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.

In yet another version of the old Trojan Horse trick, Mexican drug gangs are trying to bring contraband into the United States by slipping it into U.S.- and Canada- bound export shipments of Mexican businesses, according to a Reuters report.  Businesses targeted by the gangs include maquiladoras and other high volume exporters.

The report said that in May 2008, Mexican army troops searching a subsidiary of Sharp Corp. just south of Tijuana (in Rosarito) found approximately 1.5 tonnes of marijuana concealed in a Canada-bound truck behind boxes carrying television screens.  Carlos Castro, head of Mexico’s national council of maquiladora plants, said in the report there had been at least two other recent cases where gangs sought to penetrate legitimate export shipments with contraband. 

Businesses have responded by increasing expenditures on security cameras, guards, and other security measures.  They should also carefully screen and vet personnel with reputable investigation/due diligence services and only use legitimate outsourcing companies as sources of employees.

The Mexico Foreign Policy Blog wrote a nice piece on July 29, 2008 entitled “How the Collapse of WTO Talks Affects Mexico“, stating that in the wake of the failed World Trade Organization (WTO) talks, Mexico must fall back on “its existing plethora of free trade agreements”.  Mexico, the article noted, has more free trade agreements than any country in the world.  Those agreements are as follows:

• North American Free Trade Agreement (1994)
• G3 Free Trade Agreement (between Colombia, Venezuela, and Mexico) (1995)
• Costa Rica Free Trade Agreement (1995)
• Nicaragua Free Trade Agreement (1998)
• Chile Free Trade Agreement (1999)
• EU Free Trade Agreement (2000)
• Israel Free Trade Agreement (2000)
• TN Free Trade Agreement (between Mexico, Guatemala, El Salvador, and Honduras) (2001)
• AELC Free Trade Agreement (between Mexico, Iceland, Norway, Liechtenstein, and Switzerland) (2001)
• Uruguay Free Trade Agreement (2004)
• Japan Free Trade Agreement (2005), and
• Mercosur Free Trade Agreement (ratification pending). 

A more detailed listing of Mexico’s free trade agreements and copies of their texts are set forth on the Organization of American States’ Foreign Trade Information System website. 

There are several ways in which importers and exporters of goods to and from Mexico can structure their international operations to benefit from Mexico’s free trade agreements, as well its various export incentive programs, such as IMMEX (formerly known as the Maquiladora and PITEX programs) and PROSEC (Programa de Promocion Sectorial).  My colleague Doug Jacobson, an accomplished international trade attorney, and I have advised clients on how to establish such structures in connection with our Mexican counsel.  Doug is also the author of International Trade Law News, a web-based compilation of news and information on export controls, customs, antidumping and other international trade matters. 

WTO negotiations are not expected to resume until 2009.