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Mexico: Market Profile

Picture: Mexico factsheet
Picture: Mexico factsheet

1. Overview

Mexico is the second largest economy in Latin America. Mexico has a free market economy in the trillion United States dollar class that consists of highly diversified and modern industries, with significant amounts of private investment. Recent administrations have expanded competition in seaports, railroads, telecommunications, electricity generation, natural gas distribution and airports, among others. While trade growth remains strong, emerging risks stemming from global trade protectionism and the slower pace of internal reforms may impact investment. Significant tightening of fiscal and monetary policy in recent years have also weighed on domestic demand. Private consumption, however, has withstood the fall in real wages associated with an inflationary spike in 2017. Implementation of energy reforms has been successful in attracting private participation to the sector, and the downward trend in investment and production in the oil sector is expected to be reversed, boosting potential output growth.

Sources: World Bank, Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

March 2016
Mexico declared that it would not pay for a planned wall to be built along the Mexican-the United States border in its first direct response to then-the United States presidential candidate Donald Trump's electoral pledge.

July 2018
On July 1, 2018, general elections were held in Mexico, and Andrés Manuel López Obrador, former Mexico City Mayor, was elected as president to serve a six-year term (2018 to 2024), taking office on December 1, 2018. Voters also elected 128 members of the Senate for a six-year term, and 500 Deputies for a three-year term.

October 2018
Australia became the sixth country to ratify the Japan-led Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Six countries were needed to trigger the agreement's 60-day countdown to activation: December 30, 2018.

Sources: BBC country profile – Timeline, Fitch Solutions Political Risk Analysis

3. Major Economic Indicators

Graph: Mexico real GDP and inflation
Graph: Mexico real GDP and inflation
Graph: Mexico GDP by sector (2017)
Graph: Mexico GDP by sector (2017)
Graph: Mexico unemployment rate
Graph: Mexico unemployment rate
Graph: Mexico current account balance
Graph: Mexico current account balance

e = estimate, f = forecast
Sources: International Monetary Fund, World Bank, Fitch Solutions
Date last reviewed: November 11, 2018

4. External Trade

4.1 Merchandise Trade

Graph: Mexico merchandise trade
Graph: Mexico merchandise trade

Source: WTO
Date last reviewed: November 11, 2018

Graph: Mexico major export commodities (2017)
Graph: Mexico major export commodities (2017)
Graph: Mexico major export markets (2017)
Graph: Mexico major export markets (2017)
Graph: Mexico major import commodities (2017)
Graph: Mexico major import commodities (2017)
Graph: Mexico major import markets (2017)
Graph: Mexico major import markets (2017)

Sources: Trade Map, Fitch Solutions
Date last reviewed: November 11, 2018

4.2 Trade in Services

Graph: Chile major import commodities (2017)
Graph: Chile major import commodities (2017)

Source: WTO
Date last reviewed: November 11, 2018

5. Trade Policies

  • The Mexican government has taken decisive steps in recent years to further liberalise import regulations in place on a wide array of products. These efforts have greatly enhanced the prospects for exporters in the Mexican market, who currently face a considerably lower import barrier than was in place a few years ago.

  • Mexico has been a World Trade Organization (WTO) member since January 1, 1995, and a member of the General Agreement on Tariffs and Trade (GATT) since August 24, 1986. The Harmonised System is used for goods classification and customs clearance in Mexico. As a WTO member, Mexico affords at least most favoured nation (MFN) tariff treatment to all its trading partners. Tariffs are levied on most products entering Mexico, applying ad valorem to the CIF values of imports. Since 2008, Mexico has embarked on a years-long unilateral effort to reduce its MFN duties rates on approximately 97% of manufactured imports. A significant round of cuts took place on January 1, 2013, covering certain apparel, textile made-ups and footwear, reducing the MFN duty rate for apparel and textile made-ups imported into Mexico to 20%. Tariffs aside, most imports are subject to a 16% value-added tax (VAT), while a 0.8% ad valorem customs processing fee is levied on imports.

  • At present, general import duty rates range from 0% to 35%, but most imports fall within the range of 3% to 20% (as exceptions, certain food products, shoes and textiles pay higher duties).

  • Trade with the United States and Canada has nearly tripled since the implementation of the North American Free Trade Agreement (NAFTA) in 1994. Mexico has free trade agreements (FTAs) with more than 50 countries, including the European Union (EU), Japan and many other countries around the world, placing more than 90% of trade under FTAs.

  • In October 2018, Canada, the United States and Mexico reached an agreement on a new and modern trade agreement called the United States-Mexico-Canada Agreement (USMCA). This modernised agreement maintains the tariff-free market access from the original NAFTA, and includes updates and new chapters to address modern-day trade challenges and opportunities. The original NAFTA eliminated virtually all tariffs between Canada, the United States and Mexico, with very few exceptions. The USMCA maintains these benefits and ensures that the vast majority of USMCA trade will continue to be duty-free. Additionally, a new Customs Administration and Trade Facilitation Chapter standardises and modernises customs procedures throughout North America to facilitate the free flow of goods. There are also important improvements to disciplines on technical barriers to trade that will make it easier for businesses to export goods within the USMCA region. The USMCA comprises 34 chapters, three schedules, eighteen annexes and 12 side letters. One of the chapters (on Rules of Origin) is 234 pages in length.

  • The USMCA has made a key change to the autos rules of origin. The revised automotive rules of origin require higher levels of North American content in order to incentivise production and sourcing in North America. The Agreement specifies that 40.0% of vehicles sold in the region must come from a market with wages of USD16/hour or more. This wage provision was made in order to attempt to level the playing field between Mexican and the United States workers and reduce the incentives for companies to outsource manufacturing jobs. While these provisions will increase costs and due diligence for Mexican businesses in the short term, an improvement in labour standards will reduce the risk of labour unrest and could also lead to a productivity boost in the longer term.

  • On April 24, 2018, Mexico became the first country to ratify the CPTPP trade deal. The deal includes Australia, Canada, Chile, Japan, New Zealand, Singapore and Vietnam, among others, creating new opportunities that are expected to boost Mexico's trade and investment with such jurisdictions through reduced tariffs.

  • In Mexico, all imports must be accompanied by an import declaration, which must contain a broad range of information including a commercial invoice (must include information about the place and date of issue, name and domicile of the consignee, detailed description of the merchandise and name and domicile of the seller), a bill of landing or airway bill, documents showing compliance with non-tariff regulations and restrictions, certificates of origin, applicability of antidumping duties, documents demonstrating guarantee of payments of additional duties when imports appear to be undervalued, and information allowing identification, analysis and control of the imports (such as serial number, brand, model or technical specifications).

  • Mexican product standard regulations can be classified under two categories, namely mandatory technical regulations (NOMs) including labelling requirements issued by government agencies and ministries, and voluntary standards (NMXs) issued by recognised national standardisation bodies. In short, most of the standards and certificates are in line with the United States standards. In addition, on labelling, all products intended for retail sale in Mexico are required to bear a label in Spanish prior to importation.

  • The extensive network of FTAs means that businesses in Mexico benefit from generally low barriers to international trade. The vast majority of trade takes place within the framework of FTAs, meaning that tariff and non-tariff barriers are minimal. Bilateral FTAs with Bolivia, Costa Rica, Colombia, Nicaragua, Chile and Uruguay are in place. These bilateral agreements help to boost regional trade, but many have been superseded by regional agreements.

  • As of December 2017, Mexico applies no anti-dumping (AD) order on Hong Kong’s exports. The transition duties imposed by Mexico on a range of Chinese mainland products were eliminated on December 12, 2011. In addition, the Mexican government has stressed that regular AD and safeguard actions against Chinese mainland products may be initiated to protect the domestic apparel, footwear and other sectors from injurious competition from abroad. As it now stands, Mexico applies several AD measures on Chinese imports, such as hydraulic bottle jacks, mushrooms and seamless steel tubing, while it has initiated a number of investigation cases on imports such as children’s bicycles and certain steel products from the Chinese mainland, while it does not apply any countervailing (CV) measures on imports from the Chinese mainland or Hong Kong.

  • The customs process in Mexico is relatively efficient and not burdened by excessive bureaucracy. There are some concerns associated with inconsistent application of regulations at the border, as well as the transparency in the customs process.

Source: WTO - Trade Policy Review

6. Trade Agreement

6.1 Trade Updates

In October 2018, Canada, the United States and Mexico reached an agreement on a new and modern trade agreement called the USMCA. More robust rules of origin, particularly for the automotive sector, will help keep the benefits of the agreement in North America and diminish incentives to make investment and sourcing decisions based on the availability of low-cost labour. Specifically, the new agreement includes: an increase in the USMCA regional value content threshold for cars from 62.5% to 75%; stronger content requirements for core car parts, such as engines and transmissions; a 70% North American steel and aluminium requirement; and a new labour value content provision requiring that 40-45% of a car producer's activities – ie, costs of manufacturing, assembly, research and development (R&D) and information technology – be carried out by workers who earn at least USD16 an hour.

6.2 Multinational Trade Agreements

Active

  1. Mexico-EU: In April 2018, the EU and Mexico reached an agreement on a new free trade deal, which marks a boon for both parties in the face of increased protectionism from the United States under President Donald Trump. The EU and Mexico wanted to update a trade deal agreed 21 years ago that largely covers industrial goods. The new deal adds farm products, more services, investment and government procurement, and includes provisions on labour and environmental standards and fighting corruption. The deal will, for example, cut Mexican tariffs and will also allow Mexican companies to bid for government contracts in Europe and EU companies for those in Mexico, including at state level. With this agreement, Mexico joins Canada, Japan and Singapore in the growing list of partners willing to work with the EU in defending open, fair and rules-based trade. The EU is an important export market for Mexico, and lower trade barriers stimulate new trade and investment.

  2. Mexico-Chile-Colombia-Peru: In a bid to have better synergy when making inroads into the Asian market, Mexico signed an accord in June 2012 with Chile, Colombia and Peru to establish the Pacific Alliance (PA) to reach out to the Asia Pacific region as a united force. In February 2014, the PA members reached an agreement to eliminate tariffs on 92% of goods traded within the bloc by 2015, while the remaining 8% will be dropped progressively and steadily in the following years. The agreement facilitates regional trade and provides a base for the negotiation of wider regional trade agreements.

  3. Mexico-Japan: A bilateral FTA was signed in September 2004 after lengthy negotiations. It took effect in April 2005. Japan is a key source of imports to Mexico and this agreement helps to lay the groundwork for wider FTAs between Latin America and Asia.

  4. CPTPP: Following the withdrawal of the United States from the original Trans-Pacific Partnership (TPP), the remaining 11 countries reached a broad agreement on the TPP's core elements in November 2017. The CPTPP, also known as TPP11, is a signed trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. These countries represent 13.4% of global GDP, making this the third-largest trade agreement after the NAFTA and the EU. By October 2018 six countries (Canada, Mexico, Japan, Singapore, New Zealand and Australia) had ratified the CPTPP agreement, which means it automatically comes into force on December 30, 2018, when the remaining countries are expected to come on board. Vietnam has also ratified the agreement on November 15, 2018.

  5. Mexico-the United States-Canada: NAFTA has been in effect since January 1, 1994. The agreement was signed in December 1992; NAFTA side agreements were signed in August 1993. The Mexican economy is highly integrated with the United States and Canadian markets, and the vast majority of Mexican exports are destined for these two countries. NAFTA had become central to Mexico's export-led manufacturing industries and hugely important to the Mexican economy. In October 2018, Canada, the United States and Mexico reached an agreement on a new and modern trade agreement called USMCA. This modernised agreement maintains the tariff-free market access from the original NAFTA, and includes updates and new chapters to address modern-day trade challenges and opportunities. The original NAFTA eliminated virtually all tariffs between Canada, the United States and Mexico, with very a few exceptions. The USMCA maintains these benefits and ensures that the vast majority of USMCA trade will continue to be duty-free. Additionally, a new Customs Administration and Trade Facilitation Chapter standardises and modernises customs procedures throughout North America to facilitate the free flow of goods.
Under Negotiation
  1. Mexico-Brazil: Brazil is looking to sign new FTAs with Mexico as Brazil is Mexico's fourth largest export market, and tariff-free trade would help to further diversify the country away from reliance on the United States.

  2. Mexico-EFTA: Iceland, Liechtenstein, Norway and Switzerland signed an FTA with Mexico in November 2000. A third round of negotiations on the review of the FTA took place in Lugano on January 16-20, 2017. This agreement assists with the diversification of trade partners, in conjunction with the EU FTA. Merchandise trade between the EFTA States and Mexico reached USD4.2 billion in 2014. EFTA's top exports to Mexico include pharmaceutical products; organic chemicals; machinery and mechanical appliances; and clocks and watches. EFTA imports mainly consisted of pharmaceutical products; precious stones; and mineral fuels and oil.

Sources: WTO Regional Trade Agreements database, Fitch Solutions

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Mexico FDI stock
Graph: Mexico FDI stock
Graph: Mexico FDI flow
Graph: Mexico FDI flow

Sources: UNCTAD, Fitch Solutions
Date last reviewed: November 11, 2018

7.2 Foreign Direct Investment Policy

  1. The government entity ProMéxico is the agency for Mexican trade and investment promotion and is tasked with encouraging FDI to the country, with establishments in a number of other states worldwide as well as a multilingual website offering information about local customs and procedures. In a strong push towards greater economic openness, focusing on the liberalisation of international trade and attraction of investment flows, Mexico has made significant changes to its Law on Foreign Investment and signed a wide web of FTAs with its trading partners. Foreign trade incentives programmes are widely offered, such as:

    • Import Tax Refund to Exporters (DRAWBACK)
    • Manufacturing, Maquila and Export Service Industry (IMMEX)
    • Sectorial Promotion Programs (PROSEC)
    • Tax incentives programmes such as a tax credit of 30% of total spending on R&D activities to support companies that invest in research, technology development and innovation.

  2. Mexico is one of the biggest recipients of FDI among emerging market states, both regionally and globally, offering numerous attractions for investors, which we expect to continue. Foreign investment is guided through the 1993 Foreign Investment Law, which provides non-discriminatory treatment for most foreign investment, eliminates performance requirements for many projects, and liberalises criteria for automatic approval of foreign investment. Most areas of the economy are open to 100% foreign ownership. In addition, there are no limits on capital flows and foreign exchange is determined at market rates, easing the remittance of profits for foreign businesses.

  3. The federal corporate income tax rate is 30%. However, taxpayers engaged exclusively in agriculture, livestock, fishing and forestry activities are subject to a reduction of 30% of their tax liability.

  4. The election of the new president implies that the Tax Certainty Agreement, executed by the current president, would end on November 30, 2018. The agreement, in broad terms, represents a commitment of the executive branch to maintain the Mexican tax framework without significant changes affecting taxpayers after the 2014 Tax Reform. At the time of writing, no significant changes were expected to the Mexican tax laws; however, this may change once the new administration takes over.

  5. A number of liberalising reforms enacted by the government of President Peña Nieto will help to encourage greater foreign investment in the hydrocarbons, telecommunications and power sectors over the medium term. Changes to the constitution have ended the monopoly of state-owned oil company Petroleos Mexicanos (Pemex) in the hydrocarbons industry, meaning that foreign entities can now participate in exploration and production. Initial licensing rounds to award contracts for the country's deepwater oil fields have attracted significant interest from major multinational oil companies, including ExxonMobil, Total and Chevron.

  6. New regulatory bodies for the telecommunications sector are also expected to improve competition and foreign involvement, with FDI now permitted up to 100%. In the power sector, the unbundling of the state-owned power provider Comisión Federal de Electricidad (CFE) and the opening of the power supply market to private players has significantly increased the scope for FDI into the electricity generation and distribution markets.

  7. Although 2013 reforms abolished a number of tax exemptions, there remain some incentive programmes that are intended to attract investment in export-led manufacturing industries. The most prominent is the IMMEX. This was specifically designed to attract foreign investment in manufacturing by offering deferred customs duties payments and exemption from import tax for temporarily imported goods used in the production process. A number of incentives have been removed since 2013, and designated Maquiladora businesses must now pay full income tax and VAT. Nevertheless, this project has contributed to the development of concentrated, developed and export-led industries, which now offer a high standard of industrial clusters for incoming businesses, particularly in the northern border regions with the United States.

  8. Customs duties can be further lowered for certain industries or locations. The country's PROSEC provides preferential rates for imported goods required for a range of industries, including mining, electronics, chemicals, textiles, transport equipment, cars and food processing. In addition, four free trade zones (FTZs) are now in operation at San Luis Potosi, Mexico City, Monterrey and Guanajuato. President Peña Nieto has also advanced his plan for the creation of special economic zones, which could potentially offer significant benefits to Mexico's poorer southern states over the long term. These zones include the Isthmus of Tehuantepec (linking the Pacific and Gulf of Mexico through Oaxaca and Veracruz), Puerto Chiapas and the port of Lázaro Cárdenas (benefiting Michoacán and Guerrero). The new legislation, aimed at bolstering investment and job creation in these states, will include special tax and customs benefits as well as plans to bolster infrastructure investment in these areas.

  9. The Mexican government provided tax incentives to investors in the Special Economic Zones (ZEE) whose projects should be aimed at encouraging the creation of jobs and infrastructure to promote the economic development of the region. The specific tax incentives for the ZEE were introduced via decrees in the later part of 2017 and are effective from September 30, 2017.

  10. An additional employment incentive offers a credit equivalent to 100% of the income tax corresponding to the salary paid to workers/employees with certain types of disabilities. An additional deduction, equivalent to 25% of the salary paid to such workers/employees, is also available.

  11. While Mexico has removed foreign investment restrictions in its hydrocarbons, telecommunications and power sectors in recent years, some regulatory restrictions continue to be imposed, including a 49% cap on foreign ownership in agriculture and forestry. In the media space, foreign investors may only hold up to 49% of shares in newspaper publishing and TV broadcasting. In addition, state-owned entities (SOEs) retain a significant presence in several key sectors in Mexico. Notably, Pemex in the hydrocarbons industry and CFE in the power sector play dominant roles within their respective markets.

  12. Private companies entering the recently liberalised hydrocarbons space will have to comply with local content requirements, which vary according to the nature of the production activity. Companies engaged in exploration and production in onshore or shallow-water oil fields must meet an average local content requirement of 26.1%, increasing to 35% by 2025. This is a relatively significant requirement but is not too onerous for firms, which will not face difficulties sourcing machinery and capital goods from local suppliers, though the costs may be higher. For firms engaged in exploration and production activities in deep and ultra-deep water fields, the stipulation is that national suppliers must be used for 3% of exploration projects for the initial four years, rising to 6% for the next four years and 8% for the next three years. For development activities in deep and ultra-deep water fields, the local content requirement is 4% and for production it is 10%. The relatively low requirements for exploration of deep and ultra-deep water resources is intended to encourage foreign investment in the country's more inaccessible and technically complicated offshore oil and gas fields, without adding a considerable additional burden to operations.

Sources: WTO - Trade Policy Review, ITA, US Department of Commerce, Fitch Solutions

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
IMMEXBusinesses enjoy exemption from import tax and deferred customs duties payments.
There are four FTZs at San Luis Potosi, Mexico City, Monterrey and GuanajuatoOpen to all industries, offering lower customs duties, and delayed payment of tariffs, reduced bureaucracy for exports and imports, and local access to customs officers.
ZEEZEE were introduced by the Mexican government with the aim of promoting economic growth and investment in certain estates of the country that have fallen behind with respect to others parts of Mexico in industrial and economic development (eg, Chiapas, Guerrero, Michoacán, among others).

The main tax incentives from an income tax perspective and VAT perspectives are the following:

- From an income tax perspective, taxpayers obtaining income generated within the ZEE will be granted an income tax reduction of 100% during the first 10 fiscal years and a 50% income tax reduction for the following five fiscal years, subject to compliance with certain requirements.

- From a VAT perspective, a 0% VAT rate will be applicable to goods acquired by investors in the ZEE to the extent that certain documentation requirements are satisfied. Furthermore, investors in the ZEE may be able to obtain accelerated VAT refunds for goods acquired by Mexican residents located outside the ZEE. Further, Mexican residents outside the ZEE may apply a 0% VAT rate to services or the leasing of goods provided to investors in the ZEE, subject to the compliance of certain requirements.

- In addition, no VAT is applicable to transactions among taxpayers within the ZEE.

- Note that additional tax incentives may be available at a state level; however, those are typically negotiated with the local tax authorities on a case-by-case basis and depend on the nature of each specific investment project.

Sources: ProMéxico, Fitch Solutions, PwC

8. Taxation – 2018

  • Value Added Tax: 16%
  • Corporate Income Tax: 30%

Sources: PwC Taxes at a Glance, Fitch Solutions

8.1 Important Updates to Taxation Information

In light of recent political changes in Mexico, there is a risk that the Tax Certainty Agreement, executed by President Enrique Peña Nieto, would end on November 30, 2018. The agreement, in broad terms, represents a commitment of the executive branch to maintain the Mexican tax framework without significant changes affecting taxpayers after the 2014 Tax Reform. At this point in time, no significant changes are expected to the Mexican tax laws; however, this may change once the new administration takes over.

8.2 Business Taxes

Type of TaxTax Rate and Base
Corporate Income Tax
30% on profits
Capital Gains Tax30% (treated as normal income); Capital gains derived from publicly traded shares sold by individuals or non-Mexican residents, which are taxed at 10% (withholding).
Title Transfer Taxes (related to transfer of real estate)Averages 2% to 5% on the highest of the value of the transaction, fair market value, or registered municipality value
VAT
16% for goods or services, excluding exports and on imports and some basic products

Sources: PwC Tax Summaries 2018, Fitch Solutions
Date last reviewed: November 11, 2018

9. Foreign Worker Requirements

9.1 Broad Regulations Applicable

Foreign nationals entering Mexico are classified under the following immigration categories: Visitor, Temporary Resident or Permanent Resident. Employing foreign workers in Mexico can be a difficult process. Foreigners who are working or living in Mexico must be aware of the expiration date of their immigration status. In general, renewal requests must be submitted within 30 days before the expiration date of the immigration card. If the immigration status expires while the foreigner is abroad, Mexican nationals are systematically favoured over foreigners in competition for jobs, a situation that is enshrined in the country's legal code. Recent reforms have streamlined the process of acquiring work visas, as Mexico's need for highly skilled workers has grown, but some restrictions remain. In addition, Mexico's reputation for heightened security risks means that companies will be forced to offer higher wages and 'danger pay' premiums in order to attract highly skilled foreign workers, particularly in the most dangerous states such as Chihuahua, Guerro and Sinaloa.

9.2 Employer Requirements

Individuals or companies that intend to hire or have foreigners under their responsibility must request a mandatory employer registration file from the Instituto Nacional de Migración (INM). All registered employers are required to formally notify the INM regarding changes in, among other items, their articles of incorporation, address and revocations of powers of attorney. Any reportable change must be disclosed within 30 calendar days. In addition, companies are required to annually update their employer registration file at the INM after filing their annual Mexican corporate income tax return. Temporary and permanent residents must notify the INM of any changes regarding residence, marital status, nationality and location of their workplace or employer. Notifications by residents must be filed with the INM within 90 calendar days following such a change; otherwise, the resident may be subject to fines ranging from 20 to 100 days of the official Mexican minimum wage.

9.3 Migrant Worker Categories

Mexico has numerous categories of immigrant workers, which all require different visas, but the following are the most relevant to businesses that need to import foreign nationals.

  • 'Cargo de confianza' (management employee) status may be obtained by foreigners who fill key executive posts in established corporations or institutions. The Ministry of the Interior will grant such status only if it is convinced that the same work cannot be done by a Mexican national. This process can take several months.

  • 'Inversionista' (investor) status can be obtained by foreigners who invest in industrial activities that contribute to economic and/or social development in Mexico. This is a one-year visa and can be renewed up to four times.

  • 'Tecnico' (technician) status may be granted to people who carry out research or technical activities that cannot be performed by a Mexican national.

9.4 Permanent Residence Including Dependants

In general, new companies are not permitted to apply for permanent residence visas for personnel until such time as the government considers their activity of importance to the nation and they have been operational for more than two years.

In terms of dependents, only minors younger than 18 qualify as dependent children of work permit holders. Sons and daughters aged 18 or older will have to obtain resident status in their own capacity in order to accompany a work permit holder. Spouses of workers receive a special status, which is a temporary tourist/business visa that does not authorise employment. This makes it harder for firms to attract married employees, particularly those with children over or approaching the age limit.

9.5 Local and Foreign Worker Quotas

Federal labour law requires that 90% of a company's skilled and unskilled workers be Mexican nationals. A special provision does permit temporary employment of foreign technicians up to 10% of the workforce. However, this is only legal if it can be proved that the requisite skilled labour does not already exist in the country. This 10% quota does not apply to managers, directors or other key officers, who must apply for special immigration status.

Sources: Consulmex Hong Kong, Instituto Nacional de Migración, Fitch Solutions

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody's
A3 (stable)11/04/2018
Standard & Poor'sA- (stable)18/12/2017
Fitch Ratings
BBB+ (negative)31/10/2018

Sources: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201620172018
Ease of Doing Business Index
38/18947/19049/190
Ease of Paying Taxes Index
92/189114/190115/190
Logistics Performance Index
54/160N/A51/160
Corruption Perception Index
123/176135/180N/A
IMD World Competitiveness45/6148/6351/63

Sources: World Bank, IMD, Transparency International

10.3 Fitch Solutions Risk Indices


World Ranking
201620172018
Economic Risk Index Rank50/202
Short-Term Economic Risk Score
60.266.767.5
Long-Term Economic Risk Score63.364.665.3
Political Risk Index Rank108/202
Short-Term Political Risk Score
60.656.957.3
Long-Term Political Risk Score67.164.760.7
Operational Risk Index Rank86/201
Operational Risk Score50.851.251.4

Source: Fitch Solutions
Date last reviewed: November 11, 2018

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK
Mexico has been on a reform path for a number of years, privatising, deregulating and cutting back the role of government. Strengthening the rule of law, facilitating cross-border trade, opening most sectors to private investment, and enhancing intellectual property rights protection are good examples of the measures taken by Mexico to support its economic growth and development. Mexico's growing manufacturing sector, solid private consumption levels and favourable demographics signal that the country is well placed to see steady economic expansion over the coming decade. We expect Mexico's oil sector to become an increasingly important driver of growth, following energy sector liberalisation in December 2013.

OPERATIONAL RISK
Mexico offers an attractive location for investment in many respects, but several risks, largely surrounding the government's inability to enforce the rule of law, continue to complicate the operating environment. Powerful drug cartels are present throughout the country, fuelling a high rate of violent crime and raising legal risks. Nevertheless, numerous attractions – including strong logistics infrastructure that offers efficient supply chains and a reliable utilities supply, a sizeable and low-cost labour market and low levels of trade bureaucracy – mean that Mexico will continue to hold appeal for investors who are able to absorb the elevated costs of security measures.

Date last reviewed: November 14, 2018

10.5 Fitch Solutions Political and Economic Risk Indices

Graph: Mexico short term political risk index
Graph: Mexico short term political risk index
Graph: Mexico long term political risk index
Graph: Mexico long term political risk index
Graph: Mexico short term economic risk index
Graph: Mexico short term economic risk index
Graph: Mexico long term economic risk index
Graph: Mexico long term economic risk index

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Economic and Political Risk Indices
Date last reviewed: November 11, 2018

10.6 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Mexico score51.458.658.657.730.7
Central and South America Average44.9
48.245.547.139.0
Central and South America Position (out of 20)5
3
4
3
16
Latin America Average47.950.249.445.146.7
Latin America Position (out of 42)15
7
9
3
37
Global Average49.649.749.9
49.149.8
Global Position (out of 201)86
42
65
60
162

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index

Graph: Mexico vs global and regional averages
Graph: Mexico vs global and regional averages
Country
Operational Risk IndexLabour Market Risk Index
Trade and Investment Risk IndexLogistics Risk IndexCrime and Security Risk Index
Chile64.161.367.762.764.7
Panama54.847.160.067.144.9
Uruguay54.0
48.7
51.155.261.1
Costa Rica53.249.860.253.249.7
Mexico51.458.658.657.730.7
Peru49.1
59.752.947.136.8
Colombia49.054.456.950.134.6
Argentina46.951.439.050.646.7
Brazil46.8
46.746.350.743.6
Ecuador45.654.036.552.040.0
Suriname43.247.131.643.350.7
Belize43.052.239.642.238.2
El Salvador41.742.045.351.028.3
Paraguay40.141.845.736.636.3
Nicaragua38.740.637.037.239.9
Guatemala38.341.845.541.324.6
Guyana37.341.740.534.332.8
Honduras37.338.047.139.424.6
Bolivia35.542.429.537.832.2
Venezuela28.844.119.931.919.2
Regional Averages44.948.245.547.139.0
Emerging Markets Averages46.848.047.545.746.0
Global Markets Averages49.649.749.949.149.8

100 = Lowest risk; 0 = Highest riske
Source: Fitch Solutions Operational Risk Index
Date last reviewed: November 11, 2018

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Mexico

Graph: Major export commodities to Mexico (2017)
Graph: Major export commodities to Mexico (2017)
Graph: Major import commodities from Mexico (2017)
Graph: Major import commodities from Mexico (2017)

Note: Graph shows the main Hong Kong imports from/exports to Mexico (by consignment)
Date last reviewed: November 11, 2018

Graph: Merchandise exports to Mexico
Graph: Merchandise exports to Mexico
Graph: Merchandise imports from Mexico
Graph: Merchandise imports from Mexico

Note: Graph shows Hong Kong imports from/exports to Mexico (by consignment)
Exchange Rate HK$/US$, average
7.76 (2013)
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
Sources: Hong Kong Census and Statistics Department, Fitch Solutions
Date last reviewed: November 11, 2018


2017
Growth rate (%)
Number of Mexican residents visiting Hong Kong39,545
4.7

Sources: Hong Kong Tourism Board, Fitch Solutions


2017
Growth rate (%)
Number of Latin American residents visiting Hong Kong195,8541.8

Sources: Hong Kong Tourism Board, Fitch Solutions
Date last reviewed: November 11, 2018

11.2 Commercial Presence in Hong Kong


2017
Growth rate (%)
Number of Mexican companies in Hong KongN/A
N/A
- Regional headquarters
- Regional offices
- Local offices


11.3 Treaties and agreements between Hong Kong and Mexico

  • On June 18, 2012, Mexico signed a comprehensive agreement for the avoidance of double taxation with Hong Kong, aiming to encourage the flow of investment and talent between the two economies.

  • Tax paid on income in Hong Kong by Mexican residents has been allowed as credit against tax payable in Mexico since 2014/2015, while a lower withholding tax is applied to Hong Kong residents receiving interest from Mexico.

  • Hong Kong also has an Air Services Income Agreement with Mexico effective since December 3, 2008. In addition to the customs co-operation agreement signed on March 31, 2016, a bilateral Investment Promotion and Protection Agreement (IPPA) is also pending signing.

11.4 Chamber of Commerce (or Related Organisations) in Hong Kong

MEXCHAM - The Mexican Chamber of Commerce
Address: Unit B, 19/F, Golden Star Building, 20-24 Lockhart Road, Wan Chai, Hong Kong
Email: info@mexcham.hk
Tel: (852) 2528 4999

Sources: MEXCHAM, Fitch Solutions

Mexican Consulate General in Hong Kong
Address: 2507-2509, 25/F, Hopewell Center, 183 Queen's Road East, Wan Chai, Hong Kong
Email: infohko@sre.gob.mx
Tel: (852) 2511 3305 / 3944 8377
Fax: (852) 2845 3404

Source: Mexican Consulate General in Hong Kong

11.5 Visa Requirements for Hong Kong Residents

Holders of HKSAR passport or BN(O) do not require a visa to enter Mexico as tourists, visitors in transit or business visitors. Tourists and business visitors can stay in Mexico for up to 180 days. Visitors in transit can stay for up to 30 days.

Source: Mexican Consulate General in Hong Kong

Content provided by Picture: Fitch Solutions – BMI Research