What to Know About Investing in Mexico
Mexico’s location is prime, not only given its proximity to its main trading partner, the United States, but also since it has access to both the Atlantic and Pacific Oceans – an important asset with respect to the transportation of goods. Due to its strategic location and its strong presence in global trade, Mexico has had to make substantial changes and developments at the political, economic and social levels, which have allowed it to achieve one of the leading economic positions in Latin America and have made 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 the USMCA, which was signed by the United States, Canada and Mexico in 1994, also promises to play a significant role in the Mexican economy.
The USMCA incorporates significant changes. For example, regarding labour and environmental laws, it establishes that Mexican trucks which cross the border into the United States must meet higher safety standards and that Mexican workers must have more freedom 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 at the time. This new deal, which came into full effect in 2020, forced Mexico to amend several of its laws, including the Federal Labour Law and the Federal Law for the Protection of Industrial Property (FLPIP); the latter abolished the previous Law of Industrial Property. Both of these new laws are now in force.
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 party 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, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP11), the Patent Cooperation Treaty, the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks and, most recently, the Hague Agreement Concerning the International Registration of Industrial Designs. The protection of any IP right (trade marks, patents, copyright, appellations of origin and geographical indications) is guaranteed by these treaties (among others), in addition to the Mexican IP laws.
The country’s commitment to IP protection was renewed with the abolition of the Law of Industrial Property, which was replaced by the FLPIP when it came into force on 5 November 2020. This new law has implemented substantial changes to our industrial property system, affecting basically all rights and matters it regulates.
In terms of patents, the changes affect: the grace period for indirect previous disclosures; patentable subject matter, expressly prohibiting the protection of inventions where commercial exploitation is contrary to public order or is illegal; the withdrawal of a priority claim; double patenting, expressly prohibiting it; restrictions when filing divisional applications; supplementary certificates, by introducing patent term adjustments; the Bolar exemption and patent linkage; post-grant amendments, allowing those directed to incorporate dependent claims into a granted claim set of patents and utility models as long as those dependent claims do not include matter going beyond the granted scope; and the protection term for utility models, extending it from a 10-year term to a 15-year term.
Regarding trade marks, the changes concern: the date from which a mark will be deemed valid, which is now the date of grant of registration; single examination, which will result in the issuing of an office action for formal and substantive grounds, but also any oppositions; the definition of the term 'bad faith'; clarification of disclaimers; the declaration of notorious and/or famous trade marks; declarations of use; the requirement to record licence agreements; and consents.
As for contentious matters, the changes relate to: the partial cancellation of trade marks; the possibility of claiming for damages before a competent court or directly with IMPI; cancellations on the grounds of a false date of first use declared in the application; the burden of proof, which is now on the registrant; the cancellation of a trade mark against which an opposition has been filed by the same petitioning party, which will be deemed res iudicata when filed on the same grounds; the introduction of a conciliatory proceeding during the course of an infringement action; IMPI's powers, which now extend not only to imposing fines, but also to executing them.
Considering these substantial changes, we would certainly recommend approaching local counsel to obtain full details.
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 to 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); these are 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 to be commercialised/rendered in Mexico. Also, marketing authorisations from the Federal Commission for Protection against Sanitary Risks are required in certain cases. Both innovators and generic pharma manufacturers should be aware that linkage between the Mexican Institute of Industrial Property 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 authorisations in the manner explained above.
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.
Other types of corporations include: the “Sociedad Civil”, or “S.C.”, which is mostly used by professional partnerships such as lawyers, accountants or architects; the “Sociedad por Acciones Simplificada”, or “S.A.S.”, which focuses on promoting the development of SMEs; the “Sociedad Anónima Bursátil”, or “S.A.B.”, which is one of the pillars of the Mexican Stock Exchange; and the “Sociedad de Responsabilidad Limitada”, or “S. de R.L.”, a limited liability company.
When deciding to set up a business in Mexico, foreign investors should consider, among other factors, the location, 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 on 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.