Monday, 04 Feb 2013
Overseas Business Risk - Mexico
Political and Economic
Foreign Office Travel Advice on Mexico is regularly updated and should be your primary source of information before travelling to Mexico.
Mexico has a Federal republic system of government covering the 31 states and the Federal District of Mexico with powers separated into 3 branches: independent executive (President), legislative (Congress) and judicial (Supreme Court of Justice, federal and local systems). The President is elected for a 6-year term and may not hold office a second time. Congress has two chambers and consists of a Senate and a Chamber of Deputies. The judges making up the Supreme Court are appointed by the President, with the consent of the Senate.
President Calderon was elected in fiercely contested federal elections in 2006. His term ends in 2012, scheduled with elections in July next year. Mexico is now widely considered to be a stable democracy.
Political demonstrations can occur across the country. These can be tense, confrontational and turn violent, and onlookers can be quickly drawn in. You should avoid all demonstrations and monitor local media. Sporadic outbursts of politically motivated violence occur from time to time in certain areas of the country, particularly in the southern states of Veracruz and Guerrero. Incidents can sometimes embroil travellers.
Mexico is an upper-middle income, less indebted country with a population of around 112m. GDP per capita is just over US$15,177 PPP (2012). However this is distributed very unequally, with 46% of the population living in some type of poverty alongside a number of billionaires and a large and growing middle class that has comparable living standards to Western Europe or North America
Businessman reading newspaper
Mexico is the easiest place in Latin America in which to do business (World Bank).
Trade dependent on US and mainly in manufactured goods.
Mexico’s GDP is mainly driven by the service sector (65% of GDP). It is the biggest exporter in Latin American, exporting more than the rest of the region combined, including Brazil. With 12 Free Trade Agreements covering 44 countries, including the US and the EU, Mexico is one of the most open economies in the world. Nevertheless, Mexico’s main trading partner remains the US, where around 80% of Mexican goods and services are exported (2010). Despite only 3% of Mexican products being exported to Canada, Canada is Mexico’s 2nd largest exporting destination, whilst the UK accounts for less than 1%. Mexico’s main exports are manufactured goods – including a large automotive industry – closely followed by oil and oil related products.
Public finances are sound, economic management sensible.
After economic activity fell by 6.2% in 2009, mainly as a result of falling international demand for Mexican goods, growth reached 5.5% in 2010 and 3.9% in 2011. Recent volatility on the Mexican Peso is a consequence of a global risk aversion environment that stems from the Eurozone turmoil. International Reserves are currently around US$155bn and represent an important shield against exchange rate volatility. Unemployment has increased during 2012 (currently around 4.9%), while inflation – managed by the independent central bank – has been falling (currently 3.85% annual).
Economy set to grow healthily over next few years.
Mexico has considerable growth potential, and Goldman Sachs has predicted that it could become the 7th largest economy in the World within the next 40 years. Mexico has many advantages, including a large, educated workforce and stable macroeconomic indicators. A strong supporter of free trade internationally, it has one of the most open markets in Latin America, with a large network of Free Trade Agreements and, not least, the world’s largest consumer on its doorstep.
Business and Human Rights
Human rights are an important political issue in Mexico. Mexico is a member of the International Labour Organisation (ILO) and has ratified the ILO Convention on the Worst Forms of Child Labour. Under the Mexican Constitution the minimum age for employment is 14 and according to the national survey of employment, 3.6 million children between 5 and 17 are currently working. Child labour rates are believed to be particularly high in the informal economy and in agriculture.
Trade union activity in Mexico has traditionally been led by large organisations, which have been known to discourage industrial protest as well as to use coercion and bribery to control their workforce. The leaders of the ten most important unions in Mexico have had their legitimacy questioned and some have faced accusations of corruption. Recently, workers have started to become more assertive and some are trying to either change the practices of large unions or create independent ones. Poor working conditions continue to exist in manufacturing and industrial factories known as maquiladoras where workers’ rights have been constrained for many years. Cases of unpaid salaries, unsafe conditions, violations of Labour Law and freedom of association have been reported in the maquiladoras. However, such issues are not limited to that sector.
There are approximately 65 indigenous groups in Mexico, accounting for 11% of the population. Mexico has ratified the ILO Convention on Indigenous and Tribal Peoples and observance of those commitments is an important issue for Mexican authorities. In 2001, a Constitutional reform prohibited all forms of ethnic or national discrimination and granted autonomy to indigenous groups to govern themselves and their lands. The most high-profile assertion of indigenous rights was the emergence in the mid-1990s of the Zapatista Army of National Liberation (EZLN) in the south of the country, which considers these reforms insufficient, but pursues its goals by peaceful means.
The Mexican Constitution, the Federal Labour Law and the General Law for the Equality between Men and Women all establish a strong legal framework to promote gender equality and prevent gender discrimination. However, while there has been increased women’s participation in the labour market, inequalities persists. Unemployment rates are higher for women and securing employment remains more challenging for women than for men.
In 2003 a federal law was introduced prohibiting discrimination on the basis of sexual orientation in employment. However, a recent survey suggests that nearly half of the population holds some form of homophobic prejudice. For example 11% of Mexicans say they would never hire a LGBT person. Same-sex marriage was legalised in the federal capital district of Mexico City in 2010.
Bribery and Corruption
Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.
In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.
Bribery and corruption are a significant problem in Mexico and one that the government is working hard to counter. Government tendering follows strict guidelines to reduce the risk of corruption in the awarding of contracts. Numerous British businesses report successful business operations in Mexico free of corrupt practices. It is important to develop close business relationships with your potential clients but this should not be confused with corruption. A Mexican business partner or agent will be well placed to advise you on normal business practice. You should familiarise yourself with British bribery legislation which, since 2002, also applies to UK registered companies and UK nationals committing acts of bribery wholly outside the UK.
There is a low threat from terrorism in Mexico. But you should be aware of the global risk of indiscriminate terrorist attacks, which could be in public areas, including those frequented by expatriates and foreign travellers.
Protective Security Advice
The vast majority of British businesses have not been prevented from operating in Mexico by the security risks although many Mexican and foreign businesses choose to hire private security.
Of note is the recent surge of express kidnapping on board taxis. Criminals target young female professionals/executives taking taxis from regular taxi ranks or from off the street in early morning rush hour between 0600 and 0900 hours. The criminals hold the victim captive take their money and raid their account using victim’s bank cards at the ATM/cash point. Attacks are carried out in Cuauhtémoc and Benito Juarez boroughs where there are a high concentration of business offices and banking institutions. Caution is advised when getting into taxis and use only authorise Sitios Taxi and especially from the airports.
Business travellers should also keep a close watch on their briefcases and luggage even at apparently secure locations such as the lobby of their hotel.
Scope of Mexico's IPR Problem
As in many developing countries, the scope of Intellectual Property Rights (IPR) abuses across Mexico’s industrial sectors continues to outpace the government's enforcement efforts. Losses to Mexican and international companies due to trademark counterfeiting, copyright piracy, and patent infringements lie in the hundreds of millions of dollars annually and are growing. Solutions to this problem, which significantly affects the film, music, software, pharmaceutical, and textile industries, are hampered by a lack of capacity and coordination among law enforcement entities, competing crime-fighting priorities, weak application of IPR laws, and insufficient planning and coordination among industry sectors.
Businessman working at a computer
Despite this, the situation is Mexico is better than in many other emerging economies. The protection of IPR is complicated by Mexico's extensive poverty. Black markets provide a significant source of employment in the informal sector, which accounts for up to 30 percent of the total economy. Illegally reproduced goods, sold at a fraction of the cost of their legitimate counterparts, also give poor consumers access to otherwise unattainable items. Some government leaders are reluctant to crack down on piracy out of fear that this could lead to social unrest.
Under NAFTA and the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), Mexico is obliged to implement certain standards for the protection of intellectual property and procedures to address infringements such as piracy and counterfeiting. Despite a fairly comprehensive set of IPR laws and an increasing number of seizures and arrests, the extent of IPR violations in Mexico remains significant. Monetary sanctions and penalties are minimal and generally ineffective in deterring these illegal activities.
In Mexico, the Attorney General's Office (PGR) is responsible for investigating and prosecuting IPR crimes. The Mexican Institute of Industrial Property (IMPI) is the government agency responsible for administrative enforcement of IPR. Unfortunately, Mexican IPR laws are weakly applied and poorly understood. Mexican judges have often rejected cases involving IPR crimes, discouraging prosecutors from building cases. Some feel it is pointless to try cases since industry attorneys routinely cut deals with the infringing party before the judicial process is complete. Industry representatives, in response, say the cumbersome judicial system makes staying in court prohibitively expensive.
Copyright piracy remains a major problem in Mexico. Although enforcement efforts by the Mexican government are improving (see below), piracy levels continue to rise, resulting in closures of legitimate copyright-related businesses, according to industry sources. Counterfeit sound and motion picture recordings are widely available throughout Mexico, where piracy has shifted from traditional formats to optical discs (CD, DVD, CD-ROM) and internet piracy. The International Intellectual Property Alliance (IIPA) estimates that trade losses due to copyright piracy in Mexico totaled $933 million in 2009. That year, music piracy represented 82 percent of the total market. Industry estimates the business software piracy level at 59 percent in 2009.
In July 2003, the Mexican Congress amended the Mexican copyright law. These amendments failed to address the comprehensive reforms needed by Mexico to: (1) effectively implement the obligations of the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty (Mexico is a party to both agreements); and (2) correct existing incompatibilities in the law with Mexico’s obligations under the NAFTA IPR Chapter and the WTO TRIPS Agreement.
Mexican law enforcement agencies have conducted thousands of piracy raids. In 2003, the Attorney General's Office created an IPR enforcement unit, which combines federal prosecutors and police to make the enforcement regime more effective and efficient.
Millions of foreign visitors, including 300,000 British nationals, safely visit Mexico each year and the UK is Mexico’s third largest provider of tourists. This also includes tens of thousands who cross the border with the US every day for study, tourism or business and at least one million foreign residents who live in Mexico. The Mexican government makes a considerable effort to protect foreign visitors. Nevertheless, crime and violence are serious problems. While most victims of violence are Mexican citizens, it poses serious risks for British nationals who may happen to be in the wrong place.
Drug related violence in Mexico is on the increase and is a particular problem in the states of Chihahua, Sinaloa, Sonora, Coahuila, Nayarit, Nuevo Leon, Jalisco Tamaulipas, Durango, Baja California (Norte), Michoacan and Guerrero. There has been a recent increase in the number of crimes, murders, firefights and roadblocks linked to drug turf wars, including areas away from the US border. The security situation is fluid and armed clashes between security forces and drug groups are commonplace in certain areas, and can occur at any time without warning.
Seek advice from local contacts, avoid travel off the beaten track, stay abreast of media coverage of events in the areas, to or through which, you intend to travel, and ensure that trusted contacts are aware of your travel plans. Be aware of your surroundings at all times and of the risks of travelling to certain areas. You should include security measures in all of your travel plans and register on . There is no evidence to show British nationals will be specifically targeted, although there is a risk of being in the wrong place at the wrong time.
Short-term opportunistic kidnapping - called "express kidnapping" - continues in urban areas, particularly in Mexico City. Victims are required to withdraw funds from credit or debit cards at a cash point to obtain their release. Where victims have friends or relatives living locally, a ransom may be demanded from them.
Longer-term kidnapping for financial gain also occurs, and there have been allegations of complicity by police officers. Where practicable, you should try to be discreet about discussing your financial or business affairs in locations where you may be overheard by third parties.