NAFTA Works · NAFTA Works June 2014 * Volume 19, ... Titulos Referenciados a Acciones (TRACs),...

Volume 19, Issue 6 [email protected]

Mexico’s Comprehensive Financial Reform: For inclusive development

A MONTHLY NEWSLETTER ON NAFTA AND RELATED ISSUES

NAFTA Works June 2014 * Volume 19, Issue 6

INSIDE THIS ISSUE

1 Mexico’s

Comprehensive Financial Reform: For inclusive development

1 Trade Highlights

2 Mexico’s Livestock:

Rising as a Global Producer

3 NAFTA Related

Events 3 Diario Oficial

4 Success Stories 4 Selected Reading 4 Infrastructure

Projects in Mexico 4 Mexico Economic

Update 5 Profile of Kansas 6 Profile of Coahuila

On January 10, 2014, Mexico’s President Enrique Peña Nieto implemented a significant multi-layered financial reform, amending a number of federal laws with the aim of boosting Mexico’s economic growth by increasing the availability and quality of financing in the country while strengthening the banking system’s institutional framework. Three sets of measures that stand out seek more effective property-rights protection for creditors, more formal regulation and the promotion of competition among financial intermediaries.

Regarding creditor’s property rights, the reform makes substantial progress towards correcting problems observed in the application of the bankruptcy law. In particular, the new set of laws closes loopholes which debtors have used in the past to stretch the debt resolution process in areas such as intercompany liabilities, and director and manager responsibility. Another benefit of the new laws in this particular area is that it makes bridge lending more feasible in cases of liquidity stress.

The reform expedites judicial processes to recover collateral through the possibility for debtors of choosing the court level and select assets to be seized. An important innovation is the founding of specialized commercial-law courts at the federal level to deal with major commercial disputes, certain class actions, and bankruptcy. These measures generate additional incentives for banks to lend more by reducing the risk of banking, and simplifying the procedures for granting and enforcing loan guarantees.

The reform provides rules for authorities to manage the resolution of liquidation of banks in cases of liquidity squeezes and insolvency. The rules cover lending of last resort with equity shares as collateral, bank contingency plans for

adverse scenarios, and ring-fencing actions in the event of majority shareholder problems, for example. An expedited bank judicial liquidation process and a legal framework for transfer of assets and liabilities are established.

The legislation improves solvency and prudential regulation in the financial system in order to complete the implementation of Basel III agreements by setting forth rules for judicial banking liquidation, new measures to face systemic crisis, and by issuing strict norms to ensure better practices. Furthermore, the capital requirements to comply with Basel III guidelines are now mandatory, and the procedures for applying liquidity requirements are established.

Under the new legal framework, the authority of financial regulators such as the National Financial Services Users Protection Commission (CONDUSEF) and National Banking and Securities Commission (CNBV) is strengthened. It creates the Financial Institutions Bureau, supervised by the CONDUSEF, to protect financial services users’ rights and provide them with better decision making information, as well as establishing local Credit Information Bureaus. The law also incorporates self-corrective programs that may be submitted for authorization to the CNBV, and additional rules applicable to auxiliary credit organizations such as money transmitters, foreign exchanges, credit unions, and community financial institutions.

Registration to the CONDUSEF is a new requirement for financial institutions in order to be considered as Multiple Purpose Financial Institutions (SOFOMES), and to have access to tax benefits; CNBV is also authorized to request information from SOFOMES as necessary. The new law also implements better enforcement

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rights and registration for guarantees structured through deposit certificates issued by general deposit warehouses, and other auxiliary financial institutions.

The legislation provides incentives and clearer rules to make capital markets more efficient, including the facilitation of public offerings for mid-sized companies, and more flexible schemes for investment funds (Sociedades de Inversion) and investment promotion companies (Sociedades Anonimas Promotoras de Inversión or SAPIS), as well as for new securities and investment instruments, such as Certificados de Capital de Desarrollo (CKDs), Titulos Referenciados a Acciones (TRACs), Exchange-Traded Funds (EFTs) and Fideicomisos de Infraesctructura y Bienes Raices (FIBRAs).

The set of legal changes provides instruments to improve security and criminal justice in order to anticipate and mitigate illegal financial transactions by individuals or firms allegedly involved in money laundering and financial terrorism. The prosecutor is granted the authority to proceed without the need to seize or convict the company, in full compliance with international standards and all of Mexico’s international commitments.

The reform also strengthens the corporate governance of holding companies by providing a more flexible corporate structure for investment in subsidiaries of the same financial group.

In the field of competition in the sector, a new law facilitates mortgage substitution by debtors, allowing them to choose banks offering more favorable terms. Other measures that work in the same direction include greater ease for the mobility of deposits and consumer loans, meaning that customers can transfer their accounts and loans to other banks with less red tape and shorter delays. Importantly, bundled sales of financial products and services are prohibited.

Through the reform, all limits to foreign investment in financial institutions are removed. It also eliminates the requirement to obtain authorization from the Foreign Investment Commission (CNIE) to allow foreign investment to exceed 49% ownership in credit bureaus, securities rating agencies and insurance agents.

The reform also aims at redefining and strengthening the development-banking system as a way to expand financing and promote development in priority areas and activities such as infrastructure, small and medium-sized companies, and innovation. Some financing operations will be subject to authorization of the CNBV and the Ministry of Finance.

In order to expand financial inclusion, the new law creates an improved institutional framework for fostering the popular financial sector which is comprised of popular financial entities, and savings and loans cooperatives. It also aims to give more flexibility to credit unions in their equity distribution, and increases transactions for financing in which they can participate.

These measures will foster a more competitive, consumer-friendly and healthy banking system that will contribute to the country’s economic growth.

Mexico’s Livestock: Rising as a Global Producer Mexico has become a globally competitive livestock producer, having all the essential elements needed to respond to the increasing worldwide demand for high quality products, and to attract investments along its supply chain. Mexico’s top four categories in this sector are bovine, porcine, ovine and goat which account for 30% of the country´s primary sector of the economy, contributing with 3% to Mexico’s total GDP. The livestock industry is of great importance for the country due to its general economic impact, and because it is an important source of food for its population.

The growth that the sector has experienced over the past years can be attributed in part to the trade liberalization that Mexico has

achieved through its numerous free trade agreements, and especially through NAFTA. Over the past twelve years, the sector has registered an average annual economic growth of 1.8%, supporting nearly 680,000 jobs in more than 8,300 establishments (2011) around the country. According to Mexico’s Ministry of Agriculture, in 2012 Mexico’s livestock inventory was valued at almost $8 billion with a total of 65 million heads, including 32 million bovine and 16 million pigs, 9th and 8th largest herds in the world respectively, in addition to 17 million goats and sheep.

Geographically speaking livestock is a broadly-spread economic activity, covering half of the Mexican territory with significant activity in every state of the country. The bovine category is the most important, accounting for 64% of the 2012 livestock value, and with a tremendous impact in regional development. Mexican states with the highest concentration of cattle are Veracruz, Jalisco, Chiapas, Michoacan and Chihuahua, and for the porcine industry, the main states are Jalisco, Sonora, Veracruz, Puebla and Guanajuato.

The industry and the Mexican government work together on continuing the improvement of the economic framework for boosting the sector’s growth, focusing on productivity, the adoption of new technologies, as well as the conservation of natural resources of livestock-raising areas, which is done through four main strategies: capitalization, sustainability, innovation and technology transfer.

The ultimate goals for the Mexican livestock industry are to increase production, productivity and space efficiency, while respecting the environment by using land and water resources responsibly. These efforts make livestock producers able to supply with high-quality products the growing demand in Mexico driven by the increase of population and its purchasing power, and the increasingly important international markets. The livestock industry is reinventing itself as an important supplier to other industries, from traditional ones such as food processing and footwear to technologically advanced sectors such as automotive and aerospace.

The integration of North America’s agricultural markets as fostered by NAFTA will continue to be an enduring aspect of economic life in the U.S., Canada, and Mexico. The removal of all tariffs and quantitative restrictions has resulted in a high degree of integration between Mexican producers and U.S. market in feeder cattle and beef. The U.S. imports of live cattle from Mexico, for use in U.S. meat production, registered an annual average of 1.5 million heads between 2009 and 2013. Mexico imports duty-free feedstuffs and breeders from the U.S. to improve its herd’s genetics, enabling at the same time Mexican livestock producers to expand output and lower their production costs.

There is no doubt that NAFTA has been crucial for Mexican livestock trade with the United States. Bovine is the largest livestock traded between Mexico and the United States, which has grown by 60% since 2008. Mexico’s imports from the United States reached $50 million in 2013, an increase of 510% with respect to the previous year. Likewise, Mexico exported $508 million to the United States market mainly from Sonora, Chihuahua and Tamaulipas, which was the main exporter state of cattle in the country during 2013.

The key to further trade integration lies primarily in greater coordination of sanitary regulations, more effective control of animal diseases, and resolving measures such as COOL, in order to prevent trade restrictions and strengthen the regional supply chain. The NAFTA partners have been working on a concerted effort to improve sanitary policy coordination, to upgrade international standards in this area, and to achieve an uninterrupted regional livestock and meat trade. All these efforts have led to an irreversible trend for high-quality livestock production that has helped Mexico and the North American region become global producers and exporters to third markets.


NAFTA Related Events

PUBLICITARIA EXPO July 9th – July 11th, 2014 Exposition of products and services related to advertising, marketing and promotion industries Location: Expo Guadalajara. Guadalajara, Jalisco. Phone: 52 (33) 1057-4532 E-mail: [email protected] Website: http://www.feriapublicitaria.com/

FESTIVAL DE REPOSTERIA Y CHOCOLATERIA July 11th – 13th, 2014 Exposition of commodities, raw materials, and supplies for bakery and chocolate products presenting the new trends for the industry. Location: Centro de Convenciones. Puebla, Puebla. Phone: 52 (22) 2238-2231 E-mail: [email protected] Website: http://reposteriaychocolateria.com/

IM INTERMODA July 15th – 18th, 2014 Displaying the latest industry trends and marketing strategies for the fashion industry. Location: Expo Guadalajara. Guadalajara, Jalisco. Phone: 52 (33) 3122-4499 E-mail: [email protected] Website: http://www.intermoda.com.mx/en/

PAACE AUTOMECHANIKA July 16th – 18th 2014 Trade show for the automotive aftermarket industry in Latin America. Location: Centro Banamex. Mexico City. Phone: 52 (55) 5545 4488, USA (770) 984-8016 E-Mail: [email protected] Website: http://paace-automechanika-mexico-us.messefrankfurt.com

EXPO BELLEZA FEST July 20th-21st, 2014 Event that brings together beauty products, technology, equipment, accessories along with industry professionals. Location: World Trade Center. Mexico City. Phone: 52 (55) 4629-7778 E-mail: [email protected] Website: http://www.tradex.mx/bellezafest/

COFITEXPO July 29th – August 1st, 2014 Trade show of Mexican candy and confectionery products. Location: Expo Guadalajara. Guadalajara, Jalisco. Phone: 52 (55) 5564-7040 E-mail: [email protected] [email protected] Website: www.confitexpo.com

EXPO FORO EDIFICARE July 29th – July 31st Trade event covering a wide range of products and services for the green building industry in Mexico. Location: Centro de Convenciones Puebla. Puebla, Puebla. Phone: 52 (55) 5874-5887 E-mial: [email protected] Website: www.expoedificarepuebla.com

Diario Oficial Notices http://dof.gob.mx

Decree enacting the 2014-2018 National Program for the Sugar Cane Agroindustry. May 2nd, 2014. Amendment to the Law on Climate Change. May 7th, 2014. Preliminary resolution to the AD investigations on the imports of steel wire rope from China (Mexican tariff items 7312.10.01, 7312.10.05, 7312.10.07 and 7312.10.99). May 7th, 2014. Amendment to the General Rules for Foreign Trade for 2013 and its annexes. May 8th, 30th, 2014. Decree enacting the 2013-2018 National Program for the Consumers’ Rights Protection. May 8th, 2014. Decree enacting the 2013-2018 Institutional Program for the National Fund for Tourism Development. May 8th, 2014. Decree enacting the Cooperation Agreement between Mexico and China related to protection, preservation, restitution, theft prevention, illegal digging, export and import of cultural goods as signed in Beijing on April 6, 2012. May 9th, 2014. Decree enacting the 2013-2018 Program for the Protection of Innovation. May 9th, 2014. Decree enacting the 2013-2018 Program for Mining Development. May 9th, 2014. Initiation of the validity review on the countervailing duty order imposed on imports of flexible tubular aluminum containers originating from Venezuela, regardless of the shipping country (Mexican tariff item 7612.10.01). May 9th, 2014. Amendment to the use of Article 17 of the Foreign Investment Law on the establishment of foreign entities. May 13th, 2014. New operational rules for the Food Health and Safety Program established by the Ministry of Agriculture. May 19th, 2014. New regulation for the General Law of Ecological Balance and Environmental Protection of Natural Protected Areas. May 21st, 2014. New regulation of the Foreign Trade Law. May 22nd, 2014. New regulation of the Immigration Law. May 22nd, 2014. Amendment to the international procurement procedures LIC-GAS-022-2014 and LIC-GAS-023-2014 for the distribution of Natural Gas in the Northeast part of Mexico and Sinaloa respectively. May 22nd, 2014. Final Resolution of the AD investigation on the imports of any size synthetic raschel blankets, embossed, plain, with or without embroidery, and with or without batting from China. (Mexican tariff items 6301.40.01 and 9404.90.99). May 26th, 2014. Final resolution of the AD investigations on imports of pencils from China. (Mexican tariff item 9609.10.01). May 26th, 2014. New agreement between Mexico and Belgium, Mexico and Malta, and Mexico and the United Arab Emirates to avoid double taxation and prevent tax evasion on income tax matters. May 29th, 2014. Decree enacting the Agreements between Mexico and Kuwait, and Mexico and Bahrain for the Promotion and Reciprocal Protection of Investments. May 30th, 2014. Decree enacting the amendment to the Kyoto Protocol adopted in Doha. May 30th, 2014.

NEWS on the U.S.-Mexico Cross-Border Trucking Pilot Program

On May 23rd, the Federal Motor Carrier Safety Administration (FMCSA) granted provisional operating authority to the Mexican carrier Importaciones y Distribuidores Latina America Gami (IDLA) under the program after having cleared its Pre-Authorization Safety Audit by US federal officials. With one driver and one truck, Tijuana-based IDLA has become the 13th Mexican trucking company allowed to deliver international door-to-door shipping services.


Mars reaffirms its investment in Guanajuato The Virginia-based confectionary company Mars Incorporated, which owns brands like Snickers and Milky Way, will invest within the next two years $160 million in the construction of its second candy-bars manufacturing plant in the state of Guanajuato. With this investment, 250 direct jobs will be generated. The decision was made based on the forecast of the candy-bars market in Mexico which it is estimated a 13% annual growth this year. Therefore, there is a great development potential since consumption per capita per year is steadily increasing. Mars Mexico has five factories in the country.

Magna expands Mexico powertrain operations Canadian auto parts supplier Magna International Inc. is expanding its powertrain operations in Ramos Arizpe, Coahuila, with a $75 million plant to produce all-wheel-drive systems for Audi. The planned 172,000-square-foot operation is scheduled to open in 2016 and will create 230 jobs at full capacity. Magna Powertrain has operated in Ramos Arizpe since 1999 and employs more than 1,400 people at two plants producing AWD and four-wheel-drive systems. The Ramos Arizpe plants produced more than 2 million axles and driveline products in 2013.

BRP to add third plant in Mexico Canadian BRP Inc., the former recreational products division of Bombardier Inc., reinforces its presence in Mexico by investing $51 million in a third manufacturing facility that will be located near its existing facility in Juárez City, Mexico. The investment will expand its Can-Am product offering and meet future demand in the fast-growing off-road market. The 46,000-square-meter manufacturing plant will be completed by 2017 and will employ 900 full-time workers.

Johnson Controls will expand its Ramos Arizpe plant The metallic division of the Wisconsin-based company, Johnson Controls, is expanding its manufacturing plant located in Ramos Arizpe, Coahuila, with an investment of $10 million. Once completed, the expansion is expected to add 100 new direct jobs.

BNSF and Ferromex set intermodal service The Texas-based, Burlington Northern Santa Fe Corp., a leading railway carrier in North America, and Ferromex, Mexico’s largest railroad, launched a new international cargo intermodal service five days a week between Chicago and Silao, a fast-growing manufacturing hub in the state of Guanajuato. The new intermodal service provides customers with a reliable and fast transportation option to move goods across the U.S.-Mexican border, reducing shipping costs and delays.

KCS will increase its investment in Mexico The Missouri-based Kansas City Southern will invest $145 million in equipment and infrastructure in Mexico this year through its wholly-owned subsidiary Kansas City Southern de Mexico (KCSM) as a response to the increasing demand. The company will purchase new locomotives and cars in order to increase cargo by 4%.

Regulatory Policy in Mexico: Towards a Whole-of-Government Perspective to Regulatory Improvement Author: OECD February 2014

Mexico has made several efforts to design and implement a regulatory improvement policy over the past several years. The institutions involved in the better regulation policy have played a key role in enhancing regulatory quality. Over this period, it has continued to expand the scope of Regulatory Impact Analysis, and recently, Mexico has adopted the internationally recognized Standard Cost Model, which has brought a renewed impetus across the federal government to reduce administrative burdens generated by formalities. As a result, Mexico is currently at a stage where positive results are being obtained. However, this is not the time to slow down.

www.oecd-ilibrary.org/governance/regulatory-policy-in-mexico_9789264203389-en

Infrastructure Projects in Mexico

Baja California V Thermal Power Plant Sponsor: Federal Electricity Commission (CFE) Location: Baja California Sur Project Value: $107 million

The project consists of designing, building and supervising the operations of the Baja California Sur V thermal power plant, located in La Paz, the capital of Baja California Sur state. It will have a net generating capacity of 46.8 MW and is expected to be completed in June 2016. The project is the expansion of an existing power plant, whose first four phases are already in operation, that provides electricity to La Paz and nearby tourist areas, meeting the energy needs of some 200,000 residents.

Business Opportunities: engineering, set-up equipment, steam turbine, turbo generators, control and precision equipment, electrical equipment, generators, construction materials, and transmission lines. Obregon City Bypass Sponsor: Ministry of Transportation and Communications (SCT) Location: Sonora Project Value: $54 million

The project calls for the construction and operation of a 34 Km. highway bypass connecting the Federal Highway 15 without crossing the city of Obregon, Sonora. The bypass will make cargo movement along the trans-pacific coastal corridor more efficient and reduce traffic congestion through the city. Construction is expected to start in October 2014 and finish by 2016.

Business Opportunities: engineering, financing, construction materials, heavy machinery, signaling equipment.

Success Stories Selected Reading


Kansas

In 2013, Kansas' exports to Mexico reached $1.53 billion, up $1.25 billion from their level in 1993. Among all U.S. states, Kansas was ranked 24th as an exporter of goods to Mexico in 2013. In 20 years of NAFTA, Kansas' exports to Mexico have increased by 441%, while those to the rest of the world rose 311%. This means that the export growth rate to Mexico is 1.4 times higher than its export growth rate for the rest of the world. Since NAFTA was implemented, Kansas' sales to Mexico have grown at an annual average rate of 8.8%. In 2013, the exports to Mexico increased by 5.3% with respect to the previous year. Mexico is an important trading partner to Kansas. It was ranked as the 3rd largest export market for goods from Kansas in 2013, illustrating the impact of NAFTA for Kansas' growing businesses. Mexico accounted for 12.3% of Kansas' exports worldwide in 2013.

Exports to Mexico 1993 - 2013 (Billions of US Dollars)

Source: US Census with adjustments made by the World Institute for Strategic Economic Research (Wiser), and SE-NAFTA. 1993-1996 by SIC and 1997-2013 by NAICS.

59,341 jobs in Kansas depend on trade with Mexico

Source: Trade Partnership Worldwide LLC/US Chamber of Commerce , 2010

NAFTA Works · NAFTA Works June 2014 * Volume 19, ... Titulos Referenciados a Acciones (TRACs),...

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