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2013 was the year of Mexican Reform

2013 was the year of Mexican Reform

It has been little more than a year since President Enrique Peña Nieto took office vowing to reform many of the institutions and processes that have been holding back Mexico’s economic progress.

In spite of holding, no majority in Congress, and facing accusations from the main opposition parties that he stole the election, over the first year of his administration, Peña Nieto’s government has passed a major education overhaul, addressed many shortfalls in labor rules and regulations, pushed through reforms of the nation’s tax system, and put an end to Mexico’s 75-year-old State oil and gas monopoly. These areas of Mexican reform offer significant potential for improvement of the nation’s economy and business sector.

Below is a synopsis of the major changes achieved over the past year:

Education Reform

Mexico’s education reform has major implications for the future of Mexico’s the country’s workforce development efforts and economy.

Previously, the National Union of Education Workers (SNTE) wielded tight control over educational policy, hiring, and funding. The organization routinely blocked evaluations of teachers’ performance, thus creating effectively hereditary teaching posts,  and virtually impassible roadblocks for educational innovation and improvement. The Peña Nieto administration’s successful reform proposal laid out clear merit-based guidelines for educators, as well as mechanisms for evaluating and improving teacher performance and improving school quality and the learning environment.

Tax Reform

A banking and taxation reform passed in the Fall of 2013, that contains several crucial elements. For starters, the Mexican minimum, or IETU, tax was repealed. Secondly, the Maquiladora Industry was given more stringent requirements requiring an entity in the maquiladora, or IMMEX, program to derive almost all of its income from qualifying activity (export of goods) – a significant departure from previous requirements maintaining that only a minimum level of activity in the entity needed to qualify. Additionally, new rules were put into place regarding the Mexican value-added-tax treatment of goods imported temporarily by expert manufacturers. Lastly, a new distribution tax has been imposed on companies making payments to Mexican individuals and foreign residents assessed at a rate of 10% was put into place.

Labor Reform

Mexico’s government enacted a sweeping overhaul of the country’s labor regulations in the closing days of 2012, and implemented new rules in 2013. The new laws allow employers to hire new workers on a trial or probationary period, giving greater flexibility for companies to craft an optimal workforce.

Terminated employees are now limited to only 12 months of unpaid wages, if their termination is overruled. Wages have also been hitched to an hourly system designed to boost productivity Additionally, unions have been made more transparent.

Energy Reform

Historic legislation amending the Mexican Constitution was passed in December of 2013, changing how Mexico’s energy sector operates and allowing foreign energy investors into the country. This reform opens the door for Mexico’s oil and electricity monopolies, Pemex and CFE, to become much moew “productive enterprises,” effectively paving the way for foreign private oil companies to explore for and produce oil and gas under licenses or profit-sharing agreements.

Mexican reform achieved in critical areas affecting the country’s economies will reap positive dividend in the future. The fact that the Enrique Peña Nieto administration was able to pull various political parties together to forge a path forward for the country, is a testament to quality of leadership.

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