What to Know About Investing in Mexico
Mexico’s location is prime, not only given its proximity to its main trading partner, the U.S., but also since it has access to both the Atlantic and Pacific Oceans – an important asset with respect to the transportation of goods. Thanks to its strategic location and its strong presence in global trade, Mexico has had to make substantial changes and developments at a political, economic, and social level. These have allowed it to achieve one of the leading economic positions in Latin America, making it an excellent option for possible investors.
Opportunities for foreign investors in Mexico are vast. Mexico has entered into more free trade agreements than any other nation in the world. The North American Free Trade Agreement (NAFTA), now USMCA, signed by the United States, Canada, and Mexico in 1994, also promises to play a significant role for the Mexican economy.
USMCA incorporates significant changes. For example, regarding labour and environmental rights, it establishes that Mexican trucks which cross the border into the United States must meet higher safety regulations and that Mexican workers must be able to organise and form unions. Also, concerning IP rights, the new IP chapter contains more rigorous provisions for patents and trade marks, including biotech, financial services and domain names. Among other updates to consider, one of the most important is that the USMCA stipulates that it will be reviewed every six years to try to adapt it to the needs of the time. The new deal will not come into effect right away. In general terms, the new provisions will, in principle, become effective during 2020.
The free trade agreements, along with strong national laws to help companies protect their investments, make Mexico a key global market. Below is an overview of the applicable legal frameworks that companies should consider:
Mexico is part to the most important IP treaties, including the Paris Convention for the Protection of Industrial Property, the Berne Convention for the Protection of Literary and Artistic Works and most recently, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP11). The protection of any IP right (trade marks, patents, copyright) is guaranteed by these treaties (amongst others), in addition to the Mexican IP laws.
The country’s commitment to IP protection was renewed with the amendment to the Industrial Property Law in 2018 and, currently, a bill to pass a new Industrial Property Law is being presented in the Senate, which will be discussed and very likely passed during 2020.
The most recent amendment in 2018 implemented substantial changes to our IP system, mainly in terms of trade marks and associated proceedings, and came into force on August 10, 2018.
With regards to trade marks, our law has been updated in terms of, for example, the inclusion of non-traditional trade marks, such as scent and sound, as well as trade dress, in addition to now including the concept of acquired distinctiveness. Also, the most important change in terms of requiring close attention by trade mark holders in Mexico is that which incorporated the need to file declarations of use as a mandatory action in order to preserve rights.
Regarding trade mark oppositions, now it is possible to submit any piece of evidence the opponent and applicant deem convenient to support their case. The Mexican Patent and Trademark Office is now forced to request both parties to prepare and file their final arguments and render a final well-reasoned decision.
Moreover, in the field of trade mark litigation proceedings, bad faith registrations are now expressly recognised in law, making it possible to oppose or cancel a trade mark on these grounds, provided that a trade mark has been applied for in bad faith when it is evident that the same was applied for contrary to good use, customs and practices in the IP system, in commerce or in industry; or that there is an intention to obtain an unlawful benefit or advantage which is detrimental to its legitimate owner.
In Mexico, products and services must comply with certain regulatory requirements that can be imposed by customs authorities, the Federal Consumer Protection Agency, the Federal Commission for the Protection against Sanitary Risks, or the Federal Telecommunications Institute.
Depending on the product or service that will be produced, manufactured, imported, exported or commercialised, various authorisations might be required. Most regulations applicable to products or services are provided by standards known as “Norma Oficial Mexicana” (NOMS): mandatory and technical regulations which establish guidelines for a product to be manufactured or a service to be rendered. In this regard, it is important to identify the regulations applicable to products and services intended for commercialisation/rendering in Mexico. Also, market authorisations from the Federal Commission for Protection against Sanitary Risk are required in certain cases. Both innovators and generic pharma manufacturers should be aware that linkage between the Mexican Patent Office and the Commission exists. This linkage involves the publication of a special patent list including some specific patented pharmaceuticals (mainly compounds, compositions, and subsequent uses of active ingredients). The Commission reviews this list prior to granting marketing authorisations for pharmaceutical products. Only patent owners or licensed third parties are allowed to commercialise a pharmaceutical product protected by a patent. Moreover, generic manufacturers can initiate tests for applying for marketing authorisation three years prior to the expiration of the relevant patent. No patent extension is currently available in Mexico.
It is essential to consider the most suitable corporate regime when deciding to invest. Among all the types of corporations available in Mexico, the “Sociedad Anónima de Capital Variable” or “S.A. de C.V.”, is the most common.
The most significant advantage of using this type of corporation is that shareholders will only be liable for an amount up to the value of their shares for the obligations and debts of the company.
Another type of corporation available in Mexico is the “Sociedad Civil” or “S.C.”, which is mostly used by professional partnerships, such as lawyers, accountants or architects. This form of corporation has no minimum capital requirements. All its partners are jointly and personally liable for obligations and debts. There is no limit on the number of partners.
Moreover, the “Sociedad Anónima Simplificada” or “S.A.S.”, is focused on promoting the development of SMEs, since the total annual income of this type of corporation can only reach 5 million pesos (approximately USD250,000).
Also, the “Sociedad Anónima Bursátil” or “S.A.B.”, is one of the pillars of the Mexican Stock Market. It is a type of corporation derived from “Sociedades Anónimas”. If a company requires capital financing, then becoming a “Sociedad Anónima Bursátil” will allow it to achieve its objectives through the issuance of shares or debt securities that can be offered in a regulated and supervised exchange market.
Finally, the “Sociedad de Responsabilidad Limitada” or “S. de R.L.”, is a limited liability company, in which – like the “Sociedad Anónima de Capital Variable” – all partners are only liable for an amount up to the value of their shares.
Given global technological innovations, the Mexican government initiated a plan for new energy growth that had been needed for years. The discovery of new deepwater oil deposits, as well as Mexico's vast array of unconventional reserves – including the sixth largest shale gas field in the world – has generated new opportunities to create suitable legal mechanisms to achieve solid economic growth in the short and long term. The main objective of this reform is to make the energy sector one of the most powerful engines of the Mexican economy.
This new reform comes from the need to open Mexico’s oil, gas and power sectors to foreign investors. In other words, investors will have the chance to partner up with PEMEX (the national oil company), re-build the relevant industry, and open new distribution centres that may help to encourage foreign investment.
The reform provides Mexico with a modern legal framework that may allow strengthening of its oil, gas, and power industries, decreasing the current costs of electricity and creating more jobs for nationals, among other important benefits.
When deciding to set up a business in Mexico, foreign investors should consider, among other factors, the location, the language and cultural barriers. It is always advisable to hire both a lawyer and an accountant to help guide investors through the process and to make the best, most cost-effective decisions for the company. Being duly advised in the political, economic, social and legal aspects of the country is essential for solid entry into the Mexican market and to take advantage of the many benefits that the region can offer to new investors.