Since Mexico abandoned the economic policy of substituting imports, and opened the way through Economic Neoliberalism, the national economy has grown a lot, and although as every economic model has its causalties along the way, it is undeniable that it has generated wealth for our country, although the most nationalistic will argue (with good reason), it destroyed several sectors of the national industry, and concentrated the wealth to a few hundred hands, it also opened an immense opportunity for the industries that at the time knew how to adapt to the commercial opening, to grow by leaps and bounds, which not only generated wealth, but also created more jobs with a higher degree of specialization and generated taxes that were transformed into public works, social works, etc.
With the signing of the North American Free Trade Agreement, Mexican foreign trade rebounded and became in a very short time the main engine of the national economy, contributing 66 percent of our country’s Gross Domestic Product. Although previous governments gave importance to the subject, it has never been as important as it should have been, and efforts were focused on signing, and signing more and more treaties and trade agreements, which gives national businessmen a good opportunity to trade. However, the efforts were never enough, and Mexico developed a very strong dependence on trade with the United States of America, concentrating up to 80 percent of its total trade in that area.
Although most experts agree that Mexico’s foreign trade, even with its numerous agreements and treaties, was stagnant and without the possibility of a decisive rebound as required by the economy, it continued to play a transcendental role in the generation of employment, wealth and economic development.
It is important to mention that the discontent with the economic model was not inherent to our country, in many countries around the world the seed of nonconformity was sown and parties around the world began to reach the presidency that advocated a more nationalistic policy, in short, the strengthening of the internal market and the substitution of imports, However, for many of them, since they belong to the World Trade Organization and have signed agreements with their counterparts, it is impossible for them to use the term “protectionism”, however, in simple terms that is what it is, and in this context, Mr. Donald Trump became president of the United States of America. Donald Trump, who “imposed” on Canada and Mexico the renegotiation of NAFTA.
This renegotiation was carried out with disagreements from both Canada and Mexico, however, the will of the strongest power prevailed, and within the new changes, the name was changed to; USMCA, however, the most radical changes occurred in several sectors, especially in the automotive sector, since the changes accepted by the governments of both parties agreed that 40 percent of the parts that make up a car, be made by personnel with a salary of at least $16 an hour, the minimum wage paid to a worker in the same sector in the U.S., and it was not the only change, there were many in other sectors such as industrial property, labor protection, digital trade, environment, and corruption.
USMCA
The USMCA came into effect on July 1, 2020, and although almost no one expected immediate results, the truth is that measurable results are practically nil, although it can be argued that its effects are not yet known, since the global SARS pandemic COV2 (COVID-19), froze economic operations for months, and even to this day the economy continues to work with the most basic sectors, but certainly, not everything is the fault of the health pandemic.
If we continue with the most notable example in the automotive sector; the United States of America, were firm believers that due to the wage and content restrictions imposed on manufacturers, the latter would be forced to move their productions to that country, in order to avoid the additional taxes, (which would generate a huge escalation of jobs in that country), however, it was not so, foreign brands established in our country opted for a gradual increase in wages, and have even expressed their willingness to cover the additional taxes, which would generate an increase in the cost of their vehicles produced for final consumers, and the truth is that with the drop in global demand for new vehicles, no company feels particularly rushed to meet the demands of the USMCA.
ven today, foreign trade has not been high on the national agenda, despite the fact that companies that carry out international operations are subject to the regulations of many nations, and that they prove to be among the most reliable in the world on a daily basis, and also have the highest number of national and international certifications. This is relevant because with the signing of the USMCA, Mexico is subject, along with its counterparts, to the supervision and approval for the signing of new trade agreements with countries that are not governed by free trade (clause 32.10), and although our country has numerous treaties and trade agreements, it has always had its sights set on diversifying its exports, and now finds itself with more limited options to achieve this.
COVID-19
The global pandemic of Covid-19 has shown how fragile the current economic model is, almost a year of dealing with the virus has passed in all the countries of the world (in several countries such as China and Italy already more than a year), and the rate of contagion shows no signs of decreasing, and even with the variants that the strain has undergone, it has become more contagious. In economic and employment terms, the global impact is devastating, the world economies have fallen simultaneously, a fact that had not occurred for decades, even in the economic crises of the modern era the effect had not been as massive as this health crisis has achieved.
Domestic spending on vaccines will be enormous, and will occupy a significant part of governmental investments in health in all countries that have the economic capacity to acquire them and thus be able to massively apply them among their inhabitants. In the case of Mexico, the acquisition and application is not flowing with the necessary speed for the national economy to recover and grow at the numbers that the major institutions worldwide forecast, 4.3% according to figures from the International Monetary Fund and the World Bank, 3.7%.
The above is of great importance in economic matters. Why? It is simple in concept, the government requires a great deal of resources to be able to operate, and companies are operating at their minimum capacity, moreover, the internal market is very damaged, and it is insufficient to recover pre-crisis levels. Moreover, as we have been observing, the current national government has intensified the tax and customs revisions, which has made their operations more and more complex, all of this due to their collection interests.
Audits to the companies do not stop, the customs reviews are increasingly exhaustive, and there is no economic stimulus or special tax facilitation for the pandemic that the government has implemented, however, not everything is pessimistic, since national companies have had to seek alternatives to keep their finances healthy and their operations up to date from day one of their existence, and there are certifications that can provide additional benefits to them, such as; Authorized Economic Operator, Certification in VAT and IEPS, IMMEX, etc..
In summary, Mexico’s economic future will continue to be uncertain, lacking a clear trend of real economic recovery that would allow it to recover the levels of economic growth prior to the current six-year term; moreover, the SARS COVID-19 will continue to be present at least for the remainder of the year in Mexico and the world. The national tax authorities will probably continue with a purely tax collection, fiscal and supervisory attitude, with some limitations to resume their central role as promoters of foreign investment.
Due to this situation, we recommend all companies to take the utmost care of their daily operations, especially in foreign trade, for which we offer you our wide portfolio of professional services, reminding you that ASESORES STRATEGO, S.C., can be your best ally in integral legal, fiscal and foreign trade matters.
This document does not constitute a particular consultation, and therefore Asesores Stratego S. C., is not responsible for the
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