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Mexico City                                                                                 Monterrey
       Paseo de los Tamarindos 150-PB                                                              Ave. Ricardo Margain 444
       Bosques de las Lomas                                                                        Torre Norte Mezzanine A
       05120, México, Distrito Federal                                                             66265, San Pedro Garza García, N.L.
       Tel. +52 (55) 5091-0000                                                                     Tel. +52 (81) 8220-1500




                                 DOING BUSINESS IN MEXICO
PREFACE .................................................................................................................................................... 1


I.      ESSENTIAL FACTS ABOUT MEXICO................................................................................................ 2

A. Geographic and Historic Information ....................................................................................................... 2

B. Key Economic Information ....................................................................................................................... 2

C. Federal Government................................................................................................................................ 3


II.      LEGAL SYSTEM ................................................................................................................................. 4

A. General .................................................................................................................................................... 4

B. Civil Law and Comparison to Common Law ............................................................................................ 4

C. Federal and State Legislation .................................................................................................................. 4


III.      JUDICIAL SYSTEM ........................................................................................................................... 6

A. Mexican Courts & Litigation ..................................................................................................................... 6
   1. Federal Courts .................................................................................................................................. 6
   2. The Federal Judiciary Council (Consejo de la Judicatura Federal “FJC”) ........................................ 7
   3. State Courts...................................................................................................................................... 7
   4. Court Clerks...................................................................................................................................... 8
   5. District Attorneys .............................................................................................................................. 8
   6. Administrative and Tax Courts ......................................................................................................... 8

B. Criminal Law ............................................................................................................................................ 8

C. General Comments about Litigation in Mexico ...................................................................................... 10

D. Arbitration .............................................................................................................................................. 11


IV.   IMPORTANT POSITIONS TO KNOW ............................................................................................. 13
   1. Lawyer ............................................................................................................................................ 13
   2.   Notary Public ................................................................................................................................. 13
   3.   Customs Broker ............................................................................................................................. 14
   4.   Accountants and Auditors ............................................................................................................. 14
V.        PRACTICAL DIFFERENCES ABOUT DOING BUSINESS ............................................................. 15

A. Introduction ............................................................................................................................................ 15

B. Tips on Dealing with your Mexican Counterpart .................................................................................... 15
   1. Avoid Misunderstandings ............................................................................................................... 15
   2. Learn the Local Business Schedule ............................................................................................... 16
   3. Dress Appropriately ........................................................................................................................ 16
   4. Take the Time Necessary to Build Personal Relationships ............................................................ 16
   5. Be Polite ......................................................................................................................................... 17
   6. Expect Generosity and Be Prepared to Reciprocate ...................................................................... 17
   7. Understand the Importance of Meals and Other Social Events...................................................... 17
   8. Select the Appropriate Means of Communication .......................................................................... 18
   9. Prepare for Uncertainty and Delay ................................................................................................. 18
   10. Lack of Guidance.......................................................................................................................... 18
   11. Need for Bureaucratic Approval ................................................................................................... 18
   12. Develop Realistic Time Lines ....................................................................................................... 19
   13. Need for Regular Follow-Up ......................................................................................................... 19
   14. Allow More Time ........................................................................................................................... 19


VI.        TRADE AND INVESTMENT TREATIES ......................................................................................... 21

A.         Introduction ....................................................................................................................................... 21

B.         Free Trade Agreements .................................................................................................................... 21
     1.     General Overview ........................................................................................................................... 21
     2.     Free Trade Agreements in Effect ................................................................................................... 21
     3.     Fundamental aspects of existing free trade agreements. .............................................................. 23
     4.     Bilateral Investment Treaties .......................................................................................................... 24


VII.       REGULATION OF FOREIGN INVESTMENT .................................................................................. 28

A.        Foreign Investment ............................................................................................................................ 28

B.        Economic Activities that are Restricted under the FIL........................................................................ 28

C.        Investment by Foreign Corporations .................................................................................................. 29

D.        Neutral Investment ............................................................................................................................. 29

E.        National Foreign Investment Registry ................................................................................................ 29

F.        Acquisition of Real Estate .................................................................................................................. 30
     1.    Mexican Companies ....................................................................................................................... 30
     2.    Mexican Corporations without Foreign Investment ........................................................................ 30
     3.    Non-Mexican Individuals ................................................................................................................ 31


VIII.       CORPORATE STRUCTURES FOR DOING BUSINESS ............................................................... 32

A.        Representative Office ......................................................................................................................... 32


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06.2011
B.        Branch Office ..................................................................................................................................... 32

C.        Partnership Venture (a.k.a. “Contractual Joint Venture”) ................................................................... 33

D.        Corporate Presence ........................................................................................................................... 33

E.      Limited Liability Company (Sociedad de Responsabilidad Limitada “SRL”) ...................................... 33

F.     Stock Company (Sociedad Anónima “S.A.”) ...................................................................................... 33

G.        Variable Capital Companies (Capital Variable “CV”) ......................................................................... 34

H.     Process for Incorporating a Mexican Company ................................................................................. 34
     1. Select Corporate Name .................................................................................................................. 34
     2. Charter and By-laws ....................................................................................................................... 34
     3. Appearance before a Notary Public. Registration .......................................................................... 34
     4. Directors, Statutory Auditor and Officers ........................................................................................ 35
     5. Post Incorporation Registrations .................................................................................................... 35
     6. Operating a Mexican Company ...................................................................................................... 36
     7. Minority Rights in a Stock Corporation (SA) ................................................................................... 38
     8. Conflict of Interest .......................................................................................................................... 39
     9. Distribution of Earnings and Payment of Dividends. Legal Reserve ............................................. 39
     10. Accounting Records and Book-keeping ....................................................................................... 39
     11. Mergers and Spin-offs .................................................................................................................. 39
     12. Dissolution and Liquidation of a Mexican Company ..................................................................... 41
     13. Corporate Governance Issues...................................................................................................... 41
     14. Publicly Traded Companies ......................................................................................................... 42


IX. GENERAL PRINCIPLES OF CONTRACT LAW .............................................................................. 44
   1. General Principles of Contract........................................................................................................ 44
   2. Construction of a Contract .............................................................................................................. 45
   3. Termination of an Agreement ......................................................................................................... 46
   4. Contractual Liability ........................................................................................................................ 48
   5. Election of Jurisdiction .................................................................................................................... 49
   6. Submission to Local Courts ............................................................................................................ 49
   7. Arbitration ....................................................................................................................................... 49
   8. Confidentiality Agreements ............................................................................................................ 49
   9. Non-Compete Provisions ............................................................................................................... 50
   10. Asset vs. Stock Acquisitions ......................................................................................................... 50


X.      E-COMMERCE .................................................................................................................................. 52

A.        Applicable Laws and Jurisdiction ....................................................................................................... 52

B.        E-Commerce Law .............................................................................................................................. 52

C.        On-line Consumer Protection ............................................................................................................. 53

D.        Electronic Invoices ............................................................................................................................. 53

E.      Electronic Evidence in Judicial Proceedings ...................................................................................... 53

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F.        Domain Name Registration ................................................................................................................ 54


XI.        COMPETITION LAW ........................................................................................................................ 55

A.        General .............................................................................................................................................. 55

B.        Specific Practices or Restraints ......................................................................................................... 55
     1.     Absolute Monopolistic Practices (Horizontal Restraints) ................................................................ 55
     2.     Relative Monopolistic Practices (Vertical Restraints) ..................................................................... 56

C.        Concentrations ................................................................................................................................... 57

D.        Privatizations, Publications and Opinions .......................................................................................... 59

E.        Private Actions ................................................................................................................................... 59

F.        Leniency Program and Settlement ..................................................................................................... 59

G.        Statute of Limitations ......................................................................................................................... 60

H.        Possible Amendments to Competition Regulation ............................................................................. 60


XII.       LABOR ISSUES .............................................................................................................................. 61

A.        General .............................................................................................................................................. 61

B.        Legal Framework ............................................................................................................................... 61

C.        The Concept of the Employment Relationship ................................................................................... 61
     1.     Regulation of employment through written agreements ................................................................. 62
     2.     Subjects of Employment ................................................................................................................. 62
     3.     Term of Employment ...................................................................................................................... 62
     4.     Employer Substitution..................................................................................................................... 63

D.        Minimum Terms and Conditions for Rendering Services ................................................................... 63
     1.     Salary. Base Salary & Integrated Salary ....................................................................................... 63
     2.     Working Hours ................................................................................................................................ 64
     3.     Vacations and legal holidays .......................................................................................................... 64
     4.     Christmas bonus ............................................................................................................................ 64
     5.     Profit sharing .................................................................................................................................. 64
     6.     Contractual benefits ....................................................................................................................... 65

E.        Collective Labor Relationships ........................................................................................................... 65
     1.     Unions ............................................................................................................................................ 65
     2.     Collective Bargaining Agreement ................................................................................................... 65
     3.     "Contrato-Ley" ................................................................................................................................ 66
     4.     Internal Working Regulations ......................................................................................................... 66

F.        Health and Welfare of Employees at Work Sites ................................................................................ 67

G.        Labor Conflicts in Mexico ................................................................................................................... 67

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H.        Individual Conflicts ............................................................................................................................. 67

I.    Collective conflicts ............................................................................................................................... 68

J.         Termination of Employment .............................................................................................................. 69
     1.     Individual labor relationships .......................................................................................................... 69
     2.     Collective Labor Relationships ....................................................................................................... 70

K.        Social Security System....................................................................................................................... 70

L.        Low Cost Housing Fund ..................................................................................................................... 71


XIII.       TAXATION ...................................................................................................................................... 72

A.     Income Tax ........................................................................................................................................ 72
     1. Subjects of the Tax ......................................................................................................................... 72
     2. Residency for Tax Purposes .......................................................................................................... 72
     4. Determination of the Tax and Rate................................................................................................. 73
     5. Offset or Credit of the Tax .............................................................................................................. 73
     6. Taxable Income .............................................................................................................................. 74
     7. Timing of Accruable Income ........................................................................................................... 75
     8. Allowed Deductions ........................................................................................................................ 75
     9. Net Operating Losses ..................................................................................................................... 77
     10. Tax Consolidation ......................................................................................................................... 77
     11. Regime Applicable to Dividends Distributed................................................................................. 78
     12. Income Tax Applicable to Resident Individuals ............................................................................ 78
     13. Non-Resident Taxation ................................................................................................................. 78
     14. Tax Representative ...................................................................................................................... 80
     15. Tax Treaties ................................................................................................................................. 81
     16. Controlled Foreign Company........................................................................................................ 81
     17. Related party Transactions; Transfer Pricing ............................................................................... 82

B.        Value Added Tax (“IVA”) .................................................................................................................... 83
     1.     General Characteristics of the VAT ................................................................................................ 83
     2.     VAT Rates ...................................................................................................................................... 83
     3.     Taxed Transactions ........................................................................................................................ 83
     4.     Persons Required to Withhold the Tax ........................................................................................... 85
     5.     Obligations of Taxpayers ................................................................................................................ 85
     6.     Filing of the Corresponding Tax Return.......................................................................................... 86
     7.     Crediting of the Tax ........................................................................................................................ 86

C.        FLAT RATE TAX (“IETU”) ................................................................................................................ 86
     1.     General Overview ........................................................................................................................... 86
     2.     Tax Elements ................................................................................................................................. 86
     3.     Related Issues ................................................................................................................................ 88

D.        Other Issues ....................................................................................................................................... 89
     1.     Obligation to Register with the Federal Taxpayersʼ Registry.......................................................... 89
     2.     Audits ............................................................................................................................................. 89
     3.     Late Payment Penalties ................................................................................................................. 89
     4.     Statute of Limitations ...................................................................................................................... 89
     5.     State Taxes .................................................................................................................................... 89
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6.      Payroll Tax ..................................................................................................................................... 90
     7.      Real Estate Transfer Tax ............................................................................................................... 90
     8.      Excise Taxes .................................................................................................................................. 90
     9.      Tax on Cash Deposits ................................................................................................................... 90


XIV.         CUSTOMS ...................................................................................................................................... 91

A.        Background ........................................................................................................................................ 91

B.        Clearance of Goods ........................................................................................................................... 91

C.        Tariff considerations, Regulation Measures and Non-tariff Restrictions ............................................ 91

D.        Customs Regimes .............................................................................................................................. 92

E.        Customs Violations and Fines ............................................................................................................ 92

F.        Customs Brokers and Attorneys ......................................................................................................... 92

G.        Dumping ............................................................................................................................................. 93
     1.    Mexican Legal Framework ............................................................................................................. 93
     2.    What is Dumping Practice? ............................................................................................................ 93
     3.    Standing to Petition an Anti-dumping Investigation ........................................................................ 94
     4.    Injury ............................................................................................................................................... 94
     5.    Course of the Investigation ............................................................................................................. 95
     6.    Anti-dumping or Countervailing Duties ........................................................................................... 96
     7.    Appeals .......................................................................................................................................... 96
     8.    Review of Anti-Dumping Duties ...................................................................................................... 97


XV.         MAQUILADORA (IN-BOND ASSEMBLY PLANTS) AND EXPORT PROGRAMS ........................ 98

A.        Overview of Export Programs ............................................................................................................ 98

B.        Maquiladoras ...................................................................................................................................... 98
     1.   Overview ........................................................................................................................................... 98
     2.   Special Customs Treatment ............................................................................................................. 99
     3.   Process to Establish a Maquiladora ............................................................................................... 102
     4.   Maquiladora Sales to the Domestic Market .................................................................................... 103
     5.   Transfer or Sale of Merchandise .................................................................................................... 103
     6.   Value Added Tax (Impuesto al Valor Agregado) ............................................................................ 103
     7.   Transfer pricing in the Maquiladora Industry .................................................................................. 104


XVI.         SECURITIES ................................................................................................................................ 107

A.        General ............................................................................................................................................ 107

B.        Mexican Stock Exchange ................................................................................................................. 107

C.        Securities/Public Offers .................................................................................................................... 107

D.        Approval and Registration of a Public Offer ..................................................................................... 108
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E.        Listing with the International Quotation System of the BMV ............................................................ 109

F.        Ongoing Reporting Obligations and other Relevant Information ...................................................... 110

G.        Minority Rights ................................................................................................................................. 110

H.        Underwriting Agreements ................................................................................................................. 111


XVII. BANKING ..................................................................................................................................... 112

A.        General ............................................................................................................................................ 112

B.        Authorities ........................................................................................................................................ 112
     1.     Bank of Mexico ............................................................................................................................. 112
     2.     Ministry of Finance and Public Credit ........................................................................................... 112
     3.     National Banking and Securities Commission .............................................................................. 113

C.        Protection of the Interests of the Public ........................................................................................... 113
     1.     National Commission for the Protection and Defense of Users of Financial Services ................. 113
     2.     Institute for the Protection of Bank Savings.................................................................................. 113
     3.     Credit Information Entities ............................................................................................................ 114

D.        Financial Agents............................................................................................................................... 114
     1.     Commercial Banks ....................................................................................................................... 114
     2.     Affiliates of Foreign Financial Entities .......................................................................................... 114
     3.     Development Banks ..................................................................................................................... 114
     4.     Non-Banking Financial Agents ..................................................................................................... 114


XVIII. SECURED TRANSACTIONS ........................................................................................................ 116

A.        Principles Applicable to Security Interests ....................................................................................... 116

B.        Personal Property ............................................................................................................................ 116
     1.     Personal Guarantee (Fianza) ....................................................................................................... 116
     2.     Pledge .......................................................................................................................................... 116
     3.     Trust Agreements ......................................................................................................................... 117
     4.     Chattel Mortgage .......................................................................................................................... 117

C.        Mortgage of Real Property ............................................................................................................... 117


XIX.          GOVERNMENT PROCUREMENT .............................................................................................. 119

A.        General Scope ................................................................................................................................. 119

B.     Contracting Procedures ................................................................................................................... 119
     1. Competitive Bidding ........................................................................................................................ 119
     2. Restricted Invitation and Direct Award ............................................................................................ 120

C.        Execution of a Procurement Contract .............................................................................................. 121

D.        Sanctions ......................................................................................................................................... 121
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E.        Challenges and Remedies ............................................................................................................... 122

F.        Conciliation Process ......................................................................................................................... 122

G.        Dispute Resolution ........................................................................................................................... 122

H.        Pemex .............................................................................................................................................. 122


XX.          INTELLECTUAL PROPERTY ...................................................................................................... 123

A.        General ............................................................................................................................................ 123

B.        Copyright .......................................................................................................................................... 123

C.        Trademarks ...................................................................................................................................... 124

D.        Trade Names and Slogans .............................................................................................................. 125

E.        Patents ............................................................................................................................................. 125

F.        Trade Secrets ................................................................................................................................... 125

G.        Franchising and Transfer of Technology ......................................................................................... 126

H.        Enforcement ..................................................................................................................................... 126


XXI.         IMMIGRATION ............................................................................................................................. 127

A.        Introduction ...................................................................................................................................... 127

B.        Immigration Status ........................................................................................................................... 127
     1.     Tourist .......................................................................................................................................... 127
     2.     Working Visas for Non-Immigrant and for Immigrant ................................................................... 127
     3.     Permanent Resident (Inmigrado) ................................................................................................. 128

C.        Working Visa Options....................................................................................................................... 128

D.        General Procedures for Securing Immigrant or Non-Immigrant Visas ............................................. 129
     1.    Entrance Procedure...................................................................................................................... 129
     2.    Change of Immigration Status or Characteristic ........................................................................... 130

E.        Documentation Requirements .......................................................................................................... 130

F.        Extension of Stay in Mexico ............................................................................................................. 130

G.        Right to Import Personal Property .................................................................................................... 130


XXII. ENVIRONMENTAL LAWS ........................................................................................................... 131

A.        Overview .......................................................................................................................................... 131


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B.        Authorities ........................................................................................................................................ 132

C.        Areas of Exclusive Federal Jurisdiction ........................................................................................... 132

D.        Environmental Impact ...................................................................................................................... 132

E.      Air Pollution; the Sole Environmental License LAU .......................................................................... 134

F.     Hazardous Waste ............................................................................................................................. 135

G.        Soil Contamination and Remediation ............................................................................................... 136

H.        Water................................................................................................................................................ 137

I.    Environmental Audits and Voluntary Compliance .............................................................................. 139

J.     Sanctions .......................................................................................................................................... 140


XXIII. TELECOMMUNICATIONS ........................................................................................................... 143

A.        General ............................................................................................................................................ 143

B.        Jurisdiction ....................................................................................................................................... 143

C.        Radio-frequency Spectrum............................................................................................................... 143

D.        Telecommunications Networks ........................................................................................................ 144

E.      Satellite Communications ................................................................................................................. 144

F.     Value Added Services ...................................................................................................................... 145

G.        Re-sellers (comercializadoras) ........................................................................................................ 145

H.        Dominant Carriers ............................................................................................................................ 146

I.    Broadcasting Services ....................................................................................................................... 146

J.     Foreign Investment Restrictions and Investment Mechanisms ........................................................ 146

K.        Special Tax ...................................................................................................................................... 147


XXIV. ENERGY ....................................................................................................................................... 148

A.     Electric Sector .................................................................................................................................. 148
     Areas of Private Participation .............................................................................................................. 148

B.         Hydrocarbons Sector ..................................................................................................................... 148

C.         Natural Gas .................................................................................................................................... 151


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D.         Firedamp ........................................................................................................................................ 151

E.         Renewable Energy ......................................................................................................................... 152

F.         Bioenergies ..................................................................................................................................... 153

G. National Hydrocarbon Commission .................................................................................................... 153

H.         Energy Regulatory Commission ..................................................................................................... 154

I.   Sustainable Use Of The Energy ........................................................................................................ 154


XXV. MINING ......................................................................................................................................... 155

A.        General ............................................................................................................................................ 155

B.        Priority of Mining Activities ............................................................................................................... 155

C.        Agencies / Authority ......................................................................................................................... 155

D.        Mining Concessions and Assignments ............................................................................................ 156

E.     The Mining Public Registry ............................................................................................................... 158

F.    Inspection, Monitoring and Sanctions ............................................................................................... 159


XXV. BANKRUPTCY ............................................................................................................................. 161

A.        Insolvency Proceedings ................................................................................................................... 161

B.        Causes for Declaration in Reorganization (Concurso Mercantil) ..................................................... 162

C.        Procedure for the Declaration of Reorganization ............................................................................. 162

D.        Judgment Declaring Reorganization (Concurso Mercantil) .............................................................. 163

E.     Existing Contracts ............................................................................................................................ 163

F.    Acknowledgement of Credits ............................................................................................................ 163

G.        Bankruptcy or Liquidation Proceedings (Quiebra) ........................................................................... 164


Acronyms Most Commonly Used ............................................................................................................. 165




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Preface
Whether driven by national policies or new technologies, laws and regulations will frequently change, and
as lawyers and counsel a firm is required to respond to the needs of our clients. Since it was founded in
1948, Barrera, Siqueiros y Torres Landa, S.C. has been at the forefront in providing legal services with
excellence to its clients. At all times, we have endeavored to be in a position not only to respond, but to
be ahead and anticipate the needs of our clients.

In the course of providing services, a multitude of areas have been addressed and legal specialties have
arisen in the recent past. We have always attempted to be at the forefront of new legal developments
around investment, technology, financial services and products, export and trade programs,
privatizations, government procurement, telecommunications, e-commerce, labor, competition/antitrust,
securitization and financial structures, and more recently, energy. Some areas have continuously evolved
such as Taxation with such speed and depth that keeping–up has been both a necessity and a challenge.

In celebration of our sixtieth anniversary in 2008 we endeavored to prepare for our clients and friends a
summary of Mexican laws affecting business. Many lawyers from the firm have participated in the
project, contributing with their knowledge and expertise. We have committed to keep the summary
updated.

Although we trust you will find this summary useful, the purpose of this publication is not to provide legal
advise nor present a complete analysis of the issues covered. The authors that participated in the
publication, as well as Barrera, Siqueiros y Torres Landa, S.C., are not responsible in any form for
decision or actions taken based on the content of this summary.




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I.        Essential Facts About Mexico
A. Geographic and Historic Information

•    Name. Although the conventional short form is “Mexico”, the official name of the country is “United
     Mexican States.”

•    Population. Mexicoʼs population exceeds 112 million according to the 2010 census. The median age
     is 26 years. It is the most populous Spanish-speaking country in the world. The population of the
     metropolitan area of Mexico City alone is about 18 million, making it the largest urban concentration
     of people in the Western Hemisphere.

•    Flag and Seal. The flag consists of three equal vertical bands of green (hoist side), white, and red.
     The seal—an eagle perched on a cactus holding a snake in its beak—is centered in the white band.
     The symbol on the seal comes from a legend at the time of the Aztecs. Guided by their god
     Huitzilopochtli, the Aztec people sought a place where an eagle landed on a prickly-pear cactus,
     eating a snake. After years of wandering, they found the sign on a small swampy island in Lake
     Texcoco. They named their new home Tenochtitlan (“Place of the Prickly Pear Cactus”) and built a
     city, now Mexico City, on the site in A.D. 1325.

•    Area. Mexico is one of the largest countries in the hemisphere with an area of approximately 2 million
     square kilometers (1,972,500 square kilometers; 761,600 square miles).

•    Summary historical background. Mexico was originally inhabited by a number of Amerindian
     civilizations, including the Olmecs, Mayas, Toltecs and Aztecs. Mexico came under Spanish rule for
     three centuries before achieving independence early in the 19th century on September 21, 1821.
     Contrary to popular belief abroad, independence was not on “Cinco de Mayo”. Shortly after
     independence, a plan for a constitutional monarchy failed and a republic was proclaimed in December
     1822.

•    In 1910, severe social and economic problems culminated in a revolution that lasted for ten years and
     gave rise to the 1917 Constitution.

     Although recent financial troubles in México and abroad threw Mexico into its worst recession in over
     half a century, the nation continues to make a recovery. Ongoing economic and social concerns
     include low real wages, underemployment for a large segment of the population, inequitable income
     distribution, and few advancement opportunities for the largely Amerindian population in the
     impoverished southern states.

•    Political Division. Mexico is a Federal Republic divided into 31 States and the Federal District
     (“Distrito Federal”).

     Mexico City is located precisely in the Federal District, although its metropolitan area extends into the
     neighboring State of Mexico. Guadalajara and Monterrey are two major industrial hubs. Other
     important cities include Tijuana, Ciudad Juárez, León, Querétaro, Puebla, Veracruz, Villahermosa and
     Mérida.

B. Key Economic Information
•    In 2010, Mexico was the 12th largest economy in the world. It is an active member of the
     Organization for Economic Cooperation and Development (“OECD”) and the World Trade

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06.2011
Organization (“WTO”). Likewise, Mexico has an important bilateral and multilateral trade network,
     including NAFTA, the European Community and the Asian Pacific Economic Council (“APEC”).

•    Mexico shares 2,000 miles of U.S. border, thus putting it in a unique strategic position for increasing
     its trade with the greatest single national market in the world.

•    Mexico has 7,000 miles of seashores that, as noted in the European Union Political, Cooperation and
     Free Trade Agreement, make it an ideal place to engage in trade regardless of the origin of materials
     or destination of finished products.

•    Among the most prominent industries in the country are oil, tourism, mining, and automotive, textile,
     steel and electronics manufacturing.

•    Expanding beyond its former export foundation in oil, Mexico has increased the size and variety of
     exports, which now include even sophisticated technical devices and services, including construction
     and financial services.

•    Reliance on oil has substantially been reduced. The basis of the Mexican economy is primarily
     manufacturing, although the recent prices in the price of crude oil have provoked a greater share of
     the exports to this commodity.

•    A large pool of Mexican companies participate in export-oriented activities. Foreign investors provide
     training and technology to upgrade Mexican companies and bring them up to international standards.

C. Federal Government
•    The Federal Government is composed of three branches—executive, legislative and judicial—each
     with specific powers granted by the Constitution.

•    The President heads the Executive Branch and is assisted by 18 Secretaries or Ministers as well as
     by the Attorney General (whose appointment requires the consent of the Senate). The President is
     both the Head of State and government. There is no Vice-President.

•    A bicameral federal congress comprises the Legislative Branch and is divided into:
     (a) The Senate, with 128 members who serve six--year terms
     (b) The House of Representatives (Cámara de Diputados), with 500 members is completely renewed
     each three-year term.


•    The Mexican Supreme Court of Justice, comprised by 11 Justices, heads the Judiciary. After
     nomination by the President and appointment by the Senate, Justices serve 15-year terms. Under
     the Supreme Court sit federal Circuit Courts (Collegiate and Unitary) and District Courts.




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06.2011
II.       Legal System
A. General

•     International business people and foreign-owned corporations doing business in Mexico must directly
      and indirectly deal with the Mexican legal system, even if they do not have a local physical presence.
      Businesses might encounter Mexico's system through an international contract—even one to be
      wholly performed outside of Mexico—if a Mexican company or individual is also a party. Such
      contracts may cover a wide variety of legal relationships, including distribution of products, the
      granting of franchises, or the transfer of technology.


•     Accordingly, people and entities doing business in Mexico should have at least a general working
      knowledge of its legal system. International legal counsel with clients doing business in Mexico
      should have a more detailed knowledge of Mexican practices, laws and courts. All should understand
      that if they are to accomplish their objectives they must work within the system, not against it.



B. Civil Law and Comparison to Common Law

•     Mexico is a so-called “civil law” country, while some other countries such as the United States of
      America, Canada, and England are “common law” countries. Unlike common law courts, Mexican
      courts do not follow “stare decisis” or precedent in the common-law sense. Furthermore, under the
      Mexican system there are no trials by jury.


•     The origins of Mexico's legal system are both ancient and classical, based on the Greek, Roman,
      Spanish and French legal systems. Due to this background, our reliance in form over substance is
      usually over-estimated. Although the Mexican system shares more in common with other legal
      systems throughout the world—especially those in Latin America and continental Europe—than it
      does with the U.S. legal system, after NAFTAʼs adoption, Mexico has modeled certain legislation after
      U.S. law and practices (antitrust and environmental, among others). Likewise, Mexicoʼs participation
      in the OECD and other international groups (e.g. the United Nations Commission on International
      Trade Law “UNCITRAL”) has led to the to implementation of business practices and legislation in
      accordance with international standards. Some examples of the above are the adoption of the
      UNCITRAL Model Laws on International Commercial Arbitration, Transnational Insolvency and
      Electronic Commerce.



C. Federal and State Legislation

•     The current Federal Constitution was enacted on February 5, 1917, and has undergone many
      amendments since then to adjust to the changing realities of the country. The Constitution has been
      amended continuously, especially during the last 30 years, adapting to Mexicoʼs full democracy
      integration into the world trade arena.


•     The Constitution outlines a system where most major areas—including commerce, natural resources,
      labor, mining, telecommunications, federal crimes and federal taxes—are reserved for regulation only
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by legislative action of the Federal Congress. Given that states may not implement laws in those
     areas, federal laws on such matters apply uniformly throughout the country. On the other hand,
     certain specific areas (education, health, environment, etc.) are subject to shared-authority among the
     federal, state and local level of government.


•    States have their own Constitution, as well as their own civil and criminal codes for local matters.
     Likewise, States legislate on local operating permits and environmental matters that are not otherwise
     reserved for federal legislation. Municipalities issue zoning and land use regulations and levy real
     estate taxes.




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III.      Judicial System
A. Mexican Courts & Litigation
1.        Federal Courts

Mexican courts are divided between federal and state levels of government. The 11-Justice Mexican
Supreme Court of Justice is the highest Court within our country. The Mexican Supreme Court sits either
in bloc (Pleno) or as a 5-member Chamber. The First Chamber deals with civil and criminal issues while
the Second Chamber deals with Administrative and Labor matters. One Justice is appointed among
his/her peers as a 4-year President. The President of the Supreme Court also serves as President of the
Federal Judiciary Council, which oversees and monitors ethical and administrative tasks of Federal
Judges and Magistrates. The Mexican Supreme Court has reserved jurisdiction itself to the most
important issues of constitutional law: (i) unconstitutionality of laws, regulations and treaties in those
parts where there has not been a previous and clear precedent; (ii) direct interpretation of the
Constitution; (iii) constitutional actions or controversies brought by other powers of the state (Legislative
or Executive).

Below the Supreme Court remain the Collegiate Circuit Courts, Unitary Circuit Courts and Federal District
Courts. Federal courts mostly deal with amparo actions, federal crimes, commercial and bankruptcy
cases and federal civil cases. Normally, federal courts have specialized subject matter jurisdiction but it is
not uncommon that they cluster all those subject within themselves. The constitutional suit or “amparo
proceedings” is the federal lawsuit commenced by a person (natural or legal entity) when there is a
violation of rights by a governmental authority. Filing a constitutional action is a right of a person that is
subject to high-technical scrutiny. The main principles of this action are: (i) it may only be asserted
against acts of authorities; thus, (ii) it is an action of a person against abuse of governmental deeds in any
of its spheres—Legislative, Judicial or Executive; local, state or federal; (iii) it is exceptional in nature and
normally there has to be an exhaustion of ordinary means of challenge; (iv) the individual involved must
provide evidence showing having been personal and directly “affected in its rights” or “expected rights.”

Amparos deal with constitutional issues. The amparo proceedings may be “direct” or “indirect.” Collegiate
Circuit Courts hear “direct amparos”. Direct amparos are filed against resolutions or judgments that end a
jurisdictional (labor, administrative and civil) procedure. Direct amparos most closely resemble an
ultimate challenge. On the other hand, District Courts hear “indirect amparos,” which result in a speedy
trial. Judgments rendered by District Courts may be challenged through a federal appeal that will be
heard by a Collegiate Circuit Court. Indirect amparos are highly technical and, basically, will be filed
against (ii) direct violations of individual rights; (ii) final resolutions not rendered by labor, administrative
and civil courts; (iii) irreparable harm caused in a judicial proceedings; and, (iv) acts or laws that have
been applied for first time in detriment of the individual.

The Federal Judiciary (through the Supreme Court and the Collegiate Circuit Courts) may create binding
precedents known as “jurisprudence” (jurisprudencia). To create jurisprudence there must be five-non-
interrupted cases resolved in the same sense. Likewise, jurisprudence is created when the Supreme
Court resolves a “contradiction” held between two or more Collegiate Circuit Courts to settle for once and
all the proper binding precedent.

One of the most attractive features of the amparo is the possibility of obtaining a stay of proceedings or
court injunction. In no other area of law is a “stay of proceedings” more widely used with more precedent
created than in amparo proceedings. Thus, to be able to obtain an injunction or “suspension” as called in
Mexico is normally the appeal for lawyers to file an amparo. Any litigation undertaken in Mexico, whether

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in the private or public sector, will inevitably expose the parties involved to an amparo—what it is and how
it works.

There has been a quite recent amendment to the Mexican Constitution related to amparo
proceedings that will give rise to a new Amparo Law. The amendment is currently in the
process of being approved by at least 17 States of the Federation before becoming effective. If
approved, a new amparo law will be enacted with important amendments in the following topics:
(i) standing; (ii) jurisdiction of the circuits to create legal precedents; (iii) modifications of the 5-
precedent rule of binding precedents or jurisprudence; (i) to incorporate those human rights set
forth in international treaties.

Mexico, particularly in its larger cities, is experiencing a trend of increasing judicial specialization: judges
presiding over specific areas. In larger cities, where this trend is more apparent—such as Mexico City,
Monterrey and Guadalajara—there are specialized courts for civil and commercial, labor, criminal, and
administrative cases. Nevertheless, despite the shift towards specialization, all cities still have a multi-
area judge or magistrate charged with resolving civil, commercial, criminal, labor, and administrative
cases. Because multidisciplinary judges are responsible for presiding over such a broad swatch of cases,
they often lack the comprehensive knowledge specifically necessary to be effective in any particularly
specialized or highly regulated area.

Furthermore, Federal District Courts also hear cases as trial courts in commercial and federal civil cases.
Although commercial law is federal in nature, a constitutional provision authorizes dual-jurisdiction; i.e.
that both local and federal courts can hear commercial cases. Consequently, it is very common for local
courts to try the majority of such cases due to the fact that local courts outnumber federal courts and that
federal courts are devoted primarily to amparo proceedings. When federal courts hear federal civil or
commercial cases the Unitary Circuit Courts act as Court of Appeals.

Finally, bankruptcy is another jurisdiction that Federal Courts have absorbed. Thus, trying a bankruptcy
case (either as reorganization or bankruptcy) has to be filed before a federal court.

2.        The Federal Judiciary Council (Consejo de la Judicatura Federal “FJC”)

The FJC monitors performance of all members of the federal judiciary, except for the members of the
Supreme Court of Justice, to ensure propriety and compliance with ethics standards. There are 7
members of the Council headed by the President of the Supreme Court of Justice.

Unlike other countries, federal judges are not “elected” in Mexico but rather are appointed through a
selection process conducted by the FJC. Being part of the full judiciary for an extensive amount of time
typically serves both as a baseline qualification and manner to flag potential candidates. Low-salaries for
the Federal Judiciary—a vital fact that informs oneʼs understanding or justifying corruption—is slowly
becoming a reminiscence of the past. Currently, the Federal judiciary at all levels is well-paid. This fact
overrides the possibility for a Judge to have alternative sources of income that are currently forbidden.
Judges can participate in academic activities and lecturing as such.

3.        State Courts

State or local courts (i.e., courts within the Federal District) are usually devoted to civil and commercial
cases and they specialize depending upon the subject matter: family, leases, wills, and normal civil and
commercial cases. Depending upon the amount involved there are minor courts whose judgments are
not subject to appeal.

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Local Courtsʼ Judgments are subject to appeals before the Superior Court of Justice of each state and the
Federal District. Local/State Courts depend upon the government of each state. Since the budget of
each state so varies, then, salaries of Judges do too. Likewise, appointments differ form state to state.
Most of the states have a surveillance authority to monitor ethical and proper performance of Judges.

4.        Court Clerks

Federal or local judges have an extensive workload. It is not uncommon for a Judge to handle between
800 and 1000 dockets every year that could last from simple collection cases to very complex issues of
law. Likewise, proceedings are largely written and, therefore, the “day in court” as known in other
countries has not the same meaning in Mexico. Hearings are not normally presided by the Judge but
rather by the Court Clerk or Secretary to record the appearances and arguments in a hearing or can
certify as to the content of a docket. This flaw will change in the near future at least in the criminal area
due to important amendments within the Mexican Constitution that makes compulsory for the Judge to be
present in all hearings. Court clerks may prepare drafts of important rulings or the judgment itself.
However, the content of the judgment is the Judgeʼs primary responsibility. This activity provides Court
Clerks sufficient experience that serve them to escalate in the judiciary until such timing that they can be
appointed as Judges.

5.        District Attorneys

Public prosecutors or District Attorneys (Ministerio Público) are relevant actors in criminal proceedings as
shown below but they play certain role in bankruptcy, family, estate, and amparo proceedings. They
speak for the general public. In reality, it is odd that public prosecutors take a leading role in those
proceedings since they usually devote their time to criminal cases and their importance is underestimated
in those areas outside such scope.

6.        Administrative and Tax Courts

Administrative and Tax Courts have become more important since there has been an important growth in
governmental activity in all spheres: federal, state and local. Likewise, there has been an increasing
trend to increase jurisdiction to administrative and tax courts in order to decrease the workload of the
federal district courts. The Tax and Administrative Justice Court (Tribunal Federal de Justicia Fiscal y
Administratíva “TFJFA”) is comprised of a Superior Chamber located in the Federal District and twenty-
one Regional Chambers located within Mexico. The Tax and Administrative Court has jurisdiction to hear
cases related to definitive resolutions rendered in administrative law and federal taxes and general
ordinances different from regulations.
It is worth mentioning that most administrative authorities can serve as self-review authorities if the
individual challenges the resolution so rendered through the review-recourse. After this challenge, the
individual could normally file an action/challenge before the Tax and Administrative Court as set forth
above. Likewise, most states have a State Administrative Court dealing or that deals with resolutions
rendered by local/State authorities.

B. Criminal Law

•    Criminal law in Mexico has both Federal and State nature depending certain features provided by
     statute. Thus, there is a Federal Criminal Code and Criminal Codes for each of the thirty-one states
     and the Federal District. Notwithstanding, there are federal and state statutes that set forth criminal
     provisions although not inserted within the criminal code in such areas as tax, labor, trademark and


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06.2011
copyrights laws. Likewise, there is the same number of Procedural Criminal Codes. State Criminal
     and Procedural Codes were mostly modeled after the Codes of the Federal District.


•    Mexican criminal law follows international standards and protects rights under the Constitution such
     as: (i) there is no crime unless specifically provided by law “nullum crime sine lege penale”; (ii) a
     Court of law is the only body entitled to impose punishment; (iii) no retroactive application of criminal
     laws “ex-post facto laws”; (iv) the benefit for the accused to receive better conditions derived from ex
     post facto laws; (v) all persons are innocent unless proven guilty (guilty beyond “reasonable doubt”);
     (vi) in case of doubt, the accused must be acquitted/“in dubio pro reo”; (vii) possibility to obtain bail
     when no serious crimes are involved; (viii) the right of the accused to remain silent during the
     proceedings; (ix) the burden of proof relies under the public prosecutor; (x) the right to be put face-
     to-face (careo) before the persons that testify against the accused; (xi) the right to offer all pertinent
     evidence available; (xii) the right of the accused not to provide statements before the police and not
     to remain for more than 48 hours under the District Attorneyʼs detention except for organized crimes.
     This also encompasses an express prohibition and severe punishment of any torture or similar
     practice (xiii) the right to receive from a competent Court of Law an order for holding a criminal
     procedure (auto de vinculación a proceso) before a Judge or to be released –subject to further
     investigation-; (xiv) the right to have a defense counsel and if defendant refuses to appoint one, then
     the State will appoint a public defense attorney; and (xv) the right to be judged between four months
     and one year.


•    Recently there was an important amendment to our Constitution to forbid the death penalty that was
     held for many years in our Constitution as a reminiscence of the past since neither the Federal nor
     the State Criminal Codes so implemented. Likewise, there is no life sentence as such. In the same
     context, Mexico has neither jury trials nor grand jury to make formal indictments.


•    The Constitution provides that a person that is accused for committing a crime has the right to obtain
     bail, subject to there being no serious crime involved. Federal legislature has followed a different
     path from certain State Statutes. For example, the Federal Procedural Criminal Code sets forth a
     detailed and exhaustive list of crimes that are considered serious where no bail will be allowed. On
     the contrary, the Federal District Code of Criminal Procedural follows a simpler rule whereby if the
     sum of the minimum and maximum imprisonment punishment divided into two neither equals nor
     surpasses five years, then, bail is allowed (i.e. 3 to 9 years /2 = 6 years; therefore, the Judge will
     deny bail).


•    Currently, the main parties within the criminal proceedings are the public prosecutor or District
     Attorney, the defense counsel (defending the accused) and the Judge. Public or state defense
     counsel are subject to workload and, unfortunately, time to defend effectively is minimal. Public
     prosecutors (Ministerio Público) play a key role in the criminal proceedings since they have a dual-
     role. Once a crime has occurred notice should be given to the Public Prosecutor that will act as an
     investigatory body and public faith authority. It has the authority to grant bail in those cases that no
     serious crimes are involved and the person is under his/her detention. The public prosecutor will
     have a group of policemen and investigators under his/her command. Once all investigations have
     been carried out (including depose witnesses, experts and sub-poena relevant persons), then, it will
     formally indict the accused person before a competent criminal Court. Once this indictment has
     occurred (ejercicio de la acción penal), a competent criminal court will issue an arrest warrant (orden
     de aprehensión), to detain the accused and put him/her before the trial-criminal court.




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06.2011
•    Mexican lawmakers have tried to modernize criminal law and have implemented several important
     amendments that tend to balance the rights of an accused person vis-a-vis the victim of a crime.
     Currently, the “victim of a crime” has the right to be informed, collaborate with the District Attorney in
     the proceedings, to offer evidence, to receive medical and psychological treatment and receive relief
     in the form of monetary compensation. In the same token, other important amendments are aimed to
     make federal criminal proceedings faster. As part of this speedy trial, there is a new emphasis in oral
     and Judgeʼs intervention to ensure that rights of the accused are duly respected. Other States are
     reproducing this model in order to guarantee the respect to the rights to a fair trial and due process.


•    Due to a recent constitutional amendment launched in mid 2008, the main features of criminal law will
     modify drastically to have a more accusatory (in contrast to inquisitive) and to favor orality rather than
     written proceedings.


C. General Comments about Litigation in Mexico

•    Mexico is not per se a litigious society. Largely because litigation is quite expensive (even though
     courts do not charge filing fees), awarding damages and lost profits is not an easy endeavor, and
     there are no punitive damages; proceedings tend to be quite lengthy with a strong reliance on form
     rather than substance, and it is quite difficult to recover legal fees. Likewise, Mexican law provides a
     different source for trying cases: civil, commercial, administrative, criminal, etc. although trial practice
     has not reached the complexity and degree of specialization that other countries currently have.
     Thus, a civil trial-lawyer will cover family, monetary, real estate, estate, professional malpractice and
     related items. Commercial lawyers will encompass corporate litigation, bankruptcy, breach of
     contracts, collaterals foreclosures and alike. Notwithstanding, it is more common to find true
     specialists although they will also manage to handle other areas of law within certain degree of
     expertise. Thus, there are three main types of legal counsel: (i) general practitioners; (ii) small-
     litigation boutiques; and, (iii) one-stop or full-service law firms. Contingency fees are not uncommon
     and are mostly used for collection cases. Combined fix-rates are more used nowadays.


•    However, there has been an increasing trend towards specialization and trying new cases.
     Legislative changes have created a new kind of State liability (direct and objective) in federal, state
     and local spheres. Unfortunately, it will only encompass “irregular administrative acts” and do not
     include acts or omissions of the legislative and judicial errors. Another area that has experienced
     certain potential is actions for minority protection that are not followed under labor but rather civil
     laws. Likewise, there is a strong support to introduce newer and more effective rules for “class
     actions”. Beware of the fact that most civil and commercial cases could end in a criminal court since
     they could be subject to certain strategy from one of the parties to press the other to settle. One
     common adage under Mexican law is “a bad settlement is better than a good litigation”.


•    Litigation in Mexico differs from trying a case abroad. There are no jury-trials. Proceedings are
     written-based rather than holding the “day-in-court” as known in Anglo-Saxon countries. Pre-trial
     discovery is very limited and not even close to what the practice in other countries is. Rules of
     procedure are mostly considered a matter of public order, and, therefore, there is very little scope to
     modify the statutory rules. Preparing a complaint (or a response) is probably the most important
     activity during the proceedings since once filed it cannot be subject of subsequent modification or
     amendment, unless there has not been service of process to the other party (in the case of the
     complaint). The Court will not grant extensions to answer a pleading or otherwise since legal terms
     are mandatory. Cases are more written-based than oral, and therefore, it is important to write
     pleadings with clarity. There are no amended complaints or responses.
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06.2011
•    Due to the fact that Mexican law has limited discovery and there are strict rules as to the filing of
     evidence and cross-examination and no prior deposition of witnesses, procedures therefore tend to
     follow more formal or legal defenses than important fact-disclosure. Among those formalities it is very
     frequent to challenge the authority of the attorney-in-fact appearing on behalf of one of the parties. In
     this token, powers of attorney coming from abroad are a common source of challenge and, therefore,
     it is important to pay special care when drafting them.


•    Another important difference from trying cases in other countries is the fact that Courts will not award
     punitive, consequential or indirect damages. Mexican law follows a “direct and immediate
     consequence” of the breach-test. This applies for both damages and lost profits. In practice, it is
     difficult to obtain multi-million dollar awards on damages unless there is a “liquidated damages
     clause” that will avoid proving the existence of damages and would rather be aimed to evidence the
     existence of the breach, and hence, the penalty application. Arbitration cases pose a little more
     damage-flexibility as to awarding damages but always subject to such “golden rule”.


•    Litigation in Mexico is not an easy task. Mexicoʼs statutes still rely heavily on formalistic issues over
     the substance of the dispute. Judges are work loaded and the time to be devoted to the case is
     minimal. Thus, there is a huge task for trial-attorneys to call the attention of the Judges and Court
     Clerks to address the merits of the case in order not to have the case dismissed for formalistic issues
     that will serve for the “statistic” but not for judgment-quality. Legal costs are outdated. Trying cases
     outside of the big three cities becomes much more difficult for the lack of experience of the judiciary
     for certain complex business contracts or torts. Thus, having all these ingredients altogether make it
     difficult for a business person (and even to non-Mexican legal counsel), to understand the inner works
     of litigation in Mexico. In fairness we must say that the Judiciary is making its best efforts to improve
     facilities to dignify administration of justice, as in the case of the Federal District.


D. Arbitration

•    The complexities of a global world and the difficulties that may pose to convince a foreign party to
     have a forum choice-clause to Mexican courts, have led to choose arbitration to resolve disputes in
     commercial transactions. Mexico is an arbitration-oriented country that has modeled its Commercial
     Code to international standards (mainly the 1985 UNCITRAL Model Law. Mexico is a party to both
     the 1958 New York Convention for the Recognition and Enforcement of Foreign Arbitral Awards and
     the 1975-Inter-Amercian Convention on International Commercial Arbitration).


•    International treaties ratified and adopted by Mexico, current legislation and an increasing and open-
     minded support of the Mexican Courts will have to provide a growing confidence that arbitration
     agreements and awards are to be recognized and enforced. There is an increasing conscious that
     only in exceptional circumstances these will be either set-aside or their recognition and enforcement
     denied. Foreign judgments also can be indeed enforced although they follow different rules since
     there is no international treaty dealing with those issues as, by contrast, the 1958 New York
     Convention.


•    There are several domestic and foreign organizations specialized in arbitration such as the Mexican
     Arbitration Center (Centro de Arbitraje de Mexico “CAM”), Mexican Chapter of the International
     Chamber of Commerce (“ICC”), and the Arbitration Commission of the National Chamber of
     Commerce – (Cámara Nacionál del Comercio “CANACO”) that have been very active in fostering
     arbitration in our country.


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06.2011
•    There has been a quite recent amendment in January 2011 to foster and improve arbitration – related
     issues, such as assistance of courts, referral to arbitration, provisional measures, setting aside
     proceedings and recognition and enforcement of arbitration awards.




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IV. Important Positions to Know
1.        Lawyer

•    Mexican lawyers normally course a five-year law school program. While studying or immediately after
     graduating from law school, individuals usually work for a firm or government agency as a clerk
     (pasante) until they write a thesis and pass an oral exam to become licensed (Abogado or Licenciado
     en Derecho). After passing the licensing exam (that may be administered by the law school
     attended), individuals are addressed as Licenciado, abbreviated as "Lic." when written before the
     attorneyʼs name. There are no independent bar exams, and the Ministry of Education grants the
     licenses (cédula profesional) to practice law.


•    In Spanish “licenciado” is the first degree awarded at the university level; it corresponds to a
     bachelorʼs degree. Although there are “licenciados” in numerous academic disciplines such as
     economics, history, and business, the title is generally identified with the law degree.


•    Although teaching techniques are evolving, current teaching in law school is based on a modern
     version of the lecture method, which allows students to ask questions and engage in classroom
     discussion. Because case study is not part of the curriculum, the Socratic method is unknown,
     although there has been an increasing interest for such system and a new impetus for gathering a
     master degree-abroad and mainly in non-Spanish speaking countries. This is specially so in certain
     areas where oral skills and rethoric are essential (such as criminal law and arbitration).


•    Mexican lawyers are licensed to practice throughout Mexico, not in individual states. There is no
     integrated bar or requirement to join a bar association. Rather, bar associations in Mexico operate as
     voluntary associations. Thus, there is not a bar exam that has to be taken or admitted, but there is
     current discussion to that end. Therefore, the “disbarment” concept does not resemble to the US-
     English concept and rather has to be treated as a civil-criminal behavior. The Mexican Bar
     Association (Barra Mexicana de Abogados “BMA”) is the more serious and recognized bar
     association.



2.        Notary Public

•    Notary Publics in Mexico are empowered by local governments with the authority to assert “publica
     fides” upon the events they witness or as compulsory formality to certain legal acts.


•    Becoming a Notary Public is a lengthy process although in some states this may vary. In Mexico City
     becoming a notary public implies an approval exam of his “peers” and members of the government.
     In other entities, upon invitation by the government, a lawyer who has apprenticed for a number of
     years with another Notary Public takes an exam and, if he passes, receives a governmental permit to
     practice.




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06.2011
•    A number of documents and agreements need to be created or validated by a Notary Public in order
     to be fully enforceable in Mexico - mainly real estate ownership transfers, real estate guaranties,
     incorporations, powers of attorney and wills.


•    Notary Publicsʼ actions are documented through the issuance of public deeds. In most cases, a
     Notary Public will issue a first true copy of a public deed and thereafter as many certified copies as
     necessary. First transcripts are of utmost legal importance and normally should be recorded with the
     Public Registry to produce effects vis-á-vis third parties and be guarded carefully.


•    In most of the Mexican territory Notary Publicʼs fees are subject to rates; however, within legal limits,
     fees may be negotiated on a case-by-case basis.


•    Mexico allows commercial public brokers (corredores públicos) to serve as “notary publics” for
     commercial transactions (i.e., creation of commercial companies), appraisers, and mediators and
     arbitrators. This alternative for providing legal form to certain commercial transaction had a new
     impetus after NAFTA entered into effect. Notwithstanding, commercial public brokers have not been
     able to become a true alternative to notary publics yet and for certain true-nature transactions will not
     ever be (i.e. real-estate purchase, creation of regular mortgages, etc.).



3.        Customs Broker

•    To the extent that companies involved in business in Mexico have some foreign trade operations, it is
     important that those operations strictly comply with applicable rules on imports and exports.


•    The customs broker is the person responsible for ensuring that the proper paper work and tariff
     classifications are used for products imported or exported by the company.


•    Thorough analysis of rules of origin is key to avoiding mistakes that may cause additional duties, fees
     and possibly even fines to be charged in the future.



4.        Accountants and Auditors


•    Although this should not come as a surprise, it is important for companies to keep proper accounting
     books and records and to, inter alia, file tax returns in a timely matter. Under Mexican law accounting
     records must be kept for no less than five years for tax matters, and ten years in respect to that
     information of a commercial nature.


•    As a general rule, a formal external audit of financial statements is voluntary; however, if a business
     exceeds certain thresholds of income or number of employees, such audit will become compulsory for
     tax purposes.




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V.        Practical Differences about Doing Business
A. Introduction
Despite Mexicoʼs openness to trade and investment, it has its own unique traditions, culture, and way of
doing business. Some differences have a tremendous impact on the day-to-day aspects of doing
business with Mexico and inevitably give rise to certain clashes on the part of both the businessperson
from abroad and his or her Mexican counterpart.

At worst, these clashes mount to the point where otherwise-desirable ventures fall apart, at great cost to
all participants. By recognizing and understanding the differences in conducting business in Mexico we
can keep cross-cultural clashes to a minimum, and increase the chance of success.

This chapter does not attempt to provide a complete answer to all cross-cultural issues that arise when
persons from other countries do business in Mexico. Such a definitive work would require an extensive
study and hundreds of pages. Rather, it provides an overview of some of the cultural differences that may
be encountered and offers some simply suggestions to guide around some of the most common pitfalls.


B. Tips on Dealing with your Mexican Counterpart

1.        Avoid Misunderstandings

Misunderstandings between businessmen and women from abroad and their Mexican counterparts
generally fall into two categories: substantive and incidental misunderstandings. A substantive
misunderstanding arises when one party fails to agree on the general purpose of a joint activity or ignores
the consensus that it reached. The classic and most extreme example occurs when one party acts to
build a successful long-term enterprise out of the venture, while the other treats the investment as a
vehicle for short-term profit.

Substantive misunderstandings also typically occur when the parties fail to perform reasonable due
diligence or fail to take the normal precautions that would prevail in a purely domestic commercial
relationship. Surprising numbers of sophisticated business people tend to drop their guard when
approached by a cultured foreigner speaking fluent English and promising great riches. Substantive
misunderstandings generally can be avoided by realizing that doing business in Mexico poses the same
risk, as does anywhere else, and acting accordingly.

Incidental misunderstandings are far less significant, but much more likely to occur. Incidental
misunderstandings generally flow from the different perspectives that each party brings to the
relationship, and the fact that one party will be dealing in a foreign language.

The best remedies tend to be time, flexibility, and seeing that key personnel in both countries have
sufficient contact with their counterparts to become familiar with each otherʼs way of doing business. The
comparatively nominal investment of bringing key Mexican personnel to oneʼs home office from time to
time can pay handsome dividends, as can periodic travel in the other direction.

As for language, the first step toward solving the problem is to recognize it exists. Many Mexican
professionals speak English with such a high degree of fluency that persons from other countries, say the

                                                    15
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United States, lose sight of the fact that a language barrier, albeit a very slight one, exists. This oversight
can be dangerous. While everyone may appear to be on the same level in a fast-paced discussion, all
parties may not always understand certain points. As a result, parties sometimes leave the conversation
with different understandings of what is to occur.

There are at least two simple ways to minimize potential misunderstandings. First, before holding an
important conversation (particularly where the conversation will occur by telephone), provide the
participants in advance with a written outline of the points to be covered. This gives everyone an
opportunity to think about the same issue – as opposed to figuring out what the issues are – when the
conference begins. Second, following up with a written confirmation of the plan of action agreed upon,
the advice given, etc. ensues that no miscommunication has occurred and that all parties are on the same
page.

2.        Learn the Local Business Schedule

Although businesses in Mexico operate on a fairly standard schedule, it is one that is different from that
followed in many other countries. The normal business day in Mexico City begins around 9:00 a.m.
Lunch runs from 2:00 p.m. to 4:00 p.m. The day ends at 7:00 p.m. or later. Other cities within Mexico
even closed their business during lunch time. Likewise, the “sense of responsiveness” may be quite
relaxed in cities different from Mexico City, Monterrey and Guadalajara.

Persons doing business in Mexico are well advised to obtain a Mexican calendar to prepare for
differences in holidays observed; business tends to slow down significantly during the school holidays
around Easter and Christmas.

3.        Dress Appropriately

Mexicans generally tend to dress formally and are well groomed. If you wish to make a good impression,
it is important that you follow suit. This is particularly true at the outset of a relationship when each party
is extremely attuned to the nonverbal signals given off by his or her potential partner. In Mexico, it
generally is appropriate for men to wear suits to most events including informal, social gatherings. When
in doubt, it is better to overdress.

4.        Take the Time Necessary to Build Personal Relationships

This point cannot be stressed enough. The businessperson who fails to establish solid personal
relationships in Mexico typically also fails to establish successful business relationships. The business
person from abroad usually is ready to get down to business without establishing a personal relationship
with his or her counterpart. This approach is complemented by a devotion to extensive contracts that
seek to cover every possible contingency and is facilitated by the comparative ease with which one can
obtain information about companies in other jurisdictions such as the United States or Western Europe.

Business in Mexico is less an objective in and of itself and more an extension of the businesspersonʼs life
as a whole. The Mexican businessperson is uncomfortable doing business with someone with whom he
or she does not also have a personal relationship. The Mexican will rely less on negotiating a contract
the size of a phone book and more on a simple contract coupled with a personal relationship of trust
within which problems can be resolved.

Developing this trust can be somewhat difficult in light of the comparative dearth of information that is
available about Mexican companies. In the end, a decision on risk may need to be taken and have faith
that any problems that arise can be worked out amicably.

                                                      16
06.2011
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Doing business in Mexico

  • 1. Mexico City Monterrey Paseo de los Tamarindos 150-PB Ave. Ricardo Margain 444 Bosques de las Lomas Torre Norte Mezzanine A 05120, México, Distrito Federal 66265, San Pedro Garza García, N.L. Tel. +52 (55) 5091-0000 Tel. +52 (81) 8220-1500 DOING BUSINESS IN MEXICO PREFACE .................................................................................................................................................... 1 I. ESSENTIAL FACTS ABOUT MEXICO................................................................................................ 2 A. Geographic and Historic Information ....................................................................................................... 2 B. Key Economic Information ....................................................................................................................... 2 C. Federal Government................................................................................................................................ 3 II. LEGAL SYSTEM ................................................................................................................................. 4 A. General .................................................................................................................................................... 4 B. Civil Law and Comparison to Common Law ............................................................................................ 4 C. Federal and State Legislation .................................................................................................................. 4 III. JUDICIAL SYSTEM ........................................................................................................................... 6 A. Mexican Courts & Litigation ..................................................................................................................... 6 1. Federal Courts .................................................................................................................................. 6 2. The Federal Judiciary Council (Consejo de la Judicatura Federal “FJC”) ........................................ 7 3. State Courts...................................................................................................................................... 7 4. Court Clerks...................................................................................................................................... 8 5. District Attorneys .............................................................................................................................. 8 6. Administrative and Tax Courts ......................................................................................................... 8 B. Criminal Law ............................................................................................................................................ 8 C. General Comments about Litigation in Mexico ...................................................................................... 10 D. Arbitration .............................................................................................................................................. 11 IV. IMPORTANT POSITIONS TO KNOW ............................................................................................. 13 1. Lawyer ............................................................................................................................................ 13 2. Notary Public ................................................................................................................................. 13 3. Customs Broker ............................................................................................................................. 14 4. Accountants and Auditors ............................................................................................................. 14
  • 2. V. PRACTICAL DIFFERENCES ABOUT DOING BUSINESS ............................................................. 15 A. Introduction ............................................................................................................................................ 15 B. Tips on Dealing with your Mexican Counterpart .................................................................................... 15 1. Avoid Misunderstandings ............................................................................................................... 15 2. Learn the Local Business Schedule ............................................................................................... 16 3. Dress Appropriately ........................................................................................................................ 16 4. Take the Time Necessary to Build Personal Relationships ............................................................ 16 5. Be Polite ......................................................................................................................................... 17 6. Expect Generosity and Be Prepared to Reciprocate ...................................................................... 17 7. Understand the Importance of Meals and Other Social Events...................................................... 17 8. Select the Appropriate Means of Communication .......................................................................... 18 9. Prepare for Uncertainty and Delay ................................................................................................. 18 10. Lack of Guidance.......................................................................................................................... 18 11. Need for Bureaucratic Approval ................................................................................................... 18 12. Develop Realistic Time Lines ....................................................................................................... 19 13. Need for Regular Follow-Up ......................................................................................................... 19 14. Allow More Time ........................................................................................................................... 19 VI. TRADE AND INVESTMENT TREATIES ......................................................................................... 21 A. Introduction ....................................................................................................................................... 21 B. Free Trade Agreements .................................................................................................................... 21 1. General Overview ........................................................................................................................... 21 2. Free Trade Agreements in Effect ................................................................................................... 21 3. Fundamental aspects of existing free trade agreements. .............................................................. 23 4. Bilateral Investment Treaties .......................................................................................................... 24 VII. REGULATION OF FOREIGN INVESTMENT .................................................................................. 28 A. Foreign Investment ............................................................................................................................ 28 B. Economic Activities that are Restricted under the FIL........................................................................ 28 C. Investment by Foreign Corporations .................................................................................................. 29 D. Neutral Investment ............................................................................................................................. 29 E. National Foreign Investment Registry ................................................................................................ 29 F. Acquisition of Real Estate .................................................................................................................. 30 1. Mexican Companies ....................................................................................................................... 30 2. Mexican Corporations without Foreign Investment ........................................................................ 30 3. Non-Mexican Individuals ................................................................................................................ 31 VIII. CORPORATE STRUCTURES FOR DOING BUSINESS ............................................................... 32 A. Representative Office ......................................................................................................................... 32 ii 06.2011
  • 3. B. Branch Office ..................................................................................................................................... 32 C. Partnership Venture (a.k.a. “Contractual Joint Venture”) ................................................................... 33 D. Corporate Presence ........................................................................................................................... 33 E. Limited Liability Company (Sociedad de Responsabilidad Limitada “SRL”) ...................................... 33 F. Stock Company (Sociedad Anónima “S.A.”) ...................................................................................... 33 G. Variable Capital Companies (Capital Variable “CV”) ......................................................................... 34 H. Process for Incorporating a Mexican Company ................................................................................. 34 1. Select Corporate Name .................................................................................................................. 34 2. Charter and By-laws ....................................................................................................................... 34 3. Appearance before a Notary Public. Registration .......................................................................... 34 4. Directors, Statutory Auditor and Officers ........................................................................................ 35 5. Post Incorporation Registrations .................................................................................................... 35 6. Operating a Mexican Company ...................................................................................................... 36 7. Minority Rights in a Stock Corporation (SA) ................................................................................... 38 8. Conflict of Interest .......................................................................................................................... 39 9. Distribution of Earnings and Payment of Dividends. Legal Reserve ............................................. 39 10. Accounting Records and Book-keeping ....................................................................................... 39 11. Mergers and Spin-offs .................................................................................................................. 39 12. Dissolution and Liquidation of a Mexican Company ..................................................................... 41 13. Corporate Governance Issues...................................................................................................... 41 14. Publicly Traded Companies ......................................................................................................... 42 IX. GENERAL PRINCIPLES OF CONTRACT LAW .............................................................................. 44 1. General Principles of Contract........................................................................................................ 44 2. Construction of a Contract .............................................................................................................. 45 3. Termination of an Agreement ......................................................................................................... 46 4. Contractual Liability ........................................................................................................................ 48 5. Election of Jurisdiction .................................................................................................................... 49 6. Submission to Local Courts ............................................................................................................ 49 7. Arbitration ....................................................................................................................................... 49 8. Confidentiality Agreements ............................................................................................................ 49 9. Non-Compete Provisions ............................................................................................................... 50 10. Asset vs. Stock Acquisitions ......................................................................................................... 50 X. E-COMMERCE .................................................................................................................................. 52 A. Applicable Laws and Jurisdiction ....................................................................................................... 52 B. E-Commerce Law .............................................................................................................................. 52 C. On-line Consumer Protection ............................................................................................................. 53 D. Electronic Invoices ............................................................................................................................. 53 E. Electronic Evidence in Judicial Proceedings ...................................................................................... 53 iii 06.2011
  • 4. F. Domain Name Registration ................................................................................................................ 54 XI. COMPETITION LAW ........................................................................................................................ 55 A. General .............................................................................................................................................. 55 B. Specific Practices or Restraints ......................................................................................................... 55 1. Absolute Monopolistic Practices (Horizontal Restraints) ................................................................ 55 2. Relative Monopolistic Practices (Vertical Restraints) ..................................................................... 56 C. Concentrations ................................................................................................................................... 57 D. Privatizations, Publications and Opinions .......................................................................................... 59 E. Private Actions ................................................................................................................................... 59 F. Leniency Program and Settlement ..................................................................................................... 59 G. Statute of Limitations ......................................................................................................................... 60 H. Possible Amendments to Competition Regulation ............................................................................. 60 XII. LABOR ISSUES .............................................................................................................................. 61 A. General .............................................................................................................................................. 61 B. Legal Framework ............................................................................................................................... 61 C. The Concept of the Employment Relationship ................................................................................... 61 1. Regulation of employment through written agreements ................................................................. 62 2. Subjects of Employment ................................................................................................................. 62 3. Term of Employment ...................................................................................................................... 62 4. Employer Substitution..................................................................................................................... 63 D. Minimum Terms and Conditions for Rendering Services ................................................................... 63 1. Salary. Base Salary & Integrated Salary ....................................................................................... 63 2. Working Hours ................................................................................................................................ 64 3. Vacations and legal holidays .......................................................................................................... 64 4. Christmas bonus ............................................................................................................................ 64 5. Profit sharing .................................................................................................................................. 64 6. Contractual benefits ....................................................................................................................... 65 E. Collective Labor Relationships ........................................................................................................... 65 1. Unions ............................................................................................................................................ 65 2. Collective Bargaining Agreement ................................................................................................... 65 3. "Contrato-Ley" ................................................................................................................................ 66 4. Internal Working Regulations ......................................................................................................... 66 F. Health and Welfare of Employees at Work Sites ................................................................................ 67 G. Labor Conflicts in Mexico ................................................................................................................... 67 iv 06.2011
  • 5. H. Individual Conflicts ............................................................................................................................. 67 I. Collective conflicts ............................................................................................................................... 68 J. Termination of Employment .............................................................................................................. 69 1. Individual labor relationships .......................................................................................................... 69 2. Collective Labor Relationships ....................................................................................................... 70 K. Social Security System....................................................................................................................... 70 L. Low Cost Housing Fund ..................................................................................................................... 71 XIII. TAXATION ...................................................................................................................................... 72 A. Income Tax ........................................................................................................................................ 72 1. Subjects of the Tax ......................................................................................................................... 72 2. Residency for Tax Purposes .......................................................................................................... 72 4. Determination of the Tax and Rate................................................................................................. 73 5. Offset or Credit of the Tax .............................................................................................................. 73 6. Taxable Income .............................................................................................................................. 74 7. Timing of Accruable Income ........................................................................................................... 75 8. Allowed Deductions ........................................................................................................................ 75 9. Net Operating Losses ..................................................................................................................... 77 10. Tax Consolidation ......................................................................................................................... 77 11. Regime Applicable to Dividends Distributed................................................................................. 78 12. Income Tax Applicable to Resident Individuals ............................................................................ 78 13. Non-Resident Taxation ................................................................................................................. 78 14. Tax Representative ...................................................................................................................... 80 15. Tax Treaties ................................................................................................................................. 81 16. Controlled Foreign Company........................................................................................................ 81 17. Related party Transactions; Transfer Pricing ............................................................................... 82 B. Value Added Tax (“IVA”) .................................................................................................................... 83 1. General Characteristics of the VAT ................................................................................................ 83 2. VAT Rates ...................................................................................................................................... 83 3. Taxed Transactions ........................................................................................................................ 83 4. Persons Required to Withhold the Tax ........................................................................................... 85 5. Obligations of Taxpayers ................................................................................................................ 85 6. Filing of the Corresponding Tax Return.......................................................................................... 86 7. Crediting of the Tax ........................................................................................................................ 86 C. FLAT RATE TAX (“IETU”) ................................................................................................................ 86 1. General Overview ........................................................................................................................... 86 2. Tax Elements ................................................................................................................................. 86 3. Related Issues ................................................................................................................................ 88 D. Other Issues ....................................................................................................................................... 89 1. Obligation to Register with the Federal Taxpayersʼ Registry.......................................................... 89 2. Audits ............................................................................................................................................. 89 3. Late Payment Penalties ................................................................................................................. 89 4. Statute of Limitations ...................................................................................................................... 89 5. State Taxes .................................................................................................................................... 89 v 06.2011
  • 6. 6. Payroll Tax ..................................................................................................................................... 90 7. Real Estate Transfer Tax ............................................................................................................... 90 8. Excise Taxes .................................................................................................................................. 90 9. Tax on Cash Deposits ................................................................................................................... 90 XIV. CUSTOMS ...................................................................................................................................... 91 A. Background ........................................................................................................................................ 91 B. Clearance of Goods ........................................................................................................................... 91 C. Tariff considerations, Regulation Measures and Non-tariff Restrictions ............................................ 91 D. Customs Regimes .............................................................................................................................. 92 E. Customs Violations and Fines ............................................................................................................ 92 F. Customs Brokers and Attorneys ......................................................................................................... 92 G. Dumping ............................................................................................................................................. 93 1. Mexican Legal Framework ............................................................................................................. 93 2. What is Dumping Practice? ............................................................................................................ 93 3. Standing to Petition an Anti-dumping Investigation ........................................................................ 94 4. Injury ............................................................................................................................................... 94 5. Course of the Investigation ............................................................................................................. 95 6. Anti-dumping or Countervailing Duties ........................................................................................... 96 7. Appeals .......................................................................................................................................... 96 8. Review of Anti-Dumping Duties ...................................................................................................... 97 XV. MAQUILADORA (IN-BOND ASSEMBLY PLANTS) AND EXPORT PROGRAMS ........................ 98 A. Overview of Export Programs ............................................................................................................ 98 B. Maquiladoras ...................................................................................................................................... 98 1. Overview ........................................................................................................................................... 98 2. Special Customs Treatment ............................................................................................................. 99 3. Process to Establish a Maquiladora ............................................................................................... 102 4. Maquiladora Sales to the Domestic Market .................................................................................... 103 5. Transfer or Sale of Merchandise .................................................................................................... 103 6. Value Added Tax (Impuesto al Valor Agregado) ............................................................................ 103 7. Transfer pricing in the Maquiladora Industry .................................................................................. 104 XVI. SECURITIES ................................................................................................................................ 107 A. General ............................................................................................................................................ 107 B. Mexican Stock Exchange ................................................................................................................. 107 C. Securities/Public Offers .................................................................................................................... 107 D. Approval and Registration of a Public Offer ..................................................................................... 108 vi 06.2011
  • 7. E. Listing with the International Quotation System of the BMV ............................................................ 109 F. Ongoing Reporting Obligations and other Relevant Information ...................................................... 110 G. Minority Rights ................................................................................................................................. 110 H. Underwriting Agreements ................................................................................................................. 111 XVII. BANKING ..................................................................................................................................... 112 A. General ............................................................................................................................................ 112 B. Authorities ........................................................................................................................................ 112 1. Bank of Mexico ............................................................................................................................. 112 2. Ministry of Finance and Public Credit ........................................................................................... 112 3. National Banking and Securities Commission .............................................................................. 113 C. Protection of the Interests of the Public ........................................................................................... 113 1. National Commission for the Protection and Defense of Users of Financial Services ................. 113 2. Institute for the Protection of Bank Savings.................................................................................. 113 3. Credit Information Entities ............................................................................................................ 114 D. Financial Agents............................................................................................................................... 114 1. Commercial Banks ....................................................................................................................... 114 2. Affiliates of Foreign Financial Entities .......................................................................................... 114 3. Development Banks ..................................................................................................................... 114 4. Non-Banking Financial Agents ..................................................................................................... 114 XVIII. SECURED TRANSACTIONS ........................................................................................................ 116 A. Principles Applicable to Security Interests ....................................................................................... 116 B. Personal Property ............................................................................................................................ 116 1. Personal Guarantee (Fianza) ....................................................................................................... 116 2. Pledge .......................................................................................................................................... 116 3. Trust Agreements ......................................................................................................................... 117 4. Chattel Mortgage .......................................................................................................................... 117 C. Mortgage of Real Property ............................................................................................................... 117 XIX. GOVERNMENT PROCUREMENT .............................................................................................. 119 A. General Scope ................................................................................................................................. 119 B. Contracting Procedures ................................................................................................................... 119 1. Competitive Bidding ........................................................................................................................ 119 2. Restricted Invitation and Direct Award ............................................................................................ 120 C. Execution of a Procurement Contract .............................................................................................. 121 D. Sanctions ......................................................................................................................................... 121 vii 06.2011
  • 8. E. Challenges and Remedies ............................................................................................................... 122 F. Conciliation Process ......................................................................................................................... 122 G. Dispute Resolution ........................................................................................................................... 122 H. Pemex .............................................................................................................................................. 122 XX. INTELLECTUAL PROPERTY ...................................................................................................... 123 A. General ............................................................................................................................................ 123 B. Copyright .......................................................................................................................................... 123 C. Trademarks ...................................................................................................................................... 124 D. Trade Names and Slogans .............................................................................................................. 125 E. Patents ............................................................................................................................................. 125 F. Trade Secrets ................................................................................................................................... 125 G. Franchising and Transfer of Technology ......................................................................................... 126 H. Enforcement ..................................................................................................................................... 126 XXI. IMMIGRATION ............................................................................................................................. 127 A. Introduction ...................................................................................................................................... 127 B. Immigration Status ........................................................................................................................... 127 1. Tourist .......................................................................................................................................... 127 2. Working Visas for Non-Immigrant and for Immigrant ................................................................... 127 3. Permanent Resident (Inmigrado) ................................................................................................. 128 C. Working Visa Options....................................................................................................................... 128 D. General Procedures for Securing Immigrant or Non-Immigrant Visas ............................................. 129 1. Entrance Procedure...................................................................................................................... 129 2. Change of Immigration Status or Characteristic ........................................................................... 130 E. Documentation Requirements .......................................................................................................... 130 F. Extension of Stay in Mexico ............................................................................................................. 130 G. Right to Import Personal Property .................................................................................................... 130 XXII. ENVIRONMENTAL LAWS ........................................................................................................... 131 A. Overview .......................................................................................................................................... 131 viii 06.2011
  • 9. B. Authorities ........................................................................................................................................ 132 C. Areas of Exclusive Federal Jurisdiction ........................................................................................... 132 D. Environmental Impact ...................................................................................................................... 132 E. Air Pollution; the Sole Environmental License LAU .......................................................................... 134 F. Hazardous Waste ............................................................................................................................. 135 G. Soil Contamination and Remediation ............................................................................................... 136 H. Water................................................................................................................................................ 137 I. Environmental Audits and Voluntary Compliance .............................................................................. 139 J. Sanctions .......................................................................................................................................... 140 XXIII. TELECOMMUNICATIONS ........................................................................................................... 143 A. General ............................................................................................................................................ 143 B. Jurisdiction ....................................................................................................................................... 143 C. Radio-frequency Spectrum............................................................................................................... 143 D. Telecommunications Networks ........................................................................................................ 144 E. Satellite Communications ................................................................................................................. 144 F. Value Added Services ...................................................................................................................... 145 G. Re-sellers (comercializadoras) ........................................................................................................ 145 H. Dominant Carriers ............................................................................................................................ 146 I. Broadcasting Services ....................................................................................................................... 146 J. Foreign Investment Restrictions and Investment Mechanisms ........................................................ 146 K. Special Tax ...................................................................................................................................... 147 XXIV. ENERGY ....................................................................................................................................... 148 A. Electric Sector .................................................................................................................................. 148 Areas of Private Participation .............................................................................................................. 148 B. Hydrocarbons Sector ..................................................................................................................... 148 C. Natural Gas .................................................................................................................................... 151 ix 06.2011
  • 10. D. Firedamp ........................................................................................................................................ 151 E. Renewable Energy ......................................................................................................................... 152 F. Bioenergies ..................................................................................................................................... 153 G. National Hydrocarbon Commission .................................................................................................... 153 H. Energy Regulatory Commission ..................................................................................................... 154 I. Sustainable Use Of The Energy ........................................................................................................ 154 XXV. MINING ......................................................................................................................................... 155 A. General ............................................................................................................................................ 155 B. Priority of Mining Activities ............................................................................................................... 155 C. Agencies / Authority ......................................................................................................................... 155 D. Mining Concessions and Assignments ............................................................................................ 156 E. The Mining Public Registry ............................................................................................................... 158 F. Inspection, Monitoring and Sanctions ............................................................................................... 159 XXV. BANKRUPTCY ............................................................................................................................. 161 A. Insolvency Proceedings ................................................................................................................... 161 B. Causes for Declaration in Reorganization (Concurso Mercantil) ..................................................... 162 C. Procedure for the Declaration of Reorganization ............................................................................. 162 D. Judgment Declaring Reorganization (Concurso Mercantil) .............................................................. 163 E. Existing Contracts ............................................................................................................................ 163 F. Acknowledgement of Credits ............................................................................................................ 163 G. Bankruptcy or Liquidation Proceedings (Quiebra) ........................................................................... 164 Acronyms Most Commonly Used ............................................................................................................. 165 x 06.2011
  • 11. Preface Whether driven by national policies or new technologies, laws and regulations will frequently change, and as lawyers and counsel a firm is required to respond to the needs of our clients. Since it was founded in 1948, Barrera, Siqueiros y Torres Landa, S.C. has been at the forefront in providing legal services with excellence to its clients. At all times, we have endeavored to be in a position not only to respond, but to be ahead and anticipate the needs of our clients. In the course of providing services, a multitude of areas have been addressed and legal specialties have arisen in the recent past. We have always attempted to be at the forefront of new legal developments around investment, technology, financial services and products, export and trade programs, privatizations, government procurement, telecommunications, e-commerce, labor, competition/antitrust, securitization and financial structures, and more recently, energy. Some areas have continuously evolved such as Taxation with such speed and depth that keeping–up has been both a necessity and a challenge. In celebration of our sixtieth anniversary in 2008 we endeavored to prepare for our clients and friends a summary of Mexican laws affecting business. Many lawyers from the firm have participated in the project, contributing with their knowledge and expertise. We have committed to keep the summary updated. Although we trust you will find this summary useful, the purpose of this publication is not to provide legal advise nor present a complete analysis of the issues covered. The authors that participated in the publication, as well as Barrera, Siqueiros y Torres Landa, S.C., are not responsible in any form for decision or actions taken based on the content of this summary. 1 06.2011
  • 12. I. Essential Facts About Mexico A. Geographic and Historic Information • Name. Although the conventional short form is “Mexico”, the official name of the country is “United Mexican States.” • Population. Mexicoʼs population exceeds 112 million according to the 2010 census. The median age is 26 years. It is the most populous Spanish-speaking country in the world. The population of the metropolitan area of Mexico City alone is about 18 million, making it the largest urban concentration of people in the Western Hemisphere. • Flag and Seal. The flag consists of three equal vertical bands of green (hoist side), white, and red. The seal—an eagle perched on a cactus holding a snake in its beak—is centered in the white band. The symbol on the seal comes from a legend at the time of the Aztecs. Guided by their god Huitzilopochtli, the Aztec people sought a place where an eagle landed on a prickly-pear cactus, eating a snake. After years of wandering, they found the sign on a small swampy island in Lake Texcoco. They named their new home Tenochtitlan (“Place of the Prickly Pear Cactus”) and built a city, now Mexico City, on the site in A.D. 1325. • Area. Mexico is one of the largest countries in the hemisphere with an area of approximately 2 million square kilometers (1,972,500 square kilometers; 761,600 square miles). • Summary historical background. Mexico was originally inhabited by a number of Amerindian civilizations, including the Olmecs, Mayas, Toltecs and Aztecs. Mexico came under Spanish rule for three centuries before achieving independence early in the 19th century on September 21, 1821. Contrary to popular belief abroad, independence was not on “Cinco de Mayo”. Shortly after independence, a plan for a constitutional monarchy failed and a republic was proclaimed in December 1822. • In 1910, severe social and economic problems culminated in a revolution that lasted for ten years and gave rise to the 1917 Constitution. Although recent financial troubles in México and abroad threw Mexico into its worst recession in over half a century, the nation continues to make a recovery. Ongoing economic and social concerns include low real wages, underemployment for a large segment of the population, inequitable income distribution, and few advancement opportunities for the largely Amerindian population in the impoverished southern states. • Political Division. Mexico is a Federal Republic divided into 31 States and the Federal District (“Distrito Federal”). Mexico City is located precisely in the Federal District, although its metropolitan area extends into the neighboring State of Mexico. Guadalajara and Monterrey are two major industrial hubs. Other important cities include Tijuana, Ciudad Juárez, León, Querétaro, Puebla, Veracruz, Villahermosa and Mérida. B. Key Economic Information • In 2010, Mexico was the 12th largest economy in the world. It is an active member of the Organization for Economic Cooperation and Development (“OECD”) and the World Trade 2 06.2011
  • 13. Organization (“WTO”). Likewise, Mexico has an important bilateral and multilateral trade network, including NAFTA, the European Community and the Asian Pacific Economic Council (“APEC”). • Mexico shares 2,000 miles of U.S. border, thus putting it in a unique strategic position for increasing its trade with the greatest single national market in the world. • Mexico has 7,000 miles of seashores that, as noted in the European Union Political, Cooperation and Free Trade Agreement, make it an ideal place to engage in trade regardless of the origin of materials or destination of finished products. • Among the most prominent industries in the country are oil, tourism, mining, and automotive, textile, steel and electronics manufacturing. • Expanding beyond its former export foundation in oil, Mexico has increased the size and variety of exports, which now include even sophisticated technical devices and services, including construction and financial services. • Reliance on oil has substantially been reduced. The basis of the Mexican economy is primarily manufacturing, although the recent prices in the price of crude oil have provoked a greater share of the exports to this commodity. • A large pool of Mexican companies participate in export-oriented activities. Foreign investors provide training and technology to upgrade Mexican companies and bring them up to international standards. C. Federal Government • The Federal Government is composed of three branches—executive, legislative and judicial—each with specific powers granted by the Constitution. • The President heads the Executive Branch and is assisted by 18 Secretaries or Ministers as well as by the Attorney General (whose appointment requires the consent of the Senate). The President is both the Head of State and government. There is no Vice-President. • A bicameral federal congress comprises the Legislative Branch and is divided into: (a) The Senate, with 128 members who serve six--year terms (b) The House of Representatives (Cámara de Diputados), with 500 members is completely renewed each three-year term. • The Mexican Supreme Court of Justice, comprised by 11 Justices, heads the Judiciary. After nomination by the President and appointment by the Senate, Justices serve 15-year terms. Under the Supreme Court sit federal Circuit Courts (Collegiate and Unitary) and District Courts. 3 06.2011
  • 14. II. Legal System A. General • International business people and foreign-owned corporations doing business in Mexico must directly and indirectly deal with the Mexican legal system, even if they do not have a local physical presence. Businesses might encounter Mexico's system through an international contract—even one to be wholly performed outside of Mexico—if a Mexican company or individual is also a party. Such contracts may cover a wide variety of legal relationships, including distribution of products, the granting of franchises, or the transfer of technology. • Accordingly, people and entities doing business in Mexico should have at least a general working knowledge of its legal system. International legal counsel with clients doing business in Mexico should have a more detailed knowledge of Mexican practices, laws and courts. All should understand that if they are to accomplish their objectives they must work within the system, not against it. B. Civil Law and Comparison to Common Law • Mexico is a so-called “civil law” country, while some other countries such as the United States of America, Canada, and England are “common law” countries. Unlike common law courts, Mexican courts do not follow “stare decisis” or precedent in the common-law sense. Furthermore, under the Mexican system there are no trials by jury. • The origins of Mexico's legal system are both ancient and classical, based on the Greek, Roman, Spanish and French legal systems. Due to this background, our reliance in form over substance is usually over-estimated. Although the Mexican system shares more in common with other legal systems throughout the world—especially those in Latin America and continental Europe—than it does with the U.S. legal system, after NAFTAʼs adoption, Mexico has modeled certain legislation after U.S. law and practices (antitrust and environmental, among others). Likewise, Mexicoʼs participation in the OECD and other international groups (e.g. the United Nations Commission on International Trade Law “UNCITRAL”) has led to the to implementation of business practices and legislation in accordance with international standards. Some examples of the above are the adoption of the UNCITRAL Model Laws on International Commercial Arbitration, Transnational Insolvency and Electronic Commerce. C. Federal and State Legislation • The current Federal Constitution was enacted on February 5, 1917, and has undergone many amendments since then to adjust to the changing realities of the country. The Constitution has been amended continuously, especially during the last 30 years, adapting to Mexicoʼs full democracy integration into the world trade arena. • The Constitution outlines a system where most major areas—including commerce, natural resources, labor, mining, telecommunications, federal crimes and federal taxes—are reserved for regulation only 4 06.2011
  • 15. by legislative action of the Federal Congress. Given that states may not implement laws in those areas, federal laws on such matters apply uniformly throughout the country. On the other hand, certain specific areas (education, health, environment, etc.) are subject to shared-authority among the federal, state and local level of government. • States have their own Constitution, as well as their own civil and criminal codes for local matters. Likewise, States legislate on local operating permits and environmental matters that are not otherwise reserved for federal legislation. Municipalities issue zoning and land use regulations and levy real estate taxes. 5 06.2011
  • 16. III. Judicial System A. Mexican Courts & Litigation 1. Federal Courts Mexican courts are divided between federal and state levels of government. The 11-Justice Mexican Supreme Court of Justice is the highest Court within our country. The Mexican Supreme Court sits either in bloc (Pleno) or as a 5-member Chamber. The First Chamber deals with civil and criminal issues while the Second Chamber deals with Administrative and Labor matters. One Justice is appointed among his/her peers as a 4-year President. The President of the Supreme Court also serves as President of the Federal Judiciary Council, which oversees and monitors ethical and administrative tasks of Federal Judges and Magistrates. The Mexican Supreme Court has reserved jurisdiction itself to the most important issues of constitutional law: (i) unconstitutionality of laws, regulations and treaties in those parts where there has not been a previous and clear precedent; (ii) direct interpretation of the Constitution; (iii) constitutional actions or controversies brought by other powers of the state (Legislative or Executive). Below the Supreme Court remain the Collegiate Circuit Courts, Unitary Circuit Courts and Federal District Courts. Federal courts mostly deal with amparo actions, federal crimes, commercial and bankruptcy cases and federal civil cases. Normally, federal courts have specialized subject matter jurisdiction but it is not uncommon that they cluster all those subject within themselves. The constitutional suit or “amparo proceedings” is the federal lawsuit commenced by a person (natural or legal entity) when there is a violation of rights by a governmental authority. Filing a constitutional action is a right of a person that is subject to high-technical scrutiny. The main principles of this action are: (i) it may only be asserted against acts of authorities; thus, (ii) it is an action of a person against abuse of governmental deeds in any of its spheres—Legislative, Judicial or Executive; local, state or federal; (iii) it is exceptional in nature and normally there has to be an exhaustion of ordinary means of challenge; (iv) the individual involved must provide evidence showing having been personal and directly “affected in its rights” or “expected rights.” Amparos deal with constitutional issues. The amparo proceedings may be “direct” or “indirect.” Collegiate Circuit Courts hear “direct amparos”. Direct amparos are filed against resolutions or judgments that end a jurisdictional (labor, administrative and civil) procedure. Direct amparos most closely resemble an ultimate challenge. On the other hand, District Courts hear “indirect amparos,” which result in a speedy trial. Judgments rendered by District Courts may be challenged through a federal appeal that will be heard by a Collegiate Circuit Court. Indirect amparos are highly technical and, basically, will be filed against (ii) direct violations of individual rights; (ii) final resolutions not rendered by labor, administrative and civil courts; (iii) irreparable harm caused in a judicial proceedings; and, (iv) acts or laws that have been applied for first time in detriment of the individual. The Federal Judiciary (through the Supreme Court and the Collegiate Circuit Courts) may create binding precedents known as “jurisprudence” (jurisprudencia). To create jurisprudence there must be five-non- interrupted cases resolved in the same sense. Likewise, jurisprudence is created when the Supreme Court resolves a “contradiction” held between two or more Collegiate Circuit Courts to settle for once and all the proper binding precedent. One of the most attractive features of the amparo is the possibility of obtaining a stay of proceedings or court injunction. In no other area of law is a “stay of proceedings” more widely used with more precedent created than in amparo proceedings. Thus, to be able to obtain an injunction or “suspension” as called in Mexico is normally the appeal for lawyers to file an amparo. Any litigation undertaken in Mexico, whether 6 06.2011
  • 17. in the private or public sector, will inevitably expose the parties involved to an amparo—what it is and how it works. There has been a quite recent amendment to the Mexican Constitution related to amparo proceedings that will give rise to a new Amparo Law. The amendment is currently in the process of being approved by at least 17 States of the Federation before becoming effective. If approved, a new amparo law will be enacted with important amendments in the following topics: (i) standing; (ii) jurisdiction of the circuits to create legal precedents; (iii) modifications of the 5- precedent rule of binding precedents or jurisprudence; (i) to incorporate those human rights set forth in international treaties. Mexico, particularly in its larger cities, is experiencing a trend of increasing judicial specialization: judges presiding over specific areas. In larger cities, where this trend is more apparent—such as Mexico City, Monterrey and Guadalajara—there are specialized courts for civil and commercial, labor, criminal, and administrative cases. Nevertheless, despite the shift towards specialization, all cities still have a multi- area judge or magistrate charged with resolving civil, commercial, criminal, labor, and administrative cases. Because multidisciplinary judges are responsible for presiding over such a broad swatch of cases, they often lack the comprehensive knowledge specifically necessary to be effective in any particularly specialized or highly regulated area. Furthermore, Federal District Courts also hear cases as trial courts in commercial and federal civil cases. Although commercial law is federal in nature, a constitutional provision authorizes dual-jurisdiction; i.e. that both local and federal courts can hear commercial cases. Consequently, it is very common for local courts to try the majority of such cases due to the fact that local courts outnumber federal courts and that federal courts are devoted primarily to amparo proceedings. When federal courts hear federal civil or commercial cases the Unitary Circuit Courts act as Court of Appeals. Finally, bankruptcy is another jurisdiction that Federal Courts have absorbed. Thus, trying a bankruptcy case (either as reorganization or bankruptcy) has to be filed before a federal court. 2. The Federal Judiciary Council (Consejo de la Judicatura Federal “FJC”) The FJC monitors performance of all members of the federal judiciary, except for the members of the Supreme Court of Justice, to ensure propriety and compliance with ethics standards. There are 7 members of the Council headed by the President of the Supreme Court of Justice. Unlike other countries, federal judges are not “elected” in Mexico but rather are appointed through a selection process conducted by the FJC. Being part of the full judiciary for an extensive amount of time typically serves both as a baseline qualification and manner to flag potential candidates. Low-salaries for the Federal Judiciary—a vital fact that informs oneʼs understanding or justifying corruption—is slowly becoming a reminiscence of the past. Currently, the Federal judiciary at all levels is well-paid. This fact overrides the possibility for a Judge to have alternative sources of income that are currently forbidden. Judges can participate in academic activities and lecturing as such. 3. State Courts State or local courts (i.e., courts within the Federal District) are usually devoted to civil and commercial cases and they specialize depending upon the subject matter: family, leases, wills, and normal civil and commercial cases. Depending upon the amount involved there are minor courts whose judgments are not subject to appeal. 7 06.2011
  • 18. Local Courtsʼ Judgments are subject to appeals before the Superior Court of Justice of each state and the Federal District. Local/State Courts depend upon the government of each state. Since the budget of each state so varies, then, salaries of Judges do too. Likewise, appointments differ form state to state. Most of the states have a surveillance authority to monitor ethical and proper performance of Judges. 4. Court Clerks Federal or local judges have an extensive workload. It is not uncommon for a Judge to handle between 800 and 1000 dockets every year that could last from simple collection cases to very complex issues of law. Likewise, proceedings are largely written and, therefore, the “day in court” as known in other countries has not the same meaning in Mexico. Hearings are not normally presided by the Judge but rather by the Court Clerk or Secretary to record the appearances and arguments in a hearing or can certify as to the content of a docket. This flaw will change in the near future at least in the criminal area due to important amendments within the Mexican Constitution that makes compulsory for the Judge to be present in all hearings. Court clerks may prepare drafts of important rulings or the judgment itself. However, the content of the judgment is the Judgeʼs primary responsibility. This activity provides Court Clerks sufficient experience that serve them to escalate in the judiciary until such timing that they can be appointed as Judges. 5. District Attorneys Public prosecutors or District Attorneys (Ministerio Público) are relevant actors in criminal proceedings as shown below but they play certain role in bankruptcy, family, estate, and amparo proceedings. They speak for the general public. In reality, it is odd that public prosecutors take a leading role in those proceedings since they usually devote their time to criminal cases and their importance is underestimated in those areas outside such scope. 6. Administrative and Tax Courts Administrative and Tax Courts have become more important since there has been an important growth in governmental activity in all spheres: federal, state and local. Likewise, there has been an increasing trend to increase jurisdiction to administrative and tax courts in order to decrease the workload of the federal district courts. The Tax and Administrative Justice Court (Tribunal Federal de Justicia Fiscal y Administratíva “TFJFA”) is comprised of a Superior Chamber located in the Federal District and twenty- one Regional Chambers located within Mexico. The Tax and Administrative Court has jurisdiction to hear cases related to definitive resolutions rendered in administrative law and federal taxes and general ordinances different from regulations. It is worth mentioning that most administrative authorities can serve as self-review authorities if the individual challenges the resolution so rendered through the review-recourse. After this challenge, the individual could normally file an action/challenge before the Tax and Administrative Court as set forth above. Likewise, most states have a State Administrative Court dealing or that deals with resolutions rendered by local/State authorities. B. Criminal Law • Criminal law in Mexico has both Federal and State nature depending certain features provided by statute. Thus, there is a Federal Criminal Code and Criminal Codes for each of the thirty-one states and the Federal District. Notwithstanding, there are federal and state statutes that set forth criminal provisions although not inserted within the criminal code in such areas as tax, labor, trademark and 8 06.2011
  • 19. copyrights laws. Likewise, there is the same number of Procedural Criminal Codes. State Criminal and Procedural Codes were mostly modeled after the Codes of the Federal District. • Mexican criminal law follows international standards and protects rights under the Constitution such as: (i) there is no crime unless specifically provided by law “nullum crime sine lege penale”; (ii) a Court of law is the only body entitled to impose punishment; (iii) no retroactive application of criminal laws “ex-post facto laws”; (iv) the benefit for the accused to receive better conditions derived from ex post facto laws; (v) all persons are innocent unless proven guilty (guilty beyond “reasonable doubt”); (vi) in case of doubt, the accused must be acquitted/“in dubio pro reo”; (vii) possibility to obtain bail when no serious crimes are involved; (viii) the right of the accused to remain silent during the proceedings; (ix) the burden of proof relies under the public prosecutor; (x) the right to be put face- to-face (careo) before the persons that testify against the accused; (xi) the right to offer all pertinent evidence available; (xii) the right of the accused not to provide statements before the police and not to remain for more than 48 hours under the District Attorneyʼs detention except for organized crimes. This also encompasses an express prohibition and severe punishment of any torture or similar practice (xiii) the right to receive from a competent Court of Law an order for holding a criminal procedure (auto de vinculación a proceso) before a Judge or to be released –subject to further investigation-; (xiv) the right to have a defense counsel and if defendant refuses to appoint one, then the State will appoint a public defense attorney; and (xv) the right to be judged between four months and one year. • Recently there was an important amendment to our Constitution to forbid the death penalty that was held for many years in our Constitution as a reminiscence of the past since neither the Federal nor the State Criminal Codes so implemented. Likewise, there is no life sentence as such. In the same context, Mexico has neither jury trials nor grand jury to make formal indictments. • The Constitution provides that a person that is accused for committing a crime has the right to obtain bail, subject to there being no serious crime involved. Federal legislature has followed a different path from certain State Statutes. For example, the Federal Procedural Criminal Code sets forth a detailed and exhaustive list of crimes that are considered serious where no bail will be allowed. On the contrary, the Federal District Code of Criminal Procedural follows a simpler rule whereby if the sum of the minimum and maximum imprisonment punishment divided into two neither equals nor surpasses five years, then, bail is allowed (i.e. 3 to 9 years /2 = 6 years; therefore, the Judge will deny bail). • Currently, the main parties within the criminal proceedings are the public prosecutor or District Attorney, the defense counsel (defending the accused) and the Judge. Public or state defense counsel are subject to workload and, unfortunately, time to defend effectively is minimal. Public prosecutors (Ministerio Público) play a key role in the criminal proceedings since they have a dual- role. Once a crime has occurred notice should be given to the Public Prosecutor that will act as an investigatory body and public faith authority. It has the authority to grant bail in those cases that no serious crimes are involved and the person is under his/her detention. The public prosecutor will have a group of policemen and investigators under his/her command. Once all investigations have been carried out (including depose witnesses, experts and sub-poena relevant persons), then, it will formally indict the accused person before a competent criminal Court. Once this indictment has occurred (ejercicio de la acción penal), a competent criminal court will issue an arrest warrant (orden de aprehensión), to detain the accused and put him/her before the trial-criminal court. 9 06.2011
  • 20. Mexican lawmakers have tried to modernize criminal law and have implemented several important amendments that tend to balance the rights of an accused person vis-a-vis the victim of a crime. Currently, the “victim of a crime” has the right to be informed, collaborate with the District Attorney in the proceedings, to offer evidence, to receive medical and psychological treatment and receive relief in the form of monetary compensation. In the same token, other important amendments are aimed to make federal criminal proceedings faster. As part of this speedy trial, there is a new emphasis in oral and Judgeʼs intervention to ensure that rights of the accused are duly respected. Other States are reproducing this model in order to guarantee the respect to the rights to a fair trial and due process. • Due to a recent constitutional amendment launched in mid 2008, the main features of criminal law will modify drastically to have a more accusatory (in contrast to inquisitive) and to favor orality rather than written proceedings. C. General Comments about Litigation in Mexico • Mexico is not per se a litigious society. Largely because litigation is quite expensive (even though courts do not charge filing fees), awarding damages and lost profits is not an easy endeavor, and there are no punitive damages; proceedings tend to be quite lengthy with a strong reliance on form rather than substance, and it is quite difficult to recover legal fees. Likewise, Mexican law provides a different source for trying cases: civil, commercial, administrative, criminal, etc. although trial practice has not reached the complexity and degree of specialization that other countries currently have. Thus, a civil trial-lawyer will cover family, monetary, real estate, estate, professional malpractice and related items. Commercial lawyers will encompass corporate litigation, bankruptcy, breach of contracts, collaterals foreclosures and alike. Notwithstanding, it is more common to find true specialists although they will also manage to handle other areas of law within certain degree of expertise. Thus, there are three main types of legal counsel: (i) general practitioners; (ii) small- litigation boutiques; and, (iii) one-stop or full-service law firms. Contingency fees are not uncommon and are mostly used for collection cases. Combined fix-rates are more used nowadays. • However, there has been an increasing trend towards specialization and trying new cases. Legislative changes have created a new kind of State liability (direct and objective) in federal, state and local spheres. Unfortunately, it will only encompass “irregular administrative acts” and do not include acts or omissions of the legislative and judicial errors. Another area that has experienced certain potential is actions for minority protection that are not followed under labor but rather civil laws. Likewise, there is a strong support to introduce newer and more effective rules for “class actions”. Beware of the fact that most civil and commercial cases could end in a criminal court since they could be subject to certain strategy from one of the parties to press the other to settle. One common adage under Mexican law is “a bad settlement is better than a good litigation”. • Litigation in Mexico differs from trying a case abroad. There are no jury-trials. Proceedings are written-based rather than holding the “day-in-court” as known in Anglo-Saxon countries. Pre-trial discovery is very limited and not even close to what the practice in other countries is. Rules of procedure are mostly considered a matter of public order, and, therefore, there is very little scope to modify the statutory rules. Preparing a complaint (or a response) is probably the most important activity during the proceedings since once filed it cannot be subject of subsequent modification or amendment, unless there has not been service of process to the other party (in the case of the complaint). The Court will not grant extensions to answer a pleading or otherwise since legal terms are mandatory. Cases are more written-based than oral, and therefore, it is important to write pleadings with clarity. There are no amended complaints or responses. 10 06.2011
  • 21. Due to the fact that Mexican law has limited discovery and there are strict rules as to the filing of evidence and cross-examination and no prior deposition of witnesses, procedures therefore tend to follow more formal or legal defenses than important fact-disclosure. Among those formalities it is very frequent to challenge the authority of the attorney-in-fact appearing on behalf of one of the parties. In this token, powers of attorney coming from abroad are a common source of challenge and, therefore, it is important to pay special care when drafting them. • Another important difference from trying cases in other countries is the fact that Courts will not award punitive, consequential or indirect damages. Mexican law follows a “direct and immediate consequence” of the breach-test. This applies for both damages and lost profits. In practice, it is difficult to obtain multi-million dollar awards on damages unless there is a “liquidated damages clause” that will avoid proving the existence of damages and would rather be aimed to evidence the existence of the breach, and hence, the penalty application. Arbitration cases pose a little more damage-flexibility as to awarding damages but always subject to such “golden rule”. • Litigation in Mexico is not an easy task. Mexicoʼs statutes still rely heavily on formalistic issues over the substance of the dispute. Judges are work loaded and the time to be devoted to the case is minimal. Thus, there is a huge task for trial-attorneys to call the attention of the Judges and Court Clerks to address the merits of the case in order not to have the case dismissed for formalistic issues that will serve for the “statistic” but not for judgment-quality. Legal costs are outdated. Trying cases outside of the big three cities becomes much more difficult for the lack of experience of the judiciary for certain complex business contracts or torts. Thus, having all these ingredients altogether make it difficult for a business person (and even to non-Mexican legal counsel), to understand the inner works of litigation in Mexico. In fairness we must say that the Judiciary is making its best efforts to improve facilities to dignify administration of justice, as in the case of the Federal District. D. Arbitration • The complexities of a global world and the difficulties that may pose to convince a foreign party to have a forum choice-clause to Mexican courts, have led to choose arbitration to resolve disputes in commercial transactions. Mexico is an arbitration-oriented country that has modeled its Commercial Code to international standards (mainly the 1985 UNCITRAL Model Law. Mexico is a party to both the 1958 New York Convention for the Recognition and Enforcement of Foreign Arbitral Awards and the 1975-Inter-Amercian Convention on International Commercial Arbitration). • International treaties ratified and adopted by Mexico, current legislation and an increasing and open- minded support of the Mexican Courts will have to provide a growing confidence that arbitration agreements and awards are to be recognized and enforced. There is an increasing conscious that only in exceptional circumstances these will be either set-aside or their recognition and enforcement denied. Foreign judgments also can be indeed enforced although they follow different rules since there is no international treaty dealing with those issues as, by contrast, the 1958 New York Convention. • There are several domestic and foreign organizations specialized in arbitration such as the Mexican Arbitration Center (Centro de Arbitraje de Mexico “CAM”), Mexican Chapter of the International Chamber of Commerce (“ICC”), and the Arbitration Commission of the National Chamber of Commerce – (Cámara Nacionál del Comercio “CANACO”) that have been very active in fostering arbitration in our country. 11 06.2011
  • 22. There has been a quite recent amendment in January 2011 to foster and improve arbitration – related issues, such as assistance of courts, referral to arbitration, provisional measures, setting aside proceedings and recognition and enforcement of arbitration awards. 12 06.2011
  • 23. IV. Important Positions to Know 1. Lawyer • Mexican lawyers normally course a five-year law school program. While studying or immediately after graduating from law school, individuals usually work for a firm or government agency as a clerk (pasante) until they write a thesis and pass an oral exam to become licensed (Abogado or Licenciado en Derecho). After passing the licensing exam (that may be administered by the law school attended), individuals are addressed as Licenciado, abbreviated as "Lic." when written before the attorneyʼs name. There are no independent bar exams, and the Ministry of Education grants the licenses (cédula profesional) to practice law. • In Spanish “licenciado” is the first degree awarded at the university level; it corresponds to a bachelorʼs degree. Although there are “licenciados” in numerous academic disciplines such as economics, history, and business, the title is generally identified with the law degree. • Although teaching techniques are evolving, current teaching in law school is based on a modern version of the lecture method, which allows students to ask questions and engage in classroom discussion. Because case study is not part of the curriculum, the Socratic method is unknown, although there has been an increasing interest for such system and a new impetus for gathering a master degree-abroad and mainly in non-Spanish speaking countries. This is specially so in certain areas where oral skills and rethoric are essential (such as criminal law and arbitration). • Mexican lawyers are licensed to practice throughout Mexico, not in individual states. There is no integrated bar or requirement to join a bar association. Rather, bar associations in Mexico operate as voluntary associations. Thus, there is not a bar exam that has to be taken or admitted, but there is current discussion to that end. Therefore, the “disbarment” concept does not resemble to the US- English concept and rather has to be treated as a civil-criminal behavior. The Mexican Bar Association (Barra Mexicana de Abogados “BMA”) is the more serious and recognized bar association. 2. Notary Public • Notary Publics in Mexico are empowered by local governments with the authority to assert “publica fides” upon the events they witness or as compulsory formality to certain legal acts. • Becoming a Notary Public is a lengthy process although in some states this may vary. In Mexico City becoming a notary public implies an approval exam of his “peers” and members of the government. In other entities, upon invitation by the government, a lawyer who has apprenticed for a number of years with another Notary Public takes an exam and, if he passes, receives a governmental permit to practice. 13 06.2011
  • 24. A number of documents and agreements need to be created or validated by a Notary Public in order to be fully enforceable in Mexico - mainly real estate ownership transfers, real estate guaranties, incorporations, powers of attorney and wills. • Notary Publicsʼ actions are documented through the issuance of public deeds. In most cases, a Notary Public will issue a first true copy of a public deed and thereafter as many certified copies as necessary. First transcripts are of utmost legal importance and normally should be recorded with the Public Registry to produce effects vis-á-vis third parties and be guarded carefully. • In most of the Mexican territory Notary Publicʼs fees are subject to rates; however, within legal limits, fees may be negotiated on a case-by-case basis. • Mexico allows commercial public brokers (corredores públicos) to serve as “notary publics” for commercial transactions (i.e., creation of commercial companies), appraisers, and mediators and arbitrators. This alternative for providing legal form to certain commercial transaction had a new impetus after NAFTA entered into effect. Notwithstanding, commercial public brokers have not been able to become a true alternative to notary publics yet and for certain true-nature transactions will not ever be (i.e. real-estate purchase, creation of regular mortgages, etc.). 3. Customs Broker • To the extent that companies involved in business in Mexico have some foreign trade operations, it is important that those operations strictly comply with applicable rules on imports and exports. • The customs broker is the person responsible for ensuring that the proper paper work and tariff classifications are used for products imported or exported by the company. • Thorough analysis of rules of origin is key to avoiding mistakes that may cause additional duties, fees and possibly even fines to be charged in the future. 4. Accountants and Auditors • Although this should not come as a surprise, it is important for companies to keep proper accounting books and records and to, inter alia, file tax returns in a timely matter. Under Mexican law accounting records must be kept for no less than five years for tax matters, and ten years in respect to that information of a commercial nature. • As a general rule, a formal external audit of financial statements is voluntary; however, if a business exceeds certain thresholds of income or number of employees, such audit will become compulsory for tax purposes. 14 06.2011
  • 25. V. Practical Differences about Doing Business A. Introduction Despite Mexicoʼs openness to trade and investment, it has its own unique traditions, culture, and way of doing business. Some differences have a tremendous impact on the day-to-day aspects of doing business with Mexico and inevitably give rise to certain clashes on the part of both the businessperson from abroad and his or her Mexican counterpart. At worst, these clashes mount to the point where otherwise-desirable ventures fall apart, at great cost to all participants. By recognizing and understanding the differences in conducting business in Mexico we can keep cross-cultural clashes to a minimum, and increase the chance of success. This chapter does not attempt to provide a complete answer to all cross-cultural issues that arise when persons from other countries do business in Mexico. Such a definitive work would require an extensive study and hundreds of pages. Rather, it provides an overview of some of the cultural differences that may be encountered and offers some simply suggestions to guide around some of the most common pitfalls. B. Tips on Dealing with your Mexican Counterpart 1. Avoid Misunderstandings Misunderstandings between businessmen and women from abroad and their Mexican counterparts generally fall into two categories: substantive and incidental misunderstandings. A substantive misunderstanding arises when one party fails to agree on the general purpose of a joint activity or ignores the consensus that it reached. The classic and most extreme example occurs when one party acts to build a successful long-term enterprise out of the venture, while the other treats the investment as a vehicle for short-term profit. Substantive misunderstandings also typically occur when the parties fail to perform reasonable due diligence or fail to take the normal precautions that would prevail in a purely domestic commercial relationship. Surprising numbers of sophisticated business people tend to drop their guard when approached by a cultured foreigner speaking fluent English and promising great riches. Substantive misunderstandings generally can be avoided by realizing that doing business in Mexico poses the same risk, as does anywhere else, and acting accordingly. Incidental misunderstandings are far less significant, but much more likely to occur. Incidental misunderstandings generally flow from the different perspectives that each party brings to the relationship, and the fact that one party will be dealing in a foreign language. The best remedies tend to be time, flexibility, and seeing that key personnel in both countries have sufficient contact with their counterparts to become familiar with each otherʼs way of doing business. The comparatively nominal investment of bringing key Mexican personnel to oneʼs home office from time to time can pay handsome dividends, as can periodic travel in the other direction. As for language, the first step toward solving the problem is to recognize it exists. Many Mexican professionals speak English with such a high degree of fluency that persons from other countries, say the 15 06.2011
  • 26. United States, lose sight of the fact that a language barrier, albeit a very slight one, exists. This oversight can be dangerous. While everyone may appear to be on the same level in a fast-paced discussion, all parties may not always understand certain points. As a result, parties sometimes leave the conversation with different understandings of what is to occur. There are at least two simple ways to minimize potential misunderstandings. First, before holding an important conversation (particularly where the conversation will occur by telephone), provide the participants in advance with a written outline of the points to be covered. This gives everyone an opportunity to think about the same issue – as opposed to figuring out what the issues are – when the conference begins. Second, following up with a written confirmation of the plan of action agreed upon, the advice given, etc. ensues that no miscommunication has occurred and that all parties are on the same page. 2. Learn the Local Business Schedule Although businesses in Mexico operate on a fairly standard schedule, it is one that is different from that followed in many other countries. The normal business day in Mexico City begins around 9:00 a.m. Lunch runs from 2:00 p.m. to 4:00 p.m. The day ends at 7:00 p.m. or later. Other cities within Mexico even closed their business during lunch time. Likewise, the “sense of responsiveness” may be quite relaxed in cities different from Mexico City, Monterrey and Guadalajara. Persons doing business in Mexico are well advised to obtain a Mexican calendar to prepare for differences in holidays observed; business tends to slow down significantly during the school holidays around Easter and Christmas. 3. Dress Appropriately Mexicans generally tend to dress formally and are well groomed. If you wish to make a good impression, it is important that you follow suit. This is particularly true at the outset of a relationship when each party is extremely attuned to the nonverbal signals given off by his or her potential partner. In Mexico, it generally is appropriate for men to wear suits to most events including informal, social gatherings. When in doubt, it is better to overdress. 4. Take the Time Necessary to Build Personal Relationships This point cannot be stressed enough. The businessperson who fails to establish solid personal relationships in Mexico typically also fails to establish successful business relationships. The business person from abroad usually is ready to get down to business without establishing a personal relationship with his or her counterpart. This approach is complemented by a devotion to extensive contracts that seek to cover every possible contingency and is facilitated by the comparative ease with which one can obtain information about companies in other jurisdictions such as the United States or Western Europe. Business in Mexico is less an objective in and of itself and more an extension of the businesspersonʼs life as a whole. The Mexican businessperson is uncomfortable doing business with someone with whom he or she does not also have a personal relationship. The Mexican will rely less on negotiating a contract the size of a phone book and more on a simple contract coupled with a personal relationship of trust within which problems can be resolved. Developing this trust can be somewhat difficult in light of the comparative dearth of information that is available about Mexican companies. In the end, a decision on risk may need to be taken and have faith that any problems that arise can be worked out amicably. 16 06.2011