Setting trade policy?

In March 2012, Brazil insisted on putting artificial curbs on imports of Mexican-made automobiles, contrary to the long-standing pact governing vehicle trade between Mexico and the Mercosur trade bloc comprised of Brazil, Argentina, Paraguay and Uruguay.  We’re in a snit about this, because the move creates problems for Mexico and in general adds to the list of alarming actions coming out of Mercosur countries lately that are undermining the environment for trade and investment.

The Economic Complementation Agreement No. 55, known as ACE 55, was negotiated between Mexico and Mercosur in 2002 as a means of reducing tariffs on vehicles and auto parts to facilitate trade in these goods between the five countries.  It worked; automotive trade surged and the deal seemed to suit Brazil just fine as the South American giant racked up a trade surplus in cars with Mexico year after year. But the tide began to turn about three years ago, as Brazil’s strong currency and the relatively high cost of domestic manufacturing helped make Mexican cars cheaper relative to their locally made equivalents.   When Mexican automotive exports to Brazil jumped 70% in 2011, Brazil plotzed, threatening to abandon the ACE 55 protocol if Mexico didn’t accept forced reductions on its car sales to the country.  Mexico announced in March this year that it had agreed to limit the value of its automobile exports to Brazil to US$1.45 billion in 2012, US$1.56 billion in 2013 and US$1.64 billion the year after.  Considering Mexico’s car sales to Brazil exceeded US$2 billion in 2011, the curbs are substantial.  The revisions to the original agreement also include stipulations aimed at increasing the amount of auto parts Mexico’s vehicle manufacturing industry sources from Latin America.

According to the Mexican government, the export quotas will take effect for three years, after which they will be removed.  Nonetheless there are a number of aspects about this issue that we don’t like, for example:

• It suddenly throws the brakes, as it were, on a very thriving and growing market for a key Mexican export.  Mexican automotive exports to Brazil surpassed US$2 billion last year and are on a pace to blow by that mark this year, except that they will now be halted at the relatively paltry level of US$1.45 billion despite the high demand in Brazil.
• It creates an element of uncertainty in the previously strong growth trend in the overall demand for Mexico’s automotive output which has driven substantial direct foreign investment in the sector in recent years.  Foreign automotive manufacturers such as Honda and Nissan which have announced plans for major expansion in Mexico could potentially reconsider or scale back their investment plans if Mexico’s access to the Brazilian market is restricted.
• Brazil’s fair-weather attitude to its trade agreements casts a pall upon trade agreements in Latin America.  If one of the parties abides by the agreement only when the balance of trade is firmly in their favor, what is the point of negotiating an agreement?  Should Mexico and Peru now feel free to apply the same strategy to the FTA they signed last year?
• The bad-faith maneuver by Brazil effectively pulls the plug on exploration of a possible free trade agreement between Latin America’s two largest economies, at least for the foreseeable future.  During the past two years, the tantalizing possibility of such an agreement has been hotly discussed in Mexican media and preliminary explored between the two governments.  Numerous representatives of Mexican industry have expressed trepidation over the idea, due to lack of confidence in Brazil’s commitment to a level playing field.  Now, it will be harder than ever to dispute these claims.

Brazil’s President Dilma Rousseff is scrambling to boost GDP growth while the country’s currency continues to appreciate internationally.  Emergency measures such as capping imports may appease certain industry sectors, but – much like recent nationalizations of foreign industrial holdings in Argentina and Bolivia – shoring up political problems at home may come at a cost to the country’s reputation among trade and investment partners in the future.  We don’t think it’s good for Brazil in the long run, and it sure doesn’t look good for Mexico in the short run.

• Automotive: German luxury automaker Audi, owned by Volkswagen, will build its first manufacturing plant in Mexico by 2016, the company announced.  The assembly facility, planned to produce sport utility vehicles, will cost an estimated US$2 billion. (Bloomberg, April 19, 2012)
• Automotive: U.S. auto maker Ford will invest US$1.3 billion to expand capacity at the company’s production facility in the northern Mexico city of Hermosillo.  The resources are planned to boost production at the stamping and assembly plant for new Ford Fusion and Lincoln MKZ models for 2013. (Torque News, April 2, 2012)
• Energy: U.S.-based solar technology company SolFocus will lead the development of a major new solar energy generation site in the northern Mexican state of Baja California.  The project, to be built in conjunction with Mexican real estate developer Grupo Musa and U.S. contractor Synergy Technologies, is projected to cost over US$1.5 billion and generate 450 Mw. (San Francisco Chronicle, March 29, 2012)
• Biofuels: The Veracruz Bioenergies Institute (Inverbio) will invest US$2.3 million this year to produce sweet sorghum, sugar cane, jatropha, yucca and palm oil for use in the development of biofuels.  Inverbio is contributing to efforts in Mexico to lower the cost of biofuels for aviation use. (Mexican Business Web, April 9, 2012)
• Aviation: Mexican airline startup AeroJal announced it will launch regional passenger service in the west and northwest of Mexico this year.  The company will invest US$30 million to begin direct flights from Guadalajara to regional centers in the states of Sonora, Chihuahua, Coahuila and Nuevo León. (El Economista, April 16, 2012)
• Food processing: Mexican baked goods multinational Grupo Bimbo announced it will undertake record investment of US$780 million this year.  The company, which has carried out a series of overseas acquisitions in recent years, plans to expand its production capacity and improve logistics infrastructure in its new markets. (Milenio, April 17, 2012)
• Automotive: Mexico’s Grupo Alfa industrial group reported US$130 million in investment during the first quarter of 2012.  The outlays included substantial support for expansion and upgrades to the group’s auto parts manufacturing operations, led by subsidiary Nemak. (El Financiero, April 16, 2012)
• Sports: Mexican sports club operator Grupo Sports World plans to open at least five new locations this year via projected investment of approximately US$10 million.  The company currently operates 20 upscale gyms in Mexico, concentrated principally around the Mexico City metropolitan area. (El Financiero, April 9, 2012)
• Consumer goods: British-Dutch consumer goods multinational Unilever will invest US$500 million in Mexico by the end of 2015, Mexican President Felipe Calderón announced following the recent World Economic Forum for Latin America.  Plans include expansion of existing manufacturing capacity as well as the development of a new manufacturing plant. (Reuters, April 18, 2012)
• Manufacturing: U.S. industrial gas producer Praxair will invest US$100 million to build a new manufacturing plant in the northern state of Coahuila.  The facility is planned to produce oxygen, nitrogen and argon for the steel, metal forming, glass and automotive industries in the region. (Reforma, April 19, 2012)
• Automotive: Japanese-owned automotive accessory manufacturer Viam Manufacturing Inc. announced it will invest US$40 million to build a new production facility in the central state of Aguascalientes.  The plant is planned to produce floor mats for its principal client, Nissan, which earlier this year announced plans to build its third manufacturing plant in Mexico. (Vive Aguascalientes, April 20, 2012)
• Biotechnology: Mexican pharmaceutical manufacturer Laboratorios Silanes announced plans to invest approximately US$11 – 17 million this year in research and development of products for biomedical applications.  The company produces biotechnological medications and vitamins and plans to begin producing advanced diagnostic systems in association with Spanish biotechnology firms Biotools and 2B BlackBio. (Mexican Business Web, April 22, 2012)
• Aviation: Mexican airport operator Grupo Aeroportuario del Centro Norte (OMA) will invest approximately US$44 million this year in infrastructure and security systems for its 13 airports, the company announced.  Resources are earmarked for areas such as concrete and asphalt paving, new access road construction and terminal remodeling. (Mexican Business Web, April 25, 2012)
• Retail: Mexican supermarket and general merchandise retailer Grupo Chedraui is developing a major retailing complex in the Gulf state of Veracruz at a cost of approximately US$130 million.  The development, planned for inauguration in November 2012, will include a Chedraui store, a Liverpool department store, movie theaters and a marina, among other amenities. (Reforma, April 26, 2012)
• Aviation: Canadian aviation simulation and training firm CAE Inc. inaugurated a new flight simulation and training center at the Toluca international airport near Mexico City.  The US$50 million facility includes full flight simulators for Learjet aircraft and the Bell 412 helicopter. (Vertical, April 26, 2012)

AACCLA is made up of 23 American Chambers of Commerce throughout Latin America and the Caribbean devoted to promoting trade and investment between their countries and the United States.  The upcoming conference will include a match-making forum with representatives of the Mexico offices of various U.S. states.

Please visit the web site of the Business Future of the Americas Conference for details on how to attend.

Mexican voter

A few things have changed since our last discussion of the Mexican presidential campaign, so here is an update on where we stand in mid-April.

To recap the basics, elections will be held in Mexico on July 1, 2012 for president and mayor of Mexico City, as well as various governorships and Congressional, state and local posts.  Each of the three principal political parties has registered its candidate for the presidency, as follows:

Partido Revolucionario Institucional (PRI): Enrique Peña Nieto

Partido Acción Nacional (PAN): Josefina Vázquez Mota

Partido de la Revolución Democrática (PRD): Andrés Manuel López Obrador

Right vs. Left is often in the eye of the beholder, particularly in the case of the PRI, which is both a member of the Socialist International and the party that brought Mexico into the North American Free Trade Agreement (NAFTA).  Conventional analysis would probably cast the PAN as the party of the right, the PRI in the center, and the PRD on the left.  For the purposes of the current campaign, we should note that both Peña Nieto and Vázquez Mota have expressed support for considering increased private sector participation in state-run oil and gas monopoly Pemex.  López Obrador remains staunchly against, consistently referring to any proposal to increase private sector participation in the energy sector as “the privatization of Pemex.”  Peña Nieto somewhat surprisingly has expressed support for some aspects of labor reform and a reduction of the national Congress, while AMLO rejects structural reforms favored by the business community.  Crime and the drug wars are perhaps the most pressing issue on the mind of the electorate.  While the candidates are loathe to endorse the current administration’s unpopular militarization policy, Peña Nieto and Vázquez Mota have focused their comments on strengthening law enforcement, while AMLO has emphasized education and poverty reduction as the means to attack the roots of crime.

The PAN has held the presidency since 2000, but is now suffering the effects of nationwide anxiety over the wave of violence brought on by warring drug trafficking cartels and the current administration’s campaign against them.  The PRI – which held the presidency for over 70 years before the PAN took over 12 years ago – is keen to take advantage of the current discontent to return to power.  In this context, Peña Nieto has been the conventional favorite to win since the pre-campaigns began coalescing last year.  With about three months remaining before the election, he holds a formidable lead in the polls.  A Milenio GEA/ISA poll published April 16 had Peña Nieto capturing 52.2% of voter preference, with Vázquez Mota at 28.5% and López Obrador at 18%.

Adding to the political theater, a fourth candidate is also campaigning for the presidential election: Gabriel Quadri, on the Partido Nueva Alianza (Panal) ticket.  Quadri was unexpectedly launched as a last-minute candidate by the Panal when the party’s negotiations to support the PRI via an electoral alliance fell through.  The Panal is widely considered to be the personal political party of Elba Esther Gordillo, the nefarious leader of the national teachers union, SNTE.  Gordillo, a former General Secretary of the PRI, played kingmaker in the previous presidential election by throwing the union’s support behind Felipe Calderón of the PAN.  In advance of the 2012 election, with the PRI leading in early polling, Gordillo sought to move her party’s support back to the PRI, however a number of PRI figures and local organizations balked at the Panal’s steep demands, and the PRI rejected the alliance shortly before the deadline to officially register candidates.  Suddenly facing the prospect of losing its registration (and, more importantly, federal funding) if it fails to garner at least 2% of the vote in the national election, the Panal scrambled for a candidate to run and found a willing volunteer in Quadri.  An environmentalist who has held various environmentally related posts in the public and private sectors, Quadri has been subject to withering criticism for serving as stooge for the Darth Vader-esque Gordillo.  He and the Panal are currently polling a distant fourth in the presidential campaign.

Each of the three leading candidates has been ill served by some of his or her own actions.  Peña Nieto was first to face ridicule when he was stumped when asked by a reporter during a book fair to name three books that had influenced him.   His inability to even come up with the names of three books was the source of nationwide hilarity for days, and he was savaged in social media.  The affair was made worse when his daughter took to Twitter to lash back at his detractors, slagging them in pejorative social class terms.  The candidate’s team implemented fairly effective damage control, however, and has largely avoided major bungles since.

The campaign of the PAN’s Josefina Vázquez Mota has been anything but well managed.  Vázquez Mota, who held the cabinet portfolios of Social Development and Education during the PAN’s two administrations, looked strong as she out-maneuvered two male rivals for the party nomination last Fall.  During the less rigorous pre-campaign period she steadily gained in popularity, playing on her strong female qualities, traditional family values and the intriguing prospect of becoming Mexico’s first woman president.  When the official campaigns launched on March 30, however, Vázquez Mota’s campaign came off the rails from the start.  Plagued by disastrous appearances, misstatements and apparent health problems, she is currently “re-launching” her campaign under new management as her poll numbers falter.  With seemingly tepid support from her own party and fading popular enthusiasm, observers are now beginning to question her mantle as the strongest potential challenger to Peña Nieto.

The beneficiary of Vázquez Mota’s meltdown has been the candidate of a coalition of left wing parties headed by the PRD, Andrés Manuel López Obrador.  Commonly referred to as AMLO, the former Mayor of Mexico City has emerged this year as a fascinating case of personal re-branding.  AMLO ran for president in 2006 and led much of the race until his support was worn down by a business-led scare campaign against him, in addition to his own erratic behavior and paranoid ranting.  The election resulted in an approximate tie and victory was awarded to Felipe Calderón by a PAN-favoring Federal Electoral Institute (IFE).  AMLO subsequently went bananas, launching a protest that paralyzed the center of the capital for months and convoking an imaginary parallel government from among his kookiest followers.  Only missing were the paper crown and juggling bears, and in the minds of many of even his own followers, the charade ultimately suggested that maybe the sinister scare campaign had been right after all.

But AMLO’s had six years to think about what went wrong last time out. The image of the 2006 AMLO as a paranoid conspiracy theorist hearing scary voices in his head has now been replaced by a jovial moderate calling on Mexicans to come together in a “Loving Republic” (for real, it’s one of his slogans).  Most striking has been his determined effort to win over the business sector, his sworn enemy in 2006, when today’s images of AMLO embracing captains of industry would have been unthinkable.  Among the changes to his marketing strategy, perhaps the shrewdest has been to maintain a relatively low profile and keep the spontaneous outbursts to a minimum, which has allowed the media to focus on the missteps of his rivals.

Despite AMLO’s apparently improved strategy, if the polls are to be believed, it appears at this juncture that the odds do not favor either the PAN or the PRD overcoming the PRI’s lead by July 1.  A pair of presidential debates has been scheduled for May and June, however, and it will be interesting to see if the forum can provide a game-changing opportunity for any of the candidates.  With Peña Nieto and Vázquez Mota already showing a talent for regrettable utterances, the debates could be a chance for the garrulous López Obrador to leapfrog out of third place.

• Retail: Mexico’s leading retailer Walmart de Mexico announced it will invest approximately US$1.5 billion in its Mexico and Central American operations this year.  The record investment will be channeled into the opening of over 400 new stores, in addition to technology acquisition and efficiency programs. (El Financiero, February 22, 2012)
• Water treatment: Mexican construction company Grupo Carso announced it will invest approximately US$1 billion in the construction of a major water treatment plant at Atotonilco in the central state of Hidalgo.  The plant is planned to recycle 60% of waste water in the Valley of Mexico, in which Mexico City is located. (El Financiero, March 7, 2012)
• Automotive: Japanese autoparts maker Yorozu plans to invest approximately US$70 million to build a new manufacturing plant in the central state of Guanajuato.  The new facility, the company’s second in Mexico, will produce shock absorbers to meet demand from the country’s surging vehicle production. (Businessweek, February 13, 2012)
• Food processing: Italian confectioner Ferrero will invest US$190 million to build a new production plant in the central state of Guanajuato.  The plant will produce chocolates under the Ferrero Rocher brand in addition to other sweets. (El Economista, February 22, 2012)
• Retail: U.S.-based supermarket and general merchandise retailer H-E-B plans to add five new stores in Mexico in 2012, raising the number its sales locations in the country to 44.  H-E-B Mexico sales surpassed US$1 billion in 2011.  (NAFTA Works, March, 2012)
• Energy: The North American Development Bank (NADB) agreed to provide financing for the construction of a wind farm to produce electricity in the northern state of Tamaulipas.  The generation plant, to be developed by Compañía Eólica de Tamaulipas, S.A. de C.V. (CETSA), will provide energy for purchase by leading grocery and general merchandise retailer Soriana. (NADB, February 13, 2012)
• Aviation: Mexican air carrier Aeromexico announced it will invest US$2.5 billion over the next three years to acquire 27 new aircraft.  Plans include acquisition of seven new Boeing 787-800 Dreamliners. (Excelsior, March 9, 2012)
• Chemicals: U.S. chemicals giant DuPont inaugurated a new Innovation Center in Mexico City this month.  The center will provide research and development services to develop new products in collaboration with local industries. (DuPont, March 9, 2012)
• Chemicals: U.S. chemicals giant DuPont plans investment of US$300 million annually in its Mexico operations over the next three years.  Plans include expansion of capacity at the company’s production plant in the northeastern state of Tamaulipas. (Mexican Business Web, March 21, 2012)
• Logistics: German courier company DHL will open a new distribution hub in the central State of Mexico this year.  The US$35 million facility is planned to be the largest and most modern in Latin America, and will become the company’s fifth such center in Mexico. (Reforma, March 13, 2012)
• Pharmaceuticals: The Mexican subsidiary of U.S. pharmaceuticals giant Pfizer will invest US$15 million this year in research and development in Mexico.  Plans include the development of new molecules, value-added consumer products and medical education, the company announced. (El Financiero, March 13, 2012)
• Manufacturing: Mexican construction finishings manufacturer Lamosa will invest approximately US$40 million in technology upgrades for its manufacturing plants this year, the company announced.  Investment will be focused on Lamosa’s tile and floorcoverings operations. (El Porvenir, March 14, 2012)
• Aerospace: Mexico’s Autonomous University of Nuevo León inaugurated a new Aerospace Engineering Research and Innovation Center this month, built at a cost of approximately US$20 million.  The center is intended to provide specialized research and training for the country’s booming aerospace manufacturing industry. (Reforma, March 16, 2012)
• Food processing: Mexican processed meat and dairy products company Sigma Alimentos will invest US$120 million this year to expand capacity before a projected 5% increase in sales.  The company operates 35 production plants in Mexico in addition to over 100 distribution centers. (Mexican Business Web, March 19, 2012)
• Pharmaceutical: Swiss pharmaceutical maker Novartis will invest US$8 million in Mexico in research and development for clinical trials, the company reported.  Work is planned to support development of drugs to treat tumors as well as respiratory and cardiovascular illness. (Mexican Business news, March 22, 2012)
• Automotive: Japanese automotive engine parts manufacturer Keihin will install a production plant in the northeastern state of San Luís Potosí, the state government announced.  The US$29 million facility is planned to begin producing engine parts by the end of 2012. (La Jornada San Luís, March 21, 2012)

Made in Mexico, one of these days

Effective January 20, 2012, Mexico was admitted to the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies.  It may sound like an arcane treaty of interest only to trade policy eggheads, but it actually stands to have concrete impact on some of Mexico’s most advanced manufacturing industries and their foreign business partners.

The Wassenaar Arrangement is an agreement among 41 manufacturing countries to abide by common guidelines intended to enhance transparency and responsibility in the exportation of arms and “dual-use” goods and technologies, which means those which could be used for both civilian and military applications.  For example, a chemical used in plastics manufacturing that could also be used in chemical weapons would be considered a dual-use good.  Participants in the arrangement must each implement their own internal controls and procedures domestically in compliance with the guidelines of the arrangement.  Mexico applied for admission in June 2011, and was accepted as a member after implementing a system of export permits and reporting applicable to arms and dual use goods which entered into effect in October 2011.

What Mexico wants most out of Wassenaar membership is access to lucrative overseas markets for high technology defense and security manufactures.  The country is already a serious player in the international automotive, aerospace and software industries.  Wassenaar membership will open the gateway for leading manufacturers in countries such as the United States to contract with Mexican firms, or establish Mexican subsidiaries, to produce ever more sophisticated products and components using previously restricted technologies.  Mexico’s highly competitive and fast growing aerospace industry, for example, is already among the world’s leading recipients of direct foreign investment in aerospace.  U.S. and European makers of military aircraft or their electronic systems may now consider manufacturing those products in Mexico, and would need to provide sophisticated technologies and invest in production lines and sensitive equipment to do so.  Mexico’s already advanced automotive, electronics, chemical and software industries stand to gain similar opportunities.  In this way, Mexico’s entry into Wassenaar may represent business opportunities for foreign manufacturers of advanced manufacturing equipment as well, since much cutting edge machinery and equipment that will be needed by Mexican manufacturers is not produced locally.

The Mexican government, which has endured withering criticism over the years for the much maligned maquiladora in-bond manufacturing program, has undertaken a serious drive to boost the level of added value of the country’s advanced manufacturing sectors.  On the heels of its accession to the Wassenaar Arrangement, the Economy Ministry has made known Mexico’s intention to pursue additional memberships in advantageous export control organizations such as the Australia Group (control of chemical or biological weapons) and the Nuclear Suppliers Group (non-proliferation of nuclear weapons), as well as to seek key certifications for advanced manufacturing.  Monterrey-based Metalinspec, for example, has taken the initiative by becoming the first Mexican company to obtain NADCAP certification for materials testing for aerospace manufacturers.

We applaud the federal and state governments’ campaign to raise the skill level and sophistication of advanced manufacturing in Mexico.  As Mexico competes against China, Brazil and other emerging economies for investment and manufacturing contracts, raising our level to that of the highest international standards will play an important role in generating more and better jobs in the country.  And if this means we have to buy expensive high-end process equipment from U.S. and European manufacturers along the way, that’s OK too.

If you’d like more information about how Mexico’s participation in the Wassenaar Arrangement could affect your company’s business, drop us a line at info@bdp-americas.com .

• Food processing: Mexican meat processor SuKarne initiated construction of a new beef processing plant at a total cost of US$110 million.  Plans for the facility include the addition of a 70,000-head feedlot in the future. (Meat & poultry, February 24, 2012)
• Manufacturing: American medical device manufacturer Welch Allyn inaugurated a major expansion of its Tijuana production plant.  The infrastructure upgrade, which required investment of US$7.4 million, will allow the facility to boost production of medical thermometers. (Siglo 21 Periódico Industrial, January 30,  2012)
• Pharmaceutical: Mexican pharmaceutical and cosmetics manufacturer Genomma Lab announced it will invest US$23 – 30 million in research and development of new products this year.  The fast growing company was founded in 1996 and now exports to over 30 countries. (El Financiero, January 27, 2012)
• Hospitality: Mexican hotel operator Hoteles City plans to open 14 new locations in Mexico and one in Costa Rica this year.  The chain intends to seek LEED certification for 10 of its units already in operation. (El Financiero, January 30, 2012)
• Automotive: Ford Motor Co.’s Mexican subsidiary will invest approximately US$1.5 billion in expansion and upgrades at its manufacturing plant in the northern city of Hermosillo in 2012.  Plans include a new diesel motor production facility and an engineering center. (El Financiero, January 30, 2012)
• Chemicals: Mexican chemical manufacturer Cydsa will construct a new production plant in the northeastern state of Nuevo León at a cost of US$70 million.  In addition to the new plant to produce chlorine and caustic soda, the company plans to invest US$20 million to add and upgrade equipment at its Veracruz plant. (Reforma, February 7, 2012)
• Mining: Mining companies in Mexico project combined investment of US$4 billion in 2012, the mining industry association Camimex reported.  The industry posted record high value of production in 2011. (Reforma, February 1, 2012)
• Automotive: German automaker Mercedes Benz announced it will invest US$10 million in its manufacturing plant in Nuevo León this year for the production of three new models of passenger buses.  The company is anticipating growth of 15 – 20% in bus sales for the current year. (Reforma, February 3, 2012)
• Hospitality: Hotel developers plan to invest more than US$1.5 billion over the next three years to open new locations and remodel existing sites in Mexico.  Operators reporting expansion plans include AMResorts, IHG, Grupo Posadas, Iberostar and Quinta Inn.  Locations include Cancun, Puerto Vallarta, Huatulco, Los Cabos, Mexico City and various regional business hubs. (Mexican Business Web, February 8, 2012)
• Automotive: The Mexican subsidiary of Japanese automotive components manufacturer DENSO will build a new production facility in the central state of Guanajuato at a cost of US$57 million.  The plant, the company’s third in Mexico, will manufacture heating, ventilation and air conditioning units. (DENSO Global, January 10, 2012)
• Automotive: German autoparts manufacturer Hella announced plans to open a new production plant in Mexico this year at a cost of US$97 million.  In addition to the new facility that will produce headlamps and rear lighting systems, the company will expand its existing site in Guadalajara to include a design and development center. (Inautonews, February 8, 2012)
• Manufacturing: Italian glass container manufacturer Nuova Ompi will expand capacity at its production plant in Nuevo León via investment of US$6 million. The expansion is expected to be followed by further growth at the facility, which produces glass products such as vials and cartridges for the pharmaceutical industry. (Mexican Business Web, February 13, 2012)
• Telecommunications: Swedish telecommunications giant Ericsson opened a new global network operations center in Mexico City at a cost of US$20 million.  The company currently operates a Global Services Center in Mexico (Ericsson, February 14, 2012)
• Food processing: Mexican baker Marian is building a new production plant in the central state of Hidalgo.  The US$4.7 million facility will help the company boost cookie production for export. (Reforma, February 2, 2012)
• Beverage: Bonafont, a Mexican subsidiary of French processed foods giant Danone, plans to invest approximately US$78 million in its bottled water operations in Mexico this year.  Projects include new bottling plants, distribution centers and brand development, the company reported. (Reforma, February 24, 2012)
• Food processing: Mexican baking giant Grupo Bimbo announced total planned investment of US$780 million for 2012. The bread and snacks maker, which recently bought out existing baking operations in Europe and the United States, will channel resources into manufacturing operations, logistics and administrative systems. (Reforma, February 24, 2012)
• Poultry: U.S. chicken producer Tyson will invest approximately US$117 million to expand and modernize its poultry facilities in Mexico’s northern Laguna region.  Tyson operates in association with Mexican chicken producer Trasgo in the state of Durango. (Reforma, February 20, 2012)
• Pharmaceutical: Mexican pharmaceutical manufacturer Siegfried Rhein will invest US$20 million to expand its production facilities in the central state of Queretaro.  The increased capacity is aimed at doubling the site’s annual output of generic drugs. (Mexican Business Web, February 23, 2012)

Regulatory official

So this morning we were reading through the work plan for the High Level Regulatory Cooperation Council between Mexico and the United States (HLRCC).  We figure you’ve probably already read it too, but just in case you were tied up in a meeting or something, here are a few comments on the Council and its work plan.

As we’ve mentioned before, the Mexican government has been on something of a regulatory-upgrade roll during this administration.  We noted a package of regulatory reforms aimed at facilitating new business startups, the drive to take Customs processing online and a raft of green policy initiatives as some recent examples.  The HLRCC, charged with improving the compatibility, efficiency, transparency and effectiveness of government regulations across the two countries, was announced jointly by Presidents Barack Obama and Felipe Calderón on May 19, 2010.  Both countries held consultations with stakeholders during 2011 to gather input from industry and the public, and the work plan, released February 28, 2012, provides an outline of the objectives and timelines of the Council’s activities for the coming two years.

As always, we greet such regulatory improvement initiatives with a mixture of delight and trepidation; delight because improvement is sorely needed, and trepidation that the proposal may end up creating even more bureaucracy with no tangible benefits.  On the Mexican side, the agencies involved are those with which importers here must grapple regularly in the struggle to properly register and document products for import: the Ministries of the Economy (SE), Health (SS), Environment (Semarnat), Agriculture (Sagarpa) and the at times Darth Vader-like Federal Commission for the Protection against Sanitary Risks (Cofepris) and National Agricultural Health, Hygiene and Quality Service (Senasica).  We have no reason to doubt that our colleagues at these agencies are working hard to protect the public and do their jobs.  But regulatory matters are complex, regulations often unclear or subject to interpretation, and breakdowns in communication can result in an onerous burden on trade, not to mention nasty losses for importers and exporters on both sides of the border.  For these reasons, we fully support the goals of the HLRCC and fervently hope the program yields some concrete results.

Here are some examples of specific areas addressed in the work plan:

• Food safety modernization: Work with Mexican government agencies and private sector representatives to build capacity for Mexico to comply with Food Safety Modernization Act (FSMA) requirements for Mexican food products imported into the United States.
• E-certification for plants and plant products: Develop compatible electronic certificate programs such as phytosanitary e-certificates.  Being able to submit digital certificates acceptable to Senasica would be an important step forward for those of us who have struggled with approvals for plant-based products.
• Transportation: Work with Mexican regulators to harmonize Mexico’s trucking safety standards (NOM-068-SCT-2-2000) with corresponding U.S. standards to simplify and hasten border inspections.  This is timely in the context of last year’s resolution of the cross-border trucking dispute.
• Nanotechnology: Work to develop a harmonized approach to policy regarding applications of nanotechnology and nanomaterials.  Specifics to be addressed include terminology/nomenclature, information-gathering and approaches to risk assessment and management, to achieve consistency across the two countries.
• Offshore oil and gas development standards: Develop a set of harmonized standards related to the exploration and production of oil resources, such as well control and containment standards and requirements for sharing worst-case discharge and spill response plans.  This will be carried out in the context of the recently-signed agreement between Mexico and the United States governing exploitation of transboundary oil and gas reserves in the Gulf of Mexico.

There is more to the work plan than we’ve discussed here, of course, so if you think your business might be affected by the HLRCC, you can read through the work plan itself in English here or in Spanish here.

Or, if you have any questions about how Mexican regulatory environments might affect your products, drop us a line at info@bdp-americas.com .

• Aerospace: American aircraft maker Hawker Beechcraft is joining forces with Mexican executive jet operator Aerolineas Executivas to build a new maintenance facility to serve private aircraft in the northeastern city of Monterrey.  The US$2.2 million project is planned to provide repair and painting services in the country’s second largest private aviation hub. (El Financiero, January 2, 2012)
• Automotive: Japan-based Nissan Motor Co. is preparing plans to build a new automobile factory in Mexico.  The new facility will add production capacity to the company’s two existing plants in Mexico which currently have capacity to produce over 700,000 vehicles a year. (Wall Street Journal, January 6, 2012)
• Automotive: Japanese automaker Nissan announced it will construct a new vehicle assembly plant in the central state of Aguascalientes at an estimated cost of US$2 billion.  The large-scale plan includes a supplier park nearby the new manufacturing facility, which will become Nissan’s third in Mexico. (Autoweek, January 25, 2012)
• Aviation: European aerospace manufacturer Airbus announced an order from Mexican airline Volaris for the purchase of 44 new A320Neo and A320 aircraft. The total value of the deal, planned for delivery 2015 – 2020, was estimated at approximately US$4 billion. (AFP, January 12, 2012)
• Aviation: U.S.-based aerospace manufacturer Hawker Beechcraft announced the sale of six new T-6C+ training aircraft to the Mexican Air Force, with the possibility of additional future orders.  The value of the deal was not specified. (Defense Media Network, January 11, 2012)
• Electricity: German electronics and electrical engineering giant Siemans inaugurated a Low Voltage Research and Development Center near the northeastern city of Monterrey. The company invested approximately US$22 million in the new facility, which will help to develop high efficiency electrical systems for Siemens products. (Reforma, January 13, 2012)
• Retail: Mexican grocery and general merchandise retailer Soriana announced plans to open 50 new sales locations in the country this year.  The company currently operates 558 stores across its five formats. (Reforma, January 16, 2012)
• Logistics: The Mexican affiliate of Philippines-based International Container Terminal Services Inc. (ICTSI) has begun construction on a new container handling terminal at the Pacific port of Manzanillo.  The new facility will require investment of US$250 million.  (Maquila Portal, January 17, 2012)
• Manufacturing: U.S. based safety systems manufacturer IMMI will install a new production plant in the northern city of Coahuila.  The US$49 million facility will produce safety equipment for fire trucks, helicopters, ambulances and other applications. (El Diario de Coahuila, January 13, 2012)
• Aerospace: U.S.-based aerospace manufacturer Ducommun will invest US$6.6 million in machinery and other equipment to upgrade its factory at Guaymas, in the northwestern state of Sonora.  The project includes construction of a new industrial building at the facility, which provides electro-mechanical, sheet metal and composite assembly services. (NAFTA Works, January 2012)
• Logistics: U.S.-based rail carrier Kansas City Southern inaugurated a new rail freight handling terminal in the central State of Mexico.  Built at a cost of US$2.1 million, the terminal is equipped to handle a large volume of liquid cargo. (Info-Transportes, January 20, 2012)
• Aviation: Mexican airlines are projected to acquire 27 new aircraft in 2012, according to financial services firm Actinver.  Airlines expected to add to their fleets include Aeromexico, Interjet, Volaris and VivaAerobus. (Reforma, January 23, 2012)
• Retail: U.S.-based coffee shop chain Starbucks plans to invest US$25 million this year to open 50 additional locations in Mexico, the company reported.  Starbucks projects 24% growth in total Mexico sales this year, based in part on the country’s rising per capita coffee consumption. (El Financiero, January 24, 2012)
• Energy: Spanish bank Banco Santander will provide capital to build four wind farms in northern Mexico, in partnership with German wind energy developer SoWiTec.  The sites, to be built in the states of Nuevo León, San Luís Potosí and Coahuila represent combined capacity of 650 – 850 MW.  The amount of investment was not specified. (Milenio, January 23, 2012)
• Plastics: U.S.-based injection molding firm Century Mold Co. announced plans to build a new production plant in the central state of Queretaro.  The US$15 million facility will supply Tier 1 automotive component manufacturers in the region. (Plastics News, January 17, 2012)
• Retail: Mexican fast food franchise operator Alsea will open an additional 100 locations across its eight brands this year, the company announced.  Brands operated by Alsea in Mexico include Starbucks, Burger King, Chili’s and Domino’s Pizza, among others. (Reforma, January 26, 2012)
• Food processing: The Mexican affiliate of U.S.-based food processing giant Kraft Foods re-inaugurated its research and development center in Mexico City at a cost of US$50 million in technology and skilled staff.  The facility carries out research to improve the quality and development time for new products. (Reforma, January 26, 2012)

Clear path to business startup

Driven by a desire to stimulate employment and the internal market, as well as to scale the World Bank’s “Ease of Doing Business” rankings, the Mexican government approved a package of reforms in December 2011 aimed at facilitating the creation of new businesses.  The modifications, which affect laws such as the Foreign Investment Law, the General Law of Mercantile Societies, the Public Administration Law and others, are intended to reduce the time, cost and aggravation of registering a new company.  Some of the changes entered into effect as of January 1, 2012, and others will become operational as of June of this year.

Taken as a package, the reforms seek to concentrate the required procedures for forming a business within the Economy Ministry (SE), instead of having them distributed throughout various government agencies, each with their own offices, forms, procedures and fees.  The official reform decree also calls upon the SE to coordinate the harmonization of procedures across agencies and incorporate the overall process into a unified digital registration system, via the web portal www.tuempresa.gob.mx.  Examples of the regulatory modifications include:

•    Reduction of obligatory response time for new business approval applications
•    Elimination of fixed amount of initial share capital
•    Elimination of various fees from new business application process
•    Removal of requirement to establish a fixed duration for registered companies

The reforms are more incremental than revolutionary, but very welcome just the same.  Having hacked our way through a dense forest of procedures and fees to register our own companies in years past, we commend the current administration’s efforts to simplify the process for entrepreneurs.  To a similar end, the Federal Regulatory Improvement Commission (Cofemer) will be undertaking throughout the year a comprehensive examination of federal regulations and procedures to evaluate their cost-benefit efficiency.  The program, conducted with support from the Organization for Economic Cooperation and Development (OECD), seeks to implement best practices and harmonize systems at all levels of government with the lofty goal of reducing the overall cost of regulation to the economy by 25%.  Fun dayn moyl in gots oyern, we say!

With mere months remaining in his administration, we imagine President Felipe Calderon would be well chuffed to achieve an uptick in Mexico’s Ease of Doing Business ranking.  Even though we’re still *cough* 73 positions ahead of Brazil, there’s still plenty of room for improvement.

The decree detailing the new-business reforms can be found here.