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									DOING BUSINESS
   IN MEXICO

      EDMUNDO GONZALEZ
      TRADE COMMISSION OF MEXICO
      QUEENS LIBRARY, JANUARY 7, 2006
BANCOMEXT-
TRADE COMMISSION OF MEXICO
   The Mexican Eximbank
   An entity of the Mexican
    government
   Promotes Mexican exports
   Promotes and attracts foreign direct
    investment in Mexico
   25 offices in Mexico, 31 trade
    offices abroad
  TRADE OFFICES:
  ASSISTANCE SERVICES FOR U.S. FIRMS
                      Identify Mexican suppliers
                      Match-making with Mexican firms
  Trade               Subcontracting
                      Buyers’ missions


                      Legal and economic information
                      Identify potential partners
Partnerships          Contacts with government officials
& Investment          Business Tours to Mexico
                      Investment- Industry Seminars
                      Publications: Industrial costs
                       www.investinmexico.com
         CONTENTS
   ECONOMIC AND POLITICAL
    ENVIRONMENT
   BILATERAL TRADE AND INVESTMENT
   MEXICAN MARKET
   SECTORS OF OPPORTUNITY
   DOING BUSINESS IN MEXICO
   LEGAL ASPECTS
   USEFUL WEBSITES
   Q&A SESSION
                        THE MEXICAN ECONOMY
                         IN A GLOBAL CONTEXT
   Twelfth in the world economy
             MEX. GDP: $670 Bn
             U.S. GDP: $11,750 Bn

   First Latin American Exporter
                   Mexico:      $190 Bn
                   Brazil:      $97   Bn
                   Argentina:   $34   Bn
   13th Exporter: $190 Bn                  240                                             2004 2005e
                                                                                            $189b $200b
                                            180
          Total Trade: $386 Bn                          Oil     Non oil
                                            120

                                            60

 2nd   largest recipient of FDI             0


    in Latin America: $17 Bn                      1990    1992    1994     1996   1998   2000   2002   2004



     Note: 2004 data.
     Fundamentals of the Mexican
             Economy
                                                                  Inflation Rate
1. ECONOMIC                             60.0%
                                                                                                          Inflation, CPI


   STABILITY
                                        50.0%

                                        40.0%




                              Percent
                                        30.0%

                                        20.0%

   Low Inflation                       10.0%

                                        0.0%


    Economic growth




                                                Jan-95


                                                                  Jan-96


                                                                                     Jan-97


                                                                                                       Jan-98


                                                                                                                         Jan-99


                                                                                                                                            Jan-00


                                                                                                                                                                Jan-01


                                                                                                                                                                                  Jan-02


                                                                                                                                                                                                    Jan-03


                                                                                                                                                                                                                       Jan-04


                                                                                                                                                                                                                                         Jan-05
                                                         Jul-95


                                                                           Jul-96


                                                                                              Jul-97


                                                                                                                Jul-98


                                                                                                                                  Jul-99


                                                                                                                                                     Jul-00


                                                                                                                                                                         Jul-01


                                                                                                                                                                                           Jul-02


                                                                                                                                                                                                             Jul-03


                                                                                                                                                                                                                                Jul-04

                                                                                                                                           Year

   Investment grade
    status by S&P, Moody’s                                                 Growth Rate                                                                                                               Quarterly

    and Fitch.
                                          Annual

                                          7.5                                                                                 Annual                                                                                       3.0

    Strong domestic
                                                                                                                              Quarterly
                                         5.0                                                                                                                                                                              2.0
    financial market
    Integration to the U.S.
                                          2.5                                                                                                                                                                              1.0

    economy                               0.0                                                                                                                                                                              0.0


                                         -2.5             II 1999
                                                                                                                                                                                                                           -1.0
                                                                                    II 2000

                                                                                                           II 2001

                                                                                                                                  II 2002

                                                                                                                                                              II 2003

                                                                                                                                                                                     II 2004

                                                                                                                                                                                                             II 2005
                       Fundamentals of the Economy:
                         2. Free Trade Agreements
 NAFTA:
                                                              AELC FTA:
 Entry into force:                                            Switzerland, Liechtenstein, Norway &
 Jan. 1, 1994.                                                Island
 Liberalization of                                            Negotiation: November 1, 2000
 automotive sector:
 Jan. 1, 2004.


                                       UE FTA:
                                       Entry into force: July 1, 2000.               FTA Israel:
 FTA Bolivia:                                                                        Entry into force:
                                       Trade liberalization in 2007
 Entry into force: Jan. 1,                                                           July 1, 2000
 1995.
 Trade liberalization in
 2002                                                      NT FTA (North Triangle):
                                                           Guatemala, Honduras & El Salvador
                                                           Entry into force:Jan. 1, 2001.



FTA Chile:                                                           FTA Nicaragua:
Entry into forcer: Jan. 1,1992.                                      Entry into force: July 1,
Trade liberalization in 1998                                         1998.
                                                                     Trade liberalization in 2002
     FTA Colombia & Venezuela (G3):
     Entry into force: Jan. 1, 1995.
     Liberalization for heavy trucks
     and buses will be 2007                                                  FTA Japan
                                           FTA Costa Rica:
                                           Entry into force: Jan 1, 1995.    2005
                                           Trade liberalization in 1999.
Fundamentals of the Mexican
Economy:   3. The Institutions
        Central Bank
        Electoral Institute
        Nafta
        More transparency and
         accountability of the
         government
        Free press
        Political balance
       RECENT ECONOMIC
        DEVELOPMENTS
                     STRENGHTS
   High level of reserves: $60 Bn
   No external debt service pressure
   The U.S. is to grow in 2006:3.5%
   High oil prices
   High level remittances: $20 bn 2005
   Deep financial market
   Inflation historically low: 3%

                        RISKS
   Political uncertainty
   A slowdown of the U.S. economy
BILATERAL TRADE
AND INVESTMENT
    BILATERAL OVERVIEW
             SECOND TRADE PARTNER OF THE U.S.


                                        2004
                                 $267 bn

 2ND LARGEST BUYER OF U.S. PRODUCTS : $111 bn in 2004

FDI: 1994-2005: $90 bn / US COMPANIES IN MEXICO: 16,830

                          2.2
                                                                            Mexico
                          1.6                                               U.S.


   Mexico and             1.0
                      %




   U.S.: Industrial       0.4
   Production
                          -0.2

                          -0.8
                                 J-96
                                         J-97
                                                J-98
                                                       J-99
                                                              J-00
                                                                     J-01
                                                                            J-02
                                                                                   J-03
                                                                                          J-04
                                                                                                 J-05
                      NAFTA
   Most prominent trade agreement
   Signed in 1994
   Between Mexico, Canada and the U.S.
   By 2008, all products are duty free
               NAFTA FACTS
   The U.S.-Mexico border is the busiest in the world
   Two way trade has almost tripled to reach 232 billion
    dollars annually
   Daily transactions average 640 million dollars
   Each year, around 90 million cars and 4.3 million
    trucks cross the border
Mexico-U.S. Bilateral Trade
Exports              $40 billion (1993)
                    $155 billion (2004)




                            $42 billion (1993)
          Imports          $ 110 billion (2004)
                               Source: SE w/ BANXICO
   MEXICO IS THE 2ND LARGEST MARKET
              FOR THE U.S.
                                     U.S. exports
                               Billions of dollars 2004

               Canada                                                            189

                Mexico                                     111

Korea, Singapore, China                           81

       Germany & U.K.                        67

                 Japan                  54

                 Brazil       14

                          0        50              100            150            200




                                                         Source: SE with USDOC
         TRADE BETWEEN
       THE U.S. AND MEXICO
                   EXPORTS TO THE US

• Electrical equipment (TV,
  cables,)
                              200
                                          Oil         Non-oil
• Vehicles and parts (cars,                                            155        177
  trucks, motor)              150                               138
• Oil
• Machinery (computers        100

  and components,
  engines, air cond.)          50
• Medical Instruments
• Clothes                       0
• Food and beverage




                                                                                 e
                                     00




                                                 01




                                                           02




                                                                 03




                                                                       04




                                                                              05
                                    20




                                                20




                                                         20




                                                                20




                                                                      20
• Furniture (seats, lamps)




                                                                             20
• Plastics
• Steel and Iron products
       TRADE BETWEEN
     THE U.S. AND MEXICO
              IMPORTS FROM THE US

   Electrical machinery (integrated circuits,
    transmission eq.)
   Machinery (compression, computers and
    components, parts of engines)
   Vehicles ( Autos, trucks, parts)
   Plastics
   Natural gas
   Iron and steel products
   Organic chemicals
   Medical instruments
   Paper (cardboard, etc)
   Food and beverage
                NAFTA BENEFITS
MORE THAN A FREE TRADE AGREEMENT

           Liberalizes and protects investment
                Promotes fair competition
                  

    Provides protection of intellectual property rights
         Mechanisms for Resolution of Disputes




                          Encourage

                       U.S. direct investments
               U.S. – Mexico industrial integration
                                   U.S. FDI IN MEXICO

                                                                            21.5




                                                                     12.2
                                                                                   11.3

                                                   7.4         7.2                                    7.9
                                       5.5   5.3         5.5                              7.1   7.6
                                 4.9




                             1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005




Source: Secretaría de Economía
       Recent Trends in Manufacturing
                 in Mexico

          TRENDS                                FDI IN MANUFACTURING AND MAQUILADORA


   Strong recovery of FDI                   7,000.0

    in manufacturing in                      6,000.0


    2004
                                             5,000.0




                                  M OF DLS
                                             4,000.0

   26% surge in new                         3,000.0

    investments in the                       2,000.0


    Maquiladora Industry in
                                             1,000.0


    2004
                                                 0.0
                                                       1999   2000   2001   2002   2003   2004

   Shift from labor-
    intensive industries to
    higher value- added
    products                                                  INCENTIVES
   Clusters Development                     Reduction in the income tax
                                              from 40% to 27% in 2007
                                             Immediate deduction of new
                                              investments
                                             Special tax-reduction for
                                              Maquiladoras
  BUSINESS
OPPORTUNITIES
            MEXICO STRONG
        COMPETITIVE ADVANTAGES
    Stable Economic             Proximity to
      Environment                 the U.S.


                                  Competitive and
FTA with 43                      skilled labor force
 Countries


                                       Familiar
   Protection for                      Business
  investment and      Diverse           Culture
     I.P. rights
                      Regions
         MEXICAN MARKET
CHARACTERISTICS                 MAIN DRIVERS
                                 OF DEMAND
   100 million
    inhabitants               Strong remittances
   Diverse                   More consumer credit
   Middle class growing      Mortgages available
   Employment growth         Lower interest rates
   Consumer spending         High price of oil
    is growing
                              Growing pension funds
   Firms are spending         available to financing
   GDP/capita:                projects
       1995: $6900 PPP
       2004: $9600 PPP
OPPORTUNITY SECTORS IN
 THE MEXICAN MARKET
    Maquiladora (assembly) Industry
           Automobile parts and electronic components
    Housing construction
    Public Infrastructure
    Energy
           (Technology and equipment)
    Tourism
           Services
           Transportation Equipment
RECENT ACTIONS TO INCREASE
     COMPETITIVENESS
   More efficient and secure border
     with the U.S.
   Reducing Income Tax
   Partial exemption for assembly
    plants
   Free Trade Zones
DOING BUSINESS
   IN MEXICO
DOING BUSINESS IN MEXICO
      SOME BUSINESS        LEGAL ASPECTS
         PRACTICES          Legal system differs

   Friendly environment    Foreign investment is

   Business based on        allowed, with very few
    relationship             exceptions
                            Common type of
                             business form:
                             corporations
                            Labor law: minimum

                             wages: $2 – 2.4
DOING BUSINESS IN MEXICO
          CUSTOMS                          TAXES
   No duties for NAFTA            VAT: 15%
    made products                  Asset tax: 2%
   No duties under FTA            Payroll tax
    if manufacturing in            Income tax: 29%
    Mexico                         Real Estate tax
                                   Social Security
                                   Housing Fund

               ESPECIAL PROGRAMS
              PITEX        MAQUILA
CUSTOMS       Duty Free    Duty Free
TAXES         No VAT       No Vat
                           Reduced Income tax
         BANCOMEXT
TRADE COMMISSION OF MEXICO IN N.Y.
            Edmundo González
       egonzalez@nybancomext.com

								
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