Volume 19, Issue 7 Page 1 nafta@naftamexico.net

New Federal Competition Law Adopted in Mexico to Improve Competiveness 

A MONTHLY NEWSLETTER ON NAFTA AND RELATED ISSUES

NAFTA Works July - August 2014 * Volume 19, Issue 7

INSIDE THIS ISSUE

1 New Federal

Competition Law Adopted in Mexico to Improve Competiveness

1 Trade Highlights

2 The Expansion of

Industrial Parks Supports Mexico’s Growth

3 NAFTA Related

Events 3 Diario Oficial

4 Success Stories 4 Selected Reading 4 Infrastructure

Projects in Mexico 4 Mexico Economic

Update 5 Profile of Colorado 6 Profile of Yucatan

One of the key goals of President Enrique Peña Nieto is to increase the competitiveness of the Mexican economy and thus to generate high economic growth and more and better jobs. An important mechanism to achieve these goals is a modern and effective economic competition legal framework. With this in mind the Mexican Congress approved on April 29, 2014, the new Federal Law of Economic Competition replacing the preceding law on the subject that dates back to 1992. This new law came into force on July 7, 2014.

This legislation is an important development of the structural reforms which aims at implementing the constitutional amendments of June 2013 in the areas of telecommunications and competition. It purports to remove the obstacles for businesses by increasing the efficiency and ensure a correct functioning of the markets. It also gives the Mexican regulatory authorities more power to enforce anti-trust decisions, and eliminate barriers to entry, while regulating dominant companies.

The new law seeks to regulate the general principle on the prohibition of monopolies, which is already established in the Constitution. The law overhauls the structure of the antitrust regulator and updates regulations by adopting international practices and standards. It strengthens the authority of the newly created Federal Economic Competition Commission (COFECE) as a regulator that covers all economic sectors with the exception of telecommunications, which is regulated by the Federal Telecommunications Institute.

Institutionally, the focal point of the law is to strengthen the COFECE which is an autonomous body, endowed with legal personality and its own budget, independent in its decisions and performance, and professional and impartial in its functioning. The COFECE has now, by virtue of

this new law, broader and stronger attributions to eliminate barriers to competition, command divestiture of assets and issue regulations and opinions.

Regarding the integration of the functions and attributions of the COFECE, the law aims at establishing a system based on checks and balances. In this regard, the new law creates an Investigating Authority in charge of receiving requests of investigations about infringements of the law. While deciding on petitions this authority must adhere itself to the constitutional principle of due process, deciding on their merits, and conducting the investigation, in case of necessity, in an adversarial procedure. In this situation the COFECE will preside over as a panel and subsequently issue a determination.

In order to increase transparency and accountability, the COFECE is obligated to make the transcription of its plenary sessions as well as the agreements and resolutions that are achieved available to the public, with the exceptions laid out in the legislation such as those regarding the confidentiality of the information.

Among its new powers, the regulator has comprehensive authority to investigate and determine the lack of effective competition, the presence of barriers to competition and free access to markets, the existence of essential inputs and facilities that generate anticompetitive behaviors in a market, and consequentially the power to impose corrective measures.

The new law defines barriers to competition, in general, as existing market restrictions that interfere with its proper functioning. In the case that the authority orders the sale of assets, the enforcement of the decision is subject to a

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judicial stay pending the exhaustion of the legal procedure. The new law establishes that assets divestiture may be ordered as a maximum sanction when the COFECE has determined that an economic agent recurs into a monopolistic practice previously sanctioned by the authority. In regards to regulations that limit and distort free market competition, the COFECE will only issue a recommendation to the competent authority.

Regarding concentrations, the new law maintains the thresholds set previously but introduces relevant changes such as a making it mandatory to wait up to 60 business days in any case for obtaining the authorization from the COFECE to close a transaction such as sale of shares or assets and mergers. It also permits the authority to seek information from third parties and government agencies, and allows companies to propose conditions in order to support the approval.

The new law also adds new conducts subject to sanctions concerning absolute monopolistic practices such as any exchange of information among competitors with the purpose or effect of price manipulation, impact supply of goods and services, market segmentation and collusion on proposals in private or public biddings and auctions. Moreover, it penalizes any coordination related to the participation not only in public biddings as set forth in the previous law, but also in all types of private bidding processes. On relative monopolistic practices, the new legal framework extends sanctions to include denial, restriction or discriminatory access to an essential inputs or facilities, and margin squeeze related to an essential facility. It also considers sanctions to occasional sales below cost in addition to only systematic sales that were defined by the former law.

Regarding sanctions, the new law strengthens those covered by the previous legislation. Hence, new fines and penalties are in place such as the divesture of assets, regulation of essential inputs and facilities and restrictions to individuals to act as a board member, executive or agent as a consequence of their direct or indirect participation in an illicit monopolistic practice or merger, including alteration or destruction of relevant information when investigations are conducted. Administrative sanctions may be imposed up to 10% of an infringer’s income in addition to civil and criminal liabilities carried on. As a part of the legislative package, the Federal Criminal Code was modified to include the illegal behaviors in accordance to the new competition law.

With this structural reform to the way markets function in the country, Mexico shows a strong commitment to its transformation into an international economic leader by promoting efficiency and competition throughout the economy. The Expansion of Industrial Parks Supports Mexico’s

Growth By opening markets, Mexico has consolidated its position as a strategic manufacturing center and a global trade hub in the last two decades. Mexico has become the world’s 11th largest exporter, with total exports expanding 630% since 1993 to exceed $380 billion last year. Manufactured goods accounted for more than 83% of total exports in 2013, contributing significantly to Mexico’s economic growth.

With a leading manufacturing export based economy growing at an annual average of 11% in goods sales to the world since 1993, Mexico’s manufacturing exports exceeded $350 billion in 2013. Nowadays Mexico is increasingly demanding high quality industrial real estate across the country to place new export capacity. Thus, Mexico’s growing development of industrial parks signals an important series of global changes regarding manufacturing investment decisions.

Mexico counts with a privileged market access to forty five countries through free trade agreements, extensive modern

infrastructure, high quality and productive labor force, which allows the development of an export platform due to its strategic geographic location. These competitive conditions have reinforced Mexican global competitiveness and encourage foreign direct investments (FDI) inflows. As a result, global companies have established a manufacturing base in Mexico to expand their business to North and South American, European and Asian markets. In 2013, the FDI reached $38 billion, 73% of this amount was targeted to the manufacturing sector alone. Since 1999, this sector has received $170 billion in FDI, nearly half of those inflows until March 2014, which a portion of this amount was invested in industrial parks.

The current supply chain is more complex than ever before, since companies are being exposed to high external risks out of their control, such as geopolitical uncertainty, natural disasters, trade protectionism and higher transportation costs. Having manufacturing near customers also gives companies better flexibility to respond to customers changing needs. Consequently, business are adopting new strategies with shorter production chains in order to maintain its network of suppliers and innovation centers located near their own production facilities and consumption markets. Therefore, an increasing number of companies are relocating to Mexico as a part of this reshoring phenomenon to improve their supply chain integration.

Mexico’s manufacturing boom contributes to industrial real estate activity, and more importantly, it has the ability to raise the demand of high quality industrial parks located across Mexico. According to the report published by the Mexico City-based think tank CIDAC, entitled “Reshoring Mexico 2014”, there has been a growth in the development of industrial parks in the thirty-two Mexican states, totaling 661 parks, despite the high number of industrial parks previously located in the northern region. The report identifies eight industries: appliances, computers and electronics, plastics and rubber, metal mechanics, transport equipment, furniture, electrical equipment and medical devices that are significantly attracting more investments.

In respond to this growth in demand, the Mexican industrial parks developers (AMPIP) are committed to offer (1) certainty regarding legal aspects such as land ownership, operating permits and compliance with the regulations; (2) innovative infrastructure capable of providing basic services, industrial buildings, architectural design, landscaping and maintenance of facilities; and (3) security measures such as internal monitoring systems, regulations and protocols in occasional emergencies.

Bearing in mind Mexico’s government recognition of a rapid growth in the industrial real estate sector, regulated mechanisms are vital to promote a unified criteria to gain the trust of prospective investors. Therefore, the Mexican Standard (NMX-R-046-SCFI-2011) has been established to provide accurate evaluations that carefully certify the efficacy, quality and benefits of industrial parks in Mexico.

In addition, Mexico has embarked in an ambitious reform agenda that among other goals opens to domestic and foreign investments key sectors such as energy, telecommunications and banking. As a result, Mexico will continue achieving strong competitiveness gains and expanding business opportunities for industrial real estate developers.

Due to the increase of global competition, companies have realized the vital role trade plays in their competitiveness and innovation. Hence, global companies are increasingly aware that other key elements than labor costs substantially improve production chains leading to better outcomes. Mexico is an excellent option for foreign investments given its strategic geographic location, qualified labor, and opportunities for growth. As a result, industrial parks supply has improved in quality and diversity to meet demand and support growth in the foreseeable future.

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NAFTA Related Events

PUBLISHOP August 20th-22nd, 2014 Tradeshow for the advertising industry. Location: World Trade Center, Mexico City Phone: 52 (55) 5575-9305 Contact information: informes@publishop.com.mx Website: www.publishop.com.mx

FESPA MEXICO August 21st-23rd Event that displays printing technologies and products Location: Centro Banamex, Mexico City Phone: +52 55 5203-5029 E-mail: berenice.gallegos@fespa.com Website: www.fespamexico.com

ESPACIO SEDE DEL REGALO August 25th -28th, 2014 Trade show of the gifting industry. Location: Centro Banamex, Mexico City Phone: 52 (55) 5276-6380 E-mail: registro@espaciosalpro.com; salprojuan@yahoo.com.mx Website: http://www.espaciosalpro.com/

EXPO EFICIENCIA ENERGÉTICA August 27th-29th, 2014 Exhibition focusing on the energy efficient technical solutions. Location: Cintermex. Monterrey, Nuevo León Phone: 52 (81) 8369-6660 E-mail: info@expoeficienciaenergetica.com Website: http://expoeficienciaenergetica.com/

SAPICA August 27th -30th, 2014 Trade show of technical and professional experts in the footwear and leather goods industry. Location: Poliforum León. León, Guanajuato Phone: +52 (477) 152-9000, ext. 9061 E-mail: prereg@sapica.com; info@sapica.com Website: http://www.sapica.com/eng/

EXPO NACIONAL FERRETERA August 28th-30th, 2014 Tradeshow for the hardware, electric and construction industries. Location: Expo Guadalajara. Guadalajara, Jalisco. Phone: 52(55) 5636-0460 E-mail: jgarcia@reedexpo.com; eseveral@reedexpo.com Website: http://www.expoferretera.com.mx/

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

Decree that approves the 2014-2018 National Program of the Sugarcane Agroindustry. June 2nd.

Preliminary resolution for the review of the countervailing duty order imposed on imports of RG type coaxial cable, with or without messenger, originating from China (Mexican tariff items 8544.20.01, 8544.20.02 and 8544.20.99). June 5th.

Circular letters INDAUTOR-09 and INDAUTOR-10 announcing

the guidelines for the operation of the International Standard Book Number (ISBN) Registry and the International Standard Serial Number (ISSN) Registry respectively, as well as modifications to blank formats to submit procedures before the National Copyright Institute. June 5th and 6th.

Decree enacting the Development Cooperation Agreement between Mexico and Costa Rica. June 11th.

Decree enacting the United Nations Convention on Jurisdictional Immunities of States and their Property. June 11th.

Notice SE/I-14/03,S which allows the Technical Committee of the National Council of Standardization and Certification of Labor Competencies to approve the indicated standards. June 12th.

Amendment to the Commerce Code, the Business Corporations General Law, the Investment Funds Law, the General Law of Mercantile Titles and Credit Operations, the Federal Law of Administrative Fees and the Federal Public Administration Law, in relation to commercial issues. June 13th.

Decree that modifies the official announcement to participate in a public bidding process granting the concession for use and commercial exploitation of transmission channels for the provision of the public service’s digital broadcast television to create two national chains in Mexico (Tender No. IFT-1). June 13th.

Amendment to article 123 of the Mexican Political Constitution related to child labor. June 17th.

Notice suspending the tariff rate quota and its allocation mechanism to import beans during 2014. June 20th.

Amendment to the tariff rate quota to import chicken meat. June 20th.

Resolution concluding the countervailing duty order review imposed on imports of liquid sorbitol grade USP originating from France (Mexican tariff item 2905.44.01). June 23rd.

Resolution that declares the initiation of the countervailing duty order review imposed on imports of cold-rolled sheet originating from Russia and Kazakhstan (Mexican tariff items 7209.16.01 and 7209.17.01). June 25th.

Final resolution of the countervailing duty order review imposed on imports of polyester staple fibers originating from Korea (Mexican tariff items 5503.20.01, 5503.20.02, 5503.20.03 and 5503.20.99). June 26th.

Mexican Official Standards

Amendment to NOM-059-SSA1-2013, good manufacturing practices for medicinal products. June 6th.

Draft to modify NOM-026-FITO-1995 that establishes cotton plant pests control measures. June 10th.

Draft PROY-NOM-012-SCT-2-2014, with regards maximum weight and dimensions for motor vehicles transiting on federal roads. June 11th.

Responses to comments received on the draft PROY-NOM-090-SCFI-2013, portable disposable and rechargeable lighters - safety specifications. June 16th.

Clarification to NOM-001-SECRE-2010, natural gas specifications. June 17th.

Draft to modify NOM-027-SESH-2010, integrity management of hydrocarbons collection and transportation pipelines. June 27th.

Amendment to NOM-044-SEMARNAT-2006, establishing the emission limits for total hydrocarbons, non-methane hydrocarbons, carbon monoxide, nitrogen oxides, particles and opacity for new heavy-duty diesel engines. June 30th.

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

On June 23rd, the U.S. Supreme Court refused to hear an appeal by an American truck driver from a trade group who challenge a section of a Department of Transportation cross-border trucking program on driver’s licenses. This decision upheld a July 2013 ruling by the D.C. Circuit, which stated that the program could allow commercially licensed Canadian and Mexican truckers to operate in the U.S. in accordance to existing agreements between those two countries and the U.S., cementing the legal certainty of the program.

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Renault-Nissan and Daimler to Jointly Make Cars in Mexico Daimler and Renault-Nissan significantly expanded their auto-making alliance by building a production plant in Mexico through a 50-50 joint venture, which will build premium compact Mercedes and Infiniti vehicles. The companies will invest $1.4 billion in a plant in Aguascalientes where Nissan already has a major production operation. The vehicles produced will share several components and some of the costs of developing the new vehicles. Production is planned to start by 2017, and by the time the Mexico plant reaches full capacity in 2021, it will be able to produce 300,000 vehicles a year and will employ 5,700 people.

PPG Industries to Acquire Comex Pittsburgh-based chemicals maker PPG Industries, which supplies coatings for the auto and aircraft industries, agreed to acquire the Mexican coating company Comex for $2.3 billion. PPG Chairman Charles E. Bunch said the acquisition is complementary to the paint and coatings maker’s business because it “adds a leading architectural coatings business in Mexico and Central America, a region where we have negligible architectural coatings presence.” Mexico City-based Comex manufactures coatings and related products and reported sales of roughly $1 billion in 2013 through a network of 3,600 stores.

Cargill Taps Mexico Tilapia Growth with New Feed Plant Minnesota-based agribusiness Cargill will tap into the growth in tilapia production in Mexico with a new feed plant. The company is currently building a 60,000 metric ton feed plant in Tehuacan, Puebla, with a production starting in January 2015. The facility will have an extrusion line that will enable it to produce tilapia feed in the southeast region of the country where tilapia fish production is growing. Mexicans consume around 130,000 tons of tilapia per year and tilapia production rose from 6.6% to 80,000 tons last year.

Facchina Group Sold to Mexico’s ICA Facchina Construction, a division of the Maryland-based Facchina Group, has been bought by the Mexican construction firm ICA for $60 million. “The best way to continue to develop the Facchina Group is to join forces with an international construction and infrastructure group,” Paul Facchina said. Some of the company’s more prominent projects in the Washington, D.C., region include the 11th Street Bridge reconstruction, Intercounty Connector and U.S. Capitol visitor center. In Florida, the company built the New World Symphony campus expansion and American Airlines Arena. The purchase of Facchina is ICA’s first foray into the U.S.

BRP to Build 3rd Manufacturing Plant in Mexico Canadian-based BRP Inc., the former recreational vehicles division of Bombardier, will invest $55 million to build a third manufacturing plant in Mexico. The new plant will employ 900 full-time workers nearly half of the Quebec company's global workforce. The 46,000-square-metre plant will be completed by 2017, supporting an expansion of Can-am off-road vehicles to meet future demand. BRP's main plant in Juarez employs 1,600 while its facility in Queretaro is expected to ramp up from 600 employees to reach 1,000 by the end of 2014.

Mega-regional Trade Agreements: Game-Changers or Costly Distractions for the World Trading System?

The World Economic Forum’s Global Agenda Council on Trade & Foreign Direct Investment presents the report “Mega-regional Trade Agreements: Game-Changers or Costly Distractions for the World Trading System?” The objective of this document is to explore the impact that mega-regionals may have on countries that are not part of the negotiations. It highlights opportunities and challenges in promoting the coexistence of these agreements with the multilateral trading system.

http://www.weforum.org/reports/mega-regional-trade-agreements-game-changers-or-costly-distractions-world-trading-system-0

Infrastructure Projects in Mexico

Cardel-Poza Rica Highway Sponsor: Ministry of Transport and Communications (SCT) Location: Veracruz Project Value: $269 million

A consortium led by Mota-Engil, a Portuguese industrial conglomerate, has won the tender for Mexico's Cardel-Poza Rica highway concession. The 30-year concession covers the construction and operation of a 129 km stretch of highway between Laguna Verde and Gutiérrez Zamora, improving connections in the coastal region of Veracruz State as well as connections to the Veracruz port. The constructions are expected to be completed in 2017.

Business Opportunities: engineering, financing, construction materials, heavy machinery, signaling equipment. Centenario Natural Gas Pipeline Sponsor: Ministry of Transportation and Communications (SCT) Location: Zacatecas Project Value: $60 million

Mexican President Enrique Peña Nieto officially marked the start of construction of the Centenario natural gas pipeline in the northern state of Zacatecas. Centenario will supply the local industrial sector by generating energy cost savings of more than 50% if it switches to natural gas. The 173km privately funded pipeline will have an initial transportation capacity of 20Mf3/d (566,000m3/d). In a second phase of development, with the addition of a pumping station, capacity will be doubled.

Business Opportunities: engineering, steel pipelines, construction materials, heavy machinery, pressing equipment, control instruments.

Success Stories Selected Reading

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Colorado

In 2013, Colorado's exports to Mexico reached $918 billion, up $763 billion from their level in 1993. Among all U.S. states, Colorado was ranked 30th as an exporter of goods to Mexico in 2013. In 20 years of NAFTA, Colorado's exports to Mexico have increased by 494%, while those to the rest of the world rose 147%. This means that the export growth rate to Mexico is 3.3 times higher than its export growth rate for the rest of the world. Since NAFTA was implemented, Colorado's sales to Mexico have grown at an annual average rate of 9.3%. In 2013, the exports to Mexico increased by 8.1% with respect to the previous year. Mexico is an important trading partner to Colorado. It was ranked as the 2nd largest export market for goods from Colorado in 2013, illustrating the impact of NAFTA for Colorado's growing businesses. Mexico accounted for 10.6% of Colorado's exports worldwide in 2013.

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

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

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