1.Mexico City Monterrey Paseo de los Tamarindos 150-PBAve. Ricardo Margain 444 Bosques de las LomasTorre Norte Mezzanine A 05120, Mxico, Distrito Federal 66265, San Pedro Garza Garca, N.L. Tel. +52 (55) 5091-0000 Tel. +52 (81) 8220-1500 DOING BUSINESS IN MEXICOPREFACE .................................................................................................................................................... 1I.ESSENTIAL FACTS ABOUT MEXICO................................................................................................ 2A. Geographic and Historic Information ....................................................................................................... 2B. Key Economic Information ....................................................................................................................... 2C. Federal Government................................................................................................................................ 3II.LEGAL SYSTEM ................................................................................................................................. 4A. General .................................................................................................................................................... 4B. Civil Law and Comparison to Common Law ............................................................................................ 4C. Federal and State Legislation .................................................................................................................. 4III.JUDICIAL SYSTEM ........................................................................................................................... 6A. Mexican Courts & Litigation ..................................................................................................................... 6 1. Federal Courts .................................................................................................................................. 6 2. The Federal Judiciary Council (Consejo de la Judicatura Federal FJC) ........................................ 7 3. State Courts...................................................................................................................................... 7 4. Court Clerks...................................................................................................................................... 8 5. District Attorneys .............................................................................................................................. 8 6. Administrative and Tax Courts ......................................................................................................... 8B. Criminal Law ............................................................................................................................................ 8C. General Comments about Litigation in Mexico ...................................................................................... 10D. Arbitration .............................................................................................................................................. 11IV. IMPORTANT POSITIONS TO KNOW ............................................................................................. 13 1. Lawyer ............................................................................................................................................ 13 2. Notary Public ................................................................................................................................. 13 3. Customs Broker ............................................................................................................................. 14 4. Accountants and Auditors ............................................................................................................. 14

2. V.PRACTICAL DIFFERENCES ABOUT DOING BUSINESS ............................................................. 15A. Introduction ............................................................................................................................................ 15B. Tips on Dealing with your Mexican Counterpart .................................................................................... 15 1. Avoid Misunderstandings ............................................................................................................... 15 2. Learn the Local Business Schedule ............................................................................................... 16 3. Dress Appropriately ........................................................................................................................ 16 4. Take the Time Necessary to Build Personal Relationships ............................................................ 16 5. Be Polite ......................................................................................................................................... 17 6. Expect Generosity and Be Prepared to Reciprocate ...................................................................... 17 7. Understand the Importance of Meals and Other Social Events...................................................... 17 8. Select the Appropriate Means of Communication .......................................................................... 18 9. Prepare for Uncertainty and Delay ................................................................................................. 18 10. Lack of Guidance.......................................................................................................................... 18 11. Need for Bureaucratic Approval ................................................................................................... 18 12. Develop Realistic Time Lines ....................................................................................................... 19 13. Need for Regular Follow-Up ......................................................................................................... 19 14. Allow More Time ........................................................................................................................... 19VI.TRADE AND INVESTMENT TREATIES ......................................................................................... 21A. Introduction ....................................................................................................................................... 21B. Free Trade Agreements .................................................................................................................... 21 1. General Overview ........................................................................................................................... 21 2. Free Trade Agreements in Effect ................................................................................................... 21 3. Fundamental aspects of existing free trade agreements. .............................................................. 23 4. Bilateral Investment Treaties .......................................................................................................... 24VII. REGULATION OF FOREIGN INVESTMENT .................................................................................. 28A.Foreign Investment ............................................................................................................................ 28B.Economic Activities that are Restricted under the FIL........................................................................ 28C.Investment by Foreign Corporations .................................................................................................. 29D.Neutral Investment ............................................................................................................................. 29E.National Foreign Investment Registry ................................................................................................ 29F.Acquisition of Real Estate .................................................................................................................. 30 1.Mexican Companies ....................................................................................................................... 30 2.Mexican Corporations without Foreign Investment ........................................................................ 30 3.Non-Mexican Individuals ................................................................................................................ 31VIII. CORPORATE STRUCTURES FOR DOING BUSINESS ............................................................... 32A.Representative Office ......................................................................................................................... 32 ii06.2011 3. B.Branch Office ..................................................................................................................................... 32C.Partnership Venture (a.k.a. Contractual Joint Venture) ................................................................... 33D.Corporate Presence ........................................................................................................................... 33E.Limited Liability Company (Sociedad de Responsabilidad Limitada SRL) ...................................... 33F. Stock Company (Sociedad Annima S.A.) ...................................................................................... 33G.Variable Capital Companies (Capital Variable CV) ......................................................................... 34H. Process for Incorporating a Mexican Company ................................................................................. 34 1. Select Corporate Name .................................................................................................................. 34 2. Charter and By-laws ....................................................................................................................... 34 3. Appearance before a Notary Public. Registration .......................................................................... 34 4. Directors, Statutory Auditor and Officers ........................................................................................ 35 5. Post Incorporation Registrations .................................................................................................... 35 6. Operating a Mexican Company ...................................................................................................... 36 7. Minority Rights in a Stock Corporation (SA) ................................................................................... 38 8. Conflict of Interest .......................................................................................................................... 39 9. Distribution of Earnings and Payment of Dividends. Legal Reserve ............................................. 39 10. Accounting Records and Book-keeping ....................................................................................... 39 11. Mergers and Spin-offs .................................................................................................................. 39 12. Dissolution and Liquidation of a Mexican Company ..................................................................... 41 13. Corporate Governance Issues...................................................................................................... 41 14. Publicly Traded Companies ......................................................................................................... 42IX. GENERAL PRINCIPLES OF CONTRACT LAW .............................................................................. 44 1. General Principles of Contract........................................................................................................ 44 2. Construction of a Contract .............................................................................................................. 45 3. Termination of an Agreement ......................................................................................................... 46 4. Contractual Liability ........................................................................................................................ 48 5. Election of Jurisdiction .................................................................................................................... 49 6. Submission to Local Courts ............................................................................................................ 49 7. Arbitration ....................................................................................................................................... 49 8. Confidentiality Agreements ............................................................................................................ 49 9. Non-Compete Provisions ............................................................................................................... 50 10. Asset vs. Stock Acquisitions ......................................................................................................... 50X.E-COMMERCE .................................................................................................................................. 52A.Applicable Laws and Jurisdiction ....................................................................................................... 52B.E-Commerce Law .............................................................................................................................. 52C.On-line Consumer Protection ............................................................................................................. 53D.Electronic Invoices ............................................................................................................................. 53E.Electronic Evidence in Judicial Proceedings ...................................................................................... 53iii06.2011 4. F.Domain Name Registration ................................................................................................................ 54XI.COMPETITION LAW ........................................................................................................................ 55A.General .............................................................................................................................................. 55B.Specific Practices or Restraints ......................................................................................................... 55 1. Absolute Monopolistic Practices (Horizontal Restraints) ................................................................ 55 2. Relative Monopolistic Practices (Vertical Restraints) ..................................................................... 56C.Concentrations ................................................................................................................................... 57D.Privatizations, Publications and Opinions .......................................................................................... 59E.Private Actions ................................................................................................................................... 59F.Leniency Program and Settlement ..................................................................................................... 59G.Statute of Limitations ......................................................................................................................... 60H.Possible Amendments to Competition Regulation ............................................................................. 60XII. LABOR ISSUES .............................................................................................................................. 61A.General .............................................................................................................................................. 61B.Legal Framework ............................................................................................................................... 61C.The Concept of the Employment Relationship ................................................................................... 61 1. Regulation of employment through written agreements ................................................................. 62 2. Subjects of Employment ................................................................................................................. 62 3. Term of Employment ...................................................................................................................... 62 4. Employer Substitution..................................................................................................................... 63D.Minimum Terms and Conditions for Rendering Services ................................................................... 63 1. Salary. Base Salary & Integrated Salary ....................................................................................... 63 2. Working Hours ................................................................................................................................ 64 3. Vacations and legal holidays .......................................................................................................... 64 4. Christmas bonus ............................................................................................................................ 64 5. Profit sharing .................................................................................................................................. 64 6. Contractual benefits ....................................................................................................................... 65E.Collective Labor Relationships ........................................................................................................... 65 1. Unions ............................................................................................................................................ 65 2. Collective Bargaining Agreement ................................................................................................... 65 3. "Contrato-Ley" ................................................................................................................................ 66 4. Internal Working Regulations ......................................................................................................... 66F.Health and Welfare of Employees at Work Sites ................................................................................ 67G.Labor Conflicts in Mexico ................................................................................................................... 67 iv06.2011 5. H.Individual Conflicts ............................................................................................................................. 67I.Collective conflicts ............................................................................................................................... 68J. Termination of Employment .............................................................................................................. 69 1. Individual labor relationships .......................................................................................................... 69 2. Collective Labor Relationships ....................................................................................................... 70K.Social Security System....................................................................................................................... 70L.Low Cost Housing Fund ..................................................................................................................... 71XIII. TAXATION ...................................................................................................................................... 72A. Income Tax ........................................................................................................................................ 72 1. Subjects of the Tax ......................................................................................................................... 72 2. Residency for Tax Purposes .......................................................................................................... 72 4. Determination of the Tax and Rate................................................................................................. 73 5. Offset or Credit of the Tax .............................................................................................................. 73 6. Taxable Income .............................................................................................................................. 74 7. Timing of Accruable Income ........................................................................................................... 75 8. Allowed Deductions ........................................................................................................................ 75 9. Net Operating Losses ..................................................................................................................... 77 10. Tax Consolidation ......................................................................................................................... 77 11. Regime Applicable to Dividends Distributed................................................................................. 78 12. Income Tax Applicable to Resident Individuals ............................................................................ 78 13. Non-Resident Taxation ................................................................................................................. 78 14. Tax Representative ...................................................................................................................... 80 15. Tax Treaties ................................................................................................................................. 81 16. Controlled Foreign Company........................................................................................................ 81 17. Related party Transactions; Transfer Pricing ............................................................................... 82B.Value Added Tax (IVA) .................................................................................................................... 83 1. General Characteristics of the VAT ................................................................................................ 83 2. VAT Rates ...................................................................................................................................... 83 3. Taxed Transactions ........................................................................................................................ 83 4. Persons Required to Withhold the Tax ........................................................................................... 85 5. Obligations of Taxpayers ................................................................................................................ 85 6. Filing of the Corresponding Tax Return.......................................................................................... 86 7. Crediting of the Tax ........................................................................................................................ 86C.FLAT RATE TAX (IETU) ................................................................................................................ 86 1. General Overview ........................................................................................................................... 86 2. Tax Elements ................................................................................................................................. 86 3. Related Issues ................................................................................................................................ 88D.Other Issues ....................................................................................................................................... 89 1. Obligation to Register with the Federal Taxpayers Registry.......................................................... 89 2. Audits ............................................................................................................................................. 89 3. Late Payment Penalties ................................................................................................................. 89 4. Statute of Limitations ...................................................................................................................... 89 5. State Taxes .................................................................................................................................... 89v06.2011 6. 6.Payroll Tax ..................................................................................................................................... 90 7.Real Estate Transfer Tax ............................................................................................................... 90 8.Excise Taxes .................................................................................................................................. 90 9.Tax on Cash Deposits ................................................................................................................... 90XIV. CUSTOMS ...................................................................................................................................... 91A.Background ........................................................................................................................................ 91B.Clearance of Goods ........................................................................................................................... 91C.Tariff considerations, Regulation Measures and Non-tariff Restrictions ............................................ 91D.Customs Regimes .............................................................................................................................. 92E.Customs Violations and Fines ............................................................................................................ 92F.Customs Brokers and Attorneys ......................................................................................................... 92G.Dumping ............................................................................................................................................. 93 1.Mexican Legal Framework ............................................................................................................. 93 2.What is Dumping Practice? ............................................................................................................ 93 3.Standing to Petition an Anti-dumping Investigation ........................................................................ 94 4.Injury ............................................................................................................................................... 94 5.Course of the Investigation ............................................................................................................. 95 6.Anti-dumping or Countervailing Duties ........................................................................................... 96 7.Appeals .......................................................................................................................................... 96 8.Review of Anti-Dumping Duties ...................................................................................................... 97XV. MAQUILADORA (IN-BOND ASSEMBLY PLANTS) AND EXPORT PROGRAMS ........................ 98A.Overview of Export Programs ............................................................................................................ 98B.Maquiladoras ...................................................................................................................................... 98 1. Overview ........................................................................................................................................... 98 2. Special Customs Treatment ............................................................................................................. 99 3. Process to Establish a Maquiladora ............................................................................................... 102 4. Maquiladora Sales to the Domestic Market .................................................................................... 103 5. Transfer or Sale of Merchandise .................................................................................................... 103 6. Value Added Tax (Impuesto al Valor Agregado) ............................................................................ 103 7. Transfer pricing in the Maquiladora Industry .................................................................................. 104XVI. SECURITIES ................................................................................................................................ 107A.General ............................................................................................................................................ 107B.Mexican Stock Exchange ................................................................................................................. 107C.Securities/Public Offers .................................................................................................................... 107D.Approval and Registration of a Public Offer ..................................................................................... 108vi06.2011 7. E.Listing with the International Quotation System of the BMV ............................................................ 109F.Ongoing Reporting Obligations and other Relevant Information ...................................................... 110G.Minority Rights ................................................................................................................................. 110H.Underwriting Agreements ................................................................................................................. 111XVII. BANKING ..................................................................................................................................... 112A.General ............................................................................................................................................ 112B.Authorities ........................................................................................................................................ 112 1. Bank of Mexico ............................................................................................................................. 112 2. Ministry of Finance and Public Credit ........................................................................................... 112 3. National Banking and Securities Commission .............................................................................. 113C.Protection of the Interests of the Public ........................................................................................... 113 1. National Commission for the Protection and Defense of Users of Financial Services ................. 113 2. Institute for the Protection of Bank Savings.................................................................................. 113 3. Credit Information Entities ............................................................................................................ 114D.Financial Agents............................................................................................................................... 114 1. Commercial Banks ....................................................................................................................... 114 2. Affiliates of Foreign Financial Entities .......................................................................................... 114 3. Development Banks ..................................................................................................................... 114 4. Non-Banking Financial Agents ..................................................................................................... 114XVIII. SECURED TRANSACTIONS ........................................................................................................ 116A.Principles Applicable to Security Interests ....................................................................................... 116B.Personal Property ............................................................................................................................ 116 1. Personal Guarantee (Fianza) ....................................................................................................... 116 2. Pledge .......................................................................................................................................... 116 3. Trust Agreements ......................................................................................................................... 117 4. Chattel Mortgage .......................................................................................................................... 117C.Mortgage of Real Property ............................................................................................................... 117XIX.GOVERNMENT PROCUREMENT .............................................................................................. 119A.General Scope ................................................................................................................................. 119B. Contracting Procedures ................................................................................................................... 119 1. Competitive Bidding ........................................................................................................................ 119 2. Restricted Invitation and Direct Award ............................................................................................ 120C.Execution of a Procurement Contract .............................................................................................. 121D.Sanctions ......................................................................................................................................... 121vii06.2011 8. E.Challenges and Remedies ............................................................................................................... 122F.Conciliation Process ......................................................................................................................... 122G.Dispute Resolution ........................................................................................................................... 122H.Pemex .............................................................................................................................................. 122XX.INTELLECTUAL PROPERTY ...................................................................................................... 123A.General ............................................................................................................................................ 123B.Copyright .......................................................................................................................................... 123C.Trademarks ...................................................................................................................................... 124D.Trade Names and Slogans .............................................................................................................. 125E.Patents ............................................................................................................................................. 125F.Trade Secrets ................................................................................................................................... 125G.Franchising and Transfer of Technology ......................................................................................... 126H.Enforcement ..................................................................................................................................... 126XXI. IMMIGRATION ............................................................................................................................. 127A.Introduction ...................................................................................................................................... 127B.Immigration Status ........................................................................................................................... 127 1. Tourist .......................................................................................................................................... 127 2. Working Visas for Non-Immigrant and for Immigrant ................................................................... 127 3. Permanent Resident (Inmigrado) ................................................................................................. 128C.Working Visa Options....................................................................................................................... 128D.General Procedures for Securing Immigrant or Non-Immigrant Visas ............................................. 129 1.Entrance Procedure...................................................................................................................... 129 2.Change of Immigration Status or Characteristic ........................................................................... 130E.Documentation Requirements .......................................................................................................... 130F.Extension of Stay in Mexico ............................................................................................................. 130G.Right to Import Personal Property .................................................................................................... 130XXII. ENVIRONMENTAL LAWS ........................................................................................................... 131A.Overview .......................................................................................................................................... 131 viii06.2011 9. B.Authorities ........................................................................................................................................ 132C.Areas of Exclusive Federal Jurisdiction ........................................................................................... 132D.Environmental Impact ...................................................................................................................... 132E.Air Pollution; the Sole Environmental License LAU .......................................................................... 134F. Hazardous Waste ............................................................................................................................. 135G.Soil Contamination and Remediation ............................................................................................... 136H.Water................................................................................................................................................ 137I.Environmental Audits and Voluntary Compliance .............................................................................. 139J. Sanctions .......................................................................................................................................... 140XXIII. TELECOMMUNICATIONS ........................................................................................................... 143A.General ............................................................................................................................................ 143B.Jurisdiction ....................................................................................................................................... 143C.Radio-frequency Spectrum............................................................................................................... 143D.Telecommunications Networks ........................................................................................................ 144E.Satellite Communications ................................................................................................................. 144F. Value Added Services ...................................................................................................................... 145G.Re-sellers (comercializadoras) ........................................................................................................ 145H.Dominant Carriers ............................................................................................................................ 146I.Broadcasting Services ....................................................................................................................... 146J. Foreign Investment Restrictions and Investment Mechanisms ........................................................ 146K.Special Tax ...................................................................................................................................... 147XXIV. ENERGY ....................................................................................................................................... 148A. Electric Sector .................................................................................................................................. 148 Areas of Private Participation .............................................................................................................. 148B. Hydrocarbons Sector ..................................................................................................................... 148C. Natural Gas .................................................................................................................................... 151 ix06.2011 10. D. Firedamp ........................................................................................................................................ 151E. Renewable Energy ......................................................................................................................... 152F. Bioenergies ..................................................................................................................................... 153G. National Hydrocarbon Commission .................................................................................................... 153H. Energy Regulatory Commission ..................................................................................................... 154I. Sustainable Use Of The Energy ........................................................................................................ 154XXV. MINING ......................................................................................................................................... 155A.General ............................................................................................................................................ 155B.Priority of Mining Activities ............................................................................................................... 155C.Agencies / Authority ......................................................................................................................... 155D.Mining Concessions and Assignments ............................................................................................ 156E. The Mining Public Registry ............................................................................................................... 158F.Inspection, Monitoring and Sanctions ............................................................................................... 159XXV. BANKRUPTCY ............................................................................................................................. 161A.Insolvency Proceedings ................................................................................................................... 161B.Causes for Declaration in Reorganization (Concurso Mercantil) ..................................................... 162C.Procedure for the Declaration of Reorganization ............................................................................. 162D.Judgment Declaring Reorganization (Concurso Mercantil) .............................................................. 163E. Existing Contracts ............................................................................................................................ 163F.Acknowledgement of Credits ............................................................................................................ 163G.Bankruptcy or Liquidation Proceedings (Quiebra) ........................................................................... 164Acronyms Most Commonly Used ............................................................................................................. 165 x06.2011 11. PrefaceWhether driven by national policies or new technologies, laws and regulations will frequently change, andas lawyers and counsel a firm is required to respond to the needs of our clients. Since it was founded in1948, Barrera, Siqueiros y Torres Landa, S.C. has been at the forefront in providing legal services withexcellence to its clients. At all times, we have endeavored to be in a position not only to respond, but tobe ahead and anticipate the needs of our clients.In the course of providing services, a multitude of areas have been addressed and legal specialties havearisen in the recent past. We have always attempted to be at the forefront of new legal developmentsaround investment, technology, financial services and products, export and trade programs,privatizations, government procurement, telecommunications, e-commerce, labor, competition/antitrust,securitization and financial structures, and more recently, energy. Some areas have continuously evolvedsuch as Taxation with such speed and depth that keepingup has been both a necessity and a challenge.In celebration of our sixtieth anniversary in 2008 we endeavored to prepare for our clients and friends asummary of Mexican laws affecting business. Many lawyers from the firm have participated in theproject, contributing with their knowledge and expertise. We have committed to keep the summaryupdated.Although we trust you will find this summary useful, the purpose of this publication is not to provide legaladvise nor present a complete analysis of the issues covered. The authors that participated in thepublication, as well as Barrera, Siqueiros y Torres Landa, S.C., are not responsible in any form fordecision or actions taken based on the content of this summary. 106.2011 12. I.Essential Facts About MexicoA. Geographic and Historic InformationName. Although the conventional short form is Mexico, the official name of the country is United Mexican States.Population. Mexicos population exceeds 112 million according to the 2010 census. The median age is 26 years. It is the most populous Spanish-speaking country in the world. The population of the metropolitan area of Mexico City alone is about 18 million, making it the largest urban concentration of people in the Western Hemisphere.Flag and Seal. The flag consists of three equal vertical bands of green (hoist side), white, and red. The sealan eagle perched on a cactus holding a snake in its beakis centered in the white band. The symbol on the seal comes from a legend at the time of the Aztecs. Guided by their god Huitzilopochtli, the Aztec people sought a place where an eagle landed on a prickly-pear cactus, eating a snake. After years of wandering, they found the sign on a small swampy island in Lake Texcoco. They named their new home Tenochtitlan (Place of the Prickly Pear Cactus) and built a city, now Mexico City, on the site in A.D. 1325.Area. Mexico is one of the largest countries in the hemisphere with an area of approximately 2 million square kilometers (1,972,500 square kilometers; 761,600 square miles).Summary historical background. Mexico was originally inhabited by a number of Amerindian civilizations, including the Olmecs, Mayas, Toltecs and Aztecs. Mexico came under Spanish rule for three centuries before achieving independence early in the 19th century on September 21, 1821. Contrary to popular belief abroad, independence was not on Cinco de Mayo. Shortly after independence, a plan for a constitutional monarchy failed and a republic was proclaimed in December 1822.In 1910, severe social and economic problems culminated in a revolution that lasted for ten years and gave rise to the 1917 Constitution. Although recent financial troubles in Mxico and abroad threw Mexico into its worst recession in over half a century, the nation continues to make a recovery. Ongoing economic and social concerns include low real wages, underemployment for a large segment of the population, inequitable income distribution, and few advancement opportunities for the largely Amerindian population in the impoverished southern states.Political Division. Mexico is a Federal Republic divided into 31 States and the Federal District (Distrito Federal). Mexico City is located precisely in the Federal District, although its metropolitan area extends into the neighboring State of Mexico. Guadalajara and Monterrey are two major industrial hubs. Other important cities include Tijuana, Ciudad Jurez, Len, Quertaro, Puebla, Veracruz, Villahermosa and Mrida.B. Key Economic InformationIn 2010, Mexico was the 12th largest economy in the world. It is an active member of the Organization for Economic Cooperation and Development (OECD) and the World Trade206.2011 13. Organization (WTO). Likewise, Mexico has an important bilateral and multilateral trade network, including NAFTA, the European Community and the Asian Pacific Economic Council (APEC).Mexico shares 2,000 miles of U.S. border, thus putting it in a unique strategic position for increasing its trade with the greatest single national market in the world.Mexico has 7,000 miles of seashores that, as noted in the European Union Political, Cooperation and Free Trade Agreement, make it an ideal place to engage in trade regardless of the origin of materials or destination of finished products.Among the most prominent industries in the country are oil, tourism, mining, and automotive, textile, steel and electronics manufacturing.Expanding beyond its former export foundation in oil, Mexico has increased the size and variety of exports, which now include even sophisticated technical devices and services, including construction and financial services.Reliance on oil has substantially been reduced. The basis of the Mexican economy is primarily manufacturing, although the recent prices in the price of crude oil have provoked a greater share of the exports to this commodity.A large pool of Mexican companies participate in export-oriented activities. Foreign investors provide training and technology to upgrade Mexican companies and bring them up to international standards.C. Federal GovernmentThe Federal Government is composed of three branchesexecutive, legislative and judicialeach with specific powers granted by the Constitution.The President heads the Executive Branch and is assisted by 18 Secretaries or Ministers as well as by the Attorney General (whose appointment requires the consent of the Senate). The President is both the Head of State and government. There is no Vice-President.A bicameral federal congress comprises the Legislative Branch and is divided into: (a) The Senate, with 128 members who serve six--year terms (b) The House of Representatives (Cmara de Diputados), with 500 members is completely renewed each three-year term.The Mexican Supreme Court of Justice, comprised by 11 Justices, heads the Judiciary. After nomination by the President and appointment by the Senate, Justices serve 15-year terms. Under the Supreme Court sit federal Circuit Courts (Collegiate and Unitary) and District Courts. 306.2011 14. II. Legal SystemA. General International business people and foreign-owned corporations doing business in Mexico must directlyand indirectly deal with the Mexican legal system, even if they do not have a local physical presence.Businesses might encounter Mexicos system through an international contracteven one to bewholly performed outside of Mexicoif a Mexican company or individual is also a party. Suchcontracts may cover a wide variety of legal relationships, including distribution of products, thegranting of franchises, or the transfer of technology. Accordingly, people and entities doing business in Mexico should have at least a general workingknowledge of its legal system. International legal counsel with clients doing business in Mexicoshould have a more detailed knowledge of Mexican practices, laws and courts. All should understandthat if they are to accomplish their objectives they must work within the system, not against it.B. Civil Law and Comparison to Common Law Mexico is a so-called civil law country, while some other countries such as the United States ofAmerica, Canada, and England are common law countries. Unlike common law courts, Mexicancourts do not follow stare decisis or precedent in the common-law sense. Furthermore, under theMexican system there are no trials by jury. The origins of Mexicos legal system are both ancient and classical, based on the Greek, Roman,Spanish and French legal systems. Due to this background, our reliance in form over substance isusually over-estimated. Although the Mexican system shares more in common with other legalsystems throughout the worldespecially those in Latin America and continental Europethan itdoes with the U.S. legal system, after NAFTAs adoption, Mexico has modeled certain legislation afterU.S. law and practices (antitrust and environmental, among others). Likewise, Mexicos participationin the OECD and other international groups (e.g. the United Nations Commission on InternationalTrade Law UNCITRAL) has led to the to implementation of business practices and legislation inaccordance with international standards. Some examples of the above are the adoption of theUNCITRAL Model Laws on International Commercial Arbitration, Transnational Insolvency andElectronic Commerce.C. Federal and State Legislation The current Federal Constitution was enacted on February 5, 1917, and has undergone manyamendments since then to adjust to the changing realities of the country. The Constitution has beenamended continuously, especially during the last 30 years, adapting to Mexicos full democracyintegration into the world trade arena. The Constitution outlines a system where most major areasincluding commerce, natural resources,labor, mining, telecommunications, federal crimes and federal taxesare reserved for regulation only406.2011 15. by legislative action of the Federal Congress. Given that states may not implement laws in those areas, federal laws on such matters apply uniformly throughout the country. On the other hand, certain specific areas (education, health, environment, etc.) are subject to shared-authority among the federal, state and local level of government.States have their own Constitution, as well as their own civil and criminal codes for local matters. Likewise, States legislate on local operating permits and environmental matters that are not otherwise reserved for federal legislation. Municipalities issue zoning and land use regulations and levy real estate taxes. 506.2011 16. III.Judicial SystemA. Mexican Courts & Litigation1.Federal CourtsMexican courts are divided between federal and state levels of government. The 11-Justice MexicanSupreme Court of Justice is the highest Court within our country. The Mexican Supreme Court sits eitherin bloc (Pleno) or as a 5-member Chamber. The First Chamber deals with civil and criminal issues whilethe Second Chamber deals with Administrative and Labor matters. One Justice is appointed amonghis/her peers as a 4-year President. The President of the Supreme Court also serves as President of theFederal Judiciary Council, which oversees and monitors ethical and administrative tasks of FederalJudges and Magistrates. The Mexican Supreme Court has reserved jurisdiction itself to the mostimportant issues of constitutional law: (i) unconstitutionality of laws, regulations and treaties in thoseparts where there has not been a previous and clear precedent; (ii) direct interpretation of theConstitution; (iii) constitutional actions or controversies brought by other powers of the state (Legislativeor Executive).Below the Supreme Court remain the Collegiate Circuit Courts, Unitary Circuit Courts and Federal DistrictCourts. Federal courts mostly deal with amparo actions, federal crimes, commercial and bankruptcycases and federal civil cases. Normally, federal courts have specialized subject matter jurisdiction but it isnot uncommon that they cluster all those subject within themselves. The constitutional suit or amparoproceedings is the federal lawsuit commenced by a person (natural or legal entity) when there is aviolation of rights by a governmental authority. Filing a constitutional action is a right of a person that issubject to high-technical scrutiny. The main principles of this action are: (i) it may only be assertedagainst acts of authorities; thus, (ii) it is an action of a person against abuse of governmental deeds in anyof its spheresLegislative, Judicial or Executive; local, state or federal; (iii) it is exceptional in nature andnormally there has to be an exhaustion of ordinary means of challenge; (iv) the individual involved mustprovide evidence showing having been personal and directly affected in its rights or expected rights.Amparos deal with constitutional issues. The amparo proceedings may be direct or indirect. CollegiateCircuit Courts hear direct amparos. Direct amparos are filed against resolutions or judgments that end ajurisdictional (labor, administrative and civil) procedure. Direct amparos most closely resemble anultimate challenge. On the other hand, District Courts hear indirect amparos, which result in a speedytrial. Judgments rendered by District Courts may be challenged through a federal appeal that will beheard by a Collegiate Circuit Court. Indirect amparos are highly technical and, basically, will be filedagainst (ii) direct violations of individual rights; (ii) final resolutions not rendered by labor, administrativeand civil courts; (iii) irreparable harm caused in a judicial proceedings; and, (iv) acts or laws that havebeen applied for first time in detriment of the individual.The Federal Judiciary (through the Supreme Court and the Collegiate Circuit Courts) may create bindingprecedents known as jurisprudence (jurisprudencia). To create jurisprudence there must be five-non-interrupted cases resolved in the same sense. Likewise, jurisprudence is created when the SupremeCourt resolves a contradiction held between two or more Collegiate Circuit Courts to settle for once andall the proper binding precedent.One of the most attractive features of the amparo is the possibility of obtaining a stay of proceedings orcourt injunction. In no other area of law is a stay of proceedings more widely used with more precedentcreated than in amparo proceedings. Thus, to be able to obtain an injunction or suspension as called inMexico is normally the appeal for lawyers to file an amparo. Any litigation undertaken in Mexico, whether 606.2011 17. in the private or public sector, will inevitably expose the parties involved to an amparowhat it is and howit works.There has been a quite recent amendment to the Mexican Constitution related to amparoproceedings that will give rise to a new Amparo Law. The amendment is currently in theprocess of being approved by at least 17 States of the Federation before becoming effective. Ifapproved, a new amparo law will be enacted with important amendments in the following topics:(i) standing; (ii) jurisdiction of the circuits to create legal precedents; (iii) modifications of the 5-precedent rule of binding precedents or jurisprudence; (i) to incorporate those human rights setforth in international treaties.Mexico, particularly in its larger cities, is experiencing a trend of increasing judicial specialization: judgespresiding over specific areas. In larger cities, where this trend is more apparentsuch as Mexico City,Monterrey and Guadalajarathere are specialized courts for civil and commercial, labor, criminal, andadministrative cases. Nevertheless, despite the shift towards specialization, all cities still have a multi-area judge or magistrate charged with resolving civil, commercial, criminal, labor, and administrativecases. Because multidisciplinary judges are responsible for presiding over such a broad swatch of cases,they often lack the comprehensive knowledge specifically necessary to be effective in any particularlyspecialized or highly regulated area.Furthermore, Federal District Courts also hear cases as trial courts in commercial and federal civil cases.Although commercial law is federal in nature, a constitutional provision authorizes dual-jurisdiction; i.e.that both local and federal courts can hear commercial cases. Consequently, it is very common for localcourts to try the majority of such cases due to the fact that local courts outnumber federal courts and thatfederal courts are devoted primarily to amparo proceedings. When federal courts hear federal civil orcommercial cases the Unitary Circuit Courts act as Court of Appeals.Finally, bankruptcy is another jurisdiction that Federal Courts have absorbed. Thus, trying a bankruptcycase (either as reorganization or bankruptcy) has to be filed before a federal court.2.The Federal Judiciary Council (Consejo de la Judicatura Federal FJC)The FJC monitors performance of all members of the federal judiciary, except for the members of theSupreme Court of Justice, to ensure propriety and compliance with ethics standards. There are 7members of the Council headed by the President of the Supreme Court of Justice.Unlike other countries, federal judges are not elected in Mexico but rather are appointed through aselection process conducted by the FJC. Being part of the full judiciary for an extensive amount of timetypically serves both as a baseline qualification and manner to flag potential candidates. Low-salaries forthe Federal Judiciarya vital fact that informs ones understanding or justifying corruptionis slowlybecoming a reminiscence of the past. Currently, the Federal judiciary at all levels is well-paid. This factoverrides the possibility for a Judge to have alternative sources of income that are currently forbidden.Judges can participate in academic activities and lecturing as such.3.State CourtsState or local courts (i.e., courts within the Federal District) are usually devoted to civil and commercialcases and they specialize depending upon the subject matter: family, leases, wills, and normal civil andcommercial cases. Depending upon the amount involved there are minor courts whose judgments arenot subject to appeal. 706.2011 18. Local Courts Judgments are subject to appeals before the Superior Court of Justice of each state and theFederal District. Local/State Courts depend upon the government of each state. Since the budget ofeach state so varies, then, salaries of Judges do too. Likewise, appointments differ form state to state.Most of the states have a surveillance authority to monitor ethical and proper performance of Judges.4.Court ClerksFederal or local judges have an extensive workload. It is not uncommon for a Judge to handle between800 and 1000 dockets every year that could last from simple collection cases to very complex issues oflaw. Likewise, proceedings are largely written and, therefore, the day in court as known in othercountries has not the same meaning in Mexico. Hearings are not normally presided by the Judge butrather by the Court Clerk or Secretary to record the appearances and arguments in a hearing or cancertify as to the content of a docket. This flaw will change in the near future at least in the criminal areadue to important amendments within the Mexican Constitution that makes compulsory for the Judge to bepresent in all hearings. Court clerks may prepare drafts of important rulings or the judgment itself.However, the content of the judgment is the Judges primary responsibility. This activity provides CourtClerks sufficient experience that serve them to escalate in the judiciary until such timing that they can beappointed as Judges.5.District AttorneysPublic prosecutors or District Attorneys (Ministerio Pblico) are relevant actors in criminal proceedings asshown below but they play certain role in bankruptcy, family, estate, and amparo proceedings. Theyspeak for the general public. In reality, it is odd that public prosecutors take a leading role in thoseproceedings since they usually devote their time to criminal cases and their importance is underestimatedin those areas outside such scope.6.Administrative and Tax CourtsAdministrative and Tax Courts have become more important since there has been an important growth ingovernmental activity in all spheres: federal, state and local. Likewise, there has been an increasingtrend to increase jurisdiction to administrative and tax courts in order to decrease the workload of thefederal district courts. The Tax and Administrative Justice Court (Tribunal Federal de Justicia Fiscal yAdministratva TFJFA) is comprised of a Superior Chamber located in the Federal District and twenty-one Regional Chambers located within Mexico. The Tax and Administrative Court has jurisdiction to hearcases related to definitive resolutions rendered in administrative law and federal taxes and generalordinances different from regulations.It is worth mentioning that most administrative authorities can serve as self-review authorities if theindividual challenges the resolution so rendered through the review-recourse. After this challenge, theindividual could normally file an action/challenge before the Tax and Administrative Court as set forthabove. Likewise, most states have a State Administrative Court dealing or that deals with resolutionsrendered by local/State authorities.B. Criminal LawCriminal law in Mexico has both Federal and State nature depending certain features provided by statute. Thus, there is a Federal Criminal Code and Criminal Codes for each of the thirty-one states and the Federal District. Notwithstanding, there are federal and state statutes that set forth criminal provisions although not inserted within the criminal code in such areas as tax, labor, trademark and 806.2011 19. copyrights laws. Likewise, there is the same number of Procedural Criminal Codes. State Criminal and Procedural Codes were mostly modeled after the Codes of the Federal District.Mexican criminal law follows international standards and protects rights under the Constitution such as: (i) there is no crime unless specifically provided by law nullum crime sine lege penale; (ii) a Court of law is the only body entitled to impose punishment; (iii) no retroactive application of criminal laws ex-post facto laws; (iv) the benefit for the accused to receive better conditions derived from ex post facto laws; (v) all persons are innocent unless proven guilty (guilty beyond reasonable doubt); (vi) in case of doubt, the accused must be acquitted/in dubio pro reo; (vii) possibility to obtain bail when no serious crimes are involved; (viii) the right of the accused to remain silent during the proceedings; (ix) the burden of proof relies under the public prosecutor; (x) the right to be put face- to-face (careo) before the persons that testify against the accused; (xi) the right to offer all pertinent evidence available; (xii) the right of the accused not to provide statements before the police and not to remain for more than 48 hours under the District Attorneys detention except for organized crimes. This also encompasses an express prohibition and severe punishment of any torture or similar practice (xiii) the right to receive from a competent Court of Law an order for holding a criminal procedure (auto de vinculacin a proceso) before a Judge or to be released subject to further investigation-; (xiv) the right to have a defense counsel and if defendant refuses to appoint one, then the State will appoint a public defense attorney; and (xv) the right to be judged between four months and one year.Recently there was an important amendment to our Constitution to forbid the death penalty that was held for many years in our Constitution as a reminiscence of the past since neither the Federal nor the State Criminal Codes so implemented. Likewise, there is no life sentence as such. In the same context, Mexico has neither jury trials nor grand jury to make formal indictments.The Constitution provides that a person that is accused for committing a crime has the right to obtain bail, subject to there being no serious crime involved. Federal legislature has followed a different path from certain State Statutes. For example, the Federal Procedural Criminal Code sets forth a detailed and exhaustive list of crimes that are considered serious where no bail will be allowed. On the contrary, the Federal District Code of Criminal Procedural follows a simpler rule whereby if the sum of the minimum and maximum imprisonment punishment divided into two neither equals nor surpasses five years, then, bail is allowed (i.e. 3 to 9 years /2 = 6 years; therefore, the Judge will deny bail).Currently, the main parties within the criminal proceedings are the public prosecutor or District Attorney, the defense counsel (defending the accused) and the Judge. Public or state defense counsel are subject to workload and, unfortunately, time to defend effectively is minimal. Public prosecutors (Ministerio Pblico) play a key role in the criminal proceedings since they have a dual- role. Once a crime has occurred notice should be given to the Public Prosecutor that will act as an investigatory body and public faith authority. It has the authority to grant bail in those cases that no serious crimes are involved and the person is under his/her detention. The public prosecutor will have a group of policemen and investigators under his/her command. Once all investigations have been carried out (including depose witnesses, experts and sub-poena relevant persons), then, it will formally indict the accused person before a competent criminal Court. Once this indictment has occurred (ejercicio de la accin penal), a competent criminal court will issue an arrest warrant (orden de aprehensin), to detain the accused and put him/her before the trial-criminal court. 906.2011 20. Mexican lawmakers have tried to modernize criminal law and have implemented several important amendments that tend to balance the rights of an accused person vis-a-vis the victim of a crime. Currently, the victim of a crime has the right to be informed, collaborate with the District Attorney in the proceedings, to offer evidence, to receive medical and psychological treatment and receive relief in the form of monetary compensation. In the same token, other important amendments are aimed to make federal criminal proceedings faster. As part of this speedy trial, there is a new emphasis in oral and Judges intervention to ensure that rights of the accused are duly respected. Other States are reproducing this model in order to guarantee the respect to the rights to a fair trial and due process.Due to a recent constitutional amendment launched in mid 2008, the main features of criminal law will modify drastically to have a more accusatory (in contrast to inquisitive) and to favor orality rather than written proceedings.C. General Comments about Litigation in MexicoMexico is not per se a litigious society. Largely because litigation is quite expensive (even though courts do not charge filing fees), awarding damages and lost profits is not an easy endeavor, and there are no punitive damages; proceedings tend to be quite lengthy with a strong reliance on form rather than substance, and it is quite difficult to recover legal fees. Likewise, Mexican law provides a different source for trying cases: civil, commercial, administrative, criminal, etc. although trial practice has not reached the complexity and degree of specialization that other countries currently have. Thus, a civil trial-lawyer will cover family, monetary, real estate, estate, professional malpractice and related items. Commercial lawyers will encompass corporate litigation, bankruptcy, breach of contracts, collaterals foreclosures and alike. Notwithstanding, it is more common to find true specialists although they will also manage to handle other areas of law within certain degree of expertise. Thus, there are three main types of legal counsel: (i) general practitioners; (ii) small- litigation boutiques; and, (iii) one-stop or full-service law firms. Contingency fees are not uncommon and are mostly used for collection cases. Combined fix-rates are more used nowadays.However, there has been an increasing trend towards specialization and trying new cases. Legislative changes have created a new kind of State liability (direct and objective) in federal, state and local spheres. Unfortunately, it will only encompass irregular administrative acts and do not include acts or omissions of the legislative and judicial errors. Another area that has experienced certain potential is actions for minority protection that are not followed under labor but rather civil laws. Likewise, there is a strong support to introduce newer and more effective rules for class actions. Beware of the fact that most civil and commercial cases could end in a criminal court since they could be subject to certain strategy from one of the parties to press the other to settle. One common adage under Mexican law is a bad settlement is better than a good litigation.Litigation in Mexico differs from trying a case abroad. There are no jury-trials. Proceedings are written-based rather than holding the day-in-court as known in Anglo-Saxon countries. Pre-trial discovery is very limited and not even close to what the practice in other countries is. Rules of procedure are mostly considered a matter of public order, and, therefore, there is very little scope to modify the statutory rules. Preparing a complaint (or a response) is probably the most important activity during the proceedings since once filed it cannot be subject of subsequent modification or amendment, unless there has not been service of process to the other party (in the case of the complaint). The Court will not grant extensions to answer a pleading or otherwise since legal terms are mandatory. Cases are more written-based than oral, and therefore, it is important to write pleadings with clarity. There are no amended complaints or responses. 1006.2011 21. Due to the fact that Mexican law has limited discovery and there are strict rules as to the filing of evidence and cross-examination and no prior deposition of witnesses, procedures therefore tend to follow more formal or legal defenses than important fact-disclosure. Among those formalities it is very frequent to challenge the authority of the attorney-in-fact appearing on behalf of one of the parties. In this token, powers of attorney coming from abroad are a common source of challenge and, therefore, it is important to pay special care when drafting them.Another important difference from trying cases in other countries is the fact that Courts will not award punitive, consequential or indirect damages. Mexican law follows a direct and immediate consequence of the breach-test. This applies for both damages and lost profits. In practice, it is difficult to obtain multi-million dollar awards on damages unless there is a liquidated damages clause that will avoid proving the existence of damages and would rather be aimed to evidence the existence of the breach, and hence, the penalty application. Arbitration cases pose a little more damage-flexibility as to awarding damages but always subject to such golden rule.Litigation in Mexico is not an easy task. Mexicos statutes still rely heavily on formalistic issues over the substance of the dispute. Judges are work loaded and the time to be devoted to the case is minimal. Thus, there is a huge task for trial-attorneys to call the attention of the Judges and Court Clerks to address the merits of the case in order not to have the case dismissed for formalistic issues that will serve for the statistic but not for judgment-quality. Legal costs are outdated. Trying cases outside of the big three cities becomes much more difficult for the lack of experience of the judiciary for certain complex business contracts or torts. Thus, having all these ingredients altogether make it difficult for a business person (and even to non-Mexican legal counsel), to understand the inner works of litigation in Mexico. In fairness we must say that the Judiciary is making its best efforts to improve facilities to dignify administration of justice, as in the case of the Federal District.D. ArbitrationThe complexities of a global world and the difficulties that may pose to convince a foreign party to have a forum choice-clause to Mexican courts, have led to choose arbitration to resolve disputes in commercial transactions. Mexico is an arbitration-oriented country that has modeled its Commercial Code to international standards (mainly the 1985 UNCITRAL Model Law. Mexico is a party to both the 1958 New York Convention for the Recognition and Enforcement of Foreign Arbitral Awards and the 1975-Inter-Amercian Convention on International Commercial Arbitration).International treaties ratified and adopted by Mexico, current legislation and an increasing and open- minded support of the Mexican Courts will have to provide a growing confidence that arbitration agreements and awards are to be recognized and enforced. There is an increasing conscious that only in exceptional circumstances these will be either set-aside or their recognition and enforcement denied. Foreign judgments also can be indeed enforced although they follow different rules since there is no international treaty dealing with those issues as, by contrast, the 1958 New York Convention.There are several domestic and foreign organizations specialized in arbitration such as the Mexican Arbitration Center (Centro de Arbitraje de Mexico CAM), Mexican Chapter of the International Chamber of Commerce (ICC), and the Arbitration Commission of the National Chamber of Commerce (Cmara Nacionl del Comercio CANACO) that have been very active in fostering arbitration in our country.1106.2011 22. There has been a quite recent amendment in January 2011 to foster and improve arbitration related issues, such as assistance of courts, referral to arbitration, provisional measures, setting aside proceedings and recognition and enforcement of arbitration awards. 1206.2011 23. IV. Important Positions to Know1.LawyerMexican lawyers normally course a five-year law school program. While studying or immediately after graduating from law school, individuals usually work for a firm or government agency as a clerk (pasante) until they write a thesis and pass an oral exam to become licensed (Abogado or Licenciado en Derecho). After passing the licensing exam (that may be administered by the law school attended), individuals are addressed as Licenciado, abbreviated as "Lic." when written before the attorneys name. There are no independent bar exams, and the Ministry of Education grants the licenses (cdula profesional) to practice law.In Spanish licenciado is the first degree awarded at the university level; it corresponds to a bachelors degree. Although there are licenciados in numerous academic disciplines such as economics, history, and business, the title is generally identified with the law degree.Although teaching techniques are evolving, current teaching in law school is based on a modern version of the lecture method, which allows students to ask questions and engage in classroom discussion. Because case study is not part of the curriculum, the Socratic method is unknown, although there has been an increasing interest for such system and a new impetus for gathering a master degree-abroad and mainly in non-Spanish speaking countries. This is specially so in certain areas where oral skills and rethoric are essential (such as criminal law and arbitration).Mexican lawyers are licensed to practice throughout Mexico, not in individual states. There is no integrated bar or requirement to join a bar association. Rather, bar associations in Mexico operate as voluntary associations. Thus, there is not a bar exam that has to be taken or admitted, but there is current discussion to that end. Therefore, the disbarment concept does not resemble to the US- English concept and rather has to be treated as a civil-criminal behavior. The Mexican Bar Association (Barra Mexicana de Abogados BMA) is the more serious and recognized bar association.2.Notary PublicNotary Publics in Mexico are empowered by local governments with the authority to assert publica fides upon the events they witness or as compulsory formality to certain legal acts.Becoming a Notary Public is a lengthy process although in some states this may vary. In Mexico City becoming a notary public implies an approval exam of his peers and members of the government. In other entities, upon invitation by the government, a lawyer who has apprenticed for a number of years with another Notary Public takes an exam and, if he passes, receives a governmental permit to practice.1306.2011 24. A number of documents and agreements need to be created or validated by a Notary Public in order to be fully enforceable in Mexico - mainly real estate ownership transfers, real estate guaranties, incorporations, powers of attorney and wills.Notary Publics actions are documented through the issuance of public deeds. In most cases, a Notary Public will issue a first true copy of a public deed and thereafter as many certified copies as necessary. First transcripts are of utmost legal importance and normally should be recorded with the Public Registry to produce effects vis--vis third parties and be guarded carefully.In most of the Mexican territory Notary Publics fees are subject to rates; however, within legal limits, fees may be negotiated on a case-by-case basis.Mexico allows commercial public brokers (corredores pblicos) to serve as notary publics for commercial transactions (i.e., creation of commercial companies), appraisers, and mediators and arbitrators. This alternative for providing legal form to certain commercial transaction had a new impetus after NAFTA entered into effect. Notwithstanding, commercial public brokers have not been able to become a true alternative to notary publics yet and for certain true-nature transactions will not ever be (i.e. real-estate purchase, creation of regular mortgages, etc.).3.Customs BrokerTo the extent that companies involved in business in Mexico have some foreign trade operations, it is important that those operations strictly comply with applicable rules on imports and exports.The customs broker is the person responsible for ensuring that the proper paper work and tariff classifications are used for products imported or exported by the company.Thorough analysis of rules of origin is key to avoiding mistakes that may cause additional duties, fees and possibly even fines to be charged in the future.4.Accountants and AuditorsAlthough this should not come as a surprise, it is important for companies to keep proper accounting books and records and to, inter alia, file tax returns in a timely matter. Under Mexican law accounting records must be kept for no less than five years for tax matters, and ten years in respect to that information of a commercial nature.As a general rule, a formal external audit of financial statements is voluntary; however, if a business exceeds certain thresholds of income or number of employees, such audit will become compulsory for tax purposes.1406.2011 25. V.Practical Differences about Doing BusinessA. IntroductionDespite Mexicos openness to trade and investment, it has its own unique traditions, culture, and way ofdoing business. Some differences have a tremendous impact on the day-to-day aspects of doingbusiness with Mexico and inevitably give rise to certain clashes on the part of both the businesspersonfrom abroad and his or her Mexican counterpart.At worst, these clashes mount to the point where otherwise-desirable ventures fall apart, at great cost toall participants. By recognizing and understanding the differences in conducting business in Mexico wecan keep cross-cultural clashes to a minimum, and increase the chance of success.This chapter does not attempt to provide a complete answer to all cross-cultural issues that arise whenpersons from other countries do business in Mexico. Such a definitive work would require an extensivestudy and hundreds of pages. Rather, it provides an overview of some of the cultural differences that maybe encountered and offers some simply suggestions to guide around some of the most common pitfalls.B. Tips on Dealing with your Mexican Counterpart1.Avoid MisunderstandingsMisunderstandings between businessmen and women from abroad and their Mexican counterpartsgenerally fall into two categories: substantive and incidental misunderstandings. A substantivemisunderstanding arises when one party fails to agree on the general purpose of a joint activity or ignoresthe consensus that it reached. The classic and most extreme example occurs when one party acts tobuild a successful long-term enterprise out of the venture, while the other treats the investment as avehicle for short-term profit.Substantive misunderstandings also typically occur when the parties fail to perform reasonable duediligence or fail to take the normal precautions that would prevail in a purely domestic commercialrelationship. Surprising numbers of sophisticated business people tend to drop their guard whenapproached by a cultured foreigner speaking fluent English and promising great riches. Substantivemisunderstandings generally can be avoided by realizing that doing business in Mexico poses the samerisk, as does anywhere else, and acting accordingly.Incidental misunderstandings are far less significant, but much more likely to occur. Incidentalmisunderstandings generally flow from the different perspectives that each party brings to therelationship, and the fact that one party will be dealing in a foreign language.The best remedies tend to be time, flexibility, and seeing that key personnel in both countries havesufficient contact with their counterparts to become familiar with each others way of doing business. Thecomparatively nominal investment of bringing key Mexican personnel to ones home office from time totime can pay handsome dividends, as can periodic travel in the other direction.As for language, the first step toward solving the problem is to recognize it exists. Many Mexicanprofessionals speak English with such a high degree of fluency that persons from other countries, say the1506.2011 26. United States, lose sight of the fact that a language barrier, albeit a very slight one, exists. This oversightcan be dangerous. While everyone may appear to be on the same level in a fast-paced discussion, allparties may not always understand certain points. As a result, parties sometimes leave the conversationwith different understandings of what is to occur.There are at least two simple ways to minimize potential misunderstandings. First, before holding animportant conversation (particularly where the conversation will occur by telephone), provide theparticipants in advance with a written outline of the points to be covered. This gives everyone anopportunity to think about the same issue as opposed to figuring out what the issues are when theconference begins. Second, following up with a written confirmation of the plan of action agreed upon,the advice given, etc. ensues that no miscommunication has occurred and that all parties are on the samepage.2.Learn the Local Business ScheduleAlthough businesses in Mexico operate on a fairly standard schedule, it is one that is different from thatfollowed in many other countries. The normal business day in Mexico City begins around 9:00 a.m.Lunch runs from 2:00 p.m. to 4:00 p.m. The day ends at 7:00 p.m. or later. Other cities within Mexicoeven closed their business during lunch time. Likewise, the sense of responsiveness may be quiterelaxed in cities different from Mexico City, Monterrey and Guadalajara.Persons doing business in Mexico are well advised to obtain a Mexican calendar to prepare fordifferences in holidays observed; business tend