The US-Mexico-Canada trade agreement (referred to as the USMCA) entered into force on July 1, 2020. A key aspect of the trade agreement, which replaces and improves on the 25+-year-old NAFTA, is sweeping changes Mexico is making to an array of laws.
In this alert, we summarize these significant changes.
LAW OF GENERAL TAXATION REGARDING IMPORTS AND EXPORTS
The Law of General Taxation regarding Imports and Exports (LIGIE, by its acronym in Spanish), published in the Mexican Official Federal Gazette (MOFG) on July 1, 2020, establishes the rate at which import or export taxes are calculated. It is the foundation for the statistics used to elaborate Mexico’s merchandise trade balance.
It consists of:
- Article 1: General Taxation Rate regarding Imports and Exports (TIGIE) and
- Article 2: General Rules of Classification (internationally agreed) and Complementary Rules (national) for the interpretation of the TIGIE.
The new LIGIE has three primary focuses:
- The main objective of the LIGIE is to adapt the national nomenclature to the current patterns of international trade with the implementation of the Sixth Amendment of the Harmonized System (HS) in order to comply with its international commitment.
Mexico has been a member of the World Customs Organization (WCO) since 1988. As a result, Mexico is obliged to use the HS created by the WCO, as well as to apply the modifications made to the latter. Such modifications occur approximately every five years; therefore, the Mexican legislation requires a modification from time to time in order to comply with the above-mentioned obligations.
The Sixth Amendment to the HS entered into force internationally on January 1, 2017; however, Mexico had not yet implemented it. That amendment addresses the following issues:
- Fishing and fishing products (for reasons of food security/improved resource management)
- Forest products (endangered species)
- Anti-malaria products
- Chemicals (Rotterdam, Stockholm, Chemical Weapons Convention)
- Technological advances (light-emitting diodes (LED), multi-component integrated circuits (MCO), hybrid and electric vehicles).
- Implementation of the Commercial Identification Number (NICo):
A fifth digit pair will facilitate trade and allow for more accurate statistical data, as well as a greater capacity to react in the traceability and identification of goods (ie, goods that damage health, sensitive goods in commercial disputes) without making use of the presidential authority for tariff codes. This will ensure that the provisions set forth in Article 131 of the Mexican Constitution are applied only for tariff purposes and not for the identification of goods.
Thus, the classification of goods will be integrated as follows:
COMMERCIAL IDENTIFICATION NUMBER – 05.08.00.01.00 05 Chapter 08 Section 00 Subsection 01 Tariff Code (Hts Number) 00 NICo
- Another focus is to strengthen the LIGIE as a simpler, more efficient and easier to operate trade instrument by means of an update to the TIGIE that includes the elimination of obsolete tariff codes (eg, Telefax, cassettes) and of those tariff codes that have a low or even no trade flow.
Finally, the process of updating the TIGIE contemplates (i) the coordination of the entire process with the Tax Administration Service and/or the Ministry of Finance and Public Credit; (ii) the elimination of obsolete and ambiguous tariff codes; (iii) the compaction of tariff codes with the same codes and measurement unit –hence, the new LIGIE establishes a lower number of tariff codes (around 38 percent less); (iv) the breakdown or creation of codes that allow gathering of more and better statistical information; and (v) the granting of authority in favor of the Ministry of Economy to issue NICos.
The publication of the LIGIE is accompanied by an amendment to the Customs Law, which was published in the same decree, in order to promote the correct application of NICo and thus facilitate control at the entry point.
Likewise, the three primary focuses of the new LIGIE are complemented with the reform to the Customs Law, which gives legal certainty to the creation, modification and administration of the NICo.
LAW OF QUALITY AND INFRASTRUCTURE
On July 1, 2020, the Law of Quality and Infrastructure (Ley de Infraestructura y Calidad, the LQI) was published in the MOFG while also abrogating the so-called Federal Law on Metrology and Standardization (Ley Federal sobre Metrología y Normalización, the FLMS). The LQI aims to establish and develop the grounds for industrial policy within the National Quality Infrastructure System (Sistema Nacional de Infraestructura de la Calidad, the System) through standardization, accreditation, conformity evaluation and metrology activities, as well as promoting economic development and the quality in the production of goods and services.
The LQI is integrated into four books that are divided as follows:
- First Book: Of the National Quality Infrastructure System
- Second Book: Of the Quality and Innovation System
- Third Book: Of Metrology
- Fourth Book: Final Provisions
This law emerges as a consequence of the following:
- On one hand, the new provisions contained in the USMCA bring new challenges that require Mexican legislation to be modified in order to comply with such challenges.
- On the other hand, the LQI is issued with the purpose of updating the entire regulatory framework that previously corresponded to the FLMS, which had been in force for more than 28 years and included provisions that that today are both complex and obsolete.
The following are the main changes and/or innovations brought by the LQI:
- As a consequence of its issuance, the System has been created to: (i) coordinate the appropriate government authorities so that, through regulations, strategies, and standardization principles, they can encourage quality and economic development; (ii) expand the capacity of production and continuous improvement in the value chains; and (iii) encourage international trade.
- The legislation regulates the documents known as “Standards” (Estándares), which will replace the Official Mexican Norms (Normas Oficiales Mexicanas, NOM), with which, the National Normalization Entities (Organismos Nacionales de Normalización) become National Standarization Organizations (Organismos Nacionales de Estandarización), with the understanding that all those NOMs that are in the process of being published and have not been published shall follow the guidelines set forth in the FLMS, its amendments and Regulation, until the entry into force of the LQI, that is, 60 days after its publication in the MOFG.
- According to the provisions contained in the LQI, industrial chambers, companies, academic and research institutions, colleges and associations may now elaborate, implement, evaluate and diffuse consensus standards, in the understanding that this will be done according to the principle of voluntary involvement.
- The recognition of the Mexican State as the leader of the System, which aims to give greater protection and guarantee with respect to human rights.
- A planned and programmed normalization scheme is developed in accordance with public policies: the normalization system considers the objectives of the different sectors, establishing a scheme of exceptions and alignment to the entire Mexican legal regime.
- The LQI recognizes and gives a great importance to the different Equivalence Agreements (the Agreements) which are the resolutions that specify the conditions by which foreign technical regulations are recognized, and also establish the sanitary and/or phytosanitary measures of the USMCA (which main objective is to protect the life and health of humans and animals, as well as to facilitate commerce between the countries members of the Treaty). With respect of the Agreements, these must be recognized by the Ministry of Economy; while the sanitary and/or phytosanitary measures will be recognized by the competent Normalization Authorities.
Finally, the issuance of the LQI aims to improve the capacity of innovation and eliminate unnecessary barriers to international trade through a greater compatibility of sanitary and phytosanitary measures between all three members of the USMCA.
FEDERAL LAW OF PROTECTION OF INDUSTRIAL PROPERTY
On July 1, 2020, the Federal Law for the Protection of the Industrial Property (LFPPI) was issued, which will be effective 90 business days after its publication, while also abrogating the Industrial Property Law. It is important to note that the LFPPI is substantially similar to the previous Industrial Property Law, preserving the Mexican Institute of Industrial Property (IMPI) as the administrative authority of industrial property and the legal figures governing the protection of industrial property; however, by harmonizing the LFPPI with the provisions approved in the USMCA, some relevant changes arise, such as the following:
- Patents: The IMPI will protect the public domain and will impede double patenting of the same invention; the foregoing seeks to eliminate undue extensions of the duration of the validity of patents (Article 50).
The right derived from a patent will not produce legal effects against a third party that uses, manufactures, offers for sale, or imports a product with a valid patent, exclusively to generate tests, information and the experimental production needed for the obtention of the sanitary registration of medicines for the human health (Article 57, Fr. II).
It is important to mention that even though the LFPPI does not include a term for the purpose mentioned in the preceding paragraph, the Health Supplies Regulation – which is currently in effect – provides, in the third paragraph of article 167 Bis, the right to request the registration of a generic for a medicine whose substance or active ingredient is protected by a patent, with the purpose of performing the corresponding studies, tests, and experimental production, within three years prior to the expiration of the patent. In such case, the sanitary registration will be granted only at the end of the patent’s duration. In any case, we consider that due to the primacy principle set forth in the Mexican legal framework, the provision contained in the current article 167-Bis of the Health Supplies Regulation should be considered as tacitly derogated, as they conflict with the provisions contained in the LFPPI.
The term “Complementary Certificate” is included, which could be granted when in the process of obtaining a patent creates unjustified delays, directly attributable to the IMPI and that result in a duration of more than five years between the date of filing of the application in Mexico and the authorization of the patent. In this case, a complementary certificate may be granted at the request of the interested party to adjust the duration of the patent. The duration of the additional term granted by means of the Complementary Certificate must not exceed five years (Articles 126 and 127).
In addition, it is important to note that the Complementary Certificate shall confer the same rights as of the patent from which it derives and shall be subject to the same limitations and obligations thereof. Finally, the second paragraph of article 135 of the LFPPI provides that, with respect to the periods set forth in subsections a) and b) of the second item of article 57 of the latter, such periods will take into account the expiration of the validity of the Complementary Certificate; however, item II of article 57 does not include subsections a) and b); therefore, the DOF shall issue an errata with the corresponding correction.
- Trade secrets: The concept of “Undue Appropriation” is included in the area of trade secrets, regarding the acquisition, use or disclosure of a trade secret contrary to the proper uses and customs in the industry, commerce, and services that involve unfair competition, including the acquisition, use, or disclosure of any trade secret by a third party that knew or had reasonable motives to know that the trade secret was acquired in a manner contrary to the proper uses and customs (Article 163 Fr. II).
- Industrial designs: Traditional craft products have been included as industrial designs; the foregoing allows their creators and designers to seek to improve the quality of their products and their competitiveness (Article 66).
- Sanctions: The administrative sanctions of the LFPPI and the regulations derived thereof have been increased, which include (i) a fine up to the amount of 250,000 units of measurement and updating (approximately MX$21.72 million), to be determined at the moment of the infraction, for each conduct performed; and (ii) an additional fine up to the amount of 1,000 of measurement and updating (approximately MX$86880), for each day that the infraction persists; the above, without prejudice of the possibility of temporary closure, permanent closure, or an increase in the fines due to recidivism (Articles 388 and 390).
It is also important to point out that in case of an indemnification regarding the violation of any of the intellectual property rights established in the law, the corresponding indemnification may be claimed, at the choice of the affected owner, before the IMPI (once the infringement procedure is finished) or directly before the courts (Article 396).
- Nullity, expiration, and crimes: The new LFPPI establishes that the nullity does not proceed when it is based on the legal representation nor in proceedings related to its granting or validity, and its effects are the retroactive destruction of the effects of the registration to the date of its granting. As for the effects of the expiration, the mentioned law, establishes that it is the retroactive destruction of the effects of the registration to the moment in which the expiration becomes enforceable.
With respect to the crimes, it is important to mention that (i) recidivism was eliminated as a crime; (ii) falsification was defined; and (iii) the classification of the disclosure, appropriation, and use of an Industrial Secrets to obtain an economic benefit or to cause a damage, as a crime, is maintained.
FEDERAL LAW ON COPYRIGHT
On July 1, 2020, the decree through which several provisions of the Federal Copyright Law were amended and included (LFDA) was published on the DOF, by means of which the LDFA is harmonized with the provisions of the USMCA. Among the relevant reforms and additions, some of the most important are the following:
- Knowledge of the work by public communication: The definition of the term “public communication” is expanded and now includes any act by which the work is introduced to the reach of the general public, by any procedure to disseminate and which does not consist in the distribution of copies, through wire or wireless means, including making the works available, in such a way that members of the public can access these works from a place and at a time individually chosen by them (Article 16 Fr. III).
- Extension of economic rights: The law states that the owners of economic rights may authorize or prohibit (i) public access to their works by means of telecommunication, including also broadband and Internet; and (ii) making their works available to the public, so that members of the public can access these works from the place and at the time that each of them chooses (Article 27 Fr. II).
- Software: The LFDA provides that the economic right over a software includes the right to authorize and prohibit, in addition to the other rights in the latter, the public communication of the program, including making it publicly available (Article 106 Fr. V).
- Technological measures for copyright protection: The aforementioned law provides that, effective technological protective measures and information on rights management may be implemented for the protection of copyrights and related rights. (Article 114 Bis).
Likewise, a fine from one thousand up to ten thousand times the daily value of the Unit of Measurement and Updating (approximately MX$86,880.00 up to MX$868,800) will be imposed on those who evade an effective protective technological measure that controls the access to a work, artistic performance, or phonogram protected by the LFDA (Article 232 Terx).
Finally, the Federal Penal Code was amended to include crimes for unduly using and eluding the above-mentioned protective technological measures.
- Restrictions of unauthorized material on the Internet: It is established that Internet service providers will not be liable for the damages caused to the copyright holders or related rights and other holders of any intellectual property right protected by the LFDA by infringements of copyrights or related rights that occur in their networks or online systems, as long as they do not control, initiate, or direct the infringing conduct, and comply with the measures established in the LFDA (Article 114 Octies).
Internet access providers will not be liable for the infractions, as well as the data, information, materials, and contents that are transmitted or stored in their systems or networks controlled or operated by them or on their behalf, when they (i) do not commence the chain of transmission of the materials or content nor select the materials or content of the transmission and the recipients; and (ii) include and do not interfere with effective standard technological measures, which protect or identify material protected by the LFDA, which are developed through an open and voluntary process by a broad consensus of copyright holders and service providers, that are available in a reasonable and non-discriminatory manner, and that do not impose substantial costs on service providers or substantial burdens on their network systems (Article 114 Octies Fr. I).
Online service providers will not be liable for the infractions, as well as the data, information, materials, and content that are stored or transmitted or communicated through their systems or networks controlled or operated by them or in their representation, and, in cases that direct or connect users to an online site, when, among others, expeditiously and effectively, remove, take out, delete or disable the access to the materials or content arranged, enabled, or transmitted without the consent of the owner of the copyright or related right, and that are hosted in their systems or networks, once they have a certain knowledge of the existence of an alleged infringement, when they receive (i) a notice from the owner of the copyrights or related rights or by any person authorized to act on behalf of the owner; or (ii) a resolution issued by the competent authority approving the removal, cancellation, elimination or disabling of the infringing material or content (Article 114 Octies Fr. II).
- Damages and lost profits for receiving or assisting another person to receive an unauthorized signal: Causes for payment of damages and lost profits were amended to include cases in which a person without authorization from the rightful distributor of the signal (i) manufactures, modifies, imports, exports, sells, or otherwise distributes a device or system that serves to decode a program-carrying encrypted satellite signal; (ii) receives or distributes a program-carrying encrypted satellite signal; (iii) manufactures or distributes equipment for the unauthorized reception of encrypted cable signals carrying programs; and (iv) receives or assists another person to receive an encrypted cable signal carrying programs (Article 145).
- Commercial violations: Regarding the commercial violations, the term “making available” is included with respect to the following commercial violations, when they are carried out for direct or indirect profit: (i) communicate, make publicly available, or use a protected work by any means, and in any way without the prior express authorization of the author, the rightful heirs or the owner of the copyright; and (ii) fix, record, produce, reproduce, store, distribute, communicate, make available, transport, or sell copies of works, cinematographic works, and other audiovisual works, phonograms, videograms, or books, protected by copyrights or by related rights, without the authorization of the respective holders of the rights under the terms of the LFDA (Article 231).
Learn more about the implications of these reforms by contacting any of the authors or your DLA Piper contact.