Guide To Mexico For Foreign Investment Cooperation Countries In Textile Industry

On November 3, 2023, at the 6th China Textile Industry "Belt and Road" Conference, the Marketing Department of the China Textile Industry Federation, the International Trade Office and the Textile Industry Branch of the China Council for the Promotion of International Trade jointly released the 2023 National Guide for Foreign Investment and Cooperation in the Textile Industry. The compass introduced and analyzed the investment environment of 20 countries around the world, providing information guidance for textile enterprises to carry out the "Belt and Road" cooperation.

At the beginning of the new year, the Secretariat of China Textile International Capacity Cooperation Enterprise Alliance has been authorized to share the above report with you in 20 issues according to the regional scope, hoping to add impetus to the "Belt and Road" cooperation and double cycle high-quality development of textile and clothing enterprises.

　　 Country Profile

geographical environment

Mexico is located in North America, bordering the United States in the north, the Pacific Ocean in the south and west, Belize, Guatemala and the Caribbean Sea in the southeast, and the Gulf of Mexico in the east. With a territorial area of 1.964 million square kilometers, it is second only to Brazil and Argentina in Latin America. The territory is mostly plateau terrain, and most areas are divided into dry and rainy seasons, with an average temperature of 10-26 ℃. It belongs to West 5 time zone, and the time in Mexico City is 13 hours later than Beijing time.

　　 natural resources

Mexico is rich in mineral resources. The output of 17 kinds of mineral resources ranks among the top ten in the world, and the output of silver ore ranks first in the world for many consecutive years. There are abundant oil and gas resources. The recoverable reserves of crude oil are 25.2 billion barrels, and the recoverable reserves of natural gas are 323.6 trillion cubic feet. About 40% of the oil and gas resources are distributed in the northern region.

　　 infrastructure

The total length of Mexico's National Road Network (RNC) is 807000 kilometers, of which the highway network is 41000 kilometers long, connecting the United States, Guatemala and Belize. The railway facilities are relatively backward, and there is no high-speed railway, with a total length of 27000 kilometers, which can connect the United States. There are 78 airports, of which 17 major airports are responsible for 88% of the passenger traffic volume and 98% of the freight traffic volume of the airport. International routes to Europe, the United States, Asia and Central and South America have been opened, and direct passenger flights to China have not yet been opened. There are 117 seaports, including 58 on the Pacific coast and 59 in the Gulf of Mexico and the Caribbean. The installed power capacity of the country is 93430 MW, and the power generation is 306 billion kWh. Part of the energy depends on the natural gas imported from the United States. In 2021, there was a global power failure event caused by the natural gas supply failure. The domestic 4G network coverage rate has reached 82%, and the 5G network is under construction. The logistics industry is relatively backward, and many regions lack fast and reliable delivery services.

　　 population distribution

Mexico currently has a population of 130 million, with more than 90% of the total population being Indo European and Indian. The population aged 15 and above accounted for 57.4%, and the population aged 18 and above with university education was about 19.5 million, accounting for 22.4%. 88% of the residents believe in Catholicism and 5.2% in Protestantism. At present, there are nearly 150000 overseas Chinese permanent residents in Mexico, mainly in Mexico City and the northern region. Spanish is the official language and English is the first foreign language.

Macroeconomy

Mexico is a large economic country in Latin America, with a complete range of industries. Its petrochemical, electric power, mining, metallurgy and manufacturing industries are relatively developed, and its economy is highly export-oriented. The scale of the automobile industry ranks first in the manufacturing industry, and the textile and clothing industry is one of the important manufacturing industries. Mexico is a traditional agricultural country, mainly producing corn, tomato, sweet potato and tobacco. In 2022, Mexico's gross domestic product (GDP) will be 1.4 trillion US dollars, and the per capita GDP will be 11000 US dollars. According to the World Bank's Business Environment Report 2020, Mexico ranked 60th among 190 countries and regions. The Global Competitiveness Report 2020 of the World Economic Forum shows that Mexico ranks 69th among 141 countries and regions participating in the evaluation. According to the 2023 World Investment Report of the United Nations, Mexico will attract 35.29 billion dollars of foreign direct investment in 2022, and the stock of foreign capital will reach 649.29 billion dollars. The Statistical Bulletin of China's Foreign Direct Investment in 2021 issued by the Ministry of Commerce of China shows that China's direct investment in Mexico in 2021 will be 230 million dollars, and the investment stock will be 1.3 billion dollars.

　　 Current situation of textile industry

Industrial scale

Textile industry is Mexico's traditional competitive industry, which plays an important role in the national economy. The textile industry system is relatively complete, and the main products include all kinds of yarns, narrow width blended fabrics, plain fabrics, knitted fabrics, non-woven fabrics, household textiles and all kinds of clothing. According to incomplete statistics, there are about 2800 textile enterprises in Mexico.

Mexico's cotton textile industry has a certain basis for development. Polyester, nylon and other chemical fiber industries are dominated by foreign-funded enterprises. Local enterprises have more prominent advantages in the field of garment export processing. The United States is the most important export market for Mexico's textile and clothing products. More than 90% of Mexico's clothing and home textile products are sold to the United States, which is the fifth largest source of textile imports and the seventh largest source of clothing imports.

　　 international trade

Mexico's textile and clothing imports and exports are on the same scale. Clothing is also the largest category of imports and exports. The United States is also the largest export market and the largest source of imports. According to the data of Mexico's National Bureau of Statistics, in 2022, Mexico's textile and clothing exports (customs HS code chapters 50-63 textile raw materials, textiles and clothing) will be 6.82 billion dollars, with exports to the United States accounting for 96% of its exports to the world, followed by Nicaragua (accounting for 2%). The main export products are knitted garments, woven garments and other textile manufactures, of which the export volume of garments accounts for 62%. During the same period, the textile and clothing import volume was 6.02 billion US dollars, with imports from the United States accounting for 49% of the total import volume, followed by China (accounting for 21%), Vietnam and Bangladesh. The main imported products are knitted garments (26.8%), woven garments (16.5%), coated fabrics and industrial fabrics (12%), etc.

　　 Industrial layout

According to the Mexican National Bureau of Statistics, 63% of textile enterprises are concentrated in the central and northeastern regions. Puebla has the most developed textile industry. Other states and cities, such as Mexico City, Hidalgo, Tesla, Halysco, Cretaro, Coavera, Sonora, Guanajuato, Nuevo Leon and San Luis Potosi, are also important textile cities of a certain scale.

　　 Trade and investment policy

Foreign trade policy

Mexico has an active policy in opening up international markets. It is a member of the World Trade Organization (WTO), the Organization for Economic Cooperation and Development (OECD), the Comprehensive and Progressive Trans Pacific Partnership Agreement (CPTPP), the Pacific Alliance (Alianza del Pacifico) and other mechanisms, as well as the Asia Pacific Economic Cooperation (APEC), the Community of Latin American and Caribbean States (CELAC) Active participants of multilateral and regional organizations such as the Latin American Integration Association (ALADI). It has signed 14 free trade agreements (FTAs) with more than 50 countries and regions, and is the first developing country to sign free trade agreements with the EU. The US Mexico Canada Agreement (USMCA), which has been updated to the terms of the North American Free Trade Area (NAFTA) Agreement, came into force in July 2020. Products originating in Mexico enjoy zero tariff in the United States and tariff reduction and exemption in the European Union.

Mexico is relatively conservative in its market opening measures. According to relevant policies, goods that are not produced domestically can be imported duty-free from the member countries of the Latin American Integration Association. In August 2023, the President of Mexico signed the Administrative Order on Amending the General Import and Export Tariff Law, which increased the import tariff of 27 tariff lines including denim to 15%, and the import tariff of 49 tariff lines including chemical fiber down jacket to 25%. The additional tariff is valid until July 31, 2025. Mexico is one of the countries that take the most anti-dumping measures against Chinese products. It imposes high anti-dumping duties on products of multiple tariff lines originating in China, and constantly proposes new anti-dumping investigations, which also reflects its basic attitude of supporting the development of its own industry through trade protection measures.

　 Preferential policies for investment

In the field of manufacturing industry, Mexico has no clear investment restrictions for the time being. Foreign investors can make new investment in the local area in the form of sole proprietorship or joint venture, or merge and acquire local enterprises. Foreign funded enterprises can purchase real estate in the restricted areas of Mexico and Africa, but must be approved by the Ministry of Foreign Affairs. For foreign-invested cotton planting industry, the planting area shall not exceed 150 hectares, and the excess shall be divided and disposed according to national legal procedures. In foreign-funded enterprises, the proportion of Mexican employees must reach at least 90%, but the management is not restricted by this proportion.

Mexico has no exclusive preferential policies for foreign investment, but all states have departments responsible for attracting investment, which are generally located in the Department of Economic Development. The investment promotion department can provide full support and handling services for various permits or certificates required for the establishment of the company; Free introduction and consultation on customs, accounting and law.

The Mexican Special Economic Zone has formulated a series of preferential investment policies, mainly including:

(1) Export enterprises can be exempted from VAT, enjoy preferential corporate income tax, customs clearance facilities and "one-stop" services.

(2) Once the specific preferential policies formulated by the special zones in accordance with the Special Zone Law have been introduced, they shall not be cancelled or changed within 8 years to damage the rights and interests of investors.

(3) A foreign-funded company can apply for bonded factory qualification if its annual export volume is more than 500000 dollars or 10% of its products are used for export. Raw materials, semi-finished products, packaging materials and machines can be exempted from import duties; If a foreign-funded company imports production machinery and equipment, the annual export volume shall account for more than 30% of its total sales.

(4) From 2021, the income tax of many southern states will be reduced from 30% to 20%, and the value-added tax will be reduced from 16% to 8%. The fuel price is consistent with that of neighboring countries.

　 exchange control

Mexico implements the exchange rate system pegged to the US dollar. The US dollar can be freely remitted out of or into Mexico. Foreign funded companies can open a US dollar cheque and deposit account in any legal bank in Mexico. The minimum amount for opening an account is set by each bank. The Mexican peso can be freely exchanged with the US dollar, euro and yen, but the RMB cannot be directly settled with the peso at present. The profit remittance of foreign-funded enterprises needs to pay the profit remittance tax, and the tax rate is slightly different between countries.

Cooperation in textile industry between China and Mexico

China and Mexico established diplomatic relations in 1972, signed an investment promotion and protection agreement in 2008, and signed a memorandum of understanding to promote industrial investment and cooperation in 2014. Currently, no currency swap agreement and production capacity cooperation agreement have been signed. China has been Mexico's second largest trading partner for many consecutive years, while Mexico has remained China's second largest trading partner in Latin America. In 2022, the bilateral trade volume between China and Mexico will be US $94.96 billion, up 9.8% year on year, including US $77.53 billion of China's exports to Mexico and US $17.43 billion of imports from Mexico.

China has a large trade surplus in textiles and clothing with Mexico, mainly exporting clothing and fabrics to Mexico. According to the statistics of China Customs, in 2022, the total import and export volume of textiles and clothing between China and Mexico will be 6.21 billion dollars, of which the export volume to Mexico will be 5.52 billion dollars, and the import volume from Mexico will be only 69 million dollars. The main export products from China to Mexico are knitted garments (accounting for 24%), woven garments (accounting for 17%), knitted fabrics and crocheted fabrics (accounting for 13%), chemical filaments and fabrics (accounting for 11%), etc. The main imported products of China, Zimo and Mexico are cotton, cotton yarn and cotton woven fabrics (30%), knitted garments (30%), chemical fiber filaments and fabrics (11%), and woven garments (7%).

　　 Summary and suggestions

(1) Mexico is one of the countries that have signed the most free trade agreements in the world. It enjoys preferential tariff reduction and exemption policies for exports in the United States, the European Union, Japan and other markets. Its trade advantages are relatively clear, especially its geographical and trade advantages for exports to the United States are the primary factors to attract investment from Chinese textile enterprises.

(2) The rules of origin of the United States Mexico Canada Agreement are relatively strict, and the textile and clothing products are required to be "identified from yarn". Therefore, enterprises that only plan to invest in the clothing sector and do not have upstream partners in the local area are difficult to enjoy tariff preferences, and enterprises must consider the upstream and midstream supporting issues when investing.

(3) Foreign capital does not enjoy any special preferential policies in Mexico. Mexico has not yet signed a formal agreement with China in the fields of free trade, investment and production capacity cooperation. The advantages of investment policies are not obvious for the time being, and Western capital has already taken an absolute advantage in Mexico. It is difficult for Chinese enterprises to integrate into the local industry system and business environment.

(4) Mexico frequently conducts anti-dumping investigations and imposes tariffs on China's textile and clothing products, increasing the risk of purchasing upstream products from domestic supporting facilities. Enterprises with investment intentions need to fully consider the risk factors and carefully evaluate and make decisions.