Describe the significance of, and developments in, the automotive industry in the market.

In recent years, the automotive industry has grown to be one of the economy’s industrial manufacturing pillars, currently representing approximately 3 per cent of Mexico’s gross domestic product and 18 per cent of the national manufacturing GDP, standing as the second most important manufacturing activity after the food industry. It creates more than 900,000 direct jobs and is one of the main sources of foreign investment with over US$52 billion invested each year.

The automotive industry in Mexico has been growing at a fast pace. Among the advantages that Mexico offers to original equipment manufacturers (OEMs), as well as to tier 1 and tier 2 companies, are a skilled workforce, a privileged geographical location and, thanks to the number of international treaties signed, the ability for those companies to have excellent access to multiple international markets (over 45 countries and counting).

To better understand the Mexican market and the current situation in the industry, we should highlight that production is generally divided into three main categories: light vehicles, heavy vehicles and auto parts. The figures for those sectors show that in 2018 around 3,908,000 light vehicles (a 0.6 per cent decrease compared with 2017) and 129,795 heavy vehicles were produced (a 15 per cent increase compared to 2017); the auto parts sector increased 7 per cent compared to 2017, resulting in Mexico being the fifth-largest auto parts producer in the world and the largest in Latin America, while climbing one position to become the sixth largest vehicle manufacturer globally.

The National Auto Parts Industry has forecast that production of Mexican auto parts will continue to grow in the coming years, with an expected US$96 billion value by 2021.

Currently Mexico has over 20 assembly plants (with further plants being planned for construction) and a powerful tier 1 supplier network with over 600 suppliers countrywide (at least 95 per cent of all tier 1 companies are present in Mexico). In 2017, the states of Sonora, Coahuila, Puebla, Mexico, Guanajuato, Nuevo León and Aguascalientes generated 84.2 per cent of the total vehicle production.

Regarding exports, Mexico ranks as the fourth-largest exporter in this industry; during 2018 Mexico exports were worth US$49.4 billion, a solid 19 per cent increase on exports when compared with 2017, and the highest figured ever reported by the industry. Mexico currently exports over 88 per cent of its total vehicle production, accounting for US$1 out every US$3 received by the country from exports.

There are many destinations for Mexican exports, the main one being the United States, which counts Mexico as its main automobile supplier, receiving around 74.4 per cent of its vehicle production, Canada receiving 7.2 per cent, Germany 4.4 per cent, Brazil 2.3 per cent and Colombia 1.5 per cent. Nevertheless, exports to other destinations have also risen. For example, in the past few years China became Mexico’s sixth most important destination, exports to Argentina grew by 53.2 per cent, and to Chile by 41 per cent.

As a result of investments and the establishment of new local plants, Mexico currently ranks as the world’s sixth-largest vehicle producer and the fourth-largest exporter. Many predict that by 2020 (with the arrival of Mazda, Audi and BMW, and expected investment from Chinese companies such as BAIC and JAC) the industry may reach the production of 5 million light vehicles in more than 30 plants. It is also worth mentioning that even though recent plant cancellations (such as the Ford plant in San Luis Potosi), and a light vehicle sales decrease, foreign investors find Mexico as a suitable option: Gestamp, the Spanish automotive supplier, has recently inaugurated its new factory in San Luis Potosi, and Ford has decided to shift by 2020 its Transit Connect van production from Spain to Mexico.


What is the regulatory framework for manufacture and distribution of automobiles and automobile parts, such as homologation process as well as vehicle registration and insurance requirements?

To export to new markets, OEMs must comply with several legal and technical requirements. In Mexico imports and production of new vehicles are subject to a wide range of directives and regulations.

There are several Mexican official standards (NOMs) regulating the technical requirements of certain products. The government main agencies that are authorised to issue NOMs in the automotive sector are the Ministry of the Environment and Natural Resources regarding environmental issues, the Ministry of Communications and Transportation -for all transportation and safety matters, and the Ministry of the Economy.

Several models have now been discontinued as a result of the application of NOMs setting minimum security measures, and are currently being substituted with other models. For illustrative purposes, in 2017 Nissan decided to stop producing one of its best-selling vehicles, the Tsuru, and has announced that it will end the distribution of its Tiida model in Mexico. Some other manufacturers are looking for alternate models to sell in the Mexican market as a result of heightened security measures required by the government (items such as automatic braking systems, air bags and defrost systems, among others). As of 2019, manufacturers are not allowed to sell automobiles that do not comply with the new minimum safety features.

The environmental issues addressed by such NOMs are mostly about fuel emissions and regulation of noise, clean energies and diesel. In the case of safety matters the requirements are mostly about mechanical conditions and dimensions of the vehicles, as well as brakes, brake callipers, air bags and other safety devices and features, some of which are industry standards in other countries, but were not yet mandatory in Mexico.

It is essential to meet the NOM requirements and provide evidence of compliance with such standards in order to import or produce vehicles in the Mexican market. Under Mexican law, the NOM certificate holder is responsible for warranty, maintenance and product liability. Such certificates are not transferable, although manufacturers with NOM certificates may extend their usage rights to their distributors.

In addition, the government grants certain facilities to support companies complying with responsible environmental practices. This is part of a corporate social responsibility drive aimed at the incorporation of fair values into business practices.

Finally, Mexico, Canada and the United States have finalised negotiation of new free trade agreement (USMCA) that would, upon ratification, replace the existing NAFTA agreement. This new treaty will require that automakers use at least 75 per cent of North American-made parts in imported vehicles to comply with the rules of origin provided for in the new USMCA.

Development, manufacture and supply

How do automotive companies operating in your country generally structure their development, manufacture and supply issues? What are the usual contractual arrangements?

Automotive companies usually operate using an IMMEX maquiladora programme, which allows a Mexican entity to engage in manufacturing activities (mainly for exportation purposes) and temporarily import parts and materials on a duty-free basis. The usual IMMEX maquiladora structure is through a principal, which is a foreign entity residing in a country with which Mexico has a tax treaty in place. This entity will hold the manufacturing agreements. Such agreements set forth the organisational, operational and economic terms, and are entered into by the principal and the manufacturing Mexican entity.

Maquiladoras may be established anywhere in the country and, if certain requirements are met, they can also sell a part or even all of their production locally. Usually maquiladoras are incorporated as stock corporations or limited liability companies, which have minimum capital requirements, and allow foreign investors to own up to 100 per cent of the corporate capital of such entities.

Among the many advantages of operating under the IMMEX programme are temporary duty-free imports on raw materials, exemptions on import duties, value added tax refunds, and others.

There are also sectorial relief programmes applicable to the vehicle and auto parts industry that aim to give companies a preferential tariff rate to import goods intended for production, regardless of the country of origin, and which also foresee preferential trade tax rates to export the resulting products.

In an effort to create manufacturing clusters and reduce idle inventory volumes, assembly plants commonly require that their suppliers be as physically near to them as possible, forcing suppliers to set up locally.


How are vehicles usually distributed? Are there any special rules for importers, distributors, dealers (including dealer networks) or other distribution partners? How do automotive companies normally resolve restructuring or termination issues with their distribution partners?

Before starting the importation procedure, the vehicle’s proper compliance with Mexican NOMs and applicable regulations must be fulfilled. The actual importation process is handled by a customs broker.

Since 2004 it has been possible to import new vehicles from the United States, Canada and member states of the European Union without any import tariff. Recently, Brazil and Mexico have eliminated import tariffs on light vehicles and auto parts, while the import tariffs on heavy vehicles will be eliminated on 2020. There are many regulations on this type of import establishing several requirements for such vehicles, including maximum mileage allowed for the vehicle to be considered as new, compliance with applicable NOMs, etc.

A few years ago, governmental decrees were issued in an effort to reduce the flow into Mexico of used vehicles purchased cheaply in the United States. This was the government’s reaction to growing concerns about potential damage to the industry in Mexico, the consequential creation of an ageing motor pool, higher pollution levels, fuel efficiency, maintenance costs and difficulties identifying such vehicles.

Distribution is generally handled through distributors that enter into distributorship agreements with the automotive manufacturers. These agreements usually contain standard contractual termination clauses (eg, failure to reach certain thresholds for certain periods of time, other performance requirements, etc).

Mergers, acquisitions and joint ventures

Are there any particularities for M&A or JV transactions that companies should consider when preparing, negotiating or entering into a deal in the automotive industry?

Mergers and acquisitions in the automotive industry are fairly standard compared to other M&A operations and can be done by purchasing stock or shares of a company, purchasing assets of a company or by merging two or more companies to create a new one or to merge one into another.

Joint venture companies (ie, the creation of a new entity into which two existing entities transfer assets or capital) in Mexico are independent from their parent companies and must obtain a separate Federal Taxpayer Registry number. Usually these new entities have shareholder agreements in place that provide for the corporate structure, management, business plans, etc.

Companies should get local legal advice to comply with all applicable laws, especially those regarding antitrust and economic competition, environmental, tax, labour and administrative provisions, all applicable NOMs and all authorisations, licences or permits required before beginning operations.

English is widely spoken in Mexican M&A transactions, and agreements are often drafted in English, while jurisdiction and applicable law may be set to be Mexico or a foreign jurisdiction (most commonly New York). Arbitration clauses are not uncommon in larger deals and contracts.

Incentives and barriers to entry

Are there any incentives for investment in the automotive market? Are there barriers to entry into the market? What impact may new entrants into the market have on incumbents?

Among the factors that may be considered as an incentive to invest in Mexico is its geographic location as neighbour to the world’s largest vehicle market, the low cost of the workforce, the high-level degree of specialisation of Mexican labour and the extensive network of free trade agreements, among others.

There are incentives such as tax privileges granted to companies operating under IMMEX programmes, providing many tax and administrative benefits such as avoidance of the general import tax and value added tax payment, value added tax refunds, reduced customs fees and simplified import and export declarations.

Other incentives can be found in the form of sectorial promotion programmes, which through their application may reduce most-favoured-nation import duties. These programmes support 22 different sectors, including the automotive and auto parts sectors. They also enable manufacturers to import their inputs at preferential tariffs to ensure they remain competitive. Most automotive inputs can be imported duty-free thanks to this programme. In addition, companies that comply with all regulations contained in the ‘eighth rule’ (licence issued by the Ministry of the Economy) may access a mechanism that allows such companies to import materials, inputs, parts and components using a zero per cent rate.

Several Mexican states such as Sonora and Yucatan have developed their own policies and benefits for the industrial sectors that can be translated into several benefits and incentives for investors. These measures include reductions in real estate prices and taxes, discounts or reductions of payroll taxes and even employee training programmes.

Federal and state governments are actively attracting automotive manufacturers into Mexico, providing additional benefits that should be analysed on a case-by-case basis.

Following the USMCA’s signing, many vehicles manufacturers (Toyota, among others) have communicated their interest to expand their investments in Mexico. The North American sub-secretary for the Ministry of Foreign Affairs has stated that the automotive sector’s investment flow will increase owing to the strengthening and updating of its rules. In addition, Mexico is expected to benefit from the US-China trade war; with US sanctioning tariffs on China, Mexico’s advantageous geographic position, and the rise of electric and hybrid vehicles in the industry (in which China is a leader) Mexico and China may become natural business partners.

Product safety and liability

Safety and environmental

What are the most relevant automotive-related product compliance safety and environmental regulations, and how are they enforced? Are there specific rules for product recalls?

Technical and quality standards regarding safety and emissions that must be met for the Mexican market are contained in NOMs. Some of the most relevant NOMs include:

  • NOM-194-SCFI-2015 will be regulating minimum security measures for new light vehicles, including provisions on the technical requirements for many parts of the vehicle such as tyres, ABS, braking lights, reverse lights, evaluation methods and verification procedures;
  • NOM-042-SEMARNAT-2003, NOM-044-SEMARNAT-2006 and NOM-076-SEMARNAT-1995 regulate vehicle emissions such as the maximum emission levels for vehicles, evaluation methods and verification procedures; and
  • NOM-079-SEMARNAT-1994 and NOM-082-SEMARNAT-1994 regulate the maximum noise level for vehicles and the evaluation method thereof.

There are also regulations on security measures such as marking of doors and frames so that the vehicle is equipped with adequate and accessible information to protect consumer rights and avoid theft. Additionally, there are many safety measures regulating technical specifications on seatbelts, tyres, brakes and other vehicle parts in order to protect consumers from bodily harm. These standards are generally issued in such a manner as to be aligned with international regulations. Manufacturers must be frequently updated on any new NOMs and additional requirements for them to comply and be able to continue business operations.

As an outstanding environmental measure applicable in the Mexico City Metropolitan Area, there is the ‘Hoy no Circula’ programme, which prohibits driving certain vehicles on certain days, depending on the results that such vehicles achieved in a mandatory contaminants emissions test. This measure only applies to the Mexico City Metropolitan Area.

Recalls are handled by the Consumer Protection Bureau through the issuance of a non-binding recall request issued to the relevant party to recall certain products. These recall requests are standard and in case of non-compliance the consumer protection authority may assist the affected parties in filing suit. Additionally, manufacturers may recall defective products, which is common in big-scale recalls with a global reach.

In 2018, more than 122,000 FCA Mexico vehicles and five Volkswagen vehicles were recalled for possible failures by the Consumer Protection Bureau.

Product liability and recall

Describe the significance of product liability law, and any key issues specifically relevant to the automotive industry. How relevant are class actions or other consumer litigation in product liability, product recall cases, or other contexts relating to the automotive industry?

Product liability law in Mexico for defective products is based only on the fault of the manufacturer or any other person in the production chain whose actions or omissions result in damage. If direct damage is not caused, and there is no direct link between the damage and the alleged guilty party, it will be difficult to support liability claims.

Mexico’s civil law considers product liability as an extra-contractual obligation (similar to tort, in common law countries). The law provides that whoever has acted illegally or against good custom, and has caused damage to another must repair the damage caused. Therefore, liability can only be imposed if damages were caused by such breach. The state does not operate any schemes of compensation for particular products but consumers may be able to file a claim if the defective product damages the individual and causes civil liability. These events are ruled by the Civil Code (federal or local).

Mexican law does not provide an obligation to recall defective products. But there are many companies with recall policies for defective products or failures that are used as a quality standard and as a practical measure to prevent future damages to consumers.

Although the Mexican legislation does not foresee recalling products as necessary, failure to do so may result in a possible liability claim based on negligence. A possible defence against any liability claims exists if the accused party can prove it has complied with all legal and technical specifications for a product.

In such regard, collective actions are available in Mexico to prosecute consumer clams; these actions may also be brought directly by governmental agencies such as the Consumer Protection Bureau.


Competition enforcement

What competition and antitrust issues are specific to, or particularly relevant for, the automotive industry? Is follow-on litigation significant in competition cases?

Mexico is considered as one of the most competitive countries in this market. In terms of the automotive industry there are well over 50 brands with a presence in Mexico and around 2,600 auto parts companies.

In competition matters, the 2014 Federal Economic Competition Law, along with an amendment to the Constitution, created a new Federal Economic Competition Commission. Even though this commission follows the legal framework established by the previous one on monopolistic practices, some changes have been introduced regarding defining entry barriers to competition and access to essential raw materials. Even though the new Competition Commission has been very aggressive with its investigations and fining activities in other industrial sectors, there has as yet been no major competition litigation related to the automotive industry in Mexico.

Cooperation between the competition enforcement agencies of Canada, the United States and Mexico has continued to strengthen, and Mexico’s participation in joint investigations has increased. If a company is being investigated by one of these countries for a possible antitrust violation, its conduct and statements could also be reported and investigated by the authorities of the other countries.

There are annual trilateral meetings of the aforementioned countries with the objective of ensuring and improving cooperation and coordination of antitrust policies and their enforcement.

Dispute resolution mechanisms

What kind of disputes have been experienced in the automotive industry, and how are they usually resolved? Are there any quick solutions along the supply chain available?

Disputes in the Mexican automotive industry are often resolved through arbitration if an agreement includes such provision. If parties involved in the dispute are also NAFTA parties they often resolve their dispute through the provisions set forth in Chapter XI of the treaty (still binding, although subject to being amended under USMCA prior ratification). When in effect, it is foreseen that the USMCA would maintain the NAFTA dispute mechanisms for this industry. Likewise, if parties are signatories to any other trade agreement that Mexico has entered into, an arbitration solution may be available for them.

Mexican courts recognise and enforce awards obtained by these mechanisms; however, if such dispute resolution mechanisms are not available to them, the dispute must be resolved through the application of Mexican law by the competent courts and may not be as expedient as arbitration.

Finally, Mexican courts do not enforce remedies such as injunctions or other equitable remedies except for preliminary relief specifically enumerated in the Commercial Code, as well as stay of execution of the claimed act (similar to injunctions or stop orders) in amparo proceedings. Mexican courts do not award damages other than actual, direct and immediate damages and lost profits, and may not enforce judgments awarding them.

Distressed suppliers

What is the process for dealing with distressed suppliers in the automotive industry?

As mentioned above, to strengthen the supply chain, tier 1 and 2 companies and OEMs are generally clustered near assembly plants. Nevertheless, sometimes supply interruptions can arise and adversely impact operations and organisations. Therefore, a first important step to avoid these scenarios is for manufacturers to be aware of the status, finance and reputation of their suppliers.

Although there are no legally established processes for this situation (other than bankruptcy laws), generally speaking it is recommended for the manufacturer to consider three main preventive activities regarding its suppliers:

  • reviewing information such as financial statements and analysing internal performance and price trends to develop a risk profile of each supplier;
  • identifying issues such as distinguishing troubled suppliers from healthy ones and determining most likely areas of distress; and
  • analysing and, if necessary, undertaking different options such as changing supplier (if alternative suppliers are an option and an efficient transition is commercially feasible), investing or acquiring said supplier, developing efforts with the supplier to improve communication and material process flows or creating an inventory stock to be used as a reserve.

We recommend having provisions included in the agreements entered into by manufacturers and suppliers that cover scenarios in which the supplier is distressed or failing. Obligations for suppliers to ensure an efficient transition to a new provider are common practice in similar agreements. NAFTA notably contains certain regional value content specific to the automotive industry that, barring any unforeseen amendments, will likely be increased upon effectiveness of the USMCA so that manufacturers with a high North America export rate must be careful to comply directly, and through their suppliers, with such regional content to keep exporting into the United States and Canada.

Intellectual property disputes

Are intellectual property disputes significant in the automotive industry? If so, how effectively is industrial intellectual property protected? Are intellectual property disputes easily resolved?

The current state of IP protection in Mexico is an ongoing concern. The legal system is sometimes considered inefficient and violations are punished with weak penalties. Therefore, it is highly recommended for automotive companies to aim for appropriate protection of IP rights upon doing business in Mexico.

Although registering IP rights in another country may offer some benefits, foreign protection does not always extend to Mexico. As such, to ensure and duly protect IP rights, such property must be registered and enforced under Mexican law.

Local legal advice is needed when licensing and transferring technology or any IP right to prepare the agreements and fully protect IP from unauthorised use; franchising is a growing option to be considered.

Intellectual property rights are expected to receive more protection under the USMCA. This treaty proposes: a copyright term extended to 70 years, prohibitions on circumvention of technological protection methods, and criminal and civil penalties protections for trade secret theft, among other things.

Employment issues

Trade unions and work councils

Are there specific employment issues that automotive companies should be aware of, such as with trade unions and works councils?

The right to work in Mexico is protected by the Constitution, specifically articles 5 and 123. The Federal Labour Law broadly regulates all main topics contained in article 123 of the Constitution and is also responsible for regulating all labour aspects between employers and workers, including establishing minimum worker protection rights.

The unratified USMCA will also provide certain rights to the workers of this industry that are not currently standard practice. USMCA includes wage requirements that might tighten one of Mexico’s competitive edges, such as a provision that requires employees in the automotive industry to pay their workers in at least US$16, which is considerably higher than the current median wage. Mexico could be pressured by these provisions since it has proven its economic competitiveness through low labour costs. This treaty also provides that Mexican authorities must allow workers to form unions.

Many entities decide to establish an operating company that will own all relevant assets and actually undertake business operations, along with a services company that ‘houses’ the employees, which in turn is engaged by the operating company (in such a way that the employees are subcontractors of the operating company). This structure generally allows for the operating company to limit their profit sharing obligations, which employees are entitled to receive on a yearly basis, and limits labour-related contingencies for the operating company. Recent legislation on the matter has included three important conditions that, if not complied with, result in the contractor being deemed as jointly liable with the employer for purposes of labour and social security provisions:

  • the subcontractor activities may not cover all of the activities, the same or similar as a whole, taking place in the workplace of the contractor;
  • subcontracted activity must be justified by its specialised nature; and
  • the subcontractor’s activity should not contemplate the same or similar tasks conducted by the rest of the workers of the contractor.

Also, the law provides for alternative types of labour relationships such as by season, probation period, initial training and indefinite contract for fixed and periodic tasks, among others. Regarding the working week, a six-day, 48-hour working week is standard. Overtime pay is required if this level is exceeded (double pay for up to nine hours of overtime and triple pay for overtime of more than nine hours).

Among the main rights enjoyed by employees are holidays, paid leave after one year of service, holiday bonuses, and an annual bonus equivalent to at least two weeks’ pay. Employers are responsible for these additional costs, which can add 30 to 35 per cent to an average salary.

Other relevant obligations of employers are: compliance with safety, health and environment regulations and Mexican NOMs; mandatory handicapped access if employing over 50 employees; obligation to give employees access to the full text of the collective bargaining agreement that may exist in larger companies; informing employees of the risks and dangers associated with their activities in the workplace; confirmation of paternity leave; and the establishing policies against harassment and discrimination.

Pursuant to the Federal Labour Law, at least 90 per cent of the employees of a Mexican entity must be Mexican nationals, excluding directors, managing directors and general managers. Therefore, foreign personnel shall not exceed 10 per cent of the total number of workers in a Mexican company.

Trade unions in Mexico have significant influence over the labour market. The Federal Labour Law protects the right of workers to associate without prior authorisation and provides the framework to create a trade union. For unions to be valid and in force they must be registered with the local labour authorities or with the Ministry of Labour. As a result of having labour unions, collective negotiations and agreements are signed by representatives of unions and the employer.

In practice, employees may be forced to have their workers unionised. This may occur when a trade union discovers that any given entity is not a party to a collective bargaining agreement, and may then demand that they are contracted with. For such purposes, it is common to have ‘white unions’, which are practically dormant but comply with such requirement, instead of having active unions, which may cause complications depending on the nature and intent of such union.

New technologies

Legal developments

What are the most important legal developments relating to automotive technological and mobility advances?

As a result of rising fuel prices and high pollution levels, the development of new automotive technologies has experienced growth. Although the acquisition by consumers of vehicles equipped with new technologies is somewhat limited by their relative high prices, the Mexican government has supported consumers by creating many incentives to encourage them to buy these types of vehicles.

In Mexico sales of hybrid and electric cars are not abundant, but they are growing. Between January and November 2018, 15,694 units were sold nationwide, which reflects a 70 per cent increase in comparison with the figures for the same period year on year. While in November alone this vehicle segment sold 1,768 units, only 16 of those were electric, 113 were connectable hybrids, and 1,639 were hybrids.

Among some of the governmental incentives to acquire these types of vehicles is an exemption for hybrid and electric vehicles from the federal tax taxing new vehicles. The Federal Electricity Commission also has developed several measures to foster these vehicles such as the installation of a different type of domestic measuring device for billing purposes, as well as preferential rates on electricity consumption. Regarding local government support, the regulations of some states include exemptions on the ownership and use local tax. These vehicles are generally not affected by the ‘Hoy no Circula’ programme or subject to emissions verification processes.

Finally, although the Trump administration took certain steps to attempt to maintain automotive manufacturers and manufacturing jobs within the United States, which initially resulted in Ford cancelling a US$1.6 billion plant scheduled to be built in San Luis Potosí, Mexico, entities such as BMW and Toyota, among others, have ratified their plans to expand their manufacturing capabilities in Mexico, and several Chinese manufacturers have expressed serious intentions of investing (or increasing their investment) in Mexico.

Update and trends

Recent developments

Are there any emerging trends or hot topics in automotive regulation in your jurisdiction?

As a result of the ‘America First’ initiative being pushed by the Trump administration in the United Sates, the United States withdrew from the Trans-Pacific Partnership, which would have created a free trade zone accounting for approximately 40 per cent of the world’s economy, and would have significantly eased access to the markets of the signatory countries. Although the TPP would have certainly helped to increase the further development of the automotive industry in Mexico by even further opening additional trade destinations, the remaining countries decided to push on and sign the TPP-11 (minus the United States). Although not as massive as the original TPP, the new TPP-11 creates a free trade bloc accounting for 15 per cent of the world’s global trade, and will benefit 500 million people spread around the 11 signatory countries. Although it came in full effect on December 2018, it is expected that the TPP-11 will increase competitiveness of the signatory countries, create better work and health standards, and open new options for the Mexican market, which will become an even more attractive country for both domestic and foreign vehicle manufacturers.

As mentioned above, the negotiations for the new treaty that will replace NAFTA finally concluded in September 2018. After a year of renegotiating NAFTA’s terms, the USMCA isn’t as far-fetched as President Donald Trump suggested it to be. Nevertheless, President Trump’s threats to Mexico have not ceased. He has threatened to close the US-Mexico border on numerous occasions, and to impose 25 per cent tariffs on all Mexican vehicle exports, intending to pressure Mexico in tackling certain matters in the drug and migration crisis. Owing to the USMCA’s threshold for Mexican vehicles, experts believe that rising tariffs will not materially affect Mexico in the short and medium term.

Although the NAFTA currently seems a much more suitably treaty for Mexico, the USMCA will likely still provide a stable and inviting framework for the automotive industry. China, Brazil and Spain, among others, have announced their intention to invest and trade with Mexico in the automotive sector further on during year. The USMCA’s ratification by the parties’ respective legislative bodies has been delayed yet again, meaning that its entry could take effect until early 2020. It is expected that Mexico will not enact any other regulation for the automotive sector until the treaty enters in effect.