Mexico-China Economic Relations, Part 2: Mexico Talks Internationalization but its Actions Indicate Otherwise

In part one of this series, Mexico-China Economic Relations: New Administration, Same Old Shortcomings, I discussed how Mexico’s new federal administration does not seem to have a sophisticated strategy for dealing with China. In this post, I will discuss the implications of what appears to be the Federal Government’s China policy, based in large part on the actions it has recently undertaken regarding China.

On December 20, 2018, ProMexico’s Director-General issued a communiqué stating that Mexico’s Ministry of Economy had ordered it to close all of their offices abroad by terminating all office leases and informing local employees that their contracts would not be renewed and by repatriating all Mexican personnel, and all within 60 days. The closure order also included ProMexico’s offices within Mexico as well. My company received an email on December 31 from the head of the ProMexico offices in the State of Mexico (my home state) stating that it had “received indications for the ProMexico Office in the State Operations to cease operations as of December 31 [2018].”

The impact of ProMexico’s closure can hardly be understated. Under the past two federal administrations, ProMexico had set up 46 offices abroad (four in China) and had become a very visible and highly regarded face for Mexico trade and investment promotion. No frontline links between Mexican companies and international markets exist now (INADEM, the agency created to assist SMEs in Mexico will also likely disappear) and trade promotion tasks abroad are now being entrusted to Mexico’s embassies and Consulates, per a new yearly work plan that’s part of a collaboration agreement between the Ministries of Economy and Foreign Affairs, released on January 7th.

Under that agreement, specially-appointed Mexican Foreign Service members will be assigned economic promotion tasks in key diplomatic missions. Putting qualifications aside, one should at least wonder whether the Embassy and Consulate officials will have the necessary time and resources to fulfill their newly created trade and investment promotion duties when their primary functions have more to do with Public International Law than with IP, trade or business law, which is the sort of commercial assistance Mexico’s internationalizing companies need. Similarly, the representative offices abroad of Mexican Ministries like Economy and Agriculture were set up during the past administration to support the efforts of agencies like ProMexico across the globe and it is asking a lot of them to now start paying attention to Mexican companies abroad under the new scheme/

It gets better.

According to El Economista, the Mexican Federal government’s 2019 economic budget shows budget decreases for the Ministries of Foreign Affairs, Agriculture & Rural Development, Economy and Environment & Natural Resources (8.8%, 28.5%, 9.0% and 32.1% respectively). Even if, as the Undersecretary of Foreign Trade says, it only wants to boost Mexican exports to markets like China it is questionable whether these Ministries will enough resources to accomplish that. Just by way of one example: the decreased budget will almost certainly lead to a decrease in monetary support to Mexico’s farmers. Will this preclude increasing agricultural exports to China? Will it make sense to try to increase those exports at the possible expense of local demand. Is it wise for Mexico to seek to increase its incoming foreign investment from China just as China seems interested in stemming capital flight? Is it wise for Mexico to seek to increase its incoming foreign investment from China while contemporaneously laying off so many employees who had the ability to scrutinize the incoming Chinese investors?

The absence of an agency that promote Mexican company internationalization — that was another of ProMexico’s tasks —  will also have legal implications. Indeed, one of the major flaws of sub-internationalized companies is their inability (or unwillingness) to comply with foreign country laws. This was already a problem with ProMexico in place, but now with hardly anyone to help Mexico’s companies better understand what they need to do to comply with China’s laws their vulnerability has just increased. The fact that China has consistently gotten tougher on foreign businesses only makes things even riskier. Many in Mexico are saying that China’s recent ill-treatment of Canadian businesspeople is a sort of warning against the U.S. and it is not farfetched to believe China might start going after Mexico — the United State’s other USMCA partner — at some opportune time.

Mexico needs a proper infrastructure to be able to put in place a sound strategy for dealing with China and to have the leverage to compel China to comply with its treaty obligations. Unfortunately, the restructuring undertaken by Mexico’s new administration has left my country less equipped than ever to deal with a China that ever more openly exerts its power with less and less regard for the interests of other countries. Mexican companies are going to need to learn to rely far less on their own government to protect them against China or to compete in or with China. In my third and final post I will discuss how Mexican (and Latin American, for that matter) companies can do more and better business abroad without having to rely on a shrunken Mexican Government for assistance.

For more on business relations between Mexico and China, check out the following:

• Improving Mexico and China Business Relations: Make it the Law
• China and Mexico: The Two Amigos? Part I
• China and Mexico: The Two Amigos? Part II
• China and Mexico: The Two Amigos? Part III
• China and Mexico: The Two Amigos? Part IV
• Is Mexico Really Better Without China?
• Is Mexico Really Better Without China? Part Two

*  The above post is by Adrián Cisneros Aguilar. Adrian is the founder/CEO of Chevaya (驰亚), an Asia-Pacific internationalization services company. Adrián has a Doctor of Laws from Shanghai Jiao Tong University and an LL.M. in International and Chinese Law from Wuhan University. He also is our law firm’s go-to lawyer for anything Mexico.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.