Issue #
May 2008

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New Regulation of Outsourcing Companies

May 17, 2008

During the last decade, Mexico has seen the creation of many outsourcing services providers, which has led to such outsourcing companies assuming labor obligations and possible labor contingency liability generated from these labor relationships. This phenomenon has been accompanied by an unintended negative consequence,which is that often the outsourcing companies do not comply with minimum requirements of their employees and frequently disappear or constantly change names to avoid the corresponding labor liability, leaving employees defenseless and without their minimum labor rights. Given the difficulty of regulating outsourcing, and the difficulty of amending the Federal Labor Law (Ley Federal del Trabajo, or LFT), the Mexican lower house of Congress (Cámara de Diputados) approved a package of reforms of the Social Security Law (Ley del Seguro Social, or LSS), which will now be debated in the Mexican Senate. The proposed reform would have the following effects: (1) clients who contract for outsourcing services would be jointly responsible for labor obligations (which is already contemplated in the LFT), that is, both companies would be responsible for responding to employees’ labor demands; (2) outsourcing companies would be required to report to the Mexican Social Security Institute (IMSS) on a monthly basis during the first five working days, the name, corporate name, domicile, federal taxpayer registration number and IMSS employer number of their clients, as well as the names and IMSS numbers of the outsourcing company’s employees; and (3) outsourcing companies would be required to issue a monthly certification indicating the name and address of their clients, where the labor services are being provided, and the salary for such services. If the new initiative becomes law, it will represent a significant move toward regulating outsourcing companies, and it will also mean that businesses relying on outsourcing companies for their employment needs could be held liable for the labor obligations of the outsourcing companies, being directly liability to the employee or employees in a given case. For this reason, it would be prudent for businesses to hire outsourcing companies that have sufficient assets and resources to cover the labor obligations Mexican law imposes on Mexican employers.

Additional Distinctive Marks in Mexican Industrial Property Law

May 14, 2008

Mexico’s Industrial Property Law (Ley de la Propiedad Industrial) also recognizes and protects distinctive symbols as trademarks that are eligible for protection,such as: (a) commercial slogans; (b) commercial or assumed names; and (c) denominations of origin. Commercial slogans are understood as “phrases and sayingsthat have as their purpose publicizing public establishments or commercial/industrial or products and services businesses as distinguished by their nature,” whichincludes slogans published on one or more occasions and recognized by the consuming public as associated with such trademark. In addition, a namedistinguishing a commercial establishment or business is also subject to protection under Mexican law, such as the case of a commercial name or assumed name,and acquires legal protection without the necessity of registration or when such commercial names may not be registered. For proper protection, one may simplyrequest publication of the commercial or assumed name in an official newspaper (gaceta official) similar to the procedure for registering a trademark orcommercial slogan, with such commercial name or assumed names being subject to opposition only in the territory where clientele are located. Finally, adenomination of origin is understood to be “a name from a geographic region in Mexico that serves to designate a product as originating in such region and whosequality or characteristics emanate exclusively from such geographic regions, with such characteristics being understood as natural and human factors.” Ownershipof these rights belongs to the government, but private parties desiring to utilize a denomination of origin may request from Mexico’s Intellectual Property Institute(Instituto Mexicano de Propiedad Intelectual or IMPI) approval to use the denomination of origin by demonstrating strict compliance with each and all of therequirements necessary for a product emanating from such a specific region.

Decree Issued Amending Tax Benefits for the Cargo and Passenger Transportation Industry

May 14, 2008

As part of the measures implemented by the Mexican federal government in the cargo and passenger transportation sector, as well as Official Mexican NormNOM-012-SCT-2-2008 recently published in the Official Journal of the Federation and discussed in the April edition of the CCN Mexico Report titled, “NewMexican Regulation (NOM) on Maximum Weights and Measures for Trucks and Buses,” various decrees offering tax benefits to cargo and passengertransportation companies have been published in the Official Journal of the Federation. Substituting new vehicles for older equipment should have a direct impacton damages caused to Mexican highway infrastructure, and the new fiscal incentives consist of tax credits equivalent to the lower amount of: (a) the price receivedfor selling used vehicles; (b) 15% of the price of a new vehicle, or (c) a specified amount in accordance with the type of vehicle being sold, which is given as anincentive to update Mexican fleets and improve compliance with the recently enacted Mexican Norm. In the Decree, published on March 4, 2008, requirementsfor applying for tax benefits were established based on the number of axels and minimum gross vehicular weight of the equipment involved. In studies performedby the Mexican Transportation Institute (Instituto Mexicano del Transporte at the results showing damages to Mexican highways based on thecombination of number of axels and gross vehicular weight can be seen.

Transportation and Logistics

Decree Adding a Second Paragraph to Transitory Article Fourteenth of the National Water Law

May 14, 2008

A second paragraph to Transitory Article Fourteenth of the Mexican National Water Law (Ley de Aguas Nacionales) was published in the Official Journal of theFederation on April 18, 2008. Such provision establishes the obligation of the National Water Commission to begin a standardization campaign during the next 12months. The campaign is aimed at holders of water concessions whose concession rights have expired and which were issued before presidential decrees in 1995and 1996, so long as the holders of such rights can demonstrate that they have complied with their obligations under the National Water Law. If concessionholders have not complied with their responsibilities, including payment of required concession fees, the government is authorized to impose sanctions pursuant tosuch Law, including cancellation of the corresponding water concession certificate.

Mexico Enacts Decree Amending Article 80 of the Agrarian Law

May 14, 2008

On April 17, 2008 Mexico published a Decree amending article 80 of the Agrarian Law (Ley Agraria). Such amendment, although seeking to provide greaterpredictability, actually adds a slight complication to the procedure for transferring communal property (Ejido) rights between ejido community members(ejidatarios). New aspects of the amendment include: (i) consent for the assignment must be ratified before a notary public; (ii) spouses, common law spouses andchildren must be notified in writing of transfers of ejido rights and any waiver of first refusal rights by spouses, common law partners and children must be inwriting and registered in the National Agrarian Registry (Registro Agrario Nacional); and (iii) a requirement to give notice to the ejido commission of any suchtransfer. The reform provides a bit more formalities to the ejido property transfer of process, thus essentially formalizing decisions already made by Mexicancourts. The negative aspect of the new reform is the lack of legal security related to notification of spouses, common law partners, and children, who on frequentoccasions may not be easily found, whether working in the United States or having moved elsewhere, thus making it very difficult to comply with legalrequirements for an ejido transfer and adding another formality that may be difficult to comply with.

Amendments to Mexico’s Commerce Code

May 14, 2008

On April 17, 2008 a Decree amending and adding various provisions to Mexico’s Federal Commerce Code (Código de Comercio) was published in the OfficialJournal of the Federation. Such changes relate to mercantile procedural law and business disputes arising in Mexico. The reform closes various legal loopholes existing in mercantile procedural law and provides clear rules for business lawsuits to be handled more efficiently. For this purpose, new terms have been created,mainly in the area of appellate law. In addition, the amendment increases the terms for answering lawsuits, effective when the new law enters into force, of 15days to answer an ordinary mercantile lawsuit, and eight days to file an answer on an executive procedure mercantile lawsuit. The above reforms providedefendants more time to prepare their responses, which is seen as a positive step given the fact that the prior terms were nine days to answer an ordinary lawsuitand five days to answer an executive procedural lawsuit, which in the vast majority of cases did not allow defendants to properly prepare their responses. Thisamendment will enter into force 90 days after its publication (July 16, 2008) and will apply only to those lawsuits filed after such date; lawsuits already in progresswill be governed by the previous law.

Decree Issuing Law of the National System of Statistical and Geographic Information

May 14, 2008

On April 16, 2008 a Decree issuing the Law of the National System of Statistics and Geographic Information (Ley del Sistema Nacional de InformaciónEstadística y Geográfica) was published in the Official Journal of the Federation, as part of paragraph B of Article 26 of the Mexican Federal Constitution, whichwill enter into force 90 calendar days following its publication. The purpose of the new Law, among other things, is to regulate the National System of Statisticsand Geographical Information, as well as the rights and obligations of participants in this system (individuals and entities who are required to submit statistical andgeographical information), establishing an obligation for individuals carrying out business activities and entities, unless they are part of the public sector, toregister themselves in the National Directory of Economic Units (Directorio Nacional de Unidades Económicas) maintained by the National Institute of Statisticaland Geographical Information (INEGI), and to maintain their registrations current under penalty of paying administrative fines for failing to do so. In conformitywith the new law: (i) information provided for statistical purposes by participants in the system shall be strictly confidential and may not be utilized for anypurpose other than statistics; (ii) the INEGI may not provide its information to any person or entity if such information is to be used for tax, judicial, administrativeor any other purpose; (iii) the data and information provided by participants in the system that originates from administrative registries shall be managed inobservation of strict confidentiality and may not serve as proof before judicial or administrative authorities, including tax authorities, in lawsuits or any otherforum; and (iv) participants in the system shall be informed of: (a) the obligatory nature of their responses, as the case may be, (b) the obligation to provide trueresponses and the consequences for providing false information, (c) the form in which information shall be divulged or supplied and (d) the term for providingnecessary information. Information provided is not subject to the Federal Law of Transparency and Access to public governmental information (which is similar tothe U.S. Freedom of Information Act). Information is to be considered in accordance with the terms of paragraph B of article 26 of the Mexican Constitution andthe National System of Statistical and Geographic Information shall be obligatory on Federal, state, Federal District and local governments in accordance with theterms of such new Law.

Constitutional Reforms Enacted for Multi-Year Infrastructure Investment Projects

May 14, 2008

On April 9, 2004 the Decree Establishing Rules for Carrying Out Projects to Provide Services was published in the Official Journal of the Federation, which is alsoknown as PPS. This Decree allows the federal government to enter into contracts with private investors on long-term investment projects and service contracts forgovernmental infrastructure projects. In this manner, according to the Decree, the Mexican federal government may engage in PPS investment projects, providinggreater security to investors because governmental budgets will be able to include long-term payment obligations for the current and successive fiscal years. TheDecree, however, was not granted at the constitutional level and was subject to potential challenge. Therefore, on May 7, 2008 an amendment to Article 74 ofMexico’s Federal Constitution was published, wherein the possibility of authorizing multi-year expenses for infrastructure investment projects was specificallypermitted, which allows expenses to be included in subsequent fiscal year budgets. The constitutional reform brings greater security to investors investing in PPSprojects, which will likely mean that Mexico will be able to increase the number of infrastructure projects it does, and should be an important development in thecoming years.