39 AUG 2022 | WWW.LAWYER-MONTHLY.COM ow have the UMSCA and other free trade agreements placed Mexico in the global M&A market? International trade is very important for Mexico. It currently has twelve free trade agreements, which represent an immense range of commercial opportunities. If we study the numbers, it is clear how essential the European market is to us, but especially the United States and Canadian markets; about 80% of our exports are to the United States and Canada and about 43% of our imports come from them. Thus, we depend mainly on trade relations with these two countries. USMCA, as it was approved, kept most of NAFTA’s market-opening statutes, but some major changes were introduced to the auto industry rules of origin, as well as dispute settlement provisions, updates to labour issues and government procurement, and the addition of digital trade, state-owned enterprises and corruption issues, among others. From that moment on, including the free trade agreement with the EU, Mexico took an important role in the global market, taking advantage of its geographic location to be placed as a strategic country for companies of several industries to invest in operations. This has boosted mergers and acquisitions in the country, especially regarding the automotive industry. The rules of origin for the automotive industry were one of the most important and tough issues in the negotiations of the USMCA. It is important to notice that, recently, the major growth in the North American market took place mostly in Mexico, which comprises about 20% of the whole continent’s vehicle production. Recent investments in US and Canadian assembly plants were used to modernise or expand existing facilities, while Mexico has had the advantage of new assembly plants. NAFTA, according to the Bush administration, was encouraging the North American auto industries to move their production to Mexico where labour costs are lower. Therefore, the US originally proposed that the percentage of a vehicle coming from North America should increase from 62.5 to 85% and that 50% of the content must be American. The governments of Mexico and Canada and the representatives of the automotive industry refused the proposal, arguing that it would not be possible to fulfill such conditions. After months of discussions, the US removed the requirement that 50% of automotive content should originate in the US. The rules of origin were hardened in the USMCA. They include the following: - 75% of the content in automobiles must be sourced in North America to qualify for tariff-free treatment, as opposed to the 62.5% required by NAFTA; - Between 40 and 45% of the content of an automobile must be produced by workers earning at least $16 per hour; - Parts must be divided up into core, How is M&A Shaping Up in Mexico? The implementation of recent legislation and trade agreements stands to place Mexico as a leader in the global M&A market. But what challenges are yet to be overcome? Lawyer Monthly discusses the subject with Jaime López, partner at DeForest Abogados, who offers his thoughts on how far M&A in Mexico has come and how it is set to develop. EXPERT INSIGHT H It is important to notice that, recently, the major growth in the North American market took place mostly in Mexico, which comprises about 20% of the whole continent’s vehicle production.