Código Fecha Clasificación Origen
09MEXICO160 21 January 2009 No clasificado Embassy Mexico

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DE RUEHME #0160/01 0212238
R 212238Z JAN 09




E.O.12958: N/A

REF: 08 STATE 123907

Openness to Foreign Investment

1. Mexico is open to foreign direct investment (FDI) in most
economic sectors and has consistently been one of the largest
recipients of FDI among emerging markets. In recent years, Mexico
has become increasingly aware of its loss of competitiveness
relative to other emerging economies, notably China and India, as it
had failed to address serious crime and safety issues or pass much
needed reforms. Recent government successes in the reform agenda
have improved business confidence, underpinning increases in foreign
investment. Mexico has significantly increased the tempo of efforts
against organized crime, but rising narcotics-related violence
remains a cause for concern. Mexico will need progress on both
fronts to regain competitiveness as an FDI destination, particularly
for non-U.S. investors. The current international economic downturn
adds to the challenge, as FDI grows scarcer and investors more

2. Foreign investment in Mexico has largely been concentrated in the
northern states close to the U.S. border where most maquiladoras are
located, and in the Federal District (Mexico City) and surrounding
states. The Yucatan peninsula, historically an area for tourism
investment, has seen industry in other sectors grow due in part to
the ability to quickly send goods from its ports to the United
States. Financial services, automotive and electronics have received
the largest amounts of FDI. Historically, the United States has
been the largest source of FDI in Mexico. U.S. investors provided
39 percent of FDI in 2007.

3. In June 2007, President Calderon created ProMexico, a federal
entity charged with promoting Mexican exports around the world and
attracting foreign direct investment to Mexico. Through ProMexico,
federal and state government efforts, as well as related private
sector activities, are coordinated with a goal of harmonizing
programs, strategies and resources aimed at common objectives and
priorities while supporting the globalization of Mexico’s economy.
ProMexico maintains an extensive network of offices abroad as well
as a multi-lingual website (http://www.investinmexico.com.mx) which
provides information on establishing a corporation, rules of origin,
labor issues, owning real estate in Mexico, the maquiladora
industry, and sectoral promotion plans, among other topics.
ProMexico will coordinate Mexico’s hosting of the 2010 World
Conference of Trade Promotion Agencies in Riviera Nayarit.

4. The Secretariat of Economy (SECON) also maintains a bilingual
website (www.economia.gob.mx) offering an array of information,
forms, links and transactions. Among other options, interested
parties can download import/export permit applications, make on-line
tax payments, and chat with on-line advisors who can answer specific
investment and trade related questions. State governments have also
passed small business facilitation measures to make it easier to
open businesses.

5. Despite progress however, it takes on average 28 days to complete
all paperwork required to start a business in Mexico, against an
average OECD figure of 13.4 days, according to a World Bank study.
The Embassy advises potential investors to contact ProMexico for
detailed information on investing in Mexico.

6. The 1993 Foreign Investment Law is the basic statute governing
foreign investment in Mexico. The law is consistent with the foreign
investment chapter of NAFTA (the North American Free Trade
Agreement). It provides national (i.e. non-discriminatory) treatment
for most foreign investment, eliminates performance requirements for
most foreign investment projects, and liberalizes criteria for
automatic approval of foreign investment.

7. The Foreign Investment Law identifies 704 activities, 656 of
which are open for 100 percent FDI stakes. There are 18 activities
in which foreigners may only invest 49 percent; 13 of which require
Foreign Investment National Commission approval for a 100 percent
stake; 5 reserved for Mexican nationals; and 10 reserved for the
Mexican state. Below is a summary of activities subject to
investment restrictions.


A) Petroleum and other hydrocarbons;
B) Basic petrochemicals;
C) Telegraphic and radio telegraphic services;
D) Radioactive materials;
E) Electric power generation, transmission, and distribution;
F) Nuclear energy;

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G) Coinage and printing of money;
H) Postal service;
I) Airports;
J) Control, supervision and surveillance of ports and heliports.


A) Retail sales of gasoline and liquid petroleum gas;
B) Non-cable radio and television services;
C) Credit Unions, Savings and Loan Institutions, and Development
D) Certain professional and technical services;
E) Domestic transportation for passengers, tourism and freight,
except for messenger or package delivery services.

8. U.S. and Canadian investors generally receive national and
most-favored-nation treatment in setting up operations or acquiring
firms. Exceptions exist for investments for which the Government of
Mexico recorded its intent in NAFTA to restrict certain industries
to Mexican nationals. U.S. and Canadian companies have the right
under NAFTA to international arbitration and the right to transfer
funds without restrictions. NAFTA also eliminated some barriers to
investment in Mexico, such as trade balancing and domestic content
requirements. Local governments must also accord national treatment
to investors from NAFTA countries. Mexico is also a party to several
OECD agreements covering foreign investment, notably the Code of
Liberalization of Capital Movements and the National Treatment

9. Approximately 95 percent of all foreign investment transactions
do not require government approval. Foreign investments requiring
applications and not exceeding USD 165 million are automatically
approved, unless the proposed investment is in a sector subject to
restrictions by the Mexican constitution and Foreign Investment Law
that reserve certain sectors for the state and Mexican nationals
(see Table 1). The National Foreign Investment Commission determines
whether investments in restricted sectors may go forward and has 45
working days to make a decision. Criteria for approval include
employment and training considerations, technological contributions,
and contributions to productivity and competitiveness. The
Commission may reject applications to acquire Mexican companies for
national security reasons. The Secretariat of Foreign Relations
(SRE) must issue a permit for foreigners to establish or change the
nature of Mexican companies.

10. Despite Mexico’s relatively open economy, a number of key
sectors in Mexico continue to be characterized by a high degree of
market concentration. For example, the telecommunications,
electricity, television broadcasting, petroleum, beer, and tortilla
sectors feature one or two or several dominant companies (some
private, others public) with enough market power to restrict
competition. The Mexican Congress strengthened the enforcement
powers of the Federal Competition Commission (CFC) in 2006 and is
considering stiffer penalties for anti-competitive conduct, but the
CFC remains weak relative to its OECD counterparts in terms of
enforcement. CFC Commissioner Eduardo Perez Motta and leading
members of the Calderon Administration, including the President,
have publicly committed to opening up the Mexican economy to greater
competition. For more information on competition issues in Mexico
visit CFC’s bilingual website at: www.cfc.gob.mx.

11. ENERGY: The Mexican constitution reserves ownership of petroleum
and other hydrocarbon reserves for the Mexican state. The energy
reform package approved by the Mexican Congress October 2008 did not
address this prohibition, and oil and gas exploration and production
efforts remain under the sole purview of Pemex, Mexico’s petroleum
parastatal. The constitution also provides that most electricity
service may only be supplied by two state-owned companies, the
Federal Electricity Commission (CFE) and Central Power and Light
(LYFC). There has been some opening to private capital. Private
electric co-generation and self-supply are now allowed. Private
investors may build independent power projects but all of their
output must be sold to CFE in wholesale transactions. Private
construction of generation for export is permitted. In 1995,
amendments to the Petroleum Law opened transportation, storage,
marketing and distribution of natural gas imports and issued open
access regulations for Pemex’s natural gas transportation network.
Retail distribution of Mexico’s natural gas is open to private
investment, as is the secondary petrochemical industry. Since the
government’s announcement in August 2001 that national and foreign
private firms will be able to import liquefied petroleum gas
duty-free, LNG terminals in Tamaulipas state and Baja California
have begun operations, and CFE plans to build a third in Manzanillo,
on Mexico’s Pacific Coast.

12. Finance Public Works Contracts (COPFs), formerly Multiple

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Service Contracts (MSCs) designed to comply with the country’s
constitution, mark Mexico’s most ambitious effort to attract private
companies to stimulate natural gas production by developing
non-associated natural gas fields. Under a COPF contract, private
companies will be responsible for 100 percent of the financing of a
contract and will be paid for the work performed and services
rendered. However, the natural gas produced in a specific field
remains the property of Pemex. Examples of work that contractors
can perform include seismic processing and interpretation,
geological modeling, fields engineering, production engineering,
drilling, facility design and construction, facility and well
maintenance, and natural gas transportation services. Some Mexican
politicians still oppose COPFs as a violation of the Mexican
constitution’s ban on concessions. Some contracts have failed to
attract any bids, demonstrating the limited success of COPFs.

13. TELECOMMUNICATIONS: Mexico allows up to 49 percent FDI in
companies that provide fixed telecommunications networks and
services. This includes the Cable TV (CATV) industry, with one
exception: companies can issue Neutral or "N" stocks up to 99
percent, which can be owned by a foreign company. In fact, one CATV
company operates under this ownership scheme. There is no limit on
FDI in companies providing cellular/wireless services. However,
Telmex and Telcel (Amrica Msvil) continue to reign as the dominant
telecom fixed and wireless powers and wield significant influence
over key regulatory and government decision makers. Mexico’s
dominant landline and wireless carriers are traded on the New York
Stock Exchange. An initiative is currently in the Congress that
would completely open fixed telephony to FDI.

14. Several large U.S. and international telecom companies are
active in Mexico, partnering with Mexican companies or holding
minority shares. Following a 2004 WTO ruling, international
resellers are authorized to operate in Mexico and some companies are
also looking to sell wholesale minutes to resellers. Telcel
(technically independent, but majority owned by Telmex owner’s Grupo
Carso - Carso Global Telecom) still retains a majority share (about
75 percent) of the cellular market. However, Spain’s Telefonica
Movistar, among others, continues to grow and challenge the status
quo. They have deployed extensive mobile infrastructure to increase
coverage across the country.

15. Telmex continues to dominate the market in Long Distance
(domestic and international), Internet access through DSL, and
bundle services. The Convergence Accord, published in October 2006,
allowed Telmex to offer broadcasting or TV services. However, the
Federal Telecommunications Commission ruled that Telmex must first
comply with interconnection, interoperability and number portability
requirements before receiving permission to complete its triple-play
offering. The accord has elicited strong concerns from the CATV
industry, which fears that it will push CATV operators to
consolidate. Under the accord, CATV operators (including TV
duopolist Televisa’s Cablevision) are allowed to independently offer
Triple Play Service (VoIP-Telephony, Data-Internet and TV-Video),
which might increase competition in the telephony market.

16. As in telecommunications, there are concerns that the two
dominant television companies — Televisa and TV Azteca, who share
duopoly status in the sector — continue to exercise influence over
Mexican judicial, legislative and regulatory bodies to prevent
competition. However, in August 2007 the Mexican Supreme Court
ruled against the most blatant anti-competition measures of the
April 2006 Radio and Television Law. Among other decisions, the
Court ruled that it was unfair for broadcasting companies to keep
and use at no cost analog spectrum freed from the digitalization
process. Currently the Mexican Legislature is working on a new
media law based on the Supreme Court’s ruling.

17. U.S. firms remain unable to penetrate the Mexican television
broadcast market, despite the fact that both Televisa and TV Azteca
benefit from access to the U.S. market.

18. REAL ESTATE: Investment restrictions still prohibit foreigners
from acquiring title to residential real estate in so-called
"restricted zones" within 50 kilometers (approximately 30 miles) of
the nation’s coast and 100 kilometers (approximately 60 miles) of
the borders. In all, the restricted zones total about 40 percent of
Mexico’s territory. Nevertheless, foreigners may acquire the
effective use of residential property in the restricted zones
through the establishment of a 50-year extendible trust (called a
fideicomiso) arranged through a Mexican financial institution that
acts as trustee.

19. Under a fideicomiso the foreign investor obtains all rights of
use of the property, including the right to develop, sell and
transfer the property. Real estate investors should, however, be

MEXICO 00000160 004 OF 014

careful in performing due diligence to ensure that there are no
other claimants to the property being purchased. Fideicomiso
arrangements have led to legal challenges in some cases. U.S. issued
title insurance is available in Mexico and a few major U.S. title
insurers have begun operations here. Additionally, U.S. lending
institutions have begun issuing mortgages to U.S. citizens
purchasing real estate in Mexico.

20. TRANSPORT: The Mexican government allows up to 49 percent
foreign ownership of 50-year concessions to operate parts of the
railroad system, renewable for a second 50-year period. The Mexican
Foreign Investment Commission and the Mexican Federal Competition
Commission (CFC) must approve ownership above 49 percent. In a
positive sign for competition, the CFC recently struck down a
proposed merger between two of the three major railroad companies.
The decision has been appealed. Consistent with NAFTA, foreign
investors from the U.S. and Canada are now permitted to own up to
100 percent of local trucking and bus companies, however, several
companies have encountered long wait times and legal tie-ups when
trying to obtain permits.

21. CINTRA, the government holding company for the Mexican airline
groups, Mexicana and Aeromexico, sold Grupo Mexicana to Grupo
Posadas in December 2005. Grupo Aeromexico was sold to a consortium
led by Citibank-owned Banamex in October 2007. The emergence of
low-cost domestic airlines such as Volaris, Click Mexicana, and
Interjet have increased competition and led to lower prices.
However, foreign ownership of Mexican airlines remains capped at 25
percent. Foreign ownership in airports is limited to 49 percent.
Foreign express delivery service companies continue to complain that
Mexican legislation unfairly favors Mexican companies by restricting
the size of trucks international carriers are allowed to use.

22. INFRASTRUCTURE: Mexican infrastructure investment, with certain
previously noted exceptions, is open to foreign investment. The
Mexican government has been actively seeking an increase in private
involvement in infrastructure development in numerous sectors,
including transport, communications, and environment. Improvement
in the national infrastructure is seen as a key element in
strengthening economic competitiveness and attracting investment to
disadvantaged regions of the country. In July 2007, President
Calderon presented the National Infrastructure Program 2007-2012 a
key aspect of which is an increase in private investment through
means of Service Lending Projects (public-private partnerships) and
concessionary schemes. In October 2008 and January 2009 discourses,
President Calderon underlined his commitment to the National
Infrastructure Program as a countercyclical tool in the face of a
slowing economy. The Office of the President provides an English
language copy of the plan at: www.infraestructura.gob.mx.

Conversion and Transfer Policies

23. Mexico has open conversion and transfer policies as a result of
its membership in NAFTA and the OECD. In general, capital and
investment transactions, remittance of profits, dividends,
royalties, technical service fees, and travel expenses are handled
at market-determined exchange rates. Peso/dollar foreign exchange is
available on same-day, 24- and 48-hour settlement bases. Most large
foreign exchange transactions are settled in 48 hours. In June 2003,
the U.S. Federal Reserve Bank and the Bank of Mexico announced the
establishment of an automated clearinghouse for cross-border
financial transactions. The International Electronic Funds Transfer
System (TEFI) began operating in 2004 and commissions on transfers
through the system have dropped rapidly.

Expropriation and Compensation

24. Under NAFTA, Mexico may not expropriate property, except for a
public purpose and on a non-discriminatory basis. Expropriations are
governed by international law, and require rapid fair market value
compensation, including accrued interest. Investors have the right
to international arbitration for violations of this or any other
rights included in the investment chapter of NAFTA.

25. There have been twelve arbitration cases, of which two are still
pending, filed against Mexico by U.S. and Canadian investors who
allege expropriation, and other violations of Mexico’s NAFTA
obligations. Details of the cases can be found at the Department of
State Website, Office of the Legal Advisor (www.state.gov/s/l).

Dispute Settlement

26. Chapter Eleven of NAFTA contains provisions designed to protect

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cross-border investors and facilitate the settlement of investment
disputes. For example, each NAFTA Party must accord investors from
the other NAFTA Parties national treatment and may not expropriate
investments of those investors except in accordance with
international law.

27. Chapter Eleven permits an investor of one NAFTA Party to seek
money damages for measures of one of the other NAFTA Parties that
allegedly violate those and other provisions of Chapter Eleven.
Investors may initiate arbitration against the NAFTA Party under the
Arbitration Rules of the United Nations Commission on International
Trade Law ("UNCITRAL Rules") or the Arbitration (Additional
Facility) Rules of the International Center for Settlement of
Investment Disputes ("ICSID Additional Facility Rules").
Alternatively, a NAFTA investor may choose to use the registering
country’s court system.

28. The Mexican government and courts recognize and enforce arbitral
awards. The Embassy has heard of no actions taken in the Mexican
courts for an alleged Chapter 11 violation on behalf of U.S. or
Canadian firms.

29. There have been numerous cases in which foreign investors,
particularly in real estate transactions, have spent years dealing
with Mexican courts trying to resolve their disputes. Often real
estate disputes occur in popular tourist areas such as the Yucatan.
American investors should understand that under Mexican law many
commercial disputes that would be treated as civil cases in the U.S.
could also be treated as criminal proceedings in Mexico. Based upon
the evidence presented a judge may decide to issue arrest warrants.
In such cases Mexican law also provides for a judicial official to
issue an "amparo" (injunction) to shield defendants from arrest.
U.S. investors involved in commercial disputes should therefore
obtain competent Mexican legal counsel, and inform the U.S. Embassy
if arrest warrants are issued.

Performance Requirements and Incentives

30. The 1993 Foreign Investment Law eliminated export requirements
(except for maquiladora industries), capital controls, and domestic
content percentages, which are prohibited under NAFTA. Foreign
investors already in Mexico at the time the law became effective
could apply for cancellation of prior commitments. Foreign investors
who failed to apply for the revocation of existing performance
requirements remained subject to them.

31. The Mexican federal government has eliminated direct tax
incentives, with the exception of accelerated depreciation. A fiscal
reform package was passed in September 2007 that includes a Flat
Rate Corporate Tax (IETU). This tax limits the deductions that
companies are allowed, though changes made at the behest of the
business community still allow some credits for previous inventories
and investments, as well as for companies that fall under the
maquiladora scheme. In 2009, the IETU will increase from 16.5% to
17%, and to 17.5% in 2010. Investors should follow IETU
developments closely.

32. Most taxes in Mexico are federal; therefore, states have limited
opportunity to offer tax incentives. However, Mexican states have
begun competing aggressively with each other for investments, and
most have development programs for attracting industry. These
include reduced price (or even free) real estate, employee training
programs, and reductions of the 2 percent state payroll tax, as well
as real estate, land transfer, and deed registration taxes, and even
new infrastructure, such as roads. Four northern states — Nuevo
Leon, Coahuila, Chihuahua and Tamaulipas — have signed an agreement
with the state of Texas to facilitate regional economic development
and integration. Investors should consult the Finance, Economy, and
Environment Secretariats, as well as state development agencies, for
more information on fiscal incentives. Tax attorneys and industrial
real estate firms can also be good sources of information.

33. U.S. Consulates have reported that the states in their consular
districts have had to modify their incentive packages due to
government decentralization. Many states have also developed unique
industrial development policies. Sonora, for example, is working to
expand the free entry area for tourists (south from the border to
the port of Guaymas.) Sonora is one state that has implemented
long-term agriculture and infrastructure development plans. The
government of Yucatan provides information and support to potential
investors and business entrepreneurs through several programs that
target different industries such as technology, agroindustry and
energy exploration. Several states are competing to attract
manufacturing in the aerospace industry.

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34. A government-owned development bank, Nacional Financiera, S.A.
(www.nafin.com), provides loans to companies in priority development
areas and industries. It is active in promoting joint
Mexican-foreign ventures for the production of capital goods.
Nacional Financiera offers preferential, fixed-rated financing for
the following types of activities: small and medium businesses;
environmental improvements; studies and consulting assistance;
technological development; infrastructure; modernization; and
capital contribution. The Mexican Bank for Foreign Trade,
Bancomext, offers a variety of export financing and promotion
programs (www.bancomext.com).

35. Mexico’s maquiladora and PITEX (Program for Temporary Imports to
produce Exports) programs aim to stimulate manufactured exports and
operate in largely the same manner. The first focuses on companies
that specialize in in-bond manufacturing and export, while the
second is for companies that may have significant domestic sales.
In November 2006, the maquiladora and PITEX programs were combined
into the renamed IMMEX (Industria Manufacturera, Maquiladora y
Servicios de Exportacion) program. The IMMEX program adds services,
such as business process outsourcing, to the maquila scheme and also
simplifies and streamlines the processes under the two previous
schemes. The new program continued to exempt companies from import
duties and applicable taxes (e.g. VAT) on inputs and components
incorporated into exported manufactured goods. In addition, capital
goods and the machinery used in the production process are tax
exempt, but are currently subject to import duties. Companies
interested in investing in industrial activity in Mexico need to
follow the new IMMEX guidelines closely, preferably in close
consultation with locally based legal advisors. Two export programs
implemented during the 1990s, ALTEX (Empresas Altamente
Exportadoras) and ECEX (Empresas de Comercio Exterior), also allow
expedited VAT returns and financing from government-owned
development banks. Please refer to the Secretariat of Economy’s
IMMEX program website at http://www.economia.gob.mx/?P=immex.

36. In order to maintain competitiveness of maquiladora and PITEX
companies and comply with NAFTA provisions, since 2001 Mexico has
applied "Sectoral Promotion Programs" (PROSEC). Under these
programs, most favored nation import duties on listed inputs and
components used to produce specific products are eliminated, or
reduced to a competitive level. These programs comply with NAFTA
provisions because import duty reduction is available to all
producers, whether the final product is sold domestically or is
exported to a NAFTA country. Currently PROSECs support 22 sectors,
including electronics and home appliances, automotive and
auto-parts, textile and apparel, footwear, and others. The lists of
inputs and components incorporated under each PROSEC are not
exhaustive, and the Mexican government regularly consults with
industries to include more goods. In December 2008, President
Calderon issued in the Official Gazette (Diario Oficial) an
immediate and gradual reduction of import duties in order for
companies to obtain inputs at competitive prices.

37. In the last four years the Secretariat of Economy conducted, in
partnership with the private sector, 12 studies of the country’s
most important sectors according to their levels of exports,
employment and FDI, called "Programs for Sectoral Competitiveness."
These studies are currently available at the website of the
Secretariat of Economy (http://www.economia.gob.mx/?P=944).

Right to Private Ownership and Establishment

38. Foreign and domestic private entities are permitted to establish
and own business enterprises and engage in all forms of remunerative
activity in Mexico, except those enumerated in Section 1 Table 1.
Private enterprises are able to freely establish, acquire and
dispose of interests in business enterprises. The two most common
types of business entities are corporations (Sociedad Anonima) and
limited partnerships (Sociedad de Responsibilidad Limitada). Under
these legal entities a foreign company may operate an independent
company, a branch, affiliate, or subsidiary company in Mexico. The
rules and regulations for starting an enterprise differ for each


A) Can be up to 100 percent foreign-owned;
B) Must have a minimum of 50,000 Mexican pesos in capital stock to
C) Must have minimum of 2 shareholders, with no maximum. Board of
Directors can run the administration of the company;
D) The enterprise has an indefinite life span;
E) Free transferability of stock ownership is permitted;
F) Operational losses incurred by the Mexican entity or subsidiary

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may not be used by the U.S. parent company;
G) Limited liability to shareholders.


A) Can be up to 100 percent foreign-owned;
B) Must have a minimum of 3,000 Mexican pesos in capital stock to
C) Must have a minimum of 2 partners to incorporate a corporation
with limited liability. The partners must manage the company;
D) Exists only while there is a business purpose and partners remain
the same;
E) Restricted transferability of partnership shares. Any changes in
the partnership composition may cause the partnership to be
F) If structured properly, it may offer tax advantages by allowing
operational losses incurred by the Mexican entity to be used by the
U.S. parent company;
G) Limited liability is afforded the partners.

Protection of Property Rights

39. Two different laws provide the core legal basis for protection
of intellectual property rights (IPR) in Mexico — the Industrial
Property Law (Ley de Propiedad Industrial) and the Federal Copyright
Law (Ley Federal del Derecho de Autor). Multiple federal agencies
are responsible for various aspects of IPR protection in Mexico.
The Office of the Attorney General (Procuradura General de la
Republica, or PGR) has a specialized unit that pursues criminal IPR
investigations. The Mexican Institute of Industrial Property
(Instituto Mexicano de la Propiedad Industrial, or IMPI) administers
Mexico’s trademark and patent registries and is responsible for
handling administrative cases of IPR infringement. The National
Institute of Author Rights (Instituto Nacional del Derecho de Autor)
administers Mexico’s copyright register and also provides legal
advice and mediation services to copyright owners who believe their
rights have been infringed. The Mexican Customs Service (Aduana
Mxico) plays a key role in ensuring that illegal goods do not cross
Mexico’s borders.

40. Despite strengthened enforcement efforts by Mexico’s federal
authorities over the past several years, weak penalties and other
obstacles to effective IPR protection have failed to deter the
rampant piracy and counterfeiting found throughout the country. The
U.S. Government continues to work with its Mexican counterparts to
improve the business climate for owners of intellectual property.

41. Mexico is a signatory of at least fifteen international
treaties, including the Paris Convention for the Protection of
Industrial Property, the NAFTA, and the WTO Agreement on
Trade-related Aspects of Intellectual Property Rights. Though
Mexico signed the Patent Cooperation Treaty in Geneva, Switzerland
in 1994, which allows for simplified patent registration procedure
when applying for patents in more than one country at the same time,
it is necessary to register any patent or trademark in Mexico in
order to claim an exclusive right to any given product. A prior
registration in the United States does not guarantee its exclusivity
and proper use in Mexico, but serves merely as support for the
authenticity of any claim you might make, should you take legal
action in Mexico.

42. An English-language overview of Mexico’s IPR regime can be found
on the WIPO website at: http://www.wipo.int/about-ip/

43. Although a firm or individual may apply directly, most foreign
firms hire local law firms specializing in intellectual property.
The U.S. Embassy’s Commercial Section maintains a list of such law
firms in Mexico at: http://www.buyusa.gov/mexico/en/business_

Transparency of Regulatory System

44. The Federal Commission on Regulatory Improvement (COFEMER) under
the management of the Secretariat of Economy is the agency
responsible for reducing the regulatory burden on business. The
Mexican government has made progress in the last few years. On a
quarterly basis, these agencies must report to the Presidency on
progress achieved toward Presidential goals for reducing the
regulatory burden. In December 2006, President Calderon replaced the
Regulatory Moratorium Agreement, issued by the previous
administration to ensure agencies streamline their regulatory
promulgation processes, with the Quality Regulatory Agreement. The
new agreement intends to allow the creation of new regulations only

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when agencies prove that they are needed because of an emergency,
because of the need to comply with international commitments, or
because of obligations established by law.

45. The federal law on administrative procedures has been a
significant investment policy accomplishment. The law requires all
regulatory agencies to prepare an impact statement for new
regulations, which must include detailed information on the problem
being addressed, the proposed solutions, the alternatives
considered, and the quantitative and qualitative costs and benefits
and any changes in the amount of paperwork businesses would face if
a proposed regulation is to be implemented. Despite these measures,
many difficulties remain. Foreign firms continue to list
bureaucracy, slow government decision-making, lack of transparency,
a heavy tax burden, and a rigid labor code among the principal
negative factors inhibiting investment in Mexico. The Mexican
government, with the OECD, the private sector and several think
tanks, is currently working to implement a project to streamline
bureaucracy and procedures.

46. The Secretariat of Public Administration has made considerable
strides in improving transparency in government, including
government contracting and involvement of the private sector in
enhancing transparency and fighting corruption. The Mexican
government has established several Internet sites to increase
transparency of government processes and establish guidelines for
the conduct of government officials. "Normateca" provides
information on government regulations; "Compranet" allows for
on-line federal government procurement; "Tramitanet" permits
electronic processing of transactions within the bureaucracy thereby
reducing the chances for bribes; and "Declaranet" allows for on-line
filing of income taxes for federal employees.

Efficient Capital Markets and Portfolio Investment


47. The Mexican banking sector has strengthened considerably since
the 1994 Peso Crisis left it virtually insolvent. Since the crisis,
Mexico has introduced reforms to buttress the banking system and to
consolidate financial stability. These reforms include creating a
more favorable economic and regulatory environment to foster banking
sector growth by reforming bankruptcy and lending laws, moving
pension fund administration to the private sector, and raising the
maximum foreign bank participation allowance. The bankruptcy and
lending reforms passed by Congress in 2000 and 2003 effectively made
it easier for creditors to collect debts in cases of insolvency by
creating Mexico’s first effective legal framework for the granting
of collateral. Pension reform allows employees to choose their own
pension plan. Allowing banks or their holding companies to manage
these funds provides additional capital to the banking sector, while
the increased competition focuses fund managers on investment
returns. In December 2007, the Mexican Congress approved amendments
to the Law of Credit Institutions (LIC) that include creating a new
limited banking license and transferring power from Hacienda to the
Banking and Securities Commission (CNBV), the primary banking

48. The financial profile of the banking sector has improved due to
the reduction in the problem assets brought about by write-offs,
problem loan sales, and the conclusion of most debt-relief programs.
These developments, combined with more stringent capital
requirements, have contributed to an improvement in the level and
composition of capital across the banking system, particularly among
the larger institutions.

49. The banking sector remains highly concentrated, with a handful
of large banks controlling a significant market share, and the
remainder comprised of regional players and niche banks. Hacienda
has approved the opening of several new banks since 2006, including
Wal-Mart Bank and Prudential Bank, but the sector’s competitive
dynamics and credit quality are still being driven by the six large
banks-five of which are foreign owned. The newcomers are mostly
focused on the unbanked population (D, E market segments) and will
present only limited competition to the group of old banks.

50. Bank lending, especially consumer lending and mortgages, grew
rapidly in 2005 and 2006, fueled by lower interest rates and
historically low inflation. Small- and medium-sized businesses
still complain of a lack of access to credit, but government-owned
development banks have expanded their lending to this sector.
Despite the expansion, such lending remains low as a percentage of
GDP. Private banks argue that due diligence in lending to such
business is difficult given the large amount of revenue they keep
off the books to avoid increased tax liability.

51. Commercial loans to established companies with well-documented

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accounts are available in Mexico, but many large companies utilize
retained earnings to fund growth. Supplier credit is the main
source of financing for many businesses. The largest companies are
able to issue debt for their financing needs, tapping into a growing
pool of pension funds looking for investment options. Non-bank
financing is generally available, however, only to large companies
with strong credit ratings and important commercial ties with their
suppliers — i.e., companies that could easily procure bank

52. The Secretariat of Finance and Public Credit sets regulatory
policy and oversees the CNBV. Mexico’s central bank, the Bank of
Mexico (BOM), also has a regulatory role in addition to setting
monetary policy. The Institute for the Protection of Bank Savings
(IPAB) handles deposit insurance.

53. Reforms creating better regulation and supervision of financial
intermediaries and fostering greater competition have helped
strengthen the financial sector and capital markets. These reforms,
coupled with sound macroeconomic fundamentals, have created a
positive environment for the financial sector and capital markets,
which have responded accordingly.

54. The implementation of NAFTA opened the Mexican financial
services market to U.S. and Canadian firms. Banking institutions
from the U.S. and Canada have a strong market presence, holding
approximately 70 percent of banking assets. Under NAFTA’s national
treatment guarantee, U.S. securities firms and investment funds,
acting through local subsidiaries, have the right to engage in the
full range of activities permitted in Mexico.

55. Foreign entities may freely invest in government securities.
The Foreign Investment Law establishes, as a general rule, that
foreign investors may hold 100 percent of the capital stock of any
Mexican corporation or partnership, except in those few areas
expressly subject to limitations under that law (Table I).
Regarding restricted activities, foreign investors may also purchase
non-voting shares through mutual funds, trusts, offshore funds, and
American Depositary Receipts. They also have the right to buy
directly limited or non-voting shares as well as free subscription
shares, or "B" shares, which carry voting rights. Foreigners may
purchase an interest in "A" shares, which are normally reserved for
Mexican citizens, through a neutral fund operated by a Mexican
Development Bank. Finally, state and local governments, and other
entities such as water district authorities, now issue
peso-denominated bonds to finance infrastructure projects. These
securities are rated by international credit rating agencies. This
market is growing rapidly and represents an emerging opportunity for
U.S. investors.

Political Violence

56. Potential investors should not find political violence a source
of major concern. Peaceful mass demonstrations are common in the
larger metropolitan areas such as Mexico City, Guadalajara, and
Monterrey. Actual violence generally takes the form of local
conflicts and inter-communal disputes and has occurred mostly in
limited regions of Mexico’s southern states. Since the initial
January 1994 uprising of the Zapatista National Liberation Army
(EZLN) in the state of Chiapas, government forces and the EZLN have
clashed only once, although Chiapas has also experienced unrelated
local violence. The Popular Revolutionary Army (EPR) and the
Revolutionary Army of the People’s Insurgency (ERPI) emerged in June
1996 and June 1998, respectively. They have carried out a number of
small attacks, principally confined to the state of Guerrero.

57. In November 2006, the EPR claimed responsibility for three
explosions in Mexico City, one of which damaged a branch of Scotia
Bank. On two occasions in the summer of 2007, the EPR also claimed
responsibility for bombings of PEMEX pipelines in the states of
Guanajuato and Veracruz. While no injuries were reported, there was
extensive property damage and temporary disruption to flows of oil
and natural gas along damaged pipelines, negatively impacting up to
1000 businesses. Economic losses were reported to be in the
hundreds of millions of dollars.

58. The last half of 2006 saw intense protests in the state of
Oaxaca demanding, principally, the state governor’s resignation.
The capital city of Oaxaca was under siege by demonstrators for more
than five months. Businesses — particularly those in the tourist
sector — reported millions of dollars in losses and many Western
countries, including the United States, issued travel warnings
advising their citizens to avoid the area. At least 11 civilian
deaths, including that of an American journalist, occurred as a
direct result of the violence in Oaxaca and hundreds more were

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injured and/or arrested. State police forces were accused of
denying due process to protestors and using excessive force to
break-up the demonstrations. In response to the escalating
violence, the federal government sent the sent the Federal
Protective Police to restore order. In 2008, Oaxaca remained calm
for the most part and experienced only sporadic disturbances.

59. CRIMINAL AND NARCOTICS VIOLENCE: While political violence has
been relatively minimal, narcotics and organized criminal violence
has spiked over the past three years. As President Calderon
continues a full-court press against the four major cartels
operating in Mexico, kingpins have lashed back with violent acts
unprecedented both in number and nature. 2008 set a new record for
organized crime-related homicides with some 5,500 killings, more
than double the previous record of approximately 2,500 reached in
2007. Violence has been endemic across the country, but
particularly severe in cities bordering the United States. 48
percent of all killings took place in Chihuahua and Baja California
states and were concentrated in large urban areas, presenting new
challenges to the Mexican military and law enforcement’s efforts to
control violence. Cartel tactics evolved as well - victims were
tortured or mutilated, and then left in public venues to intimidate
others. Institutions including major media outlets and a U.S.
Consulate have been subject to unprecedented attack. Moreover,
frustrated traffickers have turned to kidnappings and extortion to
compensate for increased pressure from the Mexican government,
targeting those innocent of any involvement in narcotics

60. The United States is working with Mexico more closely than ever
to combat organized crime and drug trafficking. The Merida
Initiative was signed into law in June 2008 and will provide an
initial $400 million dollars for Mexico. Funding in the first stage
will provide, among other things, helicopters and surveillance
aircraft, non-intrusive inspection equipment, technical advice and
training to strengthen justice institutions to help bolster Mexico’s
interdiction, eradication, and administration of justice.

61. Though not political in nature, the Embassy has noticed that
general security concerns remain an issue for companies looking to
invest in the country. Many companies find it necessary to take
extra precautions for the protection of their executives. They also
report increasing security costs for shipments of goods. The
Overseas Security Advisory Council (OSAC) monitors and reports on
regional security for American businesses operating overseas.
Eligible companies should become OSAC members. OSAC constituency is
available to any American-owned, not-for-profit organization, or any
enterprise incorporated in the U.S. (parent company, not
subsidiaries or divisions) doing business overseas

62. The Department of State maintains a Travel Alert for U.S.
citizens traveling and living in Mexico, available at:
http://travel.state.gov/travel/ cis_pa_tw/pa/pa_3028.html.


63. Corruption has been pervasive in almost all levels of Mexican
government and society. President Calderon has stated that his
government intends to continue the fight against corruption and
government agencies at the federal, state and municipal levels are
engaged in anti-corruption efforts. Aggressive investigations and
operations have exposed corruption at the highest levels of
government. In 2008, Calderon launched "Operacion Limpieza,"
investigating and imprisoning alleged corrupt government officials
in enforcement agencies. The Secretariat of Public Administration
has the lead on coordinating government anti-corruption policy.

64. Other government entities, such as the Superior Audit Office of
the Federation (ASF, the equivalent of the GAO), have been playing a
role in promoting sound financial management and accountable and
transparent government with limited success as most Mexican external
audit institutions (mostly at the state level) lack the operational
and budgetary independence to protect their actions from the
political interests of the legislators they serve.

65. Mexico ratified the OECD convention on combating bribery in May
1999. The Mexican Congress passed legislation implementing the
convention that same month. The legislation includes provisions
making it a criminal offense to bribe foreign officials. A bribe to
a foreign official cannot be deducted from Mexican taxes. Mexico is
also a party to the OAS Convention against Corruption and has signed
and ratified the United Nations Convention against Corruption.

66. The government has enacted strict laws attacking corruption and

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bribery, with average penalties of five to ten years in prison. A
Federal Law for Transparency and Access to Public Government
Information Act, the country’s first freedom of information act,
went into effect in June 2003 with the aim of increasing government
accountability. Mexico’s 31 states have passed similar freedom of
information legislation that mirrors the federal law and meets
international standards in this field. Five years after its
passage, transparency in public administration at the federal level
has noticeably improved, but access to information at the state and
local level has been slow.

67. Mexico is ranked 72nd in international NGO Transparency
International’s Corruption Perception Index for 2008, on par with
China, India, and Brazil. The NGO’s 2008 Bribe Payer’s Index also
named Mexican firms as some of the most likely to use bribes when
doing business abroad. Local civil society organizations focused on
fighting corruption are still developing in Mexico. The USAID-funded
Project Atlatl has worked to coordinate and promote anti-corruption
activities with Mexican civil society (www.atlatl.com.mx) and other
key players in the anticorruption arena, such as federal and state
audit institutions. The Mexican branch of Transparency International
also operates in Mexico. The best source of Mexican government
information on anti-corruption initiatives is the Secretariat of
Public Administration (www.funcionpublica.gob.mx).

Bilateral Investment Agreements

68. NAFTA governs U.S. and Canadian investment in Mexico. In
addition to NAFTA, most of Mexico’s eleven other free trade
agreements (FTAs) cover investment protection, with a notable
exception being the Mexico-European Union FTA. The network of
Mexico’s FTAs containing investment clauses encompasses the
countries of Bolivia, Chile, Costa Rica, Colombia, El Salvador,
Guatemala, Honduras, Japan, and Nicaragua.

69. Mexico has enacted formal bilateral investment protection
agreements with 24 countries: 14 European Union Countries (Austria,
Belgium, Luxemburg, Denmark, Finland, France, Germany, Greece,
Italy, Netherlands, Portugal, Spain, Sweden, United Kingdom), as
well as Australia, Argentina, Cuba, Iceland, India, Panama, South
Korea, Switzerland, Trinidad and Tobago, and Uruguay. Agreements
with China, Belarus and Slovakia were signed in 2007 and 2008, but
the Senate still has to ratify them. Mexico continues to negotiate
bilateral investment treaties with Russia, Saudi Arabia, Malaysia,
Singapore, and the Dominican Republic.

70. The United States and Mexico have a bilateral tax treaty to
avoid double taxation and prevent tax evasion. Important provisions
of the treaty establish ceilings for Mexican withholding taxes on
interest payments and U.S. withholding taxes on dividend payments.
The implementation of the IETU on January 1, 2008 has led to
questions as to whether the new tax meets the requirements of the
bilateral tax treaty. The U.S. Internal Revenue Service presently
allows businesses to credit the IETU against their U.S. taxes.
However, businesses should continue to monitor this issue.

71. Mexico and the United States also have a tax information
exchange agreement to assist the two countries in enforcing their
tax laws. The Financial Information Exchange Agreement (FIEA) was
enacted in 1995, pursuant to the Mutual Legal Assistance Treaty. The
agreements cover information that may affect the determination,
assessment, and collection of taxes, and investigation and
prosecution of tax crimes. The FIEA permits the exchange of
information with respect to large value or suspicious currency
transactions to combat illegal activities, particularly money
laundering. Mexico is a member of the financial action task force
(FATF) of the OECD and has made progress in strengthening its
financial system through specific anti-money-laundering legislation
enacted in 2000 and 2004.

OPIC and Other Investment Insurance Programs

72. In August of 2004, Mexico and the U.S. Overseas Private
Investment Corporation (OPIC) finalized an agreement that enables
OPIC to offer all its programs and services in the country. Since
then, OPIC has aggressively pursued potential investment projects in
Mexico, and the country rapidly became one of the top destinations
for projects with OPIC support. As of September, 2008, OPIC was
actively providing over $730 million in financing and political risk
insurance support to 17 projects in Mexico.

73. In addition, OPIC-supported funds are among the largest
providers of private equity capital to emerging markets. Since
1994, OPIC has committed (as of FY2008) almost 3.2 billion USD in

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funding to 43 private equity funds. The OPIC funds which are
currently investing in Mexico include Alsis Latin America Fund,
Darby-BBVA Latin America Private Equity Fund, Darby ProBanco II
Fund, Latin Power Trust III, and Paladin Realty Latin America
Investors II. For a more detailed description of these funds
including fund contact information and investment strategy, please
consult OPIC’s website at www.opic.gov.


74. Mexico’s Federal Labor Law, enacted in 1931 and revised in 1970,
is based on article 123 of the Mexican constitution. Under the law,
Mexican workers enjoy the rights to associate, collectively bargain,
and strike. The law sets a standard six-day workweek with one paid
day off. For overtime, workers must be paid twice their normal rate
and three times the hourly rate for overtime exceeding nine hours
per week. Employees are entitled to most holidays, paid vacation
(after one year of service), vacation bonuses, and an annual bonus
equivalent to at least two weeks pay. Companies are also responsible
for these additional costs. These costs usually add about 30 to 35
percent to the average employees’ salary. Employers must also
contribute a tax-deductible two percent of each employee’s salary
into an individual retirement account. Most employers are required
to distribute ten percent of their pre-tax profits for profit
sharing. Speaking on behalf of the current administration, the
Labor Secretary has repeatedly affirmed that labor reform is and
remains one of the top priorities of President Calderon’s

75. There is a large surplus of labor in the formal economy, largely
composed of low-skilled or unskilled workers. On the other hand,
there is a shortage of technically skilled workers and engineers.
Labor-management relations are uneven, depending upon the unions
holding contracts and the industry concerned. Mexican manufacturing
operations are experiencing stiff wage competition from Central
America, China, India, and elsewhere in low technology work, such as
textile and garment manufacture.

76. For the past few years, with the possible exception of the
mining industry, strikes have been limited and usually settled
quickly. Strikes that are more difficult will usually draw
government mediators to help the settlement process. Independent
unions have been playing an increasingly significant role,
particularly since the formation of the new Labor Federation
(National Union of Workers) in November 1997. Information on
unions registered with federal labor authorities is supposed to be
available to the public via Internet (www.stps.gob.mx), but this
database is incomplete.

Foreign Trade Zones/Free Ports

77. In addition to the IMMEX programs that operate as quasi-free
trade zones, in 2002 Mexico approved the operation of more
traditional free trade zones (FTZ). Unlike the previous "bonded"
areas that only allowed for warehousing of product for short
periods, the new FTZ regime allows for manufacturing, repair,
distribution, and sale of merchandise. There is no export
requirement for companies operating within the zone to avail
themselves of tax benefits. Regulatory guidance for the new regime
is still being amended; therefore investors should consult a tax
lawyer for detailed information. Most major ports in Mexico have
bonded areas ("recinto fiscalizados") or customs agents ("recintos
fiscal") within them. There are currently two approved FTZ’s, both
operating in San Luis Potosi. The first major plant in the FTZ is
currently under construction. Several states have filed to convert
their bonded areas into Free Trade Zones.

Foreign Direct Investment Statistics

78. Foreign Direct Investment in Mexico (USD Million)
2003 2004 2005 2006 2007
Total FDI
18,249 25,578 24, 756 21,632 29, 046(G)
New Investments
7,070 14,003 11,823 5,332 13,011
Earnings Reinvestment
2,082 2,489 3,883 7,693 8,022
Inter-company Investment
7,094 7,082 7,045 6,602 6,006

79. Foreign Direct Investment Realized in Mexico By Industrial
Sector Destination (USD Million)

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2003 2004 2005 2006 2007
Total FDI
18,249 25,578 24,756 21,632 29,046
12 22 10 22 132
90 174 203 367 1,919
7,594 13,127 11,934 9,785 12,020
Electricity and Water
326 202 202 (87) 164
81 389 280 357 1,732
1,453 1,268 2,805 579 1,453
Transport and Communication
2,198 1,658 2,869 633 800
Financial Services
2,910 5,737 1,605 5,340 6,606
1,587 999 2,844 2,630 2,213

80. Foreign Direct Investment Inflows Realized By Country/Economy of
Origin (USD Million)
2003 2004 2005 2006 2007 5yr Totals
Total FDI Inflow:
18,249 8,538 24,756 21,632 29,046 119,260
United States
9,120 8,538 11,595 12,958 11,276 53,487
2,857 7,854 2,126 1,462 5,182 19,481
711 3,340 2,437 2,695 4,318 13,501
532 226 364 118 203 1,443
United Kingdom
1,074 274 1,283 1,232 580 4,443
Virgin Islands
(6) 56 2,051 292 1,093 3,492
259 531 425 557 819 2,591
286 1,135 313 565 584 2,883
466 408 341 207 477 1,899
3 10 541 22 22 598
South Korea
57 48 96 71 40 312
19 48 49 50 21 187
10 10 24 22 8 74
26 12 5 4 8 55
122 370 119 (1460) 372 (487)
Notes FDI Investment Charts:
A) Sources: Inflow - Mexican Secretariat of Economy, Director
General of Foreign Investment.
B) Period: 2007 data (January through December)
C) Data: Millions of U.S. Dollars (USD), unless noted.
D) The Secretariat of Economy has recalculated values for past
years. All values for past years are the most up to date data
provided by the Secretariat of Economy.
E) With the passage of the IMMEX law integrating Maquila and Pitex
industries, "Maquiladora Investment in Fixed Assets" is no longer
reported separately and is included in the category "Inter-company
F) Yearly amounts may differ from 5 year totals due to rounding
G) The total FDI inflow for 2006 and 2007 by type of investment is
less than the total FDI in Mexico because it does not include an
estimate that has been reported in the total FDI.

81. FDI Inflow as a Percentage of GDP
2003 2004 2005 2006 2007
639,100 683,500 767,700 840,000 893,000
FDI Inflow
16,589 22,777 20,960 19,212 27,000
Percent of GDP
2.6 3.3 2.7 2.3 3.0
Notes on "FDI as a Percentage of GDP" chart:
A) GDP figures are taken from the Mexican Statistics Agency, INEGI.

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Figures in millions of dollars at current market prices.

82. U.S. FDI Flow and Stock in Mexico (USD Millions)
2004 2005 2006 2007
U.S. FDI Flow in Mexico
8,435 9,596 8,777 8,815
U.S. FDI Stock in Mexico
63,384 73,687 83,219 91,663
Notes U.S. FDI Flow and stock in Mexico chart:
A) Source: U.S. Department of Commerce Bureau of Economic Analysis.

83. Mexico FDI Flow and Stock in U.S. (USD Millions)
2004 2005 2006 2007
Mexico FDI Flow in U.S.
(629) (19) 1886 63
Mexico FDI Stock in U.S.
7,592 3,595 5,332 5,954
Notes U.S. FDI Flow and stock in Mexico chart:
A) Source: U.S. Department of Commerce Bureau of Economic Analysis.

84. In 2008 the U.S. and other nations’ companies announced several
large investments, including:

A) Goldcorp (a Canadian mining company), USD 1.5 billion in
B) General Motors, USD 900 million in Ramos Arizpe, Coahuila
C) Ford, USD 3 billion in Cuautitlan, Chihuahua, and Guanajuato
D) Bombardier, USD 250 million in Queretaro
E) Q-Cells (a German photovoltaics company), USD 3.5 billion in
Mexicali, Baja California
F) Goodrich, USD 92.5 million for an aeroparts plant in Baja

85. Web Resources

ProMexico: http://www.investinmexico.com.mx
Federal Competition Commission: www.cfc.gob.mx
National Infrastructure Plan: www.infraestructura.gob.mx
Department of State Legal Advisory: www.state.gov/s/l
Nacional Financiera Development Bank: www.nafin.com
Sec. of Economy’s IMMEX Program: http://www.economia.gob.mx/?P=2297
WIPO: http://www.wipo.int/about-ip/ en/ipworldwide/pdf/mx.pdf
Secretariat of Public Administration: www.sfp.gob.mx
Overseas Private Investment Corporation: www.opic.gov