In 2021, Mexico was the United States’ second largest trading partner in goods and services. It remains one of our most important investment partners. Bilateral trade grew 482 percent from 1993-2020, and Mexico is the United States’ second largest export market. The United States is Mexico’s top source of foreign direct investment (FDI) with a stock of USD 184.9 billion (2020 per the International Monetary Fund’s Coordinated Direct Investment Survey).
The Mexican economy averaged 2.1 percent GDP growth from 1994 to 2021, contracted 8.3 percent in 2020 — its largest ever annual decline — and rebounded 5 percent in 2021. Exports surpassed pre-pandemic levels by five percent thanks to the reopening of the economy and employment recovery. Still, supply chain shortages in the manufacturing sector, the COVID-19 omicron variant, and increasing inflation caused the economic rebound to decelerate in the second half of 2021. Mexico’s conservative fiscal policy resulted in a primary deficit of 0.3 percent of GDP in 2021, and the public debt decreased to 50.1 percent from 51.7 percent of GDP in 2020. The newly appointed Central Bank of Mexico (or Banxico) governor committed to upholding the central bank’s independence. Inflation surpassed Banxico’s target of 3 percent ± 1 percent at 5.7 percent in 2021. The administration maintained its commitment to reducing bureaucratic spending to fund an ambitious social spending agenda and priority infrastructure projects, including the Dos Bocas Refinery and Maya Train.
The United States-Mexico-Canada Agreement (USMCA) entered into force July 1, 2020 with Mexico enacting legislation to implement it. Still, the Lopez Obrador administration has delayed issuance of key regulations across the economy, complicating the operating environment for telecommunications, financial services, and energy sectors. The Government of Mexico (GOM) considers the USMCA to be a driver of recovery from the COVID-19 economic crisis given its potential to attract more foreign direct investment (FDI) to Mexico.
Investors report the lack of a robust fiscal response to the COVID-19 crisis, regulatory unpredictability, a state-driven economic policy, and the shaky financial health of the state oil company Pemex have contributed to ongoing uncertainties. The three major ratings agencies (Fitch, Moody’s, and Standard and Poor’s) maintained their sovereign credit ratings for Mexico unchanged from their downgrades in 2020 (BBB-, Baa1, and BBB, lower medium investment grade, respectively). Moody’s downgraded Pemex’s credit rating by one step to Ba3 (non-investment) July 2021, while Fitch and S&P maintained their ratings (BB- and BBB, lower medium and non-investment grades, respectively. Banxico cut Mexico’s GDP growth expectations for 2022, to 2.4 from 3.2 percent, as did the International Monetary Fund (IMF) to 2.8 percent from the previous 4 percent estimate in October 2021. The IMF anticipates weaker domestic demand, ongoing high inflation levels as well as global supply chain disruptions in 2022 to continue impacting the economy. Moreover, uncertainty about contract enforcement, insecurity, informality, and corruption continue to hinder sustained Mexican economic growth. Recent efforts to reverse the 2013 energy reforms, including the March 2021 changes to the electricity law (found to not violate the constitution by the supreme court on April 7 but still subject to injunctions in lower courts), the May 2021 changes to the hydrocarbon law (also enjoined by Mexican courts), and the September 2021 constitutional amendment proposal prioritizing generation from the state-owned electric utility CFE, further increase uncertainty. These factors raise the cost of doing business in Mexico.
|TI Corruption Perceptions Index||2021||124 of 180||https://www.transparency.org/en/cpi#|
|Global Innovation Index||2021||55 of 132||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, stock positions)||2020||$184,911
1st out of top 5
|World Bank GNI per capita (current US$)||2020||$8,480||http://data.worldbank.org/indicator/
11. Labor Policies and Practices
Mexican labor law requires at least 90 percent of a company’s employees be Mexican nationals. Employers can hire foreign workers in specialized positions as long as foreigners do not exceed 10 percent of all workers in that specialized category. Mexico’s 56 percent rate of informality remains higher than countries with similar GDP per capita levels. High informality, defined as those working in unregistered firms or without social security protection, distorts labor market dynamics, contributes to persistent wage depression, drags overall productivity, and slows economic growth. In the formal economy, there exist large labor shortages due to a system that incentivizes informality. Manufacturing companies, particularly along the U.S.-Mexico border and in the states of Aguascalientes, Guanajuato, Jalisco, and Querétaro, report labor shortages and an inability to retain staff due to wages sometimes being less that what can be earned in the informal economy, although the recent increases in the minimum wage are leading to increases in entry level wages which are attracting more workers. Shortages of skilled workers and engineers continue due to a mismatch between industry needs and what schools teach. Mexico has one of the lowest female labor participation rates in the OECD, 45 percent to a 76 percent male participation rate among people legally allowed to work (15 years or older). Barriers for female workers include the culturally assigned role for them as caretakers of children and the elderly. Most Mexican workers work for a micro business (41 percent) and 59 percent earn between USD 8.6 and USD 17 per day. The unemployment rate in Mexico has maintained a stable path ranging from 3.5 percent to 4.9 percent (its highest peak during the pandemic). This rate, however, masks the high level of underemployment (14.8 percent) in Mexico (those working part time or in the informal sector when they want full time, formal sector jobs). For 2020 the informal economy accounted for 22 percent of total Mexican GDP according to the National Institute of Statistics and Geography. Informal businesses span across all economic activities from agriculture to manufacturing. In Mexico labor informality also spans across all economic activities with formal businesses employing both formal and informal workers to reduce their labor costs.
On May 1, 2019, Lopez Obrador signed into law a sweeping reform of Mexico’s labor law, implementing a constitutional change and focusing on the labor justice system. The reform replaces tripartite dispute resolution entities (Conciliation and Arbitration Boards) with independent judicial bodies and conciliation centers. In terms of labor dispute resolution mechanisms, the Conciliation and Arbitration Boards (CABs) previously adjudicated all individual and collective labor conflicts. Under the reform, collective bargaining agreements will now be adjudicated by federal labor conciliation centers and federal labor courts.
Labor experts predict the labor reform will result in a greater level of labor action stemming from more inter-union and intra-union competition. The Secretariat of Labor, working closely with Mexico’s federal judiciary, as well as state governments and courts, created an ambitious state-by-state implementation agenda for the reforms, which started November 18, 2020, and will end during the second semester of 2022. On November 18, 2020 the first phase of the labor reform implementation began in eight states: Durango, State of Mexico, San Luis Potosi, Zacatecas, Campeche, Chiapas, Tabasco, and Hidalgo. On November 3, 2021 the second phase started in 13 additional states, and the third phase will start during 2022 in 11 states. Further details on labor reform implementation can be found at: .
Mexico’s labor relations system has been widely criticized as skewed to represent the interests of employers and the government at the expense of workers. Mexico’s legal framework governing collective bargaining created the possibility of negotiation and registration of initial collective bargaining agreements without the support or knowledge of the covered workers. These agreements are commonly known as protection contracts and constitute a gap in practice with international labor standards regarding freedom of association. The percentage of the economy covered by collective bargaining agreements is between five and 10 percent, of which more than half are believed to be protection contracts. As of March 7, 2022, 3,267 collective bargaining contracts have been legitimized (reviewed and voted on by the workers covered by them), according to the Secretariat of Labor. The reform requires all collective bargaining agreements to be submitted to a free, fair, and secret vote every two years with the objective of getting existing protectionist contracts voted out. The increasingly permissive political and legal environment for independent unions is already changing the way established unions manage disputes with employers, prompting more authentic collective bargaining. As independent unions compete with corporatist unions to represent worker interests, workers are likely to be further emboldened in demanding higher wages.
The USMCA’s labor chapter (Chapter 23) contains specific commitments on union democracy and labor justice which relate directly to Mexico’s 2019 labor reform and its implementation. In addition, the USMCA’s dispute settlement chapter (Chapter 31) includes a facility-specific labor rapid response mechanism to address labor rights issues and creates the ability to impose facility specific remedies to ensure remediation of such situations.
According to the International Labor Organization (ILO), government enforcement was reasonably effective in enforcing labor laws in large and medium-sized companies, especially in factories run by U.S. companies and in other industries under federal jurisdiction. Enforcement was inadequate in many small companies and in the agriculture and construction sectors, and it was nearly absent in the informal sector. Workers organizations have made numerous complaints of poor working conditions in maquiladoras and in the agricultural production industry. Low wages, poor labor conditions, long work hours, unjustified dismissals, lack of social security benefits and safety in the workplace, and lack of freedom of association were among the most common complaints.