajio area around the City of Guadalajara (population of 6 million)
that includes the cities of Leon, Aguascalientes, Celaya and Irapuato).
This is an important commercial, industrial and agricultural area with
Guadalajara as the financial hub for thearea.
-The northern area around the City of Monterrey (population of 4.7
million) that includes the cities of Torreon, Saltillo, and Monclovia).
This is an important industrial area producing a variety of products
including steel, glass, textiles, beverages, paper and chemicals.
-The 2,000 mile U.S.-Mexico Border (population of over 3 million) that
includes the cities of Juarez, Tijuana, Mexicali, Matamoros, Reynosa and
Nuevo Laredo. This is an active industrial, agricultural and tourist
area.
Mexican firms produce a wide variety of products that offer excellent
opportunities for export sales of machinery, equipment, industrial raw
materials, replacement parts, accessories, service, know-how, and direct
sales to major OEM'S such as the automotive assembly industry. With the
current Government's push to increase exports, the quality of products
will improve to meet international standards. These population centers
will also continue to offer a large market for U.S. Consumer goods.
APPROACHING THE MARKET:
The market employs many of the same sales, distribution and marketing
techniques used in the United States. When approaching the market to
develop a market entry strategy, American exporters should consider many
points such as: small retailers and family owned businesses dominate the
market; mass merchandising is popular especially for consumer goods;
and, there is a need for performing original market research, since
there is a limited amount of available information, and statistics can
be scarce. The U.S. exporter also needs to be aware of and respect local
customs: use breakfast and lunch meetings as an important vehicle to
conduct business in a social setting; try not to use dinner for
conducting serious business and business.
The infrastructure is not fully developed and major distribution and
marketing centers are not connected by "freeways." Direct marketing and
telemarketing is still evolving as a marketing strategy. If the product
is new to the market, or if the market is extremely competitive,
advertising and other promotional support should be negotiated in detail
with your agent/distributor. You should take care when selecting a
Mexican associate to develop the market, English language capability
should not be exaggerated as a decision factor. Other criteria, such as
product and industry knowledge, track record, enthusiasm and commitment
should be weighted heavily. Service and price are extremely important to
Mexican buyers. The U.S. exporter should also schedule an annual visits
of Mexican personnel to the U.S. plant for training. Other factors to
consider include financing to the consumer, as the commercial and
industrial sectors are limited. Joint venture arrangements should also
be investigated to strengthen market penetration. U.S. maquiladoras
represent another market opportunity as the majority of inputs are
directly from the United States.
Franchises in Mexico have been growing rapidly since 1991 but this
growth came to a crashing halt during the first quarter of 1995. Retail
Sales for the period of January-April 1995 fell by some 28 percent.
There are now 18,724 outlets employing some 133,230 workers representing
375 parent companies. Of the 375 parent companies offering
franchises, 111 are from the restaurant industry followed by the
automotive service sector with a distant second place at 36. There are
no barriers to franchisors of any products or services.
SELECTING A SALES CHANNEL:
Most foreign firms sell into the Mexican market by appointing a Mexican
agent and/or distributor. Many firms open direct sales offices and
subsidiaries. With few exceptions, direct sales into Mexico by U.S.
based manufacturers and distributors can be difficult to close. The
current difficult economic situation has caused many distributors to
conserve scarce financial resources by not stocking imported products.
Selection of the appropriate agent or distributor requires time and
effort. Though there may be numerous qualified candidates, use high
standards in selecting the agent/distributor. If the selected Mexican
firm is selling into a limited area, appoint others located in other
cities to broaden distribution. It is important to develop a close
working relationship with the appointed agent/distributor. Providing
appropriate training, product support, including supplying spare parts
on a timely basis, is a must. There are no indemnity laws to prevent a
company from terminating an agent or distributor agreement.
Exclusivity will be requested by most candidates. Review the request
carefully. Sales performance clauses in agent/distributor agreements
are permitted and failure to meet established standards can be cause for
contract termination. As in the U.S., few distributors service the
entire market.
Prior to signing the agent/distributor agreement, make certain that the
person understands the terms and conditions and the relationship to be
developed. Many relationships are strained when they are not fully
developed or understood, especially when delays are encountered in a
stagnant economy.
STRATEGIES TO LOCATE CONTACTS:
Personal presentations/visits to potential Mexican counterparts are
suggested. The Commercial Service of the U.S. Department of Commerce
offers many programs and services to assist in locating
agent/distributor candidates including the Agent Distributor Service
(ADS). This service is available for Mexico City, Monterrey and
Guadalajara. This ADS program is designed to identify up to six local
firms that have expressed interest in being appointed an
agent/distributor. After the names are submitted to the American firm,
a visit to the candidates should be implemented. Assistance in
identifying candidates and scheduling appointments can also be provided
through the Commercial Service Gold Key program. The Commercial
Service, as well as other organizations, such as U.S. State Government
Offices, maintain lists of Mexican agents/distributor, manufacturers,
Mexican Government and private sector trade organizations. This support
can assist firms in locating a wide range of information, including
product standards. As all business entities must be members of an
appropriate chamber of commerce or industry association in Mexico, these
organizations offer membership lists.
Companies may also wish to participate in one of the hundreds of
exhibitions held each year. There are several facilities in Mexico City
for such shows including the Commercial Service's U.S. Trade Center.
The Commercial Service has offices located in the Cities of Monterrey
and Guadalajara that offer the full range of U.S. Department of Commerce
programs and services including organizing and holding exhibitions in
large, modern exhibition centers.
Market research reports are prepared by the Commercial Service of the
U.S. Department of Commerce in Mexico. These reports are entitled
Industry Sector Analysis reports and are available through the Commerce
Service's District Offices in the U.S.
PRICING:
Profit margins on goods sold in Mexico appear to be high, but economic
considerations and increased market competition have begun to exert an
influence. Exporters should look carefully at import duties, (taking
into account the NAFTA tariff reductions) broker's fees, transportation
costs, and taxes before establishing local prices. Sales for inventory
reduction are less common than in the U.S., as are factory stores
rebating seconds or overstocks. Both consumer and industrial markets
have shown increased price sensitivity during an economic recession.
GOVERNMENT PROCUREMENT:
Government of Mexico bidding opportunities appear in the Official
Gazette, in major newspapers, and a weekly private publication entitled,
"Resumen de Convocatorias" (Editorial Grupo Miranova, Moras 736-B,
Colonia del Valle, 03100 Mexico D.F. Telephone (52-5) 524-7154 or 524-
7254. Fax (52-5) 524-7094. Mexican law and the NAFTA have mandated
specific lead times for bids of a certain estimated value.
Each parastatal or government agency may request registration by
suppliers, even though this procedure is no longer mandated by law.
Registration can usually take place at the time of bidding. Documents
required for registration may include legal or incorporation papers, the
business license, proof of membership in the appropriate business
chamber, proof of property tax payment, audited financial statements,
and/or a power of attorney statement naming the legal representative in
Mexico. Documents usually must be in Spanish.
While maintaining a representative or office in Mexico is not a
prerequisite to obtaining contracts, it can facilitate obtaining the
information needed to prepare bid documents and support after-sales
service and parts supply.
LEGAL POINTS:
American firms can do business from the U.S. without establishing income
tax and other obligations with the Mexican Government. In appointing an
intermediary and or an agent/distributor, they should be limited to
performing market research promotion, solicitation and negotiation of
the sale of products and services. U.S. firms should not grant
permission to the local company to execute contracts. The Mexican firm
should only provide clients with information, pricing, payment terms,
ordering services, and can receive payment for the American firm. There
is a need to use a Mexican lawyer, though they are usually expensive.
Mexico has signed the U.N. Convention on International Sales of Goods.
American firms are encouraged to become familiar with this treaty as
they can request the Mexican importer to waive the provisions of this
convention, if appropriate. Mexico has not enacted a Dealers Act and
sales can be made in English.
ADVERTISING:
There is a wide range of broadcast and print media available. Many are
industry specific. Many specialized business magazines are published in
Mexico. Mexico City has over 15 newspapers. Advertising in Mexican
print media is usually more expensive than in the U.S. Advertising
rates generally approximate those of large international cities.
Successful ad campaigns are generally described as having a local touch,
which may include both linguistic and cultural considerations.
Exporters may wish to seek assistance from one of the many full service
advertising agencies in Mexico City, many of which are branches of U.S.
and other firms.
Mexico City has 25 FM and 35 AM Spanish-language radio stations. Radio
VIP (FM 88.1) broadcasts in English. A magazine published by Medios
Publicitarios Mexicanos, S.A. de C. V. specializes in radio and
television stations. It includes all the radio stations in Mexico with
their addresses and telephone numbers.
Mexico City has two television networks with a total of seven channels,
all in Spanish. Over 500,000 families, hotels, etc. subscribe to
Cablevision in Mexico City. Another 200,000 subscribe to a second cable
service, Multivision. Both contain a considerable number of U.S. -
origin channels, some with advertising in Spanish.
Some Important Business Publications In Mexico:
Expansion (Twice monthly)
Jose Antonio de Colsa
Production and Distribution Manager
Sinaloa No. 149, 9th. Floor
Col. Roma Sur
06700 Mexico, D.F.
Tel: (525) 207-2176
Fax: (525) 511-6351
Mexico's international business magazine. In-depth news and analysis on
Mexico business, finance, trade and politics.
El Financiero Weekly International Edition
2300 S. Broadway
Los Angeles, CA 90007
Tel: (213) 747-7547, (800) 433-4872
Fax: (213) 747-2489
Affiliated with Mexico's newspaper El Financiero. The international
edition has a circulation of 64,000.
Business Mexico (Monthly)
Carlos Pozos, Advertising
The American Chamber of Commerce in Mexico
Lucerna 78, Col. Juarez
06600 Mexico, D.F.
Tel: (525) 724-3800
Fax: (525) 703-2911 or 703-3908
Circulation 10,000
Contact: Ms. Diane Hemelberg de Hernandez, Editor
Published by the American Chamber of Commerce of Mexico. Readers are
senior Mexican and American executives in Mexico. Many Mexican
companies that do business with U.S. companies are subscribers.
The following are industrial product and equipment publications:
Medios Publicitarios Mexicanos, S.A. de C. V.
Radio and T.V.
Av. Mexico 99-303
Col. Hipodromo Condesa
06170 Mexico, D. F.
Tel: (525) 574-2604 or 574-2668
Fax: (525) 574-2668
Contact: Jose A. Villamil Duarte, Director
This company publishes a directory of advertising media in Mexico which
includes almost all magazines, newspapers, and radio and TV chains. The
directory is published quarterly and yearly subscriptions are available.
Transformacion - monthly
Published by CANACINTRA (National Chamber of the Manufacturing Industry)
San Antonio 256
Col. Ampliacion Napoles
03849 Mexico, D.F.
Tel: (525) 611-3227
Fax: (525) 598-5888
Contact: Lic. Lucía Covarrubias, Communications Manager
Official magazine of CANACINTRA. Circulates among business and industry
people of all specialties.
Industria - monthly
Published by: Confederacion de Camaras Industriales
Manuel María Contreras 133-1
Col. Cuauhtemoc
06597 Mexico, D.F.
Tel: (525) 592-0529
Fax: (525) 535-6871
Contact: Lic. Perla Gutierrez Zamora, Editor
This is the business magazine of the confederation of Industrial
Chambers in Mexico, which circulates among industrial sectors.
PROTECTION OF U.S. INTELLECTUAL PROPERTY:
Mexico is a member of most international organizations regulating the
protection of intellectual property rights (IPR).
The Mexican government strengthened its domestic legal framework for
protecting intellectual property in 1991 with the promulgation of a new
industrial property law (patents and trademarks), and an extensive
revision of its copyright law. Product patent protection was extended
to virtually all processes and products, including chemicals, alloys,
pharmaceutical, biotechnology and plant varieties. The term of patent
protection was extended from 14 to 20 years from the date of filing.
Trademarks are now granted for 10 year renewable periods. The enhanced
copyright law provides protection for computer programs against
unauthorized reproduction for a period of 50 years. Sanctions and
penalties against infringements were increased and damages now can be
claimed regardless of the application of sanctions.
The Mexican Institute for Industrial Property was created in November
1994 to professionalize and improve patent and trademark enforcement.
Amendments to the copyright law are expected to be presented to the
Mexican Congress in December 1995. Implementation of the NAFTA
provisions will further strengthen IPR protection by providing for
nondiscriminatory national treatment of IPR matters, recordings,
computer programs and proprietary data, and by providing express
protection for trade secrets and proprietary information.
Mexico actively enforces its intellectual property laws and has seized
and destroyed millions of dollars worth of pirated merchandise. This
enforcement has affected street vendors, but they have not produced
indictments or prosecutions of large-scale pirates. In an effort to
improve enforcement and put teeth into its IPR laws, the Mexican
government formed an inter-secretarial commission in October 1993 to cut
through the bureaucratic obstacles hindering effective action.
CHAPTER V
LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT
TABLE OF CONTENTS
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO:
Rank of Sector Name of Sector
1 Automotive Parts and Service
2 Franchising
3 Pollution Control Equipment
4 Chemical production Machinery
5 Telecommunications Equipment
6 Building Products
7 Management Consulting Services
8 Apparel
9 Aircraft and Parts
10 Electronic Components
11 Water Resources Equipment/Services
12 Construction Equipment
13 Architecture/Construction/Engineering
14 Air Conditioning and Refrigeration Equipment
15 Medical Equipment, Instruments and Disposables
16 Oil/Gas Field Machinery
17 Port and Shipbuilding Equipment
18 Cosmetics and Toiletries
19 Machine Tools and Metalworking Equipment
20 Laboratory and Scientific Instruments
21 Food Processing and Packaging Equipment
22 Hotel and Restaurant Equipment
23 Mining Industry Equipment
24 Railroad Equipment and Parts
25 Oil, Gas, Mineral Production/Exploration Services
26 Insurance Services
Agricultural Products:
Feed Grains (corn)
Fresh Deciduous Fruit (Apples and Pears)
Meat, Beef and Veal
Oilmeals
Pet Food
Poultry Meat (Chicken and Turkey)
LEADING SECTORS FOR U.S. INVESTMENT
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 1
Name of Sector: AUTOMOTIVE PARTS AND SERVICE EQUIPMENT
ITA Industry Code: APS
The Mexican automotive industry is going through a severe crisis and
does not expect to begin to recuperate until 1996. Sales of new
vehicles in Mexico have dropped 60% this year. The autoparts industry
is focusing mainly on export sales, which have been growing. The
promising area in the near future is sales to the Mexican replacement
market. With around 13 million vehicles circulating in the country,
auto replacement parts, maintenance, and service equipment will be in
demand. Even with the difficult situation that the Mexican autoparts
market is undergoing at this moment, especially in the OEM sector, this
market will remain a good opportunity for U.S. goods. At least 60% of
the parts sold in Mexico are imported. There are good opportunities
particularly for connecting rods, fuel injection tracks, valves,
automatic transmissions, turbochargers, electronic engine management
systems, power steering, anti-lock braking systems, suspension parts,
emission equipment, catalytic converters, steering wheels, plastic
molded products such as bumpers, panels and gas tanks, auto alarms, auto
stereos, luggage racks, headlights, sunroofs, rims, rear-view mirrors,
moldings, and hubcaps. The auto industry is expected to begin recovery
by the end of 1995 and through 1996. The figures noted below do not
reflect maquiladora operations (re-exports) nor imports of CKD
(complementary assembling equipment).
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 9733 8062 8608
B. Total Local Production 7183 6840 7045
C. Total Exports 4166 4374 4592
D. Total Imports 6716 5596 6155
E. Total Imports from the U.S. 4011 3399 3806
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 2
Name of Sector: FRANCHISING
ITA Industry Code: FRA
Despite Mexico's economic situation, the franchising market is expected
to continue its growth, but at a very slow rate. A survey conducted by
the Mexican Franchise Association showed that about one-third of
franchises have been negatively affected by the devaluation. Their
inputs keep rising requiring price increases which will reduce sales and
profits. In 1994 total sales of franchises represented one percent of
the GDP. The franchising sector is composed of approximately 375 master
franchises representing 18,724 selling points employing 133,235 people.
In the first quarter of 1995, sales by franchising outlets declined
approximately 28%.
American franchises continue to be the leading imported franchise since
Mexicans are familiar with the quality standards offered by the American
franchises. The sector is experiencing a consolidation and expansion
stage. Of the total franchises operating in Mexico, 52.7% are national
and 47.3% are foreign franchises. There are 69 different types of
franchises of which fast-food accounts for 17% of the market, apparel
and footwear 14% and other restaurants in general 11%. Franchises that
continue to grow are in the following sectors: automotive, cleaning
services, convenience stores, electronic components, gas stations and
laundries.
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Sales 5083.2 5490.0 6423.1
B. Sales by Local Firms 3041.4 3327.2 4044.4
C. Foreign Sales by Local Firms 341.8 433.9 622.3
D. Sales by Foreign-owned Firms 2533.6 2596.7 3001.0
E. Sales by U.S. owned Firms 2054.7 2077.3 2433.0
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 3
Name of Sector: POLLUTION CONTROL EQUIPMENT
ITA Industry Code: POL
Mexico's environmental policy and programs have presented opportunities
for this industry during the last five years. Mexico has followed the
developed countries environmental policies and will keep enforcing its
regulations in all of the regions of the country. Major opportunities
for the next five years are in the municipal and industrial waste water
area and the solid and hazardous waste equipment and services sector.
The government has indicated that it will keep enforcing the regulations
regardless of the present economic conditions. Therefore, private and
public companies will continue to find ways to install pollution control
equipment and use environmental consulting services. In addition,
states and municipalities are continuing their attempts to encourage new
private investment to comply with the existing regulations and
multilateral development banks have indicated that they will keep
helping Mexico with more lines of credit to develop the environmental
infrastructure.
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 2,254.0 2,117.4 2,290.1
B. Total Local Production 286.0 90.0 159.0
C. Total Exports 27.0 27.5 28.6
D. Total Imports 1,995.0 2,054.9 2,157.7
E. Imports from the U.S. 1,150.0 1,196.0 1,402.5
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 4
Name of Sector: CHEMICAL PRODUCTION MACHINERY
ITA Industry Code: CHM
Investment in chemical production machinery is expected to increase
within the next ten years to make this sector more competitive to meet
the demands of the domestic market. Mexico's chemical sector includes
400 small, mid-size and big companies with many installations that have
technology that is over 30 years old. The big companies (two percent)
must keep up with modern production machinery and the rest will need to
invest in new production machinery once the economy begins to
recuperate. Major investments in machinery will also be needed to build
new chemical installations in the country. It is expected that this
sector will become more integrated and competitive internationally as it
increases its exports.
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 1,518.0 1,056.7 1,146.0
B. Total Local Production 192.0 100.0 107.0
C. Total Exports 40.5 44.0 56.0
D. Total Imports 1,366.5 1,000.0 1,100.0
E. Imports from the U.S. 957.0 700.0 836.0
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 5
Name of Sector: TELECOMMUNICATIONS EQUIPMENT
ITA Industry Code: TEL
Even though the Mexican peso was devaluated in December, 1994, the
telecommunications sector is expected to grow 11% percent due to the
recently enacted Mexican telecommunications law. The law opens
telecommunications to all qualified companies and allows foreign
competition into the market. This opportunity can be translated into
purchases of foreign equipment, local production of equipment, and
improvement of telecommunications services
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 3,846.00 4,231.0 4,696.4
B. Total Local Production 1,867.9 2,055.1 1,297.3
C. Total Exports 766.9 843.6 928.0
D. Total Imports 2,745.0 3,019.5 3,327.1
E. Imports from the U.S. 710.1 766.9 828.3
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
This estimated statistical data was provided by the National Chamber for
the Electronics Industry and Electric Communications (CANIECE) and the
Mexican Association for Telematics (AMEXTEL).
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 6
Name of Sector: BUILDING PRODUCTS
ITA Industry Code: BLD
Domestic producers supply about 88 percent of building products consumed
in Mexico. The devaluation of the currency in December 1994 forced
these producers to raise prices by 30 percent to cover the high domestic
interest rates and increase of their debt service to loans contracted in
dollars. Imports will thus be more competitive in the Mexican market .
The best prospects include the following items which are not generally
produced in Mexico: prefabricated parts for buildings, deluxe finishing
products, treated wood, environmentally-friendly drainpipes, plumbing
materials, and paint. Mexico does not have extensive forestry resources
and little hardwood is produced here, so there is no domestic substitute
for many wood products.
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 1,382.0 1,451.0 1,535.6
B. Total Local Production 576.1 621.0 664.1
C. Total Exports 120.3 123.9 130.1
D. Total Imports 926.2 953.9 1,001.6
E. Imports from the U.S. 579.6 596.9 626.7
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 7
Name of Sector: MANAGEMENT CONSULTING SERVICES
ITA Industry Code: MCS
This sector showed a growth rate of 30 percent during the last 3 years.
It is now projected to decline an average of 4 percent in 1995 and will
recover by 2 percent in 1996. It is expected that the sector will not
recover to its 1994 level until 1998. The small and mid-size firms once
expected to constitute an important growth segment are reducing
personnel and expenses. The market will be sustained by the traditional
large company segment. Opportunities for U.S. firms working
independently are limited. The best strategy is to work with a Mexican
partner. The consulting services with best opportunities are those
related to Mexican exports.
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Sales 1423.0 1366.0 1393.3
B. Sales by Local Firms 862.8 827.9 845.2
C. Foreign Sales by Local Firms 45.3 43.0 44.7
D. Sales by Foreign-owned Firms 605.4 581.1 592.8
E. Sales by U.S. owned Firms 544.8 523.0 533.4
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 8
Name of Sector: APPAREL
ITA Industry Code: APP
American women and girls clothing are considered of good quality, design
and price. US exporters can offer four seasonal lines in the Mexican
market. European manufacturers generally produce only two seasonal
product lines, limiting the variety.
Imports of men's apparel have increased significantly since the opening
of the Mexican market in 1986. Imports are mainly fine designer
garments, casual wear, as well as lower priced garments supplied by
Asian countries. US apparel imports should increase when a 35 percent
import tax for non-NAFTA countries is applied in August 1995.
Imports from the U.S. have increased 91% from USD 193.8 million in 1992
to USD 370.4 million in 1994. With the economic slow down, the U.S.
market share was reduced by 14.7% because the Mexican consumer increased
their purchase of lower priced Asian apparel. The U.S. is strong in
supplying quality and design casual and sport slacks, jackets, shirts
and suits. The main competitors are Italy, Germany and Spain, which
supply quality and fashion design garments, and Hong Kong and Taiwan,
which supply low end garments.
Import Market Share (percent for U.S. and Major Competitors):
United States 30.0; Hong Kong 16.7; Italy 13.5; Taiwan 4.6; Germany 3.1;
Spain 2.8; and France 1.2.
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 5,757.2 5,572.0 5,670.0
B. Total Local Production 5,076.5 4,913.0 5,010.0
C. Total Exports 84.8 95.0 110.0
D. Total Imports 765.5 754.0 770.0
E. Imports from the United States 370.4 399.0 446.0
Exchange rate: 3.30 N/A N/A
The above statistics are unofficial estimates. Source of Information:
National Chamber of The Garment Industry (Camara del Vestido), and
Commercial Service market research.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 9
Name of Sector: AIRCRAFT AND PARTS
ITA Industry Code: AIR
Mexico is highly dependent on imported aircraft and parts. There are
approximately 102 commercial, cargo and private airlines operating in
Mexico. Around 35 of them are international lines; 6 are national lines
with Mexicana, Aeromexico and Taesa being the largest ones; 13 regional
lines; and 48 private lines, including FBOs, charter flight companies,
aero taxis, etc. The aviation industry must maintain its fleet in good
operating conditions. The economic situation in Mexico and the
devaluation of the peso makes major purchases of new aircraft difficult;
major purchases of aircraft are not expected in the near future. The
Mexican aviation industry is moving towards modernization. The recovery
of the air transport industry in Mexico will be slow due to the present
economic situation. However, the market for airplane parts remains
steady with the private and regional lines being the most promising
areas. Enforcement of the just issued Civil Air Transport Law is
expected.
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 643.3 495.7 544.7
B. Total Local Production 182.7 128.8 142.4
C. Total Exports 121.3 117.3 129.7
D. Total Imports 581.9 484.2 532.0
E. Imports from the U.S. 352.2 291.0 320.1
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 10
Name of Sector: ELECTRONIC COMPONENTS
ITA Industry Code: ELC
The December 1994 devaluation of the Mexican peso resulted in a
recession that will reduce the 1995 growth of electronic components to
near zero. Many observers believe that the economy will start to
recover late 1995-early 1996. This situation will certainly reduce
imports by making them more expensive but will increase the
competitiveness of locally produced electronic components. Market growth
may be lower than indicated below.
Mexican manufacturers of electronic components have changed their
product lines (eliminating some and adding others to adjust to the
changed market), reduced staff, and closed some facilities.
Manufacturers are focusing on reducing costs. Adjustments in other
industrial sectors will affect this industry.
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 553.7 581.4 610.5
B. Total Local Production 225.0 236.2 248.0
C. Total Exports 75.0 78.8 82.7
D. Total Imports 403.7 342.7 359.8
E. Imports from the U.S. 246.3 258.6 271.5
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
Source: Mexican Secretariat of Commerce and Industrial Development
(SECOFI).
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 11
Name of Sector: WATER RESOURCES EQUIPMENT/SERVICES
ITA Industry Code: WRE
Mexico's needs for drinking water and irrigated water have forced the
government to implement conservation and recycling programs. Many
municipalities and industries in the country lack the proper equipment
to comply with the existing regulations. Government officials have
indicated that the only way to solve the water shortage problems is by
encouraging private investment in industrial and municipal waste water
treatment through build, operate, and transfer schemes. Also, the
National Water Commission (CNA) has commented that the problem cannot be
postponed and are already working with multilateral development banks to
find new financial mechanisms to keep up with the needs and help
industries comply with the environmental regulations.
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 426.0 434.5 447.5
B. Total Local Production 111.0 113.9 118.0
C. Total Exports 25.0 27.0 32.0
D. Total Imports 340.8 347.6 361.5
E. Imports from the U.S. 204.5 208.6 231.4
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 12
Name of Sector: CONSTRUCTION EQUIPMENT
ITA Industry Code: CON
The construction industry is expected to begin recuperating during the
last quarter of 1995 and increase its participation in the Mexican
economy during 1996. The concessions program initiated during the last
administration has made it possible for the private sector to increase
investments in roads, schools, hospitals, shopping centers, etc. The
larger construction companies now in Mexico have strategic alliances
with important foreign construction firms to enhance their participation
in this sector. The type of projects that are to be concessioned during
the next five years will require modern imported equipment. Also,
Mexican authorities have indicated that construction companies need to
look for new technologies to build more homes at more affordable prices.
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 351.1 333.3 342.7
B. Total Local Production 37.6 36.0 36.7
C. Total Exports 7.3 7.5 7.9
D. Total Imports 320.8 304.8 313.9
E. Imports from the U.S. 220.2 202.6 214.8
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 13
Name of Sector: ARCHITECTURE/CONSTRUCTION/ENGINEERING SERVICES
ITA Industry Code: ACE
The construction, architecture and engineering industry has been the
most dynamic sector of Mexico's economy during the last 20 years and is
expected to start recuperating during the last quarter of 1995. Mexico
has ambitious plans for the next ten years and expects to expand and
modernize its basic infrastructure by granting concessions to the
private sector that would increase the demand of engineering services in
areas such as pipelines for gas, power generation plants, roads, ports,
and airports. Engineering services would also be in demand by Mexico's
large manufacturing companies for expansion of their present facilities.
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 1188.6 1139.1 1177.9
B. Total Local Production 901.9 856.8 882.5
C. Total Exports 10.5 10.7 12.3
D. Total Imports 297.2 293.0 307.7
E. Imports from the U.S. 208.1 197.7 217.5
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 14
Name of Sector: AIR CONDITIONING AND REFRIGERATION EQUIPMENT
ITA Industry Code: ACR
The Mexican market for Air Conditioning and Refrigeration Equipment is
principally supplied by domestic production (70 percent). U.S. imports
account for 78 percent of total imports with a market share of 23
percent. The commercial market accounts for around 70 percent of the
total purchases. business opportunities are in the replacement parts
market. Due to the current economic situation in Mexico, the market for
Air Conditioning and Refrigeration Equipment will decrease 10 percent
during 1995, and it expected to grow 3 percent in 1996. Approximately
15 percent of the national production is exported. Mexico's emphasis on
export promotion support growth during coming years. Imports are
currently being affected by the peso devaluation, and a reduction of
imports is expected. However, the NAFTA should benefit the U.S. import
share.
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 857.0 744.8 797.0
B. Total Local Production 705.8 613.3 656.4
C. Total Exports 105.9 91.9 98.5
D. Total Imports 257.1 223.4 239.1
E. Imports from the U.S. 200.6 175.9 191.7
Exchange rate: 3.3 N/A N/A
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 15
Name of Sector: MEDICAL EQUIPMENT, INSTRUMENTS AND DISPOSABLES
ITA Industry Code: MED
Local production of specialized medical equipment is minimal. The
technology to produce high quality products is not available in Mexico
for local production. Imports are expected to register a 30 percent
decline due to the government agencies (IMSS and ISSSTE) delay in
publishing bids until mid-June, 1995. U.S. imports will be affected as
well. The industry in general may reveal a decline of 9 percent.
The local production of medical disposable products will register an
increase of approximately 12 percent in 1995. Large foreign companies
have local production facilities to serve the market. Imports will be
hard hit with an expected decrease of approximately 45 percent in 1995.
Among the products affected are syringes, catheters, bandages, gauze,
etc. U.S. imports will decrease approximately 39 percent during the same
time period.
Although the market will be depressed in 1995, it is expected to recover
more easily than other markets, mainly due to the strong support and
priority that President Zedillo has promised for those public
institutions providing services related to the well-being of the people,
including social security and medical services. The market for medical
instruments and equipment is expected to grow at least five percent on
average per year starting in 1996.
Best prospects include: X-ray equipment, laser equipment, endoscopy
equipment, anesthetic equipment, ultrasound equipment, and instruments
for general surgery endoscopy, ophthalmology, laparoscopy, neurosurgery
and urology. The most important competitive factors are high technology,
quality, service, maintenance, and price. There will be good
opportunities for U.S. firms in the medium term.
The international competitors in this market are the U.S., Germany and
Japan with 55%, 15% and 11% of the import market share respectively.
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 793.0 780.8 856.0
B. Total Local Production 421.7 502.0 566.0
C. Total Exports 12.7 14.0 15.3
D. Total Imports 384.0 292.8 305.3
E. Imports from the U.S. 199.4 171.5 180.0
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 16
Name of Sector: OIL/GAS FIELD MACHINERY
ITA Industry Code: OGM
The oil and gas industry in Mexico is in the process of change. to
accomplish its objectives it will increase its purchases of oil and gas
field machinery during the next ten years. The reforms made to Article
28 of the Mexican constitution will offer concession opportunities in
the areas of natural gas to industries, including to PEMEX refineries,
petrochemical plants, and to residential areas. The concessions program
also transfers power generation plants, now operated by the national
utility company (Federal Electricity Commission), to the private sector,
to convert plants to natural gas. Mexico is expected to increase oil
and gas production. This will require the importation of field
machinery. The companies concessioned to distribute natural gas and
increase the distribution of LPG in Mexico City will need to upgrade the
underground gas pipelines, therefore increasing imports of machinery.
PEMEX, the government owned petroleum company, will need to upgrade its
seven refineries to produce quality secondary and tertiary
petrochemicals. Interested private companies and PEMEX officials have
indicated that they cannot postpone imports of oil and gas field
equipment to make the industry more competitive and meet the needs of
the domestic market.
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 500.0 451.0 463.6
B. Total Local Production 560.0 532.0 547.9
C. Total Exports 300.0 532.0 547.9
D. Total Imports 240.0 228.0 237.1
E. Imports from the U.S. 178.0 155.0 165.9
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 17
Name of Sector: PORT AND SHIPBUILDING EQUIPMENT
ITA Industry Code: PRT
Business opportunities are focused on port equipment rather than on
shipbuilding equipment. The Mexican government is in the process of
concessioning port terminals. Bids for concessions of terminals (BOT-
Build/Operate Transfers) for the four largest ports (Altamira, Lazaro
Cardenas, Manzanillo and Veracruz) were released on February 27, 1995.
These four BOTs should represent opportunities as they begin to make
major purchases during 1996. Other ports are expected to make major
purchases in 1997. The Integral Port Administration model (API-
Administracion Portuaria Integral) will be responsible for concessioning
terminals (containers, fluids, bulks, cruise lines, etc.) and awarding
contracts for facilities and services. All ports including the 4 noted
above will go through this process. These projects (concessions,
contracts for facilities and services) have been underway to make the
Mexican ports more competitive. Some ports that are going through
upgrades are: Coatzacoalcos, Ensenada, Guaymas, Manzanillo, Mazatlan,
Progreso, Topolobampo, Quintana Roo and Zihuatanejo.
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 321.1 268.2 348.5
B. Total Local Production 92.9 88.4 91.1
C. Total Exports 28.7 34.3 20.8
D. Total Imports 256.9 214.1 278.2
E. Imports from the U.S. 172.3 150.2 211.5
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 18
Name of Sector: COSMETICS AND TOILETRIES
ITA Industry Code: COS
Local production for 1995 is expected to reach a 17 percent growth rate.
Nevertheless, it will not be reflected in terms of the total value of
the market. This is due to the devaluation of the peso which affects
the value of local production. Production facilities are available
through large companies who have recently opened plants in the states
of Guanajuato and Queretaro (central Mexico). Imports will have a
negative impact of approximately 55 percent. Even though local
production serves most of the market, the industry will probably show a
decline of 3 percent due to the recession. U.S. imports are highly
affected since prices in dollars make a big difference when compared to
local products. In the past, large enterprises established in Mexico
were both producing locally and importing goods mainly from the U.S. The
trend now shows a preference for production. There will be opportunities
for U.S. firms in the medium term as long as they offer an outstanding
product with excellent quality at a reasonable price. Consumers in the
middle high and high income levels may be loyal to upscale imported
products.
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 479.4 423.9 469.6
B. Total Local Production 272.0 232.0 271.4
C. Total Exports 43.0 46.0 49.2
D. Total Imports 250.4 237.9 247.4
E. Imports from the U.S. 150.2 145.7 151.5
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 19
Name of Sector: MACHINE TOOLS AND METALWORKING EQUIPMENT
ITA Industry Code: MTL
Imports of machine-tools and metalworking equipment are expected to
decrease in 1995, but increase in 1996 to meet the demand for Mexico's
industrial modernization program that centers on increasing exports and
improving the quality of products. To increase its exports, Mexico
needs to invest in machine tools and metal-working machinery and
equipment. Locally manufactured machine tools are limited. The
devaluation of the peso will prevent many firms from contemplating
expansion, the exception would be for export growth firms. This
situation could change by late 1995 -mid 1996, depending on the recovery
of the economy.
U.S. market share has been decreasing during the past few years.
Manufacturers from Japan, Germany, Italy and other industrialized
nations have been providing comprehensive post-sales service, while
Brazilian and Chinese companies provide less expensive products.
Since most machine-tools and metalworking equipment are capital
expenditures, credit is a key decision factor affecting imports.
Mexican importers usually prefer to work on 60 to 90 day credit terms,
with low prices and quality products being important incentives. Large
companies that order custom-made machine tools usually pay 20% of the
total value when placing the order, 30% when the machine is completed
and 50% when the machine is delivered and tested.
U.S. made machine tools are considered more durable than the machines
manufactured in Mexico and other countries. Seven out of 10 machines
imported from the U.S. are not adjusted correctly, and they are not
serviced in a timely manner.
List of most promising subsectors:
Parts and accessories for machine-tools.
Multi-process welding equipment.
Hydraulic and mechanical presses, guillotines & shears.
Numerically-controlled grinding, honing machines.
Numerically-controlled presses.
Grinding, honing, threading machines.
Planners, sharpening, broaching, drawers and other cutting machines.
Boring and threadmaking attachments.
Numerically-controlled milling, boring and copying machines.
Machine-tools operated by laser
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 425.6 213.5 240.6
B. Total Local Production 32.6 32.6 35.8
C. Total Exports 31.2 31.2 32.7
D. Total Imports 424.2 212.1 237.5
E. Imports from the U.S. 256.8 128.4 141.2
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 20
Name of Sector: LABORATORY AND SCIENTIFIC INSTRUMENTS
ITA Industry Code: LAB
Local production for laboratory instruments is limited and most of the
market is served by imports. However, imports will decrease
approximately 40 percent in 1995 due to the high dollar prices for
specialized and high-tech instruments. The sector will most likely show
a decline of at least 30 percent in 1995. At the moment, local
laboratories do not have the financial resources to acquire
sophisticated instruments. The only sub-sector which may have a positive
growth is glassware, since there is strong local production. The Program
for the Support of Science in Mexico (PACIME) is run by the government
agency CONACYT, and there are still some funds available for the
acquisition of laboratory instruments for schools and colleges through a
World Bank loan. PACIME may start issuing bids in the summer of 1996.
U.S. imports will be affected in the short term since the laboratory
instruments industry is not a basic need. Eventually in the medium and
long term there will be more opportunities for U.S. firms wanting to
introduce high-tech instruments to the Mexican market.
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 253.7 150.3 170.3
B. Total Local Production 67.0 36.9 42.0
C. Total Exports 32.3 29.0 31.1
D. Total Imports 219.0 142.4 159.4
E. Imports from the U.S. 170.8 119.6 133.9
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 21
Name of Sector: FOOD PROCESSING AND PACKAGING EQUIPMENT
ITA Industry Code: FPP
There are opportunities for U.S. producers of packaging machinery
including the processed foods industry and Mexican export industries.
Because the peso had been overvalued, retailers imported large amounts
of products such as canned pineapple and peaches. These products were
traditionally produced and packed locally. With the peso devalued, local
packers are again competitive. They will need to fill the gap left by
the drop in imported products. This market is expected to grow
approximately 5 percent. Local manufacturers of processing and packaging
machinery have only a small part of the market. They do not have the
available technology for many applications. The current situation
provides an opportunity for U.S. manufacturers to recapture market share
against European competition. Food processing and packaging equipment
are still needed.
Favorable financing terms will be extremely important to help local
firms acquire the equipment.
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 147.4 150.6 163.9
B. Total Local Production 24.8 19.1 21.3
C. Total Exports 12.3 13.5 14.7
D. Total Imports 134.9 145.0 157.3
E. Imports from the U.S. 101.2 109.3 120.2
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 22
Name of Sector: HOTEL AND RESTAURANT EQUIPMENT
ITA Industry Code: HTL
The Mexican hotel industry is ranked eighth worldwide by number of rooms
and is expected to grow five to six percent annually in the next four
years as a result of increased private investment in the sector.
Tourism is one of the highest priority sectors of the economy. It
supports two million jobs and generates foreign income in excess of USD
3.8 billion annually. This industry is a source of significant domestic
and foreign investment and second only to petroleum in foreign exchange
earnings. Time-sharing has become an important tool in this sector. An
investment of USD 9 billion will be required to develop 22 major
projects throughout the country. Modernization of toll highways,
airports and telecommunications infrastructure is underway in order to
provide better service to 30 million tourists (Mexican and foreign).
Charter bus trips are increasing in frequency and volume. Major changes
are expected in the tourism industry, since 100 percent ownership in
hotels and restaurants is allowed.
Sixty eight percent of Mexican imports of hotel and restaurant equipment
and supplies are from the United States. Japan, Germany and Italy are
increasing their market share more rapidly than the U.S. They offer
more competitive financing terms and after-sales service.
List of most promising subsectors:
Food processing equipment for hotels and restaurants
Hotel china and cutlery
Water coolers, purifiers, dishwashers, scales and parts
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 282.7 289.9 298.3
B. Total Local Production 192.0 197.8 201.6
C. Total Exports 66.4 69.7 73.2
D. Total Imports 157.1 161.8 169.9
E. Imports from the U.S. 95.7 98.6 103.5
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 23
Name of Sector: MINING INDUSTRY EQUIPMENT
ITA Industry Code: MIN
The mining industry has been going through important changes during the
last five years. The 1992 mining regulations made it possible for
greater private sector participation. The foreign investment regulations
now make it possible for firms to participate with 100 percent of the
investment in concessions. The federal government has indicated that it
will encourage the private sector to participate in the concession of
mineral reserves. This trend will increase demand for more underground
and open pit mining equipment by domestic and foreign mining companies
already in the market and new foreign firms that are in the process of
obtaining their concession authorizations.
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 231.0 219.5 228.1
B. Total Local Production 88.9 84.5 86.2
C. Total Exports 8.8 8.4 8.7
D. Total Imports 150.9 143.4 150.6
E. Imports from the U.S. 95.0 90.3 97.9
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 24
Name of Sector: RAILROAD EQUIPMENT AND PARTS
ITA Industry Code: RRE
The railroad industry in Mexico used to be a strategic sector reserved
to the government. Article 28 amended the constitution to allow private
investment in the Mexican railroad (FNM-Ferrocarriles Nacionales de
Mexico). The privatization of FNM will create business opportunities
for over USD 72 billion during the next 10 years especially for the
repair and maintenance of existing equipment and in the construction of
container terminals in Mexico, Monterrey, Guadalajara and San Luis
Potosi. About 10,000 kilometers of railways require maintenance. Once
the new concessions are granted, good business opportunities should
develop for U.S. manufacturers of railroad cars and parts. The main
objectives of the railroad modernization include: opening several
railroad services to private investment (maintenance workshops for
locomotives and cars, weighing services, etc.); investing around USD 373
million during the period 1994-1998, to acquire 130 new locomotives;
modernizing traffic control systems with an investment of USD 450
million during the next five years; and, reconstruction and replacement
of about 6,330 freight cars in the next five years.
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 144.3 96.1 125.1
B. Total Local Production 11.8 8.7 11.1
C. Total Exports 4.3 4.7 5.2
D. Total Imports 136.8 92.1 119.2
E. Imports from the U.S. 116.2 78.1 101.5
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 25
Name of Sector: OIL, GAS, MINERAL PRODUCTION/
EXPLORATION SERVICES
ITA Industry Code: OGS
The services required to upgrade existing oil, gas, and mineral
facilities in Mexico will increase during the next ten years.
Modification of Article 28 of the Mexican constitution will allow
foreign investment. More service firms will increase their share in
this market to meet increase demand. This sector is considered by the
Mexican government and by private firms to have great potential.
Private consultants play an important role in helping the industry and
government owned companies become more efficient competitive to
generate more export revenues. Participation of the private sector in
these areas will increase demand for private consultants.
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 210.0 195.5 202.0
B. Total Local Production 120.0 112.8 115.6
C. Total Exports 40.0 40.8 42.0
D. Total Imports 130.0 123.5 128.4
E. Imports from the U.S. 71.5 67.9 71.9
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
Rank of Sector: 26
Name of Sector: INSURANCE SERVICES
ITA Industry Code: INS
Mexicans are increasingly purchasing insurance policies. Due to the
economic crisis and high un-employment rate, the sale of insurance
policies has grown over 7 percent in the first quarter of 1995. The 12
insurance companies listed in the Mexican Stock Exchange increased sales
by 29.8 percent in the first quarter of 1995 compared with the same
period in 1994. Life and Automobile insurance currently account for 65
percent of the total policy value and are expected to continue growing.
In the Mexico City metropolitan area, 65 insured automobiles are stolen
every day of which only 43 percent are recovered.
Two major changes will cause an increase in the sector during in the
next few years. In August 1994, 11 foreign insurance companies were
authorized to start operations in Mexico. These companies will be
limited to 8 percent of the market share. The other factor effecting
this sector are changes in regulations. In order to avoid that
insurance policies lose their value, the National Insurance and National
Bonding Commission are suggesting that insurance companies apply new
Investment Unit schemes (UDI-Unidades de Inversion). The UDI is a new
investment tool that adjusts for inflation.
The market is expected to grow 11% in 1995 and 13% in 1996. However,
the market value has been reduced due to the exchange rates.
DATA TABLE (US$ Billions)
1994 1995 1996
A. Total Sales 6.265 5.104 6.038
B. Sales by Local Firms 6.265 4.944 5.888
C. Foreign Sales by Local Firms N.A N.A N.A
D. Sales by Foreign-owned Firms N.A 0.016 0.150
E. Sales by U.S. owned Firms N.A 0.015 0.135
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
AGRICULTURAL PRODUCTS
Name of Sector: FEED GRAINS (CORN)
The U.S. will continue to be the source for imported corn in Mexico.
Mexican imports of corn will increase in line with the zero-duty tariff
rate quota enacted under the NAFTA. Imports of wheat, sorghum, dry bean
and rice will fall in 1995, reflecting both increased domestic
production and the economic downturn caused by the peso devaluation.
Imports of these products may increase in 1996 as the economy improves.
DATA TABLE (Thousand Metric Tons)
1994 1995 1996
A. Total Market Size 22755 22975 22373
B. Total Local Production 19519 18600 18200
C. Total Exports 64 0 0
D. Total Imports 1678 2575 2652
E. Imports from the U.S. 1678 2575 2652
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
AGRICULTURAL PRODUCTS
Name of Sector: FRESH DECIDUOUS FRUIT (APPLES & PEARS)
U.S. exports of apples and pears for 1995 is expected to be down 24
percent from the previous year. A slight recovery in sales is expect in
1996. However, U.S. apples and pears are viewed in the market as
superior to the domestic product. We can expect exports to return to
pre-devaluation levels and more in the next few years assuming the
Mexican economy continues its recovery and phytosanitary barriers are
resolved.
DATA TABLE (Thousands Metric Tons)
1994 1995 1996
A. Total Market Size 995 908 918
B. Total Local Production 795 790 790
C. Total Exports 50 50 50
D. Total Imports 210 168 178
E. Imports from the U.S. 175 134 142
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
AGRICULTURAL PRODUCTS
Name of Sector: MEAT, BEEF, AND VEAL
Opportunities continue to be strong for fresh and special cuts. After
the recent peso devaluation, U.S. higher quality beef exports were
affected less than lower quality cuts. Generally lower U.S. prices for
beef variety meats should continue to spur Mexican imports despite the
peso devaluation.
DATA TABLE (Metric Tons)
1994 1995 1996
A. Total Market Size 1918 1755 1690
B. Total Local Production 1810 1680 1560
C. Total Exports 2 5 5
D. Total Imports 110 80 135
E. Imports from the U.S. 65 80 81
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
AGRICULTURAL PRODUCTS
Name of Sector: OILMEALS
U.S. exports of oilseeds and products will decline in 1995 due to
depressed domestic demand and high financing cost. A gradual recovery
in demand for oilseed products is forecast for the last quarter of
calendar 1995, with an improving outlook in 1996. An expected decline
in domestic soybean production in the fall of 1955 will increase demand
for imported product.
DATA TABLE (Thousands of Metric Tons)
1994 1995 1996
A. Total Market Size 2690 2528 2629
B. Total Local Production 2272 2173 2264
C. Total Exports 0 0 0
D. Total Imports 418 355 365
E. Imports from the U.S. 388 285 292
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
AGRICULTURAL PRODUCTS
Name of Sector: PET FOOD
Mexican pet owners are increasingly using prepared pet foods as opposed
to table scraps. The outlook for exports over the next five to ten
years is excellent. Supermarkets are the major retail outlet. Heavy
promotion efforts are needed to support new brands in the market.
DATA TABLE (Thousands of Metric Tons)
1994 1995 1996
A. Total Market Size 94 102 106
B. Total Local Production 68 71 74
C. Total Exports 1 1 1
D. Total Imports 27 32 33
E. Imports from the U.S. 25 30 31
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
BEST PROSPECTS FOR U.S. EXPORTERS TO MEXICO
AGRICULTURAL PRODUCTS
Name of Sector: POULTRY MEAT (CHICKEN AND TURKEY)
Imports of U.S. whole chicken and parts will decline during 1995 because
of the cost increase in these products and the prevailing import quotas.
Imports of MDM poultry and offals will slightly decrease in 1995 but
should recover later in the year.
DATA TABLE (US$ millions)
1994 1995 1996
A. Total Market Size 1453 1219 1292
B. Total Local Production 1109 944 1000
C. Total Exports 0 0 0
D. Total Imports 344 275 292
E. Imports from the U.S. 275 220 233
Exchange rate: 3.33 N/A N/A
The above statistics are unofficial estimates.
LEADING SECTORS FOR U.S. INVESTMENT
Mexico's ambitious privatization programs initiated some eight years ago
have been revitalized and in the coming months and years could include
the transfer through concessions to the private sector of:
22 Ocean ports through an integral port administration (API)
organization.
9 Ocean port terminals and others in the future.
58 Airports.
26,000 Kilometers of railroad lines, and intermodal yards.
Up to 60 petrochemical plants.
Natural gas urban distribution systems.
Hundreds of miles of toll highways.
Domestic long distance telephone service - allowing domestic
and/or international competition.
International long distance telephone service - allowing
domestic and/or international competition.
Satellite systems.
The program was given priority after the December, 1994 devaluation of
the peso through the GOM's January, 1995 economic recovery program. To
permit a wider range of privatization programs, the GOM started the
process to change Article 28 of the Mexican Constitution by eliminating
satellite and railroad systems as activities reserved for the GOM. The
constitutional change was approved late March, 1995 and was followed
with the approval of new laws and subsequent release of regulations.
This change will permit both Mexican and foreign firms to participate in
many of the above activities.
This move towards further privatization permits the GOM not to use
resources in sectors where private investors are willing to invest and
develop. Many of the above noted commercial activities and supporting
equipment need to be modernized, and/or repaired/upgraded, this opening
will provide many business opportunities in the coming years for
American firms. Upgrading the above commercial activities will require
the purchase of many services and equipment from a wide range of firms.
Interested American firms must be patient because the terms and
conditions of many of these concessionary projects have not been
released. Further, the process can be lengthy and complex. It is also
important to seek out an effective joint venture partner, if one is
required.
Note: The Government of the United States acknowledges the contribution
that outward foreign direct investment makes to the U.S. economy. U.S.
foreign direct investment is increasingly viewed as a complement or even
a necessary component of trade. For example, roughly 60 percent of U.S.
exports are sold by American firms that have operations abroad.
Recognizing the benefits that U.S. outward investment brings to the U.S.
economy, the government of the United States undertakes initiatives,
such as Overseas Private Investment Corporation (OPIC) programs,
investment treaty negotiations and business facilitation programs, that
support U.S. investors.
CHAPTER VI
TRADE REGULATIONS AND STANDARDS
TARIFFS AND IMPORT TAXES:
With the entry in to force of the NAFTA on January 1, 1994, Mexico
further lowered its tariffs on U.S. and Canadian origin goods (see
Documentation section below). Mexican tariffs on U.S. goods are between
ten and twenty percent ad valorem. The highest Mexican tariffs tend to
be on agricultural products and finished motor vehicles. Under the
NAFTA, tariffs on U.S. goods will be phased out over a maximum period of
ten years, varying by type of good. In 1995, the highest tariff is for
those products with 20 percent import duties and classified in the NAFTA
reduction schedule "C". These products will pay 16 percent of duties in
1995 and 14 percent in 1996.
Mexico has, in addition, a fifteen percent value-added tax (VAT) on most
sales transactions, including foreign sales. Basic products such as
food and drugs (but not processed foods) are exempt from the VAT.
Mexican customs collects the VAT on foreign transactions upon entry of
the merchandise into Mexico.
Mexican customs also charges a nominal customs processing fee. The
following example shows how duties for foreign products affect the final
price relative to a local manufacturer's price:
U.S. DOMESTIC
EXPORTER MANUFACTURER
F.O.B. INVOICE VALUE $100.00 $100.00
AD VALOREM DUTY 20% 20.00 0.00
CUSTOMS PROCESSING FEE 0.8% 0.80 0.00
VALUE ADDED TAX 15% 18.12 15.00
-------- -------
TOTAL $138.92 $115.00
CUSTOMS VALUATION:
Customs valuation for U.S. origin products -- as defined by the NAFTA --
is based on the transaction value, F.O.B. at the Mexican port of entry.
Where an "arms length" transaction does not exist between seller and
importer, such as in intra-company sales or transfers, Mexico applies
valuation rules that are compatible with the Brussels Customs Valuation
Code. Goods for which the NAFTA preferential tariff treatment is not
requested are valued on a C.I.F. basis.
In November 1992 Mexico published a list of goods previously susceptible
to fraudulent customs undervaluation and established a "minimum
estimated price" for such goods. Importers of subject goods --
including liquor, some apparel, blank cassette and audio recording
tapes, disposable diapers, apples, and some household electronics --
must pay duties according to the minimum estimated price or, if goods
are valued lower, post a bond with Mexican Customs to guarantee payment
of the difference in tariffs due between the two valuations. Exemptions
from this regulation exist for active or highly capitalized importers.
IMPORTERS LICENSES:
Under the NAFTA, Mexico has abolished its import licensing requirements
for U.S. origin goods. Various agricultural products and finished motor
vehicles, however, remain subject to tariff rate quotas. Such tariff
rate quotas trigger significantly higher duties after a predetermined
quantity threshold of imports is exceeded.
The U.S. and Mexico also negotiated under the NAFTA preferential duty
treatment for limited quantities of some non-originating textiles and
apparel exported from the U.S. Mexico is obligated to administer the
"tariff preference level" and tariff rate quota system by distributing
import quotas impartially among Mexican importers.
The NAFTA provides that for the first ten years of the agreement Mexico
may adopt or maintain prohibitions or restrictions on the importation of
certain used goods. These are, primarily, construction machinery and
heavy equipment (except when imported temporarily under provisions in
the cross-border services chapter of the NAFTA), industrial machinery,
electronic data processing equipment, motorcycles, motor homes and
campers, and most trailers and tankers (except to transport inbound
merchandise).
EXPORT CONTROLS:
Mexico has few export controls. Exceptions include endangered plants
and animals, whether live or products from such plants and animals
(Mexico is a signatory of the International Convention on Trade in
Endangered Species), logs of all species, archeological pieces and items
deemed to be part of the Mexican national patrimony.
DOCUMENTATION:
The basic Mexican import document is the "pedimiento de importacion".
This document must be accompanied by a commercial invoice (in Spanish),
a bill of lading, and documents demonstrating guarantee of payment of
additional duties for undervalued goods (see "Customs Valuation") if
applicable, and documents demonstrating compliance with Mexican product
safety and performance regulations (see "Standards"), if applicable.
The import documentation must be prepared and submitted by a licensed
Mexican customs broker only.
Products qualifying as North American must use the NAFTA Certificate of
Origin in order to receive preferential treatment. This may be issued
by the exporter or broker, and does not have to be validated or
formalized. Certificate of Origin information is available on the NAFTA
Facts in documents 5000-5003 at telephone number (202) 482-4464. The
Certificate of Origin may be issued by government agencies, producers,
exporters, or industrial and commercial chambers of commerce or
associations that are legally authorized in the U.S. or other countries.
Some goods may be subject to antidumping duties applied against goods
originating in the People's Republic of China. To prove that a good is
not Chinese, importers must submit a certificate of origin and provide a
sworn statement as to the origin of the merchandise. Beginning in late
1994, certificates covering certain third-country originating textiles
apparel and footwear will have to be signed and stamped by an official
of the exporting country whose signature has been previously registered
with the Mexican Trade Ministry. Certificates for goods from non-GATT
countries must, in addition, be signed by a Mexican diplomatic
representative in that country. These provisions will not apply to
U.S. origin goods or those eligible to be marked as U.S. goods under the
NAFTA's marking rules.
Mexican customs law is very strict regarding proper submission and
preparation of customs documentation. Errors in paperwork can result in
fines and even confiscation of merchandise as contraband. Exporters are
advised to ensure that Mexican clients employ competent, reputable
Mexican customs brokers.
STANDARDS, TESTING, LABELLING AND CERTIFICATION:
The Government of Mexico (GOM) has traditionally been the primary actor
in determining product standards, labelling and certification policy,
with little input from the private sector and less from consumers. As a
result, independent standards and certification organizations like those
in the U.S. are virtually non-existent in Mexico. The Ministry of Trade
has begun efforts to reverse this situation, shifting responsibility for
the formulation of voluntary standards to the private sector or to mixed
commissions.
In 1992, the GOM undertook an ambitious project to revamp its entire
system for formulating product standards, testing, labelling and
certification regulations. The cornerstone of this review is the 1992
Standardization and Metrology law, which provides for greater
transparency and access by the public and interested parties to the
regulation formulation process. This exercise has resulted in a
reduction of obligatory product standards to just above three hundred.
The process is not without its problems, as poorly drafted regulations
and inadequate communication between enforcement agencies, such as
customs, have occasionally led to trade disruptions. In such instances
the GOM has been receptive to U.S. concerns and willing to resolve
problems.
Under the NAFTA, Mexico has affirmed its GATT obligations to meet
international standards. Mexico is committed to making its standards
compatible with the U.S. by 1998. In addition, Mexico has taken
tentative steps toward reciprocal recognition of foreign standards and
accreditation of foreign test laboratories.
Mexico, the United States and Canada will, to the greatest extent
possible, make their standards-related measures compatible. By 1998,
conformity assessment bodies located in the United States will be able
to apply for accreditation to test products to Mexican standards.
According to a decree published in Mexico's Federal Register ("Diario
Oficial") on March 7, 1994, effective the next day, all products sold in
Mexico must bear a label in Spanish prior to being imported to Mexico.
Products which must comply with NOM's (Normas Oficiales Mexicanas-
product standards) must use labelling language specified in the NOM. If
no NOM is required or if the NOM does not specify labelling
requirements, the product must bear a label containing the information
noted below in Spanish.
The Spanish language label can be added to the existing English-language
label and must contain at least the following information:
o Name or business name and address of the importer
o Name or business name of the exporter
o Trademark or commercial name brand of the product
o Importer's RFC ("Registro Federal de Causantes") number
and/or their industry association registration number
o Net contents (as specified in NOM-030-SCFI-1993)
o Use, handling, and care instructions for the product as required
o Warnings or precautions on hazardous products
This information must be presented attached to the product, packaging or
container depending on the product characteristics. This information
must be on products prepared for retail sale. Listing this information
on the container in which a good is packed for shipment will not satisfy
the labelling requirement.
Per this decree, Mexico does not explicitly state that country of origin
is required on the label prior to importation. However, Mexican
labelling regulations do require country of origin designation, and the
U.S. Department of Commerce recommends that exporters include this
information, in Spanish, on the labels they are preparing for goods
destined for retail sale in the Mexican market.
NOM CERTIFICATION REQUIREMENTS:
The March 7 decree provides a list of products, by Mexican tariff
number, which are subject to NOM's. Beside each item is the applicable
NOM. (This list has been reproduced on NAFTA Facts (202-482-4464)
document # 1302). With the exception of products which reference NOM-
004-SCFI-1993 (the textiles labelling decree) and NOM-020-SCFI-1993 (the
leather labelling decree), all products listed must comply with NOM
certification requirements. This means that these products must have
been tested in Mexico, found to have complied with the applicable NOM,
and granted a certificate attesting to the fact that the product meets
the applicable NOM.
Mexico is currently revising many of its standards, eliminating some,
and upgrading or adding others. Current information on Mexico's
standards systems can be obtained from the Office of Mexico's NAFTA
Facts system. Included on the system are a list of products currently
subject to mandatory standards, lists of accredited laboratories, a
description of Ministry of Health procedures, information on ordering
copies of Mexican standards, and an overview of Mexico's standards
system. Call (202) 482-4464 and order document # 1101, Standards and
Labelling Menu.
Information on how to obtain a Mexican Standard and how to obtain
certification can be found on NAFTA Facts documents # 1301 and 1303.
CHAPTER VII
INVESTMENT CLIMATE
OPENNESS:
In December of 1993, the government passed a foreign investment law that
replaced a restrictive 1973 statute. The law is consistent with the
foreign investment chapter of the NAFTA and opened more areas of the
economy to foreign ownership (see Table 1 below which outlines the
percentage of foreign ownership allowed in restricted sectors of the
economy). It also provided national treatment for most foreign
investment, eliminated all performance requirements for foreign
investment projects, and liberalized criteria for automatic approval of
foreign investment proposals.
NAFTA investors receive both national and Most Favored Nation (MFN)
treatment in setting up operations or acquiring firms, except where
reservations have been specifically made for certain types of
industries. States, provinces, and local governments must accord
national treatment to investors from any of the NAFTA countries.
CONVERSION AND TRANSFER POLICIES:
Mexico's economy is open in this regard, due to the requirements of its
membership in the NAFTA and its accession to the OECD. In general,
capital and investment transactions, remittance of profits, dividends,
royalties, technical service fees, and travel expenses are handled at
the market-determined exchange rate.
EXPROPRIATION AND COMPENSATION:
Under the NAFTA, Mexico may not expropriate property, except for a
public purpose 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 the NAFTA. A NAFTA investor may
choose either to seek monetary compensation through binding
international arbitration or to use the domestic country's court system.
DISPUTE SETTLEMENT:
Both the GATT, which governs Mexico's trade with other GATT member
nations and the NAFTA provide a mechanism for dispute resolution. If a
dispute can be addressed under either the NAFTA or the World Trade
Organization (WTO), a country may choose either forum. In the NAFTA,
the first step in dispute settlement is consultations. Should
consultations fail to resolve an issue within 30-45 days, any country
may call a meeting of the NAFTA Trade Commission. In the absence of a
satisfactory solution there, disputes will be resolved by a balanced and
mutually agreeable 5-member panel of experts. Panel members will be
chosen from a roster of trade, legal, and other experts, including
experts from countries outside of the NAFTA. The panel will issue its
initial report within 90 days and a final report 30 days later. Once a
panel decision has been made, either country may request the
establishment of a 3 person extraordinary challenge committee, comprised
of judges or former judges from the two countries. If any of the
grounds for the extraordinary challenge are met, the panel decision will
be overturned and a new panel will be set up.
POLITICAL VIOLENCE:
Mexico has experienced a substantial increase in political violence over
the last year. The uprising by indigenous peasants in Chiapas in
January of 1994; the assassination of ruling party presidential
candidate Luis Donaldo Colosio the following March; and a series of
high-profile kidnapping of business leaders in 1994 has kept investors
and financial markets on edge. Mexico's recent economic slowdown also
has contributed to a substantial increase in street crime, although this
generally has not had a significant effect on the overall investment
climate.
PERFORMANCE REQUIREMENTS:
The foreign investment law eliminates such restrictions as export
requirements, capital controls, and domestic content percentages, which
are prohibited under the NAFTA. Foreign investors already in Mexico may
apply for cancellation of prior commitments. Failure to apply for
revocation of performance requirements will result in their staying in
effect.
RIGHT TO PRIVATE OWNERSHIP:
Most foreign investors operate in Mexico through corporations
(Sociedades Anonimas). Foreign-owned corporations are subject to the
same laws as local companies as well as any special regulations
governing foreign investment. A Mexican corporation must have at least
five shareholders and, except in certain sensitive sectors, can usually
be established within 1 - 2 months. Costs of incorporation vary
depending on the structure of the company but the minimum cost is USD
1,500 - 2,000.
Upon registration with the Ministry of Foreign Relations(SRE), Mexican
companies with foreign participation will be allowed to own land in
restricted border (within 100 kilometers) and seacoast (within 50
kilometers) areas for non-residential purposes.
PROTECTION OF PROPERTY RIGHTS:
Mexican laws regarding Real Estate are markedly different than those in
the U.S. Non-Mexican citizens cannot own property within 50 kilometers
of the sea coasts or within 100 kilometers of the Mexican border.
Property within those areas can be leased through 30 year trusts held by
Mexican banks. Foreign investors can acquire such property for
commercial purposes by establishing a Mexican subsidiary. Because of
these restrictions and the complicated rules governing the purchase of
property, time shares, or condominiums, the U.S. Embassy strongly
recommends that U.S. citizens obtain competent legal advice prior to
any purchase of property in Mexico. A list of English speaking Mexican
attorneys can be obtained at the U.S. Embassy or an American Consulate
in Mexico.
REGULATORY SYSTEM:
For sectors not covered in Table 1 below, foreign investment
applications are automatically approved unless they exceed 85 million
new pesos (currently about USD 13.7 million), in which case they require
approval of the National Foreign Investment Commission. The amount
triggering the approval requirement will be determined annually. The
Commission is comprised of representatives of the secretariats of
government, Foreign Relations, Finance and Public Credit, Social
Development, Energy, Commerce and Industrial Development, Communications
and Transport, Labor, and Tourism. The Commission must act on
applications within 45 working days. Criteria for approval include
employment and training opportunities, technology transfer, and
contributions to productivity and competitiveness. The Commission may
reject applications to acquire Mexican companies for national security
reasons. The Foreign Relations Secretariat must issue permission for
foreigners to establish or change the nature of Mexican Companies.
Table 1
Sectors Reserved for the State
l) Petroleum and other hydrocarbons
2) Basic petrochemicals
3) Telegraphic and radio telegraphic services
4) Radioactive materials
5) Railroads
6) Satellite communications
7) Electricity
8) Nuclear energy
9) Coinage and printing of money
10) Mail
11) Control, inspection and surveillance of maritime ports, inland ports
and heliports
Sectors Reserved for Mexican Nationals
1) Retail sales of gasoline and liquid petroleum gas
2) Non-cable radio and television services
3) Credit unions, savings and loan institutions, and
development banks
4) Certain professional and technical services
5) Land transportation within Mexico of passengers and freight (to be
eliminated with up to 49, 51, and 100 percent foreign investment
permitted in 1995, 2000 and 2004, respectively), but not
including messenger or package delivery services.
In certain other sectors, foreign investment may be limited to a
minority position.
BILATERAL AGREEMENTS:
Mexico and the United States have signed a tax exchange information
agreement to assist the two countries in enforcing their tax laws. The
agreement covers information that may affect the determination,
assessment, and collection of taxes, and investigation and prosecution
of tax crimes. A financial information exchange agreement took effect
in 1995 which permits the exchange of information with respect to
certain currency transactions in order to combat illicit activities.
The two countries also have signed a bilateral tax treaty, the basic
purpose of which is to avoid double taxation of income and to prevent
tax evasion.
OPIC:
At this time, Mexico does not offer insurance with the Overseas Private
Investment Corporation (OPIC).
LABOR:
Mexico's federal labor law, enacted in 1931 and revised in 1970, is
based on Article 132 of the Mexican Constitution. Mexican workers enjoy
the right to associate, bargain, and strike.
The labor law sets a standard 48 hour work week with one paid day of
rest. For overtime, workers must be paid twice their normal rate and
three times the hourly rate for overtime in excess of nine hours per
week. Employees are entitled to a number of holidays, paid vacation
(after one year of service), vacation bonuses, and an annual bonus
equivalent to at least two weeks pay. Companies are also responsible
for additional costs on behalf of the employee in accordance with the
federal labor law. These usually add about 30-35 percent to the basic
wage cost. Both employers and employees contribute to the Mexican
social security system; employers' costs for the program range from 12 -
15 percent of salaries. Employers must also contribute a tax-deductible
2 percent of each employee's salary into an individual retirement
account.
The strength of organized labor in Mexico has generally been on the wane
over the past decade, particularly during the economic crisis years of
1982-1987. The country's large labor unions generally have supported
the government's economic restructuring program in part because real
wages in most sectors of the economy have begun to rise. The Federal
Labor Law provides that a union can be constituted with a minimum of 20
workers. For the past few years, strikes have been limited and they are
usually settled quickly. Strikes which are more difficult will usually
draw government mediators to help facilitate the settlement process.
FOREIGN TRADE ZONES/FREE PORTS:
In an effort to expand employment and training opportunities, the
Mexican government established a maquiladora program, which allows duty
free imports of machinery, parts and raw materials for the assembly and
finishing of products in Mexico for re-export to the United States.
Generally, if the parts are of U.S. origin and are not substantially
transformed abroad, U.S. import duties are levied only on the value
added.
Special incentives are available to companies which set up manufacturing
plants within 13 miles of the northern or southern border and the free
zones which include both states on the Baja California peninsula,
Quintana Roo, and the northern part of Sonora bordering on the United
States. Companies in these areas may obtain up to 100 percent reduction
of import duties on machinery, equipment, spare parts, and raw materials
for a maximum of 10 years from the time they begin operations. To
qualify, companies must manufacture products not produced elsewhere in
Mexico. Mexico also has two free ports: Puerto Mexico (Coatzacoalcos)
and Salina Cruz.
CAPITAL OUTFLOW POLICY:
As noted above, there are no restrictions on capital and investment
transactions, which are handled at a market-determined exchange rate.
MAJOR FOREIGN INVESTORS:
See appendix D
CHAPTER VIII
TRADE AND PROJECT FINANCING
INTRODUCTION:
There are many points to consider to "Get Paid" promptly and the two
most important points are completing export documents correctly
including the banking paperwork and identifying a secure method of
payment. In general terms, there are two basic situations when the
export documentation process must be exact and the payment terms and
conditions secure: 1) when starting to sell into Mexico; and 2)when an
economy is in a recession as is the current situation. The following
single scenario is used to provide information and to illustrate the
relationship of export documents and "getting paid."
Delivering products to one of the U.S. Mexican gateways is not
complicated. However, crossing the border and having the shipment
delivered to the consignee is another matter.
There is no room for error in the preparation of export documents.
Documents should be forwarded the same day the shipment leaves the
factory or point of origin. Original export documents should not be
entrusted to truck drivers for delivery to anyone.
The border crossing process of the shipment can be complicated due to
the many different parties involved. Basically, 80 percent of trade
between the United States and Mexico moves via truck with American
exports delivered to a U.S. freight forwarder. The shipper's original
commercial invoice, packing list and export documentation should be
waiting at the American freight forwarder's warehouse. No export
processing can commence until all original documents are received.
After the U.S. freight forwarder checks the accuracy of the documents,
the export documents are delivered to the consignee's designated Mexican
customhouse broker. The Mexican customhouse broker prepares a quotation
for the importer that includes duties (if any), a customs user fee,
transportation charges, etc. All transportation charges, duties and fees
must be paid before the shipment can enter Mexico.
This is the point in the process where problems can occur and
relationships strained (shipment is still in the U.S. side). The
primary reason being that the consignee may not have the financial
resources to pay the bill if the payments terms and conditions are not
secure.
Upon payment of the invoice by the consignee, the Mexican customhouse
broker prepares the "Pedimento de Importacion," the request to import.
Once the duties are paid and the Mexican custom's documents are stamped,
the U.S. freight forwarder turns the trailer over to a U.S. transfer
carrier to deliver the trailer to Mexico for the interior of the
country. The average time to perform the above process, assuming that
the documents are correct, is between 40 to 48 business hours.
Further, Mexican customs determines by a random computer program whether
the trailer will or will not be inspected by a Mexican Customs
Inspector. If the piece count of merchandise in the trailer does not
match the declared count or if there are any discrepancies, penalties
will be assessed. The truck will not be allowed to leave the compound
until the discrepancy is resolved and the penalties are paid.
FINANCING AVAILABILITY:
Credit is limited and currently expensive in Mexico. The current
interest rate is between 40-60 percent with limited access to commercial
bank financing by many prospective borrowers.
Credit extended to the non-banking private sector by Mexico's commercial
banks grew at an average nominal rate of 51 percent between 1990 and
1993. Because of the December 1994 devaluation of the peso, credit is
now limited.
The availability of credit should increase in late 1995 with the
addition of new foreign banks and the return of economic stability.
Financial factoring, leasing and general warehousing can be alternatives
to banks in Mexico.
TRADE FINANCE:
1. Advance payment
Exporters will find few, if any, customers willing and/or able to
purchase through advance payment. Demand for advance payment may well
prevent a sale.
2. Letters of Credit
Because of the current economic situation, an irrevocable and confirmed
(on a U.S. bank) letter of credit (LC) provides a good measure of
security for the exporter. The key to determining the use of LC's is
"knowing your customer." Many Mexican companies are unwilling or unable
to provide them. In the past, banks generally issued letters of credit
based on an ongoing credit relationship. The current economic situation
has reduced the ability of some banks to issue LC's. For companies
which are not customers or which have fully utilized their approved
lines, Mexican banks will demand cash collateral. Companies with
insufficient liquidity are unable to obtain letters of credit. A large
portion of Mexican companies fall under this category.
Exporters should take advantage of LC's to provide financing. This is a
risk-free and relatively inexpensive way to finance a customer's
purchase. By discounting the drafts resulting from a time LC, a company
can finance its customer at the rough equivalent of the prime rate or
less for up to 180 days, and can pass the cost along to customer in the
form of a slightly higher product price.
3. Documentary Collections
Given that an exporter's customer is unable or unwilling to provide an
LC, that the exporter has a trusting relationship with the purchaser,
and that the purchaser has reasonably sound finances, some form of
documentary collection, whether sight or time, can be very useful.
While this certainly entails more risk than an LC, it is also true that,
contrary to popular belief, Mexican companies often possess business
ethics equivalent to those of American companies. Prudent credit review
practices may permit U.S. companies to sell under this payment form
without undertaking undue risk. Use of the Commercial Service's World
Trader Data Report (WTDR) can help assure the U.S. supplier of the
credit worthiness of the Mexican firm.
4. Open Account
Many U.S. companies sell to Mexico via open account. It is not all
unusual, and their experience indicates that, again with prudent credit
review practices, open account sales in Mexico need not be inherently
risky. Dun and Bradstreet is open in Mexico and credit information is
available through the Commercial Service's WTDR. For any sizeable
transaction, exporters should demand financial statements just as they
might in the U.S., and also should visit the customer's facility and
meet with the major officers in order to assess their capacity and
seriousness.
5. Standby Letters of Credit
Many companies export under a standby LC. This method can be extremely
useful for frequent shipments, particularly small ones which fall below
the minimum LC size at which banks begin to charge a percentage instead
of a flat fee. There are savings as well in terms of administration
because no individual LC's are established or documented.
Unfortunately, standby LC's in Mexico are expensive and they suffer from
the same drawback as commercial LC's--the customer may not have a
credit line or may not be able forego the corresponding portion of its
credit line.
6. Receivables Insurance
Several parties offer receivables insurance in Mexico. The best known
are the U.S. Export-Import Bank (EXIM), American International Group
(AIG), and the Foreign Credit Insurance Association (FCIA). EXIM's
insurance carries the full faith and credit of the U.S. government. The
others are private insurance companies.
This insurance can enable a company to give terms of up to 180 days to
purchasers. Knowledgeable international banks will finance insured
receivables. EXIM insurance is the most acceptable, but more banks are
becoming comfortable with the private sector products. The cost of the
insurance and the financing