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Legal Certainty Based on Corruption-Proof Contracts

By Andrea Villar | Thu, 04/02/2020 - 11:28

Q: What is ICC’s take on the trade environment impacting Mexico?

A: Mexico remains open to international trade despite protectionist policies around the world and regardless of the change in the federal administration. Before President López Obrador entered office, his team worked with the NAFTA negotiating team and together they reached an agreement that was appropriate for Mexico given the difficult circumstances. The new USMCA deal includes chapters on labor and corruption.

Mexico has been trading according to NAFTA and the other 12 prevailing trade agreements the country has. However, so far, this administration has not taken enough action to diversify our export markets. This year, Mexico’s exports and imports represented 74 percent of national GDP but almost 60 percent of all trade is with Canada and the US.

Q: Considering that USMCA’s ratification is still on the table, what areas should Mexico strengthen to comply with all its provisions?

A: The changes in the new Labor Reform have focused on meeting the demands of the Democrats but there is still a long way to go. This represents a problem because for many years we worked in line with a completely different labor and union scheme. The Mexican labor sector has been involved in politics in the past and we hope the changes being made do not lead to new conflicts with labor unions linked to other parties, which would send us back to the cycle we were in before.

Q: What advances has the country made regarding export diversification? 

A: The EU is a great market for Mexico and we have not taken advantage of it. The same is true for Asian countries. We have great advantages, including our geographic position, not only with respect to the US and Canada but as a bridge to Central America, Asia and Europe. Right now, Mexico has a natural opportunity to take advantage of the trade war between Washington and Beijing. The Mexican government should be building on this.

Q: What challenges is Mexico’s government facing, given the global landscape?  

A: The government’s challenge is to identify the regions with enough potential for development and it needs to attract investment to those regions. However, to be successful, the government needs to develop infrastructure, educational plans and training to support any new projects. The first factors an investor looking at Mexico focuses on are roads and highways, energy, qualified labor and legal certainty. Energy security especially is important for the economic development of the country but the challenge is huge because the investment needed is high. We require a US$123 billion investment by 2030 to develop the needed transmission infrastructure. 

Jalisco is an example of a government taking action to attract foreign investment by betting on technology and other nontraditional areas. It is also the first state in the country to incorporate an anti-corruption clause in all its contracts. Globally, ICC has established contract clauses wherein both parties commit to having an honest relationship that is free of conflicts of interest. If a company detects a problem, for example if an employee is asking for something improper, the company is obligated to report it to the ICC to keep moving forward.

Q: How has the government received ICC’s initiatives?  

A: We have been well-received by different ministries. The new government is interested in collaborating with us and vice versa. They see us as a way to integrate into global discussions. We are in direct contact with different ministries depending on the issue. For example, we are working on internet governance with the Ministry of Communications. When ProMéxico closed, we offered Minister of Foreign Affairs Marcelo Ebrard the opportunity to keep in contact with the business community through ICC. With the Ministry of Finance and Public Credit, we are in talks regarding the digital tax on tech companies. There government should not take isolated action on this issue and our recommendation is to wait for the OECD to release its position. All commercial platforms should be subject to an appropriate tax that does not hamper their development.

Q: How can Mexico remain an attractive destination for FDI?

A: A sustainable future must include environmental sustainability. This subject, like corruption, has become part of the political and business rhetoric but the reality is that we are not doing enough to achieve true change. The global business community signed a commitment to change its manufacturing, packaging and general business practices by 2025. We already have specific commitments from several companies like Unilever, which recently announced they would only produce 25 percent worth of their packaging from new plastic and 90 percent would come from recycled materials. These changes will lead to a circular economy. At ICC, we are working on a project in cooperation with luxury brands, which are responsible for the most waste in their packaging and products, as well as the perfumery and cosmetic industries. In this regard, Mexico needs to show its commitment to the environment, which is still lacking.

Another factor to ensure Mexico remains attractive to investors is economic development. We need higher productivity, which the administration has yet to discuss. Competitiveness is also important, regardless of the government’s social vision, which we share. We cannot put those matters aside. It is imperative to recover, in both speech and action, competitiveness and productivity. In the end, this will allow us to generate appropriate social development. This will also lead us to train people for the future, meaning the automation and digitalization revolution.

Photo by:   ICC
Andrea Villar Andrea Villar Journalist and Industry Analyst