Mexico has imposed trade sanctions in the form of tariffs ranging from 10-20% on approximately 90 categories of agricultural and industrial products that are shipped from the U.S. to Mexico (whether or not the products are of U.S. origin) in retaliation for suspension by the U.S. of the U.S. Department of Transportation’s ”demonstration project“, which allowed Mexican trucks to make deliveries in the U.S. as required by the North American Free Trade Agreement (NAFTA).  The sanctions, which were authorized by a NAFTA panel ruling several years ago, are are expected to affect approximately $2.4 billion in U.S.-Mexico trade. 

The affected products include certain Christmas trees, onions, cabbage lettuce, almonds, dates, grapes, pears, apricots, cherries, strawberries, nut mixes, uncooked pasta, peanuts, fruit juices, vegetable juices, soy sauce, soups and broths, mineral water, wines and other fermented beverages, dog and cat food, oilcake and other solid residues, paints, manicure and pedicure products, make-up and beauty products, oral or dental hygiene products, shaving products, tableware and kitchenware, toilet paper, statuettes and other ornaments, notebooks and diaries, printed books and brochures, tarn, carpets, glassware, jewelry and precious metals, furniture mountings, refrigerators and freezers, coffee and espresso makers, laundry machines and other electrothermic devices, telephones, batteries, sunglasses, metal furniture, arcade games, pens, pencils, and certain other goods. 

The complete list of affected products and the tariff rates imposed was published in Mexico’s Official Daily (Diario Oficial) on March 18, 2009.

U.S. exporters to Mexico who believe their products may be subject to the tariffs should contact their international trade attorneys and/or customs brokers.

The demonstration project was terminated under a rider to the Omnibus Appropriations Act that President Obama signed on March 11, 2009 (Public Law 1118, division I, title I, 123 Stat. 524).  The Federal Motor Carrier Safety Administration issued a notice of termination effective March 11, 2009.

Thanks to my colleagues Mark Andrews and Ken Siegel of Strasburger & Price, LLP and to Doug Jacobson of tradelawnews.com for providing certain background information for this post; Mexicolawblog.com remains solely responsible for its content.

Mexico’s National Banking and Securities Commission (Comision Nacional Bancaria y de Valores – CNBV) has commenced an investigation of Stanford International Bank Ltd.’s unit in Mexico, Stanford Fondos, S.A. de C.V., for possible violation of financial institution laws, according to the CNBV website.  The CNBV is looking into whether Stanford Fondos violated Mexican laws that forbid Mexican banks from encouraging clients to invest in unauthorized certificates of deposit abroad. 

Specifically, the laws prohibit “any person from requesting, offering or promoting the procurement of funds or resources of an undetermined person, or obtaining or soliciting funds or resources in a habitual or professional manner without having authorization from Mexican financial authorities”.  The CNBV has the authority to impose sanctions on violators of such laws.

The CNBV said it has not frozen any accounts at Stanford Fondos or otherwise interfered with the company’s operations and that its clients may request redemption of their funds at Stanford’s Mexico City offices.  A Sentido Comun report indicated that Stanford Fondos clients are being asked to complete a form and told that Stanford Fondos will process redemption requests during the week in which they are received.  Notwithstanding the report, it remains unclear whether Stanford Fondos is honoring such requests or whether the financial condition of SIB or its U.S. affiliates will affect Stanford Fondo’s ability to honor such requests.

Stanford Fondos is licensed to operate in Mexico as a distributor of investment funds, not as a full-fledged bank, according to FT.com.  It has operated in Mexico since 2005 and manages approximately US$50 million for 3,400 clients.  The whereabouts of Stanford’s founder, Sir Allen Stanford, are unknown.

Many Mexican and other Latin American investors invested significant amounts of money with the Mexican, Venezuelan, Panamanian, Peruvian and Ecuadorian affiliates of Antigua-based, Houston-headquarted, SIB hoping to escape financial instability in their home countries and on Stanford’s promise of high returns.  Bloomberg reports that in certain cases investors may have directed money to Stanford to avoid taxes in their home countries, which could affect their willingness to recoup their funds because it could attract attention from tax authorities.

Mexican and other Latin American investors who have invested money with SIB in Houston or its other U.S. affiliates, such as Stanford Capital Management and Stanford Financial Group, should consult their U.S. attorneys to determine the proper course of action and any remedies that may be available.

In January 2009, Venezuela-based financial analyst Alex Dalmady wrote a probing article in VenEconomy Monthly setting forth his arguments that the consistent market-beating investment returns posted by Sir Allen Stanford’s (pictured left with ladies) Antigua-based Stanford International Bank Ltd. (SIB) seemed to good to be true.  Business Week and FT.com Alphaville blog later raised additional questions.

In contrast to the deaf ears of the U.S. Securities and Exchange Commission (SEC) to analyst warnings as early as May 2001 about Madoff’s inflated returns, this time the SEC appears to have listened.

Yesterday, the SEC charged Sir Stanford, who was knighted by the Antiguan authorities rather than the Queen, and certain of his sundry affiliates with investment fraud.  The SEC complaint, a copy of which is available here, includes charges against SIB, Houston-based broker-dealer and investment advisor Stanford Capital Management (SCP), SIB chief financial officer James Davis, and Stanford Financial Group (SFG) chief investment officer Laura Pendergest-Holt. 

The complaint alleges, among other offenses, that the defendants misrepresented to purchasers of Certificates of Deposit (CDs) that their deposits were safe and falsely claimed that SIB re-invested client funds in “liquid” financial instruments.  At the SEC’s request, U.S. District Judge Reed O’Connor of the Northern District of Texas (Dallas) has entered a temporary restraining order, frozen the defendants’ assets, and appointed a receiver to marshal those assets.

That Mr. Dalmady first warned of SIB’s problems now seems prescient because of significant exposure to SIB instruments among Latin American investors, who today packed SIB affiliates in Venezuela, Panama, and Ecuador seeking to close their accounts, according to a Bloomberg report.

Bloomberg also reported that Mexico’s National Banking and Securities Commission (Comision Nacional Bancaria y de Valores – CNBV) said that Stanford’s unit in Mexico, Stanford Fondos, is only authorized to sell funds that operate in Mexico but the CNBV did not indicate whether it was investigating Stanford Fondos.

In a press release summarized in a Sentido Comun report, Stanford Fondos assured clients that their funds were not affected by the charges against SIB and other affiliates and that its clients should have “full confidence”.  That statement may or may not be true. 

Investors in SIB, Stanford Fondos and any other Stanford affiliate should immediately consult their attorneys to decide on a proper course of action.

As the U.S. Congress begins its review of the U.S.-Mexico border trucking demonstration program and the global financial crisis continues to ripple through Mexico, U.S. and Canadian cargo transportation companies and other investors may wish to consider distressed asset investment opportunities in Mexico’s cargo transportation industry.

The following is a rough outline of the laws and rules governing foreign investment in Mexico’s cargo transportation industry, all of which (along with other laws) should be carefully considered in consultation with a licensed Mexican attorney (which I am not) before making any investment:

International Cargo Transportation Services

Mexico’s Foreign Investment Law (Ley de Inversion Extranjera) allows foreign companies to own 100% of the equity of a Mexican company that performs international cargo transportation services in Mexico, where “international cargo transportation services” generally means services involving the transport of cargo between points in Mexico and the United States or Canada but excluding services involving the transport of cargo between points within Mexico.

However, a permit from the Ministry of Communication and Transportation (Secretaria de Comunicacion y Transportes- SCT) is required to perform such international cargo transportation services and the SCT is not currently granting such permits. Indeed, the SCT has rejected all recent requests by Mexican companies with U.S. and other foreign shareholders seeking to engage in the international cargo transportation business. Several of the rejections are being contested in litigation in Mexico.

Although the requesting companies are expected to prevail in the litigation because the SCT’s rejection of their permits appears to be contrary to applicable Mexican law, the litigation could continue well into 2009 or 2010.

Domestic Cargo Transportations Services

Under the Foreign Investment law, a foreign company is not permitted to own any interest in a Mexican company that performs domestic cargo transportation services, where “domestic cargo transportation services” generally means services involving the transport of cargo between two points within Mexico.

The exception to that rule is that a foreign company may make an investment in a Mexican company that performs domestic cargo transportations services (and/or international cargo transportation services) in Mexico, provided that the investment is neutral and the Ministry of the Economy (Secretaria de la Economia) approves of the neutrality of the investment in advance. “Neutral” in this case usually means that the foreign company may own only preferred stock in the Mexican company with voting rights limited to material matters such as a change in corporate purpose, merger, acquisition, sale of assets, spin-off, etc.

The Ministry of the Economy has recently approved such neutral investments by U.S. investors in Mexican transportation companies. The Ministry almost invariably rejects the first application and requests additional information from the applicant regarding the proposed investment. The second submission of the application is often accepted. The Ministry of the Economy has 30 days to respond to each application for approval of neutral investment but generally responds within 15 days.

Demonstration Program

A third option for U.S. and Canadian cargo transportation companies that wish to do business with Mexico but not to make a direct investment in a Mexican company is to make application to the SCT for enrollment in the Mexican equivalent of the U.S.-Mexico border trucking demonstration program (programa demostrativo), which allows a U.S. or Canadian transportation company to enter Mexico with its own trucks, drivers, and trailers to perform international cargo transportation services. (The U.S. demonstration program, as promulgated by the U.S. Congress and the Department of Transportation, has allowed Mexican carriers to make deliveries into the interior of the U.S. since 2007.)

Two key requirements of the Demonstration Program are that the truck drivers of the foreign applicant be bilingual and the foreign company be a registered transportation company with the U.S. Department of Transportation or its Canadian counterpart. The applicant must provide a substantial amount of supplementary information with the application. Applications are typically adjudicated within 3-4 months after submission.

As Mexican billionaire Carlos Slim Helu continues his buying spree of large stakes in distressed U.S. companies, commentators have started to question the possible impact of his expanded influence on U.S. business and politics. 

In the last year, Slim, through his family members and affiliated companies Banco Inbursa and Inmobiliaria Carso, has acquired:

- $250 million of six-year notes of The New York Times (NYSE: NYT) bearing interest at 14% per annum coupled with warrants convertible into common shares (this is in addition to the $128 million of NYT common stock Slim bought in September 2008 and representing 6.4% of NYT common stock; after the exercise of the warrants Slim’s NYT stake would rise to 17%);

- A 18% stake in luxury goods retailer Saks, Inc. (NYSE: SKS), which prompted the company’s board of directors to enact anti-takeover measures (rumors have suggested Slim is interested in the Saks’ real estate holdings); and

- A $150 million stake in Citigroup common stock (NYSE: C), which aroused speculation that Slim would seek to take over Citigroup’s Mexican subsidiary Banamex; Slim promptly denied interest in Banamex.

Andres Martinez, a Mexican native and journalist, suggested that Slim’s investment could pose serious conflict of interest problems for the NYT that could threaten its journalistic integrity. 

At this juncture, Mr. Martinez’s view seems to be a stretch.  Even after Slim exercises his warrants to acquire 17% of NYT common stock, Slim will have no representation on the NYT board, and no special voting rights.  The Ochs-Sulzberger family owns 19% of the company, which it controls through a special class of supervoting shares. 

The view of Armand Peschard-Sverdrup, a senior associate of the Center for Strategic and International Studies, is more on point: ”by having a stake in the New York Times, [Slim is] basically projecting himself as a powerbroker in this country, regardless of how his investment does.”  His investment in NYT, which yields a 14% annual return, appears that it will do very well.

Mexico will postpone construction of its planned Punta Colonet port project on the Pacific Coast, and may scrap the project entirely, for lack of financing, according to a Bloomberg report.

The project was the biggest portion of President Felipe Calderon’s pledge to spend 570 billion pesos (US$41.2 billion) in public and private money on infrastructure projects in Mexico through 2012, the report said.

Mexico Law Blog previously reported on the project, the most detailed of which are available here and here.

The Mexico Institute and the Woodrow Wilson International Center for Scholars at Princeton have launched a new website/blog called The Mexico Portal, which according to the site, “provides the most comprehensive and timely news, analysis and studies on Mexico.  It covers a wide range of critical issues, including migration, security, the economy, development, energy, and elections.”

“We hope that The Mexico Portal helps the U.S. public follow events that occur in Mexico and in the Mexican community in the United States, as well as permit access to new studies, articles and reports that explore the significance of those issues,” said Andrew Selee, director of the Mexico Institute at the Woodrow Wilson International Center for Scholars, in a press release cited in a Sentido Comun report.

The Mexico Portal is a welcome addition to the growing number of Mexican-related news and information sites.

U.S. journalist resident in Mexico Jeremy Schwartz provides a refreshingly clear and insightful view of the reality of traveling in Mexico in a recent post on his Uncovering Mexico Blog. 

He writes: “While there are certainly some failed cities – I would never tell loved ones to go anywhere near Ciudad Juarez or Tijuana or Culiacan – most of the country is still stable and peaceful.  As violent as the drug war has become, its victims are still overwhelmingly connected to the cartels.  Few innocents are caught in the cross-fire.  I wouldn’t necessarily recommend a sightseeing trip to certain border towns or through the remote mountains of the Sierra Madre, but tourists should feel comfortable booking a trip to places like Puerto Vallarta or Oaxaca or Veracruz.

…

Viewing Mexico as an ungovernable chaos is to make a caricature of this vast, complex country.  As I told my friends and family, it can prevent you from enjoying the magic that still courses through Mexico’s veins.”

Amen.

In Mexico, and in most of Latin America, calling a person you meet for the first time by his or her formal title, such as a Doctor (whether MD or PH.D) “Doctor“, or an Engineer “Ingeniero“, or an Accountant “Contador“, etc., has far greater more social importance than in the United States. 

The title is perhaps an indication of social stratification, separating those who have obtained professional training from those who have not, but whatever the reason for its existence, anyone who does business in Mexico should be aware of the importance of the use of personal titles. 

Jeremy Schwartz provides a nice summary of this social practice in his post here at the Uncovering Mexico Blog.

Reuters reports that Starbucks Coffee International (NYSE: SBUX) has elected not to exercise its option to increase its ownership interest in Starbucks Coffee International, a joint venture that was formed in 2002 between Starbucks Coffee International, Inc., a Washington corporation, and SC de Mexico, S.A. de C.V., an affiliate of Alsea, S.A.B. (MX: ALSEA), one of Latin America’s leading fast-food franchise operators and foodservice distribution companies.

The joint venture agreement gives Starbucks the option to increase its participation in SC de Mexico from 18% to 50% until 2012, according the the Reuters report.  SC de Mexico is operated by Alsea.

Alsea has opened more than 200 Starbucks coffee shops since the brand first entered Mexico just over five years ago and now stores are opening throughout the country at one of the fastest rates in the world amid sluggish coffee sales in the United States, the report said.

In September 2008, the Director General of SC de Mexico announced that Starbucks would increase its stake in the joint venture in 2009.  The change of course is perhaps a signal that the deepening global financial crisis has forced the company to reign in spending.