As another year comes to a close we can’t help feeling some frustration that the economy just doesn’t seem to want to take off, both around the world and here in Mexico.  Between the Eurozone debt crisis and stubborn unemployment in the United States, among other topics, we’ve got plenty to keep us fretting for the foreseeable future.  But since the holidays are upon us and presumably it’s a time for good cheer, here are some of the talking points we’ll have in our pocket as we hit the punch bowl hard in the coming days:

GDP growth: Banco de México and Banamex are projecting final 2011 GDP growth in the range of 3.8%.  OK we’re not talking China numbers here but compared to 2009’s -6.1 we’ll take it.

Hot industries: While most sectors of the economy are merely shuffling along, certain industries are getting, or remaining, seriously hot.  The big star this past year was automotive manufacturing, which after suffering a rough patch during the recession has roared back, with production and exports well up over 2010 and a number of significant new investments announced.  Aerospace manufacturing also continued its unchecked expansion, with new international investments announced and exports projected to post double-digit growth for the year.  Outside of manufacturing, mining surged this year, led by demand for gold, silver, copper and industrial minerals, and is on track to exceed 2010’s record setting production value for the year.

Renewable energy: In the energy industry, 2011 saw continued high interest in renewables, with major new investments in a variety of alternative energy sources.  New wind power generation plans were announced not only in Oaxaca, site of the largest wind developments, but also in northern states such as Zacatecas and Baja California and far south eastern Quintana Roo.  Interest in solar electricity generation appeared to surge as well, with a range of projects announced for manufacturing sites, corporations, municipal lighting and rural electrification, among others.  The growth in demand for solar panels is helping drive expansion of domestic photovoltaic equipment manufacturing.

Agriculture: The agriculture and livestock sector faced a severe challenge this year with devastating drought conditions in various northern states.  A bright spot, nonetheless, is the growing diversification of exports such as meat.  Mexican beef has found a new market in Russia, to which exports of frozen beef surged this year, and exports of pork to China and Japan are expected to rise in 2012 following recent regulatory moves.  Chinese authorities have certified a number of Mexican pork packing plants to export to the Asian giant in 2012, while Japan recently agreed to increase quotas for imported Mexican pork, as well as beef and chicken, beginning next year.

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Welcome friend

Since the launch of the North American Free Trade Agreement (NAFTA) in 1994, the Mexican government has pursued additional trade liberalization pacts aggressively.  Remarkably, legislators recently managed to advance on three trade fronts before tearing off to have fun for the holidays.

The first step forward was the November 22 signing of a new single free trade agreement between Mexico and Central America, which our Mexico Today colleague Sean Goforth discussed in a recent post to Foreign Policy Blogs.  Economy Minister Bruno Ferrari and his team had a tougher time, however, with their effort to push through an expanded trade liberalization agreement with Peru.  The proposed pact spent much of this year under consideration in the Mexican Congress before being rejected by the Senate Trade and Industrial Development Committee on December 14, to the supreme aggravation of the Calderón administration.  Despite having the support of various industrial sectors, the Peru deal was initially blocked by influential agricultural interests over fears of increased competition from Peruvian avocados, beans, potatoes and other farm products.  Ferrari faced not only the vexation of the jilted Peruvians but a potential blow to Mexico’s free trade bona fides as it flirts with possible inclusion in the developing Trans-Pacific Partnership trade bloc.  In a surprising turnabout, however, the treaty squeaked through in a vote by the full Senate on December 15, and now goes to President Calderón for signing.

The administration fared better with its effort to upgrade Mexico’s Economic Association Agreement with Japan.  Protocols negotiated between the two countries to expand access to each other’s markets were approved by the Japanese legislature on December 9, sending the new framework back to the Mexican Senate for approval.  In contrast to the Peru agreement, the Japan protocols sailed through with nary a peep and were approved by the full Senate December 15.  The modified agreement will increase Japanese import quotas for Mexican beef, pork, chicken, oranges and agave syrup in exchange for accelerated duty reduction in Mexico for Japanese products such as paper and auto parts, among other stipulations.  Enhanced access for auto parts is presumably of particular interest to Japan in light of the roaring performance of Mexico’s automotive manufacturing industry, much of it composed of Japanese OEMs.  The protocols will now go to the President’s office for signature, where they are highly unlikely to meet resistance.

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Fear not for the future, weep not for the past

We’ve posted recently on what we consider to be advances in the regulatory environments for medical devices and plastics here in Mexico.  We crab mightily around the water cooler about all the obstacles that arise when shipping goods internationally, so it’s only fair that we recognize the initiatives of government agencies when we feel that they are on the right track.  So here’s the latest installment: The ongoing process of moving Customs processing onto digital platforms is set to take another step forward next month.  

The project, called Ventanilla Unica de Comercio Exterior (VUCE), or Single Window for Foreign Trade, was launched three years ago as a multi-stage effort to integrate information processing across the many agencies involved in regulating foreign trade.  Mexico’s tax collection agency SAT estimates that some 30 participants are potentially involved in a cross-border trade transaction, such as importers, exporters, freight carriers, Customs agents and regulatory bodies, and approximately 40 different documents are used in the process, between Customs forms, regulatory compliance verification and others.  For more sensitive products such as those related to food or health, special permits may be required from one or more of eight different federal agencies, such as the ministries of Economy, Agriculture, Health, Energy, Environment or Defense.

Throughout the process, SAT estimates that approximately 60 – 70% of documentation required for international trade in Mexico involves submitting some of the same information on multiple forms.  The objective of the VUCE is to create a one-stop internet portal through which importers, exporters and Customs agents can submit documentation digitally for all required forms across all participating agencies.  The system’s integrated data bases are intended to eliminate the need to enter much of the required information repeatedly.  Ideally, the program is optimistically projected to reduce the overall time spent on documentation by up to 90% once in full operation.

So far, the VUCE internet portal has been launched, but the process of incorporating the various agencies and other participants is just getting underway.  On November 22, 2011, electronic documentation for the Mexican Customs Service (AGA) and the Ministry of Economy is scheduled to begin on the site.  Other agencies and importers and exporters themselves will be registered on the site gradually going forward.

Moving the vast, complex bureaucratic morass that is trade documentation from paper to cyberspace is a gargantuan undertaking, so we hold no illusions that the process will be swift or seamless.  Kudos to the SAT and partners, nonetheless, for the very idea of taking on the challenge.

Have a look at the VUCE portal here.

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Está en chino

Mexico’s long-running effort to defend its domestic manufacturing industries against cheap Chinese imports is about to take another hit.  The struggle goes back to China’s admission into the World Trade Organization (WTO) in 2001, which Mexico was highly reluctant to accept.    In return for Mexico’s vote to admit China, the two countries agreed to extend an existing Mexican program of compensatory import duties on key-sector products from the Asian giant.  Focusing largely on textiles, apparel and footwear, the duties ranged from over 100% to over 1,000% depending on the product.  The high tariffs helped stave off the inevitable for a while, but the extension was originally agreed to last only six years.  As the expiration date neared in 2007, the Mexican government heeded the frantic entreaties of the affected sectors, particularly the Guanajuato footwear industry centered around the city of León, and dived back into negotiations with the Chinese.  The result was elimination of the compensatory duties on 749 Harmonized Tariff System (HTS) product classifications, but the extension of the duties on some 200 remaining classifications.  The tariff rates on the remaining products have been reduced annually since 2008, but are still substantial, ranging approximately from 65% to 130%.

The jig, however, may now finally be up: The compensatory duty scheme is scheduled to expire on December 11, 2011, and Mexican Economy Minister Bruno Ferrari has declared that the duties will be lifted.  Guanajuato shoemakers are absolutely plotzing, but it’s important to remember that the end of the compensatory duty scheme does not mean that Chinese products will begin to enter Mexico duty-free.  The two countries have no trade liberalization agreement in place, and as such, upon expiration of the compensatory scheme Chinese products will become subject to Mexico’s General Importation and Exportation Tax program (TIGIE), which establishes the tariffs on products from countries with which Mexico has no special trade agreement.  Here’s a sample of selected product classifications and the difference between the soon-to-expire compensatory duties on Chinese-origin goods and the base duty according to the TIGIE scheme:

Source: Diario Oficial de la Federación, Secretaría de Economía

While the new duty rates will still be somewhat steep for some products (30% for footwear, shorts and pants), in other areas the change could mean a real difference for North American and European consumer goods brands manufacturing in China.  If the difference is enough to make products that were previously priced out of the market due to tariff suddenly price-competitive, we could see a surge in Chinese housewares products, for example, in Mexican stores next year.  As it is, recent growth in imports of Chinese-origin products in Mexico has been dramatic, posting an increase of 158% between 2005 and 2010, according to Mexico’s Economy Ministry.  Mexico has expanded its exports to China by an even more impressive 270% over the same period, but the total value of Chinese exports to Mexico is over 10 times that of Mexico’s shipments to China.  That ratio could become even more extreme if the new duties turn out to make the difference for enough foreign brands of consumer goods currently manufactured in China.

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To Russia with love

Much wringing of hands is done in Mexico over the country’s excessive dependence on the United States as the primary market for its exports.  With good reason: For years now, the United States has accounted for over 80% of Mexico’s goods exports.  In boom times, Mexico makes hay while the sun shines.  But when the U.S. economy tanks, like it did in a big way in 2009, Mexico suffers severely.  The Mexican government has aggressively pursued trade pacts elsewhere around the world in the hope that local exporters would follow through with enthusiasm in exploring new markets.  It seems to us, though, that Mexican exporters overall have shown little thirst for adventure in foreign lands.  But maybe, with the U.S. economy still slow to gain strength after the long recession, new opportunities are beginning to capture the attention of more Mexican companies.

A look at export figures provided by the Economy Ministry (SE) reveals some interesting details.  First, while the United States was the destination for just about 80% of Mexican exports in 2010, this percentage actually has been declining slowly since a high of 88% in 2002.   A closer look suggests that Mexico has been taking advantage of strong demand from the BRIC economies: exports to Brazil grew by an incandescent 325% from 2005 to 2010, while exports to China increased by a merely torrid but nonetheless impressive 270% over the same period.  China has come from a long way off to become Mexico’s third largest export market as of 2010.  Mexico has also taken advantage of partial bans on Brazilian beef by Russia, developing an important new market in the process.  The value of Mexican exports of frozen beef cuts to Russia through May 2011 had surpassed US$41 million, higher than at least the four previous years combined.

Perhaps the most intriguing growth market for Mexico right now is Japan.  Mexico’s exports to Japan did rise following a trade liberalization agreement that entered into effect in 2005, but the pace of growth has been uneven.  Through May 2011, Mexican exports to Japan are on a record pace, led by the automotive industry and food products.  The current strong performance may be receiving an unusual push due to distortions in the Japanese market following the earthquakes and tsunami early this year.  Nonetheless, the increased presence of Mexican meats and fruits in Japan should help pave the way for the introduction of more variety and greater volumes of Mexican products in the future.

Could Mexico be setting its sights on the Middle East next?  An Agriculture Ministry (Sagarpa) representative recently cited growing numbers of Mexican food producers seeking kosher and halal certification.  The results may yet be a ways off, but we like where this is heading.

To read about our participation in the Mexico Today program, go here.

Remote controlled radionuclide applicator system

We’re really pleased about where some Mexican government agencies are heading with their regulatory improvements.  Since time immemorial, industry associations and analysts have intoned about the cost to the economy of excessive regulatory red tape.  This can be particularly vexing for inexperienced exporters to Mexico who may be unfamiliar with some of the more arcane requirements for the importation and sale of their products in the country.  We touched on one such confusing regulatory situation recently here.  In any case, on July 13, 2011 authorities announced welcome modifications to import requirements for certain medical and health care products.

Currently, a wide range of products are classified by the Mexican government as “medical devices,” and as such they are required to be registered with the Federal Commission for Protection against Sanitary Risk (Cofepris) before they may be imported for resale.  This has meant that a gauze sponge was subject to the same detailed requirements as, for example, a remote controlled radionuclide applicator system.  Under the new system, 1,700 products will no longer be classified as “medical devices” and therefore will no longer require the registro sanitario or sanitary registration with Cofepris.

But wait, as they say, there’s more:

Products still classified as medical devices but designated as “low-risk” will now be subject to a simplified sanitary registration.  The low-risk designation will include products such as diagnostic agents, hygiene products, bandages and some dental materials, according to Cofepris.

So we were about to put our remote controlled radionuclide applicator system in a box and ship it to Mexico, when we realized we still had two big questions: 1) When do the new rules go into effect, and 2) what products are in each of the new classifications?  And the answer is, it’s hard to tell.  Cofepris said the definitive list of products that will no longer require sanitary registration will be published on their web site “in August,” so hopefully when the list is posted it will indicate the date on which the regulatory change goes (or went) into effect.  For the moment, several helpful pieces of information are provided here, such as the current requirements and guidelines for obtaining a sanitary registration, classification of products by degree of sanitary risk, and a list of products that do not require sanitary registration.  For an overview of the sanitary registration process in English prepared by the U.S. commercial service, go here.

Cofepris estimates that the revised regs will save consumers approximately 240 million dollars.  We’re not sure how they came up with that number, but if they save consumers 240 million pesos we’ll consider ourselves well served, and especially relieved for the importers and exporters who can benefit from the new rules.  Cofepris also announced it has signed an agreement with the Federal Regulatory Improvement Commission (Cofemer) to collaborate and exchange information in order for Cofemer to evaluate Cofepris’s regulations and procedures with an eye toward recommending further improvements.  We promise we’ll respect federal agencies more if they keep making changes that help those of us in trade get our business done faster and more cheaply.  Well played, sirs!

To read about our participation in the Mexico Today program, go here.

Media are reporting today that the United States and Mexico have signed an agreement to lift a ban on Mexican trucks crossing the border into the United States to complete freight deliveries, a topic about which we have wailed and rent garments here and here.  No one is proposing to throw open the border to the folksy jalopies that crowd Mexico’s secondary highways – those of windshield pom-pom and “Dios protege mi camino” fame. The Mexican trucks will be subject to strict conditions regarding safety compliance and restriction of activities, including electronic monitoring devices and instruction in English and U.S. road rules.  Some Mexican trucking companies, however, have already expressed interest in registering for the program.  Under the agreement, the Mexican government will immediately lift half of its punitive import tariffs on a designated set of U.S. products, and will lift the other half once the first Mexican freight carrier becomes certified under the program.  The news should come as substantial relief to producers of pork products, wine, appliances and other key products affected by the duties, in place since 2009.  In the announcement of the agreement, U.S. Secretary of Agriculture Tom Vilsak estimated that the trucking dispute has cost U.S. businesses over US$2 billion.  Agricultural producers have been particularly hard hit, with apple, pear and grape exports to Mexico slapped with a 20% duty, cheeses at 25% and various nuts and juices in the 15% to 20% range.  This whole dispute was a bunch of baloney from square one and penalized U.S. exporters severely while President Obama was simultaneously calling for a national campaign to boost exports.  Good riddance, we say.

To find out about our participation in the Mexico Today program, go here.

Oh no

The process of implementing a rule change for product labeling that began last year may mean more work and expense for some importers, but so far it’s a little hard to tell exactly where the process stands.

The new rule, which requires additional information on energy consumption for some electric products, is ostensibly aimed at lowering overall energy consumption to reduce greenhouse gas emissions and help consumers lower their electric bills.  But tracking exactly what is required and when has not been easy.

In September 2010, the Secretaría de Energía published a list of electric appliances for household and commercial uses that will be required to declare the product energy consumption in Spanish on a label directly on the product.  Affected products include vacuum cleaners, blenders, coffee makers, juice extractors, air conditioners, refrigerators, microwave ovens, irons and hair dryers, among others.  The full list of products can be found here.

The new requirements were supposed to be phased in over the following year in two steps.  First, as of April 15, 2011, the required energy information would have to be reported to the Mexican Consumer Protection Agency (Profeco) and the National Commission for Efficient Energy Use (Conuee) via a purpose-designed form.  The April 15 date was later extended by 60 days.  The requirement that products actually be labeled for retail sale with the energy information is planned to enter into effect on September 10, 2011.

For reporting of a product’s energy consumption, the manufacturer or importer is required indicate the methodology used to determine the amount of energy used by each product.  Products for which there are specific Mexican official standards or NOMs must follow the guidelines stated in each specific NOM.  Currently, however, few NOMs apply specifically to electric household products.  For products for which no specific NOMs exist, a detailed methodology used to determine the energy consumption of the product (eg. Energy Star standard, IEC standard, or other) must be attached in its original language.  An example of the application of the methodology used must also be provided, as well as written laboratory test results to prove the reported results are required.

The whole thing sounds rather complicated, especially when taking into account the differences in test results for products tested using Mexican electricity and the current of their countries of origin.  There are, however, consultants in Mexico specialized in leading importers and manufacturers through the compliance process.  If you think you may be affected by the new regulations and would like to know more, drop us a line at info@bdp-americas.com.

Good news for business travel to Mexico: As of May 16, Mexico began issuing and accepting ATA Carnets for the temporary importation of merchandise.  For those not familiar with the system, an ATA Carnet works like a passport for merchandise that is not intended to be sold or otherwise left in a country to which a business person travels.  This is particularly advantageous for goods such as product samples, trade show equipment, promotional materials and other professional equipment.  By obtaining an ATA Carnet prior to business travel, qualifying goods may be taken to any participating country for up to one year, free of duties and other taxes, as long as the goods are not sold in the country and depart in the same condition in which they entered.  With Mexico on board, 71 countries now participate in the ATA Carnet network.  For those of us involved in U.S.-Mexico and Europe-Mexico trade, the new development means a significant reduction in documentation and cost for business travel to Mexico with equipment and samples.

And by the way  *cough*   Brazil still doesn’t accept the ATA Carnet.  What’s like totally up with those guys?

For more details on the ATA Carnet, please visit the International Chamber of Commerce or the United States Council for International Business.

As the U.S. economy doggedly continues to send mixed signals, events in the Middle East have the world biting its fingernails and Mexico’s internal problems capture headlines, the Mexican economy inexplicably appears to be doing better than it should.  While weak points are numerous, positive signs still accrue: Official unemployment was set at 4.6% in March, the lowest level since December 2008.  First quarter results brought indications of a revival of the domestic market, as heavy truck sales jumped 43% over 1Q10, auto sales rose 12% for the same period, and retail sales edged up over 1Q10 as well.  The peso continued to pummel the dollar, with gains of 6.8% so far this year, but despite this exports have been strong.  Exports of electric and electronic goods were up 16% through the first two months of the year over the same period in 2010, and interestingly, exports of pork to Japan are running 30% ahead of last year despite – or because of? – the earthquake and tsunami catastrophe.  The IMF provided a rare moment of satisfaction for Mexican authorities this month by upgrading its GDP projection for the country to 4.6% for the current year – just slightly above the projection for Brazil, the heralded BRIC economy and Mexico’s archrival in Latin America.  These details, of course, don’t by themselves add up to a shining panorama of unbridled optimism.  But considering the unprecedented levels of violence brought on by the drug wars, you’d kinda think things would be going worse than they are economically.  Let’s see what we’re saying about this topic a few months from now.