Legal Guide
to Doing Business
in Mexico
3
Legal Guide
to Doing Business
in Mexico
V O N W O B E S E R Y S I E R R A , S. C .
2008
All Rights Reserved ©
Von Wobeser y Sierra, S.C.
Guillermo González Camarena 1100, 7º piso
Santa Fe, Centro de Ciudad
Delegación Álvaro Obregón
01210, México D.F.
Tel. (52 55) 52 58 10 00
First edition in Spanish: 2006
First edition in English: 2008
ISBN 978-968-9141-01-3
Responsible for the publication: Von Wobeser y Sierra, S.C.
Editor: Ignacio Ortiz Monasterio
Designer: Rogelio Rangel
Assistant Editor: Mariana Riva Palacio
If you would like to reproduce any of the texts published in
this book for exclusively personal use and no other purpose,
you may do so provided that the reproduction is made in
accordance with the copyright notice shown in this page.
Printed in Mexico
The publication of this book is intended as a service to our clients and friends. Its purpose
is to provide information on legal matters. This book is not legal advice on any particular matter
or case, nor does it reflect the personal opinions of the attorneys who have contributed to its
preparation. It reflects even less the advice or opinions of the firm of Von Wobeser y Sierra, S.C.
Preface
In 2005, as we approached the twentieth anniversary of Von Wobeser
y Sierra, S.C., we decided to offer our clients and friends—as well as
other groups and individuals seeking precise and reliable information
on Mexican law—a series of texts that would synthesize and explain
the most important aspects of the Mexican legal framework.
The objective we set was to provide companies and businesspeople,
both national and foreign, especially those whom we have had the
privilege of assisting with their legal matters, a relatively compact work
to which they could turn to clarify doubts or to learn what the law
establishes with respect to certain points of interest to them. With this
in mind, the firm began the process of selection, collection, written
synthesis, and editing that finally culminated in the book the reader
now has in hand.
This work constitutes a careful survey of the width and breadth of
those topics that in our twenty years of experience have been pointed
out to us as being of the greatest interest and utility to clients. After a
quick, panoramic overview of Mexico as a nation, 22 additional chapters explain the existing law in Mexico regarding the creation, development, and general management of a company in our country.
7
8
First, the book explains the legal conditions that must be fulfilled
in order to form a company, with an emphasis on foreign investment
and on the establishment of offices and industrial plants. The book
then addresses what is undoubtedly the most important aspect of a
company doing business in Mexico—its employees and workers—
in chapters on labor law and immigration. Next, the book addresses
the fundamental topic of taxes, which is covered in depth. The law
applicable to internal trade and to imports and exports is covered in
three more chapters that are followed by one chapter on obtaining
financing and granting guarantees and by two on industrial and
intellectual property. A series of miscellaneous but no less important
topics related to business activities follow, including antitrust, regulated activities, government procurement, environmental law, and
business entities regulated by the Securities Market Law. Finally, in
four additional chapters, information is provided on the handling of
critical situations such as litigation and disputes, insolvency, and
bankruptcy.
While it is not exhaustive or in any way a replacement for personalized advice, we believe that this work can be of great use to those who
engage in or aspire to engage in business in Mexico. Undoubtedly, it
will also satisfy the curiosity of any businessperson or lawyer who
includes Mexican law in his or her area of expertise.
At Von Wobeser y Sierra, S.C., we are proud of this work which, to the
extent that it supplements the services that we have been providing
to our clients for exactly twenty years, is for us the best way possible
of celebrating this important anniversary. This book is also a faithful
reflection of the talent, professionalism, and dedication of all the partners and associates who make up this firm, and especially those who
generated the content we present here.
To the partners and associates of the firm, I express my appreciation;
to our clients and friends, my gratitude for their trust throughout these
twenty years; and to the reader, the wish that this book will be useful.
CLAUS VON WOBESER
December 2006
9
Preface to the
English Edition
We are pleased to present our English-speaking clients and friends
with the English edition of our Legal Guide to Doing Business in Mexico,
which was published in Spanish one year ago in celebration of the
twentieth anniversary of our firm.
We have taken the opportunity to update Chapter 1 of the book to
reflect the changes in the past year in the national political and economic arenas. We have also added a chapter on the function of court
precedent in the Mexican legal system, and we have updated each of
the chapters where changes in the law have occurred. We are confident
that this English edition contains the latest information available on
Mexican business law.
We hope to reach an even wider audience with this edition and to be
able to provide the same useful legal guidance to our English-speaking
clients that we have provided in the past to our Spanish-speaking clients
regarding Mexican regulation of business activities.
CLAUS VON WOBESER
January 2008
11
Partners, Associates,
of Counsel, and Legal
Interns
2008
12
PA RT N E R S
A S S O C I AT E S
Maclovio Sierra Madero (1955-1988)
Elisa de Anda Madrazo
Mauricio Bueno Barrera
Mariana Campos Clasing
Fernando Carreño Núñez de Alvarez
Virginia E. Cornett
Marie-Alsace Galindo Roel
Margarita Gárate Turranzas
Edmond Frederic Grieger Escudero
Rupert Hüttler
Patrícia Kaim Fonseca
María Fernanda Magallanes Fernández
Adrián Magallanes Pérez
Montserrat Manzano Escalón
Gloria Andrea Martínez Castillo
Ana Mendoza Corona
Patrick Meshoulam Aguila
Claus von Wobeser
Javier Lizardi Calderón
Fernando Moreno Gómez de Parada
Luis Burgueño Colín
Marco Tulio Venegas Cruz
Raúl F. Cárdenas Eychenne
Luis Miguel Jiménez Cortés
OF COUNSEL
Alberto Muerza Sierra
Gabriela Negrete Alvarez
Andrés Nieto Sánchez de Tagle
Raymundo Pérez Arellano
Luis Alberto Pérez González
Aline Priscila Gandia Robertson Hernández
Katharina Roehr Kiessling
Pablo Sáenz y Sáenz
Gabriela Salazar Torres
Efrén Sánchez Hernández
Federico Scheffler Kulmann
Diego Ignacio Sierra Laris
Rodolfo Trampe Martínez
Paulina Valencia Villaseñor
Nallely van Pratt Angulo
Manuel Lizardi Albarrán
Ignacio Magaña Cárdenas (1942-2003)
LEGAL INTERNS
Diego Barrera Pieck
Alejandra Cárdenas Ducker
Michelle Carrillo Torres
Robert Edward Dolan Isunza
Mauricio Etchegaray Hernández
Jessica Kraig Warman
Angélica Lance Pesado
Luis Ignacio Martel Gómez de León
Ricardo Rabasa Cossu
Jaime Ostos Rincón Gallardo
Luis Antonio Rutz Vega
Pablo Saez Williams
Marcos Siqueiros Ballesteros
Raymundo Soberanis Cortéz
13
Contents
Preface Claus von Wobeser 7
Preface to the English Edition Claus von Wobeser 11
Partners, Associates, of Counsel, and Legal Interns
Acronyms and Abbreviations 21
CHAPTER I
Profile of the Country
27
1. Geography and Demographics 27
2. History
28
3. Constitutional and Political System 30
4. Economic System 33
CHAPTER II
Foreign Investment Regulation
1. The Foreign Investment Law 38
CHAPTER III
Requirements for Establishing
a Company in Mexico 49
1. Types of Companies 49
2. Formation of Companies 51
3. Registries 53
4. The Limited Liability Company 54
35
12
5. The Stock Corporation 58
6. Public Registry of Commerce 65
7. Establishment of a Branch of a Foreign Company in Mexico 65
8. Non-Income Earning Representative Office 67
CHAPTER IV
Offices and Industrial Plants
69
1. Acquisition of Real Estate 69
2. Leasing Property in Mexico 71
CHAPTER V
Labor Law
73
1. Labor Contracts 73
2. Unions and Collective Bargaining Agreements 96
CHAPTER VI
Immigration Regulatory System
103
1. Introduction 103
2. Forms of Legal Entry into the Country 103
3. Foreigners Working in Mexico 106
4. Other Types of Visas 109
CHAPTER VII
Tax Regime
111
1. Taxes That Must Be Paid in Mexico 111
2. Income Tax 112
3. Single Rate Business Tax 121
4. Value Added Tax 125
5. Special Tax on Production and Services 130
6. Tax on Cash Deposits 133
7. Local Taxes 136
Chart 1. States that Have Fiscal Agreements
with Mexico, 2007
140
Chart 2. Retention Rates for Dividends, Interests,
and Fees in the Double Taxation Treaties Entered
Into by Mexico, 2007 148
CHAPTER VIII
Foreign Trade and Customs Regulations
157
1. Introduction 157
2. Exchange of Goods 158
3. Customs Regulations 160
4. Tariff Treatment Applicable to Companies of the Manufacturing,
Maquiladora, and Export Services Industry / Other Programs 163
5. Other Taxes Associated with the Definitive Importation
of Goods into the Country 166
6. Automotive Industry 168
CHAPTER IX
Commercial Regulation
169
1. Forms of Commercial Distribution 169
CHAPTER X
Special Regulations for the Sale of Products
1. Introduction 177
2. Labeling Requirements 178
3. Product Advertising Requirements 180
4. Sanitary Regulation 181
CHAPTER XI
Financing Guarantees
191
1. Introduction 191
2. Surety Bond 191
3. Pledge 193
4. Working Capital Loans 197
5. Mortgage 198
6. Trusts 202
CHAPTER XII
Industrial Property
205
1. Introduction 205
2. Creations with Industrial Application 205
177
3. Distinctive Signs 210
4. Appellation of Origin 214
5. Industrial Secrets 215
6. Domain Names 216
7. Administrative Proceedings Related to Industrial Property Rights 217
8. Industrial Property Crimes 222
9. Indemnification for Damages and Losses 222
CHAPTER XIII
Intellectual Property
225
1. Introduction 225
2. Copyright 225
3. Reservation of Rights for Exclusive Use 232
4. Copyright Management Associations 234
5. Administrative Copyright Proceedings 236
CHAPTER XIV
Economic Competition
241
1. Introduction 241
2. The Federal Economic Competition Law 243
3. Monopolistic Practices 244
4. Mergers 252
CHAPTER XV
Regulated Activities
255
1. Introduction 255
2. Transportation 255
3. Energy 259
CHAPTER XVI
Government Acquisitions
275
1. Introduction 275
2. The Contracting Procedure 276
3. Acquisitions, Leases, Services, and Public Works
in the States and Municipalities of the Mexican Republic 280
CHAPTER XVII
Environmental Law
283
1. Introduction 283
2. Environmental Impact Assessments 285
3. Waste 288
4. Regulation of Air Pollution 294
5. Legal Framework Governing Water in Mexico 297
6. Environmental Liability 299
CHAPTER XVIII
Administrative Litigation
303
1. Introduction 303
2. Administrative Appeal 303
3. Judicial Review 305
4. Other Administrative Bodies and Courts 307
5. Legal or Governmental Arbitration 307
6. The Amparo Proceeding against Laws 309
CHAPTER XIX
Commercial Companies Regulated
by the Securities Market Law 311
1. Introduction 311
2. Investment Promotion Corporation 312
3. Stock Market Investment Promotion Corporation 316
4. Stock Market Corporation 318
CHAPTER XX
Insolvency and Bankruptcy
321
1. Introduction 321
2. The Business Reorganization Law 322
3. Persons Authorized to Petition for a Judicial
Declaration of Business Reorganization 323
4. Statutory Presumptions of Commercial Bankruptcy 323
5. Stages of Business Reorganization 323
6. Specific Protections of Creditors’ Rights 327
CHAPTER XXI
State Liability
329
1. Introduction 329
2. Statutory Presumptions for Indemnification 330
3. Extent of Indemnification 332
4. Terms of Indemnification 332
5. Form and Time Periods for Claiming the Right to Indemnification 333
CHAPTER XXII
Dispute Resolution
335
1. Introduction 335
2. Choice of Applicable Law and Jurisdiction 335
3. Enforcement of Foreign Judgments 338
4. Proceedings before Mexican Courts 339
5. National and International Arbitration 345
6. Recognition and Enforcement of Arbitral Awards 356
7. Mediation 358
8. Conciliation 359
9. Free Trade Agreements 360
10. Agreements for the Reciprocal Promotion and Protection of Investments 364
CHAPTER XXIII
Court Precedent
367
1. Court Precedent by Confirmation 367
2. Court Precedent by Unification of Interpretations 368
3. Court Precedent Arising from Unconstitutionality Actions
and Constitutional Disputes 369
Acronyms
and Abbreviations
A
AAA
AAE
ADR
ALADI
American Arbitration Association (Asociación Americana de Arbitraje)
Agreement for the Strengthening of the Economic Association Between
the United Mexican States and Japan (Acuerdo para el Fortalecimiento
de la Asociación Económica entre los Estados Unidos Mexicanos y el Japón)
Alternative Dispute Resolution (Resolución Alternativa de Disputas)
Latin American Integration Association (Asociación Latinoamericana
de Integración)
B
BITs
Bilateral Investment Treaties (Acuerdos para la Promoción
y Protección Recíproca de las Inversiones, APPRI)
C
CAM
CAMCA
CANACO
CCF
CEMPRO
CFC
CFE
CFPC
Arbitration Center of Mexico (Centro de Arbitraje de México)
Commercial Arbitration and Mediation Center for the Americas
(Centro de Arbitraje y Mediación Comercial para las Américas)
National Chamber of Commerce (Cámara Nacional de Comercio)
Federal Civil Code (Código Civil Federal)
Mexican Center for Copyright Protection and Promotion (Centro
Mexicano de Protección y Fomento a los Derechos de Autor, S.G.C. de I.P.)
Federal Competition Commission (Comisión Federal de Competencia)
Federal Electricity Commission (Comisión Federal de Electricidad)
Federal Code of Civil Procedures (Código Federal de Procedimientos Civiles)
21
Inter-American Convention on International Commercial Arbitration
(Convención Interamericana sobre Arbitraje Comercial Internacional)
CIC
International Chamber of Commerce (Cámara Internacional de Comercio)
CNIE
National Foreign Investment Commission (Comisión Nacional
de Inversiones Extranjeras)
COA
Annual Operating Card (Cédula de Operación Anual)
C O N A G U A National Water Commission (Comisión Nacional del Agua)
CONANP
National Commission of Protected Natural Areas (Comisión Nacional
de Áreas Naturales Protegidas)
CPCDF
Civil Procedures Code for the Federal District (Código de Procedimientos
Civiles para el Distrito Federal)
CPD
Construction Products Directive (Directriz de Productos de Construcción)
CRE
Energy Regulatory Commission (Comisión Reguladora de Energía)
CIAC
22
D
DNS
Domain Name Server
E
EJE
EMA
Music performers association (Ejecutantes, S.G.C. de I.P.)
Mexican Accreditation Entity (Entidad Mexicana de Acreditación, A.C.)
F
FONACOT
F TA A
Fund of Development and Guarantee for the Consumption of the Workers
(Fondo de Fomento y Garantía para el Consumo de los Trabajadores)
Free Trade Area of the Americas (Área de Libre Comercio de las
Américas, ALCA)
G
G AT T
General Agreement on Tariffs and Trade (Acuerdo General
sobre Aranceles y Comercio)
I
ICANN
ICC
Internet Corporation for Assigned Names and Numbers
International Chamber of Commerce (Cámara de Comercio Internacional)
International Centre for Dispute Resolution (Centro Internacional
para la Resolución de Disputas)
ICSID
International Centre for Settlement of Investment Disputes
(Centro Internacional de Arreglo de Diferencias Relativas
a Inversiones, CIADI)
IDE
Tax on Cash Deposits (Impuesto a los Depósitos en Efectivo)
IEPS
Special Tax on Production and Services (Impuesto Especial
sobre Producción y Servicios)
IETU
Single Rate Business Tax (Impuesto Empresarial a Tasa Única)
IMMEX
In-bond Manufacturing (Industria Manufacturera, Maquiladora
y de Servicios de Exportación)
I M PA C
Asset Tax (Impuesto al Activo)
IMPI
Mexican Institute of Industrial Property (Instituto Mexicano
de la Propiedad Industrial)
IMSS
Mexican Social Security Institute (Instituto Mexicano del Seguro Social)
I N D A U T O R National Copyright Institute (Instituto Nacional del Derecho de Autor)
INE
National Ecology Institute (Instituto Nacional de Ecología)
I N F O N AV I T Institute of National Workers’ Housing Fund (Instituto del Fondo
Nacional de la Vivienda para los Trabajadores)
IP
Internet Protocol
ISAN
Tax on New Automobiles (Impuesto Sobre Automóviles Nuevos)
ISR
Income Tax (Impuesto Sobre la Renta)
I VA
Value Added Tax, VAT (Impuesto al Valor Agregado)
ICDR
L
LAA
LAASSP
LAN
LAU
LFCE
LFDA
L F PA
LFPCA
LFT
Customs Law (Ley Aduanera)
Public Sector Acquisitions, Leasing, and Services Law
(Ley de Adquisiciones, Arrendamientos y Servicios del Sector Público)
National Waters Law (Ley de Aguas Nacionales)
Single Environmental License (Licencia Ambiental Única)
Federal Law of Economic Competition (Ley Federal
de Competencia Económica)
Federal Copyright Law (Ley Federal del Derecho de Autor)
Federal Law of Administrative Procedures (Ley Federal de Procedimiento
Administrativo)
Federal Law of Administrative Law Court Procedure (Ley Federal
de Procedimiento Contencioso Administrativo)
Federal Labor Law (Ley Federal del Trabajo)
23
L G E E PA
LGS
LGSM
LGTYOC
LIE
LISR
LOP
LPI
LRACRP
LSPEE
24
General Law of Ecological Balance and Environmental Protection
(Ley General del Equilibrio Ecológico y la Protección al Ambiente)
General Health Law (Ley General de Salud)
Law of Business Corporations (Ley General de Sociedades Mercantiles)
General Law of Negotiable Instruments and Credit Operations
(Ley General de Títulos y Operaciones de Crédito)
Foreign Investment Law (Ley de Inversión Extranjera)
Income Tax Law (Ley del Impuesto sobre la Renta)
Public Works Law (Ley de Obras Públicas)
Industrial Property Law (Ley de la Propiedad Industrial)
Law Regulating Article 27 of the Constitution in Petroleum
Matters (Ley Reglamentaria del Artículo 27 Constitucional
en el Ramo del Petróleo)
Law of Electricity Provision to the Public (Ley del Servicio
Público de Energía Eléctrica)
N
N A F TA
NIC
NOM
North American Free Trade Agreement (Tratado de Libre Comercio
de América del Norte, TLCAN)
Network Information Center
Official Mexican Standard (Norma Oficial Mexicana)
O
OAS
OCDE
OFG
Organization of American States (Organización de Estados Americanos, OEA)
Organisation for Economic Co-operation and Development
(Organización para la Cooperación y el Desarrollo Económico)
Official Federal Gazette (Diario Oficial de la Federación, DOF)
P
PA N
PCT
PEMEX
PITEX
PRD
PRI
National Action Party (Partido Acción Nacional)
Patent Cooperation Treaty (Tratado de Cooperación en Materia de Patentes)
Mexican National Petroleum Company (Petróleos Mexicanos)
Program of Temporary Importation to Produce Export Articles
(Programa de Importación Temporal para Producir Artículos de Exportación)
Democratic Revolution Party (Partido de la Revolución Democrática)
Institutional Revolutionary Party (Partido Revolucionario Institucional)
P R O F E PA
PROSEC
Federal Environmental Protection Enforcement Agency
(Procuraduría Federal de Protección al Medio Ambiente)
Sectorial Promotion Programs (Programas de Promoción Sectorial)
R
RETC
RFC
RGLP
RGN
RLFCE
RLSPEE
RNIE
RNV
Registration of Emissions and Transfer of Contaminants
(Registro de Emisiones y Transferencia de Contaminantes)
Federal Taxpayers Registry (Registro Federal de Contribuyentes)
Liquid Petroleum Gas Regulation (Reglamento de Gas Licuado de Petróleo)
Natural Gas Regulations (Reglamento de Gas Natural)
Regulation of the Federal Economic Competition Law
(Reglamento de la Ley Federal de Competencia Económica)
Regulation of the Provision of Electricity to the Public Law
(Reglamento de la Ley del Servicio Público de Energía Eléctrica)
National Foreign Investment Registry (Registro Nacional
de Inversiones Extranjeras)
National Securities Registry (Registro Nacional de Valores)
S
Stock Market Corporation (Sociedad Anónima Bursátil)
SACM
Composers association (Sociedad de Autores
y Compositores de Música, S.G.C. de I.P.)
SAPI
Investment Promotion Corporation (Sociedad Anónima Promotora
de Inversión)
SAPIB
Stock Market Investment Promotion Corporation (Sociedad Anónima
Promotora de Inversión Bursátil)
SAR
Retirement Savings System (Sistema de Ahorro para el Retiro)
S AT
Tax Administration Service (Servicio de Administración Tributaria)
SCJN
Supreme Court of Justice of the Nation (Suprema Corte de Justicia
de la Nación)
SCT
Ministry of Communications and Transportation
(Secretaría de Comunicaciones y Transportes)
SE
Ministry of the Economy (Secretaría de Economía)
SEGOB
Ministry of the Interior (Secretaría de Gobernación)
S E M A R N AT Ministry of the Environment and Natural Resources
(Secretaría de Medio Ambiente y Recursos Naturales)
SENER
Ministry of Energy (Secretaría de Energía)
SAB
25
Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público)
System of Units (Sistema Internacional de Unidades)
SIEM
Mexican Business Information System (Sistema de Información
Empresarial Mexicano)
SMAOF
Photographers association (Sociedad Mexicana de Autores de Obras
Fotográficas, S.G.C. de I.P.)
SOGEM
Writers association (Sociedad General de Escritores de México, S.G.C. de I.P.)
SOMAAP
Fine arts artists association (Sociedad Mexicana de Autores de las Artes
Plásticas, S.G.C. de I.P.)
SOMEC
Choreographers association (Sociedad Mexicana de Coreógrafos, S.G.C. de I.P.)
SOMEM
Music performers association (Sociedad Mexicana de Ejecutantes
de Música, S.G.C.)
S O M E X F O N Recording, Video, and Multimedia Producers Association
(Sociedad Mexicana de Productores de Fonogramas, Videogramas
y Multimedia, S.G.C. de I.P.)
SRE
Ministry of Foreign Relations (Secretaría de Relaciones Exteriores)
SSA
Ministry of Health (Secretaría de Salud)
STPS
Ministry of Labor and Social Welfare (Secretaría del Trabajo y Previsión Social)
SHCP
SI
26
T
T F J FA
Federal Court of Tax and Administrative Justice (Tribunal Federal
de Justicia Fiscal y Administrativa)
TLC
Free Trade Agreement (Tratado de Libre Comercio)
TLC-G3
Free Trade Agreement between the United Mexican States and the
Republic of Colombia and the Republic of Venezuela (Tratado de Libre
Comercio entre los Estados Unidos Mexicanos, la República de Colombia
y la República de Venezuela)
U
U N C I T R A L United Nations Commission on International Trade Law (Comisión
de las Naciones Unidas para el Derecho Mercantil Internacional, CNUDMI)
V
VAT
Value Added Tax (Impuesto al Valor Agregado, IVA)
CHAPTER I
Profile of the Country
1. Geography and Demographics
Mexico is located in the northern hemisphere of the American continent. It borders
Guatemala to the south, Belize to the southeast, and the United States to the north, a
country with which it shares a 1,959-mile- (3,152-kilometer-) long border.
Mexican territory has an area of 758,449 square miles (1,964,375 square kilometers). It has 6,911 miles (11,122 kilometers) of coastal area. With such a large and
extended surface area, Mexico is a vast territory that unites Central America with
North America and in which, due to its expanse, there are all types of climates: jungle in the southeast; lush vegetation around the Gulf of Mexico (where the majority of
the large oil wells are located); coastal areas, rich in fisheries and in tourist resources,
both on the Pacific and the Caribbean; a high plateau suitable for agriculture, livestock
farming, and mining; and in the north, a desert, with stretches of mining and large
zones that have been and continue to be recovered for agriculture and livestock grazing, thanks to irrigation.
The most important centers of the maquiladora industry are in the north: Tijuana, Ciudad Juárez, and Laredo. The best-developed industrial zones are located in the suburbs
of Mexico City, its surrounding states, and in the city of Monterrey. There are other important poles of industrial development as well: Saltillo, Guadalajara, Tampico, Coatzacoalcos, and León, as well as growing harbor development in several locations.
As of the 2000 census, the Mexican population was 97,483,412, with an average
annual population growth rate of 1.9 percent, a gross mortality rate of 4.3 percent, and
an average life expectancy of 75.3 years. The school-age population numbers 45,460,324,
including students from 3–5 years old up to 20–24 years old. The older students are normally in technical colleges or universities. There are 4,303,641 male students and
4,767,534 female students enrolled in institutions of higher learning. This means that
there are 9,071,175 young adults who will enter the labor market in the near future.
27
2. History 1
C H A P T E R
I
28
The history of Mexico can be examined according to the political model that has been
followed through the centuries. What follows is a summary of the principal characteristics of the evolution of the Mexican nation, with an emphasis on public policy.
In the pre-Hispanic period, particularly during the time of the dominance of the
Aztec nation (1325–1525), power was exercised by an absolute monarch, considered
to be a representative of the gods, who had power over the earth. He was distributor
and giver of the land and demanded tributes from neighboring and distant tribes under
his power and engaged constantly in wars. While the Habsburgs ruled in Spain, Mexico
was conquered by the Spaniards and the Viceroyalty of New Spain was established. A
form of absolute monarchy was established in New Spain that was based in theory on
principles of Christian morality, including an obligation to uphold justice for the people. In the economic sphere, restrictions were imposed, privileges and monopolies were
granted, and taxes were levied by the Crown. Meanwhile, legal inequality was established. Justice was administered by numerous special courts, who reinforced the privileges and exceptions from which certain individuals and groups benefited.
Upon the arrival of a new reigning dynasty in Spain, that of the Bourbons (1700–1808),
the principles underpinning the monarchy changed to those of enlightened despotism.
The new rulers’ alleged ideal was to bring happiness to the people. The Crown established its first monopolies and cartels, establishing a mixed economy and strengthening
the tax system. Racial and economic discrimination broadened. These and other authoritarian measures, known as the “Bourbon Reforms,” hurt the Mexican population and
were the cause of conspiracies aimed at gaining independence, further fueled in the end
by France’s invasion of Spain under Napoleon I and the imprisonment of Kings Carlos
IV and Fernando VII.
The Mexican insurgents who fought for independence (1810–1821) imagined a
semi-liberal, utopian nation, based on private enterprise, the abolition of excessive
taxes, the establishment of equality, a commitment to justice for all, good government,
good laws, and rights for the poor. During the years 1822–1854, the rule of ambitious
caudillos (local chieftains) and of political parties seeking power, as well as a state of
anarchy resulting from insurrections, military revolts, and shifts of power, prevented
the achievement of these worthwhile goals. During this period, liberals and conservatives struggled to build a country modeled after their ideals. In addition, Mexico’s
defeat in the 1846–1848 war with the United States resulted in the loss of half of its
territory.
__________
1
We want to acknowledge and warmly thank José Manuel Villalpando, a renowned Mexican historian, for
his contribution to this section.
of
the
Country
29
Profile
From 1855 to 1876, the liberal era in Mexico was marked by an impulse towards
modernization of the country, its laws, and its institutions. This liberal era was interrupted by an invasion of Mexico by France in 1864 and the temporary establishment of
a European monarchy. Following the fall of the monarchy came the ascendance to power
of the universally celebrated president of Mexico, Benito Juárez. Development was driven
by the free trade of goods, thanks in part to the nationalization of the lands controlled by
the Catholic Church and by indigenous communities. Foreign investment was encouraged, the bureaucracy reduced, savings increased, and the first international treaty establishing free trade with the United States of America was signed.
After the rule of Juárez, President Porfirio Díaz brought more than three decades of
peace, order, and progress (1877–1910). Díaz was a paternalistic dictator who promoted
economic advancement over political and social reforms. Roads and railways were built,
the power industry was developed, and the first exploitation of oil occurred, all with foreign investment. The good reputation of the nation was forged based on the confidence
shown by foreign nations. However, crucial political and social issues—such as the
absence of democracy and existence of pervasive poverty—were disregarded, and in
1910 an uprising, known as the Mexican Revolution, broke out. Officially, the Mexican
Revolution ended with the adoption of the Constitution of 1917, although the military
struggle lasted until 1920.
In theory, the Revolution opened up national discourse to a discussion of democratic
principles and principles of social justice. In practice, neither was achieved. The years
1920–1933 were marked by a pragmatic approach to national problems. An alliance
was established with the United States, and political and financial institutions were created that guaranteed stability for the rest of the century. Urgent needs of the population
were met and progress was made in education, but social problems otherwise remained
unaddressed.
The socialist experiment of 1934–1940 led to the redistribution of agrarian land, the
expropriation of the oil industry, the creation of central unions managed by the State, and
a necessary alliance with the United States during the Second World War. These accomplishments were the beginning of the period called “stabilizing development,” lasting
until 1970. During this time, an authoritarian government run by the official party, the
Institutional Revolutionary Party (Partido Revolucionario Institucional, PRI), created an
apparent democracy and a system of mixed economy. Growth was sustained, there was
little acceptance of foreign investment, public corruption was pervasive, and Mexican
workers were provided with a supportive social welfare system. The PRI fell in 1968, when
the government acted brutally against students demonstrating for democratic rights.
With the advent of a populist government (1970–1982), the Mexican economy collapsed, due fundamentally to presidential messianism, too many policies benefiting
only the majority, and an overdependence on oil exports. The uncontrolled issuance of
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currency caused high inflation; the bureaucratic apparatus grew, and excessive public
spending was encouraged; foreign investment decreased sharply and a third-world
mentality was promoted. The result was the loss of the purchasing power of wages, the
impoverishment of the middle class, and a loss of confidence in institutions and politicians, best known for their rapacity and corruption.
The true liberal period in Mexico began around 1983 and continues to this date. The
exhaustion of the authoritarian system, demands for citizen participation, world trends
towards liberty, and the internal crisis of the PRI strengthened the political opposition
and forced modernization, based on the ideas set forth a century earlier by Benito Juárez.
These changes were initiated by the PRI itself and continued by the party that came to
power in 2000, the PAN. Today, direct and universal democracy has been achieved, and
independent organized groups—dedicated, for example, to the protection of human
rights—have been created. In the economic sphere, private and foreign investment has
been encouraged, the size of the bureaucracy is being reduced, public spending is under
control, and free trade agreements have been signed with numerous countries. Socially,
programs assisting the most vulnerable groups have been created, such as Solidarity,
Opportunities, and Peoples’ Insurance.
In short, the history of Mexico has oscillated between central economic control and
liberalism accompanied by elements of social assistance. The struggle for freedom in
Mexico has been arduous, but every day—in spite of attempts to return to the populism
of the past—the certainty that freedom is an indispensable foundation for individual and
social progress is strengthened.
3. Constitutional and Political System
Although Mexican independence was achieved in 1821, for several decades the legal and
court system established under colonial rule remained in effect. The first Mexican republican government adopted the Constitution of 1824, based on the United States model.
With the end of French rule in Mexico, President Benito Juárez re-established the Constitution of 1857. In 1870 the first Mexican civil code was created, which had been preceded by a short-lived commerce code. The new civil code and civil procedures code
followed the French model, and the commercial code was influenced not only by French
law, but also by the Italian model.
The 1917 Constitution emerged from the Mexican Revolution, drafted by the different triumphing groups. It is the constitution still in force today, although it has been
amended on many occasions, especially during the 70 years of single-party dictatorship
(1929-2000). As established in the 1917 Constitution, Mexico is a representative, democratic, federal republic, composed of 31 states and a Federal District. The states are free
and sovereign in their internal governance, but united in a Federation (Article 40).
of
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31
Profile
It is a presidential system in the style of the U.S. system, with the most significant
difference being that during the 70 years of party dictatorship the presidential figure
accrued exaggerated powers, to the detriment of the other branches of government.
Legislative power was in the hands of the PRI, which held the vast majority of seats in
Congress. The judicial branch was controlled by the President, since the latter
appointed the justices of the Supreme Court of Justice of the Nation (Suprema Corte de
Justicia de la Nación, SCJN) and, through them, the magistrates of the Collegiate Circuit
Courts. In addition, the President forced the courts to render decisions in accordance
with his own will. However, since 2000, when Mexico began its transition to democracy, Congress has become stronger and more pluralistic, while the judicial branch has
become ever more independent, thus greatly limiting the previously exaggerated presidential powers.
During the party dictatorship, Congress grew in size in order to allow various sectors of
society and opposition political parties to express their concerns and interests. Thus, a special category of legislators (still in existence) was created. It includes members of the House
of Representatives and senators who are not elected, but hold an additional quota of seats
assigned to the political parties based on the number of votes they have received.
The Mexican democratic system is quite new, which has hindered the Congress—with
500 representatives and 128 senators belonging to different parties, none of which has
an absolute majority—from reaching agreements. Nevertheless, recently a series of tax
reforms were approved and entered into force that amended several existing laws and
established new taxes aimed at collecting more revenues, combatting tax evasion, and
lessening dependence on income from oil and gas sales. In this regard, the Single Rate
Business Tax (Impuesto Empresarial a Tasa Única, IETU) was created, which takes the place
of the IMPAC and taxes at a single rate the tax profits arising from business activities. Furthermore, soon the Tax on Cash Deposits Law (Ley del Impuesto a los Depósitos en Efectivo) will enter into force, which is intended to reduce tax evasion by imposing a tax rate
of 2 percent on cash deposits greater than $25,000 made to bank accounts (it will be
possible to credit this new tax to the taxpayer’s income tax payments).
The judicial branch is the only branch of government that has experienced a positive
and straightforward development during the last 16 years. Based on the reforms of 1994
and 1998, Mexico today has an independent Supreme Court of Justice consisting of justices elected by the Congress. Candidates are nominated by the Executive and must have
the qualifications and experience necessary to make well-drafted decisions. A restructured federal judicial system is a reality today. The Federal Judicial Board, based on a
Spanish model, has exercised a positive influence on the control of the rest of the federal
judicial system and in the handling of administrative tasks. As a result, the Supreme
Court has finally been able to dedicate itself to its substantive work. Currently, both the
District and the Collegiate and Unitary Circuit Court judges throughout the Republic are
C H A P T E R
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selected by competitive examination. They are adequately trained and act objectively
and professionally.
However, the same cannot be said of the local, state, and Federal District judicial systems. Although notable efforts have been made to improve these systems, there are few
superior state courts that can be compared to the federal level courts. This situation leads
to a slow resolution of cases, since in the vast majority of cases the local decisions are
challenged before the federal courts in constitutional proceedings in which the legality
of the prior rulings is challenged.
Furthermore, the Congress is currently debating a constitutional amendment applicable to the criminal justice system that seeks to effectively combat organized crime
through more flexible and simplified procedures for searches and for the issuance of
arrest warrants. This bill is also notable for its inclusion of alternative means of criminal
justice, and for eliminating pretrial detentions when alternate measures exist. One point
that should be treated with special care is the mentioned reduction in the requirements
for the issuance of arrest warrants and the possibility of carrying out searches without a
written judicial order through the creation of so-called control judges who will be
responsible for issuing such arrest warrants expeditiously.
Currently the political system is composed of three principal parties: the PRI, with a
party structure that reaches out to all corners of the country; the PAN, which currently
holds the Presidency of the Republic; and the Democratic Revolution Party (Partido de la
Revolución Democrática, PRD), which has drawn together the majority of the groups on
the left. As often happens in democratic systems and especially in a developing system,
inside each of these political parties there are groups and interests with different and at
times ideologically contrary objectives.
The electoral institutions are independent and fully recognized by the political players. These institutions include the Federal Electoral Institute (Instituto Federal Electoral),
which conducts and certifies the elections; and the Federal Electoral Court (Tribunal
Federal Electoral), which resolves electoral disputes. The current electoral structure is
the product of a long political process, paradoxically initiated by the PRI, which gave
Mexico the opportunity to find its own path toward democracy. However, the electoral
institutions still need to be consolidated, a process that is underway and that will continue to be the work of the political parties and the future governments of Mexico.
In this regard, a constitutional electoral reform was recently approved that seeks to
resolve the problems in the recent federal elections (2006) through the regulation, among
other things, of the relationship between the press, the political parties, and their candidates. It also attempts to limit the influence of money on political campaigns and prohibits
strategies based on messages that denigrate either political institutions or the candidates.
Another important point of the electoral reform is the regulation of the propaganda put
out by governmental powers in order to ensure more equitable electoral contests.
4. Economic System
4.1. Recent Economic History
4.2. Fundamental Economic Indicators
Currently economic activity in Mexico is going through a stage of relative stability, but
with the possibility of being affected by the crisis in the U.S. real estate sector caused by
the granting of subprime mortgages and a housing bubble, which has generated an
increase in interest rates that has caused a number of important debtors to enter into
bankruptcy proceedings. Recently the U.S. government announced a freeze on interest
rates, and it remains to be seen whether or not it will produce the hoped-for results to
counteract the current conditions. Notwithstanding the above, it is hoped that the elevated international price of oil and other raw materials will favor the increase of petroleum, extractive, and agricultural exports, which would continue stimulating the foreign
of
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33
Profile
During more than 50 years of adhering to an economic policy of import substitution,
conceived in the fifties by the United Nations Economic Commission for Latin America,
Mexican trade was closed to the outside world, which was very beneficial politically for
the party dictatorship of the period.
Under the economic model of import substitution, a broad industrial infrastructure
developed, a large part of which ceased to be efficient, to the extent that the Mexican products made for the protected internal market were not internationally competitive, with a
small number of exceptions. In addition, as this model ran its course, cyclical economic
crises arose more and more frequently. By 1986, it was necessary to change economic policy and to open up the system, for which purpose the Mexican government joined the
General Agreement on Tariffs and Trade (GATT). In 1994, the North American Free Trade
Agreement (NAFTA) was signed, which was followed by the signing of other free trade and
investment protection agreements with a broad range of countries from all parts of the
world, including a Free Trade Agreement with the European Union.
In anticipation of the signing of NAFTA, while the governments of Carlos Salinas de
Gortari (1988–1994) and Ernesto Zedillo (1994–2000) were in power, the trend toward
opening and privatizing the economy intensified, especially in the banking, finance, and
telecommunications sectors, including railways, airlines, airports, highways, and other
sectors that have contributed to the development of modern Mexico. At the same time,
the signing of NAFTA was the beginning of the reentry of Mexico into the world economy.
One of Mexico’s first steps following the signing of NAFTA was joining the Organization
for Economic Development and Cooperation (OECD) and the development of a more
active role for the nation in international economics and policy.
trade of the country and contribute to maintaining the current climate of stability in the
Mexican economy.
The current stability of the Mexican economy has been sustained thanks to an environment of financial and price stability, to which discipline in the handling of public
finances and the prudence of the monetary authority have contributed. Budgetary discipline is an indispensable condition for Mexico to guarantee healthy economic growth
and contribute to social well-being.
Current economic conditions make it clear that there is still a link between the national
economy and the international industrial cycle. It is also clear that the rates of growth
registered are not sufficient to meet the needs of the population. Therefore, it is important to reduce the current synchrony of the national economy with that of the United
States and to strengthen internal sources of growth. Current economic policy seeks to
establish a stable microeconomic environment that is favorable for the private sector in
order to increase investment and generate more and better jobs.
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CHAPTER II
Foreign Investment
Regulation
Foreign investment is essential for Mexican development. It makes possible the use
of foreign currency in domestic economic activity, thereby contributing to the creation of sources of employment and the adoption and dissemination of new technologies.
Mexico has succeeded in recent years in becoming one of the principal countries
receiving foreign investment, particularly in the manufacturing, transportation, and
communication sectors, as well as in the financial services sector. In addition, Mexican
international trade has increased significantly in conjunction with the economic growth
of the country.
Among the factors most influential to this growth are the opening of the Mexican
economy, deregulation and administrative simplification, and the new legal framework created over the last 20 years with the goal of strengthening and facilitating
foreign investment in domestic economic activity and liberalizing Mexican international trade. This new legal framework consists primarily of the following laws and
regulations:
a) The Foreign Investment Law (Ley de Inversión Extranjera, LIE), issued in 1993 for
the purpose of opening several economic sectors to foreign investment and establishing clear and permanent rules that provide a framework of legal certainty,
thereby making investment in Mexico attractive for foreign investors and ensuring
the retention of foreign investment in the economy;
b) The Regulation of the Foreign Investment Law and of the National Registry of Foreign Investors (Reglamento de la Ley de Inversión Extranjera y del Registro Nacional de
Inversiones Extranjeras), issued in 1998 in order to spell out the administrative details
of the rules set forth in the LIE, clarifying the scope of the sectorial opening established therein and the administrative simplifications.
35
C H A P T E R
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36
Furthermore, in 1993, with the adoption of the North American Free Trade Agreement (Tratado de Libre Comercio de América del Norte, NAFTA), Mexico entered a new
stage with regard to the regulation of foreign investment. In this new stage, in order
to attract foreign investment, Mexico executed numerous international treaties that
grant certain rights to foreign investors, such as national treatment, most-favorednation treatment, fair and equitable treatment, full protection and safety standards,
freedom to transfer, right to prompt, adequate, and effective compensation in the
case of expropriation, and access to international arbitration as a mechanism to guarantee compliance with the above-mentioned rights.
As of this date, Mexico has executed 25 Bilateral Investment Treaties (BITs) and 11
Free Trade Agreements containing a chapter guaranteeing the reciprocal protection of
investments.
In this respect, our country has executed BITs with Germany,1 Argentina,2 Australia,3
Austria,4 South Korea,5 Cuba,6 Denmark,7 Spain,8 Slovakia,9 Finland,10 France,11 Greece,12
India,13 Iceland,14 Italy,15 The Netherlands,16 Panama,17 Portugal,18 United Kingdom,19
Czech Republic,20 Sweden,21 Switzerland,22 Trinidad and Tobago,23 Uruguay,24 and the Economic Union of Belgium and Luxembourg.25 Of these, all are in force except those executed with Slovakia and India, which have not yet been approved by the Senate.
__________
1
Published in the Official Federal Gazette (Diario Oficial de la Federación), March 20, 2001.
2
Official Federal Gazette, August 28, 1998.
3
Idem, June 12, 2007.
4
Idem, March 23, 2001.
5
Idem, August 9, 2004.
6
Idem, May 3, 2002.
7
Idem, November 30, 2000.
8
Idem, March 19, 1997.
9
Entered into on October 22, 1999.
10
Official Federal Gazette, November 30, 2000.
11
Idem, November 30, 2000.
12
Idem, October 11, 2002.
13
Entered into on May 21, 2007.
14
Official Federal Gazette, June 6, 2006.
15
Idem, January 17, 2003.
16
Idem, June 10, 2000.
17
Entered into on October 11, 2005.
18
Official Federal Gazette, January 8, 2001.
19
Idem, July 25, 2007.
20
Idem, March 25, 2004.
21
Idem, July 27, 2001.
22
Idem, August 20, 1998.
23
Idem, September 12, 2007.
24
Idem, August 9, 2002.
25
Idem, March 19, 2003.
Although these investment protection chapters cannot be equated with the BITs, due
to the legal context in which they have been executed, when compared it can be seen
that both their content and particularly their purpose are very similar, since they confer
virtually the same protection rights, differing only in superficial aspects.
__________
26
Idem, December 20, 1993.
27
Idem, January 9, 1995.
28
Idem, January 10, 1995.
29
Idem, January 11, 1995.
30
Idem, July 1, 1998.
31
Idem, July 8, 1999.
32
Idem, June 26, 2000.
33
Idem, March 14, 2001.
34
Idem, June 29, 2001.
35
Idem, July 14, 2004.
36
Idem, March 31, 2005.
Investment
Regulation
37
Foreign
Investment protection chapters contained in Free Trade Agreements signed by Mexico
include the following:
• Chapter XI of NAFTA;26
• Chapter XVII of the Free Trade Agreement between the United Mexican States and
the Republic of Colombia and the Republic of Venezuela (TLC G3);27
• Chapter XIII of the Free Trade Agreement between the United Mexican States and the
Republic of Costa Rica;28
• Chapter XV of the Free Trade Agreement between the United Mexican States and
the Republic of Bolivia;29
• Chapter XVI of the Free Trade Agreement between the Government of the United
Mexican States and the Government of the Republic of Nicaragua;30
• Chapter IX of the Free Trade Agreement between the Republic of Chile and the
United Mexican States;31
• As part of decision 2/2000 of the EU-Mexico Joint Council of the Free Trade Agreement between the United Mexican States and the European Union;32
• Chapter XVII of the Free Trade Agreement between the United Mexican States and
Guatemala, El Salvador, and Honduras (Northern Triangle-CA3);33
• Chapter III of the Free Trade Agreement between the United Mexican States and Iceland, Norway, Liechtenstein, and Switzerland;34
• Chapter XIII of the Free Trade Agreement between the United Mexican States and
Uruguay;35
• Chapter VII of the Agreement to Strengthen the Economic Association between the
United Mexican States and Japan.36
1. The Foreign Investment Law
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In order to present a basic panorama of the rules applicable to all foreigners who wish
to invest in Mexico, in this chapter we will first discuss the rules set forth in the LIE in
regard to the acquisition of real estate in Mexico and the trusts through which foreign
individuals and entities can acquire the use and benefits of real estate located in the
restricted zone alluded to in section I of Article 27 of the Mexican Constitution.
We will also examine the rules applicable to both foreign investment in Mexican companies and the investment of foreign entities, alluding expressly to the requirements with
which they must comply in order to engage routinely in business in Mexico.
Finally, reference is made to the National Foreign Investment Registry (Registro Nacional de Inversiones Extranjeras, RNIE), particularly the obligations applicable to Mexican
companies having foreign or neutral investments, foreign individuals or entities that routinely do business in the Mexican Republic, and the trusts by virtue of which rights are
granted to foreign investment. The economic activities that are subject to restriction pursuant to the rules set forth in the LIE will be analyzed in a special section because of the
relevance of this topic for foreign investors.
1.1. Acquisition of Real Estate
1.1.1. Acquisition of real estate by foreign individuals or entities
The right of foreigners, whether individuals or entities, to acquire real estate in Mexican
territory depends on the location of such real estate:
a) Restricted zone. Real estate located within the so-called restricted zone, which is a
62-mile strip along the borders and a 31-mile strip along the beaches of Mexico,
cannot be directly owned by foreigners under any circumstances.
However, foreigners can acquire rights to the use and benefits of real estate located within the restricted zone through a trust with the permission of the Foreign
Relations Ministry (Secretaría de Relaciones Exteriores, SRE). In this case, it is the credit institution that, as fiduciary, acquires rights over the real estate; the foreigner, as
beneficiary, has the right of use and enjoyment thereof, including any fruits or products obtained and, in general, any proceeds resulting from any profit-yielding operation or exploitation, through third parties or the fiduciary institution. The duration
of these types of trusts is 50 years, which may be extended with the authorization of
the SRE;
b) Unrestricted zone. Real estate located outside of the restricted zone can be directly
acquired by foreigners, whether individuals or entities, provided that (1) prior to
the acquisition a writ is presented to the SRE in which the foreigner agrees to be
considered a Mexican national with respect to such property and not to invoke the
grants the
The above-described rules applicable to the acquisition of real estate by foreigners or
Mexican companies with foreign investment can be summarized as follows:
Restricted zone
Unrestricted zone
Acquisition of rights of use
and enjoyment through a
trust; permission required
Acquisition of direct
ownership; permission
required
a) Residential purposes
Acquisition of direct
ownership; permission
required
Acquisition of direct
ownership; Permission not
required
b) Non-residential purposes
Acquisition of direct
ownership; notice to SRE
Acquisition of direct
ownership; permission not
required
Foreign individuals
or entities
Mexican companies with
clause admitting foreigners:
39
Regulation
1.1.2. Acquisition of real estate by Mexican companies with foreign investment
For Mexican companies with foreign investment, to be able to acquire rights over real estate
located in Mexican territory, they must have a Calvo Clause in their company by-laws. Furthermore, the type of rights that these companies can acquire—either direct ownership or
rights of use or enjoyment of the real estate—depends on where the real estate is located.
a) Restricted zone. In the case of real estate located in the restricted zone, the purpose
for which such property will be used must be taken into account:
• Residential purposes. Mexican companies with foreign investment cannot acquire
direct ownership of real estate located in the restricted zone when it will be used
for residential purposes, that is, for housing for the use of the owner or third
parties. In this case, such companies may only acquire the rights of use or enjoyment of the real estate through a trust with the prior permission of the SRE;
• Non-residential purposes. Mexican companies with foreign investment can acquire
direct ownership of real estate located within the restricted zone provided such
property will be used for non-residential activities. In this case, a notice must be
filed with the SRE after the acquisition;
b) Unrestricted zone. There is no restriction on Mexican companies with foreign investment acquiring ownership of real estate located outside of the restricted zone, provided their by-laws contain the Calvo Clause.
Investment
SRE
Foreign
protection of its/his/her government (“Calvo Clause”), and (2) the
corresponding permission.
1.2. Forms of Investing in Mexico
Foreigners who wish to engage in economic and commercial activities in Mexico can do
so through the incorporation of a Mexican company or by investing as partners or shareholders in existing Mexican companies.
Foreign entities can also become established in Mexico through branches or representative offices.
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1.2.1. Investment in Mexican companies
Any foreign individual or company can become a partner or shareholder of a Mexican
company without needing any permission, provided such company does not engage in
activities in which foreign investment is restricted or excluded.
In the case of newly created Mexican companies, it is sufficient to include the Calvo
Clause in their bylaws. When foreigners wish to invest in companies already incorporated whose bylaws contain a clause excluding foreigners, such clause must be substituted for by a Calvo Clause and the SRE notified of such a change.
1.2.2. Direct investment by foreign entities
Entities legally incorporated abroad can become established in Mexico through different
forms, depending on the activities in which they will engage in the country:
a) Commercial operations. Foreign entities intending to engage routinely in commercial activities in Mexico can become established in national territory as a branch or
an income-earning representative office. In both cases they must obtain authorization from the Secretary of Economy (Secretaría de Economía, SE) and register with
the Public Registry of Commerce (Registro Público del Comercio).
These foreign entities legally established in the country may engage in all types
of business activity and commercial operations, except with regard to those activities in which foreign investment is restricted or excluded under the LIE;
b) Intermediary operations. Foreign entities may also establish a non–income earning
representative office when their only purpose is to have an entity in Mexico that
provides informational services and promotes the activities, products, or services
that the foreign company provides abroad.
For foreign entities to establish a non–income earning representative office, an
authorization from the SE is also required, but it is not necessary to register it in
the Public Registry of Commerce.
A non–income earning representative office does not engage in commercial
operations and its only purpose is to put the foreign company in contact with
clients in Mexico. Any contracts resulting from such contact must be executed
directly by the foreign company with the Mexican clients. Furthermore, it is the
foreign company that must issue invoices and carry out the other acts resulting
from its commercial relationship with clients in Mexico. The non–income earning
representative office is not authorized to represent the foreign company legally in
commercial acts or to assume legal obligations in its name. The non–income earning representative office is only an intermediary between the foreigner and the
Mexican client, and its activities may not earn any income. The foreign company
must provide its non–income earning representative office with the necessary
resources to carry out its purpose, including the payment of the rent for the office
and administrative and personnel expenses.
1.3. National Foreign Investment Registry
The National Foreign Investment Registry (Registro Nacional de Inversiones Extranjeras,
is an agency of the SE and a source of statistics and figures on the flows of foreign
investment in Mexico and the economic sectors and regions in which it is located.
By law, the following persons and entities are required to be registered in the RNIE:
a) Mexican companies having foreign investments (including Mexicans having
another nationality and residing outside of Mexico), neutral investments, or both,
either directly or through a trust;
b) Foreign individuals or entities (including Mexicans having another nationality
and residing outside of Mexico) that routinely engage in business activities in
Mexico;
c) Trusts over stock or ownership interests, real estate, or neutral investments, granting rights in favor of foreign investment (including Mexicans having another
nationality and residing outside of Mexico).
RNIE)
Mexican companies and foreign individuals or entities registered in the
comply with the following obligations in relation to such Registry:
RNIE
must
1.3.1. Annual renewal. Economic-financial report
Mexican companies and foreign individuals or entities registered in the RNIE must renew
their registration annually by filing an annual economic-financial report.
The time limit for filing the annual economic-financial report depends on the letter
with which the name of the person or entity filing the report begins:
•
•
•
•
From A to D: during April of each year;
From E to J: during May of each year;
From K to P: during June of each year;
From Q to Z: during July of each year.
Foreign
Investment
Regulation
41
C H A P T E R
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1.3.2. Information on income and expenditures. Quarterly report
Mexican companies and foreign individuals and entities registered in the RNIE must file
a quarterly report on the value of their income and expenditures, provided that the result
of the total income or expenditures in the respective quarter has changed, negatively or
positively, by more than three thousand times the general minimum wage in force in the
Federal District. Otherwise there is no obligation to file the quarterly report. The following periods are understood as quarterly: from January to March, from April to June,
from July to September, and from October to December.
The information that should be taken into account for determining the value of the
income and expenditures of the respective quarter are the following:
a) New contributions or withdrawals therefrom that do not affect the capital stock,
specifying the account in which the accounting entry is registered;
b) The withholding of profits of the last fiscal year and the use of accumulated withheld profits;
c) Loans to pay to or to collect from:
• Subsidiaries residing abroad;
• A parent company abroad;
• Foreign investors residing abroad who are partners or shareholders;
• Foreign investors residing abroad who are part of the corporate group to which
the company belongs.
In the case of foreign individuals and entities, only information referring to their operations in Mexican territory should be considered in quarterly reports.
1.3.3. Notice of changes to information previously provided
Notice must be given when information previously provided to the RNIE is changed.
Among the changes that must be reported to the RNIE are the following:
a) Any change of name;
b) Change of tax domicile or change of domicile of the principal offices or establishment of the person or company registered;
c) Any change to the corporate bylaws of the companies registered;
d) Any increase or reduction of capital stock of registered companies;
e) A change of the legal representative of the person or company registered, authorized before the RNIE;
f) Any change of the shareholding structure of the registered companies;
g) Any change in the name of the partners or shareholders of the registered companies.
1.3.4. Cancellation
Mexican companies registered with the
RNIE
must request the cancellation of their
registration in the event that the foreign investment, neutral investment, or both are
withdrawn.
Foreign individuals and entities must request the cancellation of their registration in
the event they cease to engage routinely in business in Mexico.
Finally, the importance of presenting the above-indicated reports and notices to RNIE
within the time periods established for each case in the LIE and in its regulation must be
emphasized, given that fines can be imposed on the registered persons or companies
who fail to file in a timely fashion.
1.4. Economic Activities Subject to Restriction
Regulation
Investment
1.4.1. Reserved activities
Foreign individuals and entities and Mexican companies having foreign investment cannot participate in activities related to the strategic areas that by law are reserved to the
Mexican State, or in activities that are reserved exclusively for Mexicans and Mexican
companies with a clause in their bylaws excluding foreigners.
a) Activities reserved to the Mexican State. The activities set forth in the laws governing
the following strategic areas are reserved exclusively to the State:
• Petroleum and other hydrocarbons. Activities relative to transportation, storage, and distribution of gas other than liquid petroleum;
• Basic petrochemicals. The following are considered basic petrochemicals:
ethanol, propane, butane, pentane, hexane, heptane, raw material for lampblack, gasoline, and methane, when the latter comes from hydrogen carbides
obtained from deposits located in national territory and is used as raw material
in petrochemical industrial processes;
• Electricity. This does not include the generation of electricity for self-supply, cogeneration, or small production; generation by independent producers for sale
to the Federal Electricity Commission (Comisión Federal de Electricidad, CFE);
generation of electricity for export, derived from co-generation, independent
43
Foreign
As a general rule, there are no legal restrictions on foreign individuals and entities engaging in economic activities in Mexico, either directly or as partners or shareholders in
Mexican companies.
However, the LIE specifies certain activities in which foreign investment is not allowed
and others in which it is limited.
In this section we will discuss the activities that are reserved or subject to a specific
regulation. We will also refer to the concept, regulation, and scope of neutral investment,
a mechanism through which foreign investment can participate in certain reserved or
specially regulated activities.
C H A P T E R
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production, or small production; nor energy for use in emergencies resulting
from interruptions in the public power grid service. Also not included is the
import of power by individuals or entities exclusively for self-supply;
• Generation of nuclear power;
• Radioactive minerals;
• Telegraphs and radiotelegraphy;
• Mail service;
• Issuance of banknotes and minting;
• Control, supervision, and oversight of ports, airports, and heliports;
b) Activities reserved for Mexicans. The economic activities and companies mentioned
below are reserved exclusively for Mexicans or Mexican companies having a clause
in their bylaws excluding foreigners:
• National land transport of passengers, tourists, and cargo, not including messenger and parcel services;
• Retail sale of gasoline and distribution of liquid petroleum gas;
• Provision of radio broadcasting and other radio and television services, other
than cable television;
• Credit unions;
• Development bank institutions, in accordance with the applicable law;
• The provision of professional and technical services expressly indicated in the
applicable laws.
Foreign investment is not allowed in the above-mentioned activities and companies,
directly or through trusts, agreements, partnership agreements or bylaws, pyramid
schemes, or any other mechanism that grants them any control or share.
Notwithstanding the above, there is a mechanism through which foreign investment
can participate in certain activities reserved for Mexicans: neutral investment, which is
analyzed in Point 1.5 of this chapter.
1.4.2. Activities and acquisitions subject to a specific regulation
There are certain economic activities and companies in which foreign investment is not
excluded but is limited to a certain proportion, ranging from 10 to 49 percent. There
are also certain sectors in which even when the foreign investment is limited to 49 percent, it is possible to surpass such percentage with an authorization of the National Foreign Investment Commission (Comisión Nacional de Inversiones Extranjeras, CNIE).
In order to determine the percentage of foreign investment in the economic activities
subject to maximum limits of investment, the foreign investment made in such activities
indirectly through Mexican companies with a majority of Mexican capital is not counted, provided the latter are not controlled by the foreign investment.
Investment
Regulation
45
Foreign
a) Limited activities. In the economic activities and companies mentioned below, foreign investment is limited to the indicated percentages, which cannot be surpassed
under any circumstances, except through the mechanism of neutral investment,
which is discussed in Point 1.5 of this chapter:
• Up to 10 percent: producers’ cooperatives;
• Up to 25 percent:
• National air transport;
• Air taxi transport;
• Specialized air transport;
• Up to 49 percent:
• Insurance companies;
• Bonding companies;
• Money exchange firms;
• Public bonded warehouses;
• Financial leasing companies;
• Factoring companies;
• Special-purpose financial institutions;
• The companies referred to in Article 12 bis of the Securities Market Law
(Ley del Mercado de Valores);
• Pension fund management companies;
• Companies manufacturing and selling explosives, firearms, cartridges, munitions, or fireworks, not including the acquisition and utilization of explosives
for industrial and extractive activities or the preparation of explosive mixtures for the carrying out of such activities;
• Printing and publishing of newspapers for circulation exclusively in national territory;
• Series “T” shares of companies owning agricultural, livestock, and forestry
lands (series “T” shares only represent capital contributed in agricultural,
livestock, or forestry lands, or capital to be used for the acquisition of such
lands);
• Fishing operations in fresh and coastal waters and in the exclusive economic zone, not including aquaculture;
• Comprehensive port administration;
• Port pilotage services to ships for interior navigation operations, according
to the applicable law;
• Shipping companies engaged in the commercial exploitation of ships for
interior navigation and cabotage, except for tourist cruise ships and the
exploitation of dredgers and naval artefacts for port construction, conservation and operation;
Suppliers of fuel and lubricants for ships and aircraft and rail equipment;
Concession holding companies pursuant to the terms of Articles 11 and 12
of the Federal Telecommunications Law (Ley Federal de Telecomunicaciones);
b) Limited activities in which 49 percent can be surpassed with an authorization from the
CNIE. Foreign investment can hold a percentage greater than 49 percent in the economic activities and companies mentioned below if they obtain a favorable decisions of the CNIE:
• Port services for ships carrying out interior navigation operations, such as towing, tying up, and launching;
• Shipping companies engaged in the exploitation of ships exclusively in high
traffic;
• Concession or permit holding companies of airfields for service to the public;
• Private services of preschool, elementary, junior high, high school, or college
education or combinations thereof;
• Legal services;
• Credit information companies;
• Securities ranking institutions;
• Insurance agents;
• Cellular telephony;
• Construction of pipelines for the transportation of oil and its derivatives (not
including construction, operation, and ownership of pipelines, installations,
and equipment, regarding the transportation and distribution of natural gas);
• Perforation of oil and gas wells;
• Construction, operation, and exploitation of railways that are a general means
of communication and provision of rail transport services to the public.
•
•
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It should be emphasized that the favorable decision of the CNIE is only required for foreign investment to be greater than 49 percent in the economic activities and companies
listed above when the total value of the assets of the companies involved at the time of
submitting the acquisition request surpasses the amount that the Commission determines annually.
1.5. Neutral Investment
Neutral investment is a mechanism through which foreign investment can participate in
certain reserved or specially regulated activities.
The LIE defines neutral investment as investment in Mexican companies or in authorized trusts that will not be taken into consideration for determining the percentage of
foreign investment in the capital stock of Mexican companies.
1.5.1. Neutral investment represented by instruments issued by trust institutions
The SE has the power to authorize trust institutions to issue neutral investment instruments, which will only grant, with respect to companies, pecuniary rights to their holders and, if applicable, limited corporate rights, without granting to their holders the right
to vote in their general ordinary meetings.
Furthermore, the SE can authorize the creation or modification of all types of neutral
investment trusts, as well as the transfer of stock thereto, regardless of the activity that
the company conveying its shares in trust engages in.
Regulation
Investment
1.5.3. Neutral investment made by international development financing institutions
International development financing institutions are considered to be those foreign
entities whose principal purpose is to promote economic and social development of
developing countries by the contribution of temporary venture capital, granting of preferential financing, or technical assistance of different types.
These institutions can invest through neutral investment in the capital stock of Mexican companies, provided they are recognized in advance by the CNIE.
Furthermore, these institutions can invest in the capital of Mexican companies that
engage in reserved or specially regulated activities, provided they obtain a favorable
decision of the CNIE.
47
Foreign
1.5.2. Neutral investment represented by special series of shares
The investment in non-voting stock or stock with limited corporate rights is considered
neutral, provided advance authorization is obtained from the SE and, when applicable,
from the National Banking and Securities Commission.
Companies already incorporated or to be incorporated, regardless of the activity they
engage in, must obtain the advance authorization of the SE to issue special series of stock
as neutral investment.
CHAPTER III
Requirements for Establishing
a Company in Mexico
First, it should be mentioned that the Civil Code (Código Civil) regulates the establishment
and operation of civil partnerships (sociedades civiles) and the General Law of Commercial
Companies (Ley General de Sociedades Mercantiles, LGSM) regulates the establishment and
operation of business entities (sociedades mercantiles).
The civil partnership is a company in which the partners combine their resources and
efforts for a common purpose that is for profit but is not considered commercial trade.
Conversely, business entities can be defined as companies in which the partners or shareholders agree to combine the resources or efforts for a common purpose that is for profit and is considered commercial trade.
In this chapter we will discuss business entities, particularly the stock corporation
(sociedad anónima) and the limited liability company (sociedad de responsabilidad limitada), as well as the establishment in Mexico of a branch of a foreign company through
whom commercial activities can be carried out.
We shall also discuss the establishment of a non–income earning representative office
through which foreigners can have a presence in Mexico without engaging in commercial transactions.
1. Types of Companies
The LGSM recognizes as business entities the general partnership (sociedad de nombre
colectivo), the limited liability partnership (sociedad en comandita simple), the limited
liability company (sociedad de responsabilidad limitada), the stock corporation (sociedad
anónima), the limited liability stock partnership (sociedad en comandita por acciones),
and the cooperative (sociedad cooperativa). The LGSM regulates the operations of the
49
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above-mentioned companies, except for the cooperative which, due to its nature, is
governed by a special law.
The above-mentioned companies are considered Mexican, since they are incorporated in Mexico under Mexican law, regardless of the nationality of their partners or
shareholders or the source of their capital. It is important to note that the LGSM allows
general partnerships, limited liability partnerships, limited liability companies, stock
corporations, and limited liability stock partnerships to be formed as variable capital
companies. As such they have a fixed minimum capital that cannot be less than the
legal minimum and a variable capital that can be increased by subsequent contributions
of the partners/shareholders or by the admission of new partners/shareholders and
decreased as the result of a partial or total withdrawal of contributions with a minimum
of formalities.
The business entities regulated by the LGSM can be divided into two large groups:
partnerships and stock companies. In partnerships, the personal characteristics of the
partners are taken into account and, therefore, the inclusion or exclusion of partners,
or the exercise of the right of withdrawal of a partner, are treated or regulated in a special manner. Furthermore, these types of companies are intuitu personae and the number of partners is limited. Partnerships recognized or regulated by the LGSM are the
general partnership, the limited liability partnership, the limited liability stock partnership, and the cooperative. Stock companies are those for which investment of large
sums of capital is required and therefore, regardless of the personal characteristics of the
shareholders, they are invited to invest in the business through the contribution of capital. The stock company par excellence regulated by the LGSM is the stock corporation
(sociedad anónima).
Above we have referred to partnerships and stock companies and we have specified
five of the six types of companies that the LGSM regulates, deliberately excluding reference to the limited liability company (sociedad de responsabilidad limitada), is neither a
pure partnership nor a pure stock corporation, but rather mixed, its existence and regulation having characteristics of both types of companies: intuitu personae elements of the
partners and elements of stock companies.
The types of business entities most common in Mexican law are, based on the number of companies formed, first, the stock corporations, and next the limited liability
companies. This is due to the fact that both the shareholders in a stock corporation and
the partners in a limited liability company have limited liability before the company
and third parties. The liability of the partners or shareholders in either a limited liability company or a stock corporation is limited to the amount of the contributions made
by the partners or shareholders to the capital of the company, while the liability of the partners in partnerships is unlimited, joint and secondary, and therefore the assets of the
partners could be affected.
Given that the limited liability company and the stock corporation are the types of
business entities most common in Mexico, further on we will make special mention of
their operations and characteristics.
2. Formation of Companies
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Requirements
The formation of all types of business entities and any amendments to their bylaws must
be carried out before a certifying public officer, who may be either a notary public or a
commercial notary.
The articles of incorporation of companies should contain:
a) The names, nationality, and domicile of the partners/shareholders;
b) The purpose of the company;
c) The business or corporate name. The business name is formed with the name of
one or more of the partners in the case of partnerships and without restriction in
the case of stock corporations. The limited liability company can be given either a
business name (the name of one or more of the partners) or a corporate name. The
Foreign Relations Ministry (Secretaría de Relaciones Exteriores, SRE) is the agency
responsible for authorizing the use of business or corporate names;
d) The duration of the company;
e) The amount of capital stock the company has, which must be in Mexican currency;
f) An indication of what each partner or shareholder contributes in money or in kind;
the value given to the in-kind contributions, and the criteria used to make such
valuation. When the company has variable capital, the fixed minimum capital
established shall be indicated;
g) The business address or domicile of the company, which is the town or city where
the company is established;
h) Under what form of administration the company will be managed and the powers
of the managers;
i) How the profits and losses will be distributed among the members of the company, taking into account that the profits or losses among the partners/shareholders
who contribute capital must be distributed in proportion to their contributions to
the capital of the company;
j) The amount of the reserve fund, taking into account that, pursuant to the LGSM,
from the profits shown in the financial statements each year, 5 percent should be
separated for the reserve fund (legal reserve) until such fund reaches one-fifth of
the capital stock;
k) Under what circumstances the company will be dissolved early;
l) The bases for liquidating the company and the manner of choosing the liquidators.
2.1. Power of Attorney for the Formation of a Company and Holding
of the First Partners or Shareholders Meeting
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For the formation of a company, the partners or shareholders must appear before a
notary public or commercial notary, either personally or through an attorney-in-fact
with sufficient powers.
In the event that one or more of the partners or shareholders are foreigners, they
should grant a power of attorney for their representation in the company’s formation
procedure by a Mexican national or a foreigner legally in the country. The foreign partners or shareholders who are individuals may also appear personally at the formation of
the company if they have the appropriate visa document.
The above-mentioned power of attorney must be granted before a notary public
authorized to practice in the domicile of the foreign partner or shareholder and subsequently legalized in the Mexican consulate of such domicile or apostilled in accordance
with the Hague Convention of October 5, 1961. Once the power is legalized, it must be
notarized before a notary public in Mexico. If the power has been apostilled it does not
need to be notarized before a notary public in Mexico.
At the time of the formation of the company, with the presence of the partners or shareholders or their representatives, the first partners or shareholders meeting is held, at
which the designation of the administrative bodies of the company is agreed upon; the
officers, the oversight bodies, and the secretary of the company are appointed; and powers are granted to the board members or sole manager, the appointed officers, and any
other parties that will in the future take action on behalf and in representation of the company. These resolutions are recorded in what in practice are called transitory articles, and
they are added by the notary public to the end of the corporate bylaws in the document
known as articles of association or incorporation (escritura constitutiva).
The powers of attorney that are generally granted upon the formation of a company
or thereafter for the running and management of the company are divided into the following categories:
a) Powers for litigation and collections, which are generally granted to the persons
who will attend matters before governmental agencies, process permits and licenses for the company, request registrations, appear before judicial authorities, and
respond to and file all types of claims. These powers are also generally granted to
the external lawyers of the company;
b) Powers for administrative acts, which are granted to the persons who will sign contracts on behalf of the company, such as lease agreements, loans, employment
agreements, etc.;
c) Powers for acts of ownership, with which powers are granted to sell fixed assets
of the company. In view of the importance of these powers, we recommend not
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3. Registries
Once the company is formed, the certifying public officer will issue official transcripts
or public instruments (testimonios) formalizing the bylaws and transitory articles of the
company, and with such documents the company should carry out or obtain the following registrations:
a) Registration of the articles of incorporation in the Public Registry of Commerce
(Registro Público de Comercio) of the domicile of the company;
b) Registration of the company before the National Foreign Investment Registry (Registro Nacional de Inversiones Extranjeras, RNIE), if there are foreign shareholders;
a
Establishing
for
Requirements
The above-mentioned powers can be granted to be exercised individually by the attorney-in-fact or it may be required that they be exercised jointly by two or more attorneysin-fact, depending on the desired control. Furthermore, the exercise of the powers can be
limited to certain amounts or it can be required that above certain amounts they must
be exercised jointly by two or more attorneys-in-fact.
The general director and officers of the company must have sufficient powers to manage the daily operations of the company. It is suggested that there always be an adequate
number of attorneys-in-fact for them to be able to expeditiously attend all the matters of
the company in the absence or unavailability of any other attorney-in-fact.
Company
in
granting them as general powers, but rather as special powers for acts of ownership at the time they are needed for a particular transaction and/or specific asset.
This measure protects the company from any unauthorized sale of the fixed assets
that could be harmful to the company and the attorney-in-fact, so that the latter,
when exercising the special power, can subsequently prove that he/she had the
necessary authority;
d) Powers to subscribe, endorse, and guarantee negotiable instruments. With this
power of attorney, powers are granted to the attorney-in-fact to be able to open
bank accounts and investment accounts for the company and sign checks and
other negotiable instruments;
e) Any special powers that the company requires according to its needs;
f) Powers to grant and revoke powers. It is important to mention that we do not recommend that the attorneys-in-fact have the power to grant powers, since in that
case the company and the partners or shareholders will lose control over the powers
granted by the company. In extreme cases, when it is necessary to give an attorneyin-fact the power to grant powers, we recommend that the powers granted to the
attorney-in-fact be limited in purpose or in time. In this way this power will eventually expire.
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c) Registration of the company before the Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público, SHCP) to obtain its Federal Taxpayers Registry
(Registro Federal de Contribuyentes, RFC) number;
d) Registration of the company before the Importers and Exporters Registry (Padrón
de Importadores y Exportadores), if the company intends to engage in imports and
exports;
e) Registration of the company in the Mexican Business Information System (Sistema
de Información Empresarial Mexicano, SIEM);
f) Registration of the company before the Registry of Companies and Establishments
of the General Office of Statistics and Geography (Registro de Empresas y Establecimientos de la Dirección General de Estadística y Geografía) of the SHCP;
g) As soon as the company hires any employee, it must register as an employer and
register its employees before the Mexican Social Security Institute (Instituto Mexicano del Seguro Social, IMSS), the National Fund For Workers Housing Institute
(Instituto del Fondo Nacional de la Vivienda para los Trabajadores, INFONAVIT) and the
Retirement Savings System (Sistema de Ahorro para el Retiro, SAR), as well as register as a tax withholder before the SHCP;
h) It is also important to protect in Mexico the industrial and intellectual property
rights of the company and/or the shareholders, such as trademarks, patents, industrial designs, utility models, and copyright.
4. The Limited Liability Company
(Sociedad de Responsabilidad Limitada)
The limited liability company is a company formed among partners who are only obligated to pay their contributions, and the ownership interests they obtain will not be represented by negotiable instruments, payable to order or to bearer.
This type of company, as indicated previously, can exist under either a corporate name
or a business name, and such name must be followed by the words Sociedad de Responsabilidad Limitada or its abbreviation, S. de R.L.
The failure to indicate that a company is a limited liability company can result in all
the partners being held liable without limitation, jointly and secondarily, for the obligations of the company.
4.1. Requirements for Forming a Limited Liability Company
The minimum capital with which a limited liability company may be formed is $3,000.00
(3 thousand pesos 00/100, Mexican currency). The minimum number of partners the
company may have is 2 and the maximum 50.
4.2. Ownership Interests
4.3. Supplementary Contributions and Obligations
When the company bylaws so stipulate and the partners meeting so resolves, the partners
shall make supplementary contributions and execute supplementary obligations to the
limited liability company. The supplementary contributions are cash loans or assets that
serve to increase the means of action of the company or liquidate company debts; supplementary obligations are not defined by the LGSM, but such law prohibits supplementary obligations consisting of personal work or services of the partners. The supplementary
obligations may consist of obligations on the partners to transform certain assets or sell
to the company all or part of the products that the partners manufacture or sell.
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Requirements
The ownership interests will be in multiples of $1.00 (1 peso 00/100, Mexican currency) and no partner can hold more than one ownership interest, unless the ownership
interests grant different rights. When the limited liability company has variable capital,
the partners may have two ownership interests: one ownership interest representing the
fixed capital and another representing the variable capital.
When the company is formed and for each capital increase thereafter, at least 50 percent of the capital must be fully subscribed and paid. In capital increases the partners
will have, in proportion to their share of the company capital, preference to subscribe
the capital increases declared, unless this right has been cancelled in the articles of association or is cancelled by resolution of the partners meeting that declares the capital
increase. When the company capital is increased, the ownership interest of the partner
who subscribes and pays the capital increase will increase in value.
The consent of the partners representing the majority of the company capital is
required for the transfer of ownership interests, as well as for the admission of new partners. If the partners meeting authorizes the transfer of an ownership interest to a third
party foreign to the company, the partners will have a preferential right for 15 days from
the date on which the transfer of the ownership interests has been authorized, to purchase the ownership interest being transferred, in proportion to their share in the company capital.
The company must keep a special partner registry book, which will be maintained by
the board of managers or the sole manager of the company, who will be personally and
jointly and severally responsible for its existence and its accuracy. The name and address
of each partner will be registered in the partner registry book along with the indication
of each one’s contributions and the transfer of ownership interests. The transfer of ownership interests will not become effective with respect to third parties until it has been
registered in this book.
4.4. The Management of the Company
One or more managers will be responsible for the management of the limited liability
company. Such managers may be partners or they may be from outside of the company. When just one manager is appointed, such manager will be called the sole manager, and when two or more managers are appointed, they will form a board of
managers.
The appointment of the managers is temporary and, unless otherwise agreed, the partners meeting can revoke their appointment at any time, appointing others. When for any
reason no managers have been appointed, it will be understood that the management of
the company is the responsibility of the partners.
If the limited liability company is managed by a board of managers, the resolutions
will be adopted by a majority of votes of the appointed managers.
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4.5. The Partners Meeting
The partners meeting in the limited liability company is the supreme body of the company. The resolutions are adopted in the partners meeting, on the first call, by a majority of votes of the partners representing at least half of the company capital, unless the
bylaws require a greater majority. On the second call, the partners meeting can adopt
resolutions by a majority of votes, whatever the proportion of the capital represented.
Every partner has the right to participate in the decisions of the meetings and enjoys
one vote for each peso he contributed to the company or multiple thereof.
The partners meetings will be held in the company domicile at least once a year during the period stipulated in the articles of association. The meetings will be called by the
managers, and if they do not do so, by the oversight body, and if the latter fails to do so,
by the partners representing more than one-third of the company capital.
Unless otherwise agreed, the calls to meetings will be made by certified letters with
acknowledgement of receipt and shall contain the agenda and be sent to each partner at
least eight days prior to the date of the meeting.
The articles of association may indicate the cases in which the holding of a partners
meeting is not necessary. In this case the partners can send the text of the resolutions or
decisions by certified mail. However, if partners representing more than one-third of the
company capital so request, a partners meeting must be called, even if the articles of
association only require a vote by mail.
The partners meeting has the authority to:
a) Discuss, approve, amend or reject the general balance sheet for the closed fiscal year
and take, for such purposes, the measures it considers appropriate;
b) Undertake the distribution of profits;
Company
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a
Except as agreed otherwise, the amendment of the articles of association may be
resolved by the majority of the partners representing three-fourths of the company capital; however, when it involves a change in the corporate purpose or the imposition of
rules increasing the obligations of the partners, a unanimous vote is required.
In practice, in the case of closed companies and those in which the partners belong
to the same group, the partners meetings are held without the actual physical meeting
of the partners or their representatives, in which case the partners or their representatives indicate the resolutions that should be adopted, such as the approval of the
financial statements for the immediately prior fiscal year, approval of the certification of
the oversight board in the event the company has appointed such a body, approval
of the board’s or sole manager’s report, and the ratification or change of members of
the board of managers. For these purposes the partners or their representatives should
send a simple proxy letter designating one or more representatives. Once the above
information is received, the partners meeting minutes are prepared which are sent for
the approval of the partners or their representatives and, once such draft minutes are
approved, they are transcribed into the partners meeting minute book. The minutes
are signed by the acting chairman and secretary, who are generally the persons that
represented the partners.
If the above-mentioned partners meeting minutes contain appointments or revocations of appointments of members of the board of managers, of members of the oversight board or of officers of the company, as well as the revoking and granting of powers
or any resolution that amends the articles of association or any other act that by law must
be recorded in a public instrument, such resolutions must be certified before a certifying public officer and subsequently registered in the Public Registry of Commerce of the
domicile of the company.
Establishing
j)
k)
l)
for
h)
i)
Appoint and remove managers;
Designate, if applicable, the oversight board;
Resolve on the division and redemption of the ownership interests;
Require, if applicable, supplemental and additional contributions;
File against the company bodies or the partners the corresponding actions to claim
damages and lost profits;
Amend the articles of association;
Consent to the transfer of ownership interests and the admission of new partners;
Decide on the increases and reductions of the company capital;
Decide on the dissolution of the company;
Decide all other matters corresponding to it pursuant to the law or the articles of
association.
Requirements
c)
d)
e)
f)
g)
4.6. The Oversight Board
If the articles of association so establish, the company can have an oversight board
formed by one or more partners or persons outside of the company. The function of the
oversight board will be to ensure the adequate administration of the company in order
to report to the partners meeting any relevant point regarding the management of the
company and its accounting records.
5. The Stock Corporation (Sociedad Anónima)
The LGSM defines the stock corporation simply and clearly as a company existing under
a corporate name and composed exclusively of shareholders whose liability is limited to
the payment of their shares. The name can be freely chosen and will always be followed
by the words Sociedad Anónima or its abbreviation, S.A.
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5.1. Requirements for the Incorporation of a Stock Corporation
The following is required for the incorporation of a stock corporation:
a) That there are at least two shareholders and that each of them subscribes at least
one share;
b) That the capital stock is not less than $50,000.00 (50 thousand pesos 00/100,
Mexican currency);
c) That at least 20 percent of the value of each share payable in cash be paid; and
d) That the value of each share to be paid in kind, in whole or in part, be paid in full.
The articles of incorporation of the stock corporation should contain, in addition to
the requirements indicated in Point 2 of this chapter:
a) The paid portion of the capital;
b) The number, par value, and nature of the shares into which the capital stock is
divided, except when they are shares without par value;
c) The form and the terms in which the unpaid portion of the shares must be paid
when they are assessable shares;
d) The share of the profits granted to the founders of the company;
e) The appointment of one or more examiners; and
f) The powers of the general meeting and those granted for the validity of their deliberations, as well as for the exercise of the rights to vote, to the extent the legal provisions can be freely modified by the shareholders.
5.2. The Stock
The shares into which the capital stock of a stock corporation is divided will be represented by negotiable instruments payable to order that serve to prove and transfer the
status and rights of shareholder.
Stock corporations must keep a stock registry book that contains:
a) The names, nationality and domicile of the shareholder;
b) The indication of the shares belonging to each shareholder, stating the number,
series, class and other specifics;
c) The RFC or tax identification number of the shareholders;
d) The indication of the amount paid by each shareholder; and
e) Any transfers made.
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Requirements
The LGSM requires that the company only consider as owners of the shares those who
appear registered as such in the stock registry book, and that the company register in
such registry book, at the request of any stockholder, any transfers made.
Stock corporations cannot issue shares for an amount less than their par value, and
they are prohibited from acquiring their own shares. The shares are of equal value and
confer equal rights. However, in the articles of incorporation it can be stipulated that
the capital be divided into several classes of shares with special rights for each class.
In accordance with the LGSM and the doctrine, the shares of a stock corporation
can be:
a) Non-assessable stock (acciones liberadas). Stock fully subscribed and paid;
b) Assessable stock (acciones pagadoras). Stock fully subscribed and partially paid, at
least 20 percent;
c) Contribution stock (acciones de aporte). Stock that has been paid in whole or in part
by contributions in kind. This stock must remain deposited in the company for
two years. If during this period it appears that the value of the in-kind goods is 25
percent less than the value at which they were contributed, the shareholder must
pay the difference to the company;
d) Performance stock (acciones de trabajo). Stock that, if so established in the articles of
incorporation, can be issued to persons who render services to the company; they
must contain rules with respect to the form, value, inalienability and other particular conditions applicable to them;
e) Limited-voting stock (acciones de voto limitado). As a general rule, each share has the
right to one vote. However, it can be established in the corporate bylaws that a part
of the shares only has the right to vote in the extraordinary meetings held to
address certain matters. As compensation for the limitation on the corporate rights,
they will receive a cumulative preferred dividend of 5 percent;
f ) Restricted circulation stock (acciones de circulación restringida). Stock that to be transferred must have the authorization of the board of directors, when such is established in the articles of incorporation. The board of directors can deny the
authorization, designating a buyer of the stock;
g ) Treasury stock (acciones de tesorería). Stock that in a variable capital corporation is
preserved in the treasury of the company until the board of directors of the company decides to put it in circulation. They are shares issued and unsubscribed; they
will be subscribed by the shareholder when put in circulation;
h) Dividend certificates (acciones de goce). When the articles of incorporation so authorize, the company may redeem its stock with distributable profits. Only fully paid
stock will be redeemed and the certificates of the redeemed stock will be cancelled
and in their place dividend certificates will be issued. The dividend certificates are
entitled to the liquid profits, after the dividend indicated in the articles of incorporation has been paid to the non-redeemable stock.
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5.3. Management of the Company
The stock corporation shall be managed by a sole director or a board of directors consisting of two or more members, which will be appointed by the ordinary shareholders
meeting. The shareholders meeting can also appoint one or more alternate board members who act in the absence of the proprietary board member. The position of board
member is personal, temporary and revocable and shareholders or persons outside of
the company can be appointed, regardless of nationality.
For the board of directors to function legally at least half of its members must attend
and its resolutions will be valid when they are adopted by the majority of those present.
In case of a tie, the chairman of the board of directors has a tie-breaking vote. The bylaws
of the company can establish that resolutions adopted outside of a board meeting will
have the same validity as if they were adopted in a meeting, provided that all the board
members confirm them in writing.
When the company is managed by a board of directors, the shareholders holding
stock representing 25 percent of the capital stock can appoint one board member. This
percentage is 10 percent in the case of companies who register their stock on the Stock
Exchange.
The sole director and the members of the board of directors are jointly and severally
liable to the company for the actual existence of the contributions of the shareholders;
for compliance with the legal and statutory requirements established with respect to the
dividends paid to the shareholders; for the existence and maintenance of the accounting, control, recording, filing or information systems required by law; and for the timely fulfillment of the resolutions of the shareholders meetings, among other things.
5.4. Oversight of the Company
5.5. The Shareholders Meeting
The LGSM recognizes the existence of several types of meetings: general meetings and
special meetings. General meetings may be ordinary or extraordinary, depending on the
matters addressed and not, as some erroneously state, on the time during which they
meet. In the extraordinary meetings the quorum for both their convening and for adopting resolutions is higher than those for an ordinary meeting.
for
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Requirements
Every stock corporation must appoint, in a general ordinary shareholders meeting, one
or more examiners. The appointment of the examiners is temporary, revocable and
remunerated and shareholders or persons outside of the company can be appointed.
However, persons barred from engaging in commerce, employees of the company,
employees of those companies that are shareholders of more than 25 percent of the capital stock, employees of the companies in which the company is a shareholder of more
than 50 percent and blood relatives of the sole director or the board members in a direct
line without limitation of degree, as well as siblings, cousins and brothers- and sistersin-law of the sole director or the board members, cannot be appointed as examiners.
The restriction in the law on who can be appointed examiners of a company is intended to guarantee the quality and independence of the oversight work required from the
examiners. In practice, in stock corporations, members of the accounting firm that
audits the financial statements of the company are appointed as examiners.
The shareholders representing 25 percent of the capital stock can appoint an examiner and in the case of companies whose stock is registered on the Stock Exchange, the
shareholders representing 10 percent will have such power.
The powers and obligations of the examiners include, among others, to ensure the creation and maintenance of any guarantee that has been requested from the sole director,
the board members, the directors and the managers of the company; to request from the
sole director and the board members monthly information that includes at least a statement of the financial situation and a statement of results; to carry out an examination of
the operations, documents, and records in order to render an opinion to the meeting; to
render annually to the general ordinary shareholders meeting a report with respect to the
truthfulness, sufficiency, and reasonableness of the information presented by the sole
director or by the board of directors to the shareholders meeting; to have added to the
agenda of the board of directors and shareholders meetings the points they consider necessary; to call shareholders meetings; to attend with voice but not vote the board of directors and shareholders meetings; and to scrutinize without restriction and at any time the
operations of the company.
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The general shareholders meeting is the supreme body of the company; it can
resolve and ratify all the acts and operations of the company and its resolutions will
be carried out by the person the meeting designates, or in the absence of a designation, they will be carried out by the sole director or the board of directors. Thus it
should be understood that the shareholders meeting is a deliberative body and that
the sole director or the board of directors, as applicable, are bodies that execute the
resolutions of the meetings.
The general ordinary, general extraordinary, and special shareholders meetings must
be held in the corporate domicile; otherwise they will be null and void, except in the
case of an Act of God or force majeure, in which cases the meetings can be held outside
of the corporate domicile.
The corporate bylaws may establish that the shareholders representing all of the voting
shares, or of the special category of shares involved, may adopt resolutions unanimously
and in writing outside of a meeting. The resolutions so adopted will have the same validity as if they had been adopted by the shareholders in a general or special meeting.
The shareholders can be represented in the meetings by representatives, that may
either belong to the company or not; however, the LGSM prohibits the sole director, the
members of the board of directors and the examiners from representing shares in meetings. This is in order to prevent them from approving their own actions in prejudice to
the shareholders or from hiding relevant information from the shareholders with regard
to their actions. Unless otherwise stipulated in the bylaws, the shareholders meetings
should be presided over by the sole director or the chairman of the board of directors,
and in their absence the meetings will be presided over by the person selected by the
meeting itself. For every general meeting, minutes should be drafted to be transcribed
into the respective book and signed by the chairman and the secretary of the meeting
and by any examiners that attend.
When for any reason the minutes of a meeting cannot be transcribed into the minute
book of the company, the minutes shall be notarized before a notary public. Minutes of
general extraordinary shareholders meetings must also be notarized.
5.6. The General Ordinary Shareholders Meeting
General ordinary shareholders meetings are those held to address any matter that is not
reserved by law or by the corporate bylaws to the extraordinary shareholders meeting.
The ordinary shareholders meeting should be held at least once a year within the four
months following the close of the fiscal year, that is between January 1 and April 30 of
each year. In the general ordinary shareholders meetings, the following matters will be
addressed, as well as any other matter that is indicated on the agenda and that in accordance with the LGSM is not reserved to the extraordinary shareholder meetings:
a) Discussion, approval, or modification of the report of the sole director or the board
of directors, taking into account the examiners’ report;
b) Appointment of the sole director or the board of directors and the examiners;
c) Determination of the emoluments corresponding to the sole director, the members of
the board of directors, and the examiners, when they have not been set in the bylaws.
5.6.1. Report of the sole director or the board of directors
The sole director or the board of directors in the stock corporation must present an
annual report to the shareholders, which shall include a report on the progress of the
company during the fiscal year, as well as the policies followed by the board or sole
director and, if applicable, on the principal existing projects, and a report declaring and
explaining the principal accounting and information policies and criteria followed in the
preparation of the financial information.
5.7. The General Extraordinary Shareholders Meeting
According to the LGSM, the extraordinary shareholders meeting may be held at any time
to address the extension of the duration of the company, the early dissolution of the
Mexico
in
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a
Establishing
for
5.6.3. Report of the examiner or oversight board
By law, the examiner must render annually to the shareholders meeting a report with respect
to the truthfulness, sufficiency and reasonableness of the information presented by the board
or sole director. This report should include an opinion as to whether the accounting and
information policies and criteria followed by the company are adequate and sufficient, taking into consideration the particular circumstances of the company; if these policies and criteria have been consistently applied in the information presented by the board or sole
director; and if, as a result of the above, the information presented by the board or sole director accurately and sufficiently reflects the financial situation and the results of the company.
The board or sole director’s report and the financial statements, as well as the examiner’s report, must be made available to the shareholders in the stock corporation at least
15 days prior to the date of the meeting at which they will be discussed.
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Requirements
5.6.2. Financial statements
In addition, the sole director or the board of directors must present annually to the shareholders the financial statements that show the financial situation of the company as of the
date of the close of the fiscal year; the results of the company during the fiscal year, duly
explained and classified; the changes in the financial situation during the fiscal year; the
changes in the items composing the corporate assets and liabilities occurring during the
fiscal year; and the notes that are necessary to complete or clarify the above information.
company, the increase or decrease of the capital stock, the change of corporate purpose,
the change of nationality of the company, the transformation of the company, the merger with another company and spin-off from the company, the issuance of privileged
stock, the redemption by the company of its own shares and the issuance of dividend
certificates, the issuance of bonds, any amendment to the articles of incorporation and
the other matters for which the law or the bylaws require a special quorum.
5.8. Call to Meetings
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The call to a shareholders meeting must be made by the sole director, the board of directors, or the examiners. The call to a general shareholders meeting, which should contain
the agenda, is given by publication of a notice in the official gazette of the entity of the
domicile of the company or in a newspaper of major circulation in such domicile at least
15 days prior to the date of the meeting. The report of the sole director or board of directors must be made available to the shareholders in the offices of the company. The resolutions adopted by the general shareholders meeting will be null and void if the call to
such a meeting was not made in accordance with the above requirements, unless at the
time the resolutions were adopted all of the shares of the capital stock were represented.
In the case of stock corporations that belong to the same group of shareholders, in
practice a call to the ordinary or extraordinary shareholders meetings is not made, since
the shareholders will be represented by an attorney-in-fact appointed through a simple
proxy letter, designating as representatives Mexican individuals or persons having the
appropriate Mexican visa. Once the proxies are received by the shareholders and their
representatives, the shareholders meeting minutes will be prepared, including the
desired resolutions, and these minutes will be sent for the approval and comments of the
shareholders and their proxies. If the minutes contain resolutions that must be notarized
by law, their notarization will be requested, and once the public document recording
such resolutions is issued, it will be registered in the Public Registry of Commerce of the
domicile of the company in the cases when such is necessary.
5.9. Quorum
For a general ordinary shareholders meeting to be considered legally convened on the
first call, at least half of the capital stock must be represented and the resolutions will
only be valid when adopted by the majority of the votes present. If the general ordinary shareholders meeting cannot be held due to the lack of a quorum, a second call
will be made for a subsequent date, indicating that it is a second call, and the meeting will be convened with any number of shares represented therein; the resolutions
will be adopted by a majority of votes present.
In the case of general extraordinary shareholders meetings, unless the bylaws indicate
a higher percentage, at least three-fourths of the capital stock must be represented, and
resolutions will be adopted by the vote of the shares representing half of the capital stock.
If the general extraordinary shareholders meeting cannot be held due to the lack of a
quorum, a second call will be made for a subsequent date, indicating that it is a second
call. In this case, resolutions can be adopted with the favorable vote of the number of
shares representing at least half of the capital stock.
6. Public Registry of Commerce
In practice, in order to open a branch in Mexico, a foreign company must adopt a resolution approving the establishment of the branch in Mexico and granting powers to the
legal representatives that will handle the operations of the branch. This resolution must
be certified before a notary public commissioned in the domicile of the foreign company and subsequently legalized by the Mexican consulate of such domicile or apostilled
in accordance with the Hague Convention of October 5, 1961, if the foreign company
belongs to a country that has signed such convention. After the legalization or apostille,
the resolution to open the branch and the corresponding granting of powers to the representatives must be translated into Spanish by an authorized translator in Mexico and,
if the legalization was done by the Mexican consulate, the document must be notarized
in Mexico before a certifying public officer.
Mexico
in
Requirements
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7.1. Powers
Company
Foreign companies can do business in Mexico through the establishment of a branch,
and for that the foreign company must obtain the authorization of the Foreign Investment Bureau (Dirección General de Inversión Extranjera) of the Ministry of Economy (Secretaría de Economía, SE) in order to be able to register their corporate bylaws in the Public
Registry of Commerce of the domicile of the location where it will be established. This
registration is necessary given that the LGSM establishes that foreign companies may only
do business once they are registered in the Public Registry of Commerce.
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7. Establishment of a Branch of a Foreign Company in Mexico
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Establishing
By law the public instruments of the company that record the following points, among others, must be registered in the Public Registry of Commerce: the granting and/or revoking
of general powers; the appointment, revocation, and/or resignation of managers, officers,
examiners and members of any oversight board; the amendment of the corporate bylaws;
and resolutions for liquidation, merger, transformation, and spin-off of the company.
7.2. Authorization of the Foreign Investment Bureau
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The Foreign Investment Law (Ley de Inversión Extranjera, LIE) establishes that foreign
entities that wish to do business routinely in Mexico must obtain an authorization from
the Foreign Investment Bureau. In order to obtain this authorization, a petition requesting the establishment of a branch in Mexico and the registration of the current bylaws
of the company must be filed before the bureau. The articles of incorporation of the foreign company, its current bylaws, a certificate issued by a legal expert in the country of
residence of the foreign company (can be a notary public or a lawyer) indicating that the
company was legally incorporated under the laws of such country, and the receipt for
the payment of the fees established in the Federal Fees Law (Ley Federal de Derechos),
must be attached to such petition for authorization, and must be certified by notary public commissioned in the domicile of the foreign company, legalized by the Mexican consulate or apostilled if the country is a member of the Hague Convention and translated
into Spanish by an authorized translator.
The Foreign Investment Bureau will verify that the incorporation of the foreign company and its current bylaws do not violate any public order principles established under
Mexican law and, if they do not, issue the corresponding authorization.
Every petition for authorization presented before the Foreign Investment Bureau that
complies with the above-mentioned requirements must be authorized within 15 business days from the date of its presentation and if no resolution is issued within such period, the authorization will be considered granted.
7.3. Legalization and Registration
Once the authorization for the establishment of a branch in Mexico has been issued by
the Foreign Investment Bureau, such authorization must be legalized before a Mexican
certifying public officer together with the resolution to open the branch issued by the
foreign company, its articles of incorporation and current bylaws. The document issued
by the Mexican certifying public officer must be registered in the Public Registry of Commerce of the domicile where the branch will be established and from that moment the
foreign company may do business in Mexico through its branch.
7.4. Observations
It is important to mention that the procedures for opening a branch of a foreign company in Mexico are more complicated and more expensive than the establishment of a
subsidiary company by which commercial operations will be carried out in the country.
Therefore the majority of foreign companies who wish to do business in Mexico do so
through a subsidiary, which can be incorporated based on explanation in Point 2 and
subsequent points of this chapter.
8. Non-Income Earning Representative Office
8.2. Authorization of the Foreign Investment Bureau
There is an unresolved debate as to whether or not the authorization of the Foreign Investment Bureau is required to open a non–income earning representative office. The LGSM
establishes that foreign companies may only do business in Mexico after registration in the
Mexico
in
Company
a
Establishing
In order to open a non–income earning representative office in Mexico, the foreign company must adopt a resolution approving the establishment in Mexico of such office and
grant powers of attorney to the legal representatives in Mexico. The powers granted to the
representatives in Mexico should be limited to the execution of contracts for the operations of the office, such as the execution of the lease agreement for the office, the hiring
of personnel, the registration and cancellation of employees before the applicable authorities, the contracting of telephone services, among others.
The resolution to open the non–income earning representative office must be certified
by a notary public commissioned in the domicile of the foreign company and subsequently legalized in the Mexican consulate of such domicile or apostilled in accordance
with the Hague Convention of October 5, 1961 if the foreign company is incorporated in
a country that is a member of such convention. The resolution to open the non–income
earning representative office, once legalized or apostilled, must be translated into Spanish by an authorized translator and, if legalized before the Mexican consulate, notarized
before a certifying public officer in Mexico.
for
8.1. Powers
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Requirements
The establishment of a non–income earning representative office is recommended for
those foreign companies who only wish to have a representative in Mexico, since they
will not engage in commercial transactions and their activity will be limited to the identification of potential clients or acting as a point of contact between the foreign company and Mexican clients.
In order for a non–income earning representative office not to be considered a permanent establishment subject to the strict tax regulations of the country, its representatives in Mexico must abstain from engaging in any commercial activities and therefore
from executing contracts, importing or exporting merchandise or assuming risks on
behalf of the foreign company.
Public Registry of Commerce, which registration can only take place if authorized by the
SE. Furthermore, the LIE establishes that foreign entities that intend to do business routinely in the Mexico must obtain authorization from the SE. Based on this, and given that the
non–income earning representative offices do not routinely do business in Mexico, there
are those who argue that the authorization of the Foreign Investment Bureau is not required
for the opening of a non–income earning representative office; however, in must be mentioned that in practice some authorities do require that such authorization be obtained.
8.3. Contracting a Mexican Accounting Firm
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The non–income earning representative office, even though it will not be engaging in
commercial transactions, must have a taxpayer identification number (RFC), since by law
it will have to withhold income tax for its employees and file periodic declarations before
the tax authorities. Therefore, and in order to be able to adequately manage its payroll
and the registration and removal of its employees before IMSS, we recommend that a
Mexican accounting firm be contracted to help the non–income earning representative
office with these matters.
8.4. Registration of the Non–Income Earning Representative Office
before the Ministry of Finance and Public Credit
As stated previously, the non–income earning representative office must be registered in
the taxpayers’ registry (RFC) since it will withhold income tax for its employees. In order
to obtain the federal taxpayers registry number, the following basic documents must be
presented: a certificate of tax residency of the foreign company, translated into Spanish
by an authorized translator, which must be issued by the competent tax authorities in
the domicile of the foreign company and must certify the place of tax residence and tax
identification number of the foreign company, the public instrument issued by a Mexican notary public recording the powers granted by the foreign company to its legal representatives, and proof of the tax domicile in Mexico.
It is important to mention that in practice the tax authorities may request additional
documents, depending solely on the requirements established by the governmental
employee who receives and processes the request for registration in the RFC. The additional documents that may be required are the articles of incorporation of the foreign
company, certified by notary public commissioned in the domicile of the foreign company, legalized or apostilled and translated into Spanish by an authorized translator,
and/or the public instrument issued by a Mexican certifying public officer recording the
authorization granted by the Foreign Investment Bureau of the Ministry of Economy for
the opening of the non–income earning representative office in Mexico.
CHAPTER IV
Offices and Industrial Plants
One of the most important decisions a company must make when investing in Mexico
is determining where to establish its office or industrial plant.
In order to make the correct decision it is very important to know the law applicable
to both acquiring and leasing real estate. Furthermore, it is essential to know what
authorizations must be obtained in order to install the type of business or industry in
the place chosen to house the industrial plant or office.
1. Acquisition of Real Estate
As was indicated in chapter II of this book, the restrictions on the acquisition of real
estate by foreign individuals, foreign companies, and Mexican companies with foreign
investment must be taken into account.
Along with the above, it is equally important to determine the best location to acquire
property in Mexico before making the purchase. In order to make that determination,
the following should be taken into account:
a) Which states of the Mexican Republic offer tax incentives for companies that wish
to become established in their territory. To obtain this information the Ministry of
Economic Development of each state should be contacted;
b) Whether the property has adequate access roads;
c) Whether there is access to utilities and a sufficient water supply;
d) Whether it is near suppliers and clients.
Once the property to be acquired has been chosen, the buyer should:
a) Review the title to the property, which must be registered before the appropriate Public Registry of Property. The title deed for real estate consists of a public
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b)
c)
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d)
e)
f)
instrument granted before a notary public that records the acquisition by the owner
of the property;
Verify in the appropriate Public Registry of Property that the property is free of
liens or encumbrances by obtaining a liens certificate. In Mexico, all real estate
available for private ownership must be registered in the Public Registry of Property of the state in which it is located. In the Public Registry of Property all transfer of the property will be registered, as well as any encumbrances upon it, such as
mortgages or attachments. In order to verify that a property is registered under the
name of the person who claims to be the owner and that the property is free of
encumbrances, a liens certificate must be obtained. Such a certificate is issued by
the Director of the Public Registry of Property;
Check the National Agrarian Registry and obtain an agrarian certificate. In this
regard it is very important to take into account that ejidal lands are not subject to
private ownership, and therefore any contract by which ejidal land is acquired will
be null and void and unenforceable since the ejidal lands cannot be sold. For this
reason, in the case of any acquisition of land in rural zones, it is essential to verify
in the National Agrarian Registry that the land to be acquired is not subject to
agrarian regulation;
Verify that the property has the land use (uso de suelo) zoning classification
required by the buyer in order to carry out its activities. In order to verify the zoning of the property, it is very important to obtain from the municipality or, in the
case of the Federal District, from the corresponding political subdivision, a zoning
certificate. The zoning classifications vary from municipality to municipality, however they can be divided into the following types:
• Residential. In this zone generally only residential dwellings are permitted;
• Commercial. In this zone the installation of all types of businesses is generally
permitted, such as stores, restaurants, banks, etc.;
• Industrial. Under this type of zoning the installation of all types of industry is
permitted.
Each of the zoning types mentioned above have different subclassifications that
vary from municipality to municipality. Therefore, it is very important to verify that
the type of business that you wish to establish corresponds to the zoning classification of the property;
Request receipts recording the payment of real estate taxes for the last five years,
in order to ensure that there are no amounts pending payment or, if necessary,
request a tax certificate from the treasury;
Request the receipts for the last five years recording the payment of water services
to ensure no amounts are due or, if necessary, request from the treasury a certificate evidencing no charges in this regard are due;
g) Do a topographical site survey and request a plot plan in order to confirm that the
real area of the property, and the metes and bounds, coincide with the area established in the public instrument recording the ownership of the property;
h) Verify that the property has sufficient water for your production processes. If a new
well must be drilled, determine the possibility of obtaining such a permit from the
National Water Commission. If the well already exists, verify that it is legal and up
to date in payment of the corresponding fees;
i) Test soil samples to confirm there is no contamination present. This testing should
be carried out by a laboratory accredited by the Entidad Mexicana de Acreditación,
A.C. (EMA), recognized by the Ministry of Environment and Natural Resources for
carrying out such tests;
j) If the property is inside an industrial park or subject to a condominium property
system, carefully review the industrial park or condominium rules and check the
amount to be paid in maintenance fees.
As in the case of an acquisition, it is very important before leasing any property to verify the following:
a) That the property has the zoning required to be able to install the business or
engage in the desired activities;
b) That the property has the services that the tenant requires to operate its business,
such as water and power;
c) That the person who claims to be the owner of the property is in fact the owner.
In this case it is important to obtain a liens certificate on the property and to review
the property title deed;
d) If the property is subject to a condominium property system, it is important to
review the rules that apply to the building, as well as the rules for the payment of
maintenance fees;
e) If the property to be leased is an industrial plant, it is important to have a soil test
done by an EMA-accredited laboratory in order to verify that the soil and subsoil of
the building is not contaminated.
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2. Leasing Property in Mexico
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Pursuant to the laws applicable in each of the states of the Mexican Republic, the purchase and sale or alienation of real estate must be recorded in a public instrument.
Therefore it is important for the buyer to contract a notary public, preferably of the location of the real estate, in order to execute the purchase and sale before such person.
Among the obligations of the notary is to verify that the property is free of liens and that
nothing is owed for water services or real estate taxes.
Pursuant to the civil codes of each of the states of the Mexican Republic, in order for a
lease agreement to be valid, it must be executed in writing. Although the civil codes of the
states generally establish the obligations of the landlord, it is advisable that the following
obligations be included in the lease agreement that is executed:
a) The obligation to deliver to the tenant the leased property with all its appurtenances and in a condition to serve for the use agreed to. In this case we recommend signing a delivery-reception document at the time of the delivery of the
property in which the conditions under which it is received are described in detail;
b) The obligation to preserve the leased property in the same condition during the
lease and make all the necessary repairs in order for the leased property to always
be in good condition;
c) Liability for any damages and losses suffered by the tenant as a result of hidden
defects in the leased property.
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If the tenant must carry out works and adjustments to the property, we recommend
that such works be authorized in writing by the owner before the lease agreement is executed. In this case it is important that the designs and other documents describing the
works to be carried out be attached to the letter authorizing the works.
It is also important that the duration of the lease be sufficient to allow the tenant to
recuperate the investment made in the property. Furthermore, the obligation of the landlord to pay liquid damages if the contract is terminated or rescinded before its expiration date for causes attributable to the landlord should be included.
CHAPTER V
Labor Law
1. Labor Contracts
Contracting is one of the most important issues in labor law, since it is from contracts
that all the rights and obligations of an employment relationship emanate, regardless of
the form in which the relationship is established.
In Mexico there are two types of labor contracts: the individual employment contract
and the collective contract. The individual contract is normally between a worker and an
employer, and the interest is individual. In contrast, the collective contract is established
commonly between unions and employers, and it involves a group interest. Article 20 of the
Federal Labor Law (Ley Federal del Trabajo, LFT) distinguishes between the concepts of individual employment agreement and a simple labor relationship and establishes that the
labor relationship, whatever act originates it, is the provision of personal, subordinated work
to a person in return for the payment of wages, while the individual employment agreement,
whatever its form or name, is the agreement by which a person is obligated to provide to
another person personal, subordinated work in return for the payment of wages.
However, both the individual employment agreement and the labor relationship produce the same effects, since both involve the provision of personal, subordinated service for the payment of a wage as a principal characteristic.
1.1. Hiring of Personnel for a Limited Time Period, for a Specific Piece
of Work, or for an Indefinite Time Period
The most common contracts recognized by labor law are contracts for a limited time
period, for a specified piece of work, or for an indefinite time period. Below we will
explain the differences, the requirements, and the risks in the hiring of personnel for a
limited time period, for a specific piece of work, or for an indefinite time period, as well
as how each of these contractual agreements can be terminated.
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1.1.1. Individual employment agreement for a specific piece of work
The indication of a specific piece of work in an individual employment agreement can
be stipulated only when the nature of the work to be done so requires. For such purposes, the work that the temporary worker will do must be clearly specified in the contract, stating what the job consists of and in what stage or until what stage the temporary
worker will be needed.
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1.1.2. Individual employment agreement for a limited time period
In this contract, the time period for which the employment will last must be specified,
including the date of termination. The cases in which this type of contract can be executed are listed below:
a) When the nature of the work to be done requires such a contract; for example, the
hiring done by hotels in high-occupancy seasons, such as Christmas or New Year’s,
in order to adequately respond to the work load during that period;
b) When the purpose is the temporary substitution of another worker; for example,
when a worker is on maternity leave, she can be temporarily replaced by another
worker during that period. In this situation, the principal element is the temporary
substitution;
c) In other cases of special types of work named in the law: musicians, actors, athletes,
and certain professionals, among others.
1.1.3. Contract for an indefinite time period
The employment contract for an indefinite time period is the general rule in relation to
other contracts recognized by the LFT. In the event that the duration of a contract for a
specific piece of work or a limited time period is not specified, it will be considered an
individual employment agreement for an indefinite time period. This contract will be in
effect as long as the worker has the physical and mental capacity to do his/her job in a
normal fashion and as long as the employer continues to require his/her services.
1.2. Essential Elements and Elements Required for Individual
Employment Agreements to Be Valid
As with all contracts, individual employment contracts have essential elements and elements required to be valid.
1.2.1. Form
Labor law has attempted to simplify to a minimum the formalities that a labor contract
must contain, to the point that the lack of a document does not deprive a worker of the
rights established in labor law. Thus, Article 21 of the LFT indicates that “the existence of
1.2.2. Salary
With respect to the payment of the salary, regardless of whether or not the amount is
stated, the employer will be obliged to pay at least the minimum wage. The minimum
wage is established by the National Minimum Wage Commission, which is made up of
representatives of employers, workers, and the government. This commission will determine the wage that will apply in each of the three geographic areas into which the Mexican Republic is divided. Such areas are composed of one or more municipalities,
without there necessarily being territorial continuity among them.
For 2007 the daily minimum wage varied, depending on the zone, between 47.60
pesos in zone C and 50.57 pesos in zone A (equivalent to approximately USD $4.35 and
USD$4.63, respectively). Although the amounts for 2008 have not yet been published
as of this date, an increase of around 4 percent is expected.
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a contract and therefore an employment relationship will be presumed between the person that provides services and the one that receives them.” Therefore, the existence of a
labor relationship is sufficient for a worker to enjoy corresponding labor rights, whether
or not there is a written contract.
Regardless, terms and conditions of employment should be put in writing as a general
rule, for the benefit and protection of both parties. If they are not put into writing, the
employer can be fined; furthermore, in the case of a dispute with the worker, the employer will have the burden of proof regarding the terms and conditions governing the
employment. If the employer does not have sufficient evidence, the terms and conditions
indicated by the worker in his/her claim will be accepted as true.
It should be mentioned that there are minimum conditions that must be established
in employment contracts that cannot be less than those set forth in the LFT, but can be
superior thereto.
Thus, the law states that individual employment agreements shall contain (i) the identification information of the worker, such as his/her name, nationality, age, gender, marital status, and residence; (ii) the address of the employer; (iii) the duration of the labor
relationship (that is, whether the employment is for a specific piece of work, a limited
time period, or an indefinite time period); (iv) the service or services to be provided by
the worker (that is, the tasks he/she will perform, which should be specified in as much
detail as possible); (v) the place or places where the worker will do the work, and the
duration of the work shift; (vi) the form and amount of the salary the worker will be
paid; (vii) the day and place that such salary will be paid; and (viii) whether or not the
worker will be trained in accordance with established plans and programs, or under programs that may be established by the company, in accordance with the law.
In addition, other terms and conditions of employment may be stated such as days off,
days of vacation, and other benefits agreed to with the worker.
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1.2.3. Capacity
In Mexico it is prohibited for minors under 14 to work. In order for minors between
14 and 16 years old to work, they must have completed their compulsory education
and have authorization from their parents or guardians or, in their absence, from the
union to which they belong, from the Conciliation and Arbitration Board, from the labor
inspector, or from the political authority, unless an exception is made that is approved
by the corresponding authority, stating that school and work are compatible for this
minor.
Those over 16 can freely offer their services, but with certain requirements:
• The obtaining of a medical certificate verifying aptitude for the work, in the case
of minors over 14 but under 16, as well as their submission to periodic medical
examinations ordered by the labor inspector;
• The prohibition of the use of child labor for dangerous or unhealthy work;
• The requirement that the work shift of those under 16 not exceed six hours per
day, which shall be divided into maximum periods of three hours, with at least one
hour of rest between those two periods;
• The prohibition on the use of minors under 16 to work overtime, on Sundays, and
on official holidays;
• The provision to minors under 16 of an annual paid vacation period of at least 18
business days.
1.2.4. Absence of deceit or fraud
Deceit by the worker of the employer regarding his/her skills, capacities, and abilities at
the time of hiring is a cause for the rescission of the individual employment agreement
by the employer. However, this cause of rescission will expire if not asserted by the
employer within 30 days from the date of hire of said worker.
1.2.5. Lawfulness of the work performed
The primary illegal labor relationships are described in Article 5 of the LFT:
a) Child labor. When children under 14 are employed; when 16-year-old minors
work overtime; when industrial nightshift work is permitted or work is done after
10:00 P.M. by children under 16;
b) Work shift. When minors are assigned a work shift longer than that permitted by
the LFT, except in the cases of an accident or imminent risk, in which case the work
shift may be extended for the time strictly indispensable to avoid damages or in
extraordinary circumstances; however, the prolongation of a work shift may never
exceed three hours per day or happen more often than three times per week. In
addition, a work shift that is considered excessive in the judgment of the Conciliation and Arbitration Board is illegal;
c) Salary. When the salary paid to the worker is less than minimum wage; when the
salary, although not less than minimum wage, is not what the worker should
receive, given the amount and quality of work done, in the judgment of the Conciliation and Arbitration Board; when a salary is paid to workers for a period
greater than one week; when a salary is paid in a location intended for recreation
or in a restaurant, cafeteria, café, tavern, or store (other than to the workers of
these establishments); when the employer withholds the salary of the worker as a
fine; when the worker is paid a salary less than another worker in the same company for equally efficient work, in the same class of work, or for the same shift, or
when pay is based on age, gender, or nationality;
d) Workers’ rights. When the employers require that their workers buy their goods in
a particular place; when a worker signs any waiver of his/her rights or prerogatives
granted by labor regulations.
1.3. Provision of Services outside of the Normal Residence of the Worker
or outside of the Mexican Republic
The most important regulations to take into account when personnel are hired to provide services outside of their town of residence or of the Mexican Republic are the following:
a) The terms and conditions of employment should be established in writing, and all
the requirements for such circumstances set forth in the LFT must be complied
with. Such requirements include that the employer must pay the expenses for
transportation, repatriation, and relocation to their place of origin, as well as paying for food for the worker and his/her family; that the worker will have the right
to enjoy the benefits granted by the social security institutions to foreigners in the
country to which the worker will provide services, and that the worker is entitled
to enjoy decent and sanitary housing;
b) The employer must guarantee the worker a domicile within Mexico for legal purposes;
c) The written document containing the terms and conditions of employment will be
submitted to the approval of the Conciliation and Arbitration Board, who shall
determine the size of bond or deposit it considers sufficient to guarantee compliance with the obligations contracted by the parties. Once the employer proves
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In all these cases it will be understood that labor law or supplemental rules govern
instead of the invalid clauses of the labor contract. An invalid clause is understood as any
clause that involves the waiver of workers’ rights or a decrease in such rights, regardless
of what has been agreed to by the parties.
before the Board that it has complied with the contracted obligations, the Board
will order the cancellation of the bond or the return of any deposit;
d) The written document must be stamped by the consulate of the nation where the
services will be provided.
1.4. Interpretation of Individual Employment Agreements
In Mexico, respect for the minimum rights and obligations established by the LFT prevails
over the will of the parties. Therefore, in case of doubt, when interpreting labor provisions, the interpretation most favorable to the worker will prevail.
1.5. Changes in the Individual Employment Relationship
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Like many other contracts, an individual employment agreement can be changed, provided that the change is made in writing, specifying the reasons for the change and the rights
on which it is based, and is ratified before the Conciliation and Arbitration Board. However, no agreement, resignation, or severance can call for a waiver of the worker’s rights.
Changes to an individual employment agreement can be subjective or objective,
regarding either the persons in the relationship or the conditions contemplated therein.
1.6. Risks in Hiring Personnel for a Limited Time Period, for a Specific Piece
of Work, or for an Indefinite Time Period
The simple fact of hiring a worker will always bring certain risks, regardless of whether it is
a temporary or permanent position. However, the risks increase if the hiring is for a limited
time period or for a specific piece of work, since hiring under a limited time period contract
does not mean that it in fact complies with the legal requirements established in the LFT
and, therefore, if the employer is not able to show why this type of contract was executed,
there is the risk that the labor authority will consider that due to the nature of and the time
required for the jobs, the contract is in fact for an indefinite time period or permanent.
As a consequence, if the employer does not have the documentation necessary to
prove that the temporary hiring of personnel was appropriate, in the case of a conflict,
the employer can be ordered by the labor authority to pay a severance consisting of:
a) Three months of salary, with the corresponding integrated daily salary;
b) Twenty days of salary for each complete year of employment, with the corresponding integrated salary. This does not apply in the case of a resignation;
c) The seniority premium, consisting of the payment of 12 days of salary for each year
of employment, with a cap of double the minimum wage in the geographic area
where the company is located;
d) Any benefits owed to the worker in question, such as the proportional part earned
of vacations, vacation bonus, year-end holiday bonus, savings funds, and supermarket vouchers, among others.
1.7. Termination of Individual Employment Agreements for a Limited Time
Period, for a Specific Piece of Work, or for an Indefinite Time Period
With respect to the termination of individual employment contracts for a specific
piece of work or work for a limited time period, workers must be terminated on the date
or at the end of the term indicated in the contract and must receive payment corresponding to a temporary hiring, which consists of paying the temporary worker only the
proportional part earned of vacations, vacation bonus, year-end holiday bonus, and any
other benefit contracted with the worker for the time the employment lasted.
It should be mentioned that Mexican law does not recognize as valid a so-called trialperiod employment agreement under which the employer judges the qualifications of
the worker for a specific period, after which the employer determines whether or not to
offer a definitive contract.
1.8. Principal Obligations of the Employer; Rights and Obligations of Workers
1.8.1. Obligations of and prohibitions on employers
Under the LFT, certain obligations and prohibitions are established that should be strictly adhered to by employers:
1.8.1.1. Obligations
The following are the most important obligations of an employer:
a) Provide workers promptly with the tools, instruments, and materials necessary for
the execution of the work. Such tools, instruments, and materials should be of
good quality and in good condition and should be replaced as soon as they cease
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The LFT limits the causes for terminating an employment relationship to the following
cases:
a) Mutual consent;
b) The death of the worker;
c) The termination of the work or expiration of the contract term;
d) Physical or mental disability or manifest incompetence of the worker making it
impossible for him/her to do the work;
e) The cases referred to in Article 434 of the LFT that have to do with collective termination of employment, which we will look at later on.
b)
c)
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d)
e)
f)
g)
h)
i)
j)
k)
being efficient, provided that the workers have not agreed to use their own tools.
The employer is not entitled to require any indemnification or compensation for
the natural wear and tear suffered by the work tools, instruments, and materials;
this is a natural consequence of job performance;
Provide a secure place for the safekeeping of all work instruments and tools
belonging to the worker, if they need to remain in the work place. However, the
employer may not retain them as an indemnification, guarantee, etc. This obligation is established in order to prevent such instruments from suffering any damage
in prejudice to the worker;
Maintain a sufficient number of seats or chairs, available to the workers, in commercial establishments, offices, hotels, restaurants, industrial establishments, and
other analogous work places. This provision exists because the type of activities
that workers perform in commercial establishments, offices, hotels, restaurants and
other analogous work places forces them to stand for long periods of time. Therefore, they should be provided seats in order to rest;
Issue every 15 days, upon the request of the workers, a written record of the number of days each worker worked and the salary he/she received;
Issue to any worker (those who request it and those who are terminated), within
three days, a written record of his/her employment;
Grant to workers the time necessary to exercise their right to vote in popular elections and to fulfill jury, electoral, and census duties;
Allow workers to miss work in order to perform an incidental or permanent
commission for his/her union or the State, provided workers give timely notice
and that the number of such commissions does not harm the operations of the
business;
Inform the union with whom the company has signed a collective bargaining
agreement, as well as any other workers who might be eligible, of all newly created positions and of all definitive and temporary open positions;
When more than 100 and less than 1,000 workers are employed, pay for technical, industrial, or practical training, in national or foreign special centers, of one of
the company’s workers or a child of a worker, chosen both by workers and
employer based on skills, qualities and commitment. When a company has more
than 1,000 workers, it should sponsor three persons in the mentioned conditions;
Provide training and instruction to its workers, in the terms established in Chapter III bis of the LFT. The benefit to the company of providing training and instruction to its workers is the improvement in the productivity of the latter;
Comply with the safety and hygiene rules established in the laws and regulations
in the facilities of factories, workshops, offices and other places where work
takes place, and rules to prevent accidents and illnesses in the work place and, in
1.8.1.2. Prohibitions
In addition to the above listed obligations, the employer is prohibited from the following:
a) Discrimination in hiring workers based on age or gender;
b) Requiring employees to purchase articles in a particular store or location;
c) Demanding or accepting money from employees as a bribe for hiring them or for
any other reason related to the terms and conditions of employment;
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general, in the places where work is executed; and have available at all times the
indispensable medicaments and first aid materials indicated in the guidelines
issued, so that first aid can be offered opportunely and effectively. Notice must
be given to the competent authority of every accident that occurs. In addition,
the relevant provisions of the safety and hygiene guidelines must be posted visibly and disseminated in the work place;
l) Provide to the workers the preventive medicaments indicated by the health authority in the places where tropical or endemic diseases exist or when there is danger
of an epidemic;
m) Make the deductions requested by the unions of the ordinary union dues, provided that it is evidenced that they are those established in the union bylaws. This
obligation is contemplated to avoid that the union leaders demand from the
employers the payment of fees not agreed to;
n) Make the deductions of the contributions for the formation and promotion of
cooperatives and employees’ savings and loan associations. These contributions
should be paid provided the workers expressly and freely agree to it and that it is
not greater than 30 percent of the excess of the minimum wage;
o) Allow the labor authorities to inspect and review the company in order to ensure
compliance with the labor regulations, and give them the necessary information
when they request it. Employers may require the inspectors or commissioners to
show them their credentials and the instructions they have been given;
p) Contribute to the promotion of cultural and sports activities among their workers
and provide them with the necessary equipment and tools;
q) Make the deductions from the workers’ salary for the payment of loans granted or
guaranteed by the Workers’ Consumption Guarantee Fund Institute (Instituto del
Fondo de Fomento y Garantía para el Consumo de los Trabajadores, FONACOT). This
obligation allows the worker to acquire goods or pay for certain services by periodic deductions from his/her salary, which cannot be greater than 10 percent when
the salary is minimum wage or more than 20 percent for other salaries;
r) Provide to pregnant workers the protection established in the regulations. We will
discuss this obligation more fully later on.
d) Obligating workers by coercion or any other means to join or leave the union or
group to which they belong or to vote for a particular candidate;
e) Intervening in any manner in the internal governance of the union;
f) Making or authorizing collections or subscriptions in the work establishments or
work place or disseminate political or religious propaganda in the establishment;
g) Executing any act that restricts the rights of workers granted to them by law. As
has been mentioned, workers’ rights are unwaivable and therefore the employer
cannot execute any act that directly or indirectly restricts those rights;
h) Blacklisting workers that leave or are dismissed from the job so that they cannot
be hired again;
i) Carrying arms inside the establishments located within population centers or
arriving in the establishments in a state of drunkenness or under the influence of
narcotic drugs.
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1.8.2. Workers’ rights
Both article 123 of the Political Constitution of the United Mexican States (Constitución
Política de los Estados Unidos Mexicanos) and the LFT, which is the regulatory law of such
article, establish a series of rights that workers enjoy in the performance of their jobs.
1.8.2.1. Salary
The LFT defines the salary as follows: “The compensation the employer shall pay the
worker for his/her work.” The salary has the following characteristics:
a) It should be remunerative, that is to say it should be proportional to the quantity
and the quality of the service provided by the worker and, in addition, be sufficient to ensure a decent standard of living for the worker and his/her family;
b) It can never be less than the general or professional minimum wage in effect in the
place where the worker is employed. It is important to also mention that the salary
cannot be subject to any setoffs;
c) Those workers in the same position, shift and showing the same efficiency must be
paid the same amount;
d) The salary payment periods cannot be greater than one week for persons doing
manual labor and 15 days for those doing other types of work;
e) The salary should be paid in cash, in currency of legal tender and in the place
where the workers work.
With respect to the manner in which the salary can be negotiated, the following is recognized:
a) By unit of time. This type of salary is calculated in function of the time that the worker dedicates to his/her work, regardless of the results he/she obtains therefrom;
b) By unit of work. This type of salary is also known as wages paid by the job and is
calculated in function of the results of the work;
c) By commission. This type of salary is fixed according to a percentage of the sale price
or by fixed rate for unit sold;
d) Lump-sum price. This type of salary is set when the services of a person are used for
building or constructing a work, paying a total amount for it.
1.8.2.2. Employee profit sharing
Workers, in addition to the salary they receive, are entitled to receive a portion of the
profits received by the employer. However, article 126 of the LFT establishes that the following are exempt from the profit-sharing obligation:
a) Newly created companies, during their first year of operations;
b) Newly created companies engaging in the production of a new product, during
the first two years of operations. The determination of novelty of the product is
based on the laws to promote new industries. The reason lawmakers established
this period is that generally a newly created product represents a risk for the company and often it requires a significant investment to successfully launch a product into the market. It is important to note that the merger, transfer, or change of
corporate name of the company does not imply it is newly created;
c) Newly created extractive industries, during the exploration period;
d) Private assistance institutions recognized by law that with private goods engage
in non-profit humanitarian assistance without designating the beneficiaries individually;
e) The Mexican Social Security Institute (Instituto Mexicano del Seguro Social, IMSS) and
the public decentralized institutions with cultural, assistance, or charity purposes;
f) Companies that have less capital than the amount set by the Ministry of Labor and
Social Welfare (Secretaría del Trabajo y Previsión Social, STPS) for branches of the
industry, following a consultation with the Ministry of Economy (Secretaría de
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Finally, and as has already been mentioned, the LFT provides for a minimum wage that
“is the lowest amount that a worker can receive in cash for the services provided in a
work day.” The minimum wage is classified as follows:
a) General minimum wage. The wage applicable to one or more geographic areas that
can extend to one or more states. In Mexico there are three geographic areas (A, B
and C), each one with a different minimum wage, based on the cost of living of the
states included in each area;
b) Professional minimum wage. The wage applicable to a particular branch of economic
activity or for professions, trades, or special jobs within one or more geographic
areas.
Economía, SE). The resolution may be totally or partially reviewed when significant
economic circumstances justify it.
In principal, all workers employed by the company are entitled to share in the profits, however, there are persons who, according to article 127 of the LFT, are excluded
from profit-sharing, such as:
a) Directors, administrators, and general managers of the company;
b) Individuals who are owners or co-owners of the companies;
c) Technical professionals, artisans, and others who are paid on a fee basis and are not
employees on the payroll;
d) Temporary workers, when they have worked less than 60 days during the fiscal
year of the company;
e) Domestic workers.
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It is important to be aware that the profit-sharing should be paid to the workers within 60 days following the date on which the annual income tax must be paid and the
amount will be determined by a Mixed Commission composed of employers and workers. This commission will make the calculations to determine the amount of profitsharing corresponding to each worker taking into consideration the number of days
worked for each worker and the amount of salary accrued during the year.
1.8.2.3. Year-end holiday bonus
By nature, the year-end holiday bonus is an extraordinary payment that the LFT imposes on employers and that must be paid annually. This payment consists of 15 days of
salary and, if applicable, the proportional part thereof, and must be made before December 20 of each year.
Those workers that have not completed one year of employment, whether or not they
are employed at the time of payment of the year-end bonus, will be entitled to be paid
the proportional part thereof, according to the time they have worked and regardless of
how much time that was.
The base salary for the payment of this bonus is the amount the worker ordinarily
receives per day worked, that is to say, the daily wage without including any other
employment benefit the worker receives. In addition, the year-end holiday bonus will be
paid for days actually worked during the calendar year in question.
1.8.2.4. Seniority premium
The seniority premium is another payment the following workers are entitled to receive:
a) Permanent employees who voluntarily leave their employment, if they have completed at least 15 years of employment;
b) Permanent employees who are dismissed from employment, with or without justification;
c) The beneficiaries of the permanent employee that has died, whatever his/her
length of employment, and regardless of whether or not the death was caused by
a work-related accident;
d) Permanent employees dismissed for causes attributable to the employer.
The amount to be paid is equivalent to 12 days of salary for each year of employment
(Article 162 of the LFT). The base for the calculation of this benefit cannot be less than
the minimum wage nor greater than double the minimum wage in the corresponding
geographic area.
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1.8.3. Workers’ obligations
Workers have several obligations that can be classified as follows:
a) Obedience. The worker must provide his/her services under the direction of
the employer or its representatives, to which authority the worker will be subordinate in everything concerning the work. The worker must also observe
the safety and hygiene measures issued by the competent authorities and
those indicated by the employer for the safety and protection of the personnel. If the worker disobeys an order from the employer or its representatives
without justification, the employer is entitled to terminate the employment of
said worker, without implying any liability for the employer (Article 47, Section XI, LFT);
b) Loyalty. The worker must execute his/her work with the appropriate commitment,
care, and attention and in the manner, time, and place agreed;
c) Notice of absence. The worker must give notice immediately to the employer, except
in the case of an act of God or force majeure, of the justified causes that prevent
him/her from working;
d) Work materials and instruments. The worker shall return unused materials to the
employer and preserve the instruments and tools given to him/her for the work in
good condition; the worker is not responsible for the deterioration caused by the
use of these objects, nor for any caused by an act of God, force majeure or for bad
quality or defective construction;
e) Provide aid. The worker must provide aid whenever necessary, when as a result of
an accident or imminent danger the persons or interests of the employer or his/her
co-workers are threatened;
f) Medical exams and illnesses. The worker must submit to the medical exams established in the internal regulations and other regulations of the company or establishment, to prove he/she does not suffer from any work-related, contagious, or incurable
disability or illness, and must inform the employer of any contagious diseases
he/she suffers as soon as he/she knows of it;
g) Avoid damages. The worker must inform the employer or its representatives of any
deficiencies of which he/she becomes aware in order to avoid damages or losses to
the interests and lives of his/her co-workers or of the employer;
h) Protection of secrets. The worker must scrupulously keep the technical, commercial, and manufacturing secrets of the products he/she produces directly or indirectly, or of which he/she has knowledge through the work performed, as well
as reserved administrative matters whose disclosure could harm the company. It
is recommended to include a confidentiality clause in the individual employment agreements the workers sign with the company to ensure that this is completely clear.
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1.8.4. Workers’ prohibitions
According to Article 135 of the LFT workers are prohibited from the following:
a) Executing any act that can put at risk their own safety, the safety of their co-workers,
or of other persons, as well as of the establishments or places in which they work;
b) Being absent from work without a justified cause or without permission from the
employer, or suspending work without the latter’s authorization;
c) Taking from the company or establishment work tools or raw or processed materials, or using the tools and instruments supplied by the employer for purposes
other than those they are intended for;
d) Coming to work inebriated or under the influence of narcotic drugs, except with
a medical prescription;
e) Carrying any type of arms during work hours, unless such is required for the work;
f) Taking collections in the establishment or work place or engaging in any other type
of propaganda during work hours within the establishment.
It is important to emphasize that the majority of the above indicated prohibitions, in
case of breach by the worker, can be a cause for termination of the employment without
liability for the employer.
1.9. Work Shift
The maximum work shift is eight hours. The LFT establishes that the work shift is “the
time during which the worker is available to work for the employer.” Such law also
establishes that the work shifts may be freely negotiated by the company and its employees or workers, provided they do not surpass the maximums established therein. Thus,
such law indicates that the following types of work shifts may be established:
a) Day shift. The shift between 6:00 a.m. and 8:00 p.m. with a maximum duration of
8 hours a day or 48 hours a week;
b) Night shift. The shift between 8:00 p.m. of one day and 6:00 a.m. of the next day
with a maximum duration of 7 hours a day or 42 hours a week;
c) Mixed shift. The shift including time from both the day and the night shifts, provided the night period is less than 3 1/2 hours since, if such time is exceeded, the
shift will be considered a night shift, and whose duration will be 7 1/2 hours daily
or 45 hours a week.
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The above cited law establishes that during a continuous work shift the worker will
be granted at least a half hour rest period, and for every six days of work the workers
will enjoy one fully paid day off.
The weekly day off should normally be Sunday, but those that work on that day
will be entitled to the payment of an additional premium called the Sunday premium, which consists of the payment of 25 percent of the salary of the ordinary work
days of the week. Apart from the traditional work shifts, the law establishes that the
employers and their workers can divide the work hours in order to allow the latter
to have Saturday afternoon off or any equivalent arrangement. Therefore, and given
that the law does not establish what other shifts would be permitted, case law has
established some other possibilities, although they are not necessarily the only ones
that could be used:
a) Continuous work shift. The law does not define it, but it refers to an uninterrupted
work shift. This shift imposes a half hour rest period during the work shift for the
worker to eat and rest;
b) Discontinuous work shift. Its principal characteristic is the interruption of the work
such that the worker can freely dispose of the intermediate period interrupting
the work shift to eat and rest, during which period the worker is not available to the
employer;
c) Overtime shift. This is the shift that is extended beyond the ordinary limits under
exceptional circumstances and it cannot exceed three hours per day nor three
times a week, which is a maximum of nine hours per week;
d) Special work shift. Some companies have introduced in their work places this
type of shift, which exceeds the daily work shift without surpassing the maximum duration for the week, so their workers can have one or more days of the
week off;
e) Emergency work shift. This shift continues beyond the ordinary limit established
by the law and therefore such shift may only be used in the case of accidents or
imminent danger that threatens the life of the worker, his/her co-workers or the
employer, or the existence of the work place itself.
1.10. Overtime
The work shift can be freely negotiated by the company and its workers, provided it does
not surpass the legal maximums. The following is the maximum permitted:
a) The day shift should have a maximum duration of 8 hours a day or 48 hours a week;
b) The night shift should have a maximum of 7 hours a day or 42 hours a week;
c) The mixed shift should have a maximum duration of 7 1/2 hours a day (provided
the nocturnal period does not exceed 3 1/2 hours, since if it does it will be considered a night shift) or 45 hours a week.
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The case law has established that if a work shift is negotiated that is less than the maximum legal shift and the worker works more time than the agreed time without exceeding the legal maximum, overtime does not have to be paid.
The LFT also establishes that the work shifts can be extended under extraordinary circumstances, without exceeding three hours a day or three times a week.
This means that a maximum of nine hours of overtime a week can be worked, which
should be covered at 100 percent of the salary corresponding to the normal work hours,
or in other words they must be paid at double the normal work hour salary.
It should be emphasized that the LFT establishes that if the overtime exceeds nine
hours a week, the workers are not obligated to work it (Article 68). However, if those
nine hours per week are exceeded, the company must pay any such excess time at 200
percent plus the normal salary corresponding to the work shift. In addition, the employer will be subject to a fine from 3 to 155 times the general minimum wage in the place
and time in which the violation has been committed, which can be imposed by the STPS
during its annual inspection of companies.
In addition, when the workers work overtime on a permanent basis, this time is considered by the Mexican Social Security Law (Ley del Instituto Mexicano del Seguro Social)
as part of the salary of the worker for purposes of calculating social security dues.
1.11. Weekly Days Off
Mexican law provides that workers will enjoy at least one day off for every six days of
work. The law also establishes that if the day off is not Sunday, the worker will be entitled to a premium of at least 25 percent above the salary of the ordinary work days.
The LFT establishes that workers are not obligated to work on their days off. Nevertheless, if it is necessary for them to do so, the employer must pay the worker, in addition to the salary for the day off, a double salary for working on their day off.
If the weekly day off of the worker is Sunday and the worker works on that day, in
addition to paying the salary for the day off, a double salary must be paid. In this case,
the employer should not also pay the worker the mentioned Sunday premium of 25 percent of the salary of an ordinary work day.
1.12. National Holidays
In addition to the above-indicated days, the employer and the workers can contractually establish other days off, such as Easter Thursday and Friday, May 10 for Mothers
Day, or November 2 for the Day of the Dead.
It is important to mention that if due to the type of work done in the company continuous labor is required, those workers who agree to work on national holidays are
entitled to receive a double salary in addition to the salary for the day off.
1.13. Vacation and Vacation Premium
1.13.1. Vacation
Mexican law establishes the right of workers to enjoy a period of annual paid vacation
which cannot be less than six days. In order to clarify the number of days of vacation
the workers are entitled to based on the years they have worked, below is a list of the
vacation periods corresponding to workers according to the years they have worked for
the company.
Years of employment
1 year
2 years
3 years
4 years
Days of vacation
6 days
8 days
10 days
12 days
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In addition to the weekly days off, the LFT establishes other days that are considered nonworking days; they are commonly referred to as días festivos, feriados, or de asueto:
a) January 1;
b) The first Monday of February in celebration of February 5;
c) The third Monday of March in celebration of March 21;
d) May 1;
e) September 16;
f) The third Monday of November in celebration of November 20;
g) December 1 every six years, during the transfer of Federal Executive Power;
h) December 25;
i) Those determined by federal and local electoral laws, in the case of ordinary elections, for purposes of voting.
Years of employment
5 to 9 years
10 to 14 years
15 to 19 years
20 to 24 years
etc.
Days of vacation
14 days
16 days
18 days
20 days
Those workers who are employed discontinuously and seasonal workers will be entitled to an annual vacation period proportional to the number of days worked in the year.
Furthermore, under such law it is not possible to substitute vacation with remuneration.
The vacation must be granted within six months following the completion of one year
of employment, and employers must deliver each year to the workers a record showing
their years of employment, number of days of vacation they have earned, and the date
on which they should take them.
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1.13.2. Vacation premium
The LFT establishes the right of workers to receive an amount in addition to their salary
during their vacation period which must be at least 25 percent of the salary they are due
during that period. This additional amount is called the vacation premium.
1.14. Other Benefits not Contemplated in the Federal Labor Law
The LFT allows the employer and the worker to agree on terms and conditions of
employment other than those stipulated in the law, provided they are equal to or greater
than the minimum conditions established therein. Therefore different benefits not contemplated in the LFT can be agreed between the workers and the employer in order to
provide workers greater benefits for their services. Below we indicate the most common
benefits granted to workers that are not contemplated in the LFT:
• Savings fund;
• Supermarket vouchers;
• Transportation assistance;
• Automobile;
• Performance or results bonus.
1.15. Rights of Working Mothers
Article 170 of the LFT establishes the following rights for working mothers:
a) During pregnancy they will not engage in work that requires considerable effort
and could be hazardous to their health during the pregnancy, such as lifting,
d)
e)
f)
The LFT also provides that in establishments where women work, the employer must
maintain a sufficient number of seating spaces available for working mothers.
1.16. Training and Instruction
The LFT establishes that every worker is entitled to be provided with on-the-job training
and instruction, according to the plans and programs that will be formulated jointly by
the employer and the union or the workers. Such plans and programs must be approved
by the STPS.
For companies that have signed a collective bargaining agreement, the obligation to
provide training and instruction courses to their workers arises within the 15 days following the execution of the contract, the contract revision or its extension.
When there is no collective bargaining agreement, the obligation of companies to provide
training and instruction to their workers arises within the first 60 days of the odd years.
For their part, the workers to whom training or instruction courses are given must
punctually attend the courses and any activity that is part of the training or instruction
process, pay attention to the indications of the persons giving the training or instruction,
comply with the respective programs, and take the required evaluation exams.
The training must be carried out during work hours unless agreed otherwise, and in
the event the worker wishes to receive training in an activity other than the one in which
he/she works, such will be done outside of work hours. The training or instruction can
be provided within or outside of the company, by personnel of the company or also by
specially contracted instructors, institutions, schools or specialized bodies. The school,
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throwing, or pushing heavy weights, that cause trepidation, that requires them to
be standing long periods or that cause or could cause them to alter their psychological and emotional state;
To enjoy maternity leave of six weeks prior and six weeks following birth, receiving their full salary;
The leave referred to in the above point will be extended for the time necessary in
the event it is impossible to work due to the pregnancy or birth, and they will have
the right to 50 percent of their salary for a period no greater than 70 days;
During the nursing period they will have two extra rest periods per day, half an
hour each, to feed their child, in an adequate and hygienic place designated by the
company;
They may return to the position they held provided no more than one year after
giving birth;
The maternity leave period, pre- and post-natal, will be counted as time worked
for purposes of seniority.
institutions, and teaching personnel providing these types of programs must be authorized by and registered with the STPS.
Finally, it should be mentioned that each company is required to form Mixed Commissions for Training and Instruction, which are formed by an equal number of representatives of the workers and the employer. The principal function of these commissions
is to oversee the instrumentation and operation of the system and of all the procedures
established to improve the training and instruction of the workers and will suggest the
measures necessary to perfect them; all this should be carried out according to the needs
of the workers and the companies.
1.17. Extralegal Retirement Benefits
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The regulation of retirement benefits in Mexico is very complex. In principle it is not a
right the law grants to workers of private companies. In fact, workers will only have the
right to retirement benefits when such right is agreed to in the collective bargaining
agreement that applies to them, pursuant to the conditions contained therein.
This benefit is not always included in the common collective bargaining agreements
of companies; rather generally it is found in the collective bargaining agreements of the big
companies such as Teléfonos de México, Petróleos Mexicanos, and Luz y Fuerza del Centro.
As with the seniority premium referred to previously, retirement benefits are a right
derived from an extended period of employment. Basically it is a benefit obtained by
workers for having dedicated practically all their lives to the job, providing their services to a particular employer.
1.18. Termination of Employment
The individual termination of employment is covered in Article 53 of the LFT, where it
is established that the following are causes for termination:
a) The mutual consent of the parties. The consequences of the termination for this cause
only oblige the employer to the payment of the proportional part of all the benefits contracted and the salaries not paid, but it will not have any indemnificatory
obligation or responsibility. The seniority premium only applies when the worker
has been employed 15 or more years;
b) The death of the worker. The Conciliation and Arbitration Board will determine who
the legitimate beneficiary of the deceased worker is in order to avoid a double payment. Such beneficiary will be entitled to be paid the seniority premium and the
corresponding benefits or the proportional part thereof;
c) The termination of the work or expiration of the term. In order for this cause to apply,
there must be a temporary contract, either for a limited time period or a specific
piece of work. When such temporary employment ends, only the seniority premium, the unpaid salary, and the accrued benefits or the proportional part thereof
shall be paid. The worker will not be entitled to any indemnification;
d) Physical or mental disability. Disability will be cause of the termination of the
employment when performance of the employment contract is impossible. It
should be clarified that we are referring to a permanent physical or mental disability; otherwise, the worker will return to his/her job once he/she has recovered.
If the inability to continue working is not the result of an occupational hazard,
the worker will only be entitled to the payment of one month of salary and the seniority premium, or if possible and if the worker so wishes, he/she will be entitled
to another job compatible with his/her abilities.
On the other hand, if the disability arises from an occupational hazard, the
worker will be entitled to the payment of three months salary, the seniority premium, and the proportional part of all the benefits contracted.
1.19. Suspension of Employment
The labor law provides for the possibility of suspending the effects of employment without liability for the worker or the employer, when one of the following causes occurs:
a) The contagious illness of the worker. With this suspension the intention is to protect the
health of all the other workers of the company in the face of a possible contagion of
an illness contracted by a co-worker (for example, hepatitis, chicken pox, etc.);
b) Temporary disability not resulting from an occupational hazard. Above all, it is essential to have in mind that this is not a physical or mental disability caused by a
work-related accident or illness, which has completely different consequences.
For this suspension to be appropriate, the disability must be temporary; otherwise, the consequence would be the termination of employment, not its suspension. The worker will have the obligation to give notice to the employer of his/her
disability, and once the disability terminates, he/she must evidence his/her disability with a medical certification;
c) The pretrial detention of the worker followed by an acquittal. The suspension applies
for the simple fact that it is impossible for the worker to go to work. The judgment
must be an acquittal, since otherwise the employment would be extinguished, that
is, if the court finds the worker guilty, the employment terminates. If the worker
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Finally, it is worth mentioning that the LFT establishes as protection for the worker
that if in a labor proceeding the employer does not prove the cause of termination, it
will be obligated to reinstate or indemnify the worker, whichever the latter chooses
(articles 48 and 55).
d)
e)
f)
g)
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acted in defense of the employer or its interests, the employer must pay the salary
the worker did not receive;
The arrest of the worker. This cause is very similar to the above; however, here reference is made to minor incidents, such as the fact that a worker is arrested for failing to respect pedestrians while in a state of inebriation;
Performance of constitutional services and responsibilities. This refers to when the
worker, in compliance with the Political Constitution of the United Mexican States,
provides his/her services as a Mexican citizen;
The designation of workers as representatives before state bodies. This refers to a worker being designated a representative before state bodies such as Conciliation and
Arbitration Boards, the National Minimum Wage Commission, the National Commission for Workers Sharing in Company Profits, and other similar bodies;
Lack of documents required by laws and regulations. In this case, the missing documents must be necessary to provide the service and the lack thereof must be attributable to the worker.
In this case employment is suspended in order for the worker to be able to
obtain the missing documents and thereafter be able to provide his/her services.
Examples of necessary documents to engage in certain activities are a driver ’s
license, health certificates, a passport, a professional license, etc.
A suspension will take effect as follows:
a) In cases regarding a contagious illness of the worker and a temporary disability
that is not the result of an occupational hazard, it will become effective when the
employer has knowledge of the illness, or on the date on which the disability of
the worker is produced, until the period set by IMSS terminates or before, if the disability of the worker disappears. The suspension may not exceed the term set in the
Social Security Law for the treatment of diseases that are not the result of an occupational hazard;
b) With regard to the pretrial detention and arrest of the worker, the suspension will
become effective when the latter shows that he/she was detained by the judicial or
administrative authorities until the date on which the acquittal is issued or the
arrest is terminated;
c) In the case of performance of constitutional services and responsibilities, as well as
the designation of workers as representatives before state bodies, the suspension is
applicable from the date on which the services or responsibilities should be performed up to a period of six years;
d) Finally, in the case of lack of documents attributable to the worker, the suspension
will begin on the date on which the employer has knowledge of the fact for a period of up to two months.
The worker will have the obligation to return to work once the suspension is concluded:
a) On the day following the date on which the cause of suspension terminates in case
of a contagious disease, temporary disability, arrest, and lack of documents;
b) Within 15 days from the termination of the cause of suspension, only for purposes of attending and resolving personal matters in the cases of pretrial detention,
performance of constitutional services and responsibilities, and when the worker
is designated as a representative before state bodies.
1.20. Change of the Employment Relationship
1.20.1. Legal causes for changes
Changes in the terms and conditions of employment can be made at the request of the
worker or of the employer.
1.20.1.1. Changes at the request of the worker
The LFT establishes that the worker may request from the Conciliation and Arbitration
Board changes in the terms and conditions of employment when the salary is not remunerative or the work shift is excessive or economic circumstances concur that justify it
(Article 57, Paragraph 1). Thus, a worker can request that the terms and conditions of
employment be changed:
a) When the salary is not remunerative, that is to say when the worker considers it
to be insufficient with respect to the position and the activities he/she performs.
Unfortunately, in Mexico, the majority of salaries are insufficient; however, the
workers do not go before the labor authorities to request their increase for fear of
losing their job;
b) When the work shift is excessive, that is, when the shift is longer than is permitted by law or when the worker is not given any rest period, or when given the type
of work performed, the shift could be considered excessive;
c) When there are economic circumstances that justify the change of the terms and
conditions of employment.
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A change of the employment relationship can be made from two different perspectives:
a) Change of persons. This refers to the change of persons subject to an employment
relationship, such as would occur in an employer substitution;
b) Change of terms. This refers to a change in the terms and conditions of employment, that is to say in the rights and obligations the workers have towards the
employers and vice versa; for example, the salary, the work schedule, the year-end
holiday bonus, etcetera.
1.20.1.2. Changes at the request of the employer
The LFT establishes that the employer can request the change when economic circumstances occur that justify it (Article 57, Paragraph 2).
The terms and conditions of work may also be changed by agreement, which must be
approved by the Conciliation and Arbitration Board, as long as it does not contain any
waiver of the workers’ rights. Otherwise the authority will not approve the agreement
since such rights are unwaivable.
1.20.2. Effects of the changes
Once both the worker and employer are in agreement, both parties must comply with
the changes. If the change is made through a procedure before the Conciliation and
Arbitration Board, the parties will be bound by what the authority has resolved. Thus,
once the authority has issued its resolution or the worker and employer have manifested their agreement, the change will become effective.
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2. Unions and Collective Bargaining Agreements
The union is the association of workers or employers organized for the study, improvement, and defense of their respective interests.
In turn, the collective bargaining agreement is the agreement executed between one or
more workers’ unions and one or more employers or one or more employers’ unions for
the purpose of establishing the conditions under which the work of one or more companies or establishments will be performed.
2.1. Structure and Operation of the Unions
Legally formed unions, that is to say those that are registered, are legal entities with legal
capacity to acquire personal and real property to be used immediately and directly for
the purpose of their formation, and to defend before all the authorities their rights and
exercise any applicable actions. Unions have two types of elements that are essential for
their formation.
2.1.1. Substantive elements
a) To be workers or employers, depending on the union;
b) The minimum number of employers necessary to form an employers’ union is
three (Article 364, LFT);
c) The minimum number of workers necessary to form a workers’ union is 20 in
active service (Article 364, LFT). In addition, workers considered in active service
for purposes of forming the union shall include those whose employment has been
f)
g)
h)
2.1.2. Elements of formality
a) Registration. This is an administrative act by virtue of which the authority attests to
the formation of a union. It is a declarative act, not a constitutive act, since if the
requirements established by the LFT in respect to formation are satisfied, no authority can deny the registration. The unions must be registered with the STPS in a case
of federal jurisdiction and with the Conciliation and Arbitration boards in a case of
local jurisdiction.
The registration of the union and its leaders granted by the STPS or by the local
Conciliation and Arbitration Boards, whichever has jurisdiction, is effective before
all authorities. The document issued by the authority when a union is registered is
called a Notation (Toma de nota). With the issuing of this document, all legal effects
are produced before all authorities.
Similarly, the LFT provides for what in practice is called automatic registration,
which refers to the fact that if the authority with whom the request for registration
is filed does not issue a determination within a term of 60 days, the petitioners can
petition it to issue a determination. If the authority does not do so within the three
days following the filing of the petition, the registration will be considered made
for all legal purposes and the authority will be obligated to issue the Notation within the three following days.
The registration of the union can only be cancelled in the case of its dissolution or if it fails to maintain any of the requirements established in the law (Article 369, LFT);
b) Bylaws. These are the internal regulations of the unions. The bylaws must contain
the name, address, purpose, duration, conditions of admission of members, obligations and rights of the members, reasons and procedures for expulsion, disciplinary
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rescinded or terminated within the period between the 30 days prior to the date
of presentation of the request for registration of the union and the date on which
such registration is granted;
That there is no discrimination, that is to say there must be equality between men
and women with regard to the formation of a union. This does not mean that
unions of women or of men do not exist, but it cannot be due to a prohibition;
The minimum age for a worker to be able to join a union is 14 years old (Article
362, LFT);
The minimum age necessary to be able to be an officer of a union is 16 years old
(Article 372, LFT);
Foreigners can be members of a union, but they cannot be officers thereof;
Confidential workers cannot be members of a union of the rest of the workers;
however, they can form their own unions.
actions, manner of calling a meeting, as well as when the meetings should be held
and the quorum required to meet, procedures for electing the leaders and their
duration in office, rules for the administration of the assets of the union, amount
of union dues and manner of payment, rules for the liquidation of the union assets,
and any other rules approved by the meeting (Article 371, LFT);
c) Election of the management board. The management board of the unions is fundamental, it being responsible for the union’s organization, management, and other
essential functions. One of the primary obligations of the management board of a
union is rendering at least every six months a complete and detailed account of the
management of the union assets (Article 373, LFT).
The members of the management board that are fired by the employer or that
are dismissed for causes attributed to the latter, will continue exercising their functions unless the bylaws provide otherwise.
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While the unions do have certain rights and powers, it is clear that they also have certain obligations and prohibitions, such as providing the reports requested of them by the
labor authorities; communicating to the authority before whom they are registered,
within 20 days, any changes in the management board and amendments of the bylaws;
and informing the authority before whom they are registered at least every three months
of the changes to their membership rolls.
With regard to prohibitions, unions may not intervene in religious matters nor pursue
commercial activities for profit.
2.2. Types of Unions
There are several types of unions of both workers and employers, as detailed below.
2.2.1. Workers’ unions
Workers’ unions (Article 360, LFT) can be:
a) Trade. Those formed by workers of the same profession, trade, or specialty; for
example, the flight attendants’ union, carpenters’ union, etc.;
b) Company. Those formed by workers that work for the same company. In this case
the profession of the worker does not matter, as long as the members belong to the
same company, that is to say they have the same employer;
c) Industrial. Those formed by workers who are employed in two or more companies
of the same industrial group. This refers to workers of different companies but that
work in the same industrial group;
d) National industrial. Those formed by workers who are employed in one or more
companies of the same industrial group, installed in two or more different states;
e) Different trades. Those formed by workers of different professions; they may only
be formed when in the municipality in question the number of workers of the
same profession is less than 20.
2.2.2. Employers’ unions
Employers’ unions (Article 361, LFT) can be:
a) Those formed by employers of one or more fields of work. These are equivalent to
industrial unions;
b) The so-called national unions, formed by employers from one or more fields of
work in different states.
2.3. Difference Between the Individual Employment Agreement
and the Collective Bargaining Agreement
2.4. Contents of the Collective Bargaining Agreement
Every collective bargaining agreement must contain:
a) The names and domiciles of the contracting parties;
b) The companies and establishments it covers;
c) Its duration or the indication that it is for an indefinite period or a specific work;
d) The work shifts;
e) The weekly days off and vacation days;
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As we have seen, the individual employment agreement is the contract by which a person
agrees to provide to another person subordinated personal labor, in exchange for the
payment of a salary, that is to say, the provision of services in exchange for compensation. In the individual employment agreement, each of the parties has a specific obligation; the worker is obligated to provide a specified service and the employer is obligated
to pay a salary. In contrast, in the collective bargaining agreement the parties do not promise either work or compensation; they only establish that if in the future employment
agreements are executed, they will be considered to contain the contents of the collective bargaining agreement. Thus, in order for a collective bargaining agreement to be carried out, individual employment agreements must be executed.
The collective bargaining agreement cannot be agreed to with conditions less favorable to the workers than those contained in contracts in force in the company or establishment. It should be understood that the collective bargaining agreements cannot
contain employment terms and conditions inferior to those agreed to in the individual employment agreements, only terms and conditions similar or superior thereto
(Article 394, LFT).
f) The amount of the salaries. This is known as the tabulator, where the positions and
the salary for each one are generally established;
g) The clauses regarding training or instruction of the workers in the company or
establishments it includes, and the provisions on the initial training or instruction
that should be provided to those who are newly hired by the company or establishment;
h) The basis for the membership and operations of the commission that must be
formed according to the LFT;
i) The other stipulations the parties agree to.
2.5. Formalities of the Collective Bargaining Agreement
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Every collective bargaining agreement must fulfill certain requirements or formalities
that make it valid:
a) It must be executed in writing. The agreement between the union and the company must be documented and may never be executed verbally;
b) It must be executed in triplicate. There must be at least three executed copies of
the collective bargaining agreement, one to be deposited before the Conciliation
and Arbitration Boards and one for each party;
c) It must be registered before the authority. The deposit of the agreement before the
authority is extremely important, given that it will take effect as of the date of its
deposit or presentation before the Conciliation and Arbitration Board, unless the
parties have agreed to a subsequent date;
d) It must have the salary tabulator attached.
2.6. The Name Party to the Collective Bargaining Agreement
The name party refers to the union that is the administrator of the collective bargaining
agreement. The LFT establishes certain rules for determining which union is entitled to
be the name party to the collective bargaining agreement when two or more unions
claim such title in one company.
The law indicates that the employer who employs workers who are members of a
union must execute a collective bargaining agreement with the union when the latter so
requests (Article 387).
The law also indicates the rules that must be observed if several unions exist within
the same company:
a) If there are two or more company unions or industrial unions or one or more of each,
the collective bargaining agreement will be executed with the one having the greatest number of members employed by the company. In this case or circumstance
there cannot be two collective bargaining agreements. The workers of the union that
is not the name party to the collective bargaining agreement benefit from the collective bargaining agreement executed with the union having the majority; however,
they do not have to join such a union;
b) If there are two or more trade unions, the collective bargaining agreement will be
executed with the group of trade unions representing the majority of the workers
in the trades involved, provided they agree. Otherwise, each union will execute a
collective bargaining agreement for its trade;
c) If there are two or more trade unions, company unions or industrial unions, the
trade unions may execute a collective bargaining agreement for their trade, provided that the number of their affiliates is greater than the number of the workers
of the same trade who are affiliated with the company or industrial union.
2.7. Termination of the Collective Bargaining Agreement
The LFT establishes the following as causes of termination:
a) The mutual consent of the parties;
b) The termination of the work;
c) The close of the company or establishment, provided that in this latter case the collective bargaining agreement is applied exclusively in the establishment.
In the cases of the dissolution of the workers’ union that is the name party to the collective bargaining agreement or the termination of the agreement, the terms and conditions of employment in the company or establishment will continue in force. That is to
say, the collective bargaining agreement is terminated, but the benefits of the workers
will survive.
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Finally, it is important to mention that the right to be the name party to the collective
bargaining agreement is lost with the loss of the majority of the workers, declared by the
Conciliation and Arbitration Board.
CHAPTER VI
Immigration Regulatory
System
1. Introduction
Current trends in human migration worldwide suggest that in the coming years this phenomenon will constitute one of the most important challenges of our time, with repercussions for the internal life of countries.
As a country of origin, passage, and destination of immigrants, Mexico has seen a significant rhythm of growth in immigration in the last several decades, and the trend suggests
that such growth will continue. As a result, the Mexican immigration laws, regulations,
and other administrative provisions have become a complicated regulatory system governing the entry, stay, activities, and departure of foreigners to and from Mexico.
In this chapter we will discuss the different ways in which people can legally enter and
stay in Mexico, based on the reason for their trip. We will then analyze the different types
of visas under which business people can enter our country, based upon the reason for
and length of their stay. Finally, we will examine the types of visas under which foreigners can be authorized by the National Immigration Institute to work in Mexico and the
procedures in place for requesting these visas.
This chapter puts a special emphasis on business people, as well as workers, managers, and technicians who come to Mexico temporarily or permanently.
2. Forms of Legal Entry into the Country
According to the General Immigration Law (Ley General de Población), foreigners who
can legally enter the country fall into the following categories:
a) Non-Immigrant. This is the foreigner who, with permission from the Ministry of the
Interior (Secretaría de Gobernación, SEGOB), enters the country temporarily;
b) Immigrant. This is the foreigner who legally enters the country for purposes of
residing here in anticipation of achieving the status of permanent resident alien.
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2.1. Non-Immigrant
Within the category of Non-Immigrant there are 11 types of visas, classified according
to the activity that the foreigner engages in in the country, and according to the purpose
for which the foreigner enters Mexico. The most relevant for purposes of investors are:
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a) Visitor. This is the foreigner who enters the country to exercise any lucrative or nonlucrative activity, as long as it is lawful and ethical, with authorization to remain in
the country for up to one year, with the possibility of requesting up to four extensions for an equal amount of time each, with multiple entries and departures.
With this type of visa, foreigners can engage in various activities, depending on
the purpose of their stay in the country: they can live from resources brought from
abroad, from earnings produced by these resources, or from any income coming
from abroad; they can investigate investment options and make such investments;
they can engage in scientific, technical, advisory, artistic, athletic or similar activities; or they can enter the country in order to fill executive positions or to attend
board of directors meetings of companies;
b) Distinguished visitor. In special cases, and as an exception, courtesy permission may
be granted to enter the country and reside in it for up to six months to internationally known researchers, scientists and scholars, journalists, or other prominent
persons. SEGOB can renew this permission when it considers it appropriate;
c) Local visitor. The immigration authorities can authorize entry to foreigners who
visit marine ports or border cities for periods not to exceed three days;
d) Correspondent. Foreigners who enter the country to engage in journalistic activities, to cover a special event, or to exercise their profession temporarily, will be
granted a visa, provided they can show evidence that they will be exercising their
profession in terms specified by the SEGOB. Permission will be granted for up to
one year and extensions for equal time periods may be granted, with multiple
entries and departures.
Any foreigner who enters the country as a Non-Immigrant can request the entry of
his/her spouse and of relatives of the first degree. These may be granted entry, providing
they do not have their own visas, with the same immigration status and for the same
time period as the non-immigrant. Their status will be that of “economic dependent.”
2.2. Immigrant
Immigrants are granted entry for up to five years. In order to have their visas renewed
annually, they are obliged to show to the satisfaction of the SEGOB that they are fulfilling
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the conditions that were indicated to them when they were authorized to enter the country and that they are complying with all other applicable immigration regulations.
The following are the nine types of immigrant visas, depending on the activity that the
foreigner will engage in in Mexico:
a) Retired aliens. These are foreigners who enter the country with the intent of living
on resources brought from abroad; from interest produced from the investment of
their capital in certificates, securities, or bonds of the State; from national banking
institutions or other institutions determined by the SEGOB; or from any permanent
income coming from abroad. The minimum amount of money to be held by them
in reserve will be an amount no greater than the equivalent to 400 days of the
general minimum daily wage in effect for the Federal District. SEGOB can authorize retired aliens to work as professors, scientific researchers, or technicians when
it considers such activities would benefit the country;
b) Investors. These are foreigners who enter the country to invest their capital in industry, commerce, or services in accordance with domestic laws, provided they contribute
to the economic and social development of the country and that they maintain during the time of their residency the minimum amount established by SEGOB, which will
be equivalent to 40,000 days of general minimum wage in the Federal District.
To maintain this status, the investor must evidence that he/she maintains the
indicated minimum amount of investment;
c) Professionals. These are foreigners entering the country to exercise a profession. In the
case of professions that require a professional degree to exercise, the regulatory provisions of article 5 of the Constitution regarding professions must be complied with;
d) Persons in positions of trust (cargo de confianza). These are foreigners entering the
country to assume executive or management positions, or other positions of trust,
in companies or institutions established in the country. They are granted a visa,
provided that in the judgment of SEGOB there is no duplication of positions and the
service to be provided merits entry into the country;
e) Scientists. These are foreigners entering the country to direct or engage in scientific research, to disseminate their scientific knowledge, to prepare researchers, or to
engage in teaching, when these activities will be carried out in the interest of
national development in the judgment of SEGOB, taking into consideration the general information provided by the institutions it consults in that respect;
f) Technicians and specialists. These are foreigners entering the country to carry out
applied research regarding production or to engage in technical or specialized activities that cannot be done, in the judgment of SEGOB, by residents of the country;
g) Family. These are foreigners that enter the country to live as economic dependents
of a spouse or a blood relative who is an immigrant, permanent resident alien, or
Mexican in a direct line without limit or transversal up to the second degree.
The foreign children and siblings of immigrants, permanent resident aliens, or
Mexicans may only be admitted under this category when they are minors, unless
they can show they have an impediment to working or that they are fulltime students;
h) Artists and athletes. These are foreigners who enter the country to engage in artistic, athletic, or similar activities. They may enter, provided that in the judgment of
the Ministry such activities are beneficial for the country;
i) Assimilated persons. These are foreigners entering the country legally to engage in
any lawful and honest activity who have been assimilated into the national environment or have had or have a Mexican spouse or Mexican child and who do not
fall under the category any of the other types of visas.
The children or siblings of the petitioners may only be admitted on this visa
when they are minors, unless they can show they are unable to work or are fulltime students.
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3. Foreigners Working in Mexico
Foreigners who wish to or must work in Mexico may request entry as either Non-Immigrants
or Immigrants.
Foreigners should choose between the two categories depending on their intentions
for coming to Mexico. If they are coming only to work for the company that wishes to
contract their services, and once the contract is terminated they will return to their country of origin, we recommend requesting the category of Non-Immigrant. If they are coming to work in Mexico and wish to establish their permanent residency in Mexico, we
recommend requesting the category of Immigrant.
The National Immigration Institute, when authorizing a foreigner to be admitted
under the immigration category of Non-Immigrant, will grant him/her a visa document
called an FM-3; in order to be admitted under the immigration category of Immigrant, it
will grant a visa document called an FM-2.
Below are the requirements for requesting the FM-3 and FM-2 visa documents before
the National Immigration Institute.
3.1. Requirements for Obtaining the Desired Immigration Status
There are two forms by which the status of Non-Immigrant (FM-3) or Immigrant (FM-2)
can be requested:
a) By visa obtained from abroad. The request for entry is filed in Mexico, before the
National Immigration Institute and, once obtained, the Ministry of Foreign Relations (Secretaría de Relaciones Exteriores, SRE) sends the ruling of authorization to
the Mexican consulate through which the foreigner wishes to enter, in order for
that consulate to issue to the foreigner his/her FM-3 or FM-2;
b) Once the foreigner is in the country, he/she can request a change of immigration
status or category.
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3.1.1. To obtain a visa from abroad
In order to request a visa from outside of the country as a Non-Immigrant Visitor, the
following information and documents must be presented:
a) Information:
i) The complete name of the foreigner, showing the first and middle given names,
as well as paternal and maternal last names;
ii) His/her home address in his/her country of origin;
iii) Nationality;
iv) Place and date of birth;
v) Marital status;
vi) Occupation;
vii) Mexican consulate in which he/she wishes to be documented;
b) Documentation:
i) Photocopy of the current passport issued to the foreigner;
ii) Job offer letter issued on the letterhead of the company wishing to hire the
foreigner, indicating his/her position and signed by the authorized person of
the company;
iii) Simple photocopy of any current official identification issued to the authorized person of the company who signs the letter discussed above;
iv) Photocopy of the notarized instrument containing the appointment of the
authorized person of the company who signs the letter discussed above;
v) Photocopy of the charter deed of the company that wishes to hire the foreigner;
vi) Photocopy of the last monthly tax declaration of the company that wishes to
hire the foreigner;
vii) In the event that the foreigner does not personally process his/her visa, a
power of attorney in duplicate issued to the person or persons who will carry
out the process before the National Immigration Institute;
viii) Birth certificate issued to the foreigner containing the apostille specified in the
Hague Convention or legalized by the Mexican consulate closest to the place
of its issuance;
ix) Letter addressed to the Institute, signed by the foreigner, expressing the reasons he/she wishes to acquire permanent residence in Mexico, if he/she is
requesting an FM-2;
x)
Document verifying the professional capacity of the foreigner, containing the
apostille of the Hague Convention or legalized by the Mexican consulate closest to the place of its issuance.
The process of obtaining a visa from outside of the country takes approximately four
weeks from the date of presentation of all the required documentation before the National Immigration Institute. We recommend this option, since the foreigner will be authorized to engage in the desired activity in Mexico upon his/her entry into the country.
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3.1.2. Relocation of family
If the foreigner wishes to come to Mexico with his/her spouse and children, the following documentation will also be necessary:
a) Birth certificates of his/her spouse and children, containing the apostille of the
Hague Convention or legalized by the Mexican consulate closest to the place of
their issuance;
b) Marriage certificate containing the apostille of the Hague Convention or legalized
by the Mexican consulate closest to the place of its issuance;
c) Record of continued existence of the marriage of the foreigner and his/her spouse,
which is a form prepared by the National Immigration Institute that must be
signed by the foreigner, his/her spouse and two witnesses;
d) Record verifying compliance with the Mexican civil law applicable to family matters, which is a form prepared by the National Immigration Institute that must be
signed by the foreigner, his/her spouse and two witnesses;
e) Photocopy of the identifications of the two witnesses that sign the records indicated in points c) and d);
f) Photocopy or original of the passport issued to the spouse and children of the foreigner, depending on if an authorization from outside the country or a change of
immigration status is being requested;
g) In the event the foreigner does not personally process his/her visa, a power of attorney in duplicate also signed by his/her spouse and issued to the person or persons
who will carry out the process before the National Immigration Institute.
3.1.3. Change of immigration status
In order to request the authorization for a change of immigration status, the following
documentation must be exhibited:
a) Original of the current passport issued to the foreigner;
b) Original of the current visa, which will be delivered to the foreigner upon his/her
arrival in the country;
c) Job offer letter issued on letterhead of the company that wishes to hire the foreigner,
h)
i)
The process of changing immigration status takes approximately four weeks from the
date of presentation of all the required documentation before the National Immigration
Institute.
SEGOB reserves the right at its discretion to request specific additional documentation
in each particular case in order to verify the necessity of having the services of the foreigner in the country and the truth of the information presented.
3.2. Benefits of Entering the Country as a Non-Immigrant or as an Immigrant
As a non-immigrant visitor, the foreigner has the option of temporarily bringing into the
country a vehicle without paying foreign trade taxes, provided it is returned abroad
upon the termination of the authorization.
Immigrants and Non-Immigrants can also bring in their household effects without
paying import taxes. In the case of Non-Immigrants, however, such household effects
must be returned upon the termination of their stay in the country, or otherwise the corresponding taxes will have to be paid. The household goods that can be brought in free
of foreign trade taxes include goods whose value does not exceed the value of the normal household goods of a family in Mexico.
4. Other Types of Visas
In addition to the above, for purposes of simplifying and improving the control of
visas, providing better immigration services, and facilitating the review of immigration
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indicating his/her position and monthly salary, signed by the person authorized by
the company;
Photocopy of a current official identification of the person authorized by the company that signs the letter indicated in the above point;
Photocopy of the notarial instrument containing the appointment of the person
authorized by the company that signs the letter indicated in the above points;
Photocopy of the charter deed of the company that wishes to hire the foreigner;
Photocopy of the last monthly tax declaration of the company that wishes to hire
the foreigner;
Document verifying the professional capacity of the foreigner, containing the apostille indicated by the Hague Convention or legalized by the Mexican consulate
closest to the place of its issuance;
In the event that the foreigner does not personally process his/her visa, a power of
attorney in duplicate issued to the person or persons who will carry out the
process before the National Immigration Institute.
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documents at points of entry into Mexico, a new visa has been created for tourists, transitory immigrants, and visiting business people or visiting members of boards of directors.
The nationals of the following countries are subject to the application of this regulatory regime: Germany, Argentina, Australia, Austria, Belgium, Bermuda, Brazil, Chile,
South Korea, Denmark, Spain, Finland, France, Great Britain, Greece, Ireland, Iceland,
Israel, Italy, Japan, Liechtenstein, Luxemburg, Monaco, Norway, New Zealand, Portugal,
The Netherlands (Holland), San Marino, Singapore, South Africa, Sweden, Switzerland,
and Uruguay.
Also subject to the application of this regulatory regime are the permanent legal residents of Canada and the permanent legal residents of the United States of America.
Foreigners from these countries can enter Mexico if they do not receive any remuneration within the country, under the following visas:
a) Tourist. These are foreigners that enter the country for purposes of recreation or
health, in order to engage in artistic, cultural or athletic activities, with a maximum
stay of 180 days without the possibility of extension;
b) Transitory immigrants. These are foreigners in transit to another country; they can
stay in Mexico for up to 30 days without the possibility of extension. They cannot
change their immigration status or category;
c) Visiting business person. The foreigner who comes to Mexico in order to negotiate
or sign commercial agreements, verify compliance with such agreements, investigate investment options, or make a direct investment in the country. The visiting
business person may remain in Mexico for a maximum period of 30 days;
d) Visiting board member. The foreigner who enters Mexico to attend board of director
meetings of companies legally incorporated in Mexico, by virtue of appointment
by the shareholders’ meeting. A visiting board member may stay for a maximum
of 30 days.
Any of these visas can be applied for at the Mexican consulate offices abroad or
at the point of entry into the country.
The foreigner must specify the type of activity he/she will engage in while in
Mexico, provide a description of these activities, and provide the name and domicile of the foreign company or business to which he/she belongs, as well as the company or business in Mexico with which he/she will be carrying out business.
The foreigner is strictly responsible for the truth of the data and information
entered on the visa, which must be signed on the back.
The foreigner who enters the country as a visiting business person or visiting
board member and wishes to extend his/her stay in Mexico should request a nonimmigrant visa once the 30 calendar days have expired.
CHAPTER VII
Tax Regime
1. Taxes That Must Be Paid in Mexico
Mexico has a federal system, copied from that of the United States of America and, just
as in all federal systems, there are powers reserved for the Federal Government, powers
reserved for the States, and concurrent powers. This federal system is also reflected in the
ability to impose taxes in Mexico, since in accordance with our Constitution, certain
taxes can only be imposed by the Federal Government, others can only be imposed by
the States, and others can be imposed by either the Federal Government or the States.
As a result of the above, tax matters in Mexico can be analyzed from three angles: (a)
federal taxes, (b) local taxes, and (c) the international aspect.
Federal taxes are generally direct taxes, particularly the income tax, the primary failing of which is the relatively small number of taxpayers who must carry the greatest part
of the tax burden.
In order to avoid the excessive burden that double taxation can cause taxpayers,
the Federal Government has entered into fiscal coordination agreements with each of the
States and the Federal District, through which the Federal Government shares certain
revenues with the States, provided that the States do not impose any tax on specified
items. As a result, local taxes are minimal, the most common being the real estate tax
(for owners of real estate), the payroll tax (on salaries paid to employees), and the
real estate purchase tax.
In addition, regardless of who imposes the tax, the tax guarantees contained in our
Constitution must be respected and therefore, only taxes that are set forth in the law, that
respect the economic capacity of the taxpayer, and that do not establish privileged treatments, are legal; as well, all taxes collected must go towards paying for government
expenditure.
Mexico’s participation in the international tax context has been very significant, having executed several treaties to avoid double taxation, in accordance with the model of
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the Organization for Economic Cooperation and Development (OECD) and others for the
exchange of information and the elimination of tariffs.
Below we will discuss very generally the primary federal and local taxes existing in
Mexico.
2. Income Tax
In contrast to other countries, Mexico has not been able to increase the importance of
its indirect taxes such as the Value Added Tax (VAT), and therefore currently the largest
portion of tax revenue comes from direct taxes, the most important of which is the
income tax (Impuesto Sobre la Renta, ISR).
2.1. Persons Obligated to Pay Income Tax
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According to the Income Tax Law (Ley del Impuesto Sobre la Renta, ISR Law), tax residents
in Mexico are obliged to pay income tax on all income (in cash, credit, goods, services,
or of any type) earned in Mexico and in any other part of the world.
Tax residents of a foreign country only have to pay income tax in Mexico when they
have a permanent establishment in Mexico or when they obtain earnings that are considered to come from a source of wealth located in Mexico.
In view of the above, the concepts of tax resident and permanent establishment should
be clarified.
2.1.1. Tax residency in Mexico
Individuals are considered to have tax residency in Mexico when their residential home is in
Mexico. When individuals have several houses in different countries, they will be considered to be a resident in Mexico when they have their vital center of interest in the country.
Legal entities are tax residents in Mexico when they have established in Mexico the principal corporate headquarters of their business or their actual center of decision making.
Tax residency is a concept that can be affected by the double taxation treaties that
Mexico has signed, as these treaties contain specific conflict resolution rules to resolve
the problems that arise when both contracting countries consider the same person to be
a tax resident.
2.1.2. Permanent establishment
The general concept of a permanent establishment set out in the ISR Law refers to when
a nonresident falls into one of the following three categories:
a) Having a place of business in Mexico in which some or all of his/her business activities are carried out;
b) Having an employee who exercises the power to enter into contracts on behalf and
in the name of the nonresident intended for the carrying out of the activities of the
nonresident in Mexico;
c) Engaging in activities in Mexico through an independent person when such services to the nonresident are outside the normal scope of the independent person’s
activities.
2.2. Legal Entities with Tax Residence in Mexico
Title II of the ISR Law, which regulates how legal entities should calculate their taxes,
is complex and in many cases there are specific rules for particular situations. Despite
this, in this section we briefly describe the procedure.
Income tax is calculated by fiscal years which, as a general rule, coincide with the
calendar year. The income tax rate is 28 percent. There is also a requirement to
make provisional monthly tax payments for the annual tax incurred during the fiscal year.
The first step in determining the taxable base on which the income tax rate is to be
calculated is calculating the taxable profit for the previous fiscal year, which is the result
of subtracting the deductions authorized by the ISR Law of that period from the total
income of that fiscal year. As a second step in calculating the taxable profit, the losses
from previous fiscal years may be subtracted.
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In addition, certain special cases exist in which trusts, insurers, and real estate construction or assembly services also create a permanent establishment in Mexico. In the
case of maquiladoras (in-bond manufacturing plants), there are special rules related to
the generation of a permanent establishment in Mexico.
The ISR Law also sets out certain circumstances under which a nonresident would not
be considered a permanent establishment, regarding places that store, exhibit, and buy
goods and, in general, the use of a place of business only to carry out preparatory or auxiliary activities for the activities of the nonresident.
It is important to take into account that the double taxation treaties signed by Mexico
have specific rules applying to permanent establishments which, while very similar to
those set out in the ISR Law, must be reviewed if the nonresident is a resident of a country with which Mexico has entered into such a treaty.
When it is considered that a nonresident has a permanent establishment in Mexico,
this fact must be registered in the Federal Taxpayers’ Registry and the nonresident must
comply with all of the tax obligations as would a tax resident in Mexico. With regard to
income tax, the foreigner will incur such tax as if he/she were a legal entity, but only over
income attributed to the permanent establishment.
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2.2.1. Income
The income that legal entities must accrue is the income they receive from any part of
the world of any type, which includes cash, credit, and services. There are general
rules for determining the time of receipt of the income, which rules depend on
whether they concern income from the alienation of goods, the provision of services,
the granting of use or temporary enjoyment of goods, financial leases, or debts not
paid by the taxpayer.
The ISR Law specifies that the following are not considered income obtained by a
legal entity: income that is the result of a capital increase; income from the payment
of a loss by shareholders; income from stock premiums obtained through the listing
of stock issued by the company, or income from using the participation method to
appraise the value of its stock; and income obtained from the reappraisal of its assets
and capital. In addition, this code establishes that income obtained from dividends
or profits that are obtained from other legal entities residing in Mexico are not
accruable.
2.2.2. Deductions
In contrast to the general way in which income is defined, deductions are defined specifically in the ISR Law, and include the following: (a) refunds, rebates, or discounts, (b)
cost of sales, (c) investments, (d) uncollectible debts and losses resulting from an Act of
God, force majeure, or in certain cases from the alienation of goods, and (e) interest
accrued for the fiscal year, without any adjustments.
In addition to the fact that deductions are defined specifically, the ISR Law establishes a series of requirements that must be complied with in order to take the deductions, such as: (a) those that are strictly necessary for the purposes of the taxpayer’s
activity, unless they are authorized donations within the limits indicated by the ISR
Law, (b) those covered by documentation meeting certain requirements, (c) those
duly registered in the accounting records, (d) those complying with the obligations
of withholding and payment of taxes owed by third parties, (e) those that have had
the Value Added Tax transferred, (f) those having interest on capital loans, and for
whom such loans have been invested in the business, (g) those for which the merchandise is legally imported into the country, (h) those relating to social welfare payments granted generally to all employees in addition to other requirements, (i) those
for whom the payments made for technical assistance and royalties are services actually provided, and the payment is made to whoever directly provided said service,
and (j) when the requirements for deductions are complied with before the end of
the fiscal year, except with regard to evidentiary records, which can be obtained up
until the annual tax return is submitted for the corresponding fiscal year. Furthermore, the Income Tax Law establishes certain items that are not deductible, which
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includes a limitation on the deductibility of interest for excess debts known as thin
capital or undercapitalization.
We consider it important to give special mention to deductions based on investments
of the sale cost and to the limit on the deduction of interest for excess debt (thin capitalization).
The deduction of investments in fixed assets, charges, and deferred expenses is carried
out by depreciation, for which the ISR Law establishes the percentages that must be used
for such deductions, depending on the good involved.
With regard to the sale cost, raw materials and semifinished and finished products are
deducted when they are alienated (transferred). In order to determine the amount of the
corresponding deduction, it is necessary to use the absorbent cost system on a historical or predetermined basis or the system of direct cost, but only on a historical basis.
Thin capitalization or undercapitalization was introduced in the ISR Law as of 2005 on
the theory that companies must keep their debt below a reasonable level, which for purposes of the ISR Law is three times the capital of the company. In the event that debts
surpass this amount, the company cannot deduct the payment of interest derived from
the debts that exceed this amount and that arise from debts contracted with related parties residing abroad.
2.2.3. Losses
Tax loss is the difference between the income accrued in the fiscal year and the allowable
deductions, when the amount of the latter is greater than income. The tax loss in a fiscal year can be subtracted from the tax profit of the following ten fiscal years until it is
eliminated.
Tax losses cannot be transferred, not even through a merger. Furthermore, when in a
merger the surviving company (the purchaser) has losses, these can only be subtracted from
future tax profit resulting from the exploitation of the same activities that produced the loss.
In the case of a change of partners or shareholders that have control of a company, it
may also be the case that the application of the tax loss of said company will be limited
and that the mentioned loss can only be subtracted from future tax profit resulting from
the exploitation of the same activities that produced the loss.
2.2.4. Consolidation
The ISR Law allows for the possibility of consolidating the losses and earnings of Mexican companies belonging to the same group. In order to consolidate it is necessary to
comply with certain requisites established by the ISR Law, among which is the prior
authorization of the tax authorities.
The minimum consolidation period is five years and in the event that this option is
chosen, all Mexican companies belonging to said group must be included.
2.2.5. Dividends
The aim of the ISR Law is for income tax to be paid only once, so if a dividend is distributed from the profits account of a company that has already paid tax thereon, no new
tax need be paid, since the profit has already been taxed at the corporate level.
On the other hand, when dividends are distributed from company profits on which tax
has not been paid, the company distributing them must apply the general income tax rate
on the amount of the pyramided dividend (by multiplying it by the factor of 1.3889).
2.2.6. Market value
The ISR Law establishes that in the event that transactions are carried out at less than
market value, at cost or below cost, the tax authorities can change the tax profit or loss,
estimating the price at which they believe the transaction should have been carried out.
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2.2.7. Transfer pricing
Legal entities with a tax residence in Mexico and a permanent domicile in the country
who carry out transactions with related parties who are nonresidents must determine
their income by taking into account the consideration that would have been paid among
independent parties (“arm’s length transactions”).
Two or more parties are considered to be related when one of them participates
directly or indirectly in the administration, control or capital of the other or when a person or a group of persons participates directly or indirectly in the administration, control, or capital of both companies.
In order to determine if the price of the transaction used is that which would have
been agreed between independent parties, any of the following methods may be used:
(a) comparable price, (b) resale price, (c) added cost, (d) profit sharing, (e) surplus after
profit sharing, and (f) transactional margins of operating profit.
The Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, approved by the Regulation Board of the Organization for Cooperation and Economic Development (OECD) in 1995, or any substitute thereof, should be used for the
interpretation of transfer pricing regulation, provided such guidelines are consistent
with Mexican law.
2.2.8. Preferential tax regimes
The Mexican government has decided to ensure that the nature and content of investments made in Preferential Tax Regimes (also known as tax havens) are revealed, such
that income coming from these regimes will be considered taxable from the moment it
is generated, even if such income, dividends, and profits have not yet been distributed.
Income falling under any of the three following categories is considered to be income
coming from a Preferential Tax Regime: (a) income not taxed abroad, (b) income taxed
abroad but at a tax rate less than 75 percent of what would have been paid in Mexico,
and (c) income generated through transparent legal entities or figures.
The tax authorities have the authority to determine the existence of simulation in legal
acts exclusively for tax purposes in cases of (a) income related to a Preferential Tax
Regime, (b) transfer pricing, and (c) income determined to have come from a source of
wealth within the country.
2.3. Nonresidents Who Obtain Earnings from a Source of Wealth Located
in Mexico
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As discussed previously, non-residents must pay Mexican income tax when they have a
permanent residence in Mexico or when they obtain earnings that are considered to
come from a source of wealth in Mexico.
It is very important to point out that Mexico has signed double taxation treaties with
different countries, the application of which depends on the tax residence of the actual
beneficiary of the income. These treaties establish treatment exceptions that reduce or
eliminate the tax, and therefore is it essential to review the possible application of said
treaties in all transactions.
2.3.1. Treatment set out in the ISR Law
As a general rule the tax imposed under these circumstances is calculated on gross income
and it is paid through the withholding made by the person making the payment. There
are certain exceptions in which the nonresident is allowed to choose to pay on a net basis
(income minus deductions), for which is it necessary to have a representative in Mexico.
We can say that the most representative types of income that can be considered to
come from an income source located in Mexico are the following:
a) Income taxed at a rate of 40 percent, obtained as a result of representational transactions (commission, brokerage, agency, distribution, consignment or appraisal, and in
general, income for undertaking another’s interest) that residents of Preferential Tax
Regimes obtain, when the one paying is a resident or has a tax domicile in Mexico;
b) Income taxed at a rate of 25 percent;
i) Income received for fees and the provision of independent services when the
service is provided in Mexico;
ii) Remuneration to members of boards of directors for auditing, consulting or
of any other kind, when it is paid by Mexican companies;
iii) Income received for granting the temporary use or enjoyment of real estate
located in Mexico;
iv) Income obtained from time-share tourist service contracts when the property
shared is in Mexico;
v)
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Income received for granting the temporary use or enjoyment of movable
goods when: (1) these goods are used in the country and for commercial,
industrial, agricultural, livestock or fishery activities or (2) when the material
delivery of the goods occurs in Mexico;
vi) Income received for the provision of technical assistance distinct from the
temporary use or enjoyment of patents, certificates of invention or improvement, manufacturing trademarks and commercial names, when the goods or
rights that are being paid for are enjoyed in Mexico or when this is paid by a
tax resident or permanent establishment in Mexico;
c) Income that is taxed, at the election of the taxpayer (provided certain requisites are
complied with), at a rate of 25 percent of gross income or at the general rate of 28
percent of net income (taking into account certain deductions allowed by the
Income Tax Law);
i) Income from the alienation of real estate located in Mexico;
ii) Income from the alienation of shares and securities (that represent the ownership of goods) when: (1) they are issued by a Mexican company, or (2) more
than 50 percent of the book value of the shares or securities comes directly or
indirectly from real estate located in Mexico;
iii) Income from services in Mexico of construction work or building construction or for inspection or supervision thereof. In the event that the service lasts
more than 183 days, a permanent establishment is generated;
iv) Income from: (1) artistic or sporting activities or the presentation of public shows in Mexico, (2) the promotion of such activities or shows, or (3)
the provision of services, the granting of the use and enjoyment of goods,
or the alienation of goods related to such activities or shows;
d) Income that at the election of the taxpayer (provided that certain requisites are
complied with) is taxed at a rate of 25 percent of the profit or at the general rate
of 28 percent of the profits of the month after subtracting the losses from the rest
of the transactions of such month executed with the same institutions or persons:
Financial transactions derived from capital when one of the parties is a resident
or has a permanent establishment in Mexico and they involve shares and securities (that represent ownership of goods) when: (1) they are issued by a Mexican company; or (2) more than 50 percent of the book value of the shares or
securities comes directly or indirectly from real estate located in Mexico;
e) Income that at the election of the taxpayer (provided that certain requisites are
complied with) is taxed at a rate of 25 percent of the total amount of the transaction or at 40 percent of the profit obtained:
A debt for equity swap made by a person distinct from the original creditor
when the debtor is Mexican;
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f ) Income that is taxed at the general rate of 28 percent;
i) Income from advertising and royalties, for the temporary use or enjoyment of
patents or certificates of invention or improvement, manufacturing trademarks and commercial names, when the goods or rights for which they are
paying are enjoyed in Mexico or when this is paid by a tax resident or permanent establishment in Mexico;
ii) Income from the discharge of debts by the creditor or when the debts are paid
by another person provided that the creditor that granted the pardon is a resident or permanent establishment in Mexico;
iii) Income obtained through the granting of the right to participate in a business
investment or any kind of payment for entering into or participating in any
kind of legal transaction when it is carried out in Mexico;
iv) Income from indemnifications or liquidated damages when the payer is a resident or permanent establishment in Mexico;
v) Income obtained for the alienation of commercial credit when the latter is
attributable to a resident or permanent establishment in Mexico;
g) Income that, depending on the amount, may be exempt or have the tax rate of 15
percent and 30 percent applied;
i) Salaries and wages when the service is provided in Mexico;
ii) Pensions, retirement funds, retirement assets, and lifetime benefits or other
forms of retirement when the payments are made by tax residents in Mexico
or permanent establishments in Mexico or when the contributions are the
result of a subordinate personal service provided in Mexico;
h) Income taxed at a rate of less than 25 percent;
i) Income from shipping contracts when they involve coastal trade in Mexico,
the applicable rate being 10 percent;
ii) Royalties for the temporary use or enjoyment of railway cars, which is taxed
at the rate of 5 percent;
iii) Income from winning prizes when the lottery, raffle, drawing, betting game or
competition is held in the country; it is taxed at a rate of 1 percent when a
state tax does not exist for this income or said tax exists but does not exceed
6 percent, and at a rate of 21 percent in all other cases;
i) Interest. Interest is taxed in Mexico when capital is sold or invested in Mexico or when
it is paid by a resident or permanent establishment in Mexico. The applicable rate
depends on who grants the loan, the nature of the debtor and what the loan is for;
i) Exemptions: (1) loans granted to the Federal Government, Bank of Mexico
and coming from bonds issued by them, (2) loans granted or guaranteed by
foreign financial institutions engaged in promoting exports by means of granting loans or guarantees with preferential conditions provided that the term for
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paying the credit is three years or more, and (3) loans granted to institutions
authorized to receive donations, provided they are granted or guaranteed with
preferential conditions by foreign financial institutions;
ii) At a rate of 4.9 percent: (1) interest on income from negotiable instruments offered
to the investing public from loans from lending institutions, special purpose financial institutions, or secondary financial institutions, as well as those offered
through banks or securities firms in a country with which Mexico has a double
taxation agreement, and (2) interest paid to foreign financial institutions in which
the Federal Government has a capital investment. The income from interest mentioned in the previous section will be subject to a 10 percent tax rate when it
does not comply with certain requisites established in the Mexican legislation;
iii) At a rate of 10 percent: (1) interest paid to financial institutions belonging to
Foreign States, (2) interest paid to foreign banks, including investment banks,
(3) interest paid to entities that sell or invest capital in Mexico coming from
securities issued and sold abroad to the investing public, (4) interest from negotiable instruments sold by banks or securities firms in a country with which
Mexico has not signed a double taxation treaty, and (5) interest paid for the
acquisition of a right to collect an owed debt of any kind.
The income from interest mentioned in the previous paragraph may be subject to a tax of 4.9 percent when the actual beneficiary of the interest is a foreigner with tax residency in a country with which Mexico has signed a double
taxation agreement and provided certain requisites are complied with;
iv) At a rate of 15 percent when the interest is paid to reinsurance companies and
interest that has been agreed to as interest on financial leasing contracts;
v) At a rate of 21 percent, interest paid to: (1) credit institutions other than those
mentioned previously, (2) foreign suppliers for the alienation of machinery and
equipment which form part of the fixed assets of the purchaser, and (3) for the
financing of machinery and equipment which form part of the fixed assets of
the purchaser and in general for working capital loans or commercialization;
vi) In other cases of income from interest, the general tax rate of 28 percent applies.
Certain exceptions apply to some of the above income, and therefore it is necessary to
analyze each case individually.
2.3.2. Double taxation treaties
As we have already stated, in the case of foreign tax residents it is necessary to check
whether one of the double taxations treaties signed by Mexico may apply. At the end of
this chapter there is a table which shows the treaties entered into by Mexico and those
being negotiated as of 2007.
Once it is determined that one of the double taxation treaties signed by Mexico is
applicable, then it must be seen if the relevant treaty stipulates rate reductions, exemptions or special treatment and the requirements in order to be entitled to them. At the
end of this chapter there is a table which shows the withholding rates for dividends,
interest and royalties in the double taxation treaties entered into by Mexico as of 2007.
3. Single Rate Business Tax
3.1. General
3.2. Persons Subject to the Tax and Activities Taxed
Individuals and entities with tax residence in Mexico, as well as residents abroad with a
permanent establishment in the country, are obligated to pay the IETU on the income they
obtain, regardless of where it is generated, as a result of the following activities:
a) Alienation of goods;
b) Provision of independent services;
c) Granting of the temporary use or enjoyment of goods.
Residents abroad with a permanent establishment in the country must pay the IETU for
income attributable to said establishment resulting from the mentioned activities.
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On October 1, 2007 the law covering the Single Rate Business Tax (Impuesto Empresarial a Tasa Única, IETU) was published in the Official Federal Gazette (Diario Oficial de la
Federación) and it will enter into force on January 1, 2008.
This tax is characterized basically by the following aspects:
a) It takes the place of the Asset Tax (Impuesto al Activo, IMPAC) and therefore, the
IMPAC law is repealed as of fiscal year 2008. As was the IMPAC, the IETU is a complementary tax to the Income Tax (Impuesto Sobre la Renta, ISR) and in fact, the law
provides for the crediting of the ISR to the IETU;
b) It taxes at a fixed rate the taxable profits resulting from business activities, under a
cash flow scheme;
c) To determine the taxable base it provides for limited deductions to accruable
income, but in order to coordinate its determination with that of the ISR, it also provides for the application of direct credits against the IETU;
d) Its payment is calculated by fiscal year and is paid by a declaration that must be
filed within the same time period as the ISR;
e) To define most of its concepts, the IETU law refers to the concepts of the ISR law and
the Value Added Tax law, there being a correlation among these laws.
However, the law exempts the following persons from the application of the IETU: (a)
the Federal Government, the States and the Federal District, Municipalities, Autonomous
Constitutional Bodies and State-Owned Entities; (b) those not subject to the ISR in certain
cases; (c) authorized donees; (d) individuals and entities with income obtained from
farming, livestock, forestry, or fishing for the income that is exempt under the ISR Law; (e)
entities whose shareholders are pension and retirement funds residing abroad; and (f)
individuals who engage on an irregular basis on acts that are taxed by the IETU.
3.3. Rate
The rate to be applied for the IETU is 17.5 percent of taxable profit (taxed income minus
authorized deductions). As a transitory provision, the rate for fiscal year 2008 will be
16.5 percent and for 2009 it will be 17 percent.
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3.4. Taxable Base
3.4.1. Income
In order to calculate the result, the IETU law establishes three different classes of taxpayer income for this tax: (a) taxed income, (b) exempt income, and (c) income not subject to this tax.
Taxed income is the income that the taxpayer must accrue in order to apply the authorized deductions. In general terms, this type of income is income derived from the execution of the activities taxed under this tax, as well as the amounts that are charged to a
purchaser for taxes or fees charged to the taxpayer, the amounts that are paid to the taxpayer as normal or late payment interest, contract penalties or any other concept, including advances or deposits.
Taxes that have been transferred are not considered within this income and special
rules are established for income related to: (a) advances or deposits returned to the taxpayer and previously deducted, (b) amounts received from insurance companies for payments under a policy, (c) financial institutions, and (d) exchanges and payments in kind
(market value or appraisal value).
For purposes of its calculation, the taxed income is understood as obtained when the
amounts charged are actually collected, in accordance with the VAT law.
The law establishes generally that the following income is exempt from the IETU: (a)
income derived from alienation of partnership interests or stock, documents pending collection and negotiable instruments, (b) income resulting from the alienation of nonredeemable real estate certificates of participation that are alienated by individuals on an
irregular basis or on the stock market by trusts engaged in real estate construction or acquisition, (c) income resulting from the purchase and sale of Mexican or foreign currency,
except for money exchange firms, and (d) the income of individuals not earned on a
regular basis.
Finally, in order to avoid the decrease of the taxable base through unjustified deductions, the lawmaker established the existence of income not subject to this tax which
should not be taken into consideration at all for the calculation of the payment of the
tax. Included in such income are royalties between related parties and interest that is not
included in the price, as well as derivative financial operations, when the underlying
operation is not taxed by the IETU.
In relation to royalties between related parties, only the payments between related parties for the temporary use or enjoyment of industrial, commercial, or scientific equipment will be taxed income and therefore authorized deductions. Royalty payments
between independent parties are considered taxed.
Some authorized deductions are regulated separately, as with the deduction of investments. In fact, this special regulation is one of the concepts that make the bases for the
payment of the IETU and the ISR different.
Investments made from January 1, 2008 on, will be deducted in their entirety (100
percent) in the fiscal year in which they are actually paid, while in the ISR law it is provided that investments are deducted by depreciation in each fiscal year, applying the
percentages authorized by said law.
With respect to new investments and inventories of fiscal years prior to 2008 that are
not yet totally deducted for the ISR, the IETU provides for a system that permits the taxpayer to have a partial benefit, except in the case of new investments made during the
last quarter of 2007, which can be deducted in their entirety in three parts during three
fiscal years beginning in 2008.
3.4.3. Credit for excess deductions
When the deductions authorized in a fiscal year are greater than the taxed income, the
taxpayer has the right to the credit against the IETU determined by the amount resulting
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3.4.2. Deductions
Based on the above classification of the taxpayer’s income under the IETU, in order to
determine the result the authorized deductions should be applied. In very general terms,
all expenditures resulting from the execution of the activities subject to the tax can be
deducted and the following are the requirements for doing so:
a) That they correspond to the activities subject to the tax;
b) That they are strictly indispensable;
c) That they comply with the deductibility requirements established in the ISR law;
d) That they have been actually paid.
from applying the factor 0.175 (0.165 for 2008 and 0.170 for 2009) to the difference
resulting from such deductions and income. This credit can be credited against the ISR
or against the payment (provisional and annual) of the IETU of the 10 following fiscal
years until exhausted, being gradually adjusted for inflation.
If the taxpayer does not use such a credit in the fiscal year in which it had the right to
do so, it will lose the right to apply it in subsequent fiscal years in the amount that it
could have credited it.
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3.4.4. Credit for wages and salaries
Wages and salaries are expenditures resulting from a subordinated personal service and
therefore they are not subject to the IETU, and may not be deducted. However, the law
establishes a credit that the taxpayer may apply against the tax of the fiscal year for such
payments, partially recognizing the economic effect of such expenditures.1
The credit is determined with respect to expenditures for contributions to social security and income taxed under the ISR for wages and salaries, as well as for concepts considered equivalent to these, but excluding expenditures for wages and salaries that are
exempt from ISR, such as social welfare payments.
The application of this credit has a ranking below that of the credit for excess deductions referred to above, and it may only be used against the tax generated in the fiscal
year in which the credit was obtained.
3.4.5. Crediting of the ISR
Since the IETU is a tax complementary to the ISR, the new law provides for the crediting of the ISR of the same fiscal year, the latter being understood as the amount actually paid in terms of the ISR law. For these purposes, also considered as ISR paid is the
amount paid for dividends when they do not come from CUFIN, as well as the ISR paid
abroad with respect to income taxed by the IETU. The ISR is not considered actually
paid when it has been covered through credits (except for taxes on cash deposits) and
legal reductions.
3.5. Provisional Payments of the IETU
The provisional payments for the IETU of the fiscal year must be made monthly by declaration that will be filed at the same time as the provisional payments of the ISR. These
payments shall be made on the basis of accrued income and deductions as of the month
__________
1
The tax credit will be determined based on applying the factor equivalent to the IETU rate to all the amounts
resulting from payments for salaries, payments considered equivalent to salaries, and contributions to social
security.
in question. They will be calculated by subtracting from the total accrued income of the
period from the beginning of the fiscal year until the last day of the month the payment
is made, the authorized deductions corresponding to the same period. The corresponding tax rate will be applied to the result, less the provisional payments made.
Finally, to calculate the provisional payments of the IETU, just as in its annual determination, the proportional application of certain additional credits previously explained
in relation to the annual payment is allowed.
In the event it is not possible to totally or partially credit the provisional payments
against the IETU, the amount can be offset against the ISR of the fiscal year and a refund
can be requested when, after making such an offset, there will be a balance in favor of
the taxpayer.
3.6. Powers of the Authorities
3.7. Special Rules
We believe the above provides a general description of the regulation of the IETU. However, the same law establishes special regulation of the following matters: companies that
consolidate fiscally, the members of nonprofit entities, trusts, financial system and derivative financial operations and the small taxpayer regime, among others.
These special regulations are set forth in several chapters of the law, but we will not
enter into such detail for purposes of this study.
4. Value Added Tax
Value Added Tax (VAT) is an indirect tax designed to tax consumption. For the purposes
of determining this tax, a distinction is made between the passive subject or the one obligated to pay the tax and the affected subject.
For purposes of VAT, the seller of goods, the provider of services or whoever grants the
use or enjoyment of goods, must transfer the VAT incurred to the person acquiring or
receiving them, expressly and separately. Transfer is understood to mean the charge that
the person obligated to pay the VAT should make to the person receiving the goods, the
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The law specifically establishes the power of the tax authority to presumptively determine a tax liability for the IETU, determining the accrued income and applying the documented deductions thereto and the corresponding tax rate.
In any case, the taxpayer can choose to have the tax authorities apply, instead of the
above, the coefficient of 54 percent on the presumptively determined income and the corresponding tax rate to the result.
services or the temporary use and enjoyment of goods, for an amount equivalent to the
tax incurred.
4.1. Persons Subject to Payment of the VAT, Acts and Activities Taxed, and Rate
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Individuals and legal entities that carry out in Mexico any taxable acts or activities are
subject to the payment of this tax. The tax residency of the individuals or entities is irrelevant, and therefore, in some cases, nonresidents may also have to pay the tax if they
carry out any of the acts or activities mentioned in the next paragraph, in which case
there would be an obligation to withhold the tax for the one who pays it, if the latter is
a tax resident in Mexico.
In accordance with Article 1 of the VAT law, the carrying out, within Mexico, of the
following acts is taxed with said tax: alienation of goods, provision of independent services, the granting of the temporary use or enjoyment of goods and the importation of
goods or services. The VAT law defines the circumstances under which each taxed act
or activity is considered to have been carried out within national territory.
The alienation of goods is considered to have been carried out within Mexico if said
good is in the country at the moment of being sent to the purchaser and, if it is not sent,
if the material delivery of the good by the alienator is carried out in the country. Therefore, in the case of the alienation of goods located abroad and sent on consignment to
Mexico to the purchaser, VAT will not be incurred when the purchase and sale is perfected after said goods have been imported into Mexico.
4.2. Taxable Base and Applicable Rates
In the case of alienation of goods, provision of services, and granting of temporary use
or enjoyment of tangible goods, the taxable base consists of, among other things, the
price paid as well as any other amount charged to the purchaser, to the one who receives
the services or to the one who grants the use or enjoyment of tangible goods for other
taxes, rights, normal or penalty interests, liquidated damages, or any other concept.
With regard to the importation of tangible goods, the taxable base of VAT will be the
value used to calculate the general import tax, plus the amount of said tax and any other
amount that must be paid for said importation. Other taxes that may be incurred for
importing tangible goods into Mexico are the Special Tax on Production and Services
(STPS) and the Tax on New Cars.
As a general rule, VAT must be calculated and paid by applying the rate of 15 percent to the taxable base. Exceptionally, a rate of 10 percent will apply when the acts
taxed are carried out by residents in border regions, and provided the material delivery of goods or the provision of services is carried out in this border region. In the case
of importing, a rate of 10 percent will also apply if the goods or services are alienated
or provided in said region.
Finally, the VAT will be calculated by applying a rate of 0 percent on those acts or
activities expressly stipulated by the VAT law. The following activities, among others,
are taxed at a rate of 0 percent: export of goods, alienation of patented medicines and
dietary products, books, newspapers and magazines that the taxpayers themselves
publish, etc.
4.3. Difference between Activities Taxed at a Rate of Zero Percent
and Exempt Activities
4.4. VAT Incurred Based on Cash Flow and Payment of VAT
In order to determine the moment at which VAT is incurred, the relevant law uses a cash
flow system, which is to say that said tax is incurred when the consideration or payment for the alienation of goods, the provision of a service, or the granting or temporary use of tangible goods, is received. Exceptionally, the VAT for interest will be
incurred as it accrues.
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As an exception to the general rule, the alienation of certain goods, the provision of certain services and the granting of the temporary use or enjoyment of certain goods are
taxed with VAT calculated by applying a rate of 0 percent to the taxable base of the tax.
The application of said rate to certain acts or activities is a rate of general benefit for the
economic agents who carry out transactions taxable by the VAT law. It is a preferential tax
rate both horizontally and vertically.
There is a horizontal tax preference because it benefits taxpayers who carry out acts
or activities subject to the 0 percent rate, as the tax is not transferred to the final consumers of the goods or services commercialized by them and it allows them, on the
other hand, to offset or even request the refund of the amount of tax paid by them in
obtaining the necessary inputs for the production and commercializing of said goods
and services. On the other hand, it is a vertical preferential rate because it benefits the
final consumer of the goods and services affected by said rate, since their price does
not reflect any VAT tax.
On the other hand, the carrying out of certain acts or activities within Mexico is
exempt from VAT, in which case taxpayers cannot offset the VAT that was transferred to
them nor request the respective refund (e.g., sale of books, newspapers, and magazines).
In these cases, the VAT that was transferred to them for the acquisition of goods or services or the payment for the importing of goods, can only be deducted for purposes of
the Income Tax.
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In other words, the carrying out of certain acts or activities within Mexican territory
gives rise to VAT. However, VAT is incurred and therefore must be paid at the moment
when consideration is received and up to the amount of such consideration.
Except in the case of carrying out taxed acts or activities incidentally, VAT should be
calculated and paid by the calendar month, through a tax return that should be filed in
the authorized offices by the 17th day of the month immediately following that in which
the payment was made.
The amount of VAT to be paid is the difference between the VAT corresponding to the
total of taxable acts and activities carried out during the month concerned and the tax
that can be offset for the same period.
If in calculating the VAT the taxpayer has a credit balance because the tax that can be
offset is greater than the VAT incurred during the month concerned, it can be offset
against the VAT corresponding to subsequent months until it is used up. A refund can
also be requested, provided that the request is for the refund of the total credit balance,
or it can be offset against other taxes in accordance with the stipulations of the Federal
Tax Code (Código Fiscal de la Federación).
4.5. Offsetting VAT
The payers of this tax are entitled to subtract from the VAT they owe the VAT that was
transferred to them and that they paid for the purpose of importing goods and services,
an act that is known as offsetting.
Not all VAT that was transferred to the taxpayer or that the taxpayer paid for the importation of goods or services can be offset. Taxpayers can only offset VAT that was transferred
to them for the acquisition of goods or services or the granting of the temporary use or
enjoyment of goods that are strictly essential for the carrying out by such taxpayers of acts
or activities taxed with VAT at the rate of 15 percent, 10 percent or 0 percent.
If the taxpayer incurs expenses for carrying out in Mexican territory acts or activities
that are exempt, the VAT that was transferred to the taxpayer and the payment for the
importation cannot be offset under any circumstances.
In the cases in which the taxpayer simultaneously carries out acts or activities that are
taxable and exempt, the VAT that was transferred to the taxpayer and that the taxpayer
paid for the importation corresponding to strictly essential expenses can be offset 100
percent, as long as it can be identified with the taxed activities. If this is not possible, the
taxpayer can offset the VAT that was transferred to it and that was paid for the importation in the proportion that the total value of the taxed activities represents in the total
value of the activities carried out in the month concerned.
In those cases in which the taxpayer carries out exempt and taxed acts or activities,
the transferred VAT and the VAT paid for the importation of items considered investments
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by the ISR Law can be offset in function of the customary use of said investments. If the
investments can be identified only with the carrying out of either taxed acts or activities
or exempt activities, they may be completely offset or not, depending on the case.
If the investments are used for carrying out exempt or taxed activities without distinguishing between the two, the transferred VAT and the payment for the importation can
only be offset in the proportion that the taxed activities represent in the total value of the
activities that the taxpayer carries out in the month concerned, a proportion that may be
subject to adjustments in the event that in subsequent months said proportion changes
by more than 3 percent. The proportion that is determined should be applied with
respect to all the investments acquired or imported within a period of at least 60 months
counted from the time of the offset.
In those cases in which there is VAT transferred or paid for the importation of goods or
services or the granting of the use or enjoyment of goods or investments (made without
distinction to taxed or exempt activities), the taxpayer may choose to offset said tax for
the amount resulting from multiplying said tax by the proportion that represents the
value of its taxed activities corresponding to the year immediately prior to the one for
which the offsettable tax is calculated with respect to the total activities carried out during that period.
4.6. Exportation of Goods or Services
In principle, the alienation of goods in Mexican territory is an activity subject to the VAT.
However, the alienation of goods in Mexican territory that is carried out for exportation
is subject to the VAT at a rate of 0 percent, which allows the taxpayers to offset the VAT
that was transferred to them by their suppliers or that it paid for the importation of
goods and that meets the requirements set out for offsetting. The taxpayer can even
request a refund of any credit balance that may exist.
Despite the above, through miscellaneous tax provisions, certain alienations carried
out within Mexican territory of goods imported under certain customs regimes or of
national or nationalized merchandise can benefit from the application of the 0 percent
rate. The underlying reason for this is that it concerns the alienation of goods that,
although not exported directly by export declaration, will be incorporated into other
products that will eventually be exported.
In effect, the so-called IMMEX (in-bond manufacturing) companies that import merchandise into Mexico under the temporary importation regime can alienate such merchandise to nonresidents as long as the merchandise is delivered within the country to
another IMMEX company or to companies in the automotive industry or car or auto parts
manufacturing industry, for its introduction into the customhouse deposit regime. Said
goods can also be alienated to other IMMEX or Foreign Trade companies.
In addition, the alienation of national or nationalized merchandise by national suppliers to nonresidents, when it is delivered in Mexican territory to an IMMEX company
or to companies in the automotive industry or car or auto parts manufacturing industry for its introduction into a customhouse deposit regime, will incur VAT at a rate of
0 percent.
Finally, the foreign merchandise imported into Mexico under the bonded warehouse
customs regime can be alienated by applying the rate of 0 percent to IMMEX companies
or companies in the automotive industry or car or auto parts manufacturing industry for
its introduction into a customhouse deposit regime.
In all of the cases discussed above, in order for the 0 percent rate to be applicable to
the value of the alienation, it will be necessary to carry out certain “virtual” customs
operations of return or exportation and of temporary importation or of the introduction
to customhouse deposit. In addition, it will be necessary to comply with all the additional specific requirements indicated in the miscellaneous tax provisions.
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5. Special Tax on Production and Services
The Special Tax on Production and Services, is a tax on the importation into Mexico
and the alienation of certain specific goods in Mexican territory. Equally, the provision
of services, such as commission, sales promotion, agency, representation, consignment, and distribution, are taxed as long as the sale of the taxed goods is procured
through them.
This is an indirect payment, in view of the fact that it tends to tax the final consumer
of the goods whose importation or alienation is taxed. While this tax has some similarities to VAT, the circumstances under which payers of this tax can offset the tax transferred to them is considerably limited, in addition to the fact that in the majority of cases
the taxpayer or the one obliged to pay the STPS cannot expressly and separately transfer
it to the person affected or the consumer.
5.1. Persons Subject to the Payment of STPS; Taxed Acts and Activities
Individuals and legal entities in Mexican territory who engage in any expressly taxable
acts or activities are obliged to pay STPS. The alienation in Mexican territory and the
definitive importation into Mexico of goods shown in the following table are taxed with
STPS in accordance with the rate indicated for each one of them.
The STPS also taxes the provision in Mexican territory of services of commission,
sales promotion, agency, representation, financial brokerage, consignment, and distribution through which the above-mentioned goods are alienated, except for gasoline
and diesel.
A. Alcoholic Beverages and Beer
1. With an alcohol content of up to 14° G.L.
2. With an alcohol content of more than 14° G.L. and up to 20° G.L.
3. With an alcohol content of more than 20° G.L.
25%
30%
50%
B. Alcohol, denatured alcohol, and noncrystallizing honey
50%
C. Processed Tobaccos
1. Cigarettes
2. Cigars and other cut tobaccos
3. Hand made cigars and cut tobaccos
160%
160%
30.4%
D. Gasoline
E. Diesel
Determinable
on the basis
of variable
elements
Determinable
on the basis
of variable
elements
5.2. Payment of STPS, Crediting, and Offsetting
Normally, the STPS must be calculated and paid monthly by the 17th of the month immediately following the month for which the calculation is made. The STPS owed by the
taxpayer will be the difference between, on the one hand, the total amount of the consideration effectively obtained for the alienation or provision of services taxed during
the month concerned and on the other hand, the tax paid for the importation of goods
and the tax that can be offset.
As a general rule, the amount of STPS determined cannot be offset. However, it is
possible to offset the STPS that has been transferred to the taxpayer, expressly and separately, by the acquisition of the goods mentioned in section A of the above chart or
that which the taxpayer paid for the acquisition of said goods. Furthermore, STPS paid
due to the import into Mexico of the goods mentioned in sections A, C, D, and E can
also be offset. In order to make use of said offsetting, it is necessary, among other
things, that the person attempting to offset it be a taxpayer who incurs STPS in relation
to that which the taxpayer intends to offset and that the STPS expressly transferred that
is being offset and the STPS against which it is to be offset correspond to goods of the
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Regime
Rate
Ta x
Goods
same class, which are understood to be those grouped within the same section, except
for beer and coolers, which are considered to be in a different class from other beverages that contain alcohol.
If in the monthly tax return there is a credit balance, the taxpayer can only offset
it against the tax owed in the following monthly payments up until it is used up. If
the balance is not offset in the corresponding month or in the two following months,
when it could have been offset, the right to offset it will be lost up to the applicable
amount.
In the case of manufacturers, producers, bottlers or importers that alienate the goods
referred to in sections A, B, and C through commission agents, sales promoters, agents,
or distributors, they must withhold and pay the STPS on the consideration corresponding
to the latter, unless the amount of said consideration is included in the price of alienation of the goods.
C H A P T E R
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132
5.3. Alienations and Exemptions
The obligation to pay STPS arises when the respective consideration is received and on
the amount charged. As a general rule the taxable base of STPS is the value of the agreed
consideration, using in its absence the market value or appraisal value, to which the specific rate corresponding to that type of good will be applied.
As an exception, the producers or importers of cigars will calculate STPS corresponding
to the alienation on the basis of the sale price to the retailer. In the case of cigarettes and
cigars and other processed tobaccos the subsequent alienations carried out by producers, manufacturers or importers will be exempt from the tax.
The following (among other) items, are exempt from STPS: the alienations of beer, coolers, cigars, and other processed tobaccos provided that the alienator is not the manufacturer, producer, bottler, distributor, or importer of the goods.
Finally, the alienation for exportation of any type of good contemplated in the STPS law
is exempt from this tax.
5.4. Importation of Goods
Only the importation into the country under a definitive importation customs regime
is taxed by the STPS. For this purpose the tax is calculated taking into account the value
used for the purposes of the general import tax plus the amount of the other charges
and fees that must be paid for said importation, except the VAT.
The STPS incurred for the importation of goods is paid together with the General Importation Tax, which is to say before the merchandise customs clearance is
processed.
5.5. Specific Obligations of STPS Taxpayers
Producers and importers of cigars must register with the fiscal authorities a price list for
each of their products to be sold, indicating the price to the wholesaler, to the retailer,
and the recommended price for sale to the public.
Importers of alcoholic beverages must place on such products certain distinctive marks
indicating tax control (tax stamps and seals) prior to the entrance of the merchandise into
Mexican territory. Tax stamps can only be placed on the goods when they are before customs, in a general customs warehouse (customhouse deposit) or in a bonded warehouse
or duty-free area. Without said distinctive marks the products cannot be removed.
Importers and exporters of the goods referred to in sections A, B, C of the above chart
must be registered in the appropriate sectorial importers and exporters registry, kept by
the Ministry of Finance and Public Credit.
On October 1, 2007, the decree creating the Tax on Cash Deposits (Impuestos a los
Depósitos en Efectivo, IDE) was published in the Official Federal Gazette, which will enter
into force as of July 1, 2008.
The purpose of this tax is to create a mechanism for combating the black market, identifying and taxing those persons that engage in commercial activities and receive payments in cash that are subsequently deposited in the banking institutions of the country.
Among the most important characteristics of the IDE are the following:
6.2. Persons Subject to the Tax, Items Taxed, and Tax Rate
The persons obligated to pay this tax are the individuals and entities that receive cash
deposits in Mexican or foreign currency in any type of account they hold in any of the
institutions of the financial system. The cash deposits will be taxed at the rate of 2 percent on the total amount.
Cash deposits are considered to be those having such nature according to the General Law on Negotiable Instruments and Credit Operations (Ley General de Títulos y
Operaciones de Crédito, LGTYOC), as well as cash acquisitions in the form of cashier’s
checks. However, the LGTYOC only refers to “bank money deposits” consisting of the
deposit of money in Mexican or foreign currency, its ownership being transferred to
the one receiving it, the latter being obligated to return the amount deposited in the
same specie.
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6.1. General
133
Ta x
6. Tax on Cash Deposits
Not considered cash deposits and therefore not taxed are deposits received by
electronic transfers, account transfers, negotiable instruments, and other documents and systems agreed upon by the financial system institutions; thus all transfers that do not fit under the concept of cash bank deposits alluded to previously
are excluded.
Financial system institutions are those considered as such by the ISR law, among which
are savings and loan companies, banking, insurance and bond institutions, financial
group holding companies, public bonded warehouses, retirement fund administrators,
financial leasing companies, credit unions, popular financial companies, variable rent
investment companies, debt instrument investment companies, financial factoring
companies, brokerage firms, money exchange firms, and special purpose financial
institutions. Mutual fund management companies and investment company stock distribution services companies will also form part of the financial system.
C H A P T E R
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134
6.3. Exemptions
The IDE will not be paid for the first 25,000.00 pesos (2,296 US dollars) that are received
during each month of the fiscal year in one or more accounts of the same account holder in the same financial system institution. On the excess, the tax will be determined
applying the rate indicated in the above section.
As a general rule, the cash deposit will be considered made in favor of the registered
account holder. As an exception and by written communication to the financial institution, the account holder can request that the amount of the exemption and of the tax be
distributed among the persons that appear as coholders of the account and in the proportion requested.
6.4. Tax Collection
The tax corresponding to the cash deposits made during the calendar month will be collected by the financial institutions themselves on the last day of the corresponding
month and will be delivered to the Federal Treasury no later than the third business day
following the date of collection.
The total amount of the monthly tax will be collected, at the election of the institution, from any of the accounts that the taxpayer has open with it. If time deposits are
made without the depositor having another type of account open, the tax will be collected by the institution after the due date of any of the time deposits.
If the taxpayer’s funds are not sufficient to cover the corresponding tax, the tax or
the balance will be collected when the taxpayer next makes a deposit in the financial
institution.
The financial institutions must keep the Tax Administration Service (Servicio de Administración Tributaria, SAT) duly informed with respect to the taxes not collected for lack
of funds or failure of the institution itself. Otherwise they will be jointly and severally
liable with the taxpayer with respect to the uncollected amounts.
6.5. Compulsory Collection
If from the information that the financial institutions provide to the SAT it is found that
there are tax amounts pending collection, the tax authorities will automatically determine the corresponding tax liability, give notice to the taxpayer, and grant the taxpayer
a term of 10 business days to respond, in the understanding that once that period
expires, the payment and collection of the tax liability plus adjustments for inflation and
surcharges will be ordered.
6.7. Crediting, Offsetting and Refunds (Monthly)
It is also possible to credit the IDE that has been paid (by collection) in a specific month
against the provisional payment of the ISR corresponding to that month.
As with the annual tax, if the tax paid in a month is greater than the amount of the
corresponding provisional payment for the ISR, the difference can be credited against the
ISR withheld from third parties in that month. If there is still a difference, it may be offset against the federal taxes of the taxpayer and, if there is still a balance in the taxpayer’s favor, the taxpayer may request its refund.
In contrast to the case with the fiscal year tax, a refund will only be possible if it is certified by a registered public accountant complying with the requirements established by
the SAT according to general rules.
Regime
The IDE paid during the fiscal year can be credited first against the ISR to be paid by the
taxpayer. If the IDE is greater, the difference can be credited against the ISR withheld from
third parties and, if there is still a difference, it can be offset against the federal taxes
owed by the taxpayer pursuant to the Federal Tax Code.
If there is still a difference, the taxpayer can request the return of this tax.
It is important to specify that the right to a credit will be lost if it is not taken, such
being possible with respect to a fiscal year and up to the amount allowed. In addition,
the right to a credit is nontransferable with respect to who paid the IDE by either assignment or merger.
135
Ta x
6.6. Crediting, Offsetting, and Refunds (Annual)
6.8. Crediting Option (Monthly)
C H A P T E R
V I I
136
Taxpayers can choose to credit, against the amount of the provisional payment of the ISR
corresponding to a specific month, an amount equivalent to the estimated amount of the
IDE that they would pay the following month.
Once the amount of the IDE actually paid in the month in question (by collection from
the financial institutions) is determined, the comparison with the tax credited in that
month will be made.
Obviously, if the IDE credited was greater than that actually paid, the difference must
be paid together with the provisional payment of the ISR corresponding to the month
following the one in which it was credited. If such difference exceeds 5 percent or more
of the IDE actually paid, the difference must be paid with adjustments for inflation and
surcharges.
If on the other hand, the IDE that is credited is less than the amount actually paid, the
difference can be credited, offset or requested as a refund as explained above.
7. Local Taxes
According to the Political Constitution of the United Mexican States, the Federal Government, the States, and the Federal District have the power to impose or create taxes
within the scope of their respective jurisdictions.
The Federal Government can create taxes exclusively on matters indicated in Article 73
of the Constitution, among which are foreign trade and enjoyment and exploitation of the
natural resources of the subsoil and of national waters, as well as on banking institutions
and insurance companies, concessioned public services or those exploited directly by the
Federal Government, and in addition, special taxes on electricity, the production and consumption of processed tobaccos, etc.
For their part, the States can, through the legislatures, establish taxes necessary for
covering their budgets, provided that they are not imposed in areas exclusive to the Federation and have not been expressly prohibited in the Constitution.
With regard to the Federal District, Article 122 of the Constitution establishes that the
Congress of the Union can only legislate in areas that are not expressly conferred on the
Legislative Assembly of the Federal District, and the same principle authorizes the Assembly to approve the taxes necessary to cover its budget.
Despite the above, there are areas in which the Federal Government as well as the
States and the Federal District can impose taxes. In order to avoid local and federal
taxes on the same things, the Fiscal Coordination Law was issued, which allows for
the execution of Fiscal Coordination Agreements, in which the states agree not to
impose local taxes on that which the Federal Government has already taxed and the
Federal Government is obliged to grant the states a certain share of the Federal Government’s revenue.
Thus, each state legislature can establish different classes of taxes complying with the
limitations described. Some examples of local taxes are: real estate tax, real estate transfer tax, tax on local income, tax on public shows, lottery and gambling tax, payroll tax,
motor vehicle use and possession tax, and acquisition of used vehicles tax.
In this chapter, we will only briefly describe the most common local taxes established in
the state and Federal District laws, on the understanding that while there are significant
similarities that allow them to be described as a whole, the information contained herein
should be complemented with the contents of each law. Similarly, the possibility of the
states and the Federal District imposing certain bond taxes without violating the Fiscal
Coordination Agreements entered into with the Federal Government will be discussed.
7.1. Real Estate Tax
7.2. Payroll Tax or Tax on Remuneration for Services Rendered
There are two different systems regarding the causation of this tax. One indicates that
individuals and legal entities are obliged to pay this tax when they make, within the territory of the state or the Federal District, expenditures in cash or in kind as a consideration for services rendered (wages). Thus, the tax must be paid if the expenditure for
said concepts is made within the respective territory.
Ta x
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137
This tax is established by the state legislatures or by the Legislative Assembly of the Federal District. In the case of the states, the municipalities within the state will receive the
revenues resulting from these taxes.
In general terms, the taxable base of the real estate tax is the cadastral value of real
estate (land and buildings). Those obligated to pay it can be the owners or even the possessors of said assets.
Each law in particular will indicate specifically the form in which the cadastral value
of the land will be calculated, which may vary depending on whether buildings exist,
whether the land is used for residential purposes or some other use, or whether the land
is leased or not.
As a general rule, the tax is calculated by applying the corresponding rate to the determined cadastral value, while the range of tax rates is between 0.25 percent and 1.5 percent. The tax so calculated is normally paid bimonthly.
Certain land is exempt from the payment of real estate tax, among which is the property of foreign governments and property used for diplomatic purposes in the country,
in accordance with the Vienna Convention on Diplomatic Relations.
The other system imposes this tax on individuals and legal entities that make expenditures for such concepts for work carried out within the territory. That is to say, the
tax must be paid if the payments come from work provided within the territory. In this
last case, and in the case of outsourcing, normally it is required from individuals and
legal entities that contract with companies domiciled outside the territory of the state
that withholds and delivers the corresponding tax, a situation which should be taken
into account at the time of choosing suppliers.
Expenditures consisting of salaries and wages, overtime, premiums and bonuses,
remunerations, gratuities, holiday bonuses, employer contributions to a savings fund,
etc., are considered within the taxable base of this tax. Obviously, each local code will
determine the items that are included in the taxable base for purposes of this tax.
Normally, the tax is calculated by applying to the taxable base a tax rate of 2 percent
and it must be paid by means of a tax return that must be presented by the 17th of the
month immediately following the month in which the payment is made.
C H A P T E R
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138
7.3. Real Estate Transfer Tax
This is a tax or charge on real estate property and therefore, according to the Constitution, in the case of the states, the municipalities therein will receive the revenues resulting from such tax. Individuals and legal entities that purchase real estate situated within
the territory of a state or the Federal District are obliged to pay this tax. This tax is a levy
on whoever purchases land or land with buildings attached. Each code in particular will
define what concepts are considered a purchase, and it is possible to include other concepts not traditionally considered as a purchase.
The calculation of the tax is made based on the highest value among the value of the
transaction, the cadastral value, and the value of the appraisal. In some cases, a predetermined rate is applied to this taxable base, or a rate or percentage which will depend
upon the particular state.
In general terms, if the transfer of the property is recorded in the public deed before
a Notary Public, the latter is obliged to calculate and pay the respective tax.
7.4. Local Income Tax
This tax comes from the resolutions adopted in the National Treasury Convention held
at the end of 2004, where the states and the Federal Government met for the purpose
of trying to change the country’s fiscal policy.
The objective of this tax is to increase the states’ resources. The states can, therefore,
if they think it advisable, impose a local tax on the income of individuals without thereby violating the fiscal coordination agreements.
Taxable income is income that individuals receive for the provision of professional services, for granting the temporary use or enjoyment of real estate, for the transfer of real
estate, or for business activities. In all cases the minimum tax rate is 2 percent and the
maximum, 5 percent.
Lastly, in order to calculate the taxable base of the tax, the same income and deductions must be taken into account as those set out in the ISR Law for income similar to
income contemplated in the cited bond taxes.
Ta x
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139
Chart 1.
States that Have Fiscal Agreements with Mexico, 2007 1
Country
In ongoing
discussion
Date signed
Approved by
Mexican senate
Approved by
the other state
Date decree
published in OFG2
Nov. 26, 1997
April 29, 1998
June 19, 1998
✓
Australia
Sep. 9, 2002
Oct. 7, 2003
Dec. 30, 2003
✓
Austria
April 13, 2004
Sep. 28, 2004
Oct. 28, 2004
✓
Nov. 24, 1992
June 1, 1994
June 15, 1994
✓
Brazil
Sep. 25, 2003
April 1, 2004
May 28, 2004
Canada
April 8, 1991
July 8, 1991
Aug. 15, 1991
✓
Canada6
Mar. 16, 1990
July 8, 1991
Aug. 15, 1991
✓
Chile
April 17, 1998
Nov. 5, 1998
Dec. 30, 1998
✓
Argentina3
Aruba3
C H A P T E R
V I I
140
✓
Barbados
✓
Belgium
Bermuda3
China
✓
✓
__________
1
Source: Ministry of Treasury and Public Credit, Revenue Subsecretary, Assistant Bureau of International
Treaties. This is only a diagram for quick reference. If specific information is required the respective treaty
should be consulted.
2
Official Federal Gazette.
3
In order to avoid double taxation in the area of international transport.
Date entered into force
Applicable from
Date treaty published
in OFG
Spanish
Jan. 15, 2004
Jan. 1, 2005
Mar. 19, 2004
Spanish
English
Dec. 31, 2003
Jan. 1, 20044
July 1, 20045
Feb. 13, 2004
Spanish
English
German
Jan. 1, 2005
Jan. 1, 2006
Spanish
French
Dutch
Feb. 1, 1997
Jan. 1, 1998
Jan. 6, 1997
Spanish
French
English
May 11, 1992
Jan. 1, 1992
July 17, 1992
Spanish
French
English
April 27, 1992
Jan. 1, 1993
July 15, 1992
Spanish
Nov. 12, 1999
Jan. 1, 2000
May 12, 2000
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141
Spanish
Portuguese
__________
4
With regard to taxes established in accordance with Articles 10 (dividends), 11 (interest), and 12 (fees),
concerning the sums paid or offset from this date onwards.
5
With regard to other taxes.
6
In the area of Exchange of Information.
Ta x
Official languages
States that Have Fiscal Agreements with Mexico, 2007 (continued)
Country
In ongoing
discussion
Date signed
Approved by
Mexican senate
Approved by
the other state
Czech Republic
April 4, 2002
Sep. 18, 2002
Nov. 13, 2002
✓
Denmark
June 11, 1997
Oct. 28, 1997
Nov. 26, 1997
✓
Ecuador
July 30, 1992
May 25, 1994
June 15, 1994
✓
V I I
Finland
Feb. 12, 1997
Oct. 28, 1997
Nov. 26, 1997
✓
C H A P T E R
Date decree
published in OFG2
France
Nov. 7, 1991
Dec. 18, 1992
Dec. 29, 1992
✓
Germany
Feb. 23, 1993
May 27, 1993
June 16, 1993
✓
Greece
April 13, 2004
Sep. 6, 2002
April 29, 2003
June 26, 2003
✓
Ireland
Oct. 22, 1998
Dec. 14, 1998
Dec. 30, 1998
✓
Israel
July 20, 1999
April 28, 2000
Aug. 11, 2000
✓
142
Hungary
✓
Iceland
✓
Indonesia
India
✓
__________
7
Publication of the Table of Errata.
8
Change to the treaty.
Applicable from
Date treaty published
in OFG
Spanish
Czech
English
Dec. 27, 2002
Jan. 1, 2003
Jan. 28, 2003
Spanish
Danish
English
Dec. 22, 1997
Jan. 1, 1998
May 27, 1998
Spanish
Dec. 13, 2000
Jan. 1, 2001
April 4, 2001
Spanish
Finnish
English
July 14, 1998
Jan. 1, 1999
Aug. 11, 1999
Spanish
French
Dec. 31, 1992
Jan. 1, 1993
Mar. 16, 1993
Spanish
German
Dec. 30, 1993
Jan. 1, 1994
Mar. 16, 1994
May 6, 19947
June 15, 19948
Spanish
Indonesian
English
Oct. 28, 2004
Jan. 1, 2005
Spanish
English
Dec. 31, 1998
Jan. 1, 1999
Aug. 9, 2000
Spanish
Hebrew
English
May 9, 2000
Jan. 1, 2000
Aug. 11, 2000
143
Regime
Date entered into force
Ta x
Official languages
States that Have Fiscal Agreements with Mexico, 2007 (continued)
Country
In ongoing
discussion
Date signed
Approved by
Mexican senate
Approved by
the other state
Date decree
published in OFG2
Italy
July 8, 1991
May 25, 1994
June 15, 1994
✓
Japan
April 9, 1996
April 29, 1996
May 14, 1996
✓
Korea
Oct. 6, 1994
Dec. 16, 1994
Jan. 10, 1995
✓
Feb. 7, 2001
April 25, 2001
June 4, 2001
✓
Sep. 27, 1993
June 22, 1994
July 6, 1994
✓
Mar. 23, 1995
Nov. 14, 1995
Dec. 20, 1995
✓
Poland
Nov. 30, 1998
April 26, 1999
May 17, 1999
✓
Portugal
Nov. 11, 1999
April 28, 2000
Oct. 20, 2000
✓
C H A P T E R
V I I
144
Lebanon
✓
Luxemburg
Malaysia
✓
Netherlands
Netherlands Antilles9
✓
New Zealand
✓
Nicaragua
✓
Norway
Panama
✓
__________
9
In order to avoid double taxation in the area of international transport.
Date entered into force
Applicable from
Date treaty published
in OFG
Spanish
Italian
Mar. 10, 1995
Jan. 1, 1996
Mar. 29, 1995
Spanish
Japanese
English
Nov. 6, 1996
Jan. 1, 1997
Jan. 6, 1997
Spanish
Korean
English
Feb. 13, 1995
Jan. 1, 1996
Mar. 16, 1995
Spanish
English
French
Dec. 27, 2001
Jan. 1, 2002
Feb. 6, 2002
Spanish
Dutch
Oct. 13, 1994
Jan. 1, 1995
Dec. 31, 1994
Spanish
Norwegian
Jan. 23, 1996
Jan. 1, 1997
Aug. 26, 1996
Spanish
Polish
English
Aug. 28, 2002
Jan. 1, 2003
Oct. 18, 2002
Spanish
Portuguese
English
Jan. 9, 2001
Jan. 1, 2002
April 3, 2001
145
Ta x
Regime
Official languages
States that Have Fiscal Agreements with Mexico, 2007 (continued)
Country
In ongoing
discussion
Date signed
Approved by
Mexican senate
Approved by
the other state
Date decree
published in OFG2
July 20, 2000
Oct. 31, 2000
Nov. 28, 2000
Russia
June 7, 2004
Sep. 28, 2004
Oct. 28, 2004
Singapore
Nov. 9, 1994
April 26, 1995
June 13, 1995
✓
Spain
July 24, 1992
May 27, 1993
June 16, 1993
✓
Sweden
Sep. 21, 1992
Dec. 15, 1992
Dec. 17, 1992
✓
Switzerland
Aug. 3, 1993
June 1, 1994
June 15, 1994
✓
United Kingdom
June 2, 1994
July 6, 1994
July 25, 1994
✓
United States
Sep. 18, 1992
Sep. 8, 199411
Sep. 9, 200211
July 12, 1993
Jan. 10, 1995
April 29, 2003
Aug. 5, 199311
June 3, 200311
✓
United States12
Nov. 9, 1989
Sep. 8, 199411
Dec. 19, 1989
Jan. 10, 1990
Jan. 10, 199511
✓
Venezuela
Feb. 6, 1997
V I I
146
C H A P T E R
✓
Romania
Slovak Republic
✓
South Africa
✓
Thailand
✓
Ukraine
✓
__________
10
Entered into force retrospectively.
11
Modifications to the treaty.
✓
Official languages
Applicable from
Date treaty published
in OFG
Aug. 15, 2001
Jan. 1, 2002
Dec. 12, 2001
Spanish
English
Sep. 14, 1995
Jan. 1, 1996 –
Aug. 23, 1996
Spanish
Oct. 6, 1994
Jan. 1, 1995
Dec. 31, 2004
Spanish
English
Dec. 18, 1992
Jan. 1, 1993
Dec. 10, 1993
Spanish
French
Sep. 8, 1994
Jan. 1, 1995
Oct. 24, 1994
Spanish
English
Dec. 15, 1994
April 1, 199410
Mar. 15, 1995
Spanish
English
Dec. 28, 1993
Oct. 26, 1995
July 3, 2003
Jan. 1, 1994
Oct. 26, 1995
Feb. 3, 1994
Jan. 25, 199611
July 22, 200311
Spanish
English
Jan. 18, 1990
Oct. 26, 199511
Jan. 18, 1990
Oct. 26, 1995
Jan. 23, 1990
Jan. 25, 199611
Spanish
Romanian
Date entered into force
Spanish
Russian
English
Spanish
__________
12
In the area of Exchange of Information.
Ta x
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147
Chart 2.
Retention Rates for Dividends, Interests, and Fees in the Double
Taxation Treaties Entered Into by Mexico, 2007 1
Countries
V I I
Paid to banks during
the initial period
Between companies
Portfolio
Australia
0% with 10%
of the shareholding
15%
Belgium
5% with 25%
of the shareholding
15%
For 5 years, 15%;
15% general
Canada
10% with 25%
of the shareholding
15%
—
Chile
5% with 20%
of the shareholding
10%
—
148
C H A P T E R
Dividends2
Czech Republic
10%
10% if they come from
or if they are paid by banks
or equipment;
10% with exemptions
Denmark
0% with 25%
of the shareholding
15%
—
Ecuador
5%
—
For 5 years, 15%;
15% general
Finland
—
Exclusively tax residents
__________
1
Source: Ministry of Treasury and Public Credit, Revenue Subsecretary, Technical Management of International Treaties. This is only a diagram for quick reference. If specific information is required the respective
treaty should be consulted.
2
Mexico does not tax dividends.
Interests3
Paid to banks during
a later period
Fees
Tax applicable
by clause M.F.N.4
Treaty rate of tax
Tax applicable
by clause M.F.N.
—
10%
—
10%, for 5 years;
15% general
—
10%
—
15% general
10%5
15%
10%6
bonds/share certificates
or for purchasing machinery
15% general
—
15%
—
—
10%
—
5% of the net
amount to banks;
15% general
—
10%
—
10% to banks;
15% general
—
10%
—
10% as well for title
interests negotiated
in the recognized
stock market
and suppliers;
15% general
—
10%
—
in certain cases
__________
3
When a general rate is shown, it is applicable for all interests. In some cases there are exemptions.
4
Clause MFN: Clause of Most Favored Nation.
5
Apply the 10% rate of the Mexico-United States treaty from January 1, 1994.
6
Apply the 10% rate of the Mexico-Sweden treaty from January 1, 1993.
Ta x
15% general
Regime
149
Retention Rates for Dividends, Interests, and Fees in the Double Taxation Treaties Entered Into
by Mexico, 2007 (continued)
Countries
Dividends2
Between companies
C H A P T E R
Paid to banks during
the initial period
France
Taxed exclusively
in the country
of residence
5%, 15%7
Taxed exclusively
in the country
of residence
—
Germany
5% with 10%
of the shareholding
15%
For 5 years, 15%;
15% general
Ireland
5% with 10% of the
shareholding with
the right to vote
10%
—
Israel
5%; 10%
with 10% of the
shareholding10
10%
—
V I I
150
Portfolio
15%
Italy
—
Japan
5% with 25%
of the shareholding11
15%
—
Korea
0% with 10%
of the shareholding
15%
For 5 years, 10%
__________
7
Taxed exclusively in place of residence for individuals and companies when those receiving the dividends
is a company whose capital is contained in less than 50 percent of residents of third-party States and contain 10 percent or more of the company which distribute them, as long as the company who received the
dividends is contained in less than 50 percent by residents in third States. The rate of 15 percent applies
when the company receiving the dividend is the effective beneficiary of them and contains less than 10 percent of the distributing company.
8
Apply the rate of 5 percent for interests paid to banks and insurance companies and for the derivatives of
bonds and negotiated titles in the approved stockmarket and 10 percent to the interests paid by banks and
suppliers of the Mexican–United Kingdom Treaty.
Fees
Tax applicable
by clause M.F.N.4
Treaty rate of tax
Tax applicable
by clause M.F.N.
15% general
5%, 10%8
15%
10%9
To banks and insurance
and pension funds 10%;
15% general
—
10%
—
5% to banks;
10% general
—
10%
—
10% general
—
10%
—
15% general
10%
15%
—
10% also to insurance
companies, for titles
negotiated in the
recognized stock
market and suppliers;
15% general
—
10%
—
5% to banks;
10% general
—
10%
—
__________
9
A tax rate of 10 percent is applied with the treaty with Sweden from January 1, 1993.
10
The rate of 10 percent is applicable if the company resident in Israel and the reductions for which they pay
dividends are subject to a lesser rate than the lowest Israeli business rate.
11
The rate of 5 percent applies if they have the shareholding at least 6 months before the end of the fiscal year.
Taxed exclusively in the country of residence in certain cases.
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Regime
Paid to banks during
a later period
Ta x
Interests3
Retention Rates for Dividends, Interests, and Fees in the Double Taxation Treaties Entered Into
by Mexico, 2007 (continued)
Countries
Dividends2
Between companies
Paid to banks during
the initial period
Luxemburg
5% (in the case
of Luxemburg),
8% (in the case
of Mexico) with 10%
of the shareholding
15%
—
Netherlands
5% with 10%
of the shareholding
taxed exclusively in the
residence in the case
of the Netherlands
15%
For 5 years also
to insurance institutions
and for interests coming
from titles negotiated
in a stockmarket,
approved 10%;
15% general
Norway
Taxed only in the
residence with 25%
of the shareholding
15%
4 years,
15% general
Poland
5% with 25%
of the shareholding
15%
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C H A P T E R
Portfolio
10%
Portugal
Romania
Singapore
Spain
10%
10% general
—
Taxed exclusively in the residence
5% with 25%
of the shareholding
10% also for insurance
derived from titles
stock market;
15%
__________
12
A tax rate of 10% is applied following the treaty with Sweden from January 1, 1993.
15% general
—
For 5 years, 15%;
15% general
Interests3
Fees
Paid to banks during
a later period
Tax applicable
by clause M.F.N.4
Treaty rate of tax
Tax applicable
by clause M.F.N.
10% general
—
10%
—
Also for insurance
companies and coming
from titles negotiated
in a stockmarket
approved 5%;
10% paid by banks
and suppliers;
15% general
—
10%
—
10% to banks;
15% general
—
10%
—
—
10%
—
10% general
—
10%
—
15% general
—
105%
—
5% to banks;
15% general
—
10%
—
10% to banks;
15% general
5%12
10%
—
companies, and interests
negotiated in a recognized
15% general
Ta x
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Retention Rates for Dividends, Interests, and Fees in the Double Taxation Treaties Entered Into
by Mexico, 2007 (continued)
Countries
Dividends2
Between companies
Portfolio
Sweden
5% with 10%
of the shareholding
with the right to vote
15%
For 5 years,
15% general
Switzerland
5% with 25%
of the shareholding
15%
For 5 years,
15% general
United Kingdom
Paid to banks during
the initial period
10% for the first
3 years as well as for
insurance companies
and for interest coming
from titles negotiated
in a recognized stock
market;
15% general
Only taxable in residence
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United States
5% with 10%
of the shareholding
with right to vote;6
0% complying with
certain requirements
by virtue of 2nd
Additional Protocol
15% for first 5 years;
10% afterwards
10% for the first 5 years
as well as for insurance
companies and for
negotiated titles in the
recognized stock market;
15% paid by banks
and suppliers;
15% general
Venezuela
5% of net worth
—
—
Interests3
Fees
Paid to banks during
a later period
Tax applicable
by clause M.F.N.4
Treaty rate of tax
Tax applicable
by clause M.F.N.
10% banks;
15% general
—
10%
—
10% banks;
15% general
—
10%
—
Also for the insurance
institutions and coming
from titles negotiated
in a recognized
stockmarket at 5%;
10% paid by banks
and suppliers;
15% general
—
10%
—
4.9% also to insurance
companies and coming
from negotiated
bonds recognized;
10% paid by banks
and suppliers;
15% general
—
10%
4.9% of the net worth
of the interests, in the
case of banks or
insurance companies;
10% interests
paid by the bank
regarding bond interest
or credit titles that are
agreed in a recognized
stockmarket;
15% general
—
10%
Ta x
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155
—
CHAPTER VIII
Foreign Trade and
Customs Regulations
This chapter gives an overview of the basic regulation of foreign trade in Mexico, as
well as a brief outline of the interaction of the different international agreements that
have an impact on Mexican regulation. The regulation of the manufacturing, maquiladora, and export services industries is also examined and the manner in which
new rules have been substituted for old ones in an effort to construct a modern regulatory model.
1. Introduction
In very general terms and from a strictly legal point of view, foreign trade can be understood as the group of rules and regulations governing the commercial exchange of goods,
merchandise, and services between residents of two or more countries.
As a general rule, the legal regulations regarding foreign trade are a reflection of the
economic policy each country adopts. In the case of Mexico, foreign trade regulations
solidify the economic policy of commercial openness, which was initiated when Mexico
joined the General Agreement on Tariffs and Trade (GATT).
The foreign trade regulations that govern our country are found, primarily, in the
Political Constitution of the United Mexican States (Constitución Política de los Estados
Unidos Mexicanos), in several federal laws, and in multiple international commercial
agreements that Mexico has signed.
In relation to such agreements, the Supreme Court of Justice of the Nation (Suprema
Corte de Justicia de la Nación, SCJN), the highest judicial body in the country, issued a nonbinding decision stating that lawfully executed treaties are hierarchically superior to federal laws, which indicates the current importance of the commitments Mexico has
assumed through such instruments.
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Foreign trade regulations are also found in numerous administrative decrees that are
essentially regulatory and therefore they cannot be contrary to or exceed the aboveindicated laws.
As can be seen, the topics and sources of foreign trade in Mexico are numerous and
profuse. However, taking into account the purpose of this work, we will limit ourselves
to mentioning briefly certain specific topics that, from our perspective, have particular
importance in relation to the establishment of companies and doing business in the
country.
2. Exchange of Goods
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The import and export of goods to and from Mexican territory are subject to the payment of the general import tax and the general export tax, respectively. In fact, the
Law of the General Import and Export Taxes (Ley de los Impuestos Generales de Importación y de Exportación, LIGIE) attempts to list, under the form of tariff classifications,
all of the possible goods that can be imported or exported and assigns to them a particular tariff.
Nevertheless, through numerous international commercial instruments, Mexico has
attempted to facilitate the commercial exchange of goods between its residents and residents of other countries by the reciprocal granting of tariff benefits, either through preferential tariffs or percentual preferential tariffs.
Thanks to such instruments it is possible to import merchandise into the country by
applying a preferential tariff instead of a general tariff or to export merchandise to other
countries who also have established a preferential tariff law.
2.1. Tariff Preferences
In very general terms, tariff preferences are determined based on the duties that are
negotiated for each product in a free trade agreement, with the understanding that generally such duties will be eliminated according to an agreed elimination schedule until
they reach zero duty, which is a necessary prerequisite for establishing a free trade zone.
To date, Mexico has executed 11 free trade agreements with different countries, which
grant the above-mentioned preferential tariffs. These treaties are:
Treaties
Partner countries
Publication in DOF
Entry into force
NAFTA
United States
and Canada
December 20, 1993
January 1, 1994
FTA-G3
Colombia
January 9, 1995
January 1, 1995
Treaties
Partner countries
Publication in DOF
Entry into force
FTA
Mexico–Costa Rica
Costa Rica
January 10, 1995
January 1, 1995
FTA
Mexico–Bolivia
Bolivia
January 11, 1995
January 1, 1995
FTA
Mexico–Nicaragua
Nicaragua
July 1, 1998
July 1, 1998
FTA
Mexico–Chile
Chile
July 28, 1999
August 1, 1999
European Union
June 26, 2000
July 1, 2000
June 28, 2000
July 1, 2000
FTAUEM
FTA
Mexico–Israel
Israel
FTA
Mexico–TN
March 14, 2001
El Salvador,
Guatemala, and Honduras
FTA
Mexico–AELC
Iceland, Norway,
Liechtenstein, and
Switzerland
June 29, 2001
July 1, 2001
FTA
Mexico–Uruguay
Uruguay
July 14, 2004
July 15, 2004
AAE
Mexico–Japan
Japan
March 31, 2005
April 1, 2005
March 15, 2001
with El Salvador and
Guatemala, and June 1,
2001 with Honduras
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For merchandise to benefit from the preferential tariffs negotiated in a free trade agreement, it must be merchandise “originating” from one of the countries party to the respective agreement.
Each of the free trade agreements executed by Mexico indicates the applicable rules
for determining whether or not merchandise complies with the rules for conferring to
it the status of an “originating good.” Therefore, it is not sufficient that merchandise
be sent from one country that is party to a treaty to another for it to be considered an
“originating good” and thereby eligible for preferential tariffs.
With regard to the origin of the merchandise, the commercial treaties executed by
Mexico require the direct transshipment of the merchandise in order for it to maintain its character of an originating good. Direct transshipment will exist if the merchandise is transported without passing through the territory of a country that is not
party to the treaty. It may pass through the territory of one or more non-parties, but
the merchandise must remain under customs control and not undergo further operations other than unloading, reloading, or any other operation necessary to preserve
it in good condition.
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In the case of the free trade agreement executed with the United States of American
and Canada (NAFTA), the importation of the majority of merchandise to and from Mexico, the United States, and Canada is duty free. In the case of other free trade agreements,
the tariff elimination schedules are in the process of being created; it is currently necessary to verify the status applicable to each particular good at this time.
Obviously, in all cases there are certain goods that, due to their strategic importance or
other reasons, are not included in the scope of the application of the free trade agreements
executed by Mexico, such as hydrocarbons, fuels, and certain agricultural products.
2.2. Percentual Preferential Tariffs
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Percentual preferential tariffs are those that the parties to a trade agreement grant reciprocally. They consist of a percentage reduction of the duties applicable to the importations
from other countries. This means that the tariffs applicable to the importation of goods
into each of the parties will be reduced by the percentage agreed upon with each country. This benefit is not applicable to merchandise that has been expressly excluded.
A clear example of a percentual preferential tariff is the regional preferential tariff in
Article 5 of the 1980 Montevideo Treaty, which gave rise to the Latin American Integration Association (Asociación Latinoamericana de Integración, ALADI). Based on the Regional
Agreement Number 4 and the Second and Third Protocols amending it, the regional
preferential tariffs are the following: Paraguay (48 percent), Ecuador (40 percent), Cuba
(28 percent), Argentina and Brazil (20 percent).
Within the ALADI framework, the agreements take the form of a partial reach agreement
that has been executed only between member countries. The tariff benefits are only
applicable between those members of ALADI that execute them and with respect to the
merchandise expressly included in such agreements. The complementary economic
agreements that Mexico has executed with Argentina and Brazil, which contemplate percentual tariff reductions between 50 and 100 percent, have been particularly significant.
Finally, some member countries of ALADI, such as Venezuela, Colombia, Chile, Uruguay, and Bolivia, have executed free trade agreements with Mexico that incorporate the
tariff preferences agreed to in Regional Agreement Number 4.
3. Customs Regulations
The Customs Law (Ley Aduanera, LAA) regulates the different customs regimes under
which merchandise can be imported and exported to and from Mexican territory. Each
of these regimes entails various obligations for importers regarding, among other things,
the payment of tariffs and levies on imports and compliance with non-tariff regulations
and restrictions.
In this section we will limit ourselves to describing certain particularities of the definitive import and export customs regulations, the customs regulation of the temporary
import of merchandise for return abroad after being used in a process of preparation,
transformation, and repair, and the customs regulation of the two types of customshouse deposit: general and automotive.
3.1. Definitive Import and Export Customs Regulations
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The definitive import customs regulation consists of the entrance into the country of merchandise from abroad that will remain in the country for an unlimited time period. For
its part, the definitive export customs regulation consists of the exit of merchandise from
Mexican territory that will remain outside of the country for an unlimited time period.
The import and export of merchandise under the definitive customs regulation for
imports and exports are subject to the payment of, among other things, the general
import tax and the general export tax respectively, as well as compliance with the nontariff regulations and restrictions that may be applicable to each specific good.
The taxable base of the general import tax is the customs value of the merchandise. In
principal, the customs value is the transaction value, consisting of the total price paid by
the importer for purposes of an export sale destined for Mexico. Such price must include
certain items charged to the importer and that are not included in the price paid, such
as the costs of the packaging that, for customs purposes, is considered to form a whole
with the respective merchandise. If there is no export sale or if certain other situations
indicated in the LAA exist, the customs value will be determined according to one of the
alternative methods established by the law.
In order to calculate the general import tax, the duty or tariff due on merchandise is
applied to the taxable base. The duty or tariff to be applied will be the one indicated in
the LIGIE, unless there is a commercial agreement that allows the application of a tariff
benefit pursuant to the discussion in the above section.
The taxable base of the general import tax is the commercial value of the merchandise at
the place of sale. However, the LIGIE does not establish any duty or tariff applicable to
the export of the large majority of goods.
The non-tariff regulatory measures and restrictions applicable to imports and
exports may consist of permits, maximum quotas, country of origin markets, certifications, countervailing duties, etc. In all cases, the existing measures shall be identified based on the tariff classification established in the LIGIE tariff, according to which
each good is classified. Apart from the above, the imposition or creation of non-tariff
regulatory measures and restrictions on the import and export of merchandise is very
limited in view of the numerous international commitments that Mexico has assumed
commercially.
3.2. “In Bond” Deposit
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Under this regime it is possible to import into the country merchandise from abroad for
its storage in publicly bonded warehouses, authorized by the customs authorities for
that purpose. In that regard, once customs clearance of the merchandise is obtained, it
must be sent to and deposited in such a warehouse.
When merchandise is cleared under this regime, the general import tax and any applicable countervailing duties will be quantified, but do not need to be actually paid.
The goods imported under this customs regime cannot be subject to processes that alter
or change their nature, but they can be subject to preservation, exhibition, hanging of
commercial identification signs, packaging, examination, demonstration, labeling, and
sample-taking. Therefore, this regime can be a viable option when the goods that will be
imported into the country do not comply with some necessary requirement for their
importation under some other customs regime until such requirement is complied with.
It should be mentioned that residents abroad can request this regime directly through
a customs agent, provided that certain requirements are met regarding the filling out of
the import declaration, without needing to obtain their registration at the importers registry, which is necessary to import merchandise into the country as a definitive import.
The merchandise imported under this regime can also be acquired by residents in Mexico
or abroad, in which case presuming conformance with the public bonded warehouse regime,
the buyer will subrogate the rights and obligations applicable to this regime. However, it
should be clarified that the alienation of merchandise under this regime can be subject to the
payment of other taxes, such as the value added tax and the special tax on production and
services, it being considered that there is an alienation of goods within Mexican territory.
Merchandise originating from abroad that is in “in bond” deposit can be removed from
the warehouse in order to be definitively brought into the country, in which case the foreign trade taxes and other taxes related to the importation will be paid. Such goods may
also be removed from the warehouse in order to import them as temporary imports for
production, transformation, or repair. As an exception, the Ministry of Treasury and
Public Credit (Secretaría de Hacienda y Crédito Público, SHCP) can authorize companies of
the terminal automotive industry to establish specific “in bond” deposits, for the merchandise to be submitted to a vehicle assembly and manufacturing process. Most of the
large vehicle assemblers of the country operate under this scheme.
3.3. Temporary Import for Production, Transformation, and Repair
in Programs to Promote Exports
Mexican companies that obtain from the Ministry of the Economy (Secretaría de Economía, SE)
an authorization to operate a program under the Decree to Promote the Manufacturing,
Until December 31, 2000, the temporary import of any type of merchandise under the
Temporary Import Customs Regime for Production, Transformation, or Repair through
the maquila or PITEX programs were exempt from the general import tax. However, such
exemption was changed as of January 1, 2001, on which date Article 303 of NAFTA
entered into force. This article prohibits Mexico from reimbursing or exempting from
customs tariffs certain goods that are subsequently exported to the territory of the United States of America or Canada under tariff deferment programs, among which are the
maquila and PITEX programs, and which include the programs under the Decree to Promote the Manufacturing, Maquiladora, and Export Services Industry.
Implicit in Article 303 of NAFTA is the idea of avoiding the inputs or materials not originating from the free trade zone from benefiting from the tariff preferences applicable to
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Maquiladora, and Export Services Industry / Other Programs
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Maquiladora, and Export Services Industry (Decreto para el Fomento de la Industria Manufacturera, Maquiladora y de Servicios de Exportación). They can import certain merchandise in order to, among other things, use it in a production process and subsequently
return it abroad. Among the goods that can be imported are fuels, lubricants, containers, packaging, labels, machinery, equipment, tools, instruments, molds, and parts.
Under this import customs regime, the merchandise can only remain in the country
for the time periods expressly authorized by the customs law, which varies according to
the type of merchandise. For example, raw materials, parts, components, fuels, and
lubricants can remain in the country for a maximum term of 18 months, while machinery, equipment, and tools can remain in the country for as long as the applicable program is in force.
From the customs duties perspective, in this section we will limit ourselves to mentioning that the temporary import of merchandise consisting of machinery and equipment will be subject to the payment of the general import tax. However, the importation
of other merchandise, such as raw materials or inputs, will be subject to the payment of
the general import tax when such is established in the free trade agreements executed by
Mexico, which treatment is discussed in the following section.
Finally, it is important to mention again that the merchandise imported into the country under this customs regime must be returned abroad or passed over to another customs regime within the above-indicated time periods. Otherwise, the company operating
under the program could be subject to several sanctions, among which are the determination of the omitted taxes, the imposition of fines, and the seizure of the merchandise.
Similarly, if the merchandise imported temporarily is not returned in a timely fashion, its
import could be considered a criminal offense.
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a final good produced in Mexico, when such a final good is considered as originating from
Mexico. The intention is to prevent companies registered in a program from importing
into the country, temporarily and without payment of tariffs, raw materials not originating from the NAFTA free trade zone to produce a final good which is subsequently exported to the United States of America or Canada with a preferential tariff treatment.
In this manner, the internal law provides a formula to ensure payment of the general import tax corresponding to the inputs not originating from the NAFTA zone from
which a final product qualifying as an originating good is produced and exported to a
country party to NAFTA with a preferential tariff treatment. The general import tax to be
paid in Mexico corresponding to the inputs that are not originating goods may be
decreased with the tariff to be paid for the importation of the final good into the country of destination (the United States or Canada). If the import into the country of destination is exempt, the general import tax to be paid in the country may not be
decreaced.
It is important to specify that a provision similar to Article 303 of NAFTA has been
incorporated into other free trade agreements executed by Mexico, as is the case of
those executed with the European Union and with the States of the European Free
Trade Association. Under such similar provisions, the above-mentioned comments are
applicable.
The scenario derived from Article 303 of NAFTA and from similar provisions contained
in other treaties does not apply when inputs originating from the same commercial zone
as that of the destination of the final product are imported into the country. They are also
not applicable when, among other situations, the final product manufactured or assembled in Mexico is exported to a country that has not executed a free trade agreement with
Mexico, or if such treaty does not expressly provide for its application.
Similarly, there will be no disadvantage for companies registered in a program if they
temporarily bring into the country inputs covered by a preferential tariff treatment (for
example, from the European Union) to produce a final good that will be exported to a
country belonging to another free trade zone (for example, United States of America).
However, in these situations it must be verified that the importation into the country of the
non-originating input of the same free trade zone is exempt from the general import tax.
It is important to clarify that there are certain programs to promote exports that
attempt to reduce the impact of Article 303 of NAFTA and other similar provisions on the
national producers of export merchandise, which programs are mentioned below.
4.1. Sectorial Promotion Programs (Programas de Promoción Sectorial, PROSEC)
are instruments created in order to counteract the effects of Article 303 of NAFTA.
They are instruments directed at national producers of certain goods grouped by sectors
PROSEC
The companies that operate in a particular sector may only import into the country
under preferential tariff conditions the goods (machinery, inputs, etc.) whose import is
expressly established and authorized for each sector. Furthermore, the companies that
operate under a PROSEC can import the merchandise into the country under the permanent or the temporary import customs regime, but in this latter case it will be necessary in addition to have a program under the Decree to Promote the Manufacturing,
Maquiladora, and Export Services Industry.
Finally, the duration of each of the programs is one year, to be renewed automatically
when the producers present the annual report on the operations carried out under the
program.
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that allow them to import machinery and inputs under preferential tariff treatments for
exclusive use in the production of such goods. In applying the tariff preferences contained in the PROSEC, the origin of the goods to be imported into the country is irrelevant.
In order to import machinery and inputs under a PROSEC, an authorization must be
obtained from the Ministry of Economy (Secretaría de Economía, SE), for which it is essential that the petitioner be a producer of the goods expressly authorized within each of
the existing sectors. The following are among the currently existing sectors:
a) The electric industry;
b) The electronics industry;
c) The furniture industry;
d) The toy, recreational game, and athletic articles industry;
e) The shoe industry;
f) The mining and metallurgy industry;
g) The capital goods industry;
h) The photography industry;
i) The agricultural machinery industry;
j) Other industries;
k) The chemical industry;
l) The manufacturers of rubber and plastic industry;
m) The iron and steel industry;
n) The transportation industry, except the automotive industry sector;
o) The paper and cardboard industry;
p) The wood industry;
q) The fur and leather industry;
r) The automotive and auto part industry;
s) The textile industry;
t) The chocolate, candy, and similar products industry;
u) The coffee industry.
4.2. Rule Eight
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Rule Eight was created as a temporary mechanism to create an exemption from the payment of the general import tax on certain inputs and raw materials that are not listed in
any of the PROSEC, but whose importation is considered necessary for the productive
activity for one of the sectors mentioned in the above section.
The special characteristic of Rule Eight is that the inputs will enter the country classified under a pre-established tariff classification (by sector), different from the classification that would normally correspond to each particular input whose tariff is normally
less than the specific one of the raw materials.
In terms of the above, Mexican producers can even import into the country essential
parts for production originating from countries that do not belong to a specific free
trade region or zone, lessening the effects of Article 303 of NAFTA and the other abovementioned similar provisions.
In order to apply Rule Eight, it is necessary to obtain permission from the SE and
already have a PROSEC, since it is a complementary mechanism to the latter. Thus, the
PROSEC allows the import of inputs with a preferential tariff treatment, but if an indispensable input is not enumerated among those authorized by the program, the producer can request its importation under Rule Eight. This rule is temporary, since it is
designed to be applied until the respective goods can be imported under a PROSEC.
It is important to mention that the SE issued a decree that contains the rules to be followed for the granting of permission to import merchandise under Rule Eight. This is
intended to provide legal certainty to the importers such that, if the respective rules are
complied with, the SE must issue the permissions, thereby eliminating any discretion.
5. Other Taxes Associated with the Definitive Importation
of Goods into the Country
As we have mentioned, the importation of goods into the country under the definitive
import regime is taxed with a general import tax, as explained previously.
Nevertheless, the act itself of importing goods into the country under the definitive
import regime can result in the obligation to pay other taxes, some of which will depend
on the specific type of good to be imported. The taxes associated with the definite
import of goods are the following:
5.1. Value Added Tax (VAT)
The definitive importation of goods into the country generates the obligation to pay VAT.
This is a general tax applied to the importation of all types of goods, except those
The definitive importation of goods can also result in the obligation to pay the IEPS,
which applies only to those goods that are expressly indicated in the respective law.
The IEPS must be paid at the time of the definitive importation, together with the general import tax that may be applicable. The applicable rate varies depending on the type
of good and oscillates between 25 and 160 percent. Among the goods whose importation into the country is taxed with this tax are alcoholic beverages and beer, processed
tobacco, cigarettes, cigars, gasoline, etc.
The IEPS paid upon the importation of goods may also be credited against the IEPS that
is caused by the alienation of the same goods in Mexican territory. Therefore, it is an
indirect tax that will affect or be paid by the final consumer.
5.3. Tax on New Automobiles (Impuesto Sobre Automóviles Nuevos, ISAN)
The ISAN is paid on the importation of automobiles into the country when it involves
persons other than the manufacturer, assembler, authorized distributor, or dealer in the
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expressly excluded in the Value Added Tax Law (Ley del Impuesto al Valor Agregado).
Among the goods whose importation is exempt are those whose alienation in Mexican
territory is exempt from payment of VAT, such as patent medicines, food products, fertilizers, gold, jewelry, books, newspapers, and works of art.
As a general rule, the VAT imposed by the definitive import of merchandise into the
country is calculated applying the rate of 15 percent of the value used for customs purposes. However, VAT can also be calculated applying the rate of 10 percent when it
involves definitive imports into the area referred to as the border zone (franja fronteriza).
The VAT paid for import can be a tax credited against the VAT that the importer transfers to and collects from a third party when the imported merchandise is alienated, provided that the imported good is considered a deductible good for purposes of the
Income Tax Law (Ley del Impuesto Sobre la Renta).
Although we are only discussing definitive importation in this section, it must be mentioned that the import of merchandise under the temporary importation regime referred
to in a previous section is exempt from VAT; therefore, one of the principal advantages to
the companies that operate a program under the Decree to Promote the Manufacturing,
Maquiladora and Export Services Industry (Decreto para el Fomento y Operación de la
Industria Manufacturera, Maquiladora y de Servicios de Exportación) is the savings of the
VAT paid on the definitive importation, even though it can later be credited or even
refunded.
vehicle business. Thus, if one of such entities makes the importation, it will not be taxed,
while the sale in the country of the imported vehicles will be taxed.
To calculate the ISAN to be paid for the importation, the value of the sale (invoice value)
is taken into account, which amount will be added to the amount of the general import
tax actually paid upon the permanent importation into the country.
6. Automotive Industry
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Under NAFTA, Mexico agreed to eliminate the Decree for the Promotion and Modernization of the Automotive Industry (Decreto para el Fomento y Modernización de la Industria
Automotriz), no later than January 1, 2004, since this decree was in conflict with the provisions and principles of NAFTA. It should be mentioned that the decree established,
among other things, that only companies of the terminal automotive industry could
import vehicles into Mexico, provided they had a favorable trade balance and the permits for the corresponding importation were obtained from the SE.
Therefore, under NAFTA, Mexico cannot apply quantitative regulations, taxes, or restrictions to protect the domestic automotive industry, and it must grant a no less favorable treatment to imported vehicles as it does to products of national origin in relation to the sale,
offer, purchase, transport, distribution, and use of these products in the internal market.
As a consequence of the above, on December 31, 2003 the Decree to Support the
Competitiveness of the Terminal Automotive Industry (Decreto para el Apoyo a la Competitividad de la Industria Automotriz Terminal) was published in the Official Federal
Gazette, whose purpose was not only to comply with the obligations Mexico assumed
under NAFTA, but also to grant certain additional benefits to the automotive sector, without seeming to violate the international agreements executed by the country.
Thus, this decree grants advantages to companies as a company that produces light
new automotive vehicles (a producer company) (empresa productora de vehículos automotores ligeros nuevos: empresa productora) that comply with the requirements established in this decree. A producer company would be, for example, a company that has
manufactured at least 50,000 new automobiles in Mexico and invested at least 100 million dollars in fixed assets. Another type of producer company would be one that
armor-plates automobiles in Mexico, thereby increasing the final value of the automobiles more than 50 percent.
Among the benefits granted are that the producer company will be considered a manufacturing company (empresa fabricante) for purposes of the automotive custom-house
deposit, the sectorial program of automotive promotion, and other provisions of the
Customs Law. Furthermore, they can import new automobiles in an amount that represents at least 20 percent of the units manufactured in the country the prior year, applying a zero percent tariff regardless of the origin of the automobile.
CHAPTER IX
Commercial Regulation
1. Forms of Commercial Distribution
In today’s commercial relations the majority of producers do not sell their products or
provide their services directly to the final users. Between them there are intermediaries
that perform a large variety of functions intended to facilitate and expedite such commercial relations.
In this section the most common forms of commercial intermediation, such as the distribution agreement, the agency, and the franchise, will be described. These forms of
commercial intermediation, given their purpose, have several characteristics in common,
including, to a lesser or greater extent, the management of the interests of others. Furthermore, it is important to mention that while these contracts are not specifically regulated under Mexican law, the individual nature of each of them presents particularities
that distinguish them and that business persons should be aware of in order to fully
address their interests and specific needs.
1.1. Distribution
The distribution agreement is an agreement by which a person called a distributor agrees
to acquire and resell the products of another, called the producer or principal, under the
resale terms and conditions that the latter imposes.
The purpose of the distribution agreement is to regulate relations among producers or
manufacturers and the persons who, under certain resale conditions, will market their
products.
In contrast to the agency agreement, not merely the interests of others are being managed under the distribution agreement; rather, the distributor purchases and acquires the
products in order to resell them on his own behalf to the consumer, under the conditions
that the distributor himself establishes. The principal is generally a business owner who
manufactures the products contemplated in the contract (although not necessarily). The
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principal may be an importer of the products for a specified period or a distributor who
executes subdistribution contracts.
Given the purpose of this type of contract, generally the products subject to the distribution agreement are those that can be standardized or produced in a series. Commonly they are products protected by a trademark.
Pricing and the price setting are fundamental elements of the distribution agreement.
A distinction must be made between the price that the manufacturer designates for resale
or for the final consumer and the purchase price to be paid by the distributor. Normally
the final price serves as a basis for the price between producer and distributor, which is
set with a discount or a rebate. In practice the custom is that the price set by the principal can vary, due to innumerable circumstances that can directly affect its determination; for example, the purchase volume within a particular period. The principal usually
periodically informs its distributors of the new prices and provides them with the price
lists to which the operations will be subject for a specific period.
In the event that the location of payment and delivery of the merchandise is not stipulated in advance, since this type of contract is not expressly regulated under Mexican
law, the provisions of the Commerce Code (Código de comercio) applicable to purchases
and sales would be applied or, in their absence, those of the Civil Code (Código Civil).
Another aspect of special importance in this type of relationship is the clear and precise establishment of resale conditions, which can vary greatly, since they depend on the
nature of the products and the agreement between manufacturer and distributor. The
obligation of the distributor to respect the resale conditions is probably what characterizes the distribution agreement most; this is in view of the fact that the primary interest
of the principal is in marketing its products through someone over whom it has some
type of control. These resale conditions can, depending on the characteristics of the
products involved, refer to aspects such as the resale price, the form and place of collection, post-sale service, warranties, advertising, and manner of trademark use, manner
and place of exhibiting products, repair and maintenance, contribution to the advertising expenditures, amount of merchandise, etc.
It is common for producers that execute these types of contracts to require exclusivity, as a result of which the distributor cannot compete with or acquire products with
characteristics similar to those contemplated in the distribution agreement. Under
these exclusivity agreements the distributors are understood to be prohibited not only
from acting as distributors, but also as agents, representatives or intermediaries.
The establishment of this exclusivity agreement merits special attention, because
sometimes it can be considered as a violation of the Federal Economic Competition Law
(Ley Federal de Competencia Económica) regarding relative monopolistic practices. To
prove that the exclusivity agreement or the distribution agreement itself is a relative
monopolistic practice in violation of the law, it must be shown that the party requiring
1.2. Agency
Through an agency agreement a person called the agent agrees to undertake an activity
intended to find clients for another party, called the principal, and send to the latter the
orders for goods or services whose promotion has been entrusted to the agent.
The principal, upon accepting the order, makes the contract that links him directly
with the client; the agent is not party to this contract, but rather an independent intermediary, and his compensation generally consists of a percentage of the price of the
transaction.
It is important to emphasize that in these types of contracts the agent is independent
of the principal, which is to say that neither is subordinate to the other. If either were,
this would be considered an employment relationship governed by labor law. A relationship is considered employment when the agent depends, in a personal, subordinated
relationship, on the company he/she represents and on whose behalf he/she acts.
The activity of the agent consists of the promotion and wherever possible the conclusion of deals and contracts on behalf of the principal. The scope of the activities of agents
is very broad and will depend on the type of products or services involved. Generally,
agents promote purchase and sale agreements. However, the agency agreement can
involve any type of business.
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exclusivity exercises substantial power in the relevant market. It is considered that this
power exists when the economic agent can fix prices unilaterally in the market or has
certain control over the access of its competitors to the market.
Thus it is advisable before executing any distribution agreement that contains an
exclusivity clause to study carefully the characteristics of the specific case in order not
to fall under this presumption.
Commonly these types of contracts include a prohibition on subcontracting without
the prior express authorization of the principal. In any case, if subcontracting is permitted, it is usually restricted to the exclusive zone of the distributor.
With respect to the termination of the distribution agreement, in practice, given that
it is not a statutorily regulated contract, express clauses known as justified causes of termination are generally included, which address a large variety of factors. The most usual
are the insolvency of one of the parties, late payments, the violation of the exclusivity
agreement, the use of a trademark other than those authorized, contracting subdistributors when this is prohibited, breach of the resale conditions, etc.
Furthermore, the end of the specified term and in some cases the death of one of the
parties can also terminate the relationship. In any case, if something is not provided for
in the contract, it will be interpreted according to the rules of the statutorily regulated
contract to which it is most similar.
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It is important to clearly establish in the contract what the activity of the agent will be;
nevertheless, it should be understood that the agent must always act in the best interests
of the principal, and therefore the agent does not have to wait to receive specific instructions from the principal. Rather, the agent must do everything within his/her power to
promote and conclude all contracts possible on behalf of the principal. This obligation
should be described in the specific contract provisions establishing the procedures for
the promotion and sale of the products or services, as well as the form in which the
orders, prices, and quotations to the client will be made.
The payment of compensation or commission to the agent is the principal obligation
of the principal. This commission generally consists of a percentage of the value of the
transactions that the agent carries out. In practice, it is understood that the agent will
only be entitled to a commission for concluded transactions; however, compensation
can also be agreed upon for the partial execution of a contract, or a right can be established to receive a commission for those contracts that are carried out in the exclusive
zone of the agent, whether or not he/she has intervened in such transactions.
It is advisable to clearly establish in the contract at what point the agent will earn a
commission, whether when the principal receives the order, when the principal invoices,
or when the principal receives payment by the client. Another aspect that should be considered is when the commissions owed are to be paid since, although the agent is entitled to them, a time period is usually established for their payment; furthermore, it
should be stipulated what will happen in the case of returns and cancellations, and what
consequences they will have on the agent’s commission. In practice, commissions lost as
a result of returns or cancellations are offset against the payment of future compensation.
The agency contract can be representative—governed by the rules applicable to the
mandate contract (a power of attorney)—or non-representative. In the first case the agent
will pursue and conclude business on behalf and in representation of the principal, while
in the second case the agent will act on behalf of the principal, but the pursuit and conclusion of the business will always be subject to the approval of the principal.
The agency contract frequently contains an exclusivity agreement to which one or
both parties are subject. This agreement refers to the zone or zones in which the agent
can and must carry out his/her activities, as well as those in which the principal cannot pursue or conclude business himself or through anyone other than the agent. If
the agent violates the exclusivity agreement, the business concluded outside of his/her
zone is valid, since the exclusivity agreement does not bind third parties, but only the
principal and agent; however, the principal can terminate the agency contract for
breach thereof. If it is the principal that does not respect the exclusivity agreement,
the agent will be entitled to receive the commission resulting from the transactions
carried out in his/her zone without his/her involvement, provided this is stipulated in
the contract.
The agent may also subcontract with other agents when subcontracting is allowed for
in the principal contract and the subcontract is negotiated with the same terms and conditions as the original.
The expiration of the contract and the revocation or resignation of either the principal
or the agent are the primary causes for termination of the agency contract. However, it
is advisable to establish conditions in the contract for termination in case of revocation
or resignation; for example, with advance notice of a certain period so that such termination is not unanticipated or untimely and does not give rise to liability of the party
concluding the contract in this manner.
The contract can also establish certain justified causes for its termination, such as insolvency of the agent, violation of the exclusivity agreement, failure to meet expected targets, subcontracting, etc.
Finally, the statutory rules applicable to commission agency contracts or the mandate
can be applied in the absence of contractual provisions to this type of contract.
A franchise will exist when, with the licensing of a trademark, technical knowledge is
transmitted or technical assistance is provided so that the person to whom the license
is granted can produce or sell goods or provide services uniformly and with the operative, commercial, and administrative methods established by the trademark holder,
thereby maintaining the quality, prestige, and image of the products or services that
the mark represents [...].
Given that the franchise agreement is regulated by the above-mentioned law, it cannot
be considered an unregulated contract. However, it should also be mentioned that the
above-cited article does not exhaustively regulate such a contract and, therefore, it is
advisable to establish clearly all the terms of the contract in order to avoid ambiguities
with respect to its interpretation.
Basically, the franchise is the means by which the holder of a trademark (the franchisor) or a specific known commercial designation of goods or services reaches the
final consumer, through a series of commercial establishments (franchisees) that produce and distribute the product or service of the trademark according to the instructions
and requirements of the franchisor.
In practice, there are primarily two types of franchising: product trademark franchising,
which contemplates a relationship between supplier and distributor, the latter adopting
certain characteristics of its supplier, and business format franchising, where the relationship
Commercial
Article 142 of the Industrial Property Law (Ley de la Propiedad Industrial, LPI) establishes:
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between franchisor and franchisee includes a product or a service and a trademark, a marketing system, operation manuals, procedures, training programs, advertising support, and
guidance for the franchisee during the operation and development of the business.
With respect to the geographic area within which the franchisee operates, usually the
parties agree to either a unitary franchise, where a franchisee is only entitled to open and
operate one establishment, or a master franchise, where the franchisee has the exclusive
right to open a certain specified or unspecified number of establishments within a specific territory.
The trademark that distinguishes the product or service of the franchise is an essential
element of the contract. Granting the license to use the trademark is one of the principal
obligations of the franchisor, and such a license must be registered with the Mexican Industrial Property Institute (Instituto Mexicano de la Propiedad Industrial, IMPI) in order to be valid
before third parties. This is a formal requirement for all franchise agreements in Mexico.
This obligation of the franchisor is reciprocal to the obligation of the franchisee to use
the trademark pursuant to the terms and conditions of the license, since otherwise the
trademark can lapse for lack of use.
Another essential element of this contract is the transfer of knowledge or technology
(know-how) contained in the manuals, procedural guidelines, personnel training, inspections, and in general everything that allows the franchisee to produce the products or
provide the services uniformly, thereby maintaining the quality, prestige, and image of the
products or services to which the licensed trademark applies. In this type of contract it
is very important to achieve homogeneity in the product or service, establishing quality
standards so that the franchisor can control the quality of the product or service and thus
maintain the prestige of the trademark with its clients.
The consideration paid by the franchisor to the franchisee is another aspect that must
be given specific treatment in the contract. Generally two types of payment are agreed
to: an initial payment or fee giving the right to the franchise (franchise fee) and royalties
(regalías)—periodic payments that will be determined, primarily, by the type of product
that is sold or the services provided.
One of the principal obligations of the franchisee, in addition to using the licensed
trademark, is to comply with the specifications and methods provided by the franchisor.
Failure to do so can be a cause for early termination of the contract. Furthermore, the
collaboration of the franchisee with the franchisor regarding the advertising of the products or services is often agreed upon, since it is understood that such advertising will
benefit both.
By nature the franchise agreement is usually long term and the principal cause of its
termination is the expiration of the agreement. However, the contracts often stipulate
other forms of termination, such as by an advance notice from one party to the other of
the termination of the relationship.
In addition, the contract can be terminated early for serious breaches or violations that
should be clearly stipulated in the contract. These causes may involve the principal obligations of each party, such as the failure to make periodic payments or the opening of
new establishments without the franchisor’s consent.
These are the most important advantages and disadvantages of the most common commercialization schemes in our country. However, given the great flexibility and dynamics
of this area, it should be emphasized that there are many other forms that could be adapted to more concrete needs of a business. Thus it is recommended to be open to implementing different forms of doing business that allow the company, in a given instance, to
better satisfy its interests.
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CHAPTER X
Special Regulations
for the Sale of Products
1. Introduction
The sale of products is perhaps the most relevant aspect of business. Entrance into the
market and successful product sale is the reason for the existence and growth of business. The ability to enter the market and appeal to the consumer depends largely on the
observance of the rules that are important for and of interest to the consumer.
In Mexico, in order to protect its population from uncontrolled trade and consumption of certain products, numerous requirements have been established in order to safeguard the well-being of consumers. In this regard, the authorities regulate the activities
and sale of products in relation to health, the environment, safety to the user or consumer, commercial information, and commercial, industrial, and labor practices.
These activities are regulated under the General Health Law (Ley General de Salud,
LGS) and its regulations, as well as under the Federal Consumer Protection Law (Ley
Federal de Protección al Consumidor), among other laws, and through detailed requirements that establish the terminology, classification, instructions, specifications, attributes, characteristics, testing methods, or restrictions applicable to a product, process,
or service. This process is carried out through the drafting, issuance, and dissemination of rules that can be of three types: a) official Mexican standards (normas oficiales
mexicanas, NOMs), b) Mexican standards, and c) reference standards. Of these three
types of standards, the most important are the official Mexican standards, because they
are mandatory.
The NOMs are mandatory technical regulations issued by the competent standardization agencies; they establish rules, specifications, attributes, instructions, characteristics,
or restrictions applicable to a product, process, installation, system, activity, service, or
method of production or operation, as well as those regarding terminology, symbols,
packaging, branding, or labeling, and those regarding their observance or application.
All products, processes, methods, installations, services, or activities must comply with
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the NOMs and products or services to be imported must also comply with the specifications established in such standards.
Having explained the above, in the second part of this chapter we will discuss the
labeling and advertising requirements of products to be sold in Mexico. In the third part
we will examine the procedures for opening establishments, processes for production
and importation of products or raw materials, and the sale of the products that are subject to sanitary regulations.
2. Labeling Requirements
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Labeling requirements vary according to the product. For each category of products there
are labeling NOMs. Thus, food, alcoholic beverages, non-alcoholic beverages, toys, tobacco,
textiles, electric devices, beauty products, to only mention a few categories, each have a
specific NOM that applies to them with regard to labeling.1 Therefore, it would be impossible in this chapter to cover the labeling requirements for each category of products.2
However, there are other NOMs that contain the general guidelines and minimum
requirements relating to commercial information on products such as those cited below.
2.1. NOM-050-SCFI-1994
The purpose of NOM-050-SCFI-1994, Información comercial, disposiciones generales para productos (Commercial Information, General Provisions for Products) is to establish the commercial information that products manufactured nationally or abroad that are to be sold to
consumers in Mexico must contain and to establish the characteristics of such information.
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It is easy to find out the labeling requirements and other NOMs that apply to each category of products.
The Ministry of Economy has published a NOM catalog with an easy method of consultation.
See www.economia-noms.gob.mx.
2
To illustrate the degree of specificity of the NOMs regarding the labeling of products, we mention the three
following examples:
• NOM-015/1-SCFI/SSA-1994: safety and commercial information on toys, safety of toys and school articles,
limits on bioavailability of metals in items covered with paints and inks, chemical specifications, and testing methods (seguridad e información comercial en juguetes, seguridad de juguetes y artículos escolares, límites
de biodisponibilidad de metales en artículos recubiertos con pinturas y tintas, especificaciones químicas y métodos de prueba);
• NOM-020-SCFI-1997: commercial labeling information for leather and naturally tanned skins and synthetic or artificial materials with that appearance, shoes, Moroccan goods, as well as products made with
such materials (información comercial-etiquetado de cueros y pieles curtidas naturales y materiales sintéticos o
artificiales con esa apariencia, calzado, marroquinería, así como los productos elaborados con dichos materiales);
• NOM-139-SCFI-1999: commercial labeling information for natural vanilla extract (vanilla spp), derivatives, and substitutes (información comercial-etiquetado de extracto natural de vainilla (vanilla spp), derivados
y sustitutos).
According to this NOM, the information about the products must be true and described
and presented in such a manner as not to mislead the consumer with respect to the
nature and characteristics of the products. The labels must contain at least the following
information in Spanish:
a) Name and generic name of the product;
b) Indication of quantity;
c) Name and tax domicile of the manufacturer of the product;
d) Country of origin of the product;
e) Warnings about hazards in the case of hazardous products;
f) Instructions and warranty, if the product so requires;
g) When applicable, the date of expiration or preferred use.
2.2. NOM-030-SCFI-1993
2.3. NOM-008-SCFI-2002
In addition, NOM-008-SCFI-2002, Sistema general de unidades de medida (General System
of Units of Measure), establishes the definitions, symbols, and writing rules of the units
of the International System of Units (SI) and other units outside of this system that,
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For its part, NOM-030-SCFI-1993, Información comercial, declaración de cantidad en la etiqueta, especificaciones (Commercial Information, Declaration of Quantity on the Label,
Specifications), establishes the location and dimensions of the declaration of quantity, as
well as the units of measurement that must be used according to the general system of
units of measurements and the legends: contents, net contents, and drained mass, as
required on prepackaged products sold in Mexico.
In general terms NOM-030-SCFI-1993 establishes the following:
a) Declaration of quantity. The legends contenido (contents) and contenido neto (net
contents) or their abbreviations, cont. and cont. net., should be followed by the
quantitative information and the unit corresponding to the magnitude that best
characterizes the product, avoiding confusing the consumer;
b) Location and dimensions of the information. The legends contenido (contents) and
contenido neto (net contents) or their abbreviations, cont. and cont. net., the
quantitative data and unit corresponding to the magnitude that best characterizes the product involved must be located on the principal exhibition surface and must appear free of any other information that minimizes its
importance, except in the case of drained mass, which must be next to the
statement of net content. The area around the statement of amount must be
free of printed information.
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together, constitute the general system of units of measurement used in the different
areas of science, technology, industry, education, and trade. The purpose of this NOM is
to establish a unifying language accessible to all sectors of the country.
The SI is the first compatible unit measurement system, essentially complete and internationally harmonized, which facilitates the structuring of the metrological systems of
the nations that adopt it with the highest level of accuracy.
In general terms, NOM-008-SCFI-2002 establishes seven base units of the SI, corresponding to the following magnitudes: longitude, mass, time, intensity of electric current,
thermodynamic temperature, candle power, and substance quantity. The unit names are:
meter, kilogram, second, ampere, kelvin, candela, and mole, respectively. There is also a
large quantity of derived units that are used in the scientific arena. This NOM establishes
magnitudes, units, symbols, and definitions.
The cited NOMs are only an example of the degree of specificity that the official
Mexican standards impose on commercial practices of all types engaged in within the
country, and which must be taken into consideration and complied with in doing
business in Mexico.
3. Product Advertising Requirements
Among the legal requirements that apply to the marketing of different products or services are requirements related to information about or advertising of such products or
services. These requirements are established in NOMs, in the Federal Consumer Protection Law (Ley Federal de Protección al Consumidor), as well as in the General Health Law
and in its Regulation Regarding Advertising (Reglamento en Materia de Publicidad). Below,
the provisions of each of these are described generally.
3.1. NOM Product Advertising Requirements
The fundamental purpose of the NOMs in advertising is to establish rules that require
accuracy in the information directed to the public in order to prevent practices that harm
the interests of consumers.
3.2. Product Advertising Requirements in the Federal
Consumer Protection Law
For its part, the Federal Consumer Protection Law establishes that the information or
advertising related to goods or services that are disseminated by any medium must be
accurate, verifiable, and free of texts, dialog, sounds, images, and other descriptions that
mislead or could mislead the consumer as a result of inaccuracy.
In general terms, the Federal Consumer Protection Law also establishes that imported
products must state their place of origin and any places where they may be repaired, if
applicable, as well as instructions for their use and corresponding warranties.
Information on both domestic and foreign products (on their labels, containers, and
packaging) and advertising for them both must be in Spanish, although it can be in other
languages as well. Prices must be given in Mexican pesos.
3.3. The General Health Law and Its Regulation Regarding Advertising
(Reglamento en Materia de Publicidad)
The sanitary control of imported and exported products and raw materials is the responsibility of the SSA. The LGS defines sanitary control as the group of actions of guidance,
education, sampling, verification, and, if necessary, application of security measures and
sanctions that SSA exercises with the participation of the producers, marketers, and consumers, based on the provisions of the NOMs and other applicable rules.
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For purposes of the LGS, health products are considered as medicines, psychotropic substances, narcotics, and
raw materials and additives that are involved in their preparation, as well as the medical equipment, prosthesis, orthesis, functional aids, diagnostic agents, products for odontological use, surgical material, for
healing and hygienic products.
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The General Health Law (Ley General de Salud, LGS) regulates and authorizes advertising
referring to the products and services that fall under its application, such as food, alcoholic and non-alcoholic beverages, tobacco, and everything related to medicines and
medical supplies.3
According to this law, advertising the existence, quality, and characteristics of medical supplies, alcoholic beverages, and tobacco, and promoting their use, sale, or consumption directly or indirectly, as well as the products and services specified in the
regulation of this law regarding advertising, shall require an authorization of the Ministry of Health (Secretaría de Salud, SSA).
The advertising of alcoholic beverages, tobacco, and medicines must comply with several requisites and requires the permission of the SSA prior to its publication in the media.
The cited provisions reflect, in general terms, the requirements regarding information
about or advertising of products or services in Mexico.
Just as advertising is one of the aspects that must be considered for selling products
or services, the SSA, through the LGS, establishes the sanitary rules for the sale of products, which we will discuss below.
4.1. General Provisions
The exercise of sanitary control established in the LGS is applied to the following areas:
a) Processing,4 importation, and exportation of food, non-alcoholic beverages, alcoholic beverages, perfumery, beauty and bath products, tobacco, as well as raw
materials, and, if applicable, additives used in their preparation;
b) Processing, use, maintenance, importation, exportation, and final disposal of medical equipment, prostheses, orthotics, functional aids, diagnostic agents, odontologic use materials, surgical and healing materials, and hygienic products;
c) Processing, use, importation, exportation, application, and final disposal of pesticides, plant nutrients, and substances toxic or hazardous to health, as well as the
raw materials used in their preparation.
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In particular, four main processes are covered:
a) The preparation of products subject to sanitary regulation;
b) The authorization for establishments that require a sanitary authorization;
c) The authorization for the importation of certain products;
d) The authorization for the sale or supply of products.
4.2. Product Preparation Process
The LGS establishes that the product preparation process must be carried out under
hygienic conditions, without adulteration,5 contamination,6 or alteration7 and in accordance with the provisions of the LGS.
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For purposes of the LGS, process is understood as the group of activities related to the obtaining, elaboration,
manufacture, preparation, conservation, mixing, conditioning, packaging, manipulation, transportation,
distribution, storage, and sale or supply to the public of the products referred to by the LGS.
5
A product is considered adulterated when:
a) Its nature or composition do not correspond to what is written on its label, in its advertising, stated when
it is sold or supplied, or when its nature or composition do not correspond to the specifications of its
authorization;
b) It has suffered treatment that conceals its alteration or defects in its processing or in the sanitary quality
of the raw materials used are covered up.
6
The product or raw material is considered contaminated when it contains microorganisms, hormones, static
bacteria, pesticides, radioactive particles, or foreign matter, as well as any other substance in quantities that
surpass the permissible limits established by the SSA.
7
A product or raw material is considered altered when, from the action of any cause, it has suffered modifications in its intrinsic composition that:
a) Reduce it nutritive or therapeutic power;
b) Make it unhealthy;
c) Modify its characteristics, if they have repercussions on their sanitary quality.
In this respect it should be mentioned that the owner of a product can allow it to be
prepared in whole or in part by any manufacturer, provided that the requirements laid
out in the LGS and other applicable provisions are complied with.
4.3. Sanitary Authorization for Establishments
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These notices must be filed in writing before the SSA or the governments of the states within 10 days following the initiation of operations. They should contain the following information:
a) Name and domicile of the individual or entity that owns the establishment;
b) Domicile of the establishment where the process is carried out and the date of initiation of operations;
c) Processes used and product line or lines;
d) Declaration under oath that the requirements and provisions applicable to the establishment have been
complied with;
e) Code of activities of the establishment;
f) Professional license number of the person responsible for sanitary matters, if applicable.
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The SSA establishes what products or raw materials require an authorization prior to
importation. The products that may require an importation authorization are food, nonalcoholic beverages, alcoholic beverages, perfumery, beauty and bath products, tobacco,
and the materials used in their preparation. The above is determined based on the health
risks such products may produce.
Furthermore, a sanitary authorization issued by the SSA is required for the importation
of medicines and their raw materials, medical equipment, prosthesis, orthotics, functional
aids, diagnostic agents, odontologic use materials, surgical, and healing materials and
hygienic products specified by the Ministry of Health. Finally, a sanitary authorization of
for
the
4.4. Importation Authorization
of
Other establishments that do not require a sanitary authorization must only give an
operating notice to the SSA,8 which is to say that they only need to advise the Ministry
that they have commenced operations and do not need a permit prior to operating.
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According to the LGS, only establishments engaged in the following activities require a
sanitary authorization:
a) The processing of medicines containing narcotics and psychotropic substances;
vaccines; toxoids; serums and antitoxins of animal origin and hemo-derivatives;
b) The production, manufacture, or preparation of medicines, pesticides, plant nutrients, or toxic or hazardous substances;
c) The application of pesticides;
d) The use of sources of radiation for medical or diagnostic purposes;
e) Establishments that engage in surgical or obstetric activities.
the SSA is required for the importation of pesticides, plant nutrients, and toxic or hazardous
substances that are a health risk.
4.5. Authorization for Sale or Supply
Medicines and other health materials, narcotics, psychotropic substances and products
that contain them, as well as pesticides, fertilizers, and toxic or hazardous substances,
must have a sanitary authorization for their sale or supply.
The importation of persistent and biocumulative pesticides of any chemical composition will only be authorized when they are not a hazard to human health and there is no
adequate substitution for them. However, the SSA, by a ruling that will be published in
the Official Federal Gazette, can determine that pesticides and plant nutrients will not
require a sanitary authorization for their importation.
4.6. Other Rules Applicable to Specific Products
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Based on what is established in the LGS in relation to the sanitary regulation of products,
the regulation of the following products should be mentioned: health medicines and
products, alcoholic beverages and tobacco, food and non-alcoholic beverages, and other
products also regulated by the LGS.
4.6.1. Medicines and health products 9
For purposes of the LGS, the following concepts are defined as indicated:
a) Medicines.10 Any substance or mixture of substances of natural or synthetic origin
that has a therapeutic, preventive, or rehabilitative effect, that is presented in a pharmaceutical form, and is identified as such by its pharmacological activity and physical, chemical, and biological properties. When a product contains nutriments,
it will be considered as a medicine, provided it is a prepared product containing
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9
See the definition of health products in Note 3 of this chapter.
10
Medicines are classified:
By their form of preparation in:
a) Magistral. When they are prepared according to the formula prescribed by a doctor;
b) Oficinal. When they are prepared according to the rules of the pharmacopoeia of the United Mexican
States;
c) Pharmaceutical specialties. When they are prepared with formulae authorized by the SSA in establishments
of the chemical-pharmaceutical industry.
By their nature:
a) Allopathic. Any substance or mixture of substances of natural or synthetic origin that has a therapeutic,
preventive, or rehabilitative effect that is sold? in pharmaceutical form and is identified as such by its
pharmacological activity, physical, chemical, and biological characteristics, and is registered in the pharmacopoeia of the United Mexican States for allopathic medicines;
b)
c)
d)
e)
individually or in association vitamins, minerals, electrolytes, amino acids, or fatty
acids, in concentrations greater than those of natural foods and they are also presented in a defined pharmaceutical form and the indication of use contemplates
therapeutic, preventive, or rehabilitative effects;
Farmaco. Any natural, synthetic, or biotechnical substance that has any pharmacological activity and that is identified by its physical, chemical, or biological
action properties, that is not presented in a pharmaceutical form, and that meets
conditions to be used as a medicine or ingredient of a medicine;
Raw material. Substance of any origin that is used for the preparation of natural or
synthetic medicines or farmacos;
Additive. Any substance that is included in the formulation of a medicine that acts
as a vehicle, preservative, or modifier of any of its characteristics to improve its efficacy, safety, stability, appearance, or acceptability;
Materials. The products necessary for the containing and packaging of medicine.
__________
b) Homeopathic. Any substance or mixture of substances of natural or synthetic origin that has a therapeutic, preventive, or rehabilitative effect and that is prepared according to the manufacturing procedures
described in the homeopathic pharmacopoeia of the United Mexican States, in those of other countries,
or in other sources of national and international scientific information;
c) Herbal. The products prepared with plant material or some derivative thereof, whose principal ingredient is the above-ground or subterranean part of a plant or extracts, as well as juices, resins, oils, and
essences, presented in a pharmaceutical form, whose therapeutic efficacy and safety have been confirmed
scientifically in the national or international bibliography.
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The SSA will only grant authorization for medicines when it is shown that the substances they contain meet the safety characteristics required by the LGS.
In addition, the LGS establishes that laboratories, as well as deposit and distribution
warehouses, for medical products may only distribute them to establishments that have
a sanitary license that certifies them as drug stores or pharmacies authorized to supply
to the public drugs that contain narcotics or psychotropic substances. For the sale or
trade of narcotics in the interior of Mexico, the SSA will set requirements that must be
satisfied and issue special acquisition or transfer permits.
The LGS classifies establishments that engage in the processing of medical products,
including their importation and exportation, in the following manner:
a) Factory or laboratory of raw materials engaged in the preparation of medicines or
biological products for human use;
b) Factory or laboratory preparing medicine or biological products for human use;
c) Factory or laboratory working with herbal remedies;
d) Laboratory engaged in chemical, biological, pharmaceutical, or toxicological control
for the study or testing of medicines and raw materials, or else involved in sanitary
regulation;
e) Warehouse for conditioning of medicines or biological products and herbal remedies;
f) Warehouse for deposit and distribution of medicines or biological products for
human use, as well as for herbal remedies;
g) Warehouse for the deposit and distribution of raw materials for the preparation of
medicines for human use;
h) Drug store: establishment that engages in the preparation and sale of medicines
and the sale of pharmaceutical specialties, including those containing narcotics
and psychotropic substances, and other health products;
i) Pharmacy: establishment that engages in the sale of pharmaceutical specialties,
including those that contain narcotics and psychotropic substances, health products in general, and perfumery, beauty, and cleaning products;
j) Establishments engaging in the processing of drugs for veterinary use.
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According to the LGS, the persons responsible for sanitary matters at these establishments must be professionals with their academic credentials registered by the competent
educational authorities; they must meet the requirements established in the applicable
provisions; and they will be appointed by the license holders or owners of the establishments, who will give the corresponding notice to the SSA.
In cases when the identity, purity, preservation, preparation, dose, or manufacturing
of products are affected, by action or omission, the person responsible for sanitary matters for the establishment and the owner will be jointly liable for the corresponding
penalties as established in the LGS and the other applicable legal provisions.
For health products, the LGS establishes the following definitions:
a) Medical equipment.11 The devices, accessories, and instruments with specific functions: intended for providing medical or surgical attention or for exploratory, diagnostic, treatment, or rehabilitation procedures for patients, as well as those for
carrying out biomedical research activities;12
b) Prosthesis, orthotics, and functional aides. Devices that substitute or complement
a function, an organ, or a tissue of the human body;
__________
11
In the case of medical equipment, prosthesis, orthesis, and functional aids, the handling and preservation
specifications shall be stated on the label or in the corresponding manual, with the characteristics indicated by the SSA.
12
The processing, use, and maintenance of medical equipment and diagnostic agents involving sources of
radiation must comply with the NOMs issued by the SSA, including in the elimination of the wastes of such
materials, without prejudice of the involvement corresponding to other competent authorities. The labels
and counter labels of the equipment and diagnostic agents must also display the legend, “Danger,
radioactive material exclusively for medical use,” the indication of the isotopes that contain activity, their
half-life and type of radiation they emit, as well as the internationally recognized logo to indicate radioactive materials.
c) Diagnostic agents.13 All products, including antigens, antibodies, calibrators, verifiers,
reagents, reagent equipment, culture and contrast mediums, and any other similar
products that can be used as aids for other clinical or paraclinical procedures;
d) Odontological Products. All substances or materials used for attention to dental health;
e) Surgical and healing materials. The devices or materials that, with or without antiseptics or germicides, are used in surgical practice or in the treatment of continuity solutions, skin wounds, or related problems;
f) Hygiene products. The materials and substances that are applied on the surface of
the skin or body cavities and that have pharmacological or preventive action.
It is important to include on the label the information that in no case and in no form
may tobacco be supplied to minors.
4.6.3. Food and non-alcoholic beverages
a) For purposes of the LGS, food is understood as any substance or product, solid or semisolid, natural or transformed, that provides the body with elements for its nutrition;
__________
13
The labels and counter labels of the diagnostic agents that are used on medical devices or equipment shall
contain the legend: “For exclusive use in clinical laboratories or doctors’ officies.” The indications on the
use in the laboratory or gabinete, the techniques for its use, its form of application, if any, and the warnings
for its use will be detailed in the instructions attached to the product.
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4.6.2. Alcoholic beverages and tobacco
For purpose of the LGS, alcoholic beverages are considered those that contain ethylic alcohol in a proportion of 2 percent up to 55 percent in volume. Any other substance containing a greater proportion of alcohol cannot be sold as a beverage.
The LGS requires that alcoholic beverages show, on their containers, the legend: “The
abusive consumption of this product is harmful to health,” in compliance with the
requirements of the LGS and the corresponding NOMs.
In the case of tobacco, the LGS provides that the name tobacco refers to the plant Nicotina Tabacum and its substitutes, in their natural state or modified, in different forms used
to smoke, chew, or inhale.
In addition to what is established in the Mexican official standards, on the labels of the
packages and containers in which tobacco is distributed or supplied, warning labels
must be displayed clearly and visibly, written in easily readable print with contrasting
colors, stating alternately the following:
a) Quitting smoking reduces important health risks;
b) Smoking is a cause of cancer, including lung cancer;
c) Smoking during pregnancy increases the risk of premature birth and low birth
weight in newborns.
b) A non-alcoholic beverage is understood as any liquid, natural or transformed, that
provides to the body elements for its nutrition;
c) Raw material. Substance or product of any origin that is used in the preparation of
food and non-alcoholic or alcoholic beverages;
d) Additive. Any permitted substance that, without having nutritive properties, is
included in the formulation of food products and that acts as a stabilizer, preservative, or modifier of its organoleptic properties and contributes to its stability,
preservation, appearance, or acceptability;
e) Food supplements. Products based on herbs, plant extracts, traditional foods, dehydrated or concentrated fruits, with or without added vitamins or minerals, that can
be supplied in pharmaceutical form for the purpose of increasing total diet intake,
to complement it, or supplement one of its components.14
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4.6.4. Other products
The LGS also addresses the granting of authorizations for the sale of the following products and other sanitary regulations applicable thereto: perfumery and beauty, cleaning
products, pesticides, plant nutrients, and toxic or hazardous substances and biotechnology products.
4.6.4.1. Perfumery and beauty products
For purposes of the LGS, perfumery and beauty products15 are considered the following:
a) Products of any origin, regardless of their physical state, used to change the natural
odor of the human body;
b) Products or preparations for external use intended to preserve or improve personal
appearance;
c) Products or preparations used for personal hygiene;
d) Repellants applied directly to the skin.
Products to decrease or increase the physical size of parts of the body or to change the
body’s proportions that contain hormones, vitamins, or substances with therapeutic
action in general to which this action is attributed will not be considered beauty products
but rather medicines and shall be subject to the rules of the LGS applicable to medicines.
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14
The SSA will determine which products, including those that are used in special food regimens, can be attributed with particular nutritive properties, based on their composition. When the Ministry of Health recognizes therapeutic properties in them, they will be considered medicines.
Foods or beverages to be sold to the public in circumstances that suggest to the consumer that the
product has therapeutic properties must include on their labels the legend: “This product has no medicinal properties.”
15
No therapeutic action can be attributed to perfumery and beauty products, either in the name, indications,
instructions for use, or advertising.
4.6.4.2. Cleaning products
The LGS considers cleaning products to be soaps, detergents, cleaners, bleach, starches
for external use, spot removers, disinfectants, deodorants, and air fresheners and other
similar products specified by the SSA.
The labels of the containers and packaging in which the cleaning products are presented must comply with the legal labeling requirements established in the applicable NOMs.
Products
of
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the
for
Regulations
The sanitary regulation of these products consists of the authority of the SSA to classify
the products according to the risk they represent to human health; to authorize the sale
of the products and establish, in coordination with the competent agencies, the official
Mexican standards specifying the conditions that must be complied with to manufacture,
formulate, containerize, label, package, store, transport, sell, and apply pesticides, plant
nutrients, and toxic or hazardous substances in any phase of their life cycle.
The applicable NOMs are those that establish the rules and methods of protection for
the processing, use, and application of pesticides, plant nutrients, and toxic or hazardous substances.
Labels of the containers of the pesticides, plant nutrients, and toxic or hazardous substances must show, clearly and in Spanish, the legend containing the hazards of handling
the product, its form of use, its antidotes in case of poisoning, the handling of the containers containing them or that have contained them, in accordance with the applicable
legal provisions and the rules issued by the SSA.
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4.6.4.3. Pesticides, plant nutrients, and toxic or hazardous substances
For these products the LGS establishes the following definitions:
a) Pesticide. Any substance or mixture of substances that is used to control any pest,
including the vectors that transmit human and animal diseases, undesirable
species that cause harm or that interfere with agricultural, livestock, and forestry
production, as well as defoliant and drying substances;
b) Plant nutrient. Any substance or mixture of substances that contain elements useful for the nutrition and development of plants, growth regulators, soil enhancers,
inoculants, and moisturizers;
c) Hazardous substance. Element or composite, or the chemical mixture of both, that
has corrosive, reactive, inflammable, explosive, toxic, bio-infectious, carcinogenic,
teratogenic, or mutagenic characteristics;
d) Toxic substance. Element or composite, or the chemical mixture of both that, when
by any means of ingestion, whether inhalation, oral ingestion or contact with the
skin or mucus, causes adverse effects to the organism, immediately or in the long
term, temporarily or permanently, as functional lesions or genetic, teratogenic,
mutagenic, or carcinogenic alterations, or death.
4.6.4.4. Biotechnological products
The LGS defines biotechnological products as the food, ingredients, additives, raw materials, health products, pesticides, toxic or hazardous substances, and their wastes, in
whose processing live organisms or parts thereof, modified by traditional technology or
genetic engineering, are involved.
Persons who sell these types of products must notify the SSA of all biotechnological
products or their derivatives that are destined for human use or consumption, since this
situation requires special authorization.
The above is a general description of the existing sanitary regulations in Mexico. Obviously, depending on the specific activity and products, corresponding specific regulations would have to be addressed. Therefore, before establishing a business of this nature,
we suggest checking all the existing permits, authorizations, and restrictions.
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CHAPTER XI
Financing Guarantees
1. Introduction
In Mexico, as in many other parts of the world, various legal instruments are available for the
purpose of securing financing and offering guarantees. The Mexican Civil Code (Código Civil
Mexicano) basically provides for the surety bond (fianza), the pledge (prenda), and the mortgage (hipoteca) as guarantee contracts. However, another more commonly used instrument is
the trust (fideicomiso), whose flexibility allows it to adapt to multiple commercial situations.
In what follows, the essential aspects of each of the above-mentioned legal concepts
are explained.
2. Surety Bond (Fianza)
2.1. Characteristics
Through the formation of a surety bond contract, a surety institution, which must comply with various requirements and authorizations from the Ministry of Finance and
Public Credit (Secretaría de Hacienda y Crédito Público, SHCP), agrees with a third party
to pay a debtor’s debts in the event the debtor does not do so, in exchange for a fee
called a premium (prima).
With the surety bond, the lender of the secured obligation acquires the right to be paid
by the surety institution in the event the borrower does not pay its debt. Therefore, the
creditor has the right to demand and receive the payment of the secured obligation directly from the surety institution or from the borrower, or from both, because the surety
bond is not extinguished even if the beneficiary refrains from taking legal action against
the debtor for payment of the principal debt.
This type of guarantee is frequently used in legal or administrative matters and, with
respect to the surety bond used to secure financing, the SHCP has issued special rules
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for the granting of surety bonds that secure credit operations, some of which are mentioned below:
a) Surety institutions may only post surety bonds that secure credit operations in
the case of payments derived from transactions involving the purchase and sale
of goods and services commercially distributed; payments derived from credits
documented in negotiable instruments recorded in the National Registry of
Securities (Registro Nacional de Valores, RNV); payments derived from financial
lease contracts; payments derived from negotiable instrument discounts or factoring contracts, etc.;
b) These surety bonds will be posted only after analysis and approval by the headquarters, branches, or service offices of the surety institution;
c) They may only be furnished to legal entities;
d) The surety institutions can agree on deductibles with the beneficiary in relation to
the amount secured;
e) An insurance policy for damages must first be contracted in favor of the surety
institution for the entire period during which the surety bond is in effect, covering
the goods underlying the security bond, and a life insurance policy covering the
debtor when this party is an individual under the age of 65;
f) The duration of the surety bonds must be specified. Their renewal or extension
cannot be automatic and the bonds will be automatically cancelled at the end of
their agreed-upon term;
g) In the case of default on the secured obligation, the beneficiary must suspend the
operations that underlie the surety bond and, if this is not done, new operations
will not be secured unless the surety institution grants its consent in writing.
2.2. Requirements for the Formation of a Surety Bond Contract
The surety bond contract must be in writing and must incorporate the corresponding
surety bond policy in the contract itself, which must also meet the requirements indicated in the Federal Law of Surety Institutions (Ley Federal de Instituciones de Fianzas),
such as:
a) The names of the beneficiary, debtor, applicant, and surety institution;
b) The secured obligation;
c) The amount the surety institution will guarantee;
d) The term of the surety bond;
e) The rights and obligations of the surety institution and the beneficiary.
In the event of default, claims must be filed in writing either with the headquarters, branches, or service offices of the surety institution, accompanied by the original
documents that evidence the existence and enforceability of the secured credit, as well
as a report regarding the beneficiary’s efforts to collect payment to that date.
3. Pledge
3.1. Common Pledge (Prenda ordinaria)
3.1.2. Material object of the commercial pledge
Any alienable moveable good can be the material object of a pledge, including machinery, equipment, negotiable instruments, stocks, bonds, securities, title to merchandise,
etc., all of which can be the property of the debtor or a third party, who must have title
to or adequate authority to dispose of such goods.
3.1.3. Requirements for the formation of a commercial pledge
The manner of perfecting the pledge varies depending on the goods that are to serve as
collateral. For example:
a) Goods or negotiable instruments payable to bearer:
i) By tendering these goods or instruments;
ii) By depositing them with a third party designated by both parties and placing
them at the disposal of the lender;
iii) By depositing them at the disposal of the lender in locations to which the latter has the key, even if the facility may be the property of the debtor;
b) Negotiable instruments payable to the order of a specified person, with endorsement to the lender and, if applicable, the endorsement and the corresponding
notation in the issuer’s records;
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3.1.1. Characteristics
Through the formation of a pledge contract, the lender is permitted to secure the loan
with one or more goods, regarding which it has a right of preference superior to other
lenders of the same debtor. The pledge is an interest in specific property (right in rem)
over a moveable and alienable good used to secure compliance with an obligation and
preference in the payment thereof.
The pledge is, therefore, an ancillary contract whose only purpose is to secure for the
lender the performance of an obligation owed to the lender and preference in the payment thereof. Traditionally, through the pledge, the debtor or third-party guarantor forfeits possession of the goods given in guarantee; however (as the next section will
show), it is possible to avoid this in the case of a non-possessory pledge (prenda sin
transmisión de posesión), in which the debtor remains in possession of the goods and has
them at his disposal.
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c) Non-negotiable loan, by tendering the instrument or document recording the loan;
d) Instruments representing merchandise, by tendering and endorsing said instruments;
e) Pledge bond (a special type of negotiable instrument), by issuing or endorsing the
pledge bond;
f) Machinery, equipment, and corporate assets, in the case of fixed-asset loans or working capital loans, by registering the instrument in the Commercial Registry (Registro
de Comercio), with the debtor remaining in possession of the pledged goods;
g) A loan for the acquisition of durable goods, by tendering the bill for the goods to
the lender (a credit institution) who acknowledges the ownership of the acquired
property, with the respective annotation. In this case, the property remains in the
possession of the debtor as a depositary;
h) Accounts receivable, by making an annotation in the corresponding contract that
the loans pledged have been specified in the notes or respective records and that the
latter have been transcribed by the credit institution into a special book.
In any case, the pledge is a formal contract that must be in writing. Where the writing is not notarized, it should be memorialized in two identical documents. The pledge
will not be enforceable against third parties until the date of its formation is made official by recording, by public instrument (notarization), or by some other reliable means.
In addition, the Securities Market Law (Ley del Mercado de Valores) provides for a securities pledge to secure the performance of transactions by brokerage firms with or on
behalf of their clients by entering into a Securities Pledge Agreement (Contrato de Prenda Bursátil) without requiring for its formation the endorsement and material delivery of
the securities nor an annotation in the securities issuer’s records. The parties can agree
in the Securities Pledge Agreements to the sale of the securities given as collateral, provided that the relevant provisions of the Securities Market Law are complied with.
Also, with respect to the formation of some special types of pledges, the documents
recording them must be registered in the public registries in order to be enforceable
against third parties. For example: pledges based on fixed asset loans or working capital
loans must be registered in the Public Registry of Commerce; and pledges on maritime
or aeronautical assets must be registered in the National Public Maritime Registry (Registro Público Marítimo Nacional) or the Mexican Aeronautical Registry (Registro Aeronáutico
Mexicano) respectively.
3.1.4. Foreclosure of a pledge
If the debtor defaults on the secured obligation, the lender cannot take title to the
pledged goods or instruments without the express consent of the debtor, manifested in
writing subsequent to the formation of the pledge.
Consequently, when the secured obligation becomes payable, the lender may request
that a judge authorize the sale of the pledged goods or instruments and the proceeds of the
sale must be preserved as a security interest by the lender, in lieu of the goods or instruments sold.
Also, the lender may sell the pledged goods when their value declines to the point that
they will be insufficient to cover the debt plus an additional 20 percent thereof, or when
the debtor fails to provide in a timely manner the necessary funds to cover the installment payments that must be made on the pledged instruments.
This, because the pledgee, in addition to being obligated to protect and conserve the
pledged goods or instruments, must exercise all the rights intrinsic to them. The debtor
is responsible for the relevant expenses, and therefore if the debtor fails to cover said
expenses in a timely manner, the goods or instruments can be sold.
3.2. Non-possessory Pledge or Registered Pledge
3.2.2. Material object of the non-possessory pledge
All types of rights and moveable goods can be the material object of the non-possessory pledge.
These rights or goods must be identified, unless all of the debtor’s goods used in carrying
out its primary activity are being pledged, in which case a generic description will suffice.
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3.2.1. Characteristics
This pledge is based on fixed-asset loans, working capital loans, or on accounts receivable
that are not conveyed to the pledgee, but rather remain in the power of the party granting
the guarantee, who is considered a legal depository of the assets or instruments offered as a
guarantee, as well as all other cases provided in the General Law of Negotiable Instruments
and Credit Operations (Ley General de Títulos y Operaciones de Crédito, LGTYOC) in which
parties seek to secure an obligation and preference in payment relative to other lenders,
where the debtor remains in material possession of the pledged goods. In exceptional
cases, the parties can agree that the lender or a third party take possession of such goods.
This type of special pledge can be used to secure any obligation regardless of the
debtor’s principal activity, including future obligations. However, in this case the guarantee can only be foreclosed when the underlying obligation is due and payable.
It is worth mentioning that the amount of the guarantee can be an amount determined
at the time the guarantee is granted or at the time of its foreclosure. The guarantee must
be recorded in the registry, even when the maximum amount guaranteed has not been
determined.
Along with the above, the guarantee includes, unless otherwise agreed, the ordinary
and past due interest and penalties stipulated in the respective contract and the costs
incurred in the process of foreclosing on the pledge.
Therefore, the following may be pledged through a non-possessory pledge: the
debtor’s goods and rights as they exist at the time of granting the pledge, including
industrial property rights; the rights and goods the debtor may acquire after the pledge’s
formation; the fruits or products pending or already obtained; the goods and rights that
the debtor receives or has the right to receive as payment for the alienation to third parties of the pledged property or as payment of an indemnity in the case of damage or
destruction of said property.
One unique characteristic of this type of guarantee is that the debtor, unless otherwise
agreed, has the right to use the pledged goods, as well as combine them with other goods
and use them in the manufacture of other goods, as long as the value of the guarantee is
not reduced and the product thereof becomes part of the pledged property, and to
receive and use the fruits and products of the pledged goods.
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3.2.3. Requirements for the formation of the non-possessory pledge
The non-possessory pledge must be in writing, and if the value of the pledged goods is
equal to or more than 250,000 investment units (a financial measurement unit), the parties must ratify their signatures before a certifying public official.
When executing the non-possessory pledge contract, the parties must also agree on
the place or places where the pledged goods are to be located; the minimum consideration that the debtor should receive from purchaser from the sale or transfer of the goods;
the characteristics or categories that allow for the identification of the person or persons
to whom the debtor can sell or transfer the goods, as well as the destination of the
money, goods, or rights obtained from the sale; and the information that the debtor must
disclose to the lender with respect to the transformation, sale, or transfer of the goods.
The debtor’s noncompliance with these stipulations will trigger the acceleration of the
loan’s maturity date.
The pledge, its extinguishment, modification, transfer, and preference take effect
against third parties as of its registration in the registry. The registered non-possessory
pledge has priority over unsecured loans, credit supported by an unrecorded guarantee
in real property, and unrecorded pre-existing judicial liens and grants the lender the
right to receive the principal and interest of its loan from the product of the pledged
goods, with the absolute exclusion of the debtor’s other lenders, except for preferences
granted by other laws, such as the Federal Labor Law.
3.2.4. Foreclosing on the non-possessory pledge
The Commerce Code provides for two types of foreclosure procedures for goods pledged
through the non-possessory pledge: the extra-judicial procedure and the judicial procedure.
a) The purpose of the extra-judicial procedure (ex judiciae) is both to secure the payment of past due credit and to obtain possession of the pledged goods. The
This type of credit is distinguished from other types by virtue of the specific purpose for
which the debtor is obligated to use the loan proceeds, since the debtor is obligated to
invest the loan in the acquisition of raw materials and the payment of direct labor services, as well as in the purchase of goods and services that are immediately related to the
production process.
Although this type of credit is not exclusive to credit institutions, these are the institutions who generally offer these loans and who must make sure that the loan proceeds are
used for the purposes outlined in the contract, because if it is shown that the loan was
not used for such purposes due to the bank’s negligence, the latter will lose the privileges
of automatic and privileged guarantee that the lender enjoys in these contracts. Therefore,
working capital loans, duly registered, will be paid preferentially relative to fixed asset
loans, and both of these preferentially relative to subsequently recorded mortgages.
4.1. Guarantees
As a general rule, the guarantees of the loans at issue are based on the goods acquired
with the borrowed money; therefore, the working capital loan will be guaranteed with
the raw materials and materials acquired and with the products or benefits generated
from the loan, even when these may be future or pending.
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requirements for this process are the following: that there is no dispute and that
there is an agreement between the parties, which is to say that the debtor must
agree to tender the pledged goods to satisfy its debt.
This process begins with the lender’s formal petition for the debtor’s forfeiture of
possession of the pledged goods made before a certifying public official. Once possession is transferred to the lender, the lender becomes the legal depository of the
goods for the entire time that transpires from the deposit of the goods until their sale;
b) The purpose of the judicial procedure (judiciae) is to secure the payment of a specific, liquid, and payable credit and to obtain the material possession of the goods
that secure the credit through a non-possessory pledge on the condition that the
credit must be memorialized in a public (notarized) or private document and that
the credit is payable under the agreed terms or in accordance with the provisions
of the General Law of Negotiable Instruments and Credit Operations and other
applicable laws.
When the lender sues to foreclose judicially, the suit documents should include
the relevant contract and a declaration of the debt balance and, if the lender is a
credit institution, a certification of the debt balance.
Notwithstanding, guarantees can be outlined in the contract, in addition to those
existing by mere effect of the contract, such as a pledge, a mortgage, or a guaranty trust.
In this regard, it is very important to establish clearly in the contract the goods upon
which the security interest will be created. The pledge can be made by the person who
manages the business whose development is the object of the credit, even if the person is
not the owner, unless the contract is recorded in the corresponding property, agricultural
credit, mining, or commerce registries, and the company has reserved the right to permit
the formation of the pledge in the given registry. In addition, the pledged goods can remain
in the possession of the debtor, who, for the purposes of civil and criminal liability, will be
considered as a legal depository of the goods over which the pledge was formed.
Furthermore, this type of credit allows the borrower to issue a promissory note each
time that the borrower uses part or all of the money loaned by the bank, as long as the
notes are issued with maturity dates prior to that of the loan contract.
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4.2. Formation Requirements
Working capital loan contracts must be formed through a policy executed before a commercial notary public (corredor público), in a notarized public instrument or in a private
contract signed in triplicate and with a ratification of signatures before a certifying public official, thereby acquiring title effects.
In order to be enforceable against third parties, these loans must be recorded in the
Public Registry of Property or in the Public Registry of Commerce when the security interest is not over real estate. Moreover, the contract should clearly state the purpose for
which the credit will be used, the goods over which the security interest will be placed,
the duration of the credit, and the form in which the debtor will be able to make use of
the loan amount. Finally, it must be remembered that once the requirements related to its
granting are met, the fixed-asset loan or working capital loan contract will be an executory instrument, enforcement of which will be via summary proceedings. However, banks
can pursue payment via this method or they can elect to foreclose on the property placed
in guarantee in accordance with the terms provided in the General Law of Negotiable
Instruments and Credit Operations for the foreclosure of a commercial pledge.
5. Mortgage
5.1. Real Property Mortgage
Through the formation of a mortgage contract, the mortgagor, who can be the debtor or
a third party, creates a right in rem over one or more specific properties in favor of a
lender, without surrendering these properties, so that the lender may satisfy the payment
of its loan through these properties in the event that the debtor fails to pay his debt arising from a prior principal obligation.
The principal virtue of the mortgage contract is that it gives the debtor the possibility
of acquiring financing and guaranteeing payment with property (generally real estate)
that is not transferred to the lender, and therefore the mortgagor will be able to use and
enjoy the property in the development of its commercial or industrial activities.
The above is possible because the mortgage applies to certain types of property, such
as real estate, maritime vessels, or industrial plants that cannot be hidden, as can occur
with moveable property, which is why the mortgage constitutes a reliable guarantee,
in spite of the fact that the property remains in the hands of the debtor, and even
though the debtor may use, enjoy, or even alienate the mortgaged goods because, as
previously mentioned, the mortgage is a right in rem over the mortgaged property by
which the mortgagee can enforce the credit regardless of whose hands the property is
found in.
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5.1.1. General characteristics
a) Only someone with the right to alienate property can mortgage that property,
whether that person is the property’s owner or someone that has been granted
powers of an owner or has judicial authorization to do so, this being an act of ownership and not of administration;
b) Equally, only alienable property can be mortgaged, and it must also be specifically
identified;
c) Although a mortgage is an accessory contract that is extinguished with the termination of the principal contract, if the guaranteed obligation is only reduced, the
original mortgage will still remain in full force;
d) A mortgage can be validly formed over two or more pieces of real property, but in
this case it is obligatory to establish in the contract what portion of the credit will
correspond to each of the properties. Moreover, the same property can be mortgaged
twice, which would invalidate any pact not to make any subsequent mortgages;
e) There are certain types of property that cannot be mortgaged and others that are
understood to be included in the mortgage, although such inclusion is not express,
and other types that are understood to be excluded unless otherwise agreed. Property that cannot be mortgaged includes the rents and profits yet to be obtained,
moveable objects permanently located in buildings, property subject to a lawsuit, etc.
Property that is understood as included is the natural accretions to the mortgaged
property, improvements made by the owner on the property, new buildings constructed on the mortgaged property, etc. Unless otherwise agreed, industrial profits
stemming from the mortgaged property and any outstanding rents at the time of
enforcement of the secured obligation will not be considered part of the mortgage.
5.1.2. Formalities and registration of the mortgage
The formalities of the mortgage contract follow the same rules as those for a purchase
and sale contract. Therefore, it must be granted in a public (notarized) instrument if the
real property is valued at more than the equivalent of 365 days worth of the general minimum wage. Moreover, in order for the mortgage to be enforceable against third parties,
it must be recorded in the Public Registry of Property with jurisdiction in the location of
the mortgaged property.
Furthermore, as we will see in the following sections, there are some types of special
mortgages that will require the observance of different formalities or recordation in other
registries, depending on the persons entering into the contracts or on the property being
mortgaged.
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5.1.3. Foreclosure
As was previously mentioned, in the event of default on the obligation secured by the
mortgage, the lender will have the right to be paid with the value of the mortgaged property in accordance with the priority in payment established by law. Therefore, said
lender will have the right to sell the mortgaged item and apply the necessary part of the
sale price obtained to the payment of the debt.
The mortgage foreclosure can be carried out judicially or extra-judicially. Likewise, the
parties can contractually agree in the contract that the mortgaged property will be forfeited to the lender at the price that will be determined at the time the lender demands
payment of the debt, as opposed to when the mortgage is taken out, with the understanding that such agreement cannot adversely affect the rights of third parties.
It is important to emphasize that in the event of default, the lender does not itself have
the right to foreclose nor does the lender acquire the mortgaged property upon such
default; rather the lender must pursue the civil or mercantile legal actions appropriate
for foreclosing on the debtor’s property.
5.1.4. Priority in payment of mortgages
Although mortgagees, just as pledgees, have a preferential right to be paid with the proceeds from the sale of the encumbered property, it is worth mentioning that under applicable Mexican law, some loans must be paid before others. Thus, for example, employees
do not need to join a bankruptcy proceeding to make a claim for salaries or wages
accrued from the previous year or for severance indemnifications. Also, fiscal debts arising from taxes will be paid preferentially with the proceeds of the property from which
the debt derives.
Special mortgages also have different priorities in payment, which will be discussed in
the following sections.
5.2. Special Mortgages
5.2.2. Ships and aircraft
The maritime mortgage is a contract through which the owner of a vessel or naval structure constructed or in the process of construction constitutes an in rem right in favor of
the lender in order to guarantee payment of an obligation with the proceeds from the
sale of said property, with a priority in payment superior to all other lenders, accept for
certain preferences specific to maritime law.
Maritime vessels are the collateral of this security interest in property, which is to say
all constructions used to navigate, regardless of their type and dimensions, as well as
naval structures, which include floating or fixed constructions that do not navigate but
carry out in the water functions complementary or auxiliary to maritime, river-bound,
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5.2.1. Industrial
These mortgages are created over an entire unit of an industrial, agricultural, ranching,
mining, forestry, commercial, or service enterprise in favor of a credit institution. Such
a guarantee includes and encompasses any applicable authorization or concession, as
well as all of the real or personal property used in the mortgaged property’s exploitation,
considered as a single unit.
This type of mortgage is generally formed in order to guarantee fixed-asset loans,
which the borrower is obligated to invest in the purchase or installation of machinery,
or in the construction of projects or works that are necessary for the development of the
borrower’s business, or for the purchase of real or personal property. These loans are
guaranteed either as a group or individually with the assets of the company to whose
development the loan funds are destined.
One fundamental characteristic of this type of guarantee is that, with the exception of
creditors having title over property in possession of a borrower undergoing bankruptcy
proceedings and previously recorded mortgages, the lender will have a priority in the
payment of its debt with the product of the encumbered property superior to any rights
other lenders may have.
An industrial mortgage should be identified as such in the fixed-asset loan contract,
which shall be granted in a private (unnotarized) document signed in triplicate, before
two witnesses, ratified before an authority of the Public Registry and recorded in the
Public Registry of Property of the jurisdiction in which the property is located, at which
point the contract will be enforceable against third parties. When the fixed-asset loan
is granted by a credit institution, the parties will be entitled to enter into this contract
in a sealed writing executed before a commercial notary public, in a public instrument,
or a private document, in the latter case signed in triplicate and ratified before a certifying public official.
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or lake-bound activities or exploratory or natural resource exploration activities,
including fixed platforms, except for port facilities.
It is worth mentioning that, in the event of loss or serious deterioration of the vessel or
naval structure, the mortgagee can foreclose on the derelict property, that is, on the vessels
or naval structures that are unnavigable, the provisions and cargo, machinery, anchors, and
the remains of the vessels, as well as the merchandise thrown or fallen into the sea.
The mortgage must be recorded in a document authorized before a certifying public official either in Mexico or abroad, which should be noted in the vessel’s registry and registered
in the National Public Maritime Registry in order to be enforceable against third parties.
One important difference between a mortgage on maritime vessels and a civil mortgage is
in the order of priority, since the lender of the maritime mortgage is subordinated to the
credits considered as maritime privileges, such as wages owed to the crew, repatriation costs,
and contributions to the crew’s social security payments, debts payable by the vessel, etc.
It is also important to point out that the statute of limitations to foreclose on a maritime mortgage terminates three years after the expiration of the secured loan.
It is also possible to enter into mortgage agreements over aircrafts, which must contain
a description of the aircraft and equipment being mortgaged and indicate the nationality
and identification number, the name of the manufacturer, and the serial number. In the
event that a person who has a concession or right to provide air transportation services
seeks to mortgage an aircraft, such person must request an authorization from the Ministry of Transportation and Communications (Secretaría de Comunicaciones y Transportes).
All aircraft mortgages must be recorded in the craft’s registry and in the Mexican Aeronautical Registry, which will be effective with respect to third parties beginning on the
date of such recordation. A copy of each recordation shall be sent to the Public Registry
of Property.
Tax obligations, debts derived from the salvaging of an aircraft, and debts stemming
from extraordinary expenses indispensable for the aircraft’s upkeep, have priority over
mortgages.
6. Trusts
6.1. Characteristics
Through the trust agreement, the trustor transfers ownership or title over one or more
goods or rights to a fiduciary institution for the purpose of guaranteeing to the beneficiary compliance with an obligation and priority in the payment thereof.
The trust is a contract that involves three principal parties: a trustor, who generally
is also the debtor, who transfers the ownership of goods to a fiduciary institution, a
bank, or another authorized institution, so that if the trustor debtor or a third party fails
to perform its contractual duties, the institution proceeds to effect the sale of the goods
to satisfy the agreed compensation owed to the beneficiary.
The guaranty trust is generally used to guaranty payment of loans; however, it is also
useful in guaranteeing other obligations such as the timely delivery of merchandise, the
completion of a public work without defects, the return of securities subject to repurchase agreements, etc. Also, it is frequently used as a guaranty in the construction of
large infrastructure projects such as industrial plants, highways, and stadiums, as well as
in loans granted by foreign credit institutions.
One of the principal characteristics of this type of guaranty is the fact that in the
event that the debtor fails to comply with its obligation according to the stipulated
conditions and time period, the trustee will be able to foreclose on the trust upon
proving noncompliance and without the need to involve any judicial authorities to sue
for foreclosure.
6.3. Requirements for Formation
The trust’s formation must always be recorded in writing, and when the property is real
estate, the trust must be registered in the Public Registry of Property in the jurisdiction
in which the property is found. At the date the trust is recorded, it will become enforceable against third parties. When the guaranty trust involves personal property and its
value is equal to or greater than 250,000 investment units valued in Mexican pesos, the
contract signatures must be ratified before a certifying public official.
6.4. Foreclosure
As was mentioned in previous sections, the guaranty trust allows the parties to determine the manner in which the fiduciary institution may proceed extra-judicially to sell
the trust property in the event that the debtor fails to comply with its obligations, as long
as the following is agreed to:
Guarantees
The property conveyed in trust can be real or personal and, if personal, the parties can
agree that said property held in trust can be utilized or employed in the production of
other goods, as long as its value is not reduced and such produced goods become part
of the trust in question.
The parties can agree that the trustor or a third party will remain in possession of the
property held in trust, who will act as depository, and therefore will be responsible for
any loss, damage, or deterioration the property may suffer.
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6.2. The Trust Res or Trust Property
a) That the trustee can only begin the extra-judicial foreclosure process when it
receives a written petition from the beneficiary requesting such action, and the
nature of the debtor’s noncompliance is specifically stated;
b) That the trustee must notify the trustors of the petition, and the latter may only
challenge the foreclosure if they tender payment of the debt, prove their compliance with the obligation, or provide documentation that proves an extension of the
payment period.
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The document containing the extra-judicial foreclosure agreement must be included
in a special section of the guaranty trust, which must have the signature of the trustor in
addition to the his signature on the trust agreement. If the extra-judicial foreclosure is
not expressly agreed, the procedures dictated by the Commerce Code must be followed.
Although the protection provided by guaranteeing obligations through a trust agreement offers various advantages in relation to other types of guaranties given that in the
trust the goods are no longer owned and possessed by the debtor, thereby allowing for
a much larger and more ideal range of legal action in an innumerable amount of transactions, it must be kept in mind that the formation of this type of guaranty involves significant outlays in notary fees and administrative costs, which may render the trust a
poor option in some cases.
CHAPTER XII
Industrial Property
1. Introduction
Without doubt some of the most important assets of companies today are their patents,
trademarks, slogans, and, in general, the intangible goods that serve to differentiate and
sell their products under highly competitive market conditions. In Mexico, together with
the commercial opening of the country and the liberalization of the economy, there has
been a significant legal evolution to protect these intangibles, in order that companies
may invest in our country without fear of being deprived of such goods by third parties
that attempt to take advantage of their prestige and technological developments. Below,
the current regulation of this area is explained.
2. Creations with Industrial Application
2.1. Invention Patents
An invention is any human creation that permits the transformation of matter or energy
that exists in nature for its use by humans and for the satisfaction of their concrete needs
(specifically, inventions are industrial products, processes conceived for their production
or use, and apparatuses regarding their application).
The patent, for its part, is the document issued by the State to record the exclusive1
and temporary right that a natural person or legal entity has to exploit in the industrial
arena an invention that meets the legal requirements.2
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1
Such exclusivity rights consist of preventing other persons from manufacturing, using, selling, offering for
sale, or importing the patented product without the patent holder’s consent, and the right to prevent other
persons from using the patented process and from using, selling, offering for sale, or importing a product
obtained directly from a patented process without the patent holder’s consent.
2
Patents are granted for inventions that have a technical or essentially technical nature.
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In this respect, the Industrial Property Law (Ley de Propiedad Industrial, LPI) establishes
four fundamental requirements that must be met in order for an invention to be patentable:
a) The presence of an invention according to its legal definition (products, processes,
apparatuses, etc.);
b) That the invention has been obtained through an inventive step whose results cannot obviously be deduced by a person skilled in the art;
c) That the invention is new (this being understood as not being found in the state of
the art, which is to say that the knowledge related to it has not been made public
in Mexico or abroad);
d) That the invention has an industrial application.
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The LPI also establishes what cannot be patented (including what is not considered an
invention and therefore not patentable):
a) Essentially biological processes for the production, reproduction, and propagation
of plants and animals;
b) Biological and genetic material as found in nature;
c) Animal breeds and the human body and the living matter that forms them;
d) Plant varieties;
e) Theoretic or scientific principles and discoveries consisting of making known or
revealing something that already existed in nature, even though previously
unknown to humans;
f) Schemes, plans, rules, and methods for carrying out mental processes, playing
games, or doing business, and mathematical methods;
g) Computer programs;
h) Methods of presenting information; æsthetic creations and artistic or literary
works; surgical, therapeutic, or diagnostic methods of treatment applicable to the
human body and to animals;
i) Juxtaposition of known inventions or mixtures of known products, or variations
in their use, form, dimensions, or materials.3
A patent is processed before the Mexican Industrial Property Institute (Instituto Mexicano de la Propiedad Industrial, IMPI). The procedure is initiated by the filing of an application (which includes the patent request, the description, claim, and abstract4 of the
invention, and the payment of the corresponding fees; furthermore and if applicable, it
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3
Unless in reality such juxtaposition or variation involves their combination or fusion, such that they cannot
function separately or that their characteristic qualities or functions have been so modified as to produce an
industrial result or a use not obvious to a person skilled in the art.
4
The Regulation of the LPI establishes that the translation into Spanish of the description of the invention and
claims may be filed within two months from the date of filing the application.
Utility models are considered the objects, implements, appliances, or tools that as a
result of a change in their disposition, configuration, structure, or form present a different function with respect to the component parts or advantages with respect to their utility. Their registration grants the right of exclusive use, but it is conditioned on the
following fundamental requirements:
a) The presence of a utility model according to its legal definition (object, implement,
appliance, tool, etc.);
b) The model is new;
c) The model can have an industrial application.
Utility models are also processed before the IMPI and are governed by the same rules that
are applicable to patents. Nevertheless, in the registration process for utility models, the
application is not published, which shortens the time period to an average of three years.
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5
The priority document can be presented within a term of three months from the filing date. This document
consists of a certified copy of the first deposit made before the national patent office of a country that is a
member of the Paris Convention. In this respect, Mexico is a contracting party of the Paris Convention and
of the Patent Cooperation Treaty (PCT), and therefore there is a recognition of the priority date and the international PCT deposit date when it designates Mexico.
6
With respect to the payment of the annual fees, the LPI establishes a grace period of six months, after which
if they are not paid the patent will lapse.
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should include the power of attorney, the document assigning rights by the inventor, and
the priority document).5 After the application is filed, IMPI will do a formal examination,
that takes from 18 to 24 months and concludes with the publication of the application
in the Industrial Property Gazette, and a substantive examination, the purpose of which
is to verify compliance with the patentability requirements and which takes approximately 24 months, concluding with the granting or denying of the patent.
With respect to the above-mentioned examinations, IMPI may issue one or more
requirements to the applicant, to which the latter must respond to within a term of two
months (having, in turn, a second two-month extension).
Patents have a non-extendible term of 20 years from the date of filing of the application, conditioned on the timely payment6 of the annual fees for retaining the patent registration. In the case of applications filed under the Patent Cooperation Treaty (PCT),
there is also a 20-year non-extendible term, but counting from the date of filing of the
international PCT patent application.
Finally, it should be mentioned that upon the expiration of a patent or its lapse for failure to make the annual payments, the patent passes into the public domain.
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Registrations of utility models are granted for 10 non-extendible years from the date
of filing the application and conditioned on the payment of annual fees. Like patents,
the utility model applications can lapse for failure to make such payments in a timely
fashion, and upon their lapse or expiration they enter the public domain.
It should be mentioned that the LPI establishes certain limitations concerning the
exclusivity that is granted by a patent or the registration of a utility model, which can be
summarized as establishing that the right of exclusivity granted will not be enforceable
against a third party when:
a) The third party performs non-commercial research for experimental, testing, or
teaching purposes;
b) The product or patented process or utility model is used or marketed by the third
party after having been legally introduced into the market;
c) The product or patented process or utility model was used by the third party prior
to the date of filing of the invention;
d) In the case of patents related to products that are live matter, the third party uses
the product as an initial source of variation or propagation to obtain other products or utilizes, puts in circulation, or markets the patented products for purposes
that are not multiplication or propagation after they have been legally introduced
into the market.
2.3. Industrial Designs
An industrial design consists of the visual, ornamental characteristics applicable to an article of manufacturing. Industrial designs can be divided into industrial drawings, constituted by any combination of figures, lines, or colors that are incorporated into an
industrial product as ornaments and that give it a special and unique aspect, and industrial models, which are any three-dimensional forms that serve as models or patterns for
the manufacture of industrial products and gives them a special appearance.
The registration of industrial designs with the IMPI also establishes an exclusive right
of use and, as with the figures studied above, the following requirements must be met
in order to register them:
a) The presence of an industrial design according to its legal definition (design or
model);
b) The industrial design is new or original;
c) The industrial design can have an industrial application.
This registration is also processed by the IMPI and is governed by the same rules as are
applicable to patents (with the exception of the publication of the application in the
Industrial Property Gazette).
The industrial design registrations are granted for 15 non-extendible years, conditioned on the payment of annual fees.
2.4. Integrated Circuit Designs (Electronic Boards)
Finally, it is important to mention that industrial rights derived from patents, utility
models, industrial designs, and integrated circuit designs (as well as rights derived from
an application in process) can be encumbered or transferred in whole or in part.
To that effect, only the formalities established in the Civil Code need to be complied
with and, subsequently, in order for the transfers to have effect against third parties, they
must be registered with the IMPI.
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In this respect, the LPI defines these concepts as: (i) topography: The three-dimensional disposition,
expressed in any form, of the elements, of which at least one must be active, and of some or all the interconnections of the integrated circuit, or the three-dimensional disposition prepared for an integrated circuit
to be fabricated; and (ii) integrated circuit: a product, in its final or intermediate stage, in which the elements
—at least one of which is an active element— and one or all of the interconnections, form an integral part
of the body or of the surface of a piece of semiconductive material, and which is designated to carry out an
electronic function.
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Registrations of integrated circuit designs are granted to topographies, which consist of
the three-dimensional disposition of the elements of the integrated circuit, of which at
least one must be active, and of some or all of the interconnections of the integrated
circuit.7
Their registration is processed before the IMPI according to the same rules as those for
obtaining a patent and the title granting the exclusivity of an integrated circuit design
has a term of 10 non-extendible years (counted from the application filing date), conditioned on the payment of annual fees.
The exclusivity rights in relation to an integrated circuit design will not produce effects
that prejudice third parties when:
a) The use is by a third party for private purposes of evaluation, investigation, analysis,
or teaching;
b) A third party had used it independently and prior to the filing of the holder of
the right;
c) A third party sells or distributes the product that contains the integrated circuit
design if it was acquired legally from the holder of the right or its licensees or distributors;
d) A third party sells or distributes a product that contains an illegal reproduction of
the integrated circuit design if the third party acquired it in good faith and shows
that it had no reason to know, and did not know, that it was an illegal reproduction.
Furthermore, the holder of a patent or a registration of a utility model, industrial
design, or integrated circuit design can grant, by means of a contract, a license for its
exploitation. In this case, the license must be registered before the IMPI in order to produce effects against third parties. In this regard, it is important to emphasize that in relation to inventions, the LPI has established that any person can request from the IMPI the
assignment of a mandatory license8 to exploit an invention (i) when after three years
from the date of the granting of the patent, or four years from the filing of the application, it has not been exploited, or (ii) for purposes of public interest.
3. Distinctive Signs
3.1. Trademarks
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A trademark is any visible sign that distinguishes products or services from others of the
same kind or type in the market, and its principal function is to distinguish and individualize products or services and their manufacturers or providers. It should be emphasized that from the moment that a product or service is distinguished by means of a sign,
whether words, designs, or a combination of both,9 it is considered that a trademark
exists. However, it is necessary to obtain its registration before the IMPI for it to have official recognition, which results in a right to its exclusive use.
Like other industrial property rights, their registration begins with the filing of an
application before the IMPI (and the payment of the respective fees). The registration
process can take from three to twelve months or more, depending on if during the examinations of form and substance done by the Institute any legal requirement or impediment is found.10
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8
In case of the granting of a mandatory license to a third party, the latter must exploit the invention within
a maximum term of two years or otherwise the authority may revoke the granting of the license.
9
Based on their characteristics and the elements that compose them, trademarks can be (i) nominative, which
are those that permit the identification of a product or service through a word or group of words; (ii) nonnominative (or design), which consists of symbols, designs, logos or any figurative element that is distinctive; (iii) mixed, which are those resulting from the combination of words with figurative elements that
show the trademark as a single distinctive element or combination, and (iv) three-dimensional forms,
among which are recognized packaging, containers, or the form or the presentation of the products.
10
The LPI expressly states what cannot be registered as a trademark: (i) animated or changing words, figures, or three-dimensional forms expressed dynamically; (ii) technical names or names of common usage
of the products or services the trademark intends to cover, as well as words that, in the common language
or commercial practice, have become the usual or generic designation of the same; (iii) three-dimensional
forms that are in the public domain or have become of common usage or those lacking the originality to
facilitate distinction, as well as the usual and common form of the product or the form imposed by their
nature or industrial function; (iv) words, figures, or three-dimensional forms that are descriptive; (v) isolated letters, numbers, or colors, unless combined or accompanied by elements that give them a distinctive
In this regard and just as with the registration of creations of industrial application, in
the event that the IMPI concludes from the examinations of form and substance that there
is a prior registration,11 a legal impediment or a requirement, it will notify the applicant
of its ruling, granting the latter a term to respond (complying with the requirements
made or arguing against the prior registrations or the legal impediments).
The registration of a trademark has a duration of 10 years from the filing of the application and may be renewed12 for equal periods if the renewal request is filed by the title
holder within six months prior to its expiration.
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character; (vi) translations into other languages, capricious orthographic variations, or artificial construction of non-registerable words; (vii) unauthorized reproduction or imitations of seals, flags, or
emblems of any country, state, municipality, or equivalent political division, as well as names, abbreviations, symbols, or emblems of international organizations, governmental, non-governmental, or of any
other officially recognized organizations, as well as the verbal designations of the same; (viii) reproductions or imitations of official signs or seals of control and guarantee without authorization from the competent authority, or coins, bank notes, commemorative coins, or any official mode of payment, national
or foreign; (ix) reproduction or imitation of names or graphic representation of badges, medals, or other
awards obtained in officially recognized exhibitions, fairs, conferences, or cultural or sporting events; (x)
proper geographic names and maps, as well as the regional references, names, and adjectives, when they
indicate the origin of products or services and may cause confusion or error as to such origin; (xi) the
names of towns or places known for the manufacture of certain products (except the names of places in private ownership when they are special and not liable to be confused, and when the consent of the owner
has been obtained); (xii) the names, pseudonyms, signatures, and portraits of persons, without the consent of the persons concerned; (xiii) the titles of intellectual or artistic works and the titles of periodicals
and other distributed publications, the names of fictional or symbolic characters or real personages portrayed, stage names, and the names of performing groups (except where the owner of the corresponding
rights has expressly authorized such registration); (xiv) words, figures, or three-dimensional forms liable
to deceive or mislead the public, understood as being those that constitute false indications as to the
nature, components, or qualities of the products or services that they claim to protect; (xv) words, figures, or three-dimensional forms identical or similar to a mark that the Institute considers well known
in Mexico, to be applied to any product or service; (xvi) a mark that is identical or confusingly similar to
another in respect of which an application has been filed earlier and is awaiting registration or to another that is already registered and in force, and is applied to the same or similar products or services, provided that a mark identical to one previously registered may be registered if the application is made by
the same owner for use in connection with similar products or services; and (xvii) a mark that is identical or confusingly similar to a trade name applied to a firm or industrial, commercial, or service establishment whose principal business is the manufacture or sale of the products or the provision of the
services that the mark is intended to protect, provided that the trade name has been used prior to the filing date of the application for registration of the mark or the date of the declared use thereof; the foregoing shall not be applicable when the application for a mark is filed by the owner of the trade name, if
no identical trade name exists that has been published.
11
In trademark matters the existence of a prior registration or application that is identical or confusingly similar and is applied to the same or similar products is called a prior registration cite.
12
A registration (of a trademark or slogan) must be renewed six months prior to its expiration, paying the fee
established by the IMPI. Nevertheless, the Institute may process renewal requests filed within the six months
following the expiration of the registration. Once this last mentioned period passes, if the registration has
not been renewed it will lapse.
3.2. Slogans
A slogan consists of a phrase or sentence intended to capture the public’s attention
regarding a commercial, industrial, or service establishment or business, and/or a product or service, and to distinguish it from others of the same type.
The right to exclusive use of slogans is also granted for 10 years, which can be
renewed for equal periods, and is acquired through the registration granted by the IMPI,
as the result of a process governed in general by the rules established for trademarks,
provided there are no special rules applicable.
In order to ensure a registration does not lapse for lack of use, the trademark or slogan should not be left unused for three consecutive years with respect to the products
or services for which it was registered. In this regard it is general practice in Mexico to
file a notice of use with respect to the registration every three years. While such a notice
is not mandatory,13 it is considered a presumption of use since it is filed under oath.
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3.3. Trade Names
The trade name is a distinctive sign that is used to identify an industrial, commercial, or
service company or establishment and distinguish it from the others that engage in the
same or a similar activity.14
The difference between a trademark registration and trade name is that the purpose of
the first is to distinguish products and services, while the purpose of the second is to differentiate establishments, businesses, and companies. In this respect, the right to exclusive use of a trade name will be protected without the need for registration; its use is
sufficient. However, its publication in the Industrial Property Gazette will produce the
effect of establishing a presumption of good faith in the adoption and use of the name.
In terms of the LPI, the effects of the publication of a commercial name will last for 10
years from the date of the filing of the petition and may be renewed for periods of the
same length.
The procedure for such publication by the IMPI is initiated with a petition that can be
filed by the person who is using the trade name (evidencing the actual use in relation to
a particular line of business). Subsequently, once the legal requirements are met, a substantive examination will be done to determine if there is any identical or confusingly
similar trade name applied in the same line of business, either applied for or published
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13
Under the prior LPI, the filing of such a notice of use was mandatory; however, with the reforms of the law
it was removed as an obligation and left to the discretion of the client.
14
The protection of a trade name covers the geographic zone of the actual clientele of the company to which
the trade name applies, which will be extended to the entire Mexican Republic if there is a massive and constant dissemination of the name in the country.
The industrial property rights resulting from distinctive signs (as well as the rights
resulting from an application in process) can also be encumbered or transferred16 in
whole or in part. To that effect, as with respect to the creations of industrial application,
only the formalities established in the civil code need be complied with, and to be effective against third parties they must be registered17 with the IMPI. Furthermore, the holder of a trademark registration or a slogan (or a trade name) can grant, through an
agreement, a license to one or more persons,18 in relation to one or more of the products
or services to which the trademark or slogan applies. Any such license must be registered with the IMPI in order to produce effects against third parties.
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15
The third party will have the right to request the registration of the trademark within the three years following the date on which it was published in the Registry, in which case it must process and obtain the declaration of nullification thereof previously.
16
It should be pointed out that when there is a merger of legal entities, it will be understood that there is a
transfer of rights over registered trademarks or slogans (provided there is no stipulation to the contrary).
17
For this purpose a request for registration of transfers must be filed, accompanied by the documents evidencing such transfers and the payment of the corresponding governmental fee. A power of attorney granted
by the assignee to the law firm making the registration must also be filed.
18
The person having a legally registered license has the power to exercise a legal action to protect the rights
over the trademark as if he were the title holder thereof. This is so unless there is some stipulation to the
contrary, since the use of the trademark by the licensee is considered to be use by the trademark title
holder himself.
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prior to this petition, or a trademark application or registration that is the same as or
confusingly similar. If no such prior application or registration is found, the publication
will be made. Finally, the trade name will be governed to the extent applicable and when
there are no special rules applicable, by the rules established in the LPI for trademarks.
According to the LPI, a distinctive sign will not produce effects against a third party when:
a) The same or a confusingly similar distinctive sign is exploited in good faith in the
country for the same or similar products or services, provided such use began
before the date of filing of the application or the first use declared in such filing
and it has been used continuously without interruption;15
b) The product to which the registered trademark is applied is sold, distributed,
acquired, or used after such product had been legally introduced in the market by
the holder of the registered trademark or the licensee;
c) The third party (whether an individual or an entity) applies its name or denomination to the products it produces or distributes, the services it provides, or its
establishments, or uses it as part of its trade name, provided the third party applied
it in the form in which it is accustomed to use it and it has characteristics that distinguish it clearly from a homonym already registered as a trademark or published
as a trade name.
In addition, when with an authorization for use with respect to a distinctive sign, technical knowledge is also transferred or technical assistance is provided so that the person
to whom it is granted can produce or sell goods or provide services uniformly and with
the operational, commercial, and administrative methods established by the holder of the
trademark, thereby maintaining the quality, prestige, and image of the products or services it distinguishes, this constitutes the legal institution of the franchise.
4. Appellation of Origin
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An appellation of origin is the name of a geographic region of the country that serves to
designate a product originating from there, the quality and characteristics of which are
the result of geography, including therein natural and human factors.
The protection that the LPI grants to appellations of origin is initiated with a declaration to that effect issued by the IMPI. Such a declaration of protection will be made ex oficio or at the request of the individuals or entities that engage directly in the extraction,
production, or preparation of the product related to the appellation of origin, the manufacturer or producer associations, or the agencies or entities of the federal government
or the state and Federal District governments.
The request for a declaration of protection must be made in writing and be accompanied by evidence supporting the petition. Given that the obtaining of this declaration of
protection involves compliance with the requirements established in the LPI, the IMPI will
examine the information and documents contributed and may request the petitioner to
make any necessary clarifications or additions (for which the latter will have a term of two
months). Subsequently, if once the studies are done and the evidence is presented, the
Institute decides to grant the protection of the appellation of origin, it will issue a declaration and publish it in the Official Federal Gazette.
To date the IMPI has granted protection as appellations of origin to 12 Mexican products: tequila, Olinalá boxes (small decorated wooden boxes), mezcal, talavera (pottery)
from Puebla, bacanora (distilled alcohol made from a particular agave plant), coffee from
Veracruz, amber from Chiapas, charanda (alcoholic beverage made from sugar cane),
sotol (type of pulque, which is an alcoholic beverage made from the maguey plant), mango
Ataulfo from Soconusco, coffee from Chiapas, and Cotija cheese.
This declaration of protection does not have any specific time limit. It will depend on
the survival of the conditions that brought about the protection to begin with. In that
respect, the protection conferred on an appellation of origin will only take effect once
the IMPI issues a declaration thereof.
It is important to emphasize that in contrast to other distinctive signs (such as trademarks
or slogans), the appellation of origin is not held by one private party; rather it belongs
to the Mexican State, which as title holder thereof will grant authorizations for its use.
In this respect, the authorizations for use of an appellation of origin may be requested
by interested individuals or entities from IMPI for which they must demonstrate that they
comply with the requirements indicated by the LPI. Such authorization has a duration of
10 years,19 counting from the date of filing of the request, and it may be renewed for
equal periods.
The right to use an appellation of origin may be transferred by the authorized user
pursuant to the civil code. Such a transfer will only take effect upon its registration
with IMPI, and presuming it is shown that the new user complies with the conditions
and the requirements established in the LPI to obtain the right to use the appellation
of origin.
5. Industrial Secrets
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19
It should be clarified that what is subject to the term of 10 years is the authorization granted to a third party
for its utilization, not the declaration of origin in itself.
20
This refers to the fact that the information must be useful with regard to a specific product or service (nature,
characteristics, or ends), with regard to the methods or processes of production or rendering, granting to its title
holder(s) a competitive or economic advantage over third parties (which, in short, translates into a profit).
21
Which is to say that it is not in the public domain, it is not obvious to a person skilled in the art, its dissemination is not mandatory by law or judicial order, and it is duly protected before third parties.
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An industrial secret is information of industrial or commercial application kept as confidential by an individual or entity as a means to obtaining or maintaining a competitive
advantage over third parties.
In terms of legal protection, industrial secrets law should be seen as a preventive issue
that permits their title holder(s) to continue enjoying the competitive advantages the
industral secrets law offers, rather than as a corrective issue resulting from their disclosure. In this regard, the elements necessary for the existence of an industrial secret
should be known by their holder(s). Such elements are:
a) The secret must be industrial and/or commercial information;
b) That such information has a competitive value, which is to say an economic
value;20
c) That it is kept confidential by an individual or entity;21
d) That in order to keep it confidential sufficient measures have been taken to preserve it as such and that access to it has been restricted;
e) That it is recorded in material support (documents, electronic, or magnetic mediums, optic discs, microfilm, film, etc.), above all for purposes of identifying it and
establishing the date(s) of its origin;
f) In the context of employment, that the receiver of the information has been
warned that it is confidential.
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In this respect it should be emphasized that even though sometimes the terms confidential information, know-how, and industrial secret are used as synonyms, not all confidential
information can be considered to be an industrial secret, and not all know-how can be
considered confidential information or an industrial secret.
Technical knowledge (know-how)22 is either the knowledge necessary for the reproduction of a product or of a process in the same conditions in which it was generated,
or else that information that is sufficient and even necessary for the provision of a service or for the development of a business. Such technical knowledge can be considered
confidential information in the same way as other company information that is not technical, but for it to be considered an industrial secret it must, as already mentioned, have
an industrial or commercial application and represent the obtaining or maintaining of
competitive or economic advantages over others. There are different degrees of protection, with the highest degree being that of the industrial secret, and therefore it is very
important to determine if certain information is simply confidential or can be considered an industrial secret.
With respect to the information that actually constitutes an industrial secret, it is important to look for and implement measures to preserve its confidentiality, since the mere
declaration by whoever is the title holder that it is an industrial secret is not sufficient.
Rather, it is necessary for there to be several measures considered appropriate for maintaining it as such. The importance of these measures lies in the fact that in the majority
of cases giving them the treatment they merit is the only form of protecting them.
It is important to emphasize that there is no registration with respect to an industrial
secret since that would result in its exposure; its legal protection arises from adopting
the measures that are considered appropriate and sufficient in order to maintain its confidential nature. In this way, its holder(s) will have their interests protected in terms of the
LPI through the restraint of its disclosure and the establishment of various types of
indemnities in the event a third party has illegally made use of 23 such industrial secrets.
6. Domain Names
A domain name is the code or the electronic address that leads to a particular internet
page. Each domain name is assigned to an IP (Internet Protocol) numerical address by its
hosting provider. Since people remember names better than numbers, the domain name
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22
Know-how is knowledge that cannot yet be patented, that cannot be patented by legal prohibition, that is
patentable but not patented as part of a market strategy, and that does not meet the requirements to be considered an invention.
23
It should not be forgotten that there is a right to benefit from the successful preservation of an industrial
secret, but there is no provision that prevents another from using it if such other party obtained it legally.
This shows the importance of the measures implemented in this regard.
7. Administrative Proceedings Related to Industrial Property Rights
7.1. Nullification, Expiration, or Cancellation
IMPI’S
powers include the implementation of proceedings for the nullification, expiration,
and cancellation of the industrial property rights that are governed by the LPI and, consequently, the issuance of corresponding administrative declarations.
In this regard and prior to addressing the proceeding itself, a brief summary should be
given of the different premises that result in each of these (nullification and cancellation). It should be mentioned that these proceedings have as a principal consequence
the loss of the exclusive right that the patent or the registration confers, whether of a creation with industrial application or of a distinctive sign.
7.1.1. Request for an administrative declaration of nullification
The LPI establishes several premises with respect to nullification in the case of both
patents and utility model and industrial design registrations, on the one hand, and in
relation to distinctive signs on the other. However, in both cases the nullification of a
patent or a registration occurs when the elements necessary for the validity of the administrative act from which they were derived were not fully present.
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translates this number into words and, therefore, usually results in one or more words
that help the user to find a particular internet page.
Each country has its own specific procedure for their registration. In some countries
(as in Mexico) such registration can be made by any person, while in others, only a company that complies with certain requirements can do so. Nevertheless, in either case, in
order for a domain name to work it must be registered with a Domain Name Server (DNS)
and in the Network Information Center (NIC).
The steps for their registration are: verify that the name to be requested is available, request
your hosting provider to register the name in its DNS, and register the name in the NIC.
In relation to domain names, there are other questions related to intellectual or industrial property rights that may be of interest. For example, with respect to a specific
domain name, exclusive use can also be obtained through a reservation of rights to
exclusive use. To that effect, the Federal Copyright Law (Ley Federal del Derecho de Autor,
LFDA) considers these rights to be equivalent to those of titles of periodic publications.
It should also be emphasized—given the relationship there is between domain names
and that of trademarks—that there are several procedures for requesting the cancellation
of a particular domain name in the case of a better right (in terms of the Rules for Uniform Domain Name Dispute Resolution Policies adopted by the Internet Corporation for
Assigned Names and Numbers [ICANN]).
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Thus, the causes of nullification established by the LPI are:
a) With respect to patents24 or registrations related to industrial creations: (i) that they
have been granted in violation of the requirements and conditions for their granting, (ii) that they have been granted in violation of the law in force when they were
granted, (iii) that during the application process the application is abandoned, and
(iv) that they were granted by serious error or oversight or to someone who did
not have the right to obtain them;25
b) With respect to distinctive signs: (i) that they have been granted in violation of the LPI
or the provisions in force at the time of their registration; (ii) that they are identical or
confusingly similar to another that has been used in the country or abroad prior to the
date of presentation of the request and is applied to the same or similar products or
services (provided whoever claims a better right proves having used the distinctive sign
without interruption in the country or abroad from before the date of presentation or
the date of first use declared); (iii) that they were granted based on false information
in the application; (iv) that they have been granted by error, oversight, or difference in
judgment, there being another distinctive sign that is considered invaded, and (v) that
they have been granted to the agent, representative, user, or distributor of the holder
of a sign abroad, and they have been applied for without the express consent of the
title holder abroad (it will be considered to have been obtained in bad faith).26
7.1.2. Request for an administrative declaration of cancellation
Similarly, the LPI establishes different premises that result in the cancellation of industrial
property rights (either passing into the public domain in the case of patents, utility models, and industrial designs, or the right of exclusivity being extinguished in the case of
trademarks and slogans):
a) In the case of patents, (i) the expiration of its term, (ii) the failure to make the
annual payments or pay the fines necessary to maintain in force the rights derived
therefrom, or (iii) the failure to exploit the patent;
b) In the case of distinctive signs, (i) the failure of the title holder or authorized user
to use it for three consecutive years on the products or services for which it was
registered, or (ii) the failure to renew.
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24
It should be emphasized that when the nullity only affects one or a few claims, or a part of one claim, the
nullity is declared only with respect to the claim or claims affected, or the part of the affected claims. The nullity can be declared in the form of a limitation or clarification of the corresponding claim.
25
The nullity action related to the violation of provisions can be exercised at any time; an action resulting from
the abandonment of the application or from a defective grant can only be exercised within a term of five
years from the date of publication of the patent or the registration in the Industrial Property Gazette.
26
The nullity actions mentioned in subsections (ii) and (iv) may be exercised within a term of five years,
counting from the date of publication of the registration in the Industrial Property Gazette; those regarding
subsections (i) and (v), at any time, and the action for subsection (ii), within a term of three years.
It should be emphasized that in both cases (both with respect to inventions and distinctive signs) an administrative declaration of the Institute will not be required when
the cancellation occurs as a result of the passage of time.
7.2. Administrative Infringement
Administrative infringement proceedings are also carried out before the IMPI, which is
the administrative authority responsible for industrial property matters and, therefore,
the one that determines whether or not there has been an infringement of the rights
derived from a patent or a registration.27
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27
In this regard, the LPI mentions the following as infringements: (i) engaging in acts contrary to proper practice
and custom in industry, commerce, and services that amount to unfair competition and that relate to the subject matter regulated by this law; (ii) causing goods to appear to be patented products that are not; (iii) placing products on sale or in circulation or offering services with a label indicating that they are protected by a
Property
Furthermore, with such request the documents or document on which the action is
legally based must be filed in original or certified copy, the applicable evidence offered
unless it is supervening, the payment of the corresponding fee evidenced and, if applicable, the representative capacity of the representative shown.
Once the request for administrative declaration is admitted, the Institute will notify
the affected title holder, granting the latter a term of one month to file a response (objections and defenses). Both parties may also, prior to the closing of the procedure, present
closing arguments in writing. After such period and once the background of the case,
the arguments made by the parties and the evidence offered have been studied, the IMPI
will issue the respective administrative ruling.
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7.1.3. Cancellation for loss of distinctiveness
Finally, IMPI can also declare the cancellation of a trademark registration when it has lost
its distinctiveness for having caused or even tolerated that it be transformed into a generic name that corresponds to one or more products or services for which it is registered.
The administrative declaration proceedings can be initiated ex oficio by IMPI or at the
request of someone with legal interest and grounds for the claim. The request must be
filed in writing, drafted in Spanish and must contain the following information:
a) Name of the petitioner and, if applicable, of its representative;
b) Domicile to receive notifications;
c) Name and domicile of the opposing party and its representative;
d) Object of the request;
e) Description of the facts;
f) Legal grounds.
This type of proceeding is initiated with a request filed by the affected title holder and
notice served on the presumed infringer who has a term of 10 business days to file a
response (objections and defenses). If after the legal procedures the Institute determines
an infringement has occurred, the responsible party will be sanctioned with:
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trademark when they are not; (iv) using a mark confusingly similar to another registered mark to protect products or services identical or similar to those protected by the registered mark; (v) using a registered mark or one
confusingly similar thereto without the consent of its owner as an element of a trade name or business name,
or vice versa, provided that the said trade names or business names are related to establishments working with
the products or services protected by the mark; (vi) using, within the geographical area of the effective clientele or in any part of the Republic in the case provided for in Article 105 of this law, a trade name that is identical or confusingly similar to another already being used by a third party to protect an industrial, commercial
or service establishment in the same or a similar field; (vii) using as marks the names, signs, symbols, abbreviations, or emblems referred to in Articles 4 and 90, subparagraphs VII, VIII, IX, XII, XIII, XIV and XV, of this
Law; (viii) using a mark previously registered or confusingly similar thereto as a trade name or business name
or part of such a name by a natural person or legal entity whose activity is the production, importation or marketing of goods or services identical or similar to those to which the registered mark is applied without the written consent of the owner of the registration or of the person empowered to give such consent; (ix) performing,
in the course of industrial activities or trade, acts that confuse, mislead, or deceive the public by causing it to
believe wrongly or assume that a relation or association exists between a given establishment and that of a third
party, that products are manufactured according to specifications, licenses, or authorizations from a third party,
that services are rendered or products sold according to authorizations, licenses, or specifications from a third
party, and that the product concerned comes from a territory, region, or locality different from the true place of
origin, in such a way as to mislead the public as to the geographical origin of the product; (x) pursuing or
achieving the aim of denigrating the products or services, the industrial or commercial activity, or the establishment of another party (this provision shall not apply to the comparison of products or services protected
by the mark for the purpose of informing the public, provided that the comparison is not tendentious, false, or
exaggerated within the meaning of the Federal Consumer Protection Law.); (xi) manufacturing or developing
goods covered by a patent or by a utility model or industrial design registration without the consent of the
owner thereof or without the appropriate license; (xii) offering for sale or bringing into circulation goods covered by a patent or by a utility model or industrial design registration in the knowledge that they have been
manufactured or developed without the consent of the owner of the patent or registration or without the appropriate license; (xiii) using patented processes without the consent of the owner of the patent or without the
appropriate license; (xiv) offering for sale or bringing into circulation goods that are the result of the use of
patented processes in the knowledge that they have been used without the consent of the owner of the patent
or of the person who holds an exploitation license; (xv) reproducing or imitating industrial designs protected
by registration without the consent of the owner thereof or without the appropriate license; (xvi) using a registered trade announcement or one confusingly similar thereto without the consent of the owner thereof or
without the appropriate license for the purpose of advertising goods, services, or establishments identical or
similar to those to which the announcement applies; (xvii) using a trade name or a name confusingly similar
thereto without the consent of the owner thereof or without the appropriate license to distinguish an industrial, commercial, or service establishment in the same or a similar branch; (xviii) using a registered mark without the consent of the owner thereof or without the appropriate license on goods or services identical or similar
to those to which the mark is applied; (ix) offering for sale or bringing into circulation goods identical or similar to those to which a registered mark is applied in the knowledge that the said mark has been used on those
goods without the consent of the owner thereof; (xx) offering for sale or bringing into circulation goods to
which a registered mark is applied and which have been altered; (xxi) offering for sale or bringing into circulation goods to which a registered mark is applied after having partially or totally altered, replaced, or deleted
the said mark; and (xxii) using an appellation of origin without the appropriate authorization or license.
a) A fine for up to 20 thousand days of minimum wage applicable in the Federal
District;
b) Temporary or definitive closure; or
c) Arrest.
With respect to this type of administrative procedure, the affected title holder may
request that IMPI take precautionary measures28 to be carried out prior to the request for
administrative declaration of infringement or in the act of notification. For the imposition
of such precautionary measures the petitioner (affected title holder) must fulfill the requirements indicated in the LPI, among which is the granting of a bond to cover any possible
damages or losses that could be caused to the presumed infringer by such measures.29
7.3. Means of Appeal
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28
Such precautionary measures are: (i) order the withdrawal from circulation or prevent the circulation of
the merchandise infringing rights protected by the LPI; (ii) order the withdrawal from circulation of the illegally manufactured or used objects; the objects, packages, containers, wrapping, stationary, advertising
material, and similar items that infringe any of the rights protected by the LPI; the signs, postings, placards,
stationery, and similar items that infringe any rights protected by the LPI; the tools or instruments used in
the manufacture, preparation, or obtaining of any of those indicated in the above subsections; (iii) prohibit immediately, the commercialization or use of the products with which a right protected by the LPI is
being violated; (iv) order the seizure of goods, which will be carried out in accordance with the applicable provisions of the LPI; (v) order the presumed infringer or third parties to suspend or cease the acts that
are in violation of the LPI; and (vi) order the suspension of the provision of the service or closure of the
establishment when the above measures are not sufficient to prevent or avoid the violation of the rights
protected by the LPI.
29
It should be mentioned that the infringing company can issue an indemnity bond, thereby canceling one or
all the precautionary measures adopted.
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When one of the parties in a proceeding of this type considers that its rights have
been affected by a ruling issued by IMPI, it can make use of any of the following means
of appeal:
a) Motion for review. Pursuant to the terms of the Federal Administrative Procedures
Law (Ley Federal de Procedimiento Administrativo) this motion must be filed before
the authority that issued the act being challenged within 15 days from the notification of the ruling. It should be mentioned that this appeal is optional and therefore it is not required to exhaust this appeal before making use of another action;
b) Nullity proceeding. This judicial proceeding must be filed before the Federal Tax and
Administrative Justice Court within a term of 45 business days which will begin to
run as of the day following the notification of the ruling and it is governed by the
provisions of the Federal Law of Administrative Law Court Procedure (Ley Federal
de Procedimiento Contencioso Administrativo, LFPCA). Previously the provisions of the
Federal Tax Code governed this proceeding and they still do for those proceedings
filed before the issuance of the new law;
c) Indirect amparo proceeding. In the case of direct violations of the Constitution, it is
possible to file before the District Courts an indirect amparo claim within 15 business days following the notification of the ruling.
8. Industrial Property Crimes
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In contrast to copyright where crimes are regulated in the Federal Criminal Code (Código Penal Federal), in industrial property the LPI itself establishes what conduct is considered criminal:30
a) Reoccurrence of conduct established as an infringement by the LPI, once the first
administrative sanction imposed for this reason has become firm;
b) Fraudulently counterfeiting trademarks on a commercial scale;
c) Revealing to a third party an industrial secret learned by virtue of work, position,
responsibility, practice of a profession, business relationship or by virtue of the
granting of a license for use, without the consent of the person keeping the industrial secret, when the person revealing it had been warned that it was confidential,
for purposes of obtaining an economic benefit for itself or for the third party or in
order to cause harm to the person keeping the secret;
d) Unlawfully appropriating an industrial secret without the consent of the person
keeping it or such person’s authorized user, in order to use it or reveal it to a third
party, for purposes of obtaining an economic benefit for itself or the third party or in
order to cause harm to the person keeping the industrial secret or its authorized user;
e) Using the information contained in the industrial secret, learned by virtue of work,
position, responsibility, practice of a profession or business relationship, without
the consent of the person keeping the industrial secret or its authorized user, or
that has been revealed by a third party, knowing that such third party did not have
the consent of the person that keeps the industrial secret or its authorized user, for
purposes of obtaining an economic benefit or intending to cause harm to the person keeping the industrial secret or its authorized user.
9. Indemnification for Damages and Losses
The LPI establishes that in addition to the sanctions that will be imposed pursuant to
such law, a claim may be filed for the payment of damages and losses to the affected
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30
These crimes will be prosecuted by complaint of the offended party and with regard to the first two crimes, the
Mexican Industrial Property Institute must issue a technical opinion (as a requirement for being actionable).
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party; such indemnification according to this law may in no case be less than 40 percent
of the sale price to the public of each product or the provision of services that involves
a violation of industrial property rights.
In this respect, it should be pointed out that the filing of a civil or commercial claim
for these purposes does not involve a new or special procedure, rather it is governed by
the applicable provisions of the civil procedures code or, in commercial cases, the Commercial Code (Código de Comercio), and will be resolved by the federal courts or the local
courts when only private interests are affected and the plaintiff has so chosen.
Notwithstanding the above, while there is no special procedure in this respect, certain
procedural requirements must be met in order to file a civil or commercial claim or both.
Recently, in case 31/2003–PS, the Supreme Court of Justice of the Nation resolved conflicting lower court decisions determining that in order for “the action for damages and
losses to be valid, the illegality of the act must have been shown in the proceedings and,
in this regard, since the decision of IMPI is the only appropriate evidence with respect to
the violation of an industrial property right, the final decision of such Institute is a necessary essential condition for the validity of the claim.”
CHAPTER XIII
Intellectual Property
1. Introduction
Within the Mexican legal system “inventions and creations” enjoy, as in almost all other
countries, a special protection for their titleholders, derived from Section XV of Article
89 of the Political Constitution of the United Mexican States, which can be summarized
as “granting exclusive privileges for a limited period of time, in accordance with the
appropriate law, to authors, discoverers, inventors, or improvers of any branch of industry.” These concessions or privileges establish an exclusive right over such creations or
inventions, a right of exclusivity that has required, given its complexity, a specific branch
of the law that applies to the development and protection of the various legal forms
encompassing different types of creations.
The aim of this chapter is to help readers to understand such branch, by explaining the characteristics, the protection, and the legal scope of intellectual property
rights.
2. Copyright
Copyright can be considered as recognition by the State of every creator of literary or
artistic works, and implies for him/her the enjoyment of exclusive prerogatives and privileges both personal (a moral right) and economic (an economic right). Such prerogatives and privileges are included in specific protection granted to the works from the
moment that they are affixed to a material support, which is to say when they can be
perceived by the senses, regardless of their merit, use, or form of expression.
The aforementioned protection does not require registration or documentation of any
kind. Nor is the fulfillment of any formality required; only the materialization of the work
is necessary inasmuch as the work is a personal, original, and new expression of one or
more natural persons called authors.
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However, the creator of a work (or its titleholder) can request the National Copyright
Institute (Instituto Nacional del Derecho de Autor, INDAUTOR) to register the work in order
to have evidence of ownership rights. Although the registration of a work does not create rights (since the protection is granted by the simple materialization of the work) it
is declarative and is considered preferred evidence.1
This registration process is carried out before INDAUTOR, for which the official form
must be filed, along with the necessary documents (two copies of the work to be registered, the receipt for payment of the fees, and, if applicable, the power of attorney and
the document that shows the holding of the economic rights).2 The registration procedure takes about 15 business days, counting from the day following the date on which
the registration was requested; and at the end of such term a certificate of registration of
the work is delivered to the petitioner.
The Federal Copyright Law (Ley Federal del Derecho de Autor, LFDA) makes specific reference to the different branches for which such protection will be granted, among which
are works of literature, music (with or without words), drama, dance, paintings or drawings, sculptures and sculpted works, cartoons or comic books, architecture, cinematography and other audiovisual works, radio and television programs, computer programs,
photography, applied art works including graphic or textile design, and compendiums.3
This list is not exhaustive or restrictive, since all other works that by analogy may be considered literary or artistic works will be included in the mentioned protection, in each
case under the branch closest to its nature.
However, not every work can be subject to protection, some works being excluded on
account of their contents,4 or because they are an unauthorized reproduction or imitation of
national symbols, or statutory, administrative, or judicial texts, or their official translations.5
Under the terms of the LFDA, the protection to which we have referred implies for the
holder two kinds of rights, a moral right and an economic right.
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1
In spite of what has been stated, in practice a certificate showing the registration of a work is necessary in
order to be able to file a claim against a third party for copyright infringement.
2
With regard to computer programs or systems, a print of the first 10 pages and a print of the last 10 pages
of the source code must be annexed.
3
Compendiums are collections of works, such as encyclopedias and anthologies, or of other elements, such as
databases, provided such collections constitute an intellectual creation, due to their selection or the arrangement of their contents or materials.
4
The following are excluded from all protection: ideas, formulas, solutions, concepts, methods, systems,
principles, discoveries, processes, and inventions of any type; industrial and commercial uses of the
ideas contained in a work; schemes, plans, or rules for performing mental acts, games, or businesses;
isolated letters, digits, or colors unless they are styled in such a way as to make them original drawings; isolated names, titles, or phrases; simple blank forms to be filled out with any type of information, as well
as instruction sheets.
5
However, concordances, interpretations, comparative studies, annotations, comments, and other similar
works that involve, on behalf of the author, creation of an original work, are subject to protection.
In this regard, the original holder of the copyright is the creator (author) of the work.6
However, some of these rights may also be exercised by the right holder’s successors, and
it may be that the author is an employee of an individual or an entity who may have
hired him or her specifically to carry out some work, in which case the exercise of the
rights (mainly economic) will belong to the employer.7
2.1. Moral Rights
2.2. Economic Rights
Economic rights include compensation paid to the authors for the exploitation, performance,
__________
6
When a work has been created by several authors, the copyright will belong in equal parts to each one of
them, except when a different percentage has been stipulated. The acceptance of the majority of the authors
will be necessary to exercise the rights that correspond to them for the creation of the work.
7
To determine title to the rights in this case, the following must be considered: (a) if the individual or entity that contracts the author for the work pays for said creation, this person will enjoy the copyright, but will
be obligated to mention the name of the author, not as author but as collaborator, and (b) if such creation
was made without payment, that is, there was no compensation on the part of the individual or entity that
contracted it, the holder of the copyright will be the author.
* Generally speaking, common law legal systems speak of copyright, which is a property right that can be
freely transferred. On the other hand, civil law systems generally provide for authors rights, which have a
double component of economic rights and personal (or moral) rights, the latter of which are inalienable and
entitle the author to claim authorship of his/her work and object to any unauthorized modification of it.
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In contrast to other legal systems, particularly that of the United States, Mexican Law
protects the so-called moral right of authors.*
A moral right is the aspect of the copyright that concerns the protection of the author’s
personality as creator and the protection of the work itself as a separate entity. This right
is perpetual, inalienable, imprescriptible, and may not be waived or encumbered, and it
confers on its holders the right and/or the power:
a) To determine whether their work will be disseminated and in what form, or if it
will remain unpublished;
b) To demand recognition of their status as authors with regard to the work they have
created and to determine whether it will be disseminated as an anonymous work
or under a pseudonym;
c) To demand respect for their work, opposing any deformation, mutilation, or any
change to it, as well as any action or attack on the work causing it to decrease in
value or damaging the reputation of the author;
d) To modify their work, to withdraw their work from the market, or to contest the
attribution to the author of a work that is not of their creation.
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or use of their work for commercial purposes. This right is temporary (it has a duration equal to the life of the author plus 100 years, or 100 years after the work has
been disseminated, whichever occurs first). It can be waived, it is subject to a statute
of limitations, and its holder can transfer it or grant exclusive or non-exclusive licenses
for its use.
Economic rights confer to their holders the right or the power to authorize or prohibit:
a) Reproduction, publication, editing, or material affixing of a work in copies through
any means, including printing, phonographic, graphic, plastic, audiovisual, electronic, or any similar method;
b) Public communication of a work through reproduction, reading, or public performance; public exhibition by any method or procedure; or public access through
telecommunications (internet);
c) Public transmission or broadcasting of their works by cable, fiber optics, microwave,
satellite, or any other analogous means;
d) Distribution of the work, including the sale8 of support materials containing it, as
well as any form of transfer of use or exploitation;
e) Import into the country of unauthorized copies of their work;
f) Dissemination of derivative works, in any form, such as translations, adaptations,
paraphrasings, arrangements, and transformations;
g) Any other public use of the work.
Within the protection granted by the LFDA there is a series of limitations on the rights
and prerogatives of the holder of a copyright that can be summarized as the fact that literary and artistic works already disseminated can be used without the authorization of
the holder of the economic rights and without monetary compensation, provided the
normal use of the work is not affected, nor the work altered, and the original text of the
work is always quoted.
The LFDA indicates that the above limitation applies to the following cases:
a) Quotes from the text, provided they cannot be considered a significant, simulated
reproduction of the contents of the work;
b) Reproduction of articles, photographs, illustrations, and comments pertaining
to current events published in the press or broadcast on radio, television, or any
other media, when this has not been expressly forbidden by the holder of the
right;
c) Reproduction of parts of the work for critique or scientific, literary, or artistic research;
__________
8
When distribution is through sales, this right of opposition will be understood as extinguished with the first
sale, except in the case of computer programs and databases with respect to which the author will keep,
even after the sale of copies of the same, the right to authorize or prohibit the leasing of such copies.
The LFDA also regulates other rights that it calls related rights and that refer to those
belonging to intermediaries in the production, recording, or dissemination of works,
that is, to artists, interpreters, or performers; to producers of recordings or videos; and
to broadcasters.
These rights are related to copyright and are the result of an evolution in relation to
the works protected by copyright. The holders of related rights are often those who are
involved in the process of disseminating the works to the public (musicians interpret the
musical works of composers, actors interpret the roles of works performed in theaters,
written by playwrights, broadcasters diffuse works and recordings in their broadcasting
stations, etc.).
Although such related rights grant similar rights, they are more limited and are for a
shorter length of time, as will be seen later with regard to those to referred to in the LFDA.
2.3.1. Book publishers
Book publishers (either individuals or entities) are those who select or conceive the publication of some work and produce it themselves or through third parties. It is important
__________
9
This exception will only benefit individuals and therefore has no application in the case of companies and
other legal entities, except in the case of an educational or research institution or an institution not engaged
in commercial activities.
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d) One-time reproduction of a single copy of a literary or artistic work for the personal, private use of the person making it for non-commercial purposes;9
e) Reproduction for certification in judicial or administrative proceedings;
f) Reproduction, communication, or distribution through drawings, paintings, photographs, and audiovisual means of works visible from public places;
g) Use of literary and artistic works in stores or establishments open to the public that
market copies of such works;
h) An ephemeral recording, provided the broadcasting is carried out within the
agreed term, no concomitant or simultaneous broadcast is issued, and the recording may only be used once;
i) Performance of works, provided it is through communication of a transmission
received directly in a radio or television monoreceptor device of the type commonly use in private homes. No payment is made for seeing or hearing the transmission nor does it form part of an aggregate list of services. The transmission
received is not retransmitted for profit, and the receiver is a small taxpayer or a
small industrial establishment.
to point out that for there to be a publisher recognized by the LFDA, there must be a publishing agreement, by virtue of which the author, or in lieu thereof, the holder of the economic rights, agrees to deliver the work to the publisher, and the latter, in turn, agrees
to reproduce, distribute, and sell the work, and to make the agreed payments to the right
holder.10
As a consequence of this agreement and of the rights created for the author, book publishers have the power to authorize or prohibit:
a) Total or partial, direct or indirect reproduction of their books, as well as the use of them;
b) Import of unauthorized copies of their books;
c) The first public distribution of the original and of every copy of their books through
sale or any other means.
Finally, it is worth mentioning that the protection granted to book publishers is for
fifty years from the date of the first edition of the book in question.
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2.3.2. Interpreters and performers
The terms performing artist or performer designate the actor, narrator, reciter, singer,
musician, dancer, or any other person who interprets or performs a literary or artistic
work, a folkloric expression, or who engages in an activity similar to those just mentioned, even when there is no prepared text. As in the preceding situation, performing
artists or performers also execute agreements in which they specify the times, periods,
compensation, and all other terms and forms by which it will be possible to set down,
reproduce, and communicate to the public their interpretations or performances.
The performing artists or performers enjoy the right to recognition of their name with
regard to their interpretations and performances, as well as the right to oppose any
deformation, mutilation, or other threats against their performance that could damage
their prestige or reputation. Likewise the performing artist or performer has the unwaivable right to receive remuneration for the use or exploitation of their interpretations or
performances done with the purpose of directly or indirectly making a profit by any
means, public communication, or dissemination.
The duration of the protection granted to performing artists or performers will be 75
years from the first recording of the interpretation or performance, the first interpretation or performance of works not recorded, or the first broadcasting on radio, television,
or any other media.
__________
10
The parties to such an agreement can freely agree on the contents of the publishing contract, except with
respect to the unwaivable rights defined in the LFDA. In general terms, the provisions of the publishing contract of a literary work are also applicable to contracts for publication of music, scenic representation, broadcasting, audiovisual production, and advertising.
2.3.5. Broadcasters
Broadcasting is the transmission11 by any wireless means (including laser rays and
gamma rays) of sound or images for its reception by the public. Therefore, broadcasters
are simply entities that, having a permit or a concession from the government, broadcast
sound or visual signals, or both, that can be picked up by a large group of receivers.
The LFDA protects not only those who participate in an interpretation or performance
and those who produce it, but also those whose occupation is to transmit it. Therefore,
broadcasters will have the right to authorize or prohibit with respect to their broadcasts,
retransmission, deferred transmission, simultaneous or deferred distribution, by cable or
__________
11
Emission or transmission is understood as the communication of works, of sound, or of sound with images
by means of radio waves, cable, fiber optics, or other analogous processes. The concept of emission also comprises the sending of signals from a land station to a satellite that will later disseminate them.
Property
2.3.4. Video producers
As in the preceding situation, the video producer is the individual or entity who first sets
down in a video associated images, with or without sound, that give a sensation of movement, or a digital manifestation of said images of an audiovisual work or the manifestation or performance of another work or of a folkloric expression, as well of other images
of the same kind, with or without sound. The video producers enjoy with regard to their
works, the rights to authorize or prohibit their reproduction, distribution, or public
communication. The duration of such rights is 50 years from the first recording of the
images in the video.
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2.3.3. Recording producers
A recording producer is understood as the individual or entity who sets down sounds or
their digital manifestation for the first time, and who is responsible for the editing, reproduction, and release of recordings (it being understood that a recording is the setting
down, in sound only, of the sounds of a song, performance, or other sounds, or the digital manifestation of the same).
As such, recording producers have the right to authorize or prohibit the total or partial, direct or indirect, reproduction of their recordings, as well as their use, the import
of unauthorized copies of the recording, the first public distribution of the original and
of each copy of their recordings through sale or any other means, including distribution
through signals or transmission, the adaptation or transformation of the recording, or
the commercial leasing of the original or a copy of the recording, provided this latter
right has not been reserved by the authors or by the holders of the economic rights.
The protection granted to recording producers will be for 75 years from the first
recording.
any other system, the setting down on a material base, reproduction of the recordings,
and public communication by any means or form directly for profit.
The rights conferred to broadcasters will have a duration of 50 years from the first
broadcast or the original transmission of the program.
Finally, the LFDA also establishes limitations on the rights of performing artists or performers, recording producers, video producers, or broadcasters, by allowing the use of their
performances, recordings, videos, or broadcasts, as long as it is not for direct economic benefit, or when it involves brief fragments used in information on current events, or for purposes of teaching or scientific research, or in the case of a public benefit, and the exceptions
mentioned above for which no permission from the holder of the rights is required.
3. Reservation of Rights for Exclusive Use
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While in the majority of countries this legal concept does not exist, Mexican law
includes among intellectual property rights (and under the regulations of the LFDA) a
concept that it calls reservation of rights for exclusive use.
Reservation of rights is a power that is obtained through registration with INDAUTOR 12 and it
establishes an exclusive right to use and exploit titles, names, distinctive physical and psychological characteristics, or original applied operating features with regard to periodicals
published in a series of segments with varied contents and to be continued indefinitely
(magazines, for example); periodical broadcasts transmitted in a series of segments with
varied contents (television programs, for example); human, fictitious, or symbolic personages; persons or groups engaged in artistic activities; and advertising promotions.13
It should be pointed out that this legal construct creates rights, which is to say that
the person who has obtained a certificate of registration has a guarantee that no other
person will be authorized (except with the former’s consent) to use said reserved title,
name, etc., during the term fixed by the LFDA, depending upon the type of reservation
of rights involved.
The processing of a registration of a reservation of rights requires the presentation of
a specific form, takes 14 days, and sometimes, as a result of the evaluation, an official
communication may be issued in which the legal obstacles for obtaining the registration
are indicated. As a consequence of the above, and in order to facilitate the process, it is
__________
12
As was mentioned, said registration is carried out through INDAUTOR by filing the respective form and the
documents that must be attached to it.
13
I understand these to be the new and unprotected mechanism that is intended to promote and offer a good
or a service, with the additional incentive of offering the public in general the possibility of obtaining
another good or service in more favorable conditions than those normally found in the market. Commercial advertising is excluded from this legal concept.
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14
Both time periods are counted from the date of their issuance.
15
Unless it is requested by the holder of the rights personally.
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recommended that before filing the request for a reservation of rights, a search for prior
potentially conflicting registrations be carried out.
In this respect the LFDA provides that the right of exclusive use will have a duration of
one year in relation to periodicals or broadcasts and of five years 14 for the names and the
distinctive physical and psychological characteristics of personages, including characterized humans, fictitious or symbolic, the names or denominations of persons or groups
engaged in artistic activities, and the denominations and the original operating features
of advertising promotions.
Just as there are works that are not protected under the law, the LFDA also establishes
certain cases for which a reservation of rights is not available: (a) those that due to their
grammatical, phonetic, visual, or conceptual similarity could be mistaken for or confused with another reservation of rights previously granted or in the process of being
granted;15 (b) those that are generic and will be used in isolation or that claim to have
the sponsorship of a company, a public or private, domestic or international institution
or organization, or any other officially recognized organization, without their respective
express authorization; and (c) those that reproduce or imitate without authorization
seals, flags, emblems, or symbols of any country, state, municipality, or any equivalent
political division, or that include the name, pseudonym, or image of any particular person without the express consent of the person concerned, or that are the same or confusingly similar to another considered well known in Mexico. A reservation of rights also
may not be granted with respect to subtitles, graphic characteristics, legends, traditions,
or events that have become personified or that are generally known under a name that
is characteristic of them, isolated letters or numbers, translations into other languages,
whimsical changes in spelling, or artificial constructions of words not subject to reserved
rights, the isolated name of persons, except those that have been requested for the protection of stage names, names of artistic groups, characterized human or symbolic or fictitious personages, and the names of countries, cities, towns, or any other territorial,
political, or geographic division, or their regional names or derivatives used in isolation.
The certificates of reservation of rights can be renewed for equal periods of time, except
for advertising promotions that at the end of their term will pass into the public domain.
Said renewal must be requested on a specific form, and the applicable fee must be paid.
Likewise, to justify the renewal of a reservation of rights, it is necessary to prove to INDAUTOR
the use of the title, name, or the physical or psychological characteristics protected.
According to the terms of the LFDA, a reservation of rights can be declared null and
void when: (a) it is equal or confusingly similar to another previously granted or in the
process of being granted, (b) the provided information essential for its granting is false,
(c) a better right has been proved by previous, constant, and uninterrupted use in Mexico, and (d) that it was granted in violation of the provisions of the LFDA.
In similar fashion, a reservation of rights can be canceled upon petition of the holder
of the rights or by a third party having sufficient legal interest.
4. Copyright Management Associations
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Copyright management associations are private legal entities whose main purpose is the
protection of the rights of their partners (authors or holders of related rights), and the
collection, administration, or distribution of the royalties generated by them.16
These copyright management associations can operate in the following ways:
a) By branch field or type of creative work;
b) By category of holders of related rights;
c) By form of use, when various types of creative works or of holders of related rights
concur and the nature of the rights entrusted to their management justify it.
Therefore, it can be concluded that the persons entitled to form an association can
belong to one or more associations, depending on the diversity of the titles or economic
rights that they hold. This means that different copyright management associations can
validly exist, each of them focused on a different right (manner of use) among which we
can mention: the right of production and public performance,17 the right of broadcasting, the rights of mechanical reproduction of musical works,18 and related rights.
It must be emphasized that the authors, holders of related rights, and their successors,
national or foreign, can join one or more of the various copyright management associations, which cannot impose on their members, as obligatory, the management of all the
forms of use, nor their whole work, nor future production.
To operate legally, the copyright management associations must meet several requirements: the authorization19 of INDAUTOR to operate, which will be granted if the conditions
established by the LDFA exist (such authorization must also be published in the Official
__________
16
In order to fulfill their purpose, copyright management companies at times may need the help of INDAUTOR
(or of the Mexican Industrial Property Institute, since this is the competent authority in this area, as will be
seen later) to request inspection visits in which the authorities verify compliance with the provisions of the
LFDA, and above all, investigate the possibility that some persons may not be paying the corresponding royalties for the use of one or more works.
17
The music that is interpreted and performed in night clubs, restaurants, and other public places.
18
Reproductions in compact discs, tapes, discs, cassettes, mini-discs, or other forms of recording.
19
In order to obtain authorization to operate as a copyright management association, it is necessary to include
with the request the catalogues of the works to be administered. It is important to mention that according
to the provisions of the LFDA, copyright management associations must have a list of the right’s holders, the
repertory of their works, and the rights that they represent.
As has been mentioned, the reason for the existence of copyright management associations is to serve as intermediaries between holders of copyright or related rights and the
users of the protected works, since given the conditions for their use, at times it is very
difficult for single authors to maintain control, and the use of group management proves
necessary. In this regard, the purpose of the copyright management associations is the
protection of authors or holders of related rights, national or foreign, and within said
protection, the collection and delivery to them of any royalties generated.
The main purposes of the copyright management association are:
a) To exercise the economic rights of their members;
b) To keep in their offices, at the disposal of users, the lists of works that they manage;
c) To negotiate the licenses to use the works they manage with the users, and to execute the respective agreements;
d) To supervise the use of the authorized works;
e) To collect and deliver any royalties generated from the commercial exploitation of
these works;
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Federal Gazette and the notarization and registration of the act of incorporation in the
Public Copyright Registry within the time periods set for that purpose.
In this regard, to this date the INDAUTOR has authorized the following as such associations:
a) Sociedad de Autores y Compositores de Música, S.G.C. de I.P. (SACM) (authors and
composers);
b) Sociedad General de Escritores de México, S.G.C. de I.P. (SOGEM) (writers);
c) Sociedad Mexicana de Autores de las Artes Plásticas, S.G.C. de I.P. (SOMAAP) (plastic
artists);
d) Sociedad Mexicana de Directores Realizadores de Obras Audiovisuales, S.G.C. de I.P.
(directors of audiovisual works);
e) Sociedad Mexicana de Coreógrafos, S.G.C. de I.P. (SOMEC) (choreographers);
f) Ejecutantes, S.G.C. de I.P. (EJE) (performers);
g) Sociedad Mexicana de Autores de Obras Fotográficas, S.G.C. de I.P. (SMAOF) (photographers);
h) Sociedad Mexicana de Productores de Fonogramas, Videogramas y Multimedia, S.G.C.
de I.P. (SOMEXFON) (recording, video, and multimedia producers);
i) Unión Iberoamericana de Humoristas Gráficos (cartoonists);
j) Centro Mexicano de Protección y Fomento de los Derechos de Autor, S.G.C. de I.P.
(CEMPRO) (copyright protection);
k) Sociedad Mexicana de Ejecutantes de Música, S.G.C. (SOMEM) (music performers);
l) Sociedad de Autores de Obras Visuales Imagen del Tercer Milenio, S.G.C. (authors of
visual works).
f) To collect and deliver any royalties generated for holders of foreign copyrights or
related rights, either directly or through the copyright management associations
that represent them, provided there is an express mandate given to the Mexican
copyright management association.
In connection with said purposes, it is worth noting that for the exercise of economic rights and the collection of royalties, it is necessary to give the copyright management association a power of attorney for litigation and collections. Furthermore,
and apart from the exercise of economic rights and the collection of royalties, there are
other powers, such as those to negotiate and execute license agreements for the use of
the works (e.g., to execute acts, agreements, or contracts with users that require broader
powers) that imply the need for a broader power (a power for acts of administration or
of ownership).
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5. Administrative Copyright Proceedings
Just as other laws establish the premises for violation of their own provisions and the
possible harm to holders of the rights, Title XII of the LFDA contains a series of provisions regarding the protection of the rules contained therein, and. those persons whose
rights, conferred to them in the terms of above law (copyright and/or related rights),
may be harmed.
On this matter, the LFDA provides that persons who consider themselves to have been
harmed can choose between submitting (a) to proceedings before the ordinary judicial
authorities, (b) to conciliation or mediation proceedings, or (c) to any other administrative proceedings established in this law.
5.1. Administrative Conciliation Proceedings
An administrative conciliation proceeding is carried out through the INDAUTOR and is initiated with a written complaint filed by the person whose copyright, related rights, or
any other similar rights have presumably been infringed. A copy of the complaint must
be served on the person against whom it has been presented, so that this person can
file a response within the following 10 business days. Both parties will be summoned
to a conciliatory meeting that will take place at the Institute, at which an attempt will
be made to convince the parties to reach a settlement.
Since the purpose of this type of proceeding is for the parties to conciliate, the
INDAUTOR cannot enter into substantive questions, but only try to bring the parties
to a settlement. Therefore, the priority of the Institute is for the parties to mutually
agree to execute an agreement resolving the conflict, which will have the nature of
res judicata and of an executory document, in case either of the parties does not
comply with it.
In the event no settlement is reached, the INDAUTOR will exhort the parties to submit
their dispute to an arbitration proceeding, which will be governed by the rules of the
LFDA, its regulatory provisions, or on a supplementary basis, the Commercial Code, and
which will conclude with an arbitral award that will put an end to the dispute or with
a settlement reached by the parties before the arbitral award is rendered.
Claims against the violations of the principles of the LFDA or the rights it protects can
also be filed through an administrative declaration proceeding as discussed below.
5.2. Copyright Infringement Proceedings
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20
As mentioned, this kind of copyright infringement refers to violations of the law, and the following are
among the various causes: (a) the execution by the publisher, entrepreneur, producer, employer, broadcaster,
or licensee of a contract for the transfer of copyright in violation of the LFDA; (b) the infringement by the
licensee of the obligatory license declared in accordance with the LFDA; (c) holding oneself out as a copyright management association without having obtained the necessary registration with INDAUTOR, or a member not providing to the latter the reports and documents mentioned in the LFDA; (d) the omission from a
published work of the expression “All Rights Reserved” (Derechos Reservados) or its abbreviation, D.R., followed by the symbol ©; (e) the omission or falsity of the information that every publisher must include in
the works it publishes in terms of the LFDA; (f) the omission or falsity in the works that are printed of the
information that every printer must include in the terms of the LFDA; (g) the failure to include on a recording the symbol (P) accompanied by the year in which the first publication was made; (h) the publication of
a work without mentioning in the copies thereof the names of the author, translator, compiler, adaptor, or
arranger; (i) the publication of a work in detriment of the reputation of the author as such or, if applicable,
the translator, compiler, arranger, or adaptor; (j) the publication of works created in official service without
the prior authorization of the Federal Government or of the States or the Municipalities; (k) the intentionally misleading use in a work of a title that may be confused with another title published before; (l ) the setting down, production, publication, communication, or use in any form of a literary and artistic work,
protected according to the guidelines for national symbols and ethnic group expressions, without mentioning the community or the ethnic group or, if applicable, the region of the Mexican Republic to which it
belongs; and (m) all other infringements derived from the interpretation of the LFDA or its regulations.
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Copyright infringement proceedings are carried out through the INDAUTOR by means
of a written administrative petition filed by the holder of the rights whose rights have
been infringed. In the administrative petition, the plaintiff should assert the causes of
infringement, as established in the LFDA, by which the plaintiff has been harmed.20
After the petition has been submitted to the INDAUTOR, the administrator will notify
the presumed infringer of the suit being filed against them, so that they can have time
to file a defense.
This type of infringement refers to violations of various provisions of the LFDA, and if
the violation is proved, the INDAUTOR will sanction the infringer with a fine of up to
15,000 days of minimum daily wage.
5.3. Commercial Infringement Proceedings
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In contrast to copyright infringement proceedings, commercial infringement proceedings
are carried out before the Mexican Industrial Property Institute (express remission of the
LFDA), which will not only sanction said infringements, but may also adopt the precautionary measures set forth in the Industrial Property Law and will have the authority to investigate, order, and make inspection visits, as well as request information or specific data.
These administrative proceedings may also be initiated with a written administrative
petition filed by the holder of the rights whose rights have been harmed. In the petition,
the holder puts forward his theory as to why the infringement as established in the LFDA
took place.21 The written administrative petition must be served on the presumed
infringer, who will have a specific time period to file a defense and submit evidence.
This kind of infringement will be penalized by the Mexican Industrial Property Institute with a fine equivalent to 5,000–10,000 days of the minimum daily wage, depending upon the type of violation committed. In the event the person who commits the
infringement is a publisher, broadcaster, or any individual or entity that exploits works
commercially, the fine can be increased up to 50 percent.
5.4. Proceedings before Judicial Authorities
The LFDA establishes that it is the Federal Courts who will have jurisdiction over disputes
arising from its application. However, when such disputes only affect private interests,
the plaintiff may choose to have the local courts, meaning the State or Federal District
Courts, hear his/her case.
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21
Pursuant to Article 231 of the LFDA, the following acts in commercial matters are considered infringements
when they are carried out with a direct or indirect intent to profit: (a) disseminate or publicly use a work protected by any means and in any form without the prior express authorization of the author, of his/her legitimate successors or of the holder of the economic rights; (b) use the image of a person without his/her
authorization or that of his/her successors or assigns; (c) produce, reproduce, stock, distribute, transport
or sell copies of works, recordings, videos, or books protected by copyright or related rights, without the
authorization of the copyright holders in the terms of this law; (d) offer in sale, store, transport, or put into
circulation works protected by the LFDA that have been damaged, altered, or mutilated without the authorization of the copyright holder; (e) import, sell, lease, or any act making it possible to have a device or system designed to deactivate electronic computer program protection devices; (f) retransmit, recording,
reproduce, and disseminate to the public emissions of broadcasters without due authorization; (g) use, reproduce, or exploit a protected reservation of rights or a computer program without the consent of the holder
of the rights; (h) use or exploit a name, title, physical, or psychological characteristics, or operating features in such a way that they mislead or can be confused with a protected reservation of rights; (i) use literary and artistic works protected by the guidelines for national symbols and expressions of ethnic cultures
in violation of the law, and (j) all other infringements of the provisions of the LFDA that involve conduct at
a commercial or industrial scale related to works protected by copyright.
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22
On this specific matter it is worth pointing out that recently the Supreme Court of Justice of the Nation
resolved contradictory court opinions with regard to the indemnity for damages and losses resulting from
an infringement of industrial property rights, which in this case would be applied by analogy, and in which
it was decided that before going through a civil procedure to claim damages and losses, there must be a ruling from the competent authority (INDAUTOR or the Mexican Industrial Property Institute) in relation to the
violation of the intellectual property rights on which such claim is based.
23
The following are among the most important acts considered to be crimes: (a) speculation in any form with
free text books distributed by the Ministry of Public Education; (b) the publication, production, or recording of more copies of a work protected by the LFDA than those authorized by the copyright holder; (c) the
willful use, for purposes of profit and without the respective authorization, of works protected by the LFDA;
(d) the willful production, reproduction, introduction into the country, storage, transportation, distribution, sale, or leasing of copies of works, recordings, videos, or books protected by the LFDA with the purpose of commercial speculation, and without the authorization that in the terms of the Law, the holder of
the copyright or of the related rights must grant; (e) the sale to any final consumer on the street or in public places, fraudulently, for commercial speculation, of copies of works, recordings, videos, or books protected by the LFDA; (f ) the exploitation for purposes of profit of an interpretation or a performance; (g) the
manufacture, import, sale, or leasing of a device or system to decipher a coded satellite signal, program
carrier, without authorization of the legitimate distributor of said signal, or the carrying out for commercial purposes of any act intended to decipher a coded satellite signal, program carrier, without authorization of the legitimate distributor of said signal; and (h) the publication of a work substituting the name of
the author with another name.
24
In the event the copyright has entered into the public domain, the complaint will be made by the Ministry
of Public Education, which will be considered the offended party.
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The judicial authorities must inform the INDAUTOR of any copyright proceeding that is
initiated before them, and, in fact, this Institute will be a party to such proceedings in
the event that any recording, annotation, or inscription in the Registry is contested.
Regarding the handling of these kinds of proceedings, it must be pointed out that in
the field of civil law, all actions exercised must be legally grounded, processed, and
resolved in accordance with the provisions of the LFDA, its regulatory provisions, and as
a supplement thereto, the civil procedures codes. In addition to other kinds of claims in
this area, a claim for damages and losses can be filed with this procedure.
In this regard, on July 23, 2003, a decree was published in the Official Federal Gazette
whereby the LFDA was amended to include, among other reforms, an article that, just as
in the Industrial Property Law, provides that “the reparation of material and/or moral
damages, as well as indemnity for damages and losses for violations of copyright or of
related or similar rights, will never be less than 40 percent of the sale price to the public for the original product or for the original rendering of any kind of services that
involves the violation of one or more of the rights protected by this law.”22
In the case of criminal law, it must be kept in mind that crimes related to copyright
are set forth in Title XXVI of the Federal Criminal Code,23 which in terms of such code
are prosecuted based on a complaint filed by the offended party24 (except in the case
established in Article 424, Section I, which will be prosecuted directly by government
officials) and that, in addition to the corresponding fines, the offended party may also
claim damages and losses:
Under Article 428 of the Federal Criminal Code, the economic sanctions set forth in
this title will be applied without prejudice of the indemnification for damages, whose
amount shall not be less than 40 percent of the sale price to the public of each product, or that for rendering services that involve a violation of one or more of the rights
protected by LFDA.
Finally, the LFDA also provides for a motion for review as a means of challenging a ruling, and to that effect it refers to the Federal Law of Administrative Proceedings, which
provides that said motion must be presented to the same authority that issued the ruling within 15 business days following notification of the ruling.
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CHAPTER XIV
Economic Competition
1. Introduction
On December 17, 1992, Mexico, the United States of America, and Canada signed the
North American Free Trade Agreement (NAFTA), which entered into force January 1, 1994.
In this agreement the basic rules were established that would become the new Federal
Economic Competition Law (Ley Federal de Competencia Económica‚ LFCE) for Mexico.
First of all, the state parties to NAFTA recognized in Chapter XV the importance of establishing a common policy in the area of economic competition for the free trade zone and,
therefore, the treaty signatories were obliged to limit State monopolies and regulate the
functions of the companies owned by the States so that no harm would be done to market competition. The contracting States were also obliged to apply rules that effectively
regulate economic competition. It is obvious that the commitments made in Chapter XV
of NAFTA had a specific purpose: Mexico was the only one of the three member countries of
the agreement that did not have a modern competition law and, therefore, the greatest
commitment was made by Mexico, which not only had to create such a law, but also had
to create the entity responsible for applying it.
One of the most important purposes of the treaty is to promote foreign investment in
the State parties. For Mexico, foreign investment is of great relevance due to the fact that
the internal savings of the country do not provide sufficient resources for its economic
development. Therefore, Mexico agreed to give its markets clear rules in order to allow
investment to be made under the best conditions possible.1
Based on its commitment to execute the treaty, the Mexican government initiated a
parallel discussion to begin the work of preparing the economic competition law, which
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1
For this reason, in NAFTA the principles of national treatment, most favored nation, and transparency, which
were already established in the General Agreement on Tariffs and Trade (GATT) of 1947 and ratified in the
GATT of 1994, were ratified, but with special emphasis.
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was ultimately published in the Official Federal Gazette (Diario Oficial de la Federación) on
December 24, 1992, entering into force on June 22, 1993.2 The LFCE was drafted using
the U.S. law as a model,3 as we can see from the concepts that were included in it.
During the month of April, 2006, in the second ordinary session of the third year of
the LIX Legislature, the Congress of the Union approved a reform of the LFCE.4 The purpose of the reform was: (i) to include the relevant rulings issued by the Judicial Branch,
(ii) to elevate certain regulatory provisions to the level of law, and (iii) to incorporate new
elements in order to give the Federal Competition Commission (Comisión Federal de
Competencia, CFC) additional powers.
The LFCE has seven chapters, each of which we will mention in order to have a general
idea of their scope. However, our focus will be on monopolistic practices and mergers.
Among the most important aspects of the first chapter of general provisions is the
identification of those who will be considered economic agents for purposes of the law
and the indication of the purpose of the law. This chapter also determines what activities
of the State will not be considered monopolies and defines the sphere of each activity. In
the second chapter, the LFCE enters into the material itself and refers to monopolies and
monopolistic practices, of which there are two types: absolute monopolistic practices
and relative monopolistic practices.
In its third chapter, the LFCE addresses the question of concentrations and establishes rules that govern the notification of said concentrations in order for the CFC to
authorize them or impose conditions on their approval. The fourth chapter of the law
creates the CFC as a semi-independent administrative body (for example, it has its own
budget) of the Ministry of Commerce and Industrial Development (Secretaría de Comercio y Fomento Industrial), now the Ministry of Economy (Secretaría de Economía),
and establishes its structure and operation. The fifth chapter addresses procedural
matters before the CFC, while Chapter 6 establishes the sanctions to which the economic agents that violate the law will be subject. Finally, Chapter 7 addresses procedures for filing a motion for review.
The internal rules of the Commission were published in the Official Federal Gazette on
October 12, 1993, and on October 12, 2007, the new Regulation of the Federal Economic Competition Law (Reglamento de la Ley Federal de Competencia Económica, RLFCE)
was published in order to regulate the recent amendments of the LFCE.
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2
NAFTA, in force since January 1, 1994.
3
In this regard, see Joshua A. Newberg, “Mexico’s New Economic Competition Law: Toward the Development of a Mexican Law of Antitrust,” in Columbia Journal of Transnational Law, vol. 31, 1994, no. 3, p. 591,
and Sergio García Ramírez, “Reflexiones comparativas de la Ley Federal de Competencia Económica: la regla
per se y la regla de la razón”, in Estudios en torno a la “Ley Federal de Competencia Económica,” UNAM, Mexico,
1994, p. 53. The latter is a comparative study of U.S. and Mexican law.
4
Published in the Official Federal Gazette (Diario Oficial de la Federación), June 28, 2006.
In this chapter we will comment on monopolistic practices and mergers and certain relevant decisions of the CFC in this respect. However, before beginning the analysis of these
particular topics, it is important to provide a general overview of the LFCE, defining a
series of basic concepts for purposes of this law. These concepts will serve as a guide for
our discussion.
2. The Federal Economic Competition Law
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Article 28 of the Constitution prohibits the exercise of monopolistic activities or the creation of monopolies. The current LFCE is the regulatory law of this article “in regard to economic competition, monopolies and free trade” in the market, and is applicable “to all
areas of economic activity.” It must be clarified that in Mexico all commercial activities are
federal and the states do not have the authority to regulate this area.
The purpose of the law is “to protect the competitive process” and, therefore, monopolies, monopolistic practices, and “other restrictions on the efficient functioning of the
goods and services markets” must be prevented and eliminated. From this perspective,
three goals can be distinguished: first, the promotion of economic efficiency and the
competitive process, although the law does not contain distributive elements; second,
that when promoting the efficiency of the economy, the law does not become an instrument of industrial promotion; and third, that when protecting the competitive process,
the immediate purpose is not the simple maximization of the consumer.
The subjects considered economic agents to whom the LFCE applies include individuals and entities, as well as “agencies or entities of the federal, state, or municipal public
administration.” This means that the LFCE also governs the conduct of all public officers
who handle competition matters and who have an effect on them. This is especially
important in a country like Mexico where the conduct of the federal government in the
past inclined toward promoting monopolies or attitudes that affected the free market
due to the strong presence of the State in the economy.
Thus, for example, with the intention of protecting the working class and poorer sectors of society, organizations were created such as the National Company of Social Support (Compañía Nacional de Subsistencias Populares), which bought and monopolized
agricultural products by setting “guaranteed prices” for subsistence farmers, distorting
free trade in those markets. This may have been justified during the period in which it
occurred as an attempt to help Mexican subsistence farmers so they did not have to sell
their products at a low price to middlemen. However, this policy lasted too long and was
not combined with other economic policies to create competitive conditions in the agricultural sector. A policy of subsidies in the agricultural sector for so long caused greater
damage than it was intended to prevent, to such an extent that its effects are still felt,
including among others the displacement of hundreds of thousands of subsistence farm-
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ers from their lands to the city. Other examples are, to mention just a few, the State control of telecommunications, of a large portion of secondary and basic petrochemicals, of
the banks, etc.—sectors that today, fortunately, are in the private sector (except in part
basic petrochemicals).
Also included on the list of economic agents of the LFCE are “charters,” “trusts,” and
finally “any other form of participation in economic activity.” Charters have clearly been
included to prevent their members from using them to set prices for services, which happens frequently all over the world.
In compliance with the commitments made in Chapter XV of NAFTA, the LFCE alludes
to the limitation of State monopolies. It states that “the functions that the State exercises exclusively in strategic areas [...] do not constitute monopolies.” The strategic areas
are those considered by Article 28 of the Constitution as areas in which only the State
can be involved. Through a process taking place in Mexico over the last 15 years, especially since 1989, the Mexican State has abandoned areas in which it previously acted
exclusively and that it now has handed over to the private sector, such as satellite communications, telecommunications, railways, and large sectors of the petrochemical and
telephone industries.
However, the limitation of the presence of the State in strategic areas, and especially
in those that are vital for the economy, continues to be a challenge. The continued presence of the State in certain vital economic areas and its exercise of monopolistic activities in those areas also have affected non-strategic areas and can result in the distortion
of markets. In recognition of this, early on the CFC limited the activities of the State oil
company, Petróleos Mexicanos (PEMEX), by a ruling in which it clearly defined the extension of the “strategic area” in the sale of gasoline. This question of the demarcation of
strategic areas for purposes of competition has appeared with regularity. A similar phenomenon has also occurred with the state governments that have become accustomed
to federal government interference in the market and which the CFC has had to eliminate.5 Given present conditions, it should become more and more difficult for such attitudes to exist in the federal government or in the state governments.
Having given a general description of questions regarding the scope and application
of the LFCE, the regulation of monopolistic practices is explained below.
3. Monopolistic Practices
As mentioned, there are two types of monopolistic practices: absolute monopolistic
practices (per se) and relative monopolistic practices (rule of reason).
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5
Examples include, among others, practices that were denounced before the CFC or that the latter has investigated in representation of the states of Sinaloa, Oaxaca, or Chihuahua.
3.1. Conduct Considered as Absolute or Per Se Monopolistic Practice
3.2. Relative Monopolistic Practices (Rule of Reason)
Together with the per se practices or absolute monopolistic practices to which we just
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6
“Article 9. Absolute monopolistic practices are contracts, agreements, arrangements, or alliances among
competitive economic agents, whose aim or effect are any of the following: (i) to fix, raise, to agree upon,
or to manipulate the purchase or sale price of the goods or services supplied or demanded in the markets,
or to exchange information with the same aim or effect; (ii) to establish an obligation to produce, process,
distribute, acquire, or market only a restricted or limited amount of goods, or to render or transact a specific volume, number, or frequency of restricted or limited services; (iii) to divide, distribute, assign, or
impose portions or segments of the current or potential market of goods and services, according to specified or specifiable clientele, suppliers, time or spaces; or (iv) to establish, agree upon, or coordinate bids, or
to abstain from bids, tenders, public auctions, or bidding. The acts mentioned in this article will not have
any legal effects and the economic agents engaged in such acts will be subject to the penalties established
under this law, notwithstanding any criminal liability that may ensue.”
7
See above note.
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The LFCE establishes four illegal acts that are presumed to be absolute monopolistic practices.6 The first involves horizontal price fixing agreements between competitors, which
are extremely harmful to competition. Agreements such as these are considered to exist
from the simple fact of being carried out and, therefore, they are considered to be
absolute monopolistic practices, even when the presence of the economic agents in the
market is not substantial.
It is considered that price fixing exists among competitors when the sale price offered
in Mexico by two or more competitors for goods and services that can be substituted for
one another internationally is “perceptibly” higher or lower than their international
price, of course discounting taxes, transportation, or distribution charges.
Another indication of price fixing is when two or more competitors establish the same
maximum or minimum price for a good or service, which is unlikely to be accidental, or a
particular sale or purchase price of the good is adhered to. This is indirect price fixing. A
final sign of price fixing is when industry or commercial cartels fix prices for their members.
Returning to the LFCE, we have indicated that in addition to price fixing, another three
practices are considered absolute monopolistic practices.7 The first two practices are (i)
establishing the obligation not to produce, process, distribute, or commercialize more
than a restricted or limited amount of goods or services, and (ii) the division and assignment of markets. However, there is one more practice to which the LFCE tries to give special emphasis due to the characteristics of the privatization process that the Mexican
government is going through. This is the practice of establishing, arranging, or coordinating bids in public auctions.
referred, the LFCE establishes practices judged according to the rule of reason.8 As their
nature indicates, such practices are not bad in themselves; that determination depends
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8
“Article 10. Subject to verification of Articles 11, 12, and. 13 of this law, relative monopolistic practices
are deemed to be those acts, contracts, agreements, procedures, or combinations, the aim or effect of which
is to improperly displace other agents from the market, substantially hinder their access thereto, or to
establish exclusive advantages in favor of one or several entities or individuals, in the following cases: (i)
some of the economic agents that do not compete among themselves are: to set, impose, or establish the
exclusive commercialization or distribution of goods and services, by means of the subject, geographical
location, or specific periods of time, including the division, distribution, or assignment of customers and
suppliers; and also the obligation not to manufacture or distribute goods or services for a specific period
of time or that may be specified; (ii) to set the prices or other conditions that a distributor or supplier must
abide by when engaging in commercial activity or marketing or distributing goods or providing services;
(iii) the conditioned sale or transaction when buying, acquiring, marketing, or providing other goods or
additional services, normally different or that can be differentiated, or on the basis of reciprocity; (iv) the
sale, purchase, or transaction subject to the condition of not using, acquiring, selling, engaging in commercial activity, or providing goods or services produced, processed, distributed, or sold by a third party;
(v) the unilateral action based on refusing to sell, commercialize, provide to specific individuals goods or
services available and normally offered to third parties; (vi) the agreement reached among several economic agents or the invitation extended to them to exert pressure on customers or suppliers, in order to
discourage them from specific behaviors, to apply retaliations, or force them to act in a specific manner;
or (vii) the systematic sale of goods or services at prices below their total average cost or their occasional
sale below the variable average cost, when there are elements to presume that these losses will be recovered through future price increases, in terms of this law’s regulation; (viii) the granting of discounts or
incentives by producers or suppliers to the buyers with the requirement of not using, acquiring, selling,
commercializing, or providing the goods or services produced, processed, distributed, or commercialized
by a third party, or the purchase or transaction subject to the requirement of not selling, commercializing,
or providing to a third party the goods or services object of the sale or transaction; (ix) the use of the earnings that an economic agent obtains from the sale, commercialization, or rendering of a service or good to
finance the losses arising from the sale, commercialization, or rendering of another good or service; (x) the
establishment of different prices or conditions for the sale or purchase to different purchasers or sellers situated in equivalent conditions, and (xi) the action of one or more economic agents the purpose or effect
of which, directly or indirectly, is to increase the costs or obstruct the productive process or reduce the
demand of their competitors.
To determine whether or not the practices to which this article refers shall be sanctioned in the terms
of this law, the Commission will analyze the gains in efficiency resulting from the conduct demonstrated
by the economic agents and that favorably affect the competitive process and access to the free market.
These gains in efficiency may include the following: the introduction of new products; the use of irregular merchandise or defective or perishable products; cost reductions resulting from new techniques and
production methods, integration of assets, increases in the scale of production, and the production of different goods and services with the same factors of production, the introduction of technological advances
that produce new or improved goods or services; the combination of production assets or investments and
their recovery that improve quality or broaden the attributes of the goods or services; improvements in
quality, investments, and their recuperation, opportunity, and service that have a favorable impact on the
chain of distribution, that do not cause a significant price increase, or a significant reduction in consumer
options, or an important inhibition on the level of innovation in the relevant market; and any other gains
in efficiency that show that the net contributions to the well-being of the consumer derived from such
practices surpass their anticompetitive effects.”
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9
“Article 13. The following should be evaluated in order to determine if an economic agent has substantial
power in the relevant market: (i) its market share and whether it can unilaterally set the prices or restrict
the supply in the relevant market without the competitive agents being able to act or to potentially counteract that power; (ii) the entry barriers and the elements that may alter those barriers and also other competitors' offer; (iii) the competitors’ existence and power; (iv) the possibility the economic agent and its
competitors have to access the input sources; (v) its recent performance; and (vi) all other criteria established in the regulations of this Law.”
10
“Article 12. The following criteria must be evaluated in order to determine which are the relevant markets:
(i) the possibility to substitute the goods or services in question by other national or domestic goods or services, taking into consideration the technological potential, to what extent consumers have substitutes and
the time required for that substitution; (ii) the distribution cost of the goods; their relevant inputs; their supplements and substitutes from other regions and from abroad, taking into account freight, insurance, custom duties and non customs restrictions, the restrictions imposed by the economic agents or their
associations and the time required to supply the those regions from the market; (iii) the costs and potential
access to other markets of users or consumers; and (iv) the federal, local or international standard restrictions that limit the access of users or consumers to alternative supply sources, or the access of the suppliers to alternative customers.”
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on the circumstances under which they are undertaken; they may even be considered to
promote market efficiency. It is therefore necessary to measure them, analyze them, and
study them closely. As a result, the LFCE requires that they be analyzed from the perspective of the substantial power of the economic agent9 in the relevant market or in a
related market10 and that such practices be engaged in with respect to goods and services corresponding to the relevant or related market in question. Clearly, we have a systematization of factors considered when applying the rule of reason, but the manner in
which these factors are set forth in the LFCE merits certain comments.
The first factor established by the LFCE includes several presumptions: first, that economic agents do not compete with one another—because otherwise we would be in the
presence of per se practices—and that they fix, impose, or establish an exclusive distribution of goods and services on other economic agents in the market, which would give
rise to a rigid market with undesirable effects, and could also result in serious vertical
restraint and provoke the displacement of competitors from the market. However, vertical restraint of this type can also be analyzed from another perspective, which is that
of “a program oriented toward the search for legitimate efficiencies in the distribution of
a particular brand,” which means that on the basis of the analysis, far from being considered monopolistic, the restraint can be seen as a market promoter, assuming the economic agent that engages in it does not have substantial power in the relevant market,
and therefore does not have the ability to fix prices, high or low, in the market.
Another presumption is that such exclusive distribution leads to the “division, distribution, or assignment of clients or suppliers” and that this is a result of the power of the
agent that promotes the practice or of the agent to whom the clients or suppliers are
assigned. It also implies that the practice has to be analyzed in the geographic area where it
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is carried out or within the time period that has been given to the practice, as well as the
duration of the exclusive distribution agreement for a specific period of time. In this way we
can analyze this type of practice from different perspectives, which can result in considering
the practices monopolistic or competitive, depending on the elements existing in each case.
A third presumption is related to “the imposition of the obligation not to manufacture or distribute goods or provide services for a specified or specifiable time period.”
This presumption is complementary to the one above, in the sense that it can be considered a monopolistic practice and at the same time a competitive practice, since in an
exclusive distribution agreement there can be elements that promote “loyalty and discipline among distributors of the product,” which permits the determination or definition of the sales and distribution policies with greater precision and at the same time
promotes the goods and services market.
Another condition is also alluded to: “the geographic situation,” which in this case does
not refer to the substantial power of one economic agent over another, or to a vertical
restriction, but rather to geography in imperfect markets, such as those existing in Mexico,
frequently isolated from one another in regions with little access, which constitutes a fundamentally important factor, given that it can force the acceptance of the imposition of an
exclusive distributor. For example, a particular brand may be the only one offered in a
region with limited access, if it is agreed that only that brand and no other will be sold.
The distributor knows that his supplier has to go great distances over difficult roads to
bring him the product, and he also knows that other suppliers may not have that capacity.
In these conditions, the economic agent who promotes the practice does not have substantial power in the relevant market; however, the geographic situation becomes so determinative that the economic agent can obtain monopolistic benefits. Nevertheless, this
agent is a promoter of commerce in the isolated market. This shows that in the area of competition there are no simple, explicit definitions, since the range of possibilities is broad.
An additional element is time, and an analysis of it can be applied to the above situations. In this way, due to the power that one agent may have over another or to geographic circumstances, the prevailing economic agent can force the weak party to accept
long periods of exclusive distribution, and this is precisely what the law prohibits. It also
prohibits under these circumstances the division or assignment of clients or suppliers or
the imposition of the obligation not to manufacture or distribute other goods and services. As we have observed, the prohibition of the law is clear with respect to conduct
of this type; however, we must recall that the LFCE opens possibilities for the CFC to consider factors based on efficiency and that, analyzed from that perspective, such practices
involve synergies of efficiency and can be authorized.
Connected with the first practice, it is established that “the imposition of the price or
other conditions that a distributor or supplier must observe upon expending or distributing goods or providing services” may be considered a monopolistic practice, unless
Competition
3.2.1. The relevant market
There are various presumptions according to which the relevant market can be determined. This factor begins with the idea that an ideal market is one in which there is total
substitutability of products. Consumers do not suffer any economic loss if they can
immediately substitute, without cost, one product for another. And to the extent this
substitution is difficult; the producer can impose higher prices, because it knows that its
product cannot be rapidly and easily substituted for. Here we have what economic theory calls inelasticity in the market, that is, the lack of this necessary substitutability of
goods and services in the market and which, as we know, allows an economic agent to
exercise the power to fix prices in such markets and, consequently, to obtain a monopolistic benefit that affects the economy and especially economic competition. In this way,
with this concept two decisive factors are taken into consideration for substitutability:
“the technological possibilities” and “the time required for such substitution,” which
together give an index for the determination of the power that a particular economic
agent can exercise in the market.
In relation to the possibilities of substitution, the LFCEA and the RLFCE define the steps
that must be taken in an analysis and require that the CFC indicate first the goods and services that make up the relevant market and second those that eventually could substitute
for them. Once this is done, the LFCEA and the RLFCE require the following step: that the
geographic area where such goods and services are supplied and demanded be determined.
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this practice does not follow a scheme that leads to the formation of “one single business
unit for the distribution and marketing of products of the same brand in terms of geographic markets, standards of goods, and services and price policies,” in which case the
monopolistic practice may be seen as acceptable due to the elements therein that promote competition. A typical case is the franchise that has an established image and
requires a certain consistency from it distributors, which means that clients can go to
any distributor and find the same quality and price.
In this regard, the CFC has declared that “vertical restraints [...] allow the formation of
specialized distribution chains at the cost of suppressing competition [... and therefore]
this scheme facilitates the organization as if it were a single business organization [… and
could be considered] as a scheme oriented toward the legitimate search for efficiencies
in the distribution.”
As we indicated, the factors for evaluating relative monopolistic practices need to be
carefully examined according to the rules regarding “substantial power” in the “relevant
market” of the agent that is accused of engaging in such practices. We will look briefly
at the principles that govern both concepts.
The basic factor on which the law is based is substitutability, which in turn appears in
different practices.
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As an effect of the determination of the geographic area, the CFC must analyze the distance that consumers can go to the suppliers or that suppliers must go to the buyers
“without incurring appreciable other costs,” since if they have to incur higher costs, they
will choose to buy from the monopolist in their market. The distribution cost of the
good or service and the cost and probability of going to other markets will also have to
be considered.
Having made the above analysis, LFCEA and the RLFCE require that the CFC apply additional factors that can be decisive for the definition of substitutability of goods and services, which are the local, federal, or international economic or regulatory restrictions,
the alternate supply sources, or “the access of suppliers to alternative clients.”
Once the “relevant market” is determined, the concentration calculation or analysis usually follows, which is the evaluation of the market structure, “not the complete analysis
of competition of a transaction by which two or more companies are concentrated.” It is
a calculation intended to determine the share various companies have in the market. The
CFC uses the Herfindahl index as an instrument for measurement.
After having thus determined the “relevant market,” it is also necessary to determine
the “substantial power” of the economic agent of such market. For this purpose, several
factors are established that we will examine below.
3.2.2. Substantial power
The first factor is the size and importance of the economic agent in the market. A relatively easy way to determine this is by indexes that allow us to identify the share of the
economic agent in the market. By knowing the market share of the economic agent, we
know, first of all, the possibilities it has of unilaterally fixing prices or restraining market
supply, without competitors or possible competitors being able to counteract such power.
In this way, the presence of an economic agent in the market is considered a concentration that could eventually lead to the use of monopolistic practices when its market
share is 53 percent, although the percentage can be less, depending on the elements and
the circumstances of each case. However, a particular level of concentration cannot be
considered sufficient to prove the existence of substantial power; it also must be determined if the economic agent actually possesses such power and to what extent it can
unilaterally fix prices or restrain supply, which translates in the end into the capacity to
increase or decrease prices in the market and, therefore, displace competitors from it.
In this regard, in order to determine the existence of substantial power, the possible
existence of entrance barriers must be analyzed, as well as the elements “that it can be
foreseen as being able to alter both such barriers and the supply of other competitors.”
The market must also be analyzed by considering the presence and the power of each
of the competitors. It is possible that a certain number of competitors are not determined or determinable. This happens frequently in countries such as Mexico where the
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instruments for measuring markets are not developed, to the extent that it is not possible to know all the economic agents in a market. However, the economic agents with
greater power can be detected, and it is possible to measure that power and the manner in which it is divided.
Likewise, it is necessary to consider the possibilities of access of the economic agent
and its competitors to sources of inputs. This involves an important premise for several
reasons: first, because if it is a question of indexes that allow it to be determined if an
economic agent has power in the relevant market, the access to sources becomes a decisive element. This is also a generally accepted factor in the competition laws of other
countries. In Mexico, the determination of sources of inputs has special relevance,
because it is a country where sources have not had a balanced development, which
forces economic agents to go, with a costly transportation infrastructure, to other sources
that are far from the location of production, or to decide to import their inputs. These
difficulties can then be decisive in the definition of substantial power of any agent in the
relevant market.
The factor of “recent behavior” of the economic agent must also be taken into account.
This information is also decisive, since for Mexico there are no accurate or extensive
sources of information for many of its markets, as there are in other countries for each
of their markets and economic agents. Therefore, in our country, by taking into account
the recent behavior of the economic agent, it is possible to have current information relatively easy to find and to which the competition authorities can go to obtain a reliable
parameter. This contributes to a just determination of the substantial power of the economic agent in the relevant market.
Finally, additional factors are somewhat broadly established, such as the “dominant
position” that the economic agent has with respect to the goods and services in the relevant market. The concept of dominant position is a very specific economic term not
contemplated in the law, but interpreted objectively can be considered as a description of the situation of the economic agent or as the possibility this agent may have in
the goods and services market in question at the time of analyzing its substantial
power. In other words, what is looked for through this factor is the time, experience,
investment, and administration of the economic agent in the goods and services market in which it is involved in order to derive from such information characteristics of its
power in the market.
The two remaining factors allude to the cost of or the lack of access to the goods
involved for consumers and the existence of “elevated cost differentials” that they may
confront when going to other suppliers. In short, it is a question of more or less elasticity in the market that affects the rapidity with which the consumer can change one product for another without incurring large costs and that obviously will have a direct
relationship to the substantial power that the economic agent exercises in the market.
4. Mergers
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As we mentioned at the beginning, monopolistic practices together with concentrations
form the body of the LFCE. In practice, as is common knowledge, the number of concentrations considered by the competition authorities in all countries is much greater
than the number of investigations and complaints made in relation to monopolistic practices. For that reason, mergers merit a special review.
On this matter, the LFCE follows the same system as various other national competition laws, including the system of the European Union, in the sense that for each specific economically important merger a prior notice must be sent to the competition
authorities for its approval. In this regard, the LFCE establishes that the concentrations
to which the law refers “shall be notified to the Commission before being carried out”.
In addition, which concentrations are subject to prior notification are defined, including three types:
a) Transactions whose value is superior to approximately 80 million dollars;11
b) Transactions that are greater than 35 percent of the value of the assets or shares of
one of the agents involved, provided the assets have a value or sales constitute a value
of approximately 80 million dollars;
c) In the third premise, when the economic agents that participate in the transaction
have assets or a sales volume, jointly or separately, of approximately 214 million
dollars and the transaction involves an additional accumulation of assets or capital stock greater than approximately 37 million dollars.
When the LFCE establishes that the notification must be made before the legal acts creating the concentration are carried out, it is important to know what the law means by
“notify before carrying out.” In this respect the RLFCE establishes four rules:
a) That the “legal act is perfected” before either of the two following situations occur:
the first is that the merger is perfected in accordance with the applicable law. For
example, if it is a merger between companies, the General Law of Business Corporations (Ley General de Sociedades Mercantiles) is the applicable law that determines
when a merger between two companies is perfected. This is equivalent to saying
that we have a conflict of laws, in which internal Mexican law is designated as the
applicable law, which in turn, due to its broadness, can designate foreign law as
applicable. In this regard, an act that is carried out abroad—an agreement or contract—is considered perfected when the foreign law considers that the perfection
of such legal act has occurred.
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11
All the amounts are approximations because the LFCE makes calculations based on multiples of the minimum
wage in the Federal District. Due to the fluctuation of the peso against the dollar, we have preferred to state
an approximate amount in dollars, at the exchange rate of the peso at the time this book was written.
The second situation that this first rule establishes is the following: pursuant to
Section I of Article 17 of the RLFCE perfection can also be considered to occur when
“the condition precedent to which such act is subject” is fulfilled;
b) In a second premise, even when a specific legal act has not been carried out, there
is actual or legal control over another economic agent, or parts of such economic
agent are acquired indirectly (through trusts). Here the difficulty lies in knowing
at what point the control begins and, therefore, on what date the prior notification
must be made;
c) In the case of corporate mergers, at the time of the signing of the merger agreement;
d) When the acquisition is carried out through successive acts, when the last of such
acts are perfected and the thresholds for mandatory notification are surpassed.
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Notwithstanding the above, the participants in a concentration may not close the transaction until they have waited 10 days after having given notice thereof and the Commission has not prohibited it during that period. If the merger is prohibited within the
above mentioned time period, the participants must wait for the ruling of the Commission in order to be able to carry out the concentration.
A very important case that should be added and that clarifies a rule that the CFC had established previously, although with little precision, is related to mergers carried out abroad. Foreign companies that have assets, subsidiaries, or investments in Mexico and that decide to
merge with another foreign company have to give notice of the merger before the material or
legal effects occur in Mexico. This means that the notification must be made before the agreement or contract that creates the concentration is perfected abroad, since it is understood that
once the concentration is carried out abroad, it will automatically have effects in Mexico.
Regarding sanctions, economic agents that violate the law may be subject to the “partial
or total divestment of what has been unlawfully concentrated, without prejudice of any
applicable fine.” This sanction is a weapon in the hands of the CFC in the event that a concentration is perfected before authorization is granted by the CFC and ultimately such
authority considers it to be unlawful. There is, however, the serious problem of “scrambled
eggs,” which are always difficult, if not impossible, to separate.
In the area of concentrations it is important to mention that their analysis by the CFC
is based on the principles detailed below.
First, the CFC must analyze if the notified concentration could affect (diminish, deteriorate, or impede) competition or free participation in the market, for which it has to
consider the following elements “as evidence” of such anticompetitive effect and detriment to free participation in the market:
a)
That the concentration can confer on the economic agent the power to set prices
unilaterally or to substantially restrict capital or supply in the relevant market,
without the competing economic agents being able to counteract such power;
b)
That the concentration could be an attempt to improperly displace other economic
agents or prevent their access to the relevant market;
That it “substantially” facilitates the ability of the participants in the concentration
to carry out monopolistic practices.
c)
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The CFC, having in mind the elements mentioned and in the event one of them may be applicable to the concentration in question, must then determine the relevant market and subsequently identify the economic agents making up such market, although that identification may
only be of “the principal economic agents that as a group supply the relevant market.” Having
done the above, the relevant power of the agent resulting from the concentration in such market will be defined. In this latter regard, it is important to first evaluate the gains in efficiency
that the concentration can provide, the effects on the relevant market, as well as whether it
affects or benefits other markets, and “the shareholdings of the economic agents involved in
the transaction in other economic agents that participate directly or indirectly in the relevant
market or in related markets.” Now, if the CFC comes to the conclusion that there are elements
that suggest that the concentration could affect competition and the free market, it can:
a) Prohibit it;
b) Subject it to the conditions the Commission establishes;
c) Order the divestment of what has been concentrated.
With respect to subsection b), above, there are three types of conditions to which the
can subject the notified concentration.
a) “Engage in or abstain from certain conduct”;
b) Transfer to certain third parties “assets, rights, partnership interests or stock”;
c) Eliminate or change conditions or terms of acts carried out for purposes of the concentration.
CFC
However, the limits on the CFC in the imposition of such conditions are that “they are
directly linked to the correction of the effects of the concentration.”
Finally, there are two types of concentrations that do not need to be notified:
a) Legal acts regarding shares or ownership interests of foreign companies, when the
economic agents involved in such acts do not accumulate in Mexican territory
shares, ownership interests, interest in trusts or assets in general, additional to
those that, directly or indirectly, they hold before the transaction;
b) Another premise that releases the economic agent from giving prior notice and
only obligates it to give notice five days after the transaction has been carried out,
is the following: that the “economic agent has held in ownership and possession,
directly or indirectly, at least during the last three years, 98 percent of the shares
or ownership interests of the economic agent(s) involved in the transaction.”
CHAPTER XV
Regulated Activities
1. Introduction
Article 5 of the Mexican Constitution guarantees the right as a general rule of all persons
or entities to engage in any business activity that they may choose.
However, there are certain governmental restrictions with respect to the activities we
discuss below in which, for strategic or public interest reasons, the participation of private interests has been limited or regulated. The second part of this chapter will explore
such activities and the restrictions to which they are subject.
2. Transportation
2.1. Transportation by Rail
Rail service is an activity reserved for the State, which can authorize concessions and
permits for private sector participation.
The Communications and Transportation Ministry (Secretaría de Comunicaciones y
Transportes, SCT) is the institution responsible for policies and programs, the granting of
concessions and licenses, the determination of standards and technical specifications for
railways and the application of sanctions.
Rail concessions can only be granted to Mexican companies whose foreign capital does
not exceed 49 percent of their total capital, although it is possible in a specific case, for
the National Foreign Investment Commission to issue a resolution allowing for a higher
level of foreign capital participation.
Concessions are granted through a public bidding process and for a term of up to 50 years.
They can be extended one or more times for an additional term or terms that cannot exceed
50 years in total. The extension will be subject to the rules and conditions established in
Article 11 of the Railway Service Regulatory Law (Ley Reglamentaria del Servicio Ferroviario).
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These concessions can take two forms:
a) For the construction, operation, and use of the railways as a general communication route;
b) For the provision of railway transportation services to the public.
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Once the concession is granted, those concession holders in the first category will be
obliged to establish traffic control centers within the country. Furthermore, the construction or reconstruction of concessioned railways requires the prior approval by the
SCT of the project and of other documents related to the work to be carried out.
The concession to provide railway transportation services to the public can be for passenger or cargo service and in both cases the concession holder must provide to the personnel that operate or assist in the operation of the railway equipment the relevant
training and education in accordance with the Federal Labor Law (Ley Federal del Trabajo, LFT). Said personnel must also obtain a federal railway license issued by the SCT and
submit to medical exams.
The concession for the provision of railway cargo transportation services to the public allows the concession holder to transport any type of goods, imposing on such concession holder liability for any loss or damage to property transported by the concession
holder’s railway. The SCT regulates the transport of hazardous materials by rail.
The concession for the provision of railway transportation services to the public
requires that the concession holder take measures to guarantee the safety and security of
the passengers at all times, as well as to accept liability for injuries the passengers or their
belongings may suffer. The concession holder must obtain insurance covering these
potential liabilities.
The SCT can also grant licenses for:
a) The provision of auxiliary services, among which are passenger and cargo terminals, the transfer and containment of liquids, equipment maintenance workshops,
and supply centers for equipment operation;
b) The construction of access routes, crossings and peripheral installations in the railroad right of way;
c) The installation of advertising and publicity billboards in the right of way;
d) The construction and operation of bridges over railways. These permits can only
be granted to Mexican companies.
2.2. Air Transportation
Air transportation has been highly regulated by the Mexican government due to the various international treaties in which Mexico participates. The stipulations of these treaties
require the relevant Mexican law to be updated.
In accordance with the Civil Aviation Law (Ley de Aviación Civil), Mexican air space is
a general means of communication subject to national domain and to federal regulation
and jurisdiction. The SCT regulates civil aviation and it has the authority to plan, formulate, and direct regulatory policy and programs for air transportation services; grant
concessions and permits for participation in different air transportation services; issue
matriculation and flight-worthiness certificates; establish and verify the system of air
routes within national air space, as well as maintain the Mexican Aeronautical Registry.
Air transportation services are divided into the following subcategories: air transportation service to the public, which can be national or international, regular or irregular
passenger, cargo or postal shipping; and private air transportation services, which can
be commercial or non-commercial.
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2.2.1. Air transportation services to the public
a) Regular air transportation services to the public. The SCT must grant a concession to
provide this service, which can only be granted to Mexican companies. In this
respect, foreign investment is very limited because the Foreign Investment Law
dictates that foreign participation in such a Mexican company cannot exceed 25
percent of the company’s total capital. To obtain such a concession, interested parties must show:
i) That they possess the technical, financial, legal and administrative capacity to
provide the service;
ii) The availability of aircraft and other relevant equipment that complies with the
established requirements;
iii) The availability of hangers, maintenance facilities, personnel and all of the
remaining structures necessary for their operations.
These concessions are granted for a term of 30 years, which can be extended
for one or more terms of 30 more years.
Those who obtain a concession to provide regular national air transportation
services to the public can also provide regular international air transportation services to the public if the SCT authorizes the corresponding routes;
b) Irregular national air transportation services to the public. The SCT must grant a permit to provide this service, which can take the following forms:
i) Charter services, through which the permit holder provides the partial or complete service of one or more aircraft. Charter services for passengers can be:
1) In the form of a tourist or excursion package where the services are sold to
the public with group or individual fares, a round trip is made, and lodging and land transportation services are included;
2) In the form of round-trip transportation of a group for special events for a
specified time period;
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3) In the form of one-way transportation of a group with a return without passengers or round-trip transportation with the return trip on the same day.
The flights or package of flights they wish to operate must be previously
approved by the SCT;
ii) Air ambulance is a service provided for the transport of and attention to sick
or injured persons from one point within the country to another or different
points in the country and can only be offered by aircraft equipped with onboard medical services;
iii) Air taxi is a service in which the permit holder provides the customer with the
services of one or more aircraft. This is the case with the transport of sick or
injured persons in an emergency when the previously mentioned aircraft
equipped for medical emergencies are not available;
iv) Irregular services of other types, provided for in the official Mexican standards
(NOMs) for the purpose of technological development.
Said permits will be granted for an indefinite period of time;
c) Standard international air transportation services for the public. Mexican companies
which are holders of a standard national air transportation concession will only
need the SCT’s authorization regarding the specific routes, which can only be used
commercially when they have been authorized. Foreign companies will need a permit from the SCT in order to offer said service to and from Mexican national territory. This permit will be valid for an indefinite period of time. It is important to
mention that the arrival to and departure from points within Mexican territory
must be made at international airports;
d) Irregular international air transportation services to the public. The SCT must also grant
a permit for the provision of this service, but the service is not subject to fixed
routes, itineraries, frequencies, or schedules and it may operate from any point
within Mexican territory and to any destination abroad and vice versa. The types
of permits are the same as those allowed with regular national air transportation
services, with the exception that if the aircraft is foreign, it cannot transport
between two or more points within Mexican territory. Rather, the foreign craft can
only arrive to or depart from one point within Mexican territory to or from a foreign destination and vice versa.
The four types of transportation services provided to the public that were discussed above
can be oriented towards passengers, cargo, mail, or a combination of these purposes. The
operation and provision of these services will be subject to the SCT’s authorization in accordance with the fixed routes, schedules, itineraries, and frequencies assigned by the SCT.
Concession holders must, among other things, obtain a registration certificate and a certificate of air-worthiness of the aircraft, as well as an insurance policy, adopt the necessary
measures in order to adequately attend disabled and aged persons, as well as provide
employees with training and orientation in accordance with the LFT. Furthermore, it is
mandatory to use the air route system established by the SCT.
2.2.2. Private air transportation services
Private air transportation services are directed towards one or more persons or entities,
other than the owner or holder of the aircraft, for the purpose of generating a profit. These
services are subject to a permit and may only operate in areas authorized by the SCT.
These types of services are:
a) Aircraft rentals to third parties;
b) Specialized air transportation services, among which are aerial photography, aerial
topography, commercial publicity, aerial fumigation, artificial rain creation, parachuting, aerial inspection, and monitoring, flight training, etc.;
c) Those services the SCT specifies in accordance with the NOMs.
3.1. The Legal Regime for Natural Gas in Mexico
The Law Regulating Article 27 of the Constitution in Petroleum Matters (Ley Reglamentaria del Artículo 27 Constitucional en el Ramo del Petróleo, LRACRP) establishes that only the
Mexican nation can engage in the various forms of hydrocarbon exploitation that constitute the petroleum industry. For the purposes of the LRACRP, the exploration, exploitation, refining, and first-hand sale of natural gas (hereinafter “gas”), as well as the
transportation and storage necessary to connect the exploitation of gas to its production,
among other activities, are considered to constitute the petroleum industry.
The LRACRP provides that gas transport, storage, and distribution services can be provided by private entities, as long as they have the proper permit.
The first-hand sale of natural gas, as well as its storage, transport, distribution, importation, exportation, and any other matter related to natural gas are regulated by the Natural Gas Regulations (Reglamento de Gas Natural, RGN).
3.1.1. First-hand sales of natural gas
For purposes of the RGN, first-hand sales are considered to be the “first alienation of gas
of national origin by Petróleos Mexicanos (the Mexican National Petroleum Company,
PEMEX) to a third party for delivery within national territory”.
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Foreign aircraft through which private air transportation services are provided will be
subject to the provisions of applicable international treaties.
Pursuant to the RGN, PEMEX must provide to the purchaser at least two price quotes for
the amount of natural gas sought; these prices will function as sales offers and will
include the terms and conditions for the sale of gas. The two price quotes PEMEX must
offer are the following:
a) At the point of departure from a processing plant;
b) At the delivery point or points determined by the purchaser, itemizing the charges
for transportation and the price of the gas at the point of departure from a processing plant, as well as other services that PEMEX has provided.
has the capacity to authorize volume discounts or different contractual conditions, as long as it does not engage in any unduly discriminatory practices.
PEMEX
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3.1.2. Permits for the transport, storage, and distribution of natural gas
In order to engage in transport, storage, and distribution activities regarding natural
gas, a permit granted by the Energy Regulatory Commission (Comisión Reguladora de
Energía, CRE) is required. Such permits will only be granted to social sector and commercial companies.
The RGN defines storage, transport, and distribution in the following manner:
• Storage. The activity of receiving, holding in deposit, and delivering gas, where the
gas is held in fixed facilities other than gas pipelines.
• Distribution. The activity of receiving, pumping, delivering, and, as the case may
be, selling gas through pipelines of a given geographical zone.
• Transport. The activity of receiving, pumping, and delivering gas through gas
pipelines to persons who are not the final consumer located within a given geographical zone.
The commercial companies that hold transport and distribution permits must comply
with the following:
a) Have as their principal corporate purpose the provision of transportation services
(if transporters) and distribution services (if distributors);
b) Include in their corporate bylaws the obligation to maintain a minimum fixed capital, not subject to withdrawal, of 10 percent of the proposed investment in a given
project.
It is important to mention that the same person can be the holder of permits for transport, storage, and distribution, as long as such person complies with the requirements
established by the RGN.
The permits will be valid for 30 years beginning from the date they are granted and
they can be renewed.
Regarding transportation services, in addition to the previously mentioned requirements, the petition should contain:
a) The proposed range of services;
b) The project’s transportation capacity;
c) A description of the different types and forms of services and their market;
d) A demonstration of the potential demand for services;
e) The sources of gas supply;
f) Any transportation agreements made with specific customers;
g) A diagram of gas flow routes;
h) Any effects of the proposed project on the corresponding transportation system.
If storage services are offered, the petition should include:
a) The location and characteristics of the project;
b) The storage capacity of the project.
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A party interested in obtaining a distribution, storage, or transport permit must provide the CRE with a petition containing the following:
a) The corporate name and domicile of the petitioner;
b) A certified copy of the corporate charter and bylaws as amended or the documentation that proves its legal existence;
c) The documents that prove the representative capacity and powers of the legal representative;
d) The purpose, description, and technical specifications of the project;
e) The description of the safety methods and procedures regarding the operation and
maintenance of the system;
f) The documentation showing the technical viability of the project;
g) The documents that demonstrate the petitioner’s technical, administrative, and
financial capacity;
h) The investment plans and the minimum investment commitments, including the
stages and timeframes for carrying them out;
i) The proposal for general conditions and rates regarding services;
j) A copy of the notice to be presented to the Federal Competition Commission
(Comisión Federal de Competencia) that manifests the petitioner’s intention to obtain
a distribution, transportation, or storage permit;
k) A description of the operating conditions, the computer and information network
systems, and the mechanisms and equipment that will be utilized for open access
to third parties;
l) The date on which the petitioner will begin providing services, specifying, if applicable, each phase of the project’s development.
In relation to non-exclusive distribution services, the petition should include:
a) The geographic zone in which the project will be developed;
b) The strategies the petitioner will use to offer distribution services to new end-users
within the corresponding geographic zone, including the cases in which the new
end-users must cover any connection charge;
c) The supply sources.
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Once the permit petition is submitted, the CRE will have a month to review it. In the
event that the petition fails to comply with all of the applicable requirements mentioned above, the CRE will notify the interested party and will grant the party one month
to submit the missing information. In the event that the interested party fails to submit
the information requested by the CRE within the established period of time, the petition
will be rejected.
If the petition complies with the applicable requirements, the CRE must publish within
10 days an abstract of the proposed project in the Official Federal Gazette and establish
a period of two months for the receipt of other petitions, objections, or comments in
relation to the given project.
The CRE will have a period of three months to evaluate the project for which the permit is being requested.
The CRE has the authority to carry out investigations; gather information that it considers necessary; consult with other federal, state, and municipal authorities; hold hearings and, in general, perform any act that is necessary for the evaluation and decision
regarding the granting of a permit. The CRE is also entitled to request changes to the project for which a three month period will be granted.
Once the CRE concludes its evaluation it will grant the permit within the following
month and publish a description of the purpose of the permit and the name and domicile of the permit holder.
The permit titles will contain:
a) In all cases:
i) The corporate name of the permit holder and its domicile within national territory;
ii) The purpose of the permit;
iii) The description and characteristics of the project;
iv) The investment plans and minimum commitments, as well as the stages and
time periods for carrying them out;
v) The deadline to begin providing services for each stage of the project’s development;
vi) The general conditions for the provision of the service;
vii) The generic description of the safety measures and procedures regarding the
operation and maintenance of the systems, which will be substituted within the period of time specified by the CRE by the detailed plan with specifications;
viii) The insurance policies the permit holder must have;
ix) Any other information that the CRE deems appropriate;
b) Regarding transportation services, the permit title must include, in addition to the
previously mentioned requirements:
i) The geographic range of the transportation services;
ii) The transportation capacity of the project;
c) In the case of storage service, the title must also include:
i) The demarcation of the geographic zone;
ii) The points for the reception of gas;
iii) Any exclusivity period;
iv) Any minimum coverage and development plan in the given geographic zone.
3.1.4. Characteristics of storage permits
Each storage permit will be granted for a specific location and a specific capacity.
Storage services include the reception of gas at one point of the storage system and
the delivery, in one or more acts, of a similar quantity at the same or another contiguous point of the same system.
3.1.5. Characteristics of distribution permits
Each distribution permit will be granted for a geographic zone determined by the
CRE , keeping in mind the factors that permit the profitable and efficient development of a distribution system, as well as the urban development plans approved by
the competent authorities. In general, a geographic zone corresponds to a population center.
It is important to note that the first distribution permit for a geographic zone will
be granted through a public bidding process and will confer to the permit holder
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3.1.3. Characteristics of transportation permits
Each transportation permit will be granted for a specific capacity and geographic range.
The authorized range shall be recorded with the CRE.
The transportation permit holder may deliver and receive gas at any point within the
authorized range, as long as the permit holder notifies the CRE of the location of these
points. It is important to mention that transportation permits do not grant the permit
holder exclusivity in the provision of services.
Transportation services include the reception of gas at one point of the transportation
system and the delivery of a similar quantity at a different point of the same system.
exclusivity rights for 12 years on the construction of the distribution system and the
reception, routing, and delivery of gas within the geographic zone. The exclusivity
period begins from the date the permit is granted.
The distribution permits will not grant exclusivity rights in regards to the commercialization of gas in the given geographic zone.
Customers located in a geographic zone may contract gas supply services other than
those provided by the distributor, in which case the distributor must allow open access
to its system through the payment of the corresponding fee.
Distribution services include:
a) The commercialization and delivery of natural gas by the distributor to the enduser within a given geographic zone, or;
b) The reception of natural gas at the point or points of reception of the distribution
system and the delivery of a similar quantity at a different point of the same system.
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The general conditions for the provision of distribution services must be approved by
the CRE, will form part of the permit title, and will include:
a) The fees for the provision of services;
b) The terms and conditions regarding access to and provision of the various types of
service;
c) The rights and responsibilities of the service provider;
d) The arbitration procedure by which the permit holder proposes to resolve disputes
arising from the provision of the services.
3.1.6. Permit holder obligations
In providing services, permit holders shall have the following obligations among others:
a) To publish in a timely manner, under the terms established by the CRE, information regarding available capacity and capacity not contracted;
b) To notify the CRE immediately of any circumstance that would imply the modification of the conditions of the provision of services;
c) To obtain and keep effective the insurance policies established in the permit title
in order to cover any liabilities the permit holder may incur;
d) To provide a permanent service for receiving complaints and reporting emergencies;
e) To immediately address end-user emergency telephone calls;
f) To inform the CRE in a timely manner of any circumstance that adversely affects or
might adversely affect the provision of services;
g) To abstain from engaging in discriminatory practices;
h) To respond to all requests for service within a month of their receipt in the case of
transportation or storage services, and within ten days in the case of distributors.
3.1.7. Transfer, lien, revocation, and expiration of permits
3.1.7.1. Transfers of permits
The CRE must authorize the transfer of a permit. This authorization will only be granted
when the potential permit holder to which the permit will be transferred:
a) Meets all of the requirements to be a permit holder;
b) Agrees to comply with all of the obligations imposed by the permit and with the
general conditions for the provision of the service.
3.1.7.4. Revocation of permits
The following are causes for revocation of a permit:
a) Failing to exercise the rights the permit grants;
b) Unjustifiably interrupting the services without cause or authorization from the
Ministry of Energy (Secretaría de Energía, SENER);
c) Engaging in discriminatory practices that harm the consumer or violating any
prices and fees that the competent authority may have established;
d) Assigning or placing a lien on a permit without complying with the requirements
of the RGN;
e) Failing to comply with the NOMs.
3.2. Gas LP
The LRACRP establishes that the exploration, exploitation, and sale of first-hand gas is
reserved to the nation and that such activity will be carried out through PEMEX.
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3.1.7.3. Expiration of permits
The following are causes for the expiration of a permit:
a) The expiration of the term established in the permit or any authorized renewal;
b) The early termination requested by the permit holder and authorized by the CRE;
c) The revocation pursuant to the law;
d) The occurrence of a terminating condition.
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3.1.7.2. Liens
The holder of a transportation, storage, or distribution permit can put a lien on the permit and the rights stemming from that permit to guarantee debts or finances directly
related to the provision and extension of the service, as well as operation-related debts,
notifying the CRE 10 days before the granting of the guarantee.
In the event that the permit’s lien is for purposes other than those specified above, the
prior approval of the CRE will be necessary.
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The LRACRP also indicates that, with prior approval, social and private sectors can provide transportation, storage, and distribution services for gas.
Based on the foregoing and for purposes of regulating the LP gas industry, on June 26,
1999 the SENER issued the New Liquid Petroleum Gas Regulation (Nuevo Reglamento de
Gas Licuado de Petróleo, RGLP).
Among the issues that the RGLP regulates is that of first-hand sales. According to the
RGLP, first-hand sales are the first sale of LP gas that PEMEX makes to a third party of national
origin for the purpose of delivery within Mexican territory. PEMEX’s sale of imported
liquid petroleum gas to a third party, when mixed with LP gas of national origin, is also
considered a first-hand sale.
First-hand sales include all services that are necessary for the sale and delivery of LP gas.
The CRE is responsible for issuing directives to set the maximum price for LP gas sold
on a first-hand basis. The CRE also establishes the general terms and conditions that govern such sales.
PEMEX cannot engage in practices that limit or in some way impede the acquisition of
LP gas by a third party. Examples of such practices are as follows:
a) Granting undue preferences to a particular person;
b) Conditioning the sale of LP gas on the acquisition of some other asset or service;
c) Conditioning the sale of said gas on the acquirer not selling the gas to a third party;
d) Refusing to sell LP gas to a given person;
e) Requiring purchasers to act in a certain manner or reprisals will be taken against them.
Depending upon which is the competent institution, the SENER or the CRE can grant the
following permits:
a) For transportation, which can be for tanker-trucks, tractor-trailers, or tanker-ships,
or through gas pipelines;
b) For storage, through a depository storage plant or a supply plant;
c) For distribution, through a storage plant for storage or carburation through gas
pipelines;
d) For storage through LP gas stations for carburation for self-service;
e) For transportation of pipelines for self-service consumption.
Transportation and storage permits may be granted to commercial businesses. Distribution permits may be granted to natural persons of Mexican nationality or to commercial businesses whose charter contains a clause excluding foreign participation.
Those interested in obtaining a permit must take the following steps:
a) Give notice to the Federal Competition Commission of the intention to acquire a
permit;
b) File a petition that must contain the following information:
i)
The petitioner’s business name, domicile, and that of any legal representative,
as well as the commercial trademark with which the business is identified;
ii) Certified copy of the petitioner’s official identification or the legal instrument
that proves the petitioner’s legal existence and that of any legal representative;
iii) The type of permit sought;
iv) The technical specifications of the equipment or facilities;
v) The technical opinions of an approved inspection unit that proves that the
project, facilities, or equipment comply with the applicable NOMs.
In the case of a permit for storage of LP gas at a deposit plant, the following additional
documentation will be required:
a) The plans for the civil, mechanical, electric, fire prevention, and planimetric
systems;
b) Technical-descriptive logs of the projects;
c) The safety measures in force.
If the permit is for the storage of LP gas at a supply plant, the following additional documentation is necessary:
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When petitioning for a permit for tractor-trailers, in addition to the foregoing requirements, the petitioner must submit a list of the tractor-trailers that will be used in providing the service and a technical opinion for each of such vehicles pursuant to the terms
of the previous section.
If the petitioner seeks a permit to transport gas through gas pipelines, the following
must also be submitted:
a) A basic plan of the location that shows the general routing of the pipeline or system of pipelines and their transportation capacity;
b) General routing plans organized by sections;
c) Detailed plans of the facilities;
d) Technical-descriptive logs of the project;
e) The investment programs and commitments;
f) The documentation evidencing financial capacity;
g) The documents showing the ownership, possession, or authorization to utilize the
facilities and equipment;
h) The proposal for the general terms and conditions for providing the services;
i) The date of initiation of operations;
j) The projections of the potential demand;
k) Any transportation agreements negotiated with possible purchasers;
l) The diagram of generic flows of LP gas.
a) A list of the tractor-trailers and tanker vehicles that will be used;
b) The plans for the civil, mechanical, electric, fire prevention, and planimetric
systems;
c) Technical-descriptive logs of the projects;
d) The safety measures in force.
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When the petition is for distribution through a storage plant, the following additional
information will need to be submitted:
a) A list of the tractor-trailers and tanker vehicles that will be used;
b) The plans for the civil, mechanical, electric, fire prevention, and planimetric
systems;
c) Technical-descriptive logs of the projects;
d) A list of the distribution and mini-tank warehouses that will be used;
e) Geographic zone in which services will be provided;
f) The safety measures in force.
Regarding permits to distribute carburation, the petitioner must submit the following:
a) A list of the tanker vehicles that will be used;
b) The plans for the civil, mechanical, electric, fire prevention, and planimetric
systems;
c) Technical-descriptive logs of the projects;
d) The safety measures in force.
Lastly, for a permit to distribute LP gas through gas pipelines, the following must be
submitted:
a) Basic plan of the facilities that shows the general route of the system of gas
pipelines;
b) Technical-descriptive logs of the projects;
c) Plans of the general routing by sections;
d) Detailed plans of the installations;
e) Safety measures.
If the requested permit is under the authority of the SENER, this agency will issue the
corresponding resolution within 20 days from receiving a request. If the permit requested
is to transport gas by a tanker vehicle or water vessel, the SENER must make a determination within 10 days after receiving the petition.
In the event that the petition does not meet the requirements established by the RGLP,
the interested party will have 30 days from the date of SENER’s notification thereof to
complete its petition.
For many decades, only the State was allowed to participate in the generation, distribution, transformation, and supply of electricity; however, due to the rapid growth of
demand for electricity and the large amount of investment that the federal government
must make in this area, various legal reforms were passed in 1992 that allow for private investment in the generation of electricity.
Notwithstanding this opening to private investment, constitutional reforms that
would allow a more active participation of private investment in the electricity sector
are necessary. Many reform proposals have been put forward, but none of them have
been approved by the Mexican Congress due to the political interests of the opposition parties.
Currently, electricity is regulated by the Provision of Electricity to the Public Law (Ley
del Servicio Público de Energía Eléctrica, LSPEE) and the Regulation of the Provision of Electricity to the Public Law (Reglamento de la Ley del Servicio Público de Energía Eléctrica,
RLSPEE). Both the LSPEE and its regulation establish that only the nation may generate,
conduct, transform, distribute, and supply electricity that is destined for public use.
The LSPEE does not consider the following as providing electricity to the public:
a) The generation of electricity for self-supply, the co-generation of electricity, or
small-scale production;
b) The generation of electricity by independent producers for the purpose of selling
the energy to the Federal Electricity Commission;
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Regarding permits under the authority of the CRE, if the petition does not comply with
the requirements established by the RGLP, the CRE must notify the interested party of the
omissions in the petition within 15 days after the CRE receives the petition. The interested party will have one month to remedy the omissions in the petition. Once the omissions are remedied, the CRE will have 140 days to issue a determination regarding the
permit. If after the 140 days the CRE has not issued a determination, it will be assumed
that the permit has been denied.
Permits will be valid for 30 years and can be extended for additional periods of 15
years with the permit holder’s valid petition. It should be mentioned that permits do not
confer any exclusivity rights to the permit holder.
Currently, Mexico is the leading consumer of LP gas for residential purposes. In recent
years, the growth of the demand for this fuel has exceeded PEMEX’s expectations, which
has made it necessary to import considerable quantities of this gas in order to satisfy the
demand. For this reason it is important to search for mechanisms that foment private
investment in this area so that Mexico no longer needs to import the gas and can ultimately become an exporter of this fuel.
c) The generation of electricity from co-generation, independent production, and
small-scale production for exportation;
d) The importation of electricity by persons or entities that will only be used to supply their own needs.
Private persons can engage in the above-mentioned activities with SENER’s prior
approval.
In the following section we will explain the characteristics of the previously mentioned
activities, the requirements that must be met, as well as the steps that must be taken in
order to acquire the corresponding permits.
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3.3.1. Self-supply (Autoabastecimiento)
Self-supply is considered to be the utilization of electricity for one’s own consumption,
as long as said energy is generated by plants used to satisfy the needs of the group of coowners or partners.
In this case, it is an indispensable requirement that the beneficiaries of the electricity
be partners or shareholders of the company holding the permit.
In order for such a permit to be granted, the following requirements must be met:
a) When there are several self-supply permit applicants where the generation of electricity will derive from one single centralized source, the petitioners must either be coowners of such electricity source or they must incorporate a company whose purpose
will be the generation of electricity in order to meet the self-supply needs of its partners or shareholders. Under no circumstances may the permit holding company supply electricity to natural or legal persons that are not members of such company,
except when an assignment of rights or a modification of plans is duly authorized;
b) The petitioner will be obligated to place the excess of its production of electricity
at the disposal of the CFE.
3.3.2. Cogeneration
The following activities are considered cogeneration:
a) The production of electricity in tandem with steam or another type of secondary
thermal energy or both;
b) The direct or indirect production of electricity from thermal energy not used in the
processes involved;
c) The direct or indirect production of electricity utilizing fuels produced in the
processes involved.
In addition to the general requirements that must be met by any person in order to
obtain a permit for the self-supply, cogeneration, or importation of electricity or any
other type of energy, the parties interested in obtaining a permit for cogeneration must
comply with the following:
a) The electricity generated be used to meet the needs of the establishments associated with the cogeneration, which will be the natural persons or entities who:
i) Utilize or produce the steam, thermal energy, or fuels that give rise to the
processes on which the cogeneration is based; or
ii) Are co-owners of the facilities or partners of the company in question;
b) The permit petitioner agrees to place its excess electricity at the disposal of the CFE.
The petitioners must also present, in addition to the documentation that petitioners of
all permits must present, a study of the facilities that includes at least a general description of the process, diagrams of the process, thermal balances, and specific fuel requirements, as well as the availability of the excesses of electrical power and energy that
would be expected on a typical day, formulated on a monthly and annual basis.
3.3.4. Small-scale production of electricity
Small-scale production is the generation of electricity destined for:
a) Sale of all of the electricity generated to the CFE, in which case the projects cannot
have a total capacity over 30 MW in an area determined by the SENER;
b) The self-supply of small rural communities or isolated areas that lack electricity
services, in which case the projects cannot exceed 1 MW;
c) Exportation within the maximum limit of 30 MW.
In this case the following requirements must be satisfied:
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3.3.3. Independent production of electricity
Generation of electricity in a plant whose capacity is greater than 30 MW and exclusively
destined for sale to the Commission or exportation is considered the independent production of electricity.
Petitioners for permits to independently produce electricity must comply with the following requirements:
a) They must be natural persons or legal entities incorporated in accordance with
Mexican law and having their domicile in Mexico;
b) The projects contemplated in the petition are included in the respective CFE planning and programs or are equivalent;
c) The petitioners must agree to sell their electricity production exclusively to the CFE
through long-term agreements under the terms of Article 36 bis or with the
approval of the SENER in the terms of the LSPEE, or to export all or part of said production.
a) The petitioners must be natural persons or legal entities formed according to Mexican law and with their domicile in Mexico;
b) The petitioners must destine all of their production for sale to the CFE. In this case,
the total capacity of the project, within an area determined by SENER, cannot exceed
30 MW.
There is the possibility of a small-scale production permit where all of its electricity production is for small rural communities or isolated areas that lack such electricity, which
they use for their own consumption. In such a case, the interested parties should:
a) Form consumer cooperatives, co-ownerships, associations, or civil partnerships, or
execute joint cooperation agreements for such self-supply purposes;
b) List the persons to whom the electricity will be delivered and the conditions in
which such delivery will be made to the end-consumer, in accordance with the
respective agreements that govern the activity.
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3.3.5. Importation or exportation of electricity
In order to obtain an importation or exportation permit for energy, the petitioners must
observe the following:
a) Import or export activities can include the conduction, transformation, and delivery of a given quantity of electricity, according to the specifics of each case;
b) Permit holders can temporarily use the national electricity system only if they have
previously executed an agreement with the CFE and only where such use does not
put at risk the provision of electricity to the public or jeopardize the rights of third
parties. These agreements must stipulate the compensation obtained by said entity
under the control of the permit holders.
The holders of such permits are obligated to the extent applicable to:
a) Reserve, to the extent possible, available electricity for public consumption when,
due to Acts of God or circumstances beyond human control, public service is interrupted or restricted. This duty shall last only as long as the interruption or restriction. The permit holder will be compensated for such emergency services;
b) Comply with any NOM issued by the SENER regarding the infrastructure and facilities related to the permits referred to in Article 36;
c) Comply with the National Electric System (Sistema Eléctrico Nacional) dispatch and operation rules that the CFE may establish in the delivery of electricity to the public network.
3.3.6. Common rules applicable to the granting of permits
Permits are valid indefinitely, except those granted for independent production, which
are valid for up to 30 years.
The SENER will examine the petition within 10 business days. Once the SENER begins
to process the petition, it will request the CFE’s opinion. This opinion should be supported by objective elements regarding the availability and reliability of the excess capacity and energy of the project, the capacity and back-up energy requirements and the
transmission services provided for in the permit petition.
The CFE will respond within the following 30 business days. In cases governed by Article 111, this period will be reduced to 10 business days. However, the SENER is not bound
by the CFE ’s opinion.
Once the above administrative steps are completed, the SENER, with the petitioner’s
knowledge, will request clarifications and any additional information that may be
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Additionally, each petition should include the following documents as attachments:
a) If applicable, the documents that prove the petitioner’s legal status and existence;
b) A description, in general terms, of the project, including the characteristics of the
plant and the surrounding facilities; the estimated annual energy production and
consumption of fuel; information regarding the use of water resources and the
information regarding compliance with environmental and land use regulations in
accordance with the relevant laws;
c) The documents that prove the ownership, possession, or authorization for use of
the land that the facilities will occupy or, in their absence, a statement of the legal
steps taken in that regard.
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It is important to specify that there is no permit requirement for self-supply electricity
that does not exceed 0.5 MW, nor is there such a requirement for generating plants of
any capacity when they are exclusively reserved for self-supply used in emergency situations stemming from the interruption of public electricity services.
Petitions for permits should be filed with the SENER in the specified format and should
provide the following information:
a) Petitioner’s corporate name and domicile;
b) The purpose of the permit and, if applicable, the period of time for which it is
sought;
c) The location of the plant, capacity of the facilities, and the places where the energy
will be used;
d) Energy supply program, including information regarding the source, type, substitutes and costs, and, if applicable, the use of national waters;
e) Where relevant, the availability and reliability of excess capacity and associated
energy; complementary capacity and energy requirements as back-up or subject to
availability, as well as energy transmission services;
f) The additional information required for each of the different permits.
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considered important for purposes of completing the petitioner’s file, for the filing of
the technical-descriptive log, and for the substantiation of the project to be developed,
which should include the elements referred to in Section II of Article 83 in detail.
Once the data and documents referred to in the previously mentioned article are
received, the SENER will, within 30 business days, reach a decision on the petition and,
if it is approved, will issue the permit.
The permit holders will be subject to the following obligations:
a) To not sell, re-sell or otherwise alienate, either directly or indirectly, any capacity
or electricity, except where authorized by the Law and the RLSPEE;
b) To notify the SENER of the date on which the construction work has been finished
within 15 business days of such date;
c) To the extent possible and with compensation, to provide the electricity needed for
purposes of public consumption when, due to an Act of God or circumstances
beyond human control, regular service has been interrupted or restricted, only for
the time period in which such regular service is unavailable;
d) To comply with the legal and regulatory provisions, as well as the official Mexican
standards and any other applicable provisions regarding works and facilities subject to permits;
e) To operate and maintain its equipment and facilities in conditions that do not pose
a risk to the permit holder or third parties;
f) Once the operation of the facilities begins, and for the exclusive purpose of statisticsgathering, to inform the SENER, using the format determined by the Ministry, of the
type and volume of fuel used and the quantity of electricity generated, specifying
the quantity used to satisfy the permit holder’s own needs and the quantity delivered to the CFE or destined for exportation, as well as, if applicable, the importation of electricity.
CHAPTER XVI
Government Acquisitions
1. Introduction
In order to secure better technical and economic conditions regarding the formation
of contracts between the Mexican federal government and private parties, the Public
Sector Acquisitions, Leasing, and Services Law (Ley de Adquisiciones, Arrendamientos y
Servicios del Sector Público, LAASSP) and the Public Works Law (Ley de Obras Públicas,
LOP)1 establish the manner and procedure through which the federal government will
choose the person or business with which it will contract for the following goods and
services:
a) Acquisitions of moveable goods (such as office equipment, automobiles, ships, airplanes, etc.);
b) Leasing of moveable goods and real estate;
c) Services (such as the cleaning of computer equipment; lawyers and accountants;
coffee service, etc.);
d) Acquisitions of real estate (an office building for a governmental ministry);
e) Public works constructions (building, highway, bridge, monument, power plants,
and other infrastructure projects).
As can be observed, practically all of the contracts the federal government forms with
private parties must comply with the forms and procedures established by these two
laws. Although there are differences between these two laws (especially in regards to the
time periods that must be observed in the procedures), the regulation of the formation
of these contracts is very similar, so much so that both laws establish the same three contracting forms or procedures.
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These two laws are only applicable to the contracts entered into by the federal government. Therefore,
regarding contracts awarded by local governments, every state of the republic has equivalent laws establishing the procedures and manner in which each local government is to award contracts.
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Before explaining each of these forms, it should be mentioned that it is important to
verify that the governmental ministry or public institution with which a private party
seeks to contract has made a specific budgetary appropriation for the purpose of forming said contract, as well as that the specific amount of the appropriation is sufficient
regarding the costs of the contract. If there is not a specific appropriation or an insufficient appropriation, there is no legal mechanism that can obligate the State to pay any
amounts owed. In order to verify this budgeting, public institutions are required to publish their contracting projections twice on their internet web pages; once on November 1,
which projections are a mere estimate for the following year and are not definitive; and
the definitive budget no later than March 31 of the corresponding year.
2. The Contracting Procedure
2.1. Public Bidding
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Public bidding is the general rule for contracting. It involves a competition through which
the state selects from among the participants the contractor who offers the best economic
and technical terms for the proposed contract.
The procedure can be national or international, depending on the nationality of the persons participating in the competitive bidding and the national or foreign origin of the
goods to be acquired.2
The first step in a public bidding is the publication of an invitation to bid that states,
along with other information, the type of contract that is to be executed and the goods
or services to be acquired, thereby informing the general public of the government’s
intention to execute the contract.
The second step is the publication of the terms and conditions of the bidding process
which, in addition to the information contained in the invitation to bid, informs the bidder of the terms and conditions under which the contract will be executed, the specifications of the goods or services to be acquired, and the suitability and solvency required of
the bidder so that, on the basis of this information, the bidding party can decide whether
or not to participate in the bidding process. During this stage, we recommend that the
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The public bid must be international in the following cases:
a) When mandatory under applicable treaties;
b) When, after the contracting government institution carries out the corresponding market research, there
is no offer from national providers of the good or service in the quantity or quality required, or the price
is right;
c) When a national bid has been carried out, but no national proposal is put forth, or none that meets legal
requirements;
d) When it is so specified for contracts financed by external loans or granted to the federal government or
with its backing.
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interested parties thoroughly review the invitation to bid in order to evaluate the possibility of participating in it. This review should analyze the general description of the
goods or services in question and evaluate the bidder’s ability to meet all the requirements
of the contract.
Following the publication of the invitation to bid, a clarification meeting is held that
allows the bid participants to air and resolve all questions or uncertainties regarding the
terms and conditions of the bid project, such as the scope of the services to be offered
or the specifications of the goods or works in question. Minutes are drafted of the results
of the meeting that become part of the bid’s terms and conditions and of which the participants can request a copy.
In the event that a private party decides to participate in a bid, it must present on the
date indicated in the terms and conditions, a sealed envelope that includes the economic
and technical proposals for the project, so that the state can evaluate, on the basis of the
bidder’s offer, which offer is best and to which bidder to award the contract. As a practical question, it is worth mentioning that the bidding procedure is extremely rigid, which
on many occasions has resulted in the government agencies disqualifying a bidder due to
a failure to comply with certain formal requirements. For this reason it is important that
bidders always take the following into account when submitting their proposals:
a) Representation. Even if the terms and conditions only require a simple proxy letter in
order to submit the proposal, it is recommended that a certified copy of the power
granted before a notary public be attached to the submission and that said power be
reviewed to ensure that it grants the attorney in fact the power to participate in a bidding process and bind the party as its representative;
b) Items. The proposal must be submitted for all those items in which participation is
sought. In the event that it is mandatory to submit proposals for specific items, all
such items should be included;
c) Address to receive notifications. A proposal should be accompanied by a written document containing the address of the bidder for the purpose of receiving all types
of notifications.
d) Signature. It is essential that the proposal be signed by the bidders or their representative;
e) Language. Proposals must always be submitted in Spanish. Technical annexes and
brochures can be submitted in the language of the country of origin of the goods,
as long as they are accompanied by a free Spanish translation (translation by an
authorized expert is not necessary);
f) Currency. The currency in which the payment will be quoted and made in the bid,
in accordance with the bid project’s terms and conditions and without conversion
values, should be indicated in the proposal. In the case of international bids in
which the bid solicitor decides to make the payments to foreign suppliers in foreign
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currency, domestic bidders can submit their proposals in the same foreign currency determined by the bid solicitor. Regardless of the foregoing, it is important
to keep in mind that payments made within Mexican territory must be made in
Mexican currency using the exchange rate in effect on the date on which such
payment is made;
g) Alternative proposals. Bid offers should not be left open. Therefore, alternative offers
should never be included in a proposal. This is because none of the terms and conditions can be negotiated and so the offer for the goods or services should be precise;
h) Joint proposals. Applicable law establishes that joint proposals can be submitted for
bids without the necessity of forming a company, as long as the following requirements are met:
• The rights and duties corresponding to each party and how compliance therewith will be enforced must be precisely established in the proposal and the
contract to the satisfaction of the relevant government agency;
• The parties must designate a representative for the purposes of signing the
proposal.
Following the submission of proposals, the corresponding governmental agency will
hold for purposes of transparency a public meeting where the envelopes containing the
single proposal will be opened. During this ceremony, a quantitative analysis is made of
the documents submitted with the offer, verifying that all of the required documentation
has been provided.
Thereafter, once the government entity has the opportunity to make an economic and
technical analysis of the proposals, a subsequent public meeting is held to inform the
bidders of the award containing the result of the evaluation of the proposals.
Finally, the signing of the corresponding contract must occur within 20 days after the
notification of the award. A performance guarantee must also be granted within 10 days
of the signing of the contract.
It is worth mentioning that if any of the bidders have observed an irregularity during
the bidding process, whether in the terms and conditions, the clarification hearing, or the
opening of proposal envelopes, that affects the outcome of the awarding of the contract,
said bidder can file a protest against such an award or against the observed violation of
the bidding procedures with the Ministry of Public Oversight (Secretaría de la Función Pública) so that the situation can be rectified.
2.2. An Invitation to at Least Three Persons
For different reasons, cases may arise in which it becomes impossible or unfeasible for
the state to issue an invitation and initiate a full bidding procedure in order to execute
In summary, the fact that these are the only situations in which contracting by invitation to at least three persons or by direct award may be chosen, all supported by a justified reason, shows the exceptional nature of these two forms of contracting.
2.3. Direct Awards
In contrast to a public bid and an invitation to at least three persons, in the case of the
direct award of a contract, there is no competition among the possible contractors. Thus
the state must be much more cautious when choosing the party with which to contract.
Regardless, the instances in which a direct award procedure can be carried out are the
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When this invitation procedure has been selected, it must be carried out with at least three parties.
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a contract with a private party. In such a case, the applicable Mexican law has established
several situations in which the ministry or governmental agency that seeks to contract
may choose not to engage in a bidding process, but instead to issue an invitation to execute a contract or a direct award.3
Among the most relevant situations in which an invitation to contract may be made to
at least three persons are the following:
a) When it is intended to purchase a specific brand of good that is only sold or distributed by specific distributor(s);
b) In the case of consulting, advice, or research services;
c) In the case of specialized equipment or chemical or biological substances necessary to carry out research;
d) In the case of used goods;
e) When the contract can only be executed with specific parties because it is for
works of art or patent ownership;
f) When due to a natural disaster the failure to contract has the potential to affect
public services or public safety or the health of the nation;
g) When it is urgent to contract, and therefore there is not enough time to carry out
a bidding process;
h) When, in the case of goods or services, two bidding procedures have been declared
null, or in the case of public works, a single bidding procedure has been declared null;
i) When in regards to contracts for the design and manufacture of prototypes, if the
tests of such prototypes are satisfactory, a contract for the production of at least 20
percent of the needs of the agency or entity will be formalized within a term of
three years;
j) In the case of acquisitions of goods and services relative to the operation of nuclear
facilities.
same as those for which the ministry or agency can choose to carry out an invitation to
at least three persons.
As can be observed, based on the foregoing, national or foreign private parties enjoy
broad opportunities to interact with the government in Mexico for the purpose of carrying out projects that benefit the State as well as the private party.
2.4. Government Contracts
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Once a contract has been awarded in accordance with any of the three previously mentioned procedures, the private party is obligated to execute the contract under the
terms and conditions provided by the public entity. In other words, there is absolutely
no possibility of negotiating the terms of the contract with the State. Only in the event
that the contract in question is not consistent with the terms and conditions of the bid
or its invitation can a private party refuse to sign a contract.
In this context it is important to keep in mind that on many occasions public institutions in practice modify certain contract terms by requiring changes in delivery
dates or some good or service. In these cases it is recommended that the private party
always document these changes because, if there is no corresponding written evidence, a dispute could subsequently arise in which the contractor may be accused of
breach of contract. Also, it is important to document sufficiently the timely tendering of goods or services, since in many cases the lack of such documentation allows
for the imposition of heavy penalties for late delivery by the corresponding government entity.
On the other hand, it is worth noting that any contract compliance dispute is subject to the provisions of the LAASSP or the LOP, as applicable, and secondarily to federal
civil legislation. Furthermore, disputes that arise between a government entity and a
private party are in principle resolved by the federal courts, unless the parties have
agreed to submit to arbitration (which is permitted by the law as a valid dispute resolution method).
3. Acquisitions, Leases, Services, and Public Works in the States
and Municipalities of the Mexican Republic
Because Mexico is a federal republic, its component states have their own laws regarding acquisitions and public works for the acquisition of goods, lease, or service contracts and for the construction of local public works. In these laws, the same three
procedures provided for by the federal legislation are generally repeated (public bid,
limited invitation, and direct award) and a mechanism is established to defend against
any unfavorable ruling stemming from said proceedings when that is unlawful.
At the municipal level, it is common for general rules to exist regarding the manner of acquiring goods, leases, or services and public works. Those rules establish
very simple procedures regarding a municipal council’s authorization for transactions
of a considerable value. In the remaining cases, contracting is open and at the discretion of the municipal authorities, since those transactions are less significant and
less costly.
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CHAPTER XVII
Environmental Law
1. Introduction
Recent years have seen an increase in our country of the regulation of activities with
regard to environmental protection, which is clearly necessary in order to allow the natural environment to coexist with human activity.
Currently the authority entrusted with the oversight of environmental matters is the
Ministry of the Environment and Natural Resources (Secretaría de Medio Ambiente y
Recursos Naturales, SEMARNAT), which is responsible for establishing a national environmental protection policy that will reverse the trend toward ecological deterioration and
set up the framework for sustainable development in the country, in coordination with
various agencies and organizations.
For the study, planning, and carrying out of its mandate, SEMARNAT has the following
semi-independent administrative bodies, among other administrative units, and public
servants to support it in its activities: the Federal Environmental Protection Enforcement
Agency (Procuraduría Federal de Protección al Ambiente, PROFEPA); the National Water
Commission (Comisión Nacional del Agua, CONAGUA); the National Ecology Institute
(Instituto Nacional de Ecología, INE), and the National Commission of Protected Natural
Areas (Comisión Nacional de Áreas Naturales Protegidas, CONANP).
The legal framework for environmental matters consists of a vast array of legal instruments, including codes, laws, regulations, and official standards. Some of these are:
a) General Law of Ecological Balance and Environmental Protection (Ley General del
Equilibrio Ecológico y Protección al Ambiente, LGEEPA). The matters covered by this
law are further covered by several regulations:
i) Regulation of the General Law of Ecological Balance and Environmental Protection in relation to Environmental Impact (Reglamento de la Ley del Equilibrio
Ecológico y Protección al Ambiente en Materia de Impacto Ambiental) (referred to
as the “Environmental Impact Regulation”);
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b)
c)
d)
e)
f)
g)
h)
i)
j)
ii) Regulation of the General Law of Ecological Balance and Environmental Protection in relation to Hazardous Wastes (Reglamento de la Ley del Equilibrio
Ecológico y Protección al Ambiente en Materia de Residuos Peligrosos);
iii) Regulation of the General Law of Ecological Balance and Environmental Protection in relation to Prevention and Control of the Contamination of the
Atmosphere (Reglamento de la Ley del Equilibrio Ecológico y Protección al Ambiente
en Materia de Prevención y Control de la Contaminación de la Atmósfera);
iv) Regulation of the General Law of Ecological Balance and Environmental Protection in relation to the Registration of Emissions and Transfer of Contaminants (Reglamento de la Ley General del Equilibrio Ecológico y Protección al
Ambiente en Materia de Registro de Emisiones y Transferencia de Contaminantes);
v) Regulation of the General Law of Ecological Balance and Environmental Protection from Noise Pollution (Reglamento de la Ley General de Equilibrio Ecológico y Protección al Ambiente en Materia contra la Contaminación Originada por
Ruido);
General Wildlife Law (Ley General de Vida Silvestre);
General Sustainable Forestry Development Law (Ley General de Desarrollo Forestal
Sustentable);
National Waters Law (Ley de Aguas Nacionales) and Regulation of the National
Waters Law (Reglamento de la Ley de Aguas Nacionales), published in the Official
Federal Gazette on January 12, 1994, which will remain in force until the regulation of the new National Waters Law is issued;
Federal Animal Health Law (Ley Federal de Sanidad Animal);
Federal Plant Health Law (Ley Federal de Sanidad Vegetal);
General Sustainable Fisheries and Aquaculture Law (Ley General de Pesca y Acuacultura Sustentables) and its respective regulation;
Federal Law of the Sea (Ley Federal del Mar);
Mining Law (Ley Minera) and its respective regulation;
General Law for the Prevention and Integrated Management of Wastes (Ley General para la Prevención y Gestión Integral de los Residuos) and its regulation.
There are also numerous official Mexican standards (normas oficiales mexicanas, NOMs)
and other rules governing environmental aspects and requirements. In addition, the
Federal Criminal Code (Código Penal Federal) contains a chapter on environmental
crimes. The states and the Federal District also have local environmental laws.
In this chapter we analyze the most important areas regulated by the environmental
laws in our country. The first area we address is environmental impact assessments necessary for activities and works that can have a significant environmental impact and the
obligations of private parties in this regard.
Thereafter we will analyze the regulation of hazardous waste in our country, which has
been updated recently through new laws both at the federal level and in the Federal District.
Another of the topics addressed is the regulation of air pollution, including obligations
in relation to emissions of industries located in our territory, as well as licenses and
authorizations required.
Space is also dedicated to the aspects we consider most relevant of the water regulation in Mexico, which has also recently been amended significantly with the entrance
into force of the reforms to the National Waters Law. Finally, we will detail the regulation of the different types of liability that can be imposed on private parties in case of
breach of the environmental laws.
2. Environmental Impact Assessments
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As a result of the condition of our natural resources and environment, it has been necessary to take steps to prevent contamination that could have significant consequences
to the surrounding environment. The General Law of Ecological Balance and Environmental Protection and its regulations establish rules in this regard.
We will start by defining environmental impact, which is understood as any change to
the environment caused by the action of man or nature.
In regulating activities and works that may have a significant environmental impact,
SEMARNAT establishes the conditions to which they will be subject, for which the interested
parties, whether individuals or entities, must present environmental impact statements,
risk studies, or preventive reports, whichever is applicable. Specifically, whoever wishes to
carry out any work or activity related to any of the following fields will most likely be
required to get an environmental authorization from SEMARNAT, which will be decided
based on the specific premises established in the Environmental Impact Regulation:
a) Hydraulics;
b) General means of communication;
c) Oil pipelines, gas pipelines, carboducts, and poliducts;
d) Petroleum industry;
e) Petrochemical industry;
f) Chemical industry;
g) Iron and steel industry;
h) Paper industry;
i) Sugar industry;
j) Cement industry;
k) Power industry;
l) Exploration, exploitation, and profiting from minerals and substances reserved to
the Federation;
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m) Installations for the treatment, confinement, or elimination of hazardous wastes
and radioactive wastes;
n) Exploitation of timber from tropical forests and species difficult to regenerate;
o) Forestry plantations;
p) Changes in the use of the land in forested areas and in jungles and arid zones;
q) Industrial parks that will engage in highly risky activities;
r) Real estate developments that affect coastal ecosystems;
s) Works and activities in wetlands, mangroves, lagoons, rivers, lakes, and estuaries
connected with the sea, as well as on their shores or in federal zones;
t) Works in protected natural areas;
u) Fishing activities that could put at risk the survival of one or more species or cause
damage to ecosystems;
v) Aquaculture activities that could put at risk the survival of one or more species or
cause damage to ecosystems;
w) Agricultural and livestock activities that could put at risk the survival of one or more
species or cause damage to ecosystems.
2.1. Environmental Impact Statement
All works or activities that could cause a change to the environment must be supported by an environmental impact statement consisting of a document by which, on
the basis of studies, any significant and potential environmental impact that work or
activity would generate is indicated, as well as how to avoid or mitigate it if the impact
is negative.
Once the environmental impact statement is presented, it will be evaluated according
to the guidelines established by the LGEEPA and the Environmental Impact Regulation.
The evaluation of environmental impact consists of the procedure through which
SEMARNAT establishes the conditions to which the works and activities that could cause
ecological imbalance or surpass the limits and conditions established in the provisions
applicable to environmental protection will be subject.
The environmental impact statement that the interested parties must present to
SEMARNAT should include a description of the possible effects on the ecosystem(s) of the
work or activity in question, establishing preventive, mitigating, or other necessary
measures in order to avoid and reduce to a minimum the negative effects on the environment. SEMARNAT provides to the petitioners guidelines to facilitate the preparation
and delivery of the environmental impact statement depending on the type of work or
activity to be carried out, which guidelines are published in the Official Federal Gazette
and in the Ecology Gazette (Gaceta Ecológica).
2.2. Risk Study
When the activities are considered by the LGEEPA to be highly risky, the environmental
impact statement must include a risk study.
That study consists of including in the environmental impact statement: (a) the
preventive scenarios and measures resulting from the analysis of the environmental
risks related to the planned activity; (b) the description of the zones of protection in
relation to the installations, if applicable, and (c) the indication of the environmental
safety measures.
In this case as well, SEMARNAT publishes guidelines in the Official Federal Gazette and
in the Ecological Gazette (Gaceta Ecológica) to facilitate the preparation and presentation
of the risk studies.
2.3. Preventive Report
In this regard, SEMARNAT also publishes in the Official Federal Gazette and in the Ecology Gazette the guidelines for the presentation of the preventive report.
SEMARNAT will review and issue a ruling on the preventive report within a term no
greater than 20 business days from its presentation. The purpose of the ruling will be:
(a) to authorize the work or activity in question without the need to present any type of
environmental statement, or (b) request the presentation of an environmental impact
statement.
It should be mentioned that constructive approval is applicable in the case of works
or activities that are totally regulated by official Mexican standards. Thus, if the authority does not issue a ruling within the 20 business day term, it will be understood that
such works or activities can be carried out as planned, in accordance with the applicable official Mexican standards.
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For certain works and activities specified in the Environmental Impact Regulation, such
as works related to hydraulics, general means of communication, oil pipelines, gas
pipelines, carboducts, poliducts, or the petroleum and petrochemical industries, a preventive report should first be presented to SEMARNAT in any of the following cases:
a) When there are official Mexican standards that regulate the environmental impacts
resulting from works and activities such as those planned;
b) When the works or activities are expressly set forth in a partial urban development
plan or an environmental zoning ordinance, which already has an environmental
impact authorization;
c) In the case of installations located in industrial parks previously authorized by
SEMARNAT.
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The preventive reports, environmental impact statements, and risk studies can be prepared by the interested parties or by any individual or entity. Whoever prepares the studies
must observe the provisions of the LGEEPA, the Environmental Impact Regulation, the official Mexican standards, and the other applicable legal rules and regulations. They must also
declare under oath that the results were obtained through the application of the best techniques and methodologies commonly used by the scientific community in the country, and
from the use of the greatest amount of information available. The preventive and mitigating
measures suggested must be the most effective to address the environmental impacts.
The service provider or the signatory of the document will be responsible for its contents.
If it is shown that the information contained in the above-referenced documents is false, the
responsible party may be subject to an administrative penalty of a fine, administrative arrest
for up to 36 hours, or suspension or revocation of the corresponding permit or authorization, in addition to any other applicable penalties under other laws and regulations.
Finally, it should be mentioned that the authorization issued by SEMARNAT does not
obligate local authorities (states, municipalities, or the Federal District) to issue the
authorizations corresponding to them within the scope of their responsibilities.
3. Waste
The regulation of hazardous waste was significantly changed with the General Law for
the Prevention and Integrated Management of Wastes (Ley General para la Prevención y
Gestión Integral de los Residuos) (“Wastes Law”), published in the Official Federal Gazette
on October 8, 2003, and in force since January 6, 2004. This legal instrument establishes, among other things, rights, obligations, and administrative penalties in relation to
the activities inherent in the handling of wastes.
The regulation of the Wastes Law was published November 30, 2006, in the Official
Federal Gazette and entered into force on December 31, 2006.
With the entrance into force of the Wastes Law and its regulation, all the legal provisions contrary to it were repealed.
According to the statement of legislative intent of the Congress of the Union, the primary purpose of the Wastes Law is to guarantee the right of all persons to an adequate
environment and promote sustainable development by the prevention of the creation,
evaluation, and the integrated management of different wastes, and to prevent the contamination of sites with these wastes, as well as remediate those already contaminated.
3.1. Persons Subject to the Wastes Law and Its Regulation
a) Generators. Individuals or entities that generate wastes as a result of production or
consumption processes;
b) Micrognerators. Industrial, commercial, or service establishments that generate an
amount of up to 400 kilograms (882 pounds) of hazardous waste per year or its
equivalent in another unit of measure;
c) Small generators. Individuals or entities that generate an amount equal to or greater
than 400 kilograms (882 pounds) and less than 10 tons in total gross weight of
waste per year or its equivalent in another unit of measure;
d) Large generators. Individuals or entities that generate an amount equal to or greater
than 10 tons in total gross weight of wastes per year or its equivalent in another
unit of measure.
3.2. Classification of Wastes
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Waste should be understood as the material or product discarded by the owner or possessor and that is in a solid or semisolid state, or is a liquid or gas contained in receptacles or deposits and for which a value can be set or that must be subjected to
treatment or final disposal according to the Wastes Law. Wastes are classified into the
following types:
a) Wastes requiring special handling. Wastes generated in production processes that do
not meet the characteristics to be considered solid hazardous urban wastes or that
are produced by large generators of solid urban wastes;
b) Incompatible wastes. Wastes that react when they come in contact or are mixed with
water or other materials or waste, producing heat, pressure, fire, particulates, gases
or harmful vapors;
c) Hazardous wastes. Wastes that possess any of the characteristics of corrosiveness,
reactivity, explosiveness, toxicity, inflammability, or that contain infectious agents
that make them hazardous, as well as containers, receptacles, packaging, and soils that
have been contaminated when being transferred to another site, in accordance
with the new Wastes Law.
In order to determine if a waste meets the characteristics mentioned in the
above paragraph, a Cretib test is done, which indicates whether or not a material
is hazardous;
d) Solid urban wastes. Wastes generated in residential dwellings, resulting from the
elimination of the materials used in domestic activities, of the products they consume, and their containers or packaging; wastes coming from any other activity
within establishments or on the street that generates wastes with household characteristics; in addition, the by-products of the cleaning of streets and of other
public places, provided they are not considered some other type of waste under
the new Wastes Law.
3.3. Management Plan
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Management plans are established in order to promote the valuation and the prevention
of the generation of solid urban wastes, wastes requiring special handling, and specific
hazardous wastes, according to criteria of environmental, technological, economic, and
social efficiency, based on the Basic Diagnostic of the Integrated Management of Wastes,
designed according to the principles of shared responsibility and integrated management, which consider the group of viable actions, procedures, and mediums and involve
producers, importers, exporters, distributors, sellers, consumers, users of sub-products,
and large generators of wastes, as applicable, as well as the three levels of government.
The following persons are required to formulate and execute management plans:
a) Producers, importers, exporters, and distributors of products that when discarded
become the hazardous wastes referred to in the Wastes Law, and those included in
the official standards issued for such purposes;
b) Generators of the hazardous wastes referred to in Sections XII–XV of Article 31 of
the Law and of those included in the official standards;
c) The large generators and producers, importers, exporters, and distributors of the
products that when discarded become solid urban wastes or wastes requiring special handling according to the corresponding official standards.
3.4. Integrated Management
One of the goals pursued by the Wastes Law is to regulate the integrated management of
waste, applied through reduction at the source, separation, re-use, recycling, co-processing,
biological, chemical, physical, or thermal treatment, collection, storage, transportation,
and final disposal of wastes, done individually or appropriately combined, adapted to
the conditions and needs of each place, meeting the objectives of valuation and sanitary,
environmental, technological, economic, and social efficiency.
The above activities are regulated by federal, state, and municipal authorities, according to the divisions made by the Wastes Law, its regulation, official Mexican standards,
and other legal provisions issued in order to regulate the comprehensive management of
wastes.
3.5. Shared Responsibility
With the entrance into force of the new Wastes Law, a new type of co-responsibility
is established called shared responsibility, consisting of principles recognizing that
urban wastes and wastes requiring special handling are generated from the carrying
out of activities that satisfy the needs of society through value chains of production,
3.6. Liability with Respect to the Contamination and Remediation of Sites
Anyone responsible for the contamination of a site, as well as damages to health as a
result thereof, is obligated to remedy the damage caused, according to the applicable
legal provisions. Furthermore, the owners or possessors of private property and holders
of concessioned areas whose soils are contaminated are jointly and severally liable for
taking the necessary remediation actions, without prejudice to their right to recover
from the party that caused the contamination.
In addition to the remediation of the contaminated site, anyone responsible for the
contamination of a site may incur civil, criminal, and/or administrative liability.
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processing, packaging, distribution, and product consumption and that the integrated
management of such waste is, therefore, a social co-responsibility and requires the
joint, coordinated, and differentiated participation of producers, distributors, consumers, users of sub-products, and of the three orders of government as applicable,
according to a plan of market feasibility and environmental, technological, economic,
and social efficiency.
Furthermore, it is provided that in carrying out the policies in relation to prevention,
valuation, and integrated management of wastes, the issuance of legal provisions and
actions derived therefrom, as well as in the generation and integrated management of
wastes, the principle of shared responsibility of producers, importers, exporters, sellers,
consumers, waste handling service companies, and the authorities of the three levels of
government must be observed, given that co-responsibility is considered essential in
order to ensure that the integrated management of wastes is environmentally efficient,
technologically viable, and economically feasible.
Thus, it can be asserted that the law imposes co-responsibility when producers, distributors, consumers, users of sub-products, and the three levels of government are
involved in the generation of waste. However, the scope of the concept of co-responsibility
is very unclear in that the consequences and obligations for the parties involved are not
specified.
In this regard, the concept of shared responsibility is also mentioned in the Regulation of the Wastes Law. However, the Regulations do not provide additional specifications regarding the consequences, obligations, and scope of such co-responsibility and
only provide that (a) the scope of such shared responsibility shall be determined in the
Management Plans described above and in accordance with the guidelines provided in
the official Mexican standards (NOMs) that shall be issued by the Federal Government
in this regard (which to this date have not been published); and (b) the shared responsibility will also be applicable for the integrated management of urban solid and special management wastes that are not subject to management plans.
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In order to avoid any liability arising from acquiring contaminated property, it is advisable to take preventive steps, such as the characterization of the site to be acquired or
leased. In order for the characterization to be recognized by the environmental authorities, it is advisable to have it done by a laboratory accredited by the Entidad Mexicana
de Acreditación, A.C. (EMA).
While it is not mandatory to have the evaluation done by a lab accredited by the EMA,
such labs are recognized by the environmental authorities. The Regulation of the Wastes
Law, while not expressly stating it, does suggest the obligation of interested parties is to
carry out the tests in laboratories accredited by the EMA.
It is also worth mentioning that the Regulation of the Wastes Law provides that, when
as a result of an Act of God or force majeure, leakages, infiltrations, discharges, or spills
of hazardous materials or hazardous wastes occur in amounts greater than one cubic
meter (35 1/3 cubic feet), the party responsible for the hazardous material or the generator of the hazardous waste shall: (a) immediately take measures to contain the released
materials or wastes, minimize or limit their dispersion, or collect them and clean the site;
(b) advise the enforcement agency and the competent authorities immediately that a
leak, infiltration, discharge or spill of hazardous materials or waste occurred; (c) execute
the measures imposed by the competent authorities, and (d) if applicable, initiate the
works to characterize the contamination of the site and carry out the corresponding
remediation actions.
3.7. Administrative Violations and Penalties
The following are some of the activities that are sanctioned in relation to wastes. Businesses are not allowed to:
a) Collect, store, transport, treat, or permanently dispose of hazardous waste without
having lawful authorization to do so;
b) Mix hazardous wastes that are incompatible;
c) Throw, abandon, or permanently dispose of hazardous waste at unauthorized sites;
d) Thermally treat hazardous waste without the required authorization;
e) Store hazardous waste for more than six months without having the required
extension;
f) Transport hazardous waste by air;
g) Transport hazardous waste through Mexican territory to another country where its
preparation, use, or consumption is prohibited;
h) A waste generator’s failure to manage its wastes in an integrated manner itself or
through an authorized service provider;
i) Not be registered as a generator of hazardous waste when obligated to do so pursuant to the Wastes Law;
j) Not comply with regulations regarding the identification, classification, packaging,
and labeling of hazardous wastes;
k) Not comply with the requirements that the Wastes Law has established regarding
the importation and exportation of hazardous wastes;
l) As generator of hazardous waste, not provide to service providers the information
necessary for its integrated management;
m) As a generator of hazardous waste, not give notice to the competent authority in
case of emergencies, accidents, or loss of such waste;
n) Not comply with environmental protection measures regarding the transportation
of hazardous waste.
LGEEPA
Individuals or entities affected by acts or rulings of the administrative authorities that
terminate an administrative proceeding or an instance, or that resolve a case, may file
a motion for review or, when appropriate, a court appeal.
The time period for filing the motion for review is 15 days from the day following the
date on which the notification of the ruling to be challenged takes effect. The review will
be conducted according to the Federal Law of Administrative Procedure (Ley Federal de
Procedimiento Administrativo).
The motion for review is an administrative appeal filed before the authority that issued the
ruling that is being challenged; the motion is heard by that authority’s superior. On the
other hand, a private party can choose to file a nullity claim directly before the Federal
Tax and Administrative Court instead of a motion for review, or it can apply for a nullity
proceeding after receiving an unfavorable ruling in the motion for review. Said proceeding is a claim that is filed before the Federal Tax and Administrative Court and is regulated by the Federal Law of Administrative Law Court Procedure (Ley Federal de
Procedimiento Contencioso Administrativo). As a final option, there is the amparo proceeding that can be filed to claim the rulings issued by the environmental authorities were
unconstitutional because they violate the individual rights of the private parties.
The LGEEPA establishes that a motion for review can also be filed with respect to works
or activities that violate the LGEEPA or other environmental provisions. In this case, the
motion for review can be filed by any individual or entity of the communities affected
by the violation of the LGEEPA. It is also possible for any person, group, or association
that is not directly affected by a violation of the environmental provisions to report such
a violation to the appropriate environmental authority.
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3.8. Private Party Defense against Actions Taken by Governmental Authorities
Environmental
In imposing penalties for violations of the Wastes Law, the provisions of the
with regard to wastes apply.
Furthermore, a complaint can be filed in accordance with the LGEEPA by persons, social
groups, non-governmental organizations, associations, or communities before the PROFEPA
or before other authorities regarding any event, act, or omission that produces or could produce an ecological imbalance or harm to the environment or natural resources, or violate
the provisions of the LGEEPA or the other legal regulations governing matters related to environmental protection and the preservation and restoration of the environmental balance.
4. Regulation of Air Pollution
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Air pollution is regulated in the first instance by the LGEEPA and its Regulations regarding the Prevention and Control of Air Pollution. These laws place certain industries
under federal jurisdiction and others under state or municipal jurisdiction, which are
subject to local law. Furthermore, the sources of air pollution are classified as fixed
sources, mobile sources, or mixed sources, the latter being pollution coming from two
or more ducts or chimneys.
The following industries are considered fixed sources under federal jurisdiction: chemical, petroleum and petrochemical, paint and dye, automotive, cellulose and paper, metallurgic, glass, power generation, asbestos, cement and lime, and the treatment of hazardous
waste. The operation and running of these industries that emit or could emit odors, gases,
or solid or liquid particles in the atmosphere require an authorization by SEMARNAT.
The Regulations establish that such industries are obliged in general to:
a) Use equipment and systems that control emissions released into the atmosphere and
to ensure they do not surpass the maximum allowable levels established in the corresponding environmental technical standards;
b) Keep an inventory of their air emissions on the form specified by SEMARNAT;
c) Install platforms and sampling ports;
d) Measure their air emissions, register the results on the form specified by SEMARNAT,
and send the records to the latter when so requested;
e) Monitor the perimeter of their air pollution emissions under specific circumstances;
f) Keep a logbook (bitácora) recording the operation and maintenance of their processing and control equipment;
g) Give notice to SEMARNAT of the initiation of operations and of other specified circumstances.
4.1. Operating License
In order for the above-mentioned industries to be able to operate, an operating license
issued by SEMARNAT is required. To obtain it, companies must provide, among other
things, the following information:
a) Description of the process;
b) Distribution of machinery and equipment;
c) Raw materials or flammables that are used in the production process and their
form of storage;
d) Transportation of raw materials or flammables to the processing area;
e) Transformation of raw materials or flammables;
f) Products, sub-products, and wastes that will be generated;
g) Storage, transportation, and distribution of products and sub-products;
h) Amount and nature of the air contaminants expected;
i) Equipment for the control of air pollution that will be used;
j) An emergency plan.
4.2. Single Environmental License (Licencia Ambiental Única)
It addition to the above, any interested party can comply with its environmental obligations by obtaining a Single Environmental License (Licencia Ambiental Única, LAU), which
means that the form that must be delivered to the authority contains not only the information on its air emissions, but also the required information regarding water and
wastes. Thus, instead of issuing an Operating License, SEMARNAT will issue a Single Environmental License that covers all environmental aspects.
4.3. Annual Operating Card (Cédula de Operación Anual)
Those entities having a fixed source under federal jurisdiction that have a license must
present to SEMARNAT an Annual Operating Card (Cédula de Operación Anual, COA) before
April 30 of each year, which contains the updated information required in order to
obtain the Operating License (or the LAU, as applicable). Since the June 3, 2004, reform
of the Regulation, this card is also regulated by the Regulation of LGEEPA regarding the
Registration of Emissions and Transfer of Contaminates (Reglamento de la Ley General del
Equilibrio Ecológico y la Protección al Ambiente en Materia de Registro de Emisiones y Transferencia de Contaminantes).
With regard to the emissions of air pollution, the characteristics of the machinery,
equipment, or activities that generate them must be reported, describing the point of
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If the license is granted, SEMARNAT must specify the following points in the document
recording the license: the periodicity with which the inventory of their emissions must be
sent to SEMARNAT; the periodicity with which their emissions must be measured and monitored; the measures and actions that should be carried out in case of an emergency; the
equipment and other conditions that SEMARNAT specifies to prevent and control air pollution.
generation and the type of emission, and the characteristics of the air emission discharged through chimneys and ducts. In addition to the above, with regard to emissions regulated by official Mexican standards, the results of the tests and analysis done
in accordance with such standards must also be reported. Such information must be
reported for each contaminant.
4.4. Regulation of the LGEEPA Regarding the Registration of Emissions
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As we have mentioned, on June 3, 2004, the Regulation of the LGEEPA regarding Registration of Emissions and Transfer of Contaminants (RETC) was published in the Official
Federal Gazette, the purpose of which was to regulate the emissions and transfer of contaminants. The information from the database of the Registry will be composed of the
information and documents contained in the authorizations, cards, reports, licenses,
permits and concessions processed by SEMARNAT or the competent authority of the government of the Federal District, the states and municipalities. SEMARNAT will coordinate
with these other non-federal governmental authorities in order to harmonize the information to be introduced into their respective databases.
The RETC establishes that the fixed sources under federal jurisdiction, as well as generators of hazardous waste and those who discharge wastewater into national bodies of
water, will be considered establishments subject to federal reporting (through their COA).
In addition, the definitions article establishes the “substances subject to federal reporting” in the following form: chemical elements or composites that are emitted or transferred by the establishments subject to federal reporting. The elements that are emitted
are determined based on their environmental persistence, bio-accumulation, toxicity,
teratogenicity, mutagenicity or carcinogenicity and, in general, on their adverse effects
on the environment.
In relation to the technical guidelines of the Registry, the Regulation adds that the substances subject to federal reporting, the reporting thresholds (minimum amount beyond
which its emissions must be reported), and the technical and procedural criteria for
including and excluding substances will be determined by the corresponding official
Mexican standard (norma oficial mexicana, NOM), which will take into account substances
and contaminants of the air, water, soil, and subsoil, hazardous materials and wastes, as
well as persistent organic compounds, greenhouse gases, and substances affecting the
ozone layer. As of this date this official Mexican standard has not yet been issued.
Similarly, the RETC clarifies that the emissions and transfer of contaminants and substances subject to federal reporting that are regulated by official Mexican standards
must be measured using the methods, equipment, and testing and reporting procedures specified by the NOMs and by the Federal Law of Metrology and Standardization
(Ley Federal sobre Metrología y Normalización) and its Regulation. The emissions not regulated by official Mexican standards or that are exempt from measurement can be estimated through commonly used methodologies, such as the application of emission
factors, estimation from historical data, balance of materials, engineering calculations,
or mathematic models.
Finally, it should be mentioned that the information provided by interested parties
regarding emissions and transfer of contaminates will be available to the public in general once the RETC is fully consolidated. Such information will consist of the name of the
establishment, its emissions and transfers of substances and contaminants and its geographic location.
4.5. Official Mexican Standards (normas oficiales mexicanas, NOMs)
5. Legal Framework Governing Water in Mexico
The National Waters Law (Ley de Aguas Nacionales, LAN) and the Regulation of the
National Waters Law (Reglamento de la Ley de Aguas Nacionales) are the laws governing
this area, and the National Water Commission (Comisión Nacional de Agua, CONAGUA),
a semi-independent administrative agency of SEMARNAT, is the responsible authority
regarding national waters.
Although CONAGUA is a semi-independent administrative agency of SEMARNAT, in reality it is almost totally autonomous. This agency is responsible for all aspects of national
waters, from their supply to the oversight of the discharge of wastewater. SEMARNAT has
jurisdiction over the application of the laws in relation to Mexican marine waters.
It should be mentioned, however, that the LGEEPA includes a chapter on the prevention
and control of the contamination of water and of aquatic ecosystems, and that SEMARNAT
in theory has powers in relation to the ecological aspects of national waters.
In Mexico, Article 27 of the Federal Constitution makes a broad classification of the
waters owned by the nation, and as a result in order to make use of such national waters
it is necessary to have a concession and to pay the fees for the concessioned water. Furthermore, a discharge permit that establishes the conditions for discharge of the water
covered by the concession title is required.
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Currently there are approximately 30 NOMs related to air pollution. Several of them refer
to methods of measurement to determine the concentration of certain types of air emissions. Others establish the maximum permissible levels of air emissions of various substances, such as sulfur, solid particulates from fixed sources engaged in the manufacture
of cement and volatile organic compounds coming from the process of water-oil separation in oil refineries.
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With regard to wastewater, the LAN has required that wastewater be treated before it is
released into bodies of water and that it comply with the contamination limits established in the NOMs.
In this regard Mexican law has adopted certain principles that establish:
a) That water is a national security issue;
b) That the integrated management of water resources by watershed is the basis of
national water policy;
c) The decentralization of the management of water resources;
d) That the concessions and allocations of water must be based on the actual availability of the resource;
e) That the conservation, preservation, protection, and restoration of water in quantity and quality is a national security matter and therefore unsustainable use and
adverse environmental effects must be avoided;
f) That water provides environmental services that must be recognized, quantified,
and paid for, pursuant to the law;
g) That the individuals or entities that contaminate water resources are responsible
for restoring their quality and the principle of “polluter pays” will be applied.
As mentioned, decentralized management and organization by watershed are established. This means that regional management is in the hands of watershed agencies
(autonomous bodies assigned directly to the head of CONAGUA). They will be authorized to apply the law, issuing use concessions and discharge permits, collecting fees,
applying penalties, and applying governmental acts that are not reserved to CONAGUA,
in their region.
It is important to emphasize that the states, the municipalities, and the Federal District,
through an assignment granted by the commission or the corresponding watershed
agency, can make use of national waters for purposes of supplying public, urban, or
domestic water services. In this regard, the municipalities are responsible for ensuring the
supply of potable water and treating the wastewater of their municipality.
We consider the following to be among the most important obligations for private parties:
a) For the use of national waters, it is necessary to have a concession for the
extraction and consumption of water, to have equipment to measure the water
consumed, and to pay the fees for the water used;
b) For the discharge of wastewater it is necessary to: have a discharge permit; treat
the wastewater prior to its release into receiving bodies of water; have a legal
connection to the municipal drainage system; comply with the limits of contamination established in their permit and in the NOMs or the guidelines for
Construction Products (CDP); have the discharge meters in place; pay the fees
for wastewater actually discharged; and present a report every two years that
contains the chronological analysis and water quality indicators of the discharged water.
Furthermore, it is required to register the concessions in the Public Registry of Water
Rights. The transfer of title to a concession without modifications is carried out through
a request for authorization.
The failure of a concession holder to take the necessary measures to prevent the contamination of the concessioned waters will result in:
a) The application of penalties, the severity of which will depend on the damage
caused to the water quality and the environment;
b) The payment of fees corresponding to the volume and quality of the discharges;
c) The possible suspension or revocation of the concession.
6. Environmental Liability
Environmental liability in Mexico can be divided into civil, administrative, and criminal liability, although it can be said that in practice primarily administrative liability is imposed.
In the administrative sphere, PROFEPA has the authority necessary to execute the actions
and impose the administrative penalties established by the law, which are explained below.
6.1. Inspection and Auditing
has the powers of inspection and auditing in order to ensure compliance with
the environmental laws and regulations and to establish the measures that must be taken
to correct irregularities observed.
PROFEPA
6.2. Safety Measures
When there is an imminent risk of serious environmental damage or hazardous consequences for public health, PROFEPA has the authority to impose safety measures, among
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The concession can also be revoked if discharge of wastewater in national bodies of
water is in violation of the law.
In addition to the administrative, criminal, or civil penalties that apply in the case of a violation of a NOM or the conditions of the wastewater discharge permit, the LAN also establishes
liability for individuals or entities that discharge wastewater in violation of the applicable
laws and regulations and that contaminate a body of water, who will be liable for remediation of the environmental damage caused by the removal of the contaminants from the
affected body of water or, when that is not possible, by the payment of an indemnification.
which are temporary or definitive, partial or total closure of the plant that is the source
of the contamination.
6.3. Administrative Penalties
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Closure is an administrative penalty that can be imposed in cases of imminent risk, as
well as in cases of failure to meet the deadlines and conditions imposed by the authority in specific circumstances, and in cases of recurrence. Administrative penalties also
include fines of from 20 to 40,000 days of minimum wage, administrative arrest for up
to 36 hours, and the suspension or revocation of concessions, licenses, permits, and
authorizations, among others.
With regard to criminal liability, the Federal Criminal Code (Código Penal Federal) contains a specific section on environmental crimes and environmental management where
several environmental crimes are established in relation to technological and hazardous
activities, bio-diversity, bio-security and environmental management. To cite an example, anyone who emits or discharges contaminants in the air or water in violation of
applicable laws and standards and anyone who authorizes or orders such violations, can
be imprisoned from one to nine years and fined up to 3,000 days of minimum wage. If
these activities are carried out in a protected natural area, the prison sentence can be
increased by three additional years.
In addition to the penalties established specifically for each of the environmental
crimes, the Federal Criminal Code establishes that the following measures must also be
taken: (a) actions necessary to reestablish the conditions of the natural elements affected; (b) the suspension, modification or demolition of the constructions, works or activities that have caused the environmental crime; (c) the reincorporation of the natural
elements, samples or species of wild flora and fauna, and (d) works in benefit of the
community, etc.
With regard to civil liability, the LGEEPA provides generally that whoever carries out
works or activities that affect the environment must remediate any damages caused and
assume the costs such remediation involves. More specifically it establishes that in addition to any criminal or administrative penalties that may be applicable, any person that
contaminates or deteriorates the environment or affects the natural resources or the biodiversity will be liable and will be obligated to remediate any damages caused in accordance with the applicable civil law. The statute of limitations on environmental liability
is five years from the occurrence of the corresponding act, event or omission.
Other environmental laws develop this concept further. The General Law for the Prevention and Integrated Management of Wastes (Ley General para la Prevención y Gestión
Integral de los Residuos) is the newest and the strictest in this regard. This law provides in
relation to civil liability that anyone responsible for the contamination of a site, or harm
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to health as a result of such contamination, will be obligated to repair the damage caused
in accordance with the applicable legal provisions.
This law also provides that the owners of private property or those possessing it and
the holders of concessions over areas where the soil has been contaminated will be
jointly and severally liable for carrying out the necessary remediation actions, but may
file recovery actions against whoever caused the contamination of the site.
It should be mentioned that currently there are no official parameters for the remediation of contaminated sites. Therefore, SEMARNAT has discretion in establishing parameters for evaluating the remediation actions carried out by private parties.
In this regard, the parameters and scope of civil liability in environmental matters needs
further development. In Mexico in civil matters a traditional focus has been maintained
which has not been expanded to incorporate concepts such as the remediation of damage caused to the environment itself. Thus for the purpose of filing a claim before the
courts, the civil law only recognizes the standing of a person that is affected directly in his
person or property. Therefore, the legal interest of, for example, a non-governmental
organization or an organization that represents a community to be able to file a claim to
demand remediation of environmental damages still needs to be developed and specified.
Another impediment in the area of civil liability is the requirement of proving a causal
relation, which requires that it be proved that the action or activity of the accused is the
direct, immediate, and only cause of the damage. In environmental matters it is always
difficult to prove cause with certainty. Furthermore, the repair of damages in civil matters
generally involves the payment of damages and losses, while in environmental matters the
preferable remedy is the remediation of the adverse effects on the environment. Finally,
conclusive evidence of the cost of the damage is required in order to impose the payment
of such damages, and in environmental matters the parameters for evaluating the value of
the damages caused do not exist.
It should be mentioned that there is no civil or administrative law that increases the liability of the responsible party (for example, an obligation to pay double damages or punitive damages) in the case of having known of and not immediately cleaned up the
contamination, except for the fact that the damages will continue to accrue and the responsible party will be obligated to indemnify any third party harmed by such damages.
CHAPTER XVIII
Administrative Litigation
1. Introduction
In Mexico, the actions of governmental authorities are governed by the principle of legality,
which has a constitutional basis. When a governmental authority acts unlawfully, the law
establishes control mechanisms. There are two means of control under Mexican Law. First,
there is self-regulation within the administrative bodies themselves, through administrative appeals. Second, there are two judicial means of control consisting of administrative
court proceedings processed before administrative courts (autonomous from the Judicial
Branch) and the amparo proceeding before the courts of the Federal Judicial Branch.
In the Mexican legal system there are multiple special administrative bodies and courts
that exercise specific powers in different spheres of economic activity. While such bodies and courts cannot be excluded from the administrative and judicial means of control
explained below, we consider that their existence and jurisdiction merit a more detailed
description at the end of this chapter.
2. Administrative Appeal
In general terms, the activities of the authorities belonging to the federal public administration in relation to private parties is regulated by the Federal Law of Administrative Procedures (Ley Federal de Procedimiento Administrativo, LFPA). Such law applies to the acts,
procedures, and rulings of the centralized federal public administration (the Presidency of
the Republic, the ministries of State, the administrative departments, the Federal Executive
Judicial Advisory Board [Consejería Jurídica del Ejecutivo Federal]) and of the parastatal federal public administration (decentralized bodies, companies with state investment, national credit institutions, auxiliary national credit organizations, national insurance, bond and
trust institutions) with respect to their governmental actions, the services that the State provides exclusively and the contracts that only private parties may execute with the State.
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The LFPA provides that private parties may defend themselves against acts of authorities belonging to the public administration through a procedure called the administrative motion for review (recurso administrativo de revisión), the purpose of which is to
review an administrative act considered illegal, either by amending it, annulling it or
confirming it according to the guidelines established by the LFPA.
The deadline for filing a motion for review is 15 days from the day following the date
on which the notice of the administrative act takes effect.
The administration act must contain certain elements and comply with certain
requirements, among which are the following: (i) to be issued by a competent body, (ii)
to have a purpose that can be subject to an administrative act, (iii) to be in the public
interest, (iv) to be in writing, signed by the authority issuing it, (v) to be grounded in
law and fact, (vi) to be issued free of mistake or duress, (vii) to mention the body issuing it and the place and date of issuance, and (viii) in the case of appealable administrative acts, mention must be made of the available appeals.
When the administrative act does not comply with the above-mentioned requirements
and with the applicable law, a motion for review may be filed. The motion must be filed
before the governmental authority that issued the challenged act and it will be reviewed
by the superior of the issuer.
The ruling issued in the motion for review may nullify the administrative act. The legal
act that is declared null and void will be invalid, will not be presumed legitimate or
enforceable and private parties will not be obligated to comply with it. The act that is
declared annullable will be considered valid, will enjoy the presumption of legitimacy
and enforceability and will be curable by the administrative bodies with full compliance
with the requirements indicated by the law.
Furthermore, the ruling must be based on law and when a specific act or the initiation of a retrial is ordered, such must be done within four months. In this respect, in
practice exceptional cases arise in which the reticence of the authority to comply with a
particular ruling lasts for more than four months, in which case the private party has
several administrative liability actions it can file against the reticent public officials.
It is important to note that the ruling issued in the administrative review is also an
administrative act, not a judicial decision. Therefore, the administrative review is a
prior step that, as a general rule, must be exhausted before seeking judicial review
through an administrative law court proceeding (juicio contencioso administrativo) and,
finally, the amparo proceeding (juicio de amparo).
However, there are certain situations under which the possibility of initiating court
actions is direct and, therefore, the filing of the administrative review prior to acceding
to the courts is optional.
In general the rulings issued in the administrative reviews are the result of constant
meetings and informal and “friendly” discussions with the authority in which it is
attempted to convince the latter of the existence of an irregularity in its actions. These
rulings are typically issued in from two to six months.
Finally, it is important to mention that the Federal Court of Tax and Administrative
Justice (Tribunal Federal de Justicia Fiscal y Administrativa, TFJFA) is authorized to try,
through the administrative court proceeding which is addressed in the following section,
the rulings of the motion for review or administrative rulings (against which the filing of
such review is optional) when one of the affected parties is not in agreement with it.
3. Judicial Review
3.1. Administrative Court Proceeding
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The Mexican Constitution confers power on the Congress of the Union to issue laws that
establish administrative law courts having full autonomy to issue their decisions and
which are responsible for resolving disputes arising between the federal public administration and private parties, such courts being the TFJFA.
The TFJFA is an administrative law court of reversal. Its jurisdiction is broader than just
fiscal matters; however, it does not encompass all administrative law matters. The
process before the Court may be initiated against administrative acts that cannot be challenged by an administrative review or when the filing of the latter is optional for the
affected private party.
The TFJFA consists of one superior Chamber and regional chambers. The jurisdiction
of the regional chambers is determined according to the domicile of the authority that
issued the administrative act being challenged.
The TFJFA handles proceedings that are filed against the definitive rulings issued by
administrative authorities that terminate an administrative proceeding, a legal petition or
resolve a case, pursuant to the LFPA. Its jurisdiction also includes claims filed against rulings (i) issued by federal tax authorities, (ii) that impose fines for infringement of the federal administrative rules, (iii) regarding civil and military security, (iv) on public works
contracts, (v) on civil servant and private party liability, (vi) on foreign trade, and (vii) that
decide administrative reviews. Administrative rulings (acuerdos) that, although they are
not regulations, have a general application, can also be challenged in this proceeding.
More specifically, the procedure for the administrative law action is governed by the
Federal Law of Administrative Law Court Procedure (LFPCA). The claim must be filed in
writing directly before the competent regional Chamber, within 45 days from the date
on which the notice of the challenged ruling takes effect. The claim must contain the ruling that is challenged, the authorities against whom the claim is filed, the facts on which
the claim is based, the applicable evidence, and bases for the challenge, and must comply with the formalities established in the LFPCA.
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In the initial brief or thereafter the suspension of the execution of the challenged act
may be requested, provided a sufficient guarantee is granted to cover any damages and
losses that may be caused to the other party or a third party.
Once the claim is admitted the defendant is notified and is granted 45 business days
to respond. In the event the answer is not filed within such time period, the facts alleged
in the claim will be presumed true.
In relation to the evidence, any type of evidence is admissible except the testimony of
authorities through response to interrogatories. Although the time periods established in
the procedural rules suggest the possibility of obtaining a ruling in a relatively short period of time, due to its accumulated work load, proceedings filed before the TFJFA may take
one to three years to resolve depending on their complexity.
The final decision may determine the following with respect to the challenged ruling:
(i) recognize its validity, (ii) declare its annulment, (iii) declare its annulment for certain effects, clearly specifying the manner and terms in which the authority must comply with it, or (iv) declare the existence of a subjective right and order compliance with
an obligation.
When the decision obligates the authority to carry out a particular act or initiate a proceeding, such must be done within four months from when the decision becomes firm.
While in practice not all decisions are complied within such time period, the percentage
of matters in which the administrative authorities voluntarily comply is very high.
The rulings of the regional chambers or of the TFJFA that declare or deny dismissal and
nonsuit and definitive decisions may be challenged by filing the motion for review
before the competent Collegiate Circuit Court (Tribunal Colegiado de Circuito) in the seat
of the respective regional Chamber, through a brief filed within 15 days from the date
on which the notice takes effect. Finally, it should be mentioned that the Mexican Constitution also provides for local jurisdiction over administrative law actions regarding
disputes arising between the state public administration and private parties, which in the
Federal District are carried out by the Federal District Administrative Law Court.
3.2. Indirect Amparo Proceeding
In addition to the administrative review and the administrative law action, Mexican law
provides for the constitutional control of all acts of authority and administrative courts
through the amparo proceeding (juicio de amparo). In this proceeding the acts and decisions
of other bodies and courts are analyzed from the perspective of possible violations of the
rights contained in the Constitution. It is the final control of legality and constitutionality.
Under the Mexican legal system the principle of legality has been interpreted by the
courts to permit the last instance review through the amparo proceeding of almost all
acts of authority, whether federal, local or municipal.
As indicated at the beginning of this chapter, there are certain highly specialized administrative bodies and courts that regulate specific economic activities. Thus, as an exception to the principle of the division of powers, in Mexico there are certain cases in which
the public administration carries out judicial functions for specific areas, among which
Mexican Law contemplates the following: (i) labor courts known as Conciliation and
Arbitration Boards, (ii) agrarian courts, (iii) National Banking and Securities Commission, (iv) National Insurance and Bond Commission, (v) Federal Consumer Protection
Agency, (vi) certain administrative appeals in the area of water and intellectual property
in which, due to the necessity of involving any possible affected third parties, the proceeding becomes a legal action among private parties and the administrative act that
resolves it contains a decision in favor of one of them, (vii) arbitration in the area of
telecommunications, (viii) National Medical Arbitration Commission, and (ix) Federal
Economic Competition Commission.
5. Legal or Governmental Arbitration
There are laws in various domestic arenas, in labor, banking, insurance and finance,
that make reference to the possibility of resorting to arbitration resolved before the state
agency itself. These arbitrations are sui generis because, in spite of the fact that it is a
State body resolving them, they can only be initiated and be binding if the parties
involved agree that the state body resolve the dispute. Thus the authority of the state
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In order to pursue an amparo the means of defense established in the administrative
laws must first be exhausted (although in exceptional circumstances an affected party
may be permitted to immediately resort to the amparo proceeding).
Finally, it is important to mention that when reference is made to administrative acts
the following are included: regulations, decrees, rulings, official Mexican standards, circulars and forms, guidelines, methodologies, official notices, directives, rules, manuals,
provisions whose purpose is to establish specific obligations when competitive conditions do not exist, and any other acts analogous to the above issued by the agencies of
the federal public administration. Such acts must be published in the Official Federal
Gazette to take full force and effect in Mexico.
The judgment that is issued in an amparo proceeding has effects on the specific case
and is not erga omnes, and therefore the judgment issued in a particular proceeding only
benefits the person that filed it and not other persons that could be affected by the act
of authority and that have not filed an amparo action. Generally the amparo judgment is
issued within a period of six months to one year from the initiation of the proceeding.
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body does not originate from its sovereign power as a governmental entity but rather
from the will of the parties involved.
Laws applicable in the economic arena that contain the figure of arbitration are primarily the following: Law Regulating Article 5 of the Constitution (Ley Reglamentaria del Artículo 5º Constitucional), Investment Companies Law (Ley de Sociedades de Inversión), Securities
Market Law (Ley del Mercado de Valores), Federal Law of Banking and Bond Institutions (Ley
Federal de Instituciones y Fianzas), Credit Institutions Law (Ley de Instituciones de Crédito),
Federal Law of Industrial Property Protection (Ley Federal de Protección a la Propiedad Industrial), Federal Tourism Law (Ley Federal de Turismo), Federal Consumer Protection Law (Ley
Federal de Protección al Consumidor), General Law of Mutual Insurance Institutions and
Companies (Ley General de Instituciones y Sociedades Mutualistas de Seguros), General Law of
Credit Assistance Organizations and Activities (Ley General de Organizaciones y Actividades
Auxiliares de Crédito), General Law of Cooperative Companies (Ley General de Sociedades
Cooperativas), Law of the National Banking and Securities Commission (Ley de la Comisión
Nacional Bancaria y de Valores), Law of Retirement Savings Systems (Ley de los Sistemas de
Ahorro para el Retiro), Federal Copyright Law (Ley Federal de Derechos de Autor), and Law
of Business Chambers and Alliances (Ley de Cámaras Empresariales y sus Confederaciones).
The laws and regulations applicable to public service that contain the figure of arbitration are basically the following: Federal Law of Parastatal Entities (Ley Federal de las
Entidades Paraestatales), Law of Athletic Encouragement and Promotion (Ley de Estímulo y Fomento del Deporte), Law of Religious Association and Public Displays of Worship
(Ley de Asociaciones Religiosas y Culto Público), Organic Law of Petróleos Mexicanos and
Public Bodies (Ley Orgánica de Petróleos Mexicanos y Organismos Públicos), Regulation of
the Law of the Provision of Electricity to the Public (Reglamento de la Ley del Servicio
Público de Energía Eléctrica), Law of Ports (Ley de Puertos), Law of the Provision of Electricity to the Public (Ley del Servicio Público de Energía Eléctrica), Law of Public Sector
Acquisitions, Leases and Services (Ley de Adquisiciones, Arrendamientos y Servicios del Sector Público), Law of Public Works and Related Services (Ley de Obras Públicas y Servicios
Relacionados con las Mismas), Law of Navigation (Ley de Navegación), Regulation of the
National Waters Law (Reglamento de la Ley de Aguas Nacionales), Law Regulating Article
27 of the Constitution in Petroleum Matters (Ley Reglamentaria del Artículo 27º Constitucional en Materia del Petróleo), Civil Aviation Law (Ley de Aviación Civil), Federal Telecommunications Law (Ley Federal de Telecomunicaciones), Energy Regulatory Commission
Law (Ley de la Comisión Reguladora de Energía), Airport Law (Ley de Aeropuertos), Federal Vegetable Varieties Law (Ley Federal de Variedades Vegetales), Internal Regulation of the
National Commission of Medical Arbitration (Reglamento Interno de la Comisión Nacional
de Arbitraje Médico), Law of Protection and Defense of the User of Financial Services (Ley
de Protección y Defensa al Usuario de Servicios Financieros) and the Bank Savings Protection Law (Ley de Protección al Ahorro Bancario).
6. The Amparo Proceeding against Laws
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As we have indicated in several chapters of this book, one of the particularities of the Mexican legal system is the possibility of challenging any act of authority through the amparo
proceeding. The apex of this amparo system constitutes the challenge of laws issued by
the Congress that private parties consider to be unconstitutional. In this type of amparo
proceeding legislative actions are questioned and the judicial courts analyze whether or
not a particular law complies with the guidelines and fundamental rights contained in the
Mexican Constitution.
By virtue of the above, the Mexican legal system protects private parties against legislative acts. However, this protection is limited given that it only applies to the person
that files the amparo claim and the decision issued does not benefit all those that did not
file a claim.
There are two time periods for filing an amparo claim against a law. The first is 30 days
following the entrance into force of the law if such law generates obligations as soon as
it becomes effective. Otherwise the term for the filing of the amparo claim is 15 business
days from the act of authority in which for the first time the law that is considered
unconstitutional is applied.
Finally, the judgment that is issued in the amparo proceeding against a law may be
challenged through a motion for review, which will be resolved by the Supreme Court
Justice in all cases in which there is not any binding court precedent determining the
interpretation of such Court on the constitutionality or unconstitutionality of the law.
CHAPTER XIX
Commercial Companies
Regulated by the
Securities Market Law
1. Introduction
A new Securities Market Law (Ley del Mercado de Valores) was recently published and
entered into force on June 28, 2006. This new law constitutes, in addition to an enormous legislative effort, a new period in the history of Mexican Commercial Law, having
created new sub-types of the stock corporation (sociedad anónima), as well as the evolution of stock market law in Mexico.
In addition, this new law establishes a regulatory regime with standards of conduct
and specific liabilities for those who participate in the management of issuers.
Furthermore, this law not only formalizes stock market practices that were becoming
institutionalized in practice and/or by means of secondary regulations whose constitutionality was questionable, but also corporate practices that, every day, are becoming
more rooted in commercial traffic outside of the stock market.
Similarly, we consider that it was necessary to incorporate into our stock market regulation the guiding principles of the international standards regarding corporate governance,
disclosure of information, and protection of minority rights, in order to provide both
domestic and foreign investors with the legal security necessary to protect their interests.
Although many see the new Securities Market Law as nothing more than an adaptation
of the Mexican legal system to the Sarbanes Oxley Act (“Sox Act”), we feel that while both
laws obey similar realities (since a large part of both attempts to regulate the interaction of
investors in public companies with those who manage them, and the latter’s liability to the
former), the new Securities Market Law has a focus and scope very different from the Sox Act.
The Sox Act emphasizes procedures and requirements regarding internal control and
certification. The cost of adopting the new regulations, however, has led many issuers to
consider removing themselves from the list and has deterred others from listing.
In contrast to the Sox Act, the purpose of the new Securities Market Law is to establish the legal base to promote the participation of a greater number of companies in the
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stock market, through a system of weights and counterweights in the exercise of majority and minority shareholder rights and in the liabilities of those who administer or manage the company. In this regard, the Securities Market Law takes as a base the agency
conflict that occurs in Mexican issuers, in which the share holdings are not pulverized
as they are in U.S. issuers, but rather there is normally one controlling shareholder or
group of shareholders and a small number of minority shareholders to whom the new
law grants protections against possible abuses by the controlling shareholders.
In this chapter the commercial companies that the new Securities Market Law regulates
are briefly analyzed, both with respect to corporate aspects (as a special commercial law)
and administrative aspects (as it regulates their interaction on the stock market). Such
commercial companies are the Investment Promotion Corporation (Sociedad Anónima Promotora de Inversión, SAPI), the Stock Market Investment Promotion Corporation (Sociedad
Anónima Promotora de Inversión Bursátil, SAPIB), and the Stock Market Corporation
(Sociedad Anónima Bursátil, SAB).
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2. Investment Promotion Corporation
(Sociedad Anónima Promotora de Inversión, SAPI)
The new Securities Market Law creates the sub-type of company called the Investment
Promotion Corporation, which is regulated as an intermediate company between a traditional stock corporation (sociedad anónima) and a stock market corporation (sociedad
anónima bursátil) which is the company known as “issuer” under the former Securities
Market Law.
With the SAPI, the intention is to encourage the traditional corporation to adopt a system
of corporate governance that gradually approaches that of a company listed on the stock
market, primarily by the granting of certain incentives regarding flexibility in the regulation of capital and voting rights.
In addition, the SAPI is created in order to encourage investment in Mexico in venture
capital, since in contrast to what has happened in other countries, Mexico has not been
able to consolidate that market. In that regard, venture capital is considered to be the
“type of investment carried out through a vehicle that receives committed contributions,
by institutional and qualified investors, with a professional management team, in order
to participate in specified companies or projects.” 1
The financing of small- and medium-sized companies in Mexico is very limited, since
practically speaking it can only be obtained through bank credit or through the issuance
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1
Commentary of Jaime Cortés Rocha found in Rocío Haydee Robles Peiro, “Capital de riesgo: la
alternativa de financiamiento para micro, pequeña y mediana empresas,” in Breviarios jurídicos,
Porrúa, México, 2005, p. VIII.
__________
2
According to Article 130 of the LGSM, it can be agreed that shares may only be transferred with the
authorization of the board of directors. This is the only restriction that such law allows to be established on the circulation of the shares. While in practice other types of restrictions are established,
they may be considered by a judge to be legally questionable as in violation of the such article.
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of debt instruments. Therefore, we consider that it was fundamentally important to
make changes in this area in order to promote investment in venture capital in Mexico
as an alternative means of financing such companies.
The doctrine in this area considers that there are several factors that have not allowed
an upswing in the venture capital market in Mexico, among them being the lack of a
legal vehicle adequate to act as a receptor of such investment.
As a result of the above, in the new Securities Market Law, the SAPI and the Stock Market SAPI (SAPIB) were regulated as potential vehicles for receiving investment and, as has
already been mentioned, as an intermediate type of company between a traditional stock
corporation (sociedad anónima) and one that is quoted on the stock market.
In reality, the name Investment Promotion Stock Corporation (Sociedad Anónima Promotora de Inversión) can be misleading in that it suggests that it is a company whose purpose is precisely to “promote investment.” However, the intention is that the SAPI be a
company that “receives investment” of so-called “seed capital” by which medium- and
long-term projects are financed through the participation of investors in the capital
stock, thus sharing the risks of the company.
The gradual adoption of best corporate practices in a SAPI is intended to provide possible investors in this type of company with greater legal security with regard to the management of their investment, the exercise of minority rights, and more attractive and
flexible mechanisms for withdrawing or divesting than those available under the General Law of Business Corporations (Ley General de Sociedades Mercantiles, LGSM).
The principal characteristics of the SAPI are summarized below:
a) They are incorporated as stock corporations (sociedad anónima), with either fixed
capital or variable capital;
b) The adoption of the form of “investment promoter” is voluntary;
c) They may include in their corporate by-laws provisions according to which:
i) Restrictions of any nature are imposed on the circulation of shares of the same
series or class representing the capital stock, different from those set forth in
Article 130 of the LGSM; 2
ii) Causes are established, in addition to those set forth in the LGSM, for the exclusion of shareholders, the exercise of the right of separation or withdrawal, or
the redemption of shares, and it is permitted to determine the price or the basis
for making such determination in any of the above cases;
iii) The issuance of the following types of stock is regulated:
1) Non-voting stock;
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2) Restricted voting stock;
3) Stock with non-economic corporate rights other than the right to vote or
only with the right to vote;
4) Stock that limits or broadens profit-sharing rights or other special economic rights;
5) Stock that grants the right to veto or requires the favorable vote of one or
more shareholders for the adoption of resolutions of the general shareholders meeting;
iv) Mechanisms are implemented to follow in the case of a deadlock with respect
to specific matters;
v) The right of preferential subscription is broadened, restricted, or denied;
vi) The limitation of liability for damages and losses caused by the members of the
board of directors and relevant officers for the acts they execute or the decisions
they adopt is permitted;
d) In contrast to the stock corporation, the SAPI must be managed by a board of directors. It should be mentioned that the SAPI may choose to adopt the management
and oversight regulatory system in the new Securities Market Law for the Stock
Market Corporation, which we will analyze below, in which case its board members and general director will be subject to the regulations regarding organization,
operations and liabilities established for the Stock Market Corporation, being
required to have an audit committee instead of an examiner. Otherwise, that is to
say if the SAPI chooses to maintain the LGSM’s regulatory system for management
and oversight for the stock corporation, the organization, operations, and liabilities of its board members and examiner will be subject to that law’s rules;
e) The shareholders of a SAPI may covenant among themselves:
i) Non-compete agreements that are limited in subject matter, geographic area,
and in time to no more than three years. On this point it should be mentioned
that each specific case must be analyzed to ensure that such non-compete
agreements comply with the economic competition law;
ii) Stock purchase or sale options, such as:
1) That one or more shareholders may only transfer all or part of their shares
when the purchaser must also acquire all or part of the shares of another or
other shareholders under equal conditions (tag along);
2) That one or more shareholders can require another shareholder to transfer
all or part of its shares when the former accept an offer to buy under equal
conditions (drag along);
3) That one or more shareholders have the right to transfer or acquire from the
other, who will be obligated to transfer or acquire, as applicable, all or part
of its shares at a determined or determinable price;
From the above indicated characteristics it can be concluded that the nature of the SAPI
is that of a specialized stock corporation whose shares are not issued in a series or in
mass to circulate on the securities market, with a special corporate governance and with
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4) That one or more shareholders are obligated to subscribe and pay a certain
number of shares representing the capital of the company at a determined
or determinable price;
iii) Transfers and other legal acts related to the ownership, transfer, or exercise of
the preferential right, either with other shareholders or with third parties;
iv) Resolutions to exercise the right to vote in meetings, as an exception to the provisions of Article 198 of the LGSM;
v) Resolutions to sell shares in a public offering. It should be emphasized that
according to the last paragraph of Article 16 of the new Securities Market Law,
the mentioned covenants between shareholders do not bind the company,
except in the case of a court order.
Although such legal provision has been considered unfortunate in that it
limits the enforcement of such covenants in relation to the company, except in
the case of a court order, we believe that such provision provides legal certainty to the shareholders that execute these covenants, who now have an express
legal basis to enforce such covenants among themselves; furthermore, if we
take into account the general legal principle res inter alios acta, according to
which contracts only bind those who execute them, we think that such provision of the new law is correct, since if the covenants are executed between the
shareholders, they should only be binding on them. In addition, we consider
that such provision does not limit the right of the company to be party to such
covenants, in which case, if the company is a contracting party, such covenants
would be binding on it.
In view of the above, we think that it is correct for the new Securities Market Law to recognize and validate the covenants between shareholders that in
corporate practice are frequent, above all in joint ventures and strategic alliances;
f) The SAPI can buy back its stock, with a resolution of the board of directors. The
buy-back of shares was reserved exclusively to companies listed on the stock
exchange and the new Securities Market Law has extended it to the SAPI, as an
exception to the general prohibition with respect to stock corporations regulated
by the LGSM on acquiring their own shares;
g) The SAPI are not obligated to publish their financial statements;
h) They are not subject to the inspection and oversight of the National Banking and
Securities Commission, since their shares are not registered on the National Securities Registry.
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regulatory exceptions to the LGSM in regard to capital, voting rights and minority rights,
and which may eventually and voluntarily adopt the SAPIB regulatory regime, which is
analyzed below.
From a strictly commercial law point of view, we consider that there is a possibility
that the SAPI will become a much used sub-type of company due to its flexibility and
modernity, in contrast to the rigidity of the traditional stock corporation. We consider
that for certain co-investment agreements, strategic alliances, or joint ventures, the SAPI
can be very useful.
Furthermore, it should be emphasized that in practice it is very common to see the
execution of contracts among shareholders and other types of covenants seeking to
establish precisely the types of agreements that now the new Securities Market Law regulates for the SAPI, with the risk that in the case of disputes, the validity of such contracts
or agreements executed by the shareholders of a stock corporation could be questioned
by the courts under the argument that they had been executed at the margin or in violation of the LGSM. As we have already mentioned, from the entrance in force of the new
Securities Market Law the validity of such agreements of the SAPI will be recognized,
which will make them more attractive that other types of companies for certain
investors.
3. Stock Market Investment Promotion Corporation
(Sociedad Anónima Promotora de Inversión Bursátil, SAPIB)
In contrast to the SAPI, the stock market investment promotion corporations (sociedades
anónimas promotoras de Inversión Bursátil, SAPIBs) can request the registration of their
shares or negotiable instruments representing them (such as certificates of participation
[certificados de participación ordinarios] and stock market certificates [certificados
bursátiles]) in the National Securities Registry. It should be pointed out that such stock
or instruments representing them can only be acquired by institutional investors, qualified investors, and investors that know and expressly assume the risk of investing in
these types of companies.
For purposes of adopting the stock market form, the SAPI must change its corporate
name in order to add the word “Bursátil” or its abreviation “B.”
Furthermore, the shareholders meeting of the SAPI that intends to adopt the stock market form must:
a) Resolve the adoption of the regulatory regime of the Stock Market Corporation
within a maximum term of three years from when the registration in the National
Securities Registry (Registro Nacional de Valores, RNV) of its shares or instruments
representing them becomes effective;
b) Establish a program of gradual adoption of the regulatory regime applicable to the
SAB within the above-mentioned three-year term;
c) Amend its corporate by-laws in order to adjust the structure of its capital stock to
the regulatory regime of a SAB, as well as to provide for the causes and consequences of the cancellation of the registration in the RNV of its shares or instruments representing them;
d) Include at least one independent board member on its board of directors.
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The stipulations mentioned in subsections a), b) and c) may only be established in SAPI
by-laws in its non-stock market form.
From the above it can be appreciated that while the SAPIB continue enjoying a regulatory regime of exception from several rules generally applied to stock corporations, some
of the benefits of flexibility in the regulatory regime of the capital structure and voting
rights enjoyed by the SAPI are not applicable to the SAPIB, since presumably they will be
changing to the SAB regulatory regimen within a term of three years, which as we will see
further on, in contrast to the regime applicable to the SAPI, is much stricter than that of
a stock corporation governed by the LGSM.
It should be noted that the SAPIB, as issuers, are subject to the inspection and oversight
of the National Banking and Securities Commission and must comply with the obligation of revealing relevant information, among other obligations of a company listed on
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It should be pointed out that in contrast to a SAPI, the corporate by-laws of a SAPIB cannot have provisions by which:
a) Restrictions of any nature are imposed on the circulation of the shares of a single
series or class, representing its corporate stock, other than those established in
Article 130 of the LGSM;
b) Causes are established other than those in the LGSM, for the exclusion of shareholders, exercise of the right of separation or withdrawal or redemption of shares,
and it is permitted to determine the price or the basis for its determination in the
above cases;
c) The issuance of the following types of shares is regulated:
i) Non-voting stock;
ii) Restricted voting stock;
iii) Stock with non-economic corporate rights other than the right to vote or only
with the right to vote;
iv) Stock that limits or broadens profit-sharing rights or other special economic
rights;
v) Stock that grants the right to veto or requires the favorable vote of one or more
shareholders for the adoption of resolutions of the general shareholders meeting.
the Stock Market, such as the presentation of continuous reports regarding corporate
actions; quarterly reports on the financial statements; annual reports covering the annual financial statements and reports prepared by the chairman of the corporate practices
committee, as well as reports on any corporate restructuring.
We consider that in order for the SAPIB to really become an investment vehicle, effectively sparking the growth of venture capital in our country, it will be indispensable that
it be allowed a tax exemption that stimulates investment in this type of company. Otherwise, notwithstanding the incentives being granted by the Mexican Stock Exchange to
encourage investment in SAPIBs, the above-noted objective will not be achieved.
4. Stock Market Corporation (Sociedad Anónima Bursátil, SAB)
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The new Securities Market Law incorporates a new type of stock corporation previously known as an “issuer,” to which the name Stock Market Corporation (Sociedad Anónima Bursátil, SAB) is given.
The SAB is subject to both the new Securities Market Law and the LGSM in matters not
provided for in the former.
The novelties existing with respect to the SAB are significant, given that on the one hand
the structure of their corporate governing bodies is changed (corporate governance) and
on the other hand the duties of the managers of such companies is regulated in detail.
Moreover, the principle of consolidated application of the new law to all the companies
controlled by the SAB is recognized, as was inevitable from a legal point of view.
With respect to the restructuring of corporate bodies of the SAB, the following should
be mentioned:
a) Before the new Securities Market Law, the management and oversight of the companies listed on the Stock Exchange was conferred to two corporate bodies: the
board of directors and the examiner.
In practice, such a dualistic regulatory regime was inoperative since, on the one
hand, the board of directors, meeting quarterly, in reality could not manage the
company, but rather only issued general instructions for its operation, and on the
other hand, it was, practically speaking, impossible for the examiner to have
unlimited oversight of the company, as was required of each body within their
respective competencies by the LGSM, as the supplemental regulation of the prior
Securities Market Law.
In view of the above, the new Securities Market Law adopted the monist corporate organization, according to which the management and the oversight of the
SAB was unified in a single corporate body.
Thus in the corporate governance of the SAB, the figure of the examiner is eliminated, however the examiner’s functions do not disappear but rather they are
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redistributed between the board of directors, through the audit committee, and the
external auditor.
The new Securities Market Law regulates and defines the duties of the general
director, who is responsible for the management and day-to-day operations of the
business of the company, in accordance with the strategies and general instructions
established by the board of directors.
As can be appreciated, the provisions regarding corporate governance of the SAB
established in the new law are closer to the functions that each corporate body
actually carries out. In addition, such functions are specified with regard to their
purpose and scope, which was not the case previously (for example, the general
director and the external auditor were not regulated and, therefore, the scope of
their obligations and responsibilities was imprecise);
b) With regard to minority rights, the new Securities Market Law establishes a stricter
regulatory protection in order to avoid possible abuses of controlling shareholders.
Below the principal minority rights regulated by the new law are summarized:
i) The shareholders holding 5 percent of the voting shares, including limited or
restricted or non-voting, can exercise a civil action against board members
or officers;
ii) The shareholders holding 10 percent of the voting shares, including limited or
restricted, may appoint and remove, in a general shareholders meeting, one
member of the board of directors;
iii) The shareholders holding 10 percent of the voting shares, including limited or
restricted, may request the chairman of the board of directors or the chairman
of the corporate practices and audit committee or committees to call a shareholders meeting;
iv) The shareholders holding 10 percent of the voting shares, including limited or
restricted, may request the postponement, on one occasion, for a period of three
days, of the vote on a matter about which they do not feel sufficiently informed;
v) The shareholders holding 20 percent of the voting shares, including limited or
restricted, may oppose the resolutions of the general shareholders meetings
with respect to those matters they are entitled to vote on.
Notwithstanding that, in general terms, we consider the adoption of the
monist regulatory regime of company management that we referred to in subsection a) immediately above to be correct, we think that a minority right that in
practice was highly efficient for avoiding abuses was the appointment of an examiner by the minority shareholders, which will not be possible under the new corporate governance structure of the SAB; therefore the advisability of appointing an
external auditor by and at the expense of the minority shareholders will have to
be analyzed;
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c) With regard to the regulation of liability of the managers of the SAB, which is provided for in the new law, it should be mentioned that the principle governing such
liability is summarized in the obligation that they have to perform their post
procuring the creation of value in benefit of the company, without favoring a particular shareholder or group of shareholders, for which they must act diligently,
adopting reasoned decisions, in good faith and based on the information they have
and/or that is provided to them for such purposes.
The above-noted principle is complemented by the duty to abstain from acting
in case of a conflict of interest, thus avoiding the obtaining, for him/herself or for
others, by virtue of the position he/she holds, economic benefits illegitimately and
in prejudice to the SAB.
The above can be summarized as the concepts of duty of care and duty of loyalty taken from U.S. law and adapted to the Mexican legal system.
On this point it should be mentioned that notwithstanding the negative impact
that the above-mentioned regulation of the liability of board members and secretaries has had, we believe that the situation is not so serious as some have suggested, since the liability arising from the duty of care can be limited in the by-laws
and, in addition, the new law incorporates as an exclusion from liability the socalled “business judgment rule” from common law.
Moreover, with respect to the duty of loyalty, it will be necessary for a board
member or secretary of a SAB, without legitimate cause and by virtue of his/her
position, to obtain a profit for him/herself or a third party in order for there to be
liability for the damages and losses caused to the company, which, even if it had not
been included in the new law, would constitute a form of unjust enrichment under
the Federal Civil Code and the civil codes of the states and the Federal District;
d) Another innovation of the Securities Market Law published on December 30, 2005
is the suppression of the right of withdrawal that was previously granted to the
shareholders of the variable portion of the capital stock, who, as of the entrance
into force of the new law, ceased to enjoy such withdrawal right.
CHAPTER XX
Insolvency and Bankruptcy
1. Introduction
Antecedents regarding bankruptcy and commercial insolvency in Mexican legislation date
back to the nineteenth century, when the applicable law was part of the civil and commercial codes. In 1943, a specialized bankruptcy law, entitled the Bankruptcy and Suspension of Payments Law (Ley de Quiebras y Suspensión de Pagos), was published in the
Official Federal Gazette. However, this law no longer responded to Mexico’s economic
reality, which resulted in the issuance of a new law, the Business Reorganization Law (Ley
de Concursos Mercantiles), which took effect as of May 15, 2000.
Any legal system that seeks to regulate the insolvencies of commercial enterprises should,
as much as possible, aim to protect creditors, borrowers, and the company itself, the latter
understood as a producer of wealth. That is to say, each one of these elements involves multiple legal and social interests that merit equal protection and so a system that only protected
creditors and distained the interests of the borrower, or vice versa, would not be viable.
The Business Reorganization Law’s fundamental objective is the protection of the company as a source of wealth, around which multiple interests revolve, such as: those of the
employees that do not want to lose their source of employment; those of shareholders
who seek to protect their investment; those of financial creditors who seek a return on
the capital they have invested; those of suppliers who seek not only the payment of their
credit, but also to maintain a customer; and those of society in general which does not
want to lose a source of wealth and employment for the community.
In these terms, the essence of the reorganization process in regard to company insolvency
should lie in the effort to reorganize companies through conciliation and settlement
between the creditors and debtor where possible and, where not, in the liquidation and sale
of assets in an organized manner in order to satisfy the creditors’ valid demands for payment.
In concrete terms, the Business Reorganization Law seeks to incorporate both elements as successive stages within the same process. That is to say, first efforts should be
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made to conciliate the parties and, if that is unsuccessful, then bankruptcy and liquidation will follow, although in some cases the parties may resort directly to bankruptcy and
cut short conciliation efforts when these are viewed as unrealistic.
The reorganization process is one of the so-called universal processes, considered as
such because they involve all of a business’ assets, all the creditors and debtors and, if
applicable, the liquidation or sale of all of the merchant’s rights and obligations, leaving
untouched by this process only those rights that specific laws categorize as inalienable,
exempt from attachment, or not subject to a statute of limitations.
Clearly, a law like the Business Reorganization Law covers many highly varied matters,
and therefore the following discussion will be limited to indicating the aspects of the
Law we consider most relevant from a legal point of view and which are of particular
interest to business operations. In this regard, it is important to address issues such as
the persons to whom the Business Reorganization Law applies, the entities that participate in the reorganization process, the persons authorized to initiate it, the statutory
premises of business reorganization and its stages, and the special protection provided
to creditors.
2. The Business Reorganization Law
2.1. Persons Subject to the Business Reorganization Process
The Business Reorganization Law governs the insolvency of and payments to creditors
by individuals or entities who qualify as merchants in accordance with the Commerce
Code (Código de Comercio). The law also governs trust assets that are used in business
activities, as well as the Mexican branches of foreign businesses, with the understanding
that in this last instance, the reorganization process will only govern assets and rights
located within Mexican territory.
Individuals or entities that are not merchants, or merchants that have current and outstanding debts that altogether do not exceed the equivalent of 500,000 investment units
up until May 15, 2005, or 400,000 investment units after that date, will not be subject
to the Business Reorganization Law, unless these “small businesses” expressly agree to be
governed by it in writing.
2.2. Entities Involved in the Business Reorganization Process
District judges with jurisdiction in the merchant’s domicile are competent to handle the
business reorganization process and they will be the central authority and director of the
reorganization proceeding. The Business Reorganization Law also provides for the participation of business administration specialists who will assist the judge in decision-
making when administrative, industrial, commercial, economic, or financial matters are
involved. These specialists are the inspectors, conciliators, and bankruptcy trustees.
In order to assemble a group of professional specialists, the law stipulates the creation
of the Federal Institute of Business Reorganization Specialists (Instituto Federal de Especialistas de Concursos Mercantiles) as an auxiliary entity to the Federal Judicial Board
(Consejo de la Judicatura Federal), which is the body that authorizes and keeps a registry
of the persons qualified to act as inspectors, conciliators and bankruptcy trustees, and
appoints them in specific reorganization proceedings.
3. Persons Authorized to Petition for a Judicial Declaration
of Business Reorganization
4. Statutory Presumptions of Commercial Bankruptcy
A merchant will be declared to be in reorganization when it fails to pay its debts universally. If the creditors or the Public Prosecutor request the declaration of reorganization, the
merchant will be considered in universal breach if it is in arrears to two or more creditors:
a) There are debts more than 30 days past due that represent 35 percent or more of
the total of the merchant’s debt on the date of the reorganization suit;
b) The merchant does not have sufficient assets to guarantee the payment of at least
80 percent of its past due debt on the date of the reorganization suit.
If the merchant himself requests a declaration of reorganization, satisfying either one
of the statutory presumptions indicated above in sections a) or b) will be sufficient.
5. Stages of Business Reorganization
The primary objective of the Business Reorganization Law is to attempt to keep the business in the hands of its owners and only when this is impossible, arrange its organized
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When a statutory presumption of business reorganization exists, the merchant, his creditors, or the Public Prosecutor (Ministerio Público) can petition the court to declare the
reorganization of a merchant.
If the merchant himself requests a declaration of its reorganization, it will be sufficient
to show that a statutory presumption of business reorganization exists. If a creditor or
the Public Prosecutor requests a declaration of business reorganization, the merchant
may go before the judge to attempt to discredit the claims against it. At the same time,
an inspector will be designated to inspect the merchant to determine if the statutory presumptions for the declaration of business reorganization exist.
liquidation, seeking to maximize the result of the sale of the merchant’s assets in order
to satisfy payments to creditors. For this reason there are two successive stages of the
reorganization process: conciliation and liquidation.
As a result of the particular necessities of certain commercial actors, such as banks and
auxiliary credit institutions, and due to the important role these actors play in society,
the law provides certain particular or specific rules applicable only to specific reorganization proceedings.
In the following section, the stages of conciliation and bankruptcy of the business
reorganization process will be addressed in general terms.
5.1. Conciliation
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If the judge before whom the petition or suit is filed considers that the previously mentioned statutory presumptions of business reorganization are present, he or she must
issue a judgment declaring this reorganization. This decision will be recorded in the corresponding public registries and an abstract will be published in the Official Federal
Gazette and in one newspaper of major circulation.
A business reorganization judgment triggers the beginning of the conciliation stage,
the purpose of which is to seek, with the aid of a designated conciliator, an agreement
between the merchant and its creditors that will permit the merchant’s business to survive. Clearly, an agreement between a merchant and its creditors could include a moratorium or forgiveness of the merchant’s debt payments if deemed satisfactory by the
parties involved.
Furthermore, such a judgment must, among other things, order the restraint of the
merchant and the suspension of debt payments contracted prior to the judgment,
excepting those payments that are indispensable for ordinary business operations, such
as payment of labor or tax-related payments. Lastly, in order to quantify the merchant’s
debts, such debts must be accelerated and considered due and payable.
During the conciliation stage, the merchant manages the business unless, upon the
petition of the conciliator, the judge determines such an arrangement to be inadvisable.
One of the conciliator’s most important duties is the acknowledgement of the merchant’s debts, for which the conciliator will have to prepare a list of creditors based on
the merchant’s accounting records. Therefore, it is possible for a creditor to be recognized as such without the need to act on his own behalf for such recognition. Of course,
inadequate or deficient accounting records of the merchant could have the effect of
excluding a creditor, who would only know about the reorganization from the aforementioned publications.
The conciliation stage cannot last more than 185 days beginning with the last publication of the reorganization judgment, but it can be extended twice, for a period of 90
calendar days each, but without exceeding a total time period of 365 calendar days from
the date of publication of the judgment.
In order for an agreement to be effective, it must be signed by the merchant and
acknowledged creditors representing more than 50 percent of the sum of:
a) The amount that has been acknowledged of the totality of the at-large creditors; and
b) The amount acknowledged of secured creditors or those with a property guarantee that sign the agreement.
5.2. Bankruptcy
If the conciliation period lapses without an agreement being reached or if the merchant
himself so petitions, the judge handling the case must issue a judgment in which the
merchant is declared in bankruptcy, the purpose of which will be to sell the merchant’s
business or the production units or assets of the business in order to pay the creditors
that have been acknowledged in the conciliation stage.
The bankruptcy judgment will compel the merchant to deliver the possession and
administration of the assets and rights that make up the merchant’s estate to the designated trustee and will prohibit creditors from paying any amount, under penalty of double payment. From the date of the bankruptcy judgment, any act by the merchant will
be null and void by operation of law.
The bankruptcy trustee will have 90 days after taking possession of the business to
prepare and deliver the following documentation to the judge:
a) A statement regarding the merchant’s accounting records;
and
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As long as the agreement satisfies the legal requirements, the judge reviewing the matter must approve it. The agreement will bind all of the acknowledged creditors, except
for the acknowledged creditors with a property guarantee who have not signed the
agreement. These creditors can proceed to foreclose on their credits, which underscores
that a property guarantee such as a pledge or mortgage places the creditor in a very
advantageous position with respect to other creditors who lack such a guarantee or are
unsecured creditors.
In very general terms, from the point at which the business reorganization is declared
until the conclusion of the conciliation stage, no seizure or foreclosure order can be
enforced on the merchant’s assets, except for debts owed to employees for salaries or
wages and indemnifications corresponding to the two preceding years. Unfortunately,
this exception permits some merchants to attempt to remove some or all of their assets
from the reorganization process through secret agreements with their employees.
The approval of an agreement will terminate the reorganization proceeding. The merchant’s breach of the agreement will trigger the re-initiation of the reorganization process.
b) An inventory of assets; and
c) A balance statement as of the date on which the trustee assumes the administration of the merchant’s business.
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The trustee must proceed to sell the merchant’s assets and attempt to obtain the best
price possible from that sale. The trustee should even consider the possibility of maintaining the merchant’s business in operation.
In any case, the merchant’s assets must be sold through the auction procedure set forth
in the Business Reorganization Law unless a better price can be obtained through a different procedure previously approved by the judge.
The Business Reorganization Law distinguishes different types or grades of creditors,
who will be paid from the sale according to the following order and manner:
a) Creditors owed salaries or indemnifications from the two prior years, which is to
say any amounts owed to the merchant’s employees;
b) Creditors owed amounts for administering the estate during the bankruptcy declaration process;
c) Creditors owed normal amounts incurred in securing the merchant’s estate or
assets subject to reorganization;
d) Creditors owed for judicial or extrajudicial proceedings benefiting the merchant’s
estate assets subject to reorganization;
e) The inspector, conciliator, and bankruptcy trustee’s fees and costs that are strictly
indispensable to their work and duly documented;
f) Creditors with a property guarantee (mortgage and pledge), the money owed to
whom will be paid with the proceeds from the sale of the mortgaged or pledged
property;
g) Creditors owed amounts related to labor matters other than those mentioned in
section a) and tax debts;
h) Secured creditors;
i) Unsecured creditors, which is to say, those who do not belong in any of the previously mentioned categories. These creditors will collect on a prorated basis and
without distinction of dates.
Therefore, in the foreclosure process secured creditors do not lose their payment preferences or priority status, which underscores the importance of securing such preferences in order to ensure the recovery of the investment.
The creditors who do not receive full payment of monies owed to them will preserve
their rights and actions against the merchant for the remaining balance. Within this category are creditors with a property guarantee or secured creditors whose credit has not
been completely paid with the result of the sale of the merchant’s secured property.
6. Specific Protections of Creditors’ Rights
Bankruptcy
and
Furthermore, a merchant may be considered to have committed a crime for engaging
in acts to defraud or harm his creditors and that result in aggravating the general default
or stall the reorganization process.
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The Business Reorganization Law establishes two institutions for the protection of creditors’ rights against acts attributable to the merchant. These institutions aim at removing
assets from the reorganization process or stall the progress of the reorganization.
On the one hand, there are different types of acts that are considered to be carried out
to defraud creditors and are considered null and void. The following acts are considered
acts to defraud creditors:
a) Any act or contract executed before the business reorganization judgment through
which a creditor is defrauded and as long as a third party knows of the merchant’s
fraud. This last requirement is not necessary in acts of charity, such as a donation;
b) Acts such as pardoning of debt by the merchant, the payment of debts not past
due, or operations not carried out under market conditions when carried out as of
the date the bankruptcy is made retroactively effective. The date of retroaction is
the 270 th calendar day immediately prior to the date of the judgment declaring the
business reorganization.
CHAPTER XXI
State Liability
1. Introduction
With a reform of Article 113 of the Political Constitution of the United Mexican States
(Constitución Política de los Estados Unidos Mexicanos) on June 14, 2002 a new form of
strict and direct State liability for damages and losses caused to private parties was incorporated into Mexico’s legal system.
Before this reform, State liability was not recognized constitutionally and was only lightly
regulated by Article 1927 of the Federal Civil Code (Código Civil Federal), which established a double regime of joint and several and secondary liability in relation to the damages
and losses caused to private parties by public officials in the exercise of their duties.
In effect, according to this regime the State was jointly and severally liable for the damages and losses caused by its officials, provided that such harm had been caused by
unlawful and willful misconduct, while it was secondarily liable in relation to the assets
of the public servant in question “in all other cases.”
This regime had many inconvenient aspects. The first and most notable was the need
to prove in court the unlawful and willful misconduct of the public official causing the
damage in order to be able to demand indemnification from the State as jointly and severally liable.
In addition, even in a case where the willful act of the official was proved in court,
there was a greater problem: there were no indemnificatory parameters applicable to the
State, nor any budget stipulated for these indemnifications, the circumstances for which,
added to the political implications, made any decision against the State unenforceable.
Thus, with the reform of Article 113 of the Constitution, a breakthrough occurred in
Mexican legal history by creating a new and effective liability regime against the State,
a regime in which State liability is strict and direct, regardless of whether the conduct
of the public official causing the damage was unlawful or willful, and thereby eliminating the distinction between joint and several liability and secondary liability.
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Nevertheless, this reform was just the first step to accessing the benefits established by
this new regime. It was still necessary to have a law regulating and implementing the
application of Article 113 of the Constitution.
With this in mind, the Permanent Constitutional Convention (Congreso Constituyente
Permanente) established a maximum term of two years from the entrance in force of the
reform for the federal and local authorities to issue the necessary laws to regulate and
establish the effective enforcement of the reform.
Having this deadline, the Congress of the Union issued the law entitled Federal Law
of State Liability (Ley Federal de Responsabilidad Patrimonial del Estado), published in the
Official Federal Gazette on December 31, 2004.
As can be inferred, this law is of great relevance to all private parties, Mexican or foreign, that for some reason may have suffered harm or losses caused by the State. This law
attempts to clarify the ambiguous terms in which the constitutional reform was drafted
and, above all, attempts to make effective a right that for many years was denied to private parties in our country: the right to be indemnified for the damages and losses caused
by the State. It is necessary to determine in what cases, to what extent, in what terms,
how, and when this right can be asserted.
2. Statutory Presumptions for Indemnification
The State is only liable for the payment of damages and losses caused by administrative
acts, regardless of the state body that engages in them, whether Executive, Legislative,
Judicial or any other public entity.
This limitation excludes the damages and losses caused by acts materially legislative
and judicial, and therefore private parties may not demand an indemnification for damages and losses caused to them by a law or a court decision.
Despite the criticisms that can be made of it this limitation was introduced in the Constitution itself, which eliminates the possibility of the validity of an amparo proceeding. The
reasons on which the Permanent Constitutional Convention based said limitation were fundamentally that the immense majority of the acts by which harm is caused to private parties occur in the administrative sphere, in addition to the fact that, for budget reasons, it
would be very difficult to attend and satisfy all the claims filed against damages and losses
caused by judicial decisions and, above all, by the laws, given their general nature.
In addition, for the State to be obligated to respond for the damages and losses it
causes to private parties through its administrative activity, there is an additional requirement: this activity must be irregular.
This concept of irregular administrative activity raises some doubts with respect to the
scope of State liability, since it would seem that the concepts of irregular and unlawful are
similar, thereby basically erasing the strict nature of State liability.
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State
Although Article 1 of the law attempts to define what should be understood for irregular administrative activity, from our point of view the manner in which the law was
drafted is not clear, and therefore it can be anticipated that, in applying the rule, this will
be a highly discussed point in the courts and it will have to be resolved by case law.
In effect, the second paragraph of Article 1 of the Federal Law of State Liability establishes: “For purposes of this Law, irregular administrative activity shall be understood as
an activity that causes harm to the property and rights of private parties that do not have
the legal obligation to suffer it, given that there is no legal basis or legal cause to justify
the harm in question.”
As can be seen from the drafting of the above paragraph, irregular administrative activity is an activity that a private party has no legal duty to suffer, which occurs when there
is no legal basis or legal cause that justifies the administrative act involved, which in the
end means that the administrative act is not grounded in law (since there is no legal basis
or, in fact since the conduct does not fall under the presumption established by the law,
which is to say there is no legal cause).
Thus, an irregular administrative act is an act that is not grounded in law nor in fact
and, in this regard, an irregular administrative act is necessarily an unlawful act, which
puts in doubt that State liability is strict liability. Therefore, we insist, this is a problem
that will have to be solved by the decisions of the Mexican courts.
In relation to cases in which the State is liable for damages caused to private parties,
it is worth mentioning Article 20 of the law, which establishes that “the nullification of
administrative acts by an administrative proceeding or by an administrative court proceeding does not presume in itself the right to the indemnification.”
This article raises certain doubts about the new system of State liability.
On the one hand, it clearly establishes that the liability proceeding will be completely
independent of the nullity proceeding regarding the administrative act causing the damage.
However, according to the reasoning expressed in the preceding paragraphs, the task of the
judicial body in the nullity proceeding and in the State liability proceeding is confused since
in the latter proceeding both bodies will decide whether or not the administrative act in
question has a legal basis and if the administrative act has an adequate basis in fact.
Under these circumstances, the cited article indirectly allows a double assessment of
the same facts and simultaneously tolerates the existence of contradictory decisions,
since under this article a judicial body could decide on the nullity of the administrative
act, basing its decision on a failure to ground it in fact and in law, while the judicial body
that hears the liability proceeding could deny a right to indemnification, arguing that the
challenged administrative act was not in fact irregular because there was a legal basis and
a legal cause that justified it.
As can be seen, the drafting of Article 20 creates problems caused by the concept of
irregular administrative activity, which must be clarified by the Mexican courts, since
under the current drafting the law tolerates the possibility of contradictory decisions
that, although referring to different consequences, analyze and decide upon the same
causes.
Finally, with regard to cases in which a private party has a right to be indemnified in
accordance with Articles 12, 13, and 14 of the law, the State is liable not only for the
material damages, but also for pain and suffering (daño moral) and personal injury,
including death.
3. Extent of Indemnification
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The extent to which a private party can be indemnified depends on the type of damage
it suffered. If the damage is material and, therefore, quantifiable, the private party has a
right to a complete indemnification of damages, which amount will be calculated in
function of the commercial value of the goods and based on the criteria established in the
Expropriation Law (Ley de Expropiación), the Federal Tax Code (Código Fiscal de la Federación), the General Law of National Assets (Ley General de Bienes Nacionales), and other
applicable laws, depending on the case.
If the damage caused is personal injury, the amount of the indemnification will be calculated according to the Federal Labor Law (Ley Federal del Trabajo), based on corresponding medical opinions. In the case of death, the indemnification will be calculated
according to Article 1915 of the Federal Civil Code (Código Civil Federal).
Finally, if the damages are for pain and suffering (daño moral), the amount of the
indemnification cannot exceed 20,000 times the general daily minimum wage in force
in the Federal District.
4. Terms of Indemnification
Each of the public federal entities will be liable for indemnifying, from its own budget,
the damages and losses caused by its public servants in the “irregular” exercise of their
duties. This indemnification shall be paid in Mexican currency; however, payment in
kind may be agreed upon.
The amount to be indemnified must be adjusted as of the time the payment is made
in compliance with the ruling ordering it. In the case of a delay in compliance with the
obligation, the amount to be paid must be adjusted in accordance with the provisions of
the Federal Tax Code (Código Fiscal de la Federación).
The law also establishes the possibility of the indemnification being paid in installments during subsequent fiscal years, in which case the liable public entity must make
a projection that, based on the funds available and the obligations assumed, makes the
payment of the indemnification possible.
5. Form and Time Periods for Claiming
the Right to Indemnification
The affected private party must file its indemnity claim before the Federal Tax and
Administrative Court, and the procedure will be governed by the Federal Law of Administrative Court Procedure (Ley Federal de Procedimiento Contencioso Administrativo).
With regard to the statute of limitations for filing an indemnity claim, the action for
material damages expires one year from the date on which the damage occured, or ceased
producing effects if the damage was continuous. An action for personal injury or “moral”
damages expires in two years.
While it is necessary to obtain a decision against the State in order for the State to
indemnify a private party for damages and losses caused by its irregular administrative
activity, Article 26 of the law recognizes the possibility of the parties agreeing to terminate the dispute by determining the amount of indemnification to pay.
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While one of the problems with the prior State liability regime was the lack of budgetary provisions that specifically assigned funds for the payment of indemnifications for
causing harm to a private party, this law does contain such provisions.
In accordance with Article 6 of the law, each of the federal public entities must include
in their respective draft budget the funds necessary to cover obligations arising from
their liability; however, this same article establishes a limit; the funds approved under
this item in the budget cannot exceed the equivalent of 0.3 percent of the programmable expenditure of the Federal Outlay Budget.
As a result of this limitation on the funds allocated to the payment of indemnifications,
the priority of payment takes on greater relevance if we consider that the amount of
these funds could be exhausted during the fiscal year in question.
With this in mind, the law provides that if the funds budgeted for the payment of
indemnifications for state liability are insufficient to completely pay the debt, the affected private party will be entitled to have the balance covered in the subsequent fiscal
years with the corresponding adjustment of the unpaid balance in accordance with the
provisions of the Federal Tax Code.
In consideration of the above, in order to have control of the priority of payment of
the debts of public entities, the law provides for the creation of a public registry in which
the definitive decisions ordering payment of indemnifications are recorded. It also establishes that they shall be paid taking into account the chronological order of the dates on
which the decisions ordering such payment were issued.
As can be observed, the above regulation clearly indicates an effort of the legislative
body to make the reform of Article 113 of the Constitution effective and above all viable
for the economic conditions of our country.
The law also establishes the right of the State to recover the indemnification from the
public official that caused the damage.
Without doubt, this new system of state liability constitutes a huge step forward in the
efforts of the Mexican State to become a genuinely democratic State in which the rights
of private parties before the State, in addition to being recognized, are effectively
observed, which undoubtedly will make it much more attractive for nationals and foreigners to invest their money in our country, knowing that in the event they suffer from
arbitrary acts of the government, the legal and institutional instruments now exist for
them to be indemnified in a manner that satisfactorily compensates them for damages
and losses caused to them.
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CHAPTER XXII
Dispute Resolution
1. Introduction
In Mexico, as in other countries, there is a system for the determination of applicable law. The general principle in commercial matters is the freedom of the parties to
choose the law they prefer to govern their contracts. However, this freedom is subject, as in other legal systems, to public order or public policy regulations. In effect,
the Commerce Code (Código de Comercio) establishes that in commercial agreements
“each party is bound in the manner and terms that it intended to be bound and the
validity of the commercial act does not depend on the observance of formalities or
particular requirements” (Article 78), which indicates a broad freedom for the contracting parties with respect to establishing the law applicable to their contract and
relief from formalities that could affect the liberty of contract. This broad latitude in
the Commerce Code is complemented by the freedom the parties have to submit
their contracts to dispute resolution by arbitration. As we will see throughout this
chapter, Mexican law establishes, in addition to the above possibilities, rules for the
determination of the jurisdiction of judges and for the recognition and enforcement
of foreign judgments. We will also provide an overview of the different procedures
provided for in the Mexican procedural system and we conclude with our legal treatment of arbitration.
2. Choice of Applicable Law and Jurisdiction
2.1. Applicable Law
The determination of applicable law is governed by the civil codes of the different states
of the Republic. In commercial matters the Federal Civil Code (Código Civil Federal, CCF)
is applicable, Article 12 of which states:
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Mexican laws govern all persons in the Republic, as well as the acts and events occurring in its territory or jurisdiction and those submitted to such laws, except when
those laws establish the application of a foreign law and except as set forth in treaties
and conventions to which Mexico is a party.
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As a general rule, such provision is governed by a territorial focus, based on which
Mexican judges exercise jurisdiction over persons and acts found or occurring within
Mexican territory, applying Mexican law. As an exception, the application of foreign
law is provided for when Mexican laws establish such application (conflict rules or
remittance rules) or when there is an international treaty that governs a particular situation. The latter results from the hierarchical superiority of the international treaties
with respect to Mexican laws, in accordance with the interpretation that has been
given in Article 133 of the Constitution.
With regard to the conflict rules or remittance rules that govern the legal system in
Mexico, there are five circumstances under which the application of foreign law in Mexico can be recognized: (a) as vested rights, (b) when the legal status of persons is governed by the law of their domicile, (c) when personal and real property are governed
by the law of the place of their location, (d) when acts are governed in relation to their
form by the laws of the place of their execution, but the parties can agree that the act
that has effects in Mexico will be governed by Mexican laws and, finally, (e) when the
law applicable to contracts will be the place of their performance, unless the parties
have “validly” chosen another law.
The rules for the application of foreign law are reasonably clear: foreign law will
be applied by the Mexican judge “as it would be by a foreign judge,” which is to say
with the best effort possible to make the application homogeneous. In the application of foreign law, substantive rules will be applied and, with exception, conflict or
remittance rules that refer back to the application of a different law from the law that
the conflict rule or remittance rule of the judge originally ordered it to apply. The
Mexican judge is obligated to fill the legal vacuum when the foreign law provides
for an institution not recognized by Mexican law. In this regard a deeper exercise of
comparative law would have to be carried out. In the event that there are questions
that must be resolved prior to the application of the foreign law, the Mexican judge
can resolve these preliminary questions according to the law that governs them,
avoiding the denaturalization of the case submitted to him or her with the application of a single law; the Mexican judge is also obligated to apply the foreign law in
a harmonizing manner and to resolve in equity. However, Mexican courts are not
accustomed to this modern system in the application of foreign law, and therefore it
is necessary to prepare memoranda explaining the forms of application, which can
facilitate this process.
Finally, it should be indicated that Mexican law allows, in principle, for the parties to
a legal relationship to submit to a foreign law, but with the exception that the Mexican
judge will not apply the foreign law in the following cases:
a) When fundamental principles of Mexican law have been fraudulently evaded, in
which case the judge must establish the fraudulent intention of such evasion; and
b) When the provisions of the foreign law or the result of its application are contrary
to fundamental principles or institutions of Mexican public order.
2.2. Jurisdiction
In cases of voluntary jurisdiction, the judge of the domicile of the petitioner is competent; in the case of real estate, it is the judge of the place of the location of the property.
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Dispute
The determination of what judge or court is competent to resolve a dispute will be
made according to national procedural rules. The operating rules of every judicial system are those regarding competency and procedure, and due to their function these
rules are applied nationally. In other words: competency is the power of the judge to
exercise the jurisdiction corresponding to him/her in a given case. Competency must
be decided according to the procedural laws and subsequently, if the matter so requires,
the corresponding substantive laws will be applied.
In positive Mexican law there is a series of general principles that help to resolve problems of jurisdiction, such as the territorial competency rules in Article 24 of the Federal
Civil Procedures Code (Código Federal de Procedimientos Civiles, CFPC) and Article 156 of
the Civil Procedures Code for the Federal District (Código de Procedimientos Civiles para el
Distrito Federal, CPCDF), which establish the following criteria for choosing a competent
judge to hear a dispute:
a) Forum loci executionis. The judge of the place where the respective obligation must
be fulfilled, the designated place, or the place that the defendant has designated for
being judicially summoned;
b) Lex rei sitae. The judge of the location of the property, in the case of an action in
rem over real property or disputes arising from a lease agreement; the judge of the
place of registration in the Public Registry of Property, when the action is the cancellation of such registration. It is important to mention that in relation to land and
water, resources of the exclusive zone and acts of Mexican authorities, Mexican
courts have exclusive jurisdiction;
c) Mobilia sequntur personam. The judge of the domicile of the defendant, in the case
of in rem actions over personal property or personal or civil status actions;
d) Lex loci executionis. The judge of the place of domicile of the debtor, in case of personal bankruptcy proceedings.
3. Enforcement of Foreign Judgments
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In general terms, for a foreign judgment to be recognized in Mexico it must be valid,
which is to say that in its country of origin it has been issued in accordance with the foreign legal system supporting it. Mexican courts cannot examine or decide on the fairness
or unfairness of the decision, or on the factual or legal basis on which it is supported; they
will be limited to examining its authenticity and enforceability.
In Mexico the competency assumed by a foreign court for purposes of enforcement
of judgments may be recognized when such competency has been assumed for reasons compatible or analogous to domestic law, except in the case of matters of exclusive competency of Mexican courts, such as: (a) land and water located in Mexican
territory, (b) matters relating to the exclusive economic zone, (c) acts of authority of
the Federal agencies, and (d) internal governance of embassies, among others.
The enforcement of foreign judgments in Mexico is regulated first by international
treaty law and then by internal law. As party to international treaty law, Mexico has
signed the following international treaties governing the enforcement of foreign
judgments:
a) Inter-American Convention on Extraterritorial Validity of Foreign Judgments and
Arbitral Awards;
b) Convention on Competency in the International Sphere for the Extraterritorial
Validity of Foreign Judgments;
c) Convention between the United Mexican States and the United Kingdom of Spain
on the Recognition and Enforcement of Foreign Judicial Judgments and Arbitral
Awards in Civil and Commercial Matters.
The recognition of foreign judgments is also regulated by internal Mexican law
through the CFPC and the CCF.
Such laws provide that both local judges and federal judges can recognize and enforce
foreign judgments. The competency to recognize judgments in civil and family matters
corresponds to the agencies of each state since such matters, according to the Constitution, are state matters.
Commercial matters are concurrent: they can be heard by either federal or state
authorities. The competent judge to hear and execute a judgment will be determined
depending on the court chosen by the parties and, in the absence of such a designation, by the domicile of the one against whom the judgment is enforced or the location
of the goods within Mexican territory.
All foreign judgments must pass through the exequátur procedure to obtain their
recognition and enforcement.
3.1. Exequátur Procedure
Exequátur is in theory a rapid procedure that should take from 11 to 30 days in which
the judge listens to the losing party of the decision and analyzes any evidence it may present; the substance is not addressed, only the validity of the decision is reviewed. This procedure can drag on, however, lasting up to two years. In the end, the Mexican judge
grants his or her recognition of the foreign judgment or rejects its effects in Mexico. The
decision of the judge can be appealed whether the enforcement is granted or denied.
3.2. Requirements for Enforcement
4. Proceedings before Mexican Courts
4.1. Jurisdiction in Civil and Commercial Matters
When initiating a lawsuit before Mexican courts it is essential to determine if the matter
is civil or commercial in order to know what laws will be applicable to the dispute. In the
event that the lawsuit is civil, the Civil Code of the respective state (or the Federal District) will apply. When the lawsuit is commercial, the Commerce Code will apply and
supplemental to that the Federal Civil Code. Furthermore, in both cases, in procedural
matters the provisions of the procedural code of each state or the Federal District may
apply, depending on the competent court.
The competency of the courts that will hear the disputes is determined by territory,
subject matter, amount, and degree. Both civil proceeding and commercial proceeding
can be processed and resolved before federal courts or state courts, without distinction.
In practice, disputes are generally processed before state courts and, as an exception
before federal courts. The court proceedings will be carried out before a single judge
and the hearings are public, except those dealing with family law matters. The resolutions issued in the first instance can be appealed when either of the parties decides
to do so.
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Under Mexican law, in order for foreign judgments to be enforceable they must comply
with minimum requirements: of form, in the terms established in Mexican law (apostille, translation into Spanish, etc.); that the decision is not the result of the exercise of
an in rem action; that the judge that issues it was competent to do so according to internationally recognized principles; that the losing party was granted the right to be heard
(see exequátur requirement); that the judgment is res judicata or a final judgment; that
the matter of the judgment is not under litigation before Mexican courts; and that it is
not contrary to public order.
It has been established as a general rule relative to the jurisdiction of a claim that it
must be filed before the court of the domicile of the defendant. This rule is applied both
to individuals and to entities. It is also accepted that the parties can consent to choosing
a different jurisdiction, which can be recorded in a contract.
4.2. Processing Time
The time for processing a civil or commercial proceeding is between one and five years,
depending on the complexity of the matter, the procedural strategy of the parties, and
the workload of the courts. Normally, when multiple procedural appeals are pursued the
time is prolonged.
4.3. Provisional Precautionary Measures
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It is important to mention that under Mexican law precautionary measures are limited
to those set forth in the law, consisting of the provisional seizure of assets and the arrest
of persons, and therefore in principle, no other type of provisional measure is legally recognized.
As an exception, in commercial matters the judge can suspend the execution of the resolutions adopted in general shareholder meetings, provided the shareholders representing
33 percent of the capital stock judicially challenge the resolutions and grant an adequate
bond to cover the damages and losses that could be caused to the company by the failure to
execute such resolutions, in the event the decision declares the challenge to be unfounded.
In general terms, in order for a Mexican judge to be able to order precautionary measures, the person requesting them must show his/her right to request them and the need
for the measures.
The right to request the provisional measure once a judicial proceeding has begun is
evidenced before the judge with the simple existence of the action filed against the person with respect to which the precautionary measure is requested. It is also required
that a guarantee be presented to cover the damages and losses that could be caused by
the measure.
With regard to the need for the measure, it must be shown that there are sufficient
reasons to justify the precautionary measure. In this regard, both Article 1168 of the
Commerce Code and Mexican court precedent have established the following as valid
reasons:
a) When there is a well-founded fear that the person against whom a claim will be
filed or has been filed will disappear or hide;
b) When there is a well-founded fear that the assets on which an in rem action will be
exercised will be hidden or lost;
c) When there is a well-founded fear that the debtor, in the case of personal actions,
will hide or sell the only assets he or she possesses over which the application of
the measure has been requested.
4.4. Ordinary Civil Proceedings
Civil judicial disputes will be resolved according to the letter of the law or its legal interpretation, or according to general principles of law.
The Civil Code governs all persons that are in Mexico, as well as the acts and events
that occur in its territory or jurisdiction and those that are submitted to such laws,
except as provided in treaties and conventions to which our country is a party.
The process of an ordinary civil proceeding is governed by the provisions of the civil
procedures code, either local or federal, depending on its scope of application, in which
the following is basically established:
4.4.2. Evidence
In the search for the truth regarding the points in dispute the judge can avail him or herself
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4.4.1. Initiation of the proceeding
The initiation of the proceeding takes place with the filing of the claim before the common filing office of the competent court. The competency of the court is determined by
taking into account the subject matter, amount, degree, territory and, in general, the special characteristics of the matter in dispute.
An ordinary civil proceeding can be processed before local or federal courts, depending on the matter in dispute. Generally, in the case of matters involving the compliance
with and application of federal laws or international treaties or when the Federal Government is a party, it should be processed before federal courts.
Civil judges are competent in relation to amount when the matters in dispute are over
ownership or other in rem rights over real estate, provided their value is greater than
60,000 pesos (≈ 5,456 US dollars), or in the case of other disputes, the amount of which
exceeds 20,000 pesos (≈ 1,819 US dollars). These amounts are adjusted annually.
Competency in relation to subject matter of such judges is divided in function of the
substantive nature of the matter. Thus, there are judges specialized in family law, real
estate leasing, bankruptcy, etc.
Once the claim is filed a term is granted to the defendant to respond. Thereafter the
judge will indicate the date and time for the conciliation hearing within the next 10 days.
If as a result of this hearing the proceeding has not been terminated by agreement by the
following day, then the judge will open the proceeding to the period for offering evidence, which is for 10 calendar days.
of any person, whether a party or someone foreign to the case, without any limitation other
than that the evidence is not prohibited by the law or immoral.
The courts can decree at any time, whatever the nature of the business, the carrying
out or broadening of any evidentiary investigation, provided it is conducive to finding
the truth about the disputed points.
The evidence must be prepared in advance in order to be exhibited in the hearing.
Once the evidence has been received, the court will direct the parties or their attorneys
or representatives to make their arguments. This stage is called the closing arguments
(alegatos) and the parties can present their conclusions in writing.
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4.4.3. Decision
Once the evidentiary stage and closing arguments are concluded, the judge will issue the
decision. It is issued in writing and contains a brief description of the facts, as well as
the opinion and legal analysis made by the judge on which he or she supports the decision and ruling.
4.4.4. Procedure for executing the decision
A decision that has become final and is immediately available for execution, or which
must be executed because the corresponding bond has been granted, will be executed
by the judge who heard the first instance claim. All the expenses and costs caused by the
execution of the decision will be covered by the losing party.
4.5. Commercial Proceedings
Commercial proceedings are those intended to air and resolve disputes arising from
commercial acts. Furthermore, when one of the parties is a merchant (including all commercial companies), the rules to be applied are the rules applicable to acts of commerce,
contemplated in the commercial law and regulated in the Commerce Code. A person is
considered a merchant when such person engages in some commercial transaction.
Commercial law establishes in the Commerce Code three types of commercial proceedings: summary proceedings, special proceedings and ordinary proceedings. The
summary proceeding is used when the claim is based on a document ready for execution (such as a promissory note, acknowledgment of debt, etc.); the special proceeding is used when there is a specific treatment for a specific premise in the
commercial laws; and the ordinary proceeding is for all other cases.
The ordinary proceeding follows almost the same process as explained in the section on the civil proceeding. The summary commercial proceeding, on the other
hand, differs from a civil proceeding in that there must be an instrument that is
ready for execution. The claimant must present its claim accompanied by the instrument
to be executed; then the judge will issue a ruling, in the form of a writ of attachment, so that the debtor shall be required to make payment. If the debtor does not
pay, the debtor’s property shall be attached to the extent necessary to secure the
amount owed, the costs and the charges, placing them under the responsibility of
the creditor.
The distinction from an ordinary proceeding is that in a summary proceeding first
there is the attachment and thereafter the debtor is summoned to appear in person, to
make the payment or file its defense. Subsequently the proceeding follows stages similar to those of an ordinary proceeding.
In addition, the Commerce Code grants private parties the capacity to freely choose,
in compliance with such code, the commercial proceeding that best suits their interests,
whether a traditional proceeding before courts or arbitration.
4.6. Costs of the Lawsuit
4.7. Appellate Review
The purpose of the appeal in both civil and commercial matters is for the superior court
to confirm, revoke or modify the lower court ruling. The litigant who believes he/she has
suffered some harm, third parties that have left the proceedings and other interested parties harmed by the judicial ruling can file an appeal.
The appeal must be filed in writing before the judge who issued the challenged ruling; he or she must then provide a copy to the opposing party. Then the case file is transferred to the superior court, which is a chamber formed by magistrates who review and
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Both in civil and in commercial matters, costs are not charged for judicial acts, even
when they involve witnesses assisting the court or the court actions taken outside of the
location of the proceeding. Each party is responsible for the costs and expenses arising
from court actions it requests. In principle, the expenses will be paid by the party that
failed to comply with its obligation.
The payment of lawyers’ fees is normally established based on a percentage of the
amount in dispute or that may be recovered. This percentage results from an agreement
between the lawyer and his or her client and is calculated taking into consideration the
specific characteristics of the case, the degree of complexity of the matter, the capacity of
the client to pay and the reputation of the lawyer handling the case. In the majority
of cases, it is negotiated.
Finally, it should be mentioned that the federal and local procedural codes provide
that the losing party will be responsible for the payment of the costs (attorneys’ fees) of
the opposing party according to specific established rates or fees.
resolve the appeal. The parties may only offer evidence when supervening events have
occurred; there is also a stage for pleadings and a hearing. The appeal proceeding concludes when the parties are summoned to hear the decision.
4.8. Amparo Proceedings
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4.8.1. General
The amparo is a proceeding established in the Constitution whose purpose is to resolve
disputes arising from laws or acts of governmental authorities that violate the individual
rights contained in the Constitution.
Among the acts of authority against which the amparo can be filed are the final judgments and rulings that terminate a proceeding when a violation is committed during the
proceeding or in the decision itself.
The amparo proceeding against final judgments issued in civil or commercial matters
is processed before the collegiate courts and is always initiated by the aggrieved party.
The judgment applies to private individuals and companies and is limited to covering
them and protecting them in the specific case, without making any general declaration
with respect to the law or the act generating it. As a general rule, before acceding to the
amparo proceeding all ordinary appeals provided for in the law applicable to the matter
in question must be exhausted.
The proceeding is initiated with an initial claim brief. Thereafter a term is given to the
authority to make its declarations in relation to the contested acts, evidence is offered,
closing arguments are made and finally the final hearing is held, after which the judgment is issued.
4.8.2. Suspension of the contested act
In the amparo proceeding the suspension of the contested act can be ordered, the principal purpose of which is to keep the subject matter of the amparo alive, preventing the
act that is being contested from irreversibly being carried out before the amparo proceeding has been definitively resolved.
The suspension can be requested on the court’s own initiative or at the request of a
party and it is processed in a case file separately from the principal case file. The petition for suspension is presented on the court’s own initiative when delay is not possible
because not ordering the suspension could cause irreparable harm to the party. It is
decreed in the same case file in which the claim is admitted, either granting it or denying it. It remains in effect until the proceeding is resolved.
It is also possible for the party in question to request the suspension of the acts that
would cause it irreparable harm, either in the initial claim brief or thereafter before the
execution of the contested act.
The district judge will decide on the provisional suspension, taking care not to cause
harm to the public interest or violate principles of public order. Afterwards he or she will
set the date of the ancillary hearing in which the truth or nonexistence of the contested
acts will be analyzed and the definitive suspension resolved on.
In addition, the judge can request the party to grant a guarantee (bond, mortgage,
pledge or cash deposit) if considered necessary.
4.8.4. Expenses and lawyers’ fees
In the amparo proceeding neither expenses nor lawyers’ fees can be claimed due to the
fact that this lawsuit is different from the above-explained proceedings. In the amparo
proceedings the affected party is always the private party and the State is always the
opposing party. In this regard, in Mexico it is not considered that the State is liable for
the sole fact that its decisions or rulings are declared unlawful.
5. National and International Arbitration
5.1. General
In Mexico, as with proceedings before state courts, arbitration is permitted and widely
developed as an alternative means for private parties to resolve the disputes between
them. However, the disputes between private parties that can be subject to arbitration
are restricted, the following matters not being subject to arbitration:
a) Criminal liability;
b) Agrarian law matters;
c) Family law and civil status law matters;
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4.8.3. Appeals and enforcement of the decision
The decision issued in an amparo proceeding can be appealed as an exception when the
unconstitutionality of an article of the Commerce Code or of the Civil Code has been
alleged in the first instance. Such an appeal will be heard by the Supreme Court of Justice of the Nation if there is not yet any specific court precedent with respect to the
unconstitutionality alleged.
Subsequently, due to the fact that the decision that is issued is final and is considered res judicata, it is sent to the civil court that originally heard the dispute for its execution.
The enforcement, in the case of decisions issued in civil or commercial matters, consists generally of ordering the judge who heard the case or the Appeals Chamber to
restore to the private party its violated right through a new decision or the rehearing of
various procedural acts.
d)
e)
f)
g)
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Personal and commercial bankruptcy;
Labor disputes;1
Territorial resources and waters within Mexican territory;
Resources within the exclusive economic zone of the sea.
In short, conflicts related to civil and commercial private law questions can be submitted to arbitration, while questions regarding unwaivable rights cannot be submitted
to this method of dispute resolution.
In Mexico, the power to legislate in commercial matters belongs to the federal government and civil matters are reserved to the states of the Republic. In this respect, the
Federal Congress has issued commercial laws that include rules of arbitration and the
state congresses have issued, within their scope of competency, arbitration rules that are
included in the local civil procedures codes.
Although there is no article that defines when a dispute is civil in nature, it can be
defined by the exclusion of commercial disputes. Thus, it will be a civil arbitration when
the dispute does not involve a commercial act or a relationship in which one of the parties is a merchant (or a business entity).
In both civil and commercial matters arbitrations can be presented in a local or international context, although international civil arbitration is practically nonexistent and
even in the national context its application is very limited. In this regard we can state
that practically all disputes between private parties that are economically significant are
commercial, and therefore civil arbitration is rarely applied. Furthermore, as has already
been mentioned, in civil matters there is a restriction on arbitrating matters related to
the right to alimony, divorce, actions annulling marriage and, in general, those matters
concerning the civil status of persons.
Commercial arbitration is international when the parties, at the time of executing the
arbitral agreement, have their residences in different countries, or when the performance
of a substantial part of the obligations of the commercial relationship or the place with
which the object under litigation has a closer relationship is located outside of the country in which the parties reside. By elimination, when none of these circumstances of foreign contact exist, the arbitration will be national.
Moreover, the legal regulation of international commercial arbitration in effect in our
country can be found in several legal instruments, both national and international. The
three basic sources of law on arbitration in Mexico are (a) international law, (b) internal
law, and (c) the rules of Ius Mercatorum.
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1
There has recently been a trend to attempt to include individual labor disputes among the matters that can
be subject to arbitration.
The international law relevant to commercial arbitration in force in Mexico consists of
essentially the following conventions: (a) the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards, known as the New York Convention, and (b)
the Inter-American Convention on International Commercial Arbitration, also called the
Panama Convention.
The second source, the internal regulation in Mexico on international commercial
arbitration (also applicable to national arbitration), is Chapter IV of the Commerce
Code, which is entirely dedicated to the arbitral proceeding and which incorporated the
Model Law on Arbitration of the United Nations Commission on International Trade
Law with minimal changes.
In addition to international and national regulations, a third source of arbitral law in
Mexico is the rules of international custom created by commercial usage and custom.
5.2. Arbitral Institutions
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The Commerce Code recognizes and authorizes both ad hoc arbitration and institutional arbitration, giving the parties full liberty to choose the procedural rules they consider convenient. In this regard, it is important to identify the principal institutions
responsible for administering both national and international arbitration in Mexico:
a) Arbitration and Mediation Commission of the National Chamber of Commerce
(Comisión de Arbitraje y Mediación de la Cámara Nacional de Comercio, CANACO). The
principal purpose of this commission is to provide its own rules for resolving disputes
submitted to both national and international arbitration, free of charge. The majority
of the cases taken before the CANACO are national. In addition to the above, the
CANACO also administers arbitrations whose proceedings are carried out in accordance with the rules of arbitration of the Center of Commercial Arbitration and Mediation for the Americas (Centro de Arbitraje y Mediación Comercial para las Américas,
CAMCA) and the Inter-American Convention on International Commercial Arbitration
(Convención Interamericana sobre Arbitraje Comercial Internacional, CIAC). It is located at
Paseo de la Reforma no. 42, Colonia Centro, C P 06048, México, Distrito Federal;
b) Mexican Arbitration Center (Centro de Arbitraje de México, CAM). This is a private
institution whose mission is to administer commercial arbitrations. The rules of
arbitration and the structure of the Center are inspired by the rules of the International Chamber of Commerce (ICC). The CAM offers services such as the selection
of arbitrators, experts, and members of dispute resolution panels; the administration of proceedings; and consultations on the drafting of arbitration clauses and
the provision of information related to commercial arbitration. The CAM offices are
located in the World Trade Center building, Montecito no. 38, 14th floor, office 38,
Colonia Nápoles, CP 03810 México, Distrito Federal;
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c) International Court of Arbitration of the International Chamber of Commerce.
This is a nonprofit institution whose primary objective is to promote international
commercial arbitration in the business sphere. The International Court of Arbitration of the ICC has its principal offices in Paris, France. However, the ICC has local
chapters in various countries. In Mexico the chapter was formally established in
1985 and it also has its offices in the World Trade Center building, 14th floor, Office
20. While the Mexican chapter is responsible for the promotion and dissemination
of arbitration, it is the Secretariat of the ICC based in Paris which administers international arbitrations. It has wide recognition in the Mexican legal forum, and in
fact it is the institution with the greatest number of international arbitrations in the
country;
d) American Arbitration Association (AAA). Founded in 1926 by two organizations:
the Arbitration Society of America and the Arbitration Foundation, it is currently
based in New York and has regional offices. Merchants whose activity revolves
around the economy of the United States of America make use of it. It was originally created for the resolution of internal disputes and has issued additional rules,
administered by the International Center for Dispute Resolution (ICDR), to resolve
private disputes in the international sphere;
e) Inter-American Convention on International Commercial Arbitration. This institution
was founded in 1919 as a result of the Panama Convention and has jurisdiction in the
western hemisphere. Its rules are similar to those of the United Nations Commission
on International Trade Law (UNCITRAL) and it functions with national sections in Mexico through the National Chamber of Commerce of Mexico City. It has its headquarters in Colombia and in Washington, in the Organization of American States (OAS).
It governs disputes under the Free Trade Agreement for the Americas (FTAA).
5.3. Arbitration Agreement and Arbitration Clause
The Commerce Code defines the arbitration agreement as the agreement by which the
parties decide to submit to arbitration disputes that arise between them with respect to
a specific legal relationship, contractual or noncontractual. The arbitration agreement
can be adopted in the form of an arbitration clause included in a contract, or in the form
of an independent agreement.
Generally, the arbitration clause is included in the contract and therefore it is agreed
to before a dispute arises. The arbitration clause is in itself a contract that should clearly
and precisely specify, among other things, the scope of present or future disputes to be
submitted to arbitration. It will include the names of the parties, the arbitrator, the powers granted to the arbitrator, the applicable law, the procedural rules and the authority
to resolve the disputes based on law or on equity.
Moreover, the arbitration agreement is considered an independent agreement even
when found in a clause of a contract. In the event that the contract is declared null and
void or nonexistent, such a declaration does not necessarily imply that the arbitration
agreement is also null and void or nonexistent.
The Commerce Code has established as a general rule that Mexican judges are obligated to refer the parties to arbitration when a dispute that is submitted to their jurisdiction involves a matter that has been submitted to an arbitration agreement by the
parties in conflict.
5.4. The Arbitral Tribunal
Arbitrators must have the capacity to exercise the functions entrusted to them in the specific case by the parties. They must also reveal, at the time of their appointment and during the entire arbitral proceedings, any circumstances that could create doubt about their
impartiality or independence.
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The following are the elements of validity:
a) The purpose of the contract must be legal and the matter must be arbitrable;
b) The consent may not be vitiated, which is to say granted in error, bad faith, under
duress, or as the result of an unconscionable bargain;
c) The parties must have full legal capacity to sign the arbitration agreement.
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In accordance with the guidelines of the New York Convention and the Model Law,
the Commerce Code establishes that in order for the validity of the arbitration agreement
to be recognized it must be recorded in writing and set forth in a document signed by
the parties or in an exchange of letters, telexes, telegrams, faxes or other means of
telecommunication that provide a record of the agreement, or in an exchange of statements of claim and defense in which the existence of an agreement is alleged by one
party and not denied by another.
Due to the fact that the arbitration agreement is considered an independent contract,
as such the basic requirements for existence and validity applicable to contracts under
Mexican law must be complied with. The elements of existence are the following:
a) The purpose of the contract, which should make reference to the fact that the parties wish to submit present or future disputes to arbitration;
b) Consent: the parties must state their desire to submit present or future disputes to
arbitration;
c) Formality, consisting of the requirement that the arbitration agreement be recorded in writing, and therefore a verbal agreement between the parties is not sufficient
to submit to arbitration.
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The parties can directly appoint the arbitrator or he or she may be appointed by an
arbitral institution, a judge, or a third party established by the parties. This arrangement
will depend on the arbitration agreement. In addition, the parties can freely agree on the
procedure for appointing the arbitrators, either incorporating institutional rules of arbitration or through an ad hoc proceeding established in the arbitration agreement.
The Commerce Code establishes that the parties can freely appoint the number of
arbitrators and if there is no agreement just one arbitrator will be appointed. In the event
that such procedure has not been established and the parties are not able to come to
agreement on the appointment of the arbitrator, he or she will be appointed, at the
request of either of the parties, by the judge.
Likewise, in the absence of an agreement between the parties and if in the arbitration
clause or arbitration agreement it is agreed that the dispute will be resolved by an arbitral tribunal of three members, the Commerce Code provides that each party will
appoint one arbitrator and the two so appointed will in turn appoint the third. In the
event that one party does not appoint an arbitrator within 30 days from the receipt of a
request from the other party to do so, or if the two arbitrators cannot agree on the third
within 30 days from their appointment, the appointment will be made, at the petition
of either of the parties, by the judge.
In addition to the above, the parties can freely agree on the procedure for recusing the
arbitrators. In the absence of an agreement or silence regarding the agreed-upon rules of
arbitration, in the case of an institutional arbitration, the party wishing to recuse an arbitrator will send to the arbitral tribunal, within 15 days from the date on which it knows
of the appointment of the arbitrator or of the circumstances that give rise to doubts with
respect to his or her impartiality, a brief explaining the reasons for the recusal. The arbitral tribunal will decide on such recusal and if this action does not prosper, the recusing
party can ask a judge, within 30 days from being notified of the decision rejecting the
recusal, that its validity be determined, which decision cannot be appealed.
When an arbitrator is impeded from exercising his or her functions or for other reasons does not exercise them within a reasonable time period, he or she will cease to hold
said position either by resignation or removal. Thereafter a replacement will be appointed
according to the same procedure by which the replaced arbitrator was appointed.
The arbitral tribunal has the authority to decide on its own jurisdiction and rule on
any defenses regarding the existence or validity of the arbitration agreement. The defense
of lack of jurisdiction of a tribunal must be filed no later than at the time of presenting
the response to the claim. The arbitral tribunal can resolve this question at that time or
in the award on the merits of the case.
If, before issuing the award on the merits, the arbitral tribunal declares itself to have
jurisdiction, either of the parties within 30 days from the notification of the decision may
request a judge to definitively resolve the matter without appeal. However, such petition
for a declaration of lack of jurisdiction will not suspend the arbitral proceeding, and
therefore the arbitral tribunal can go forward with its activities.
5.5. Place of Arbitration
The Commerce Code establishes that the parties can freely determine the place of arbitration. If the parties do not state the location, the tribunal may designate it. In any case,
if there is no express provision in this respect, the tribunal has the freedom to meet and
conduct the proceeding in any place it chooses.
5.6. Law Applicable to the Arbitration
First of all, in the arbitral proceeding the parties must be given equal treatment and each
one must be given full opportunity to assert its rights. The parties have the freedom to
determine the procedure that will be applied to their arbitration. In the absence of an
agreement, as already mentioned, the tribunal can carry out the arbitration in the matter it considers appropriate, following the guidelines established in the Commerce Code.
In this manner, in an ad hoc arbitration, if the parties have not chosen the arbitral procedure, the tribunal can determine it as it considers appropriate. On the other hand, in
institutional arbitration the tribunal must follow the rules of procedure established by
the institution before which the arbitration is being carried out.
The parties can freely agree on the language to be used in the activities of the arbitration, which will be applicable to all the written briefs submitted by the parties, all
the hearings and any award, decision, or communication issued by the tribunal. In the
absence of such an agreement, the tribunal will determine the languages to be used in
its activities.
The arbitral activities with respect to a particular dispute will be initiated on the date
on which the respondent has received the request to submit the dispute to arbitration.
The guidelines in relation to the arbitral proceeding are the following:
a) Within the term agreed by the parties or by the tribunal, the Claimant shall state
the facts on which the claim is based, the disputed matters and the relief it is
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The parties have the power to freely choose the law applicable to the substance of the dispute, and normally they will choose the law that has a relationship to the domicile of the
parties and the purpose or nature of the contract. If the parties do not indicate the law
that will govern the substance of the dispute, then the arbitral tribunal, taking into
account the characteristics and connections of the case, will determine the applicable law.
b)
c)
d)
e)
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f)
g)
h)
i)
requesting. The respondent must answer all points in the claim, unless the parties
have agreed otherwise in that respect;
Unless agreed otherwise by the parties, they can amend or expand their claim or
response unless the arbitral tribunal considers such change invalid due to the delay
it has caused;
Unless otherwise agreed by the parties, when the respondent does not present its
response within the time period established by the parties or the arbitral tribunal,
the latter will go forward with the proceeding without considering that such failure is in itself an acceptance of the allegations of the claimant;
The parties can establish the specific rules regarding the presentation and acceptance of the evidence during the proceeding. In the event that the parties have not
done so, the arbitral tribunal can freely decide whether or not to admit the evidence and the weight that will be given to it, as it considers appropriate;
Except as agreed otherwise, the parties can formulate allegations and include
therein all the documents they consider relevant in their possession, or make reference to the documents or evidence they will present subsequently;
The arbitral tribunal will transfer all the declarations, evidentiary documents, expert
testimony, or other information that one of the parties submits to the other party;
The arbitral tribunal has the authority, unless the parties do not permit it, to appoint
experts on the matter in question in order to provide their opinion, and to request
the parties to appoint experts to offer all the relevant information, documents, or
merchandise necessary. Furthermore, the tribunal itself or by request of one of the
parties, may request the expert to appear at the hearings, and the parties can interrogate him or her on the disputed points;
Unless agreed otherwise, the arbitral tribunal will decide if a hearing should be held
for the presentation of evidence or oral arguments, or if the actions will be substantiated on the basis of documents and other evidence. If the parties have not agreed
not to hold hearings, the tribunal will hold such hearings during the appropriate
stage of the proceeding at the request of either of the parties. In any case, the parties
must be notified sufficiently in advance of the hearings and the meetings of the tribunal to examine merchandise or other goods or documents;
Finally, it is important to indicate that the arbitral tribunal or either of the parties
with the approval of the tribunal may request the assistance of a judge for the gathering of evidence.
5.8. Provisional Precautionary Measures
Even when an arbitration agreement exists, the parties can, prior to the arbitral proceedings or during them, request a judge to adopt provisional precautionary measures.
5.9. Arbitral Award
The arbitration proceeding will terminate by final award, unless:
a) The claimant withdraws its claim, unless the respondent justifiably requests that
the dispute be definitively resolved;
b) The parties agree to terminate the tribunal proceeding;
c) The tribunal proves that the prosecution of the proceeding is unnecessary or
impossible.
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In relation to the request for provisional or precautionary measures, it should be mentioned that when judicial intervention is requested, the first instance federal judge or the
local judge of the place where the arbitration takes place will be competent to hear it.
Apart from the above, it is provided that the arbitral tribunal itself may, once formed
and the arbitration initiated, and at the request of one of the parties, order the adoption
of the necessary provisional remedies with respect to the object in dispute. In addition, it
may require from either of the parties a sufficient guarantee in relation to this measure.
The guarantee may consist of a bond and shall guarantee the damages and losses that
could be caused to the respondent; its amount will be set at the discretion of the judge.
With regard to the provisional remedies adopted by the arbitral tribunal, it is subject
to debate whether the tribunal can order provisional remedies different from those listed in the Mexican Law on Judicial Courts (Ley Mexicana para los Tribunales Judiciales) or
if it has greater discretion in this respect.
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In order for a Mexican judge to be able to order the imposition of precautionary measures it is necessary for the person that requests it to demonstrate the right to request it
and the need for the measure.
In relation to the existence of the right to request the measure, the petitioner must only
show the appearance of having a substantive right to exercise against the other party. It
is not necessary to fully prove its validity and existence, since that will be addressed in
the arbitral proceeding.
The need for the measure, as was already mentioned in relation to civil and commercial proceedings, is shown:
a) When there is a well-founded fear that the person against whom a claim will be
filed or has been filed will disappear or hide;
b) When there is a well-founded fear that the assets on which an in rem action will be
exercised will be hidden or lost;
c) When there is a well-founded fear that the debtor, in the case of personal actions,
will hide or sell the only assets he or she possesses over which the application of
the measure has been requested.
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The arbitral award shall be issued in writing and signed by all the arbitrators or by a
majority thereof. The decision shall include the date of issuance and place of arbitration.
After the award is issued, the tribunal must notify each of the parties by the delivery of
a copy signed by the arbitrators.
The arbitral tribunal will decide the dispute in accordance with the laws chosen by
the parties. If the parties did not indicate the law that should govern the merits of the
case, the arbitral tribunal, taking into account the characteristics or connections of
the case, will determine the applicable law and will have in mind trade usages regarding the case.
In the event that the arbitration has been resolved according to law, the arbitral decision shall be grounded in law and fact, unless the parties have agreed otherwise or unless
the decision contains a settlement between the parties. The arbitral tribunal will decide
as an amiable compositeur or in equity only if the parties have expressly authorized it to
do so. Within the 30 days following the notification of the award, unless the parties have
agreed to another time period, either of them may, with notification to the other, request
the arbitral tribunal to:
a) Correct the award: for any error in calculation, copying, typography or similar
nature;
b) If the parties so agree, provide an interpretation of a point or a specific part of the
award. If the arbitral tribunal considers it justified, it will make the correction or
provide the interpretation within 30 days from the receipt of the request, which
correction will be integrated into the award;
c) Issue an additional award with respect to the claims made in the arbitral proceedings, but omitted in the award. If the arbitral tribunal considers it justified, it will
issue the additional award within 60 days.
In the event that during the arbitral proceedings the parties reach a settlement resolving the dispute, the arbitral tribunal will terminate the proceedings and if both parties
so request and the tribunal does not object, it will record the settlement in the form of
an arbitral award. This award will have the same nature and effect as any other award
issued on the merits of the dispute.
5.10. Arbitration Costs
Arbitration costs are understood as the fees of the arbitral tribunal, the travel expenses
and other expenses incurred by the arbitrators, the cost of expert advice or of any other
assistance requested by the arbitral tribunal, travel and other expenses incurred by the
witnesses (provided they are approved by the arbitral tribunal), the cost of representation and legal assistance of the winning party if such cost is claimed during the arbitral
5.11. Nullity of the Award
A written award is final, unappealable and binding on the parties who must comply with
it. If any party does not comply, the courts must be turned to for enforcement. However,
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proceeding and only to the extent that the arbitral tribunal decides that the amount is
reasonable, and fees and expenses of the institution that has appointed the arbitrators,
if such fees and expenses apply.
The parties can freely choose the rules regarding the costs of the arbitration. In the
absence of an agreement between the parties, the arbitral tribunal will set the costs in
the award in the terms explained below.
The fees of the arbitral tribunal will be a reasonable amount, having in mind the
amount in dispute, the complexity of the matter, the time dedicated by the arbitrators,
and other relevant characteristics of the case. The fees of each arbitrator will be indicated separately and the arbitral tribunal itself will set them. When a party so requests
and the judge consents to carry out this function, the arbitral tribunal will set its fees
only after consulting with the judge, which can make to the tribunal the observations he
or she considers appropriate in that respect.
The costs of the arbitration will be charged to the losing party. However, the arbitral
tribunal can prorate the costs between the parties if it decides that prorating is reasonable, having in mind the circumstances of the case.
The arbitral tribunal will take into account the circumstances of the case in order to
determine the costs of representation and legal assistance, which can be paid by one of
the parties or prorated between them. This decision will be stated in the text of the order
of conclusion of the proceeding or in the award.
Once the tribunal is formed, it may request from each of the parties the deposit of an
amount as an advance on the fees of the arbitral tribunal, travel expenses and other
expenses of the arbitrators, and the cost of expert advice or of any other assistance
requested by the tribunal. Also, in the course of the proceedings, the tribunal may
request additional deposits from the parties.
When a party so requests and the judge agrees to carry out this function, the arbitral
tribunal will set the amount of the deposits only after consulting with the judge, who
can make any observations he or she considers relevant to the tribunal.
If after 30 days from the communication of the request of the arbitral tribunal the
deposits requested have not been fully made, the tribunal will inform the parties of this
fact in order for each of them to make the requested payment. If such payment is not
made, the tribunal can order the suspension or the conclusion of the proceeding.
Once the award is issued, the tribunal will deliver to the parties a statement of account
of the deposits received and reimburse to them any balance not used.
if the seat of the arbitration was Mexico, it is provided that arbitral awards can be annulled
by a judge when the party filing the action proves that:
a) One of the parties to the arbitration agreement is affected by some legal incapacity, or that such agreement is invalid by virtue of the law to which the parties have
submitted it, or Mexican law;
b) It was not duly notified of the appointment of an arbitrator or of the arbitration
proceedings, or has not been able, for whatever reason, to assert its rights;
c) The award refers to a dispute not contemplated in the arbitration agreement or
contains decisions that exceed the terms of the arbitration agreement;
d) The composition of the arbitral tribunal or the arbitral proceeding does not comply with the agreement executed by the parties; or when the judge proves that
e) Under Mexican law the object in dispute cannot be subjected to arbitration or that
the award is contrary to public order.
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The petition for nullification must be filed within three months from the date of notification of the award. Thereafter, the judge may suspend the nullification proceedings
when appropriate, and so requested by one of the parties, for the term he or she determines in order to give the arbitral tribunal the opportunity to restart the arbitral proceedings or adopt any other measure that in his or her judgment would eliminate the
reasons for the nullification petition.
The nullification proceeding will be an ancillary proceeding. According to such
proceeding, once it is filed, the judge will order notice to be given to the other parties with three days to respond. Once such period has passed, if the parties did not
file evidence and the court does not consider it necessary, the parties will be summoned to a hearing within the following three days, which will be held whether the
parties attend or not.
If the parties have offered evidence, an evidentiary period of 10 days is opened and
thereafter the hearing is held. Within the next five days the court will issue its decision,
which cannot be appealed.
6. Recognition and Enforcement of Arbitral Awards
In Mexico an arbitral award, from whatever country has issued it, will be recognized as binding, and after the presentation of a written petition to a judge, it will be
enforced.
When the place of the arbitration is outside of Mexican territory, the first instance federal judge or the competent local judge of the domicile of the person against whom the
award is executed or the location of the goods, will hear the recognition and enforcement of the award.
The above are identical to the causes for invoking the nullity of the arbitral award.
In addition to the above-mentioned causes, the recognition and execution of the
award can be denied when it is not yet binding on the parties or it has been annulled or
suspended by the judge of the country in which or according to whose law such award
had been issued.
In this regard, the judicial courts in Mexico cannot examine nor decide on the fairness
or unfairness of the award, or on the legal or factual grounds on which it is supported.
They will be limited to examining its authenticity and to deciding whether or not it
should be executed under national law.
Finally, it should be mentioned that the recognition and execution proceeding is carried out in an ancillary proceeding in the same time periods as stated in relation to the
nullification of the award proceeding.
Aside from the above, both the ruling issued by the judge in a nullity proceeding and the
ruling issued in an enforcement of the award proceeding can be challenged through the
amparo proceeding. It is important to restate in this regard that what will be examined in all
cases in the amparo proceeding is the ruling issued by the judge either with respect to the
nullity or the enforcement of the award, but never the award issued by the arbitral tribunal.
In this respect, it should be mentioned that the parties cannot invoke the amparo proceeding
against the award, by virtue of the fact that the arbitrator is not a state authority and, therefore, does not issue acts of authority that can harm the constitutional rights of a private party.
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The party invoking the award or requesting its enforcement must present the original
of the award duly authenticated or a certified copy thereof and the original of the arbitration agreement. In the event that the award or the arbitral agreement is not in Spanish, the party invoking it must present a translation into Spanish of such documents,
done by an official translator.
In our country the recognition or enforcement of the arbitral award, from whatever
country in which it was issued, can be denied when the party against whom the award
is invoked proves before the competent judge of the country in which the recognition
or execution is requested that:
a) One of the parties to the arbitration agreement was affected by legal incapacity;
b) It was not duly notified of the appointment of an arbitrator or of the arbitration
proceedings, or has not been able, for whatever reason, to assert its rights;
c) The award refers to a dispute not contemplated in the arbitration agreement or
contains decisions that exceed the terms of the arbitration agreement;
d) The composition of the arbitral tribunal or the arbitral proceeding does not comply with the agreement executed by the parties; or when the judge proves that
e) Under Mexican law the object in dispute cannot be subjected to arbitration or that
the award is contrary to public order.
The amparo proceeding will be primarily related to the violation of the principle of
legality. The matter thus commonly has to do with whether or not the judge correctly
applied the causes of nullity or of denial of the recognition and enforcement of the arbitral award. Therefore, the court that hears the amparo proceeding must examine
whether the judicial ruling that is challenged has been correctly issued and indicate, if
such is the case, that the judge incorrectly evaluated the causes of nullity or recognition of the award. We repeat that under no circumstances is the amparo court allowed
to review the substance of the award.
7. Mediation
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In Mexico mediation is recognized as an alternative dispute resolution mechanism that
allows the use of a means other than a judicial procedure, with the purpose of allowing
the parties to reach a settlement recorded in a settlement agreement.
Among its distinctive characteristics are that it is a consensual mechanism that
requires the expression of the will of all the parties involved to submit to it. Furthermore, it allows the parties to be involved in the process within a context of flexibility,
specialization and confidentiality.
It presumes the involvement of a third party who only facilitates the dialogue, the
communication, and the understanding between the parties. The function of the third
party consists of helping to generate an environment favorable for the construction of a
resolution and to support the parties in the drafting of and compliance with the agreement reached. In contrast to the arbitrator, the mediator never imposes a solution nor is
able to give proposals, as the conciliator can.
Mediation can be private or public, depending on whether it is carried out in a private
mediation center or if it is conducted according to judicial regulations.
7.1. Private Mediation
In private mediation, the parties can agree to submit the dispute to a chosen ad hoc mediator, or they can make use of an institutional mediation proceeding in which previously
drafted procedural rules are applied.
In both ad hoc and institutional mediation, it is advisable to establish a time period
after which, if an agreement has not been reached by the parties through such mediation, another dispute resolution mechanism will be used.
In institutional mediation there are several centers with mediation rules, both in the
national and the international context, such as these mentioned below:
a) In the national context, the CANACO and the Mexican Mediation Institute (Instituto
Mexicano de Mediación) stand out;
b) In the international context, in Mexico, the ICC, pursuant to the Alternative Dispute Resolution Rules (ADR Rules) and the AAA, through its specific rules, also
actively participate in mediation proceedings.
7.2. Mediation in a Judicial Setting
8. Conciliation
In Mexico conciliation is also widely used. Conciliation is different from mediation in
that it is an alternative dispute resolution method in which the third party can propose
a solution, unlike in mediation. In several Mexican laws, it is provided as a mechanism
to resolve disputes prior to the courts, in order to lower the number of disputes that
reach the judicial courts. Conciliation, in this regard, is used basically in two instances:
judicially and administratively.
In the judicial instance, the holding of a conciliation hearing is contemplated as a prior
step within the judicial proceeding, both in labor and civil matters. In such a conciliation hearing it will be attempted to reconcile the parties so that they reach a peaceful resolution of their dispute.
In addition, in some disputes in certain areas, Mexican law promotes the possibility of
conciliating the interests of the parties prior to a judicial lawsuit. For such purposes,
some administrative instances are authorized to act as conciliators.
As an example we can mention the conciliation of disputes between suppliers and consumers before the Consumer Protection Agency, conciliation between doctor and patient
in the National Commission of Medical Arbitration, and the conciliation engaged in by
the National Commission for the Protection and Defense of Users of Financial Services.
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During the last decade in Mexico, the judicial branch has promoted initiatives in the socalled Centers of Alternative Justice, which are commonly located in the judicial
supreme court of each state and the Federal District.
The Centers of Alternative Justice have worked to create a law governing this area, basically through reforms of the organic law of local judicial powers and the creation of alternative justice laws applicable at the local level. These centers regulate public mediation in
each state, the creation of public centers of mediation, the certification of mediators by
the superior court of justice of the state, basic mediation guidelines, and the material
scope of application (civil, family, and commercial). Furthermore, they regulate the creation of the private mediation centers.
The following states have public mediation centers: Quintana Roo, Querétaro, Monterrey, Oaxaca, Baja California Sur, Sonora, Guanajuato and the Federal District. Currently other states are in the process of establishing alternative justice systems.
9. Free Trade Agreements
Mexico has executed the following free trade agreements, among others:
a) Free Trade Agreement with Colombia and Venezuela;
b) North American Free Trade Agreement;
c) Free Trade Agreement with Costa Rica;
d) Free Trade Agreement with Israel;
e) Free Trade Agreement with the European Union;
f) Free Trade Agreement with Chile;
g) Agreement to strengthen the Economic Relationship between the United Mexican
States and Japan.
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In some of these treaties dispute resolution mechanisms were agreed to in favor of the
investors that allow them to initiate investment arbitration against the State if it breaches
its obligations assumed in the respective treaty. The free trade agreements executed by
Mexico that allow investors to initiate investment arbitrations are specified below.
9.1. North American Free Trade Agreement (NAFTA)
The North American Free Trade Agreement (NAFTA) was signed in December 1992 and entered
into force in January 1994, in order to eliminate trade obstacles among the contracting States.
Chapter XI of this agreement establishes the rules applicable to foreign investment in the
territory of the three contracting states (Canada, the United States of America, and Mexico).
Foreign investment under NAFTA refers to both the investor and the investment. In this
regard, the treaty includes all types of investment made in stocks and bonds, medium
and long term loans and debt instruments among affiliate companies, tangible and intangible property, including intellectual property rights, franchises and know-how, and contractual interests or rights derived therefrom.
Section B of Chapter XI of NAFTA establishes a supranational arbitration mechanism for
resolving disputes between an investor and a state party to the treaty. The arbitration
mechanism seeks to ensure due legal process before an impartial tribunal.
9.1.1. Standing for the investor to file a claim
An “Investor of a Party” to the Agreement may make use of the dispute resolution mechanism in NAFTA. This term is defined as “a Party or a state enterprise thereof, or a national
or an enterprise of such Party, that seeks to make, is making, or has made an investment.”
9.1.2. Violations of NAFTA
The purpose of the arbitration mechanism established in NAFTA is to resolve disputes that
arise from violations of obligations contained therein, particularly those contemplated in
Section A of Chapter XI, which establishes the principles according to which foreign
investment shall be governed under said Agreement.
The above-mentioned principles establish guidelines in the following areas: a general
basis of respect for foreign investment; treatment of the investment, national treatment,
most-favored-nation treatment, and minimum standard of treatment; social opening;
performance requirements; senior management and boards of directors; and transfers
and expropriation and compensation.
9.1.4. Composition of the arbitration tribunal
The tribunal shall comprise three arbitrators, one appointed by each of the parties and the
third, who shall preside over the tribunal, appointed by agreement of the disputing parties.
If either of the parties does not appoint an arbitrator or the parties do not agree on the
appointment of the presiding arbitrator of the tribunal, the Secretary General of the ICSID
will appoint such arbitrators, choosing them from a list maintained by each party.
9.1.5. Place of arbitration
The place where the arbitral proceeding will be held may be agreed to by the disputing
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9.1.3. Procedural rules
The investor, before submitting a claim to arbitration, must first attempt to resolve the
dispute by consultation and negotiation. If these fail, it may submit the claim to arbitration, provided that more than three years have not elapsed since the date on which the
enterprise first acquired knowledge of the breach.
In addition to the above, in order to submit a claim to arbitration the investor must
waive its right to initiate or continue any proceeding before a Mexican judicial or administrative court.
A NAFTA arbitration may be governed by any of the following rules of arbitration: the
International Center for Settlement of Investment Disputes (ICSID), the Additional Facility Rules of the International Center for Settlement of Investment Disputes and the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL).
It should be mentioned that Mexico is not a party to the ICSID Convention, and therefore it must be subject to the Additional Facility Rules or the UNCITRAL rules, as is the
case with Canada, since to date only the United States of America is party to this convention and both contending parties must be members to submit disputes to it.
In practice, Mexico has submitted to the ICSID Additional Facility Rules, as occurred
with the issuance of the first arbitral decision by a NAFTA Chapter XI tribunal, which was
resolved by a panel of arbitrators consisting of Benjamín R. Civiletti, Claus von Wobeser,
and Jan Paulsson, in the case of Robert Azinian v. the United Mexican States.
parties. If they do not agree otherwise, the arbitration will take place in the territory of
a party that is a party to the New York Convention of 1958. In addition, the ICSID Additional Facility Rules or the UNCITRAL Rules are applicable.
9.1.6. Governing law
Article 1131-1 of NAFTA establishes that disputes shall be decided in accordance with
this agreement and by the applicable rules of international law. In the international
sphere we can take as a reference the Arbitration Rules of the ICSID Convention and secondarily the decisions of arbitral tribunals. This suggests to us that the national law of
the member states to the Agreement will not be applicable.
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9.1.7. Award
The award issued by the tribunal will be binding only on the disputing parties and only
with respect to that specific case. The parties must abide by the award without delay.
In the event that a party, which is to say the government of a party to NAFTA, does not
abide by the award, the investor may request the government of its country to request the
Free Trade Commission to establish an arbitral panel and initiate a proceeding between
the parties to the agreement. This is a NAFTA mechanism in which the government of the
country of the investor intervenes to demand compliance with the award, keeping vigil
over compliance with the obligations of the agreement.
9.2. Free Trade Agreement between the United Mexican States
and the Republic of Chile
This Agreement entered into force on August 1, 1999 and includes a chapter (Chapter 9)
dedicated exclusively to investment matters. Its scope of application is between the
investors of the State parties, the investments of investors of one party in the territory of
the other party and all investments in the territory of a party.
In this chapter a mechanism is established for the resolution of investment disputes
that ensures both equal treatment among investors of the parties according to the principle of international reciprocity, and due legal process before an impartial tribunal.
Furthermore, it contains provisions that regulate most-favored-nation treatment,
national treatment, expropriation, etc. Under the Agreement, an investor of a party may
submit a claim to arbitration that the other party has violated an obligation established
in the Agreement related to monopolies and enterprises of the State. In this regard, provided six months have elapsed from the occurrence of the acts that resulted in the
claim, a disputing investor may submit it to arbitration in accordance with: the ICSID
Convention, provided that both the disputing party and the party of the investors are
members thereof; the ICSID Additional Facility Rules when the disputing party or the
party of the investor, but not both, are party to the
Rules of Arbitration.
ICSID
Convention; or the
UNCITRAL
9.3. Agreement to Strengthen the Economic Association between
the United Mexican States and Japan
The scope of application refers to the investors of the other party; the investments of
investors of the other party made in the territory of the party and all investments in the
territory of the party.
An investor may submit a dispute to arbitration in accordance with:
a) The ICSID Convention, provided both the disputing party and the party of the
investor are parties to that Convention;
b) The ICSID Additional Facility Rules with their amendments, provided that the disputing
party or the party of the investor, but not both, are parties to the ICSID Convention;
c) The UNCITRAL Rules of Arbitration;
d) Any other rules of arbitration agreed on by the disputing parties.
A claim may not be submitted to arbitration if more than three years have elapsed from
the date on which the investor first had or should have had knowledge of the presumed
breach and knowledge that the investor or enterprise has incurred loss or damage.
Unless the disputing parties agree otherwise, the arbitral tribunal will carry out the
arbitral proceeding in a country that is party to the New York Convention of 1958.
Any arbitral award issued in accordance with the provisions mentioned in the Agreement will be final and binding on the parties. When a disputing party does not comply
with or abide by a final award, the party whose investor was a party in the arbitration
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This Agreement was signed on September 17, 2004, and entered into force on April 1,
2005, once ratified by the Senate. Its objectives are the following:
a) To liberalize and facilitate the trade of goods and services between the parties;
b) To increase investment opportunities and strengthen investment protection and
investment activities of the parties;
c) To increase opportunities for suppliers to participate in the public sector acquisitions of the parties;
d) To promote cooperation and coordination for the effective application of the competition laws in each of the parties;
e) To create effective procedures for the implementation and operation of this Agreement and for the resolution of disputes;
f) To establish a framework to promote bilateral cooperation and improvement of the
business environment.
proceeding may request a decision as to whether the failure to comply with or abide by
the terms of the final award is incompatible with the obligations of this Agreement; and
a recommendation that the party abide by or comply with the final award.
10. Agreements for the Reciprocal Promotion
and Protection of Investments
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As can be seen from the free trade agreements that Mexico has executed, investment
arbitration has gained much importance in this country. However, this type of arbitration is not limited to free trade agreements. It has also been extended to all international
agreements adopted by Mexico with other countries for the reciprocal protection of
investment, in which express reference is made to arbitration as a means for dispute resolution between an investor and the State receiving the investment.
Among the agreements for the Reciprocal Promotion and Protection of Investments
(Acuerdos para la Promoción y Protección Recíproca de las Inversiones, APPRIS, or Bilateral
Trade Agreements [BITs] in English) signed and ratified by Mexico are those executed
with Spain, Switzerland, Argentina, the Netherlands, Austria, Germany, the Belgian-Luxemburg Economic Union, France, Finland, Uruguay, Portugal, Denmark, Italy, Sweden,
South Korea, the Greek Republic, Cuba, and the Czech Republic, among others.
The principal matters addressed in the BITs are definition of investment, promotion
and admission, scope of application, treatment of investments, expropriation, transfers,
resolution of investor–State and State-State disputes, and final provisions.
The agreements generally provide for the submission to arbitration of disputes related
to a breach of the agreement between a national investor of a State party and the State
party that receives the investment. The majority of the BITs follow the same outline, and
therefore a generic description of the dispute resolution procedure to which the
investors protected by such agreements have direct access will be provided below.
The investor of a party may submit on its own behalf an arbitration claim when the other
party has breached an obligation established in the Agreement, provided the investor or its
investment has suffered loss or damage by virtue of the breach or as a consequence thereof. The action to initiate the claim expires after a certain number of years from the date on
which the investor had knowledge or should have had knowledge of the presumed breach.
10.1. Submission to Arbitration
Provided that six months have elapsed from when the acts resulting in the claim took
place and the disputing investor has given notice 90 days in advance to the contracting
party of its intention to submit the claim to arbitration, the disputing investor may submit the claim to arbitration in accordance with:
a)
b)
c)
d)
The ICSID Convention;
The ICSID Additional Facility Rules;
The UNCITRAL Rules of Arbitration;
The NAFTA Rules of Arbitration.
10.2. Arbitrators
10.3. Governing Law
Any tribunal established under this Agreement will decide the disputes in accordance
with said Agreement and international law.
10.4. Final Award
When an award unfavorable to a contracting party is issued, the tribunal may only
resolve the payment of pecuniary damages and the restitution of the property, in which
case pecuniary damages may be paid, plus the applicable interest, instead of restitution.
10.5. Enforcement of the Award
The parties must abide by and comply with the award without delay. The disputing
investor may resort to the enforcement of an arbitral award under the ICSID Convention
or the New York Convention of 1958.
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The tribunal will be composed of three arbitrators, unless the disputing parties agree to
a different odd number of arbitrators. Each of the disputing parties will appoint an arbitrator, while the third, who will be the presiding arbitrator of the arbitral tribunal, will
be appointed by agreement of the disputing parties.
The arbitrators that are appointed in accordance with this Agreement must have experience in international law and in investment matters.
When a tribunal established in accordance with this Agreement is not formed within
90 days from the date on which the claim is submitted to arbitration, either because a
contracting party does not appoint an arbitrator or the disputing parties cannot reach an
agreement on the appointment of the presiding arbitrator of the arbitral tribunal, the Secretary General of ICSID, at the request of either of the disputing parties, will appoint at its
discretion the arbitrator not yet appointed. Nevertheless, in the case of the appointment
of the presiding arbitrator of the tribunal, the Secretary General of the ICSID must ensure
that said presiding arbitrator is not a national of the contracting party or a national of the
contracting party of the disputing investor.
CHAPTER XXIII
Court Precedent
In Mexico, the judicial branch is responsible for the interpretation and harmonization of
the laws. Through this interpretation process, the judicial branch establishes court precedent, which is binding if certain requirements are met.
Binding court precedent can be formed in one of three ways in Mexico: by confirmation, by
unification of interpretations, or by unconstitutionality actions and constitutional disputes.
1. Court Precedent by Confirmation
Court precedent by confirmation is formed when the contents of judgments on several
different cases are similar. There must be similarity in the interpretation adopted in
resolving such judgments in order for this interpretation to become binding and considered court precedent.1
In order to become court precedent by confirmation, essentially three requirements
must be met:2
a) The case in question must turn on decisions by the Supreme Court of Justice of
the Nation based on interpretation of the law, ruling in plenary session or in Chambers, or by the Collegiate Circuit Courts in matters of their exclusive jurisdiction;
b) The interpretation must be upheld in five judgments, uninterrupted by a contrary
judgment;
c) Such judgments must be adopted by a vote of eight in the case of a plenary judgment or four in the case of a judgment in chambers. The judgment further must
be adopted unanimously in the case of a judgment of the Collegiate Circuit Courts.
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1
Supreme Court of Justice of the Nation, La jurisprudencia: su integración (Court Precedent: its Formation), Mexico, 2nd Ed., 2005, p. 25.
2
This is seen in Articles 192 and 193 of the Amparo Law.
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In order to become binding court precedent by confirmation, the same judicial body
must uphold an interpretation in five judgments, when in each one the required vote is
met and the interpretation is not interrupted by a contrary one.3
2. Court Precedent by Unification of Interpretations
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The formation of court precedent by unification of interpretations arises from the existence of contradictory court opinions.4 Its purpose is to maintain the unity of interpretations of the national judicial order by establishing interpretations that should prevail
when those held by the Chambers of the Supreme Court of Justice of the Nation or by
the Collegiate Circuit Courts regarding the same legal problem are contradictory.
It should be pointed out that the decision that is adopted on the contradictory interpretations will not affect the specific legal situations of the proceedings in which such
interpretations have been issued.5
The requirements for the formation of this type of court precedent are the following:
a) Report of the existence of contradictory decisions. This denunciation must be formulated by the Chambers of the Supreme Court of Justice of the Nation, its Ministers, the Collegiate Circuit Courts, the Magistrates of the latter, the parties involved
in proceedings where the contradictory interpretations have been held, or the
Attorney General of the Republic;
b) Contradiction in the substantive aspects of the rulings. In this regard there is a contradictory decision when the following circumstances occur:6
• When ruling on legal transactions, essentially equivalent legal questions are
examined and discrepant positions are adopted;
• The difference in interpretation exists in the legal arguments, reasoning, or
interpretations of the respective decisions;
• The different interpretations result from the examination of the same elements;
c) That the legal point on which the contradiction has arisen has not been resolved
in binding court precedent;
d) That the report is not obviously invalid;
e) That the relative decisions are final and conclusive.
The bodies competent to resolve contradictory decisions are both the Plenary and the
chambers of the Supreme Court of Justice of the Nation.
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3
Supreme Court of Justice of the Nation, op. cit., p. 30.
4
It should be clear that it is not a motion for review of a decision or a motion for clarification.
5
Supreme Court of Justice of the Nation, op. cit., p. 31.
6
Judgment P./J. 26/2001, Federal Judicial Weekly and its Gazette, Ninth Period, Volume XIII, April 2001, p. 76.
3. Court Precedent Arising from Unconstitutionality Actions
and Constitutional Disputes
In relation to the third method of forming court precedent, it should be specified that
the reasoning contained in the conclusions of law or legal arguments of decisions on
constitutional disputes and unconstitutionality actions approved by eight Justices is
court precedent.7
Normally, in drafting an authoritative decision arising from these proceedings, the procedure of extracting the interpretation held and approving its text in a session is followed, as is done with respect to court precedent arising from the resolution of amparo
proceedings.8
3.1. Binding Effect
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7
By analogy, the rulings in the summary constitutional appeals and complaints filed in relation to these
constitutional means of control must have the same effects.
8
Supreme Court of Justice of the Nation, op. cit., p. 62.
9
Which can be seen from Article 192 of the Amparo Law.
10
Supreme Court of Justice of the Nation, op. cit., pp. 77-79.
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Court
Court precedent set in a plenary session of the Supreme Court of Justice is binding
on chambers of the Supreme Court, the Unitary and Collegiate Circuit Courts, the
District Courts, the military and local courts, and administrative and labor courts,
local or federal.9 Regarding the Electoral Court, the Organic Law of the Judicial Power
of the Federation constrains it to following court precedent set by plenary sessions of
the Supreme Court when it involves a direct interpretation of an article of the Constitution.
It should be emphasized that the binding nature of court precedent is not dependent
on the drafting, control, and dissemination of the decisions constituting precedents. In
the event a decision constituting precedent that is presumed to have been held by the
Supreme Court of Justice of the Nation without being reflected in a decision formally
approved and published is invoked before a Collegiate Circuit Court, the respective
court must verify, through the Bureau of Coordination of Compilation and Systemization of Decisions, the existence of the legal interpretation.
However, the bodies that establish court precedent must comply with Article 195 of
the Amparo Law with regard to approval of the text and heading of the binding decisions.
According to this law, said bodies must also send the court precedent to the area responsible for publishing the Federal Judicial Weekly and its Gazette and the judicial bodies that
were not involved in its formation.10
The binding effect of court precedent is eliminated when it is interrupted. The interruption, which can be total or partial, presumes the issuance of a new interpretation that
overturns the prior one.
3.2. Retroactivity
The plenary session of the Court has held that court precedent is not governed by a
guarantee against retroactivity of the law set forth in Article 14 of the Constitution,
assuming that such a guarantee is applicable to laws issued by the Congress and not to
court precedent that is not considered law.
C H A P T E R
X X I I I
370
Von Wobeser y Sierra, S.C.
Guillermo González Camarena 1100, 7º piso
Santa Fe, Centro de Ciudad
Delegación Álvaro Obregón, C.P. 01210, México D.F.
Tel. (52 55) 52 58 10 00
www.vonwobeserysierra.com
Legal Guide
to Doing Business
in Mexico
was printed in February, 2008
by Artes Gráficas Panorama, S.A. de C.V.,
Avena 629, colonia Granjas México,
C.P. 08400, México, D.F.
2 500 copies were printed.