Following seven months of intense debate and surrounded by protesters gathered outside the Congress, Mexico’s Chamber of Deputies (Camara de Diputados) yesterday approved certain changes to Mexico’s energy law regime, according to a report in El Economista. The changes, which were approved by the Senate last week, must be signed by President Felipe Calderon before they will become law, but receipt of his imprimatur is all but certain.

Nearly all analysts agree that the amendments, which could have been a great opportunity for Mexico to enact expansive reform to its energy sector and root out inefficiencies at Pemex, are a major disappointment.

The following is a summary of a few of the significant aspects of the new energy law regime, as set forth in the report:

Laws Under Article 27 of the Constitution

• Blanket prohibition on private sector participation in strategic areas of the hidrocarbons sector, such as refining of oil and gas and construction of pipelines and storage plants.
• Allows Pemex to enter into contracts with private sector participants for projects or services provided Pemex does not grant any rights to such participants relating to ownership of hidrocarbons.
• Prohibits Pemex from entering into contracts with private sector participants that permit or require Pemex to share a percentage of production or the profits of Pemex or which include rights of preference or shared production (i.e., risk-sharing arrangements).
• Prohibits Pemex from agreeing to submit itself to the jurisdiction of foreign courts in project or services contracts performed in Mexico and entered into with foreign contracting parties, but allows Pemex to submit itself to the jurisdiction of arbitral tribunals pursuant to international agreements to which Mexico is a party.

Amendments to the Law of the Energy Regulatory Commission (Comision Reguladora de Energia – CRE)

• Grants the Energy Regulatory Commission (CRE) technical, operative, and management control over regulation of the gas and electricity sectors.
• Allows for the CRE’s participation in the generation and cogeneration of electricity through renewable energy sources, as well as the establishment of financing the same, including electricity generation by wind, solar, geothermal, and water sources.

Law for the Sustainable Exploitation of Energy (Ley para el Aprovechamiento Sustentable de la Energia)

• Provides for sanctions by fine for those who import, distribute, or sell electrial equipment or devices that provide false or incomplete information to consumers.
• Creates the National Program for the Sustainable Exploitation of Energy and the National Commission for Energy Efficiency.

Amendments to the Law of the National Hidrocarbons Commission (Ley de la Comision Nacional de Hidrocarburos)

• Approves the Law of the Energy Regulatory Commission (CRE), which expands and increases the regulatory and oversight activities of the CRE.

Law for the Exploitation of Renewable Energy

• Establishes the System of Energy Sustainability.

Pemex Law

• Prohibits the privatization of Pemex.

George Baker, the author of the Energia.com and a management consultant who advises companies in the oil and gas, power, and chemical industries, has commented extensively on Mexico’s recent energy reforms. 

His insightful comments regarding the Pemex Administration Act of 2008, which include the recent reforms to Mexico’s oil and gas laws, are available here.

President Felipe Calderon has signed into law a bill to ban the capture and export of Mexican wild parrots, according to a report by Defenders of Wildlife.

The report said that Mexico is home to 22 species of parrots and macaws, of which six are found nowhere else in the world, and that 90 pecent of Mexican parrots and macaws are in some manner at risk.

Mexico and China have entered into an agreement that obligates Mexico to repeal the antidumping duties assessed by Mexico on imports of certain Chinese goods by October 15, 2008 and on other Chinese goods by December 11, 2011. 

For goods on which Mexico must eliminate antidumping duties by December 11, 2011, the agreement allows Mexico to enact transitional measures to eliminate the duties over a four-year phase-in period.  The transitional measures apply to goods in the harmonized system numbers that include textiles, apparel, footwear, toys, bicycles, tools, chemical products, valves, and locks, among others.

We have been in contact with reputable Mexican customs attorneys who believe that the enactment of the transitional measures could be challenged by importers of Chinese goods to Mexico as unconstitutional through the filing an amparo proceeding against the Mexican Government.  If an importer were to win such a proceeding, the chief benefit would be that the importer would be required to pay only the general tariff corresponding to the imported goods, and not the antidumping phase-in duties, on all of its imports to Mexico of Chinese goods encompassed within the judgment issued in the proceeding.

A copy of the agreement, which was published in the Official Federal Daily on October 14, 2008, is available here.

Businesses seeking to export products to Mexico may be interested in the U.S. Commercial Services report entitled “Sending Samples to Mexico”, a copy of which is available here.

Baja California is home to more aerospace companies than any other Mexican state, according to a report in today’s El Financiero.

Honeywell, Delphi, Gulfstreat, Eaton, and GKN are among the major aerospace companies with facilities in Baja.  These companies develop and manufacture electronic control systems, fuselage components, radiators, turbines, compressors, and cables, and other aircraft components.

The undersecretary of economic development of Mexico’s Ministry of Economic Development (Secretaria de Desarrollo Economico – SEDECO), who was quoted in the report, said that Baja’s aerospace industry generated 27,000 jobs in 2007.  He added that Honeywell had recently established a Technology Research and Development Center in Baja.

Mexico will invest MX$8 billion (US$785 million) on expansion and improvements of the Port of Veracruz, according to a Bloomberg report today.  The government will commence accepting bids for the project in 2009.  The project includes the building of two container terminals that should open in 2010.  Veracruz is located on the eastern coast of Mexico on the Gulf of Mexico.

Arturo Sarukhan, Mexico’s Ambassador to the United States, will give the keynote speech at a half-day seminar to be held on September 10, 2008 in Washington, DC on “New Legal Developments of Doing Business in Mexico”.  The seminar is hosted by the District of Columbia Bar Association and those interested may register here.

In the photo, Ambassador Sarukhan is accompanied by his lovely wife, Mrs. Veronica Valencia de Sarkhan.

William Armbruster and Bill Mongelluzzo recently wrote an interesting article in the Shipping Digest discussing how many businesses that have outsourced manufacturing operations to China are now transferring (or seriously considering transferring) those operations to the U.S. or Latin America, particularly Mexico.

In deciding whether to leave China, businesses are focusing on “total cost of ownership” of their China operations, which, according to the article, “include the costs of labor, raw materials, transportation, taxes, port congestion, intellectual property protection and import duties.”  The article suggested that the dramatic appreciation of the Chinese yuan in relation to the U.S. dollar over the last 3 years has substantially affected certain elements of the total cost of ownership.

The article continued:

“Higher transportation costs must be factored into the entire supply chain, from the sourcing of raw materials used in the manufacturing process, to the ocean and inland costs of transportation of the finished product as it moves from the factory to retail outlets. On that scale, Latin America, and especially Mexico, rank favorably.

Manufacturers of products that include petroleum, plastic or steel have made Mexico a popular location for new or expanded production because those raw materials can be sourced competitively in Mexico.

Although wages in Mexico are higher than in Asia, they are still much lower than in the United States. In addition, Mexico’s proximity to the U.S. market cuts down on transportation costs, especially for bulky products such as appliances. Central America and the northern rim of South America also enjoy a time advantage in comparison with Asia. The faster delivery time can be important for producers of fashion items and apparel that change with the seasons.”

In reviewing the total cost of ownership, businesses considering transfer of their manufacturing operations to Mexico or other Latin American countries should carefully analyze, among other factors:

• The ways, if any, in which the North American Free Trade Agreement (NAFTA), the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA), and other free trade regimes (including Free Trade Zones and maquiladora and similar programs) may reduce the total cost of ownership. Businesses contemplating a move to Mexico might also consider President Felipe Calderon’s National Infrastructure Program (NIP), a 5-year, US$141 billion initiative to improve Mexico’s infrastructure (including the planned Punta Colonet port facility near Ensenada), which may, in the long-run, help manufacturers reduce the shipping and port congestion costs of the total cost of ownership.
• The cost of security of their personnel and property.  Security-related businesses seem to be booming in in Latin America as kidnapping has become a greater threat in the region and drug traffickers have attempted to penetrate the legitimate export shipments of well-known companies with contraband, as I reported on August 8, 2008.
• Whether their Intellectual property can be adequately protected.  Although the strength of intellectual property laws and their enforcement is subject to considerable variation in Latin America, a 2007 International Chamber of Commerce survey ranked Mexico as the 16th most unfavorable jurisdiction in the world for intellectual property protection (China ranked as the 1st most unfavorable jurisdiction, Brazil ranked as the 4th, and the U.S. ranked as the 27th).

   

The Mexican Senate Tax Commission filed a petition today with the Ministry of the Economy (Secretaria de la Economia - ME) requesting that the ME comply with new laws requiring the implementation of electronic security measures to reduce the importation of contraband and pirated goods to Mexico, according to a report in today’s El Financiero.   

The report said that the petition reminded the ME that Mexico’s Congress approved reforms to the Foreign Trade Law (Ley de Comercio Exterior) so that non-tariff restrictions and regulations could be implemented and enforced through electronic means and that Article 4 of the Law requires federal governmental entities to share electronic data regarding contraband and pirated goods with the ME and the Ministry of Tax and Public Credit (Secretaria de Hacienda and Credito Publico).  Two years have elapsed since the reforms to the Foreign Trade Law became effective, according to the report, and the ME has to date failed to implement the electronic communication tools required to comply with the Law, which are essential to national security, protection of the environment, and health.