Mexico Market Update

By Stacey Mills, Export Council of Australia

Snapshot

Population: 114.8 million
Nominal GDP: US $1.16 trillion
Nominal GDP p/c:  US $10,146
GDP Growth:   3.9% (2011); 3.8% (2012)
Inflation:   4% (2012)
Unemployment: 4.85% (Feb 2013)
Exchange rate:   AU $1 = 12.93 Pesos (March 2013)
Major industries: construction, metallic products, food and beverages.


Bilateral Trade Relationship

Australia and Mexico share a strong relationship following years of cooperation and collaboration on various foreign affairs and trade matters. In particular, the two countries have worked together multilaterally on forums including APEC, the G20 and the WTO. In 2004, Australia and Mexico signed a Double Taxation Agreement, which aids trade facilitation by clarifying the taxation rights of the two countries and introducing measures to avoid double taxation and prevent fiscal evasion.

Becoming a member of the Organisation for Economic Co-operation and Development (OECD) in 1994, Mexico is one of only two Latin American countries, the other being Chile, to be admitted.

Australia and Mexico’s two-way trade relationship is valued at AUD $2.9 billion. In 2011/12 Mexico was Australia's largest merchandise trading partner in Latin America, with exports to Mexico valued at $1.03 billion and consisting mostly of coal, aluminium and medicaments. In terms of the export of services, education related travel is Australia’s key export to Mexico, valued at $42 million.

Mexico’s imports into Australia are valued at $1.8 billion and consist predominantly of lead ores and concentrates, telecommunications equipment and parts, fertilisers, and passenger motor vehicles. While the countries major service import into Australia is personal travel, valued at $33 million.

Australian foreign direct investment (FDI) into Mexico sits at $3.13 billion, while Mexico’s FDI into Australia is valued at $42 million.

Trade Agreements
Australia does not have a Free Trade Agreement (FTA) with Mexico however, in 2006, Mexico and Australia formed a Joint Experts Group (JEG) which published a report recommending that that Ministers revitalise the Joint Trade and Investment Commission (JTIC). Ministerial meetings of the JTIC were subsequently held in April 2010 and in February 2012. In October 2012 Mexico officially joined the Trans Pacific Partnership (TPP) negotiations which Australia is involved in.

Mexico is one of the WTO members with the highest number of FTAs. It currently has a network of 12 FTAs that cover 44 different countries. One of Mexico’s most significant FTAs is the North American FTA (NAFTA), which includes the USA, Canada and Mexico.

Economic Overview
Mexico came close to economic collapse during the Mexican Peso crisis in 1994/95. Since then however, the country recovered and has gained a reputation for credible macroeconomic policy management, which has led to prolonged economic growth and stable inflation. This can be largely attributed to the high level of integration with its northern neighbours, the USA and Canada, through the introduction of the NAFTA which was signed in 1994.  Over the past few decades Mexico has moved from being highly protected, to engaging in widespread trade liberalisation and welcoming FDI.

Mexico was hard hit by the GFC in 2009 with the decline in industrial production directly impacting on the manufacturing sector. The economy is continuing to recover thanks to renewed, albeit slow, growth in the USA and the rest of the world, and strong domestic demand.

In terms of future economic growth, Mexico faces some longer-term structural challenges including:

• Political structure adverse to reform, particularly referring to reforms needed in the labour and product markets
• Persistent violent organised crime – a widely reported problem
• Business cycles risk, which is strongly linked to the business cycles in the USA
• Corruption–Mexico ranks 105 out of 176 countries in Transparency International’s Corruption Perception Index
• Rule of law, particularly contract enforcement 
• Currency risk

Doing business in Mexico
Mexico has been known to be a difficult place to do business in the past because of the politicised nature of the business environment, the prevalence of large conglomerates and the lack of a robust legal framework. However, the story is not all doom and gloom; both the public and private sector have adopted a more global outlook driven by competition and export opportunities stemming from its wide FTA network. Moreover, the investment environment has been improved by the introduction of more simplified procedures, higher ceilings on foreign equity and great impetus put on the protection of intellectual property.

When it comes to conducting business in Mexico, it is important to be aware of the differences in culture and business practices.  Mexicans are very amiable but are inclined to be more formal than Australians when it comes to doing business.  It is worthwhile to also take note of the following:

• It is likely that accomplishing tasks and completing businesses deals in Mexico will take more time than you initially envisage. 
• Mexican business and social structures are highly hierarchical. All decisions are made by the CEO, or the very top executives of the company, therefore the decision making process can be delayed if they are otherwise engaged. Even in urgent situations, the CEO often still has to make the final decision.
• Mexican business partners appreciate being able to communicate in their native tongue, Spanish, even if they do speak English. For this reason, if you don’t speak Spanish, or only have limited proficiency, it is advisable to use a translator.
• Networking and personal relations are crucial. It is most likely that personal relationships determine business deals, rather than the quality of products or services. 
• Even if it seems obvious, respect for a person is central to business relations. Unintended insignificant actions can damage business relations.  
• Business commonly takes place over meals, often lunch but also breakfast. If you invite someone for a meeting over a meal it is expected that you will be footing the bill.
• Cancelled meetings are common. Err on the side of caution and re-confirm your meeting several times, including on the day of the meeting.
• It is always suggested to arrive on time for meetings, but note that they seldom begin on time. All procedures take longer than expected. It is not polite to look at your watch or appear impatient.   
• In an introductory meeting, it is common and expected to shake hands with the same and opposite genders. People from the opposite gender that know each other already, generally exchange cheek kisses.    
• Industry in Mexico can often be more political than in Australia and the State Government are very influential in regional industries, especially agribusiness. Therefore, an introduction to key officials is beneficial and this is an area where Austrade will be able to assist you.

Opportunities for Australian Exporters
Currently Mexico is actively pursuing a strategy to reduce its reliance on the USA as a trading partner. Moreover, given Mexico’s advancing economy and the rise of its middle class, demand for certain agricultural products, fast moving consumer goods, processed foods etc., is set to increase thus presenting significant opportunities for Australian exporters.

There are two factors, however, that will constrain Australian exports to Mexico, and hence our ability to take full advantage of the current and future opportunities presented by the market. The first is the high transport costs to export goods to Mexico. The second, and perhaps more significant, is  attributed to the tariff advantage which the United States, Canada and countries in the EU and Latin America have against Australian products given they have FTAs with Mexico. Both of these factors affect the competitiveness of Australian products and services but do not discount the fact that Australian businesses can and have successfully done business in Mexico.

Business Opportunities:

 

AEROSPACE

• Engine, electronic and landing system components, plastic injection, heat exchangers, precision machining, airfoil repairs, audio and in video systems, fuselage insulation and interior parts.
• Engineering design and aeronautical components for military and civil applications.
• Machining parts, vacuum heat treatment and chemical processing.
• There is low availability of aerospace grade materials for structural welding.
• Sheet metal fabricators of super alloys, major sub-assembly companies, structure manufacturers, tooling companies and casting companies.
• Special chemical processes and non-destructive testing.
• Environmental solutions for reducing emissions including noise emissions.
• Maintenance, repair and overhaul services.
• Development of commercial and military projects related to high dual technology.

AUTOMOTIVE

• Demand for raw materials used in the manufacture of spare parts and components.
• Components (engineered parts for diagnostic and assembly equipment): Braking systems, electrical components, transmission and engine components, molded plastic section, stamped steel parts steering assemblies, interior trims and light weight alternative metals.
• Opportunities for tier one & two suppliers: OEM parts and components, hybrid vehicle components, materials, stampings, electronic components, equipment and specialised tooling.
• High tech components and the mainstream application of motor sport technology and high-end manufacturing and design automotive engineering.
• Supplies to the automotive after-market with an increasing emphasis on high technology.

CONSUMER GOODS

• Growing demand for designer furniture and interior design goods
• High-fashion merchandise

CREATIVE INDUSTRIES

• Design Consultancy on products and packaging.
• Consultancy on branding and marketing.
• Mexican companies are demanding interactive and marketing content.
• There is a growing cinematographic industry which is demanding consultancy on development and production financing.
• Publications and books written in English.

EDUCATION AND TRAINING

• Export of educational equipment and services.
• Vocational training models. 
• Programme to strengthen higher education institutions.
• Private sector training possibilities -mainly for on-line courses (principally language training, but also other niche sectors and distance learning at an academic level for MBAs)
• English language training (mainly business English) continues to offer serious opportunities.

FINANCIAL SERVICES

• PPP’s consultants/operators. 
• Consortium managers. 
• Contract management specialists. 
• Arbitration. 

ENVIRONMENT

• Waste management and recycling 
• Water on control 
• Air pollution control 
• Contaminated land remediation 
• Environmental monitoring equipment and consultancy
• Energy efficiency 
• Greenhouse gas capture and storage 
• Carbon trading

FOOD AND DRINK

• Niche products such as delicatessen, gourmet, and organic foods. Including natural and dietary products.
• Food and drink products reflecting health concerns, weight loss and a healthy way of living.
• Food and drink products that address the needs of an ageing population including calcium rich and energy specific products.
• Ready to drink beverages and beer. 
• Specialised food and packaging machinery given the need for many companies to renovate existing machinery to satisfy health and safety standards.
• Dairy products and services including refrigeration, packaging and advertising.
• With a young population (the average age in Mexico is 26) and a spread of convenience stores around the country are the two main driving forces creating the growth in the confectionery Mexican market. 32 per cent of Mexican confectionery consumption is imported.

HEALTHCARE

• PPPs (Private and Public Partnerships). 
• Biomedical products. 
• Investment and supply of pharmaceuticals.
• Medical equipment.
• Healthcare promotion. 
• Training in PPP hospital management. 
• Training in geriatrics. 
• Consultancy and training for nurses. 
• Consultancy in institutional reform. 
• Quality assessment and management.
• Accountability. 
• Telemedicine. 
• Medical informatics. 
• GP training in prescribing team building, management.
• Primary healthcare and paramedics. 
• Patient safety. 

INFRASTRUCTURE

• Consulting engineers. 
• Facilities managers 
• PPP specialists.
• Equipment and machinery suppliers. 
• Roads, ports, airports and railways security consultants.
• Sustainable technologies

MINING AND STEEL

Mining

• Mexico has major opportunities in mineral exploration
• Mexico has eleven giant deposits of silver, three of copper, two of molybdenum, five of zinc, one of lead, one of manganese and one of fluorite. These deposits represent opportunities for exploration, machinery, tools, consultancy and new technology.
• Companies with expertise in feasibility studies have also big opportunities in the mining sector in Mexico.

Steel

• The iron and steel industry in Mexico is experiencing intellectual challenges.
• Companies are open to R&D that can provide the know-how and knowledge in different fields such as new technologies, composites material, new applications, demand and price forecasting, among others.
• In the next five years, the ironworks sector in Mexico will invest about US$10,000 million to grow and diversify their products, replacing imports.
• Home supplies such as stoves and refrigerators continue to grow in demand; therefore materials such as steel and copper are being required much more.

OIL AND GAS

• Off shore and onshore platform design and construction
• Decommissioning of productions facilities 
• Design construction, installation and commissioning of pipelines
• Receiving terminals and production facilities
• Exploration and appraisal drilling
• Production operations
• Environmental control
• Regional geographical studies 
• Reservoir appraisal and exploration techniques
• Training and education
• Deep water technologies
• Develop heavy and extra heavy oil recovery technology.

POWER AND RENEWABLE ENERGY

• Combined cycle plants maintenance and reconfiguration.
• Plants modernisation and maintenance.
• Hydroplants reconfiguration. 
• Metering.
• Interconnection projects. 
• Transmission and distribution infrastructure.
• Cogeneration projects 
• Renewable energies (small and large hydro, solar, wind, geothermal, biofuels, wave and tidal)
• Financing and carbon markets. 

Source: UKTI

Tariffs and Taxes

Tariff is based on the Harmonised System. You can obtain tariff rates (approximate rates) for most products from the APEC Tariff Database.

Most duties are ad valorem, assessed on the FOB or CIF value or at specific rates, whichever is the greater.

The General Import Tax Law of Mexico sets out specific, general and mixed tariff rates. The general rates (ad valorem) are mainly 3 per cent, 8 per cent, 13 per cent, 18 per cent, 23 per cent and 35 per cent, while the specific rates are established according to unit of merchandise. Mixed rates are part ad valorem and part specific rates and are applied to some products from sensitive sectors, such as sugar.

Australian Federal Trade Representation

Austrade Mexico City

Australian Embassy  

Ruben Dario #55, Esquina Campos Eliseos 

Col Polanco DF 11580 Mexico

Tel:+52 55 1101 2267 or +52 55 1101 2200  Fax:+52 55 5728 6459