The Food, Beverage and Cosmetics Law Review: Mexico

Overview

Food products, beverages and cosmetics are subject to very strict sanitary controls and regulatory requirements in Mexico. Continuous and fast changes in a variety of regulations applicable to products, services and activities within these industries, paired with the adoption of constantly new criteria and policies by the government and important trends as well as the increased demand, pose significant challenges for the different actors involved in a product's supply chain.

Food, beverage and cosmetic products are mainly regulated at a federal level under a broad system of laws, regulations, Mexican Official Standards, Mexican Standards, guidelines and administrative provisions and criteria.

These regulations are constantly evolving and changing, requiring constant tracking of legislative and administrative initiatives that can be grouped in several areas, such as those relating to the implementation of new labelling regulations relating to labelling and advertising matters, classification or reclassification of regulated products and ingredients and the implementation of new health policies.

Innovation in technology, research, manufacturing process and consumer trends is rapidly changing the way the food products, beverages and cosmetics industries operate and grow, introducing unique business opportunities that represent a variety of regulatory hurdles and administrative requirements to overcome. Cannabis, genetically modified organisms, food technologies, sustainable practices, cleaner ingredients, functional food and innovative business models are just a few examples of the current trends in the different sectors of the industry.

Year in review

i Amendments to labelling and advertising provisions

During the past couple of years, we have seen relevant high-impact amendments within the food industry, mainly related to labelling and marketing of food products and non-alcoholic beverages regulations.

Among the most notable changes is the implementation of front of pack (FOP) labelling systems by the government of certain Latin-American countries, such as Chile and Peru. Even though a FOP labelling system was already in force in Mexico, a warning sign framework similar to FOP regulations in Chile was adopted after publication of the amendment to the Mexican Official Standard containing new specifications for the labelling of pre-packaged food and non-alcoholic beverages (NOM-051) on 27 March 2020, some more stringent than those adopted by other countries.

The new provisions came into force on a phase-out basis commencing 1 October 2020, setting new requirements and prohibitions:

  1. a new FOP labelling system has been adopted, for the inclusion of stamps to warn about the existence of critical nutriments (e.g., fats, sugars, sodium, calories) that exceed certain thresholds that may represent a risk to health;
  2. cautionary legends related to the inclusion of caffeine and sweeteners have been implemented;
  3. new terms and definitions have been introduced, including:
    • added sugars and free sugars;
    • sweeteners;
    • critical nutriments; and
    • imitation products;
  4. there are restrictions on the use of nutritional and health claims;
  5. characters, cartoons, drawings, celebrities, athletes, among other elements appealing to children in products having warning stamps have been banned;
  6. there are more strict rules for:
    • product denominations;
    • declaration of properties;
    • nutrimental and healthy statements;
    • ingredients and allergens; and
    • additives; and
  7. there should be a declaration of additives and ingredients or additives that can cause hypersensitivity, intolerance or allergies.

The amendment to NOM-051 is only the first phase of various actions that the government seeks to implement to combat obesity in Mexico – mainly childhood obesity. Additional actions such as banning the sale of sugary drinks and snacks ('junk food') to children, have been implemented by some states.

As mentioned above, federal measures seeking to prohibit the use of characters, cartoons, drawings, celebrities, athletes, among other elements, appealing to children as part of the advertising of food and beverages that contain critical nutriments or ingredients such as caffeine and sweeteners have already been approved and will be published soon.

ii Banning of glyphosate and genetically modified corn

On 31 December 2020, the federal government published a decree by which the use of glyphosate and genetically modified corn will be banned in Mexico by January 2024, under a phasing out programme. Actions to be followed by the Mexican government include the cancellation and withholding of permits for the release of genetically modified corn seeds into the environment. This means that Mexico will not only revoke existing permits, but will also not issue any new authorisations for the release of genetically modified corn, and will gradually reduce its importation.

Food and cosmetic safety

i Regulatory framework

Surveillance and enforcement activities regarding food and cosmetic products are mainly carried out by the Federal Commission for Protection against Sanitary Risks (COFEPRIS).

COFEPRIS is the governmental agency responsible for the sanitary control of facilities, advertising activities and monitoring the manufacturing, import or export of health-control products.

On the other hand, from a foreign trade perspective, authorised Mexican customs brokers as well as the Mexican Customs Authority are the only entities officially authorised and responsible for determining the correct classification of products imported into Mexico.

Although the classification of products for customs purposes is independent from that applicable under the health regulatory framework, it is important to pursue, to the extent possible, that both classifications are consistent so as to avoid any contradictory action either by the customs authority or COFEPRIS. Depending on the Harmonized Tariff Schedule code under which each product needs to be classified for importation purposes, different non-tariff requirements may apply for clearing customs.

As previously mentioned, food, beverage and cosmetic products rely on a complex broad system of laws, regulations, Mexican Official Standards, Mexican Standards, guidelines and administrative provisions and criteria; however, the following are the main legal statutes of a health and commercial nature, regulating the different stages in the supply and marketing chain of food, beverage and cosmetic products:

  1. General Health Law: This is the main statute regulating the control and process, importation and exportation of products that are subject to sanitary control.
  2. Regulations for the Sanitary Control of Products and Services: This statute contains the relevant characteristics and specific requirements to be complied with in connection with additives products, among others.
  3. Regulations of the General Health Law on Advertising: These establish specific legal health requirements for the advertising of products regulated under the Health Law.
  4. Mexican Official Standard NOM-141-SSA1/SCFI-2012: This concerns 'labelling for pre-packaged cosmetic products. Sanitary and commercial labelling'.
  5. Mexican Official Standard NOM-051-SCFI/SSA1-2010: General labelling specifications for food and non-alcoholic beverages – commercial and sanitary information.
  6. Decree that determines the permitted substances used as additives and adjuvants in food, beverages and dietary supplements: This establishes substances that are permitted to be used as additives, product categories recognised for the use of each particular additive and, if applicable, maximum use dosage.
  7. Decree that establishes the prohibited or permitted plants for teas, infusions and edible vegetal oils.

Surveillance and enforcement activities, inspections and verification visits either from COFEPRIS or the Federal Prosecutor for the Consumer (PROFECO) could be triggered by:

  1. an authority's regular surveillance activities;
  2. consumer claims and criticism; and
  3. claims filed by third parties, including competitors.

Inspection visits can take place at: (1) points of sale; (2) warehousing facilities; (3) manufacturing facilities (not applicable to the extent that the products are manufactured abroad); and (4) distribution facilities, among others.

ii Food additives and contaminants

Additives have an important role in food products and cosmetics. They provide nutrition, maintain quality and make products appealing, among other benefits. However, consumer interest in choosing minimally processed food has increased considerably. There is higher demand for products with fewer ingredients and maximal nutritional benefits, which has resulted in the need for the industry to innovate in the formulation of products and seek to have high-quality ingredients.

This has also led to important changes in the way in which the declaration of additives is regulated in the labelling of products, as well as those ingredients or additives that can cause hypersensitivity, intolerance or allergies.

In terms of the Health Law and the Additives Decree, food additives are considered to be any permitted substance not usually consumed as food, nor used as a basic ingredient in food, whether or not it has nutritive value, and which addition to the product, through production, processing, preparation, treatment, packaging, transportation or storage, results or can reasonably be expected to result (directly or indirectly) in a component of the product or an element affecting its characteristics (including organoleptic) to favour either its stability, conservation, appearance or acceptability. The above does not include 'contaminants' or substances added to the product to maintain or improve nutritional qualities.

On the other hand, dyes are defined as a substance that gives or restores colour to a product and are classified under the following categories based on their technological function:

  1. colour pigments and decoration;
  2. surface dyes;
  3. varnishes; and
  4. pigments.

As a general rule, additives shall:

  1. only be used in the amount necessary to obtain the desired effect;
  2. not exceed the limits provided in the Additives Decree;
  3. be free from decomposition, putrefaction and any other deterioration that makes the food product unfit for human consumption;
  4. fulfil a useful function that is not used to hide sanitary quality defects;
  5. obtain the corresponding effect by simply following good manufacturing practices; and
  6. have an analytical method that effectively controls their use.

Additives and dyes permitted to be used in food products shall be those listed in the Additives Decree, unless there is an express restriction of prohibition in a Mexican Official Standard. Mexican Official Standards are the mandatory technical regulations providing specifications and requirements that must be complied with by specific products and in their processes, which may constitute a risk to people, animals, vegetables and the environment. The Additives regulations include an extensive list of food additives and coadjutants that can be used as ingredients in foods and beverages in Mexico.

Additives that are not included in the Additives rules can be added by COFEPRIS per request by any interested party.

To properly include any substance in the Additive rules, a written request must be filed with COFEPRIS. Supporting information (a dossier) must be attached, with sufficient technical and safety evidence of the additive's use.

An additive's inclusion can also be requested to COFEPRIS by providing relevant evaluations and approvals of the additive under:

  1. the Joint FAO/WHO Expert Committee on Food Additives (JECFA);
  2. the Codex Alimentarius;
  3. the European Union; or
  4. the United States.

Regarding the regulation and control of contaminants for either food or cosmetic products, in general, the Products Regulations provide that product packaging and containers shall guarantee the safety and quality of the products. The packaging of the products must avoid any leak that could represent a risk to health or that could lead to chemical or microbiological contamination of the product.

A contaminated product is understood as a product that contains microorganisms, hormones, bacteriostatic pesticides, radioactive particles, foreign material or matter, as well as any other substance in amounts exceeding the permissible limits stated by the Ministry of Health. Likewise, a product will be considered as altered when, due to any cause, it has suffered modifications with respect to its innate composition that make it noxious to health or that modify its characteristics so as to affect the sanitary quality of the product. Needless to say, contaminated or altered products cannot be commercialised.

iii Recalls

In terms of the Mexican legal framework, a sanitary anomaly is considered as any irregularity related to the sanitary specifications (biological, chemical or physical) of safety of a food product, beverage or cosmetic that may pose a risk to health.

On the other hand, an altered product is one that, for any reason, has been subjected to modifications to its innate composition that make it noxious to health or modify its characteristics such that the sanitary quality of the product is affected.

COFEPRIS is the government authority in charge of the regulation and surveillance of cosmetic products, including any irregularity relating to their sanitary specifications.

Owners, or the entity or individual responsible for the facilities where food and cosmetic products are processed (including development, manufacturing, preparing, mixing, conditioning, packing, handling, distribution, warehousing and supply or commercialisation to the public), must file a report to COFEPRIS immediately after they detect any sanitary anomaly or alteration in the product, or in connection with the facilities where the production of the products is carried out, that presents a potential risk to health.

Unlike other jurisdictions, the Mexican legal framework does not establish a particular procedure or recommendations to be followed when performing a recall; however, the immediate actions that companies or individuals take after submitting the notification are crucial for withdrawing potentially hazardous products from the marketplace as quickly and efficiently as possible to avoid incidents and injuries to consumers, as well as major complaints or product liability issues, as much as possible.

The following are some of the most relevant subsequent actions:

  1. analysis of data for potential human health issues related to the product;
  2. identification of the inventory and, if possible, quarantine of the product subject to recall;
  3. notifying customers and requesting the product's quarantine;
  4. planning for, and adoption of, safety assurance measures as a result of any product disposal, recall and sales discontinuations;
  5. communicating the product's risk to consumers, if necessary. The information about the sanitary anomaly does not need to be published, unless it involves the need for a product recall or when it is requested by COFEPRIS; and
  6. implementing corrective actions.

In addition, entities or individuals must cooperate with any safety measures imposed by the health authority (e.g., suspending activities or advertising; seizure or destruction of products).

Supply chains

i Labour and immigration

On 23 April 2021, the federal government published a decree to prohibit companies from relying solely on subcontracting. Under the decree, subcontracting of personnel will be prohibited along with the outsourcing of core activities; however, it will be possible to contract specialised services outside of the contracting party's corporate purpose and core business activity, including shared services within a corporate group, by complying with particular requirements such as registering with the Labour Ministry.

In addition, service providers must report information regarding contracts executed to the Mexican Social Security Institute and the National Workers Housing Fund Institute on a quarterly basis.

This new regulation will significantly impact many companies, including those with internal shared services, and those that are being served by a provider under a subcontractor mode.

Non-compliance with the above will trigger fines of up to 50,000 times the Unit of Measurement and Update, non-accreditation of value added tax and non-deductibility of income tax regarding the payments made for such services, and even the determination of severe tax fraud under particular circumstances.

ii Processing and certifications

As a general rule, and in the particular case of food products, beverages and cosmetics, product certification is not a mandatory process. However, voluntary processes can be followed through an authorised third party known as a 'certification body' or 'certification organism', which are official entities recognised for evaluating the conformity of a product based on the requirements set forth by the applicable technical standards (NOMs). To this end, the certification organism requests that the product is tested in an authorised laboratory (when applicable) so that, based on the product's technical information and labelling information, the organism may grant a certificate that evidences compliance. These certificates are usually used for facilitating the importation process of food and cosmetic products, to evidence compliance with the labelling provisions.

In certain cases, products shall be tested within authorised Mexican laboratories (e.g., chemical analysis); however, depending on the types of tests performed outside Mexico (i.e., for the purposes of product certification in different countries), Mexican laboratories may recognise those test results obtained abroad in accordance with the applicable recognition agreements for the relevant certification organism and laboratory.

Although there is no legal obligation to make the relevant (i.e., certificate of compliance) documents accessible to consumers, it is always advisable to keep these documents available for use (i.e., import purposes) and, in the case of inspections by either the regulatory authority and even as part of the contractual obligations undertaken with the certification organisms in the case of inspection (i.e., with respect to certification files), to evidence, at all times, full compliance with the relevant provisions.

iii Sustainability

Generally speaking, the development of any manufacturing operation in Mexico is subject to regulations in terms of:

  1. environmental impact and risk;
  2. air emissions;
  3. waste management;
  4. water supply; and
  5. waste water discharge.

In terms of environmental impact, the cosmetics and food industries are both considered of local competence, meaning that the construction and operation of any facility will be subject to an environmental impact assessment under the local environmental authorities, the specific requirements of which may vary from state to state.

The same would apply to the regulation of air emissions. Both industries are considered of local competence and will be subject to local environmental regulations and authorities, with the exception of cosmetics industry facilities dedicated to the manufacturing of base products for cosmetics and perfumes, which are regulated by the federal environmental authority, the Ministry of Environment and Natural Resources (SEMARNAT).

Food industry facilities are considered by the Regulations to the General Climate Change Law on the National Emissions Registry as subject to reporting obligations on greenhouse gases emissions. These reporting obligations are independent of local air emissions regulations and are regulated by SEMARNAT through the National Climate Change Institute.

Waste management for any facility and operation can be divided into hazardous wastes and special management wastes. Depending on the amount of each type of waste generated at a particular cosmetic or food industry facility, the operational permits may vary. Special management waste is subject to local environmental regulations and authorities, while hazardous waste may be subject to either federal (SEMARNAT) or local competence.

The current trend in terms of environmental policy and sustainability regulations in Mexico has come in the form of various legislative changes (for at least 30 of the 32 states of Mexico) aimed at restricting the use, production, commercialisation, manufacturing, distribution and general use of single-use plastic products such as straws, disposable cutlery, bags (mainly those that are commonly handed out in supermarkets and convenience stores) and even some packaging materials for certain services.

As special management waste is considered of local competence, these regulatory changes may vary significantly from state to state. However, we are yet to see any changes aimed particularly at product packaging of the cosmetic and food industry, with the exception of legislative reforms in Mexico City that seek to replace single-use plastics with certified plastics that have certain elements of compostable materials, including those used for food transportation, such as trays and domes.

As for water supply and waste-water discharges, these services can be provided by the local water utility (generally at a municipal level) or the corresponding water exploitation concession titles. Waste-water discharge permits can be secured from the National Waters Commission when water is intended to be exploited from an underground source or from a water body of federal competence, or when waste water is intended to be discharged into a federal receiving body (i.e., river, or directly into the ground).

The food industry should place special care on grease and organic components that are commonly found in its waste-water discharges, to ensure compliance with applicable waste-water quality standards, as set forth under Mexican Official Standards NOM-001-SEMARNAT-1996 and NOM-002-SEMARNAT-1996.

Regarding the cosmetics industry, in 2015, SEMARNAT signed a cooperation agreement with the National Chamber for the Cosmetic Products Industry and the National Association for the Personal Care and Home Industry, on the implementation of sustainable practices in the manufacturing activities of these industries.

This cooperation agreement was signed as part of the implementation of the Special Sustainable Production and Consumption Program for 2014–2018. This programme, although it has not been updated since its publication in 2014, includes several strategies, objectives and goals in terms of sustainability, responsible production and responsible consumption, to be implemented by governmental authorities alongside the private sector.

Sales and marketing

i Authorisations and notices

Marketing authorisation and import permit

As a general rule, products classified as cosmetics or food products are not subject to marketing authorisation (approval) for their importation and commercialisation within Mexican territory.

However, in the case of foreign or imported products, the classification (for customs purposes) of the product under the corresponding HTS (Harmonised Tariff Schedule) code will determine which non-tariff barriers (e.g., import permit) are applicable, as well as the specific labelling regulations.

Advertising

The entity that plans or intends to advertise the product should file an advertising notice or permit (this depends on the timing and medium (or media) of the advertising) before COFEPRIS. The advertising notice or permit must contain, at a minimum, the name and domicile of the manufacturer; the name and domicile of the importer or distributor; the trademark; and the name and federal taxpayer registry code of those responsible for the product and advertisement.

The advertising should also include legends promoting hygiene and health, except in cases where such a message is already included in images, scenes, text or dialogue.

When advertising cosmetics products, the advertising cannot:

  1. attribute therapeutic, preventive or rehabilitative effects to these products;
  2. suggest changes to proportions of the human body; or
  3. introduce these products as essential to human life.

It is expected that, in the coming months, new regulations for the advertising of products will be issued, aimed at restricting the use of characters, cartoons, drawings, celebrities and athletes, among other elements directed at children.

Facilities

Facilities in which the storage and distribution of food and cosmetic products are carried out must file an operating notice with COFEPRIS within 30 days of the operations starting. An operating notice is not an authorisation and does not require a formal response from the authority; it is effective once it has been presented and has no cost. It is the kind of registration that companies carry out before the sanitary authority.

The facility in charge of obtaining the operating notice will be the one responsible for importing or marketing the product, and shall be established on Mexican territory.

Good manufacturing and storage practices must be strictly implemented and followed within the facilities to ensure the safety and quality of the products.

Good manufacturing and storage practices generally address matters including appropriate personal hygiene practices, monitoring actions, equipment, sanitary operations, facilities layout, pest control systems and production and process controls.

Labelling

The labelling of food and cosmetic products is mainly regulated by Mexican Official Standards, particularly NOM-141-SSA1/SCFI-2012 and NOM-051-SCFI/SSA1-2010.

In general, the following sanitary and commercial information requirements are the most relevant.

Presentation of information

Mandatory information must be expressed in Spanish, without prejudice of including it in other languages. Characters corresponding to the information in Spanish must be larger, or at least the same size and proportions, than those where the information is presented in other languages. Characters must be clear, visible, indelible and in contrasting colours, and easy to read by the consumer under normal circumstances of purchase and use. It is not necessary to use quotation marks on the label.

Information that is presented to the consumer must be truthful and verifiable.

Labels must be fixed in a way that they remain available up to the moment of their purchase and use under regular conditions. If, due to the characteristics of the product, it is not possible to fix or stick the labels directly on the primary or secondary container, they can be attached to it.

Generic and specific names of the product

All of the product items must show the generic and specific names of the product. If the name is not included on the list, it is required to include the name on the list that best describes the product.

This information shall be presented on the main surface of the primary or secondary container.

Responsible party and country of origin

The name, company name or corporation and domicile (street, number, postcode, city and state) of those responsible for the product must be included on the information surface of the primary or secondary container. In the case of imported products, the information can be incorporated onto the product in the national territory after customs clearance and before its commercial distribution.

There must be a legend indicating the country of origin of the product or other analogous terms, such as 'Product of', 'Made in', 'Manufactured in' or similar.

Declaration of batch, quantity and expiration date

All products must provide identification of the batch, quantity and expiration date, in coded or clear language.

Instructions or method of use

Instructions for use, or other similar instructions, must feature on the information surface of the primary or secondary container, or be attached as a guide to the following products: tints, colourants, colouration, bleaching agents, permanent straighteners, products for skin whose primary function is solar protection, bronzers, self-tanners, depilatories, or any other product that requires it.

When instructions are attached as a guide, this fact must be stipulated by the legend 'Read attached instructions' or the equivalent. Specific legends are applicable for solar protection products (i.e., 'Apply before exposing to the sun').

Prohibited declarations of properties

It is prohibited to include declarations of properties that cannot be verified, including declarations of the properties and characteristics of drug products.

The labelling of cosmetic products may not include any text, names, trademarks, images or any other symbol with the purpose of attributing characteristics or properties that are not satisfied by the product.

In the case of food products, strict restriction applies to the use of healthy or nutrimental statements. Such restrictions are based on the nutritional content of the product.

Ingredients

The list of ingredients of the formula must be preceded by the term 'ingredients' and shall be presented in visible characters on any labelling featured on the primary or secondary container.

For both cosmetic and food products, specific rules apply regarding the way ingredients shall be listed, including the order, percentage declarations and names of ingredients.

As mentioned above, new food labelling provisions came into force on 1 October 2020, setting new requirements and prohibitions. Such restrictions and prohibitions are mainly related to a new FOP labelling system that has been adopted for the inclusion of stamps to warn about the existence of critical nutriments (e.g., fats, sugars, sodium, calories) that exceed certain thresholds that may represent a risk to health.

ii Consumer protection and false advertising

Relationships between suppliers and consumers are strictly regulated in Mexico. PROFECO is the administrative authority that has been entrusted to promote and protect the rights and interests of consumers, by seeking fairness and legal certainty in the relationships between suppliers and consumers.

The Federal Consumer Protection Law and its Regulations are federal provisions, setting forth specific principles and requirements that apply to the supply of practically all products and services that are sold and offered in Mexico. They aim to promote and protect the rights and culture of consumers, fairness, transparency, assurance and legal certainty in supplier–consumer relations.

The provisions under these statutes are considered of public policy and social interest, therefore cannot be waived by consumers; and no customs, uses, practices, covenants or stipulations to the contrary shall be asserted against.

Important amendments to the Federal Consumer Protection Law have been enacted during the past few years, mainly related to:

  1. encompassing and granting of better consumer protection in electronic transactions;
  2. formalities and requirements for consumers to bring class actions;
  3. regulation of transactions involving land developers, constructors, promoters or individuals rendering services for the acquisition of housing and real estate; and
  4. more strict enforcement of those products and services that, as a consequence of an inspection visit or any other legal procedure, may be considered as hazardous or where the authority determines that they are not compliant with the relevant legal provisions and requirements.

PROFECO (the Bureau) is entitled to inspect locations where products are handled, marketed, stored, distributed or sold, acting alone or pursuant to the request of any third party. The purpose of such inspections is to:

  1. examine the products or services;
  2. verify prices, quantities, contents, tariffs and measurement tools;
  3. verify advertising;
  4. verify promotions and promotional campaigns;
  5. verify compliance with Mexican Official Standards;
  6. verify the existence or non-existence of products; and
  7. carry out other related measures required to enforce the Federal Consumer Protection Law, its Regulations and the Quality Infrastructure Law.

When doing business in Mexico, companies must consider that, as a general rule, suppliers are bound to honour the prices, warranties, quantities, measures, interest, charges, terms, periods of time, dates, modalities, reservations and other conditions that they have offered or agreed with consumers for the supply of goods and services. In the event of 'all-inclusive' services, suppliers must disclose the contents of such plans in their publicity, and are bound to inform the consumer of such contents in a convenient manner. Likewise, suppliers are bound to disclose in a visible manner the total prices and rates, and they must respect the agreed prices and tariffs.

  1. All information and advertising regarding goods, products or services released through any means or manner must be truthful, verifiable and exempt of texts, dialogues, sounds, images, trademarks, designations of origin and other descriptions that lead or may lead to mistake or confusion by being either deceptive or unfair.
  2. Abusive or misleading information or advertising is understood as that which makes reference to characteristics or information related to any good, product or service that, either truthfully or not, misleads or causes confusion due to the imprecise, false, exaggerated, biased, contrived or tendentious manner in which it is presented.
  3. The information or publicity that compares products or services, whether from the same brand or not, cannot be abusive or misleading, as understood from the definition given. The Bureau can issue guidelines for the analysis and verification of said information or publicity. With respect to imported products, such information must indicate the country of origin and, in each case, locations where they can be repaired, instructions and warranties in Spanish or with a Spanish translation, and their price in Mexican currency.
  4. The information or advertising comparing products or services, whether from the same brand or not, cannot be abusive or misleading.
  5. The words 'warranted' or 'warranty' may be utilised only when their terms and conditions for enforcement are clearly indicated or a warranty policy is offered.
  6. Products offered to the public with some deficiency, used or refurbished, need to be offered indicating such circumstances in an accurate and clear manner. Such circumstance must be displayed on the goods, packaging, bills or pertinent invoices. The supplier is bound to deliver the good or render the service according to the terms and conditions either explicitly or implicitly offered in the advertising or information launched, unless there is a covenant or consent in writing by the consumer to the contrary.
  7. For a supplier to launch promotions or sales, the Federal Consumer Protection Law does not require prior authorisation; however, a notice is required in certain promotions as provided for in the applicable NOM (collectable promotions and promotions involving raffles or contests if the acquisition of a certain good is required to participate). In those cases, where prizes are determined randomly, promotions will be subject to approval by the Ministry of the Interior.

The following are some of the elements that are subject to compliance with the Consumer Protection Law and its Regulations, and therefore subject to surveillance by the Consumer Bureau:

  1. advertising of products and services;
  2. prices;
  3. comparative advertising;
  4. commercial promotions and offers;
  5. home sales;
  6. commercialisation systems;
  7. adhesive contracts;
  8. electronic commerce transactions; and
  9. instalment payments and consumer credit.

The lack of accuracy or truthfulness in information provided by the supplier binds the latter to comply with what was offered or, if it is not possible to refund the consumer his or her expenses, a payment of compensation must be made under the law. All restrictions or limitations on the use of goods or services must be made in a clear manner. Likewise, this rule applies to the sale of defective, used or renewed products.

The words 'warranted' or 'warranty' may be utilised only when the terms and conditions for enforcement are clearly indicated. Products offered to the public with some deficiency, used or refurbished, need to be offered indicating such circumstances in an accurate and clear manner. Such circumstance must be displayed on the goods, packaging, bills or pertinent invoices. The supplier is bound to deliver the good or render the service according to the terms and conditions either explicitly or implicitly offered in the advertising or information launched, unless there is a covenant or consent in writing to the consumer to the contrary.

Suppliers cannot deny the sale, acquisition, lease or supply of goods in stock or available services, except if a judicial order or a legal provision demands the observance of specific requirements. Also, the stock of products or availability of services is expected when they are advertised as available.

Enforcement

Based on complaints filed by consumers in writing, verbally, via the telephone, by an electronic medium or by any other means, and pursuant to Chapter XIII of the Federal Consumer Protection Law, the Bureau may request information regarding a supplier's whereabouts from federal, state and municipal authorities, who must answer the request within 15 days of the notice.

Unless otherwise provided in the Federal Consumer Protection Law, claims must be filed within a year of the last date upon which the consumer proves that he or she directly requested the supplier to perform the obligation agreed by the parties. An extraordinary period of 10 years applies for claims that arise against providers of education or similar services, if provided by private entities, for affecting the rights foreseen in the Law for the Protection of Children's and Teenagers' Rights.

The Bureau will receive complaints filed by consumers, notifying the supplier and setting a date for a conciliation hearing. If the supplier fails to appear at the hearing or does not submit a written report, a fine will be imposed and a new hearing scheduled. If the supplier does not appear at the second hearing, another fine will be imposed and the claim submitted by the consumer considered true and accurate. If the consumer does not appear at either hearing and if no sufficient excuse is delivered within the following 10 days, the complaint will be dismissed and not be subject to a new filing. In the event of public utilities, such as electricity, gas or telecommunications, the initiation of a conciliatory proceeding prevents the supplier from trying to interrupt or suspend the performance of its obligations until the proceeding is over.

The Bureau will act as a conciliator only to promote the amicable settlement of the dispute, but it has the authority to require the issuance of a report quantifying the net amount of the obligation assumed by contract. The Bureau may sanction the supplier if the Federal Consumer Protection Law has been breached and, in such event, it may declare that the consumer may seek remedies before the courts claiming payment of the amount contained in the report. If no settlement is reached, the Bureau will suggest that the parties appoint an arbitrator of the Bureau or an independent arbitrator. However, if the parties do not agree on its jurisdiction, they will be free to resort to the courts.

The procedural rulings issued by the Bureau and the agreements reached cannot be appealed and may be administratively and judicially enforced. The Federal Consumer Protection Law permits reaching an agreement via telephone or other means, subject to subsequent confirmation of the commitments assumed.

Arbitration

If the parties decide to submit to the Bureau's arbitration proceedings, they must agree on the procedural rules for the submission of arguments, evidence and final positions. The Bureau may issue an award that will be binding and fully enforceable.

The decisions rendered during the arbitration procedure must admit, as sole remedy, the motion for reconsideration, which the arbitrator appointed must settle within three days. The arbitral award must only be subject to a clarification within two days of the date of notification thereof.

Sanctions

Sanctions are imposed by the Bureau by notifying the possible violator to allow for a written defence that may be filed within 10 days of that notification. In the event of infringements to the Federal Consumer Protection Law or NOMs, the administrative infringement procedure may be initiated against the supplier, manufacturer, producer and importer.

The Bureau will then issue a ruling, determining whether the Federal Consumer Protection Law was infringed, and imposing the corresponding sanction. Depending on the infraction, its seriousness and the Bureau's determination, the amounts of the fines may vary and include the closure of the commercial establishment and restraints upon trade in the goods and services.

Also, and without prejudice to the participation of other governmental entities in accordance with applicable legal provisions, the Bureau may apply the following measures:

  1. it may order a supplier to suspend the information, advertising or marketing of a product that violates the Federal Consumer Protection Law; and
  2. it may order correction of the information or advertising in a manner considered sufficient to clarify any misleading practice and to comply with the Federal Consumer Protection Law.

Product liability

Product liability has become a trending and sophisticated topic for consumers, ambulance chasers, manufacturers, suppliers, retailers, distributors and other members of the product supply chain, including the importance of the contingency represented by consumers claiming remedies or indemnity.

In Mexico, product liability is mainly regulated by the Consumer Law, Metrology and Standardization Laws, the Federal Civil Code and the civil codes of individual states.

In general, a product liability claim requires the claimant to prove that the injury or damage is the direct result of either a breach of contract or a legal obligation. In a liability claim for a product or service, the claimant must show that there is an obligation (either by agreement or imposed by law); that there has been a breach of this obligation (which is an illegal act); the causation between the breach and the injury or damage caused to the claimant; and that the damage is not due to inexcusable fault or negligence of the claimant.

Until certain amendments to the Consumer Law in 2004, the concept of product liability did not exist as such in the law. Actions arising from a defective product were governed by the general provisions of federal and state civil codes. The general principle under the state civil codes applicable to product liability is that anyone who acts against the law or good principles and as a result causes injuries or damage to another is bound to indemnify the victim, unless it is proven that the harmful result was due to the victim's inexcusable fault or negligence.

In Mexico, lawsuits on product liability are not as common as in other jurisdictions, thus the frequency of litigation is rather low. Complaints largely remain at an administrative level and are handled by PROFECO under the procedures and regimes described above.

The above does not disregard that class action procedures will become more frequent for products that may cause any harm to health, such as food and cosmetic products, in addition to the fact that class action procedures have certain special and flexible features in comparison with traditional civil procedures, such as the certification of the class, the judge's broad authority for obtaining further evidence, opt in and opt out rights, the amicus curiae institution, caps to attorneys' fees and conciliation stage.

Based on the above, companies should take preventive measures when recall and quality issues are handled, so as to avoid being exposed to such a class action.

Intellectual property

Recent amendments to NOM-051, and restrictions that will enter into force in the coming months, concerning the use of characters, cartoons, drawings, celebrities and athletes, among other elements, directly affect intellectual property rights and have led to the filing of several constitutional claims by important actors of the food industry, both national and international.

Intellectual property rights (trademarks and copyrights) constitute exclusive rights that cannot be restricted and affected by a secondary norm (technical standard). NOM-051 violates intellectual property and copyright laws by limiting the right of the holder to exercise his or her exclusivity rights.

In addition, restrictions contained in the NOM violate international trade agreements that Mexico has signed by creating additional and unequal trade barriers.

Trade organisations

Trade organisation activities are regulated under the Law of Business Chambers and its Confederations (LBCC) and its Regulations.

Surveillance and enforcement activities related to trade organisations under the LBCC are carried out by the Ministry of Economy.

i General aspects of trade organisations

    1. Objective: To represent, promote and defend nationally and internationally the activities of the industry, and collaborate with the government as a consultation body to achieve socioeconomic growth, as well as the generation and distribution of wealth. They cannot have profits, and should refrain from religious or partisan activities.
    2. Circumscription: The organisations (known as Chambers) will have a regional circumscription corresponding to one or more municipalities.
    3. Members: They must admit as members all the merchants in the same line of business that apply to the organisation.

ii Administrative structure

      1. General assembly: The supreme body of the Chamber, formed by its members and representatives of the Chamber.
      2. Governing board: This is the executive body of the Chamber. It consists of a president, vice presidents (as established in the statutes of the Chamber), a treasurer and a secretary.
      3. Conformation (members): Merchants, industrialists or both.

iii General requirements to establish a Chamber

At a minimum, the Chamber must comply with the following requirements:

      1. that a chamber of commerce in the same line of business has not yet been constituted in the same circumscription;
      2. that the proposed circumscription has a population greater than 200,000 inhabitants, according to the last general population census;
      3. within the circumscription, there are shall be at least 2,500 merchants;
      4. the business for which a chamber of industry is requested shall correspond to a subsector of up to two digits in the classification of the system recommended by the National Institute of Statistics, Geography and Informatics;
      5. the express petition of at least 100 industrialists or merchants that represent 25 per cent or more of the industrialists of the specific business; and
      6. the industrialists or merchants of the promoter group must be located in at least 10 states, with a minimum of 7.5 per cent of the industrialists of the promoting group in each of these states.

The following are among the most important commercial organisations within the cosmetic and food industry:

  1. food chambers of commerce:
    • National Chamber of the Canned Foods Industry (CANAINCA);
    • National Chamber of Restaurants and Seasoned Food Industry (CANIRAC); and
    • Jalisco Food Industry Chamber of Commerce.
  2. cosmetic chambers of commerce:
    • Mexican Chamber of Cosmetic Products (CANIPEC).

Financing and M&A

Cosmetics and food companies are usually constituted under the following corporate structures.

i Corporation or limited liability company

There are two primary entity structures that limit liability of their equity holders: the corporation (SA) and the limited liability company (SRL). These entities are distinct legal entities and have an existence separate from their equity holders. As such, among other activities, they can enter into contracts and own property. The equity holders of both types of entities are, as a general rule, only liable to pay their capital contributions and cannot be held liable for the operations of the company. In recent years, several appeal courts in Mexico have issued decisions piercing the corporate veil. Although these cases have been isolated, disregarding the corporate veil could become a judicial trend.

Mexican law provides the same tax treatment for both types of entities.

The management of an SA and an SRL is very similar. The equity holders, acting through an equity holders' meeting, are the primary decision-making body, and the board of directors or managers is secondary.

An SA must have a statutory auditor, while naming a statutory auditor is optional for an SRL. The statutory auditor is usually a member of a reputable accounting firm who will, among other things:

  1. oversee actions taken by the management of the company;
  2. submit an annual financial report to the equity holders; and
  3. monitor the records and books of the company.

The internal rules and operations of an SA or SRL are more a function of the nature of their businesses and the corporate governance structure agreed among the equity holders than of Mexican law.

General principles of law govern the liability of the directors and officers of both types of companies, except in the case of publicly traded corporations, which are subject to more detailed regulations. Directors must act reasonably and in the best interests of the company. Directors or managers involved in a fraudulent act that causes harm to creditors may be held liable for criminal sanctions and imprisonment in the context of insolvency or bankruptcy proceedings.

Participation as an equity holder is evidenced differently for an SA than for an SRL. SAs issue stock certificates that are legally negotiable instruments and subject to transfer through endorsement and notation in the equity holders' registry book. That is not the case in an SRL, in which equity participation (equity quotas) is not necessarily evidenced in a written instrument and, even if participation is evidenced by a written instrument, such instrument is not negotiable and cannot be transferred by endorsement. Minority equity holders of an SA have more statutory rights than minority equity holders of an SRL.

The minimum number of equity holders both types of companies must have is two; sole ownership of these types of companies by an individual or a legal entity is not permitted under Mexican law, except for companies known as simplified stock corporations (SAS – see below).

The equity holders of either type of company can be entities or individuals, foreign or Mexican. If an equity holder of a company is foreign, the company must be registered with the Foreign Investment Registry.

An SA and an SRL are subject to the same rules with respect to capital calls, capital redemption, transformation, spin-off, merger, and capital contributions (whether in kind or for cash). Exceptions can be included in the by-laws of an SRL.

The rules governing SAs were recently amended to make the entity a more attractive vehicle for private equity investors and joint ventures. The equity holders of an SA may agree to the following: (1) purchase and sale options; (2) rights of first refusal; (3) voting rights; and (4) agreement to sell their shares in a public offering. Notwithstanding the above, statutory provisions regarding minority rights will nonetheless apply.

ii Variable capital entities

An SA or an SRL must set forth in its by-laws a minimum fixed amount of capital stock, which cannot be increased or decreased without an amendment to the by-laws; however, an SA or SRL may also elect to have, in addition to the fixed capital stock set forth in the by-laws, a variable capital stock (capital variable) component, which can be increased or decreased through a corporate resolution without the need to amend its by-laws and record it with the Public Registry of Commerce (PRC). A variable capital company will have 'de capital variable' or 'de CV' at the end of its name.

While there are several aspects to consider when forming a company in Mexico, in general, the process is as follows:

  1. determine the type of company (SA, SRL) and its corporate name;
  2. determine the equity holders (at least two), directors or managers (or sole manager or director), attorneys-in-fact and, if applicable, the statutory auditor;
  3. determine whether the capital stock will be fixed or variable;
  4. if the equity holders are foreign, prepare powers of attorney authorising a Mexican attorney or other representative to form a company in Mexico (the powers of attorney must be notarised and legalised or apostilled in the place they are granted);
  5. obtain authorisation from the Ministry of Economy to use the desired name;
  6. prepare the by-laws, which will include the following important information:
    • the corporate purpose of a company, which establishes the scope of the activities that the company can carry out (it can be very broad);
    • the allowance or prohibition of foreign investment in the company; and
    • the corporate domicile;
  7. the by-laws of a company can be tailored to meet the needs of the equity holders; they can range from simple (for wholly owned subsidiaries) to highly complex (for joint ventures or venture capital- or private equity-backed entities);
  8. gather and provide all information required under 'know your customer' statutes;
  9. formalise by-laws and formation deed with a notary public;
  10. file the formation deed with the PRC;
  11. enter formation notations in the corporate books (equity holders' registry, meeting minute book of the equity holders' counsel, capital stock variations book and, if applicable, board of directors' or managers' meeting minute book);
  12. issue stock certificates (SAs only); and
  13. register the company with the Federal Taxpayer Registry to obtain a tax identification number.

A company can be formed in two or three weeks or even months, from start to finish, if electronic filing is available at the applicable PRC. A company can start operations and enter into transactions before the formation deed is registered, but the individuals acting on behalf of the company will be liable for transactions entered into by the company during the registration period.

iii Foreign investment

The Foreign Investment Law (LIE) defines foreign investment as the participation by foreign investors (defined as individuals or entities of any nationality other than Mexican, and foreign entities with no legal standing) in:

  1. any percentage of the capital stock of Mexican companies;
  2. investments in Mexican companies where the majority interest is foreign capital; or
  3. activities and acts contemplated in the LIE.

As a rule, foreign investors may participate in the capital of Mexican companies in any proportion; acquire fixed assets; enter new fields of economic activity or manufacture new product lines; open and operate establishments; and expand or relocate existing establishments. There are certain activities in which foreign investment is restricted and foreign entities may only participate up to a certain percentage limit.

The limits on foreign investment in the above activities and companies may not be surpassed directly or through investments using trusts, contracts, partnership or by-law agreements, pyramid schemes, or other mechanisms granting any control or higher participation than that established. However, neutral investment, which is a non-participatory financial investment that is not considered foreign investment for the purposes of the limitations provided by the LIE, makes it possible to surmount the foreign investment restrictions.

Finally, foreign investors require authorisation from the National Foreign Investment Commission (CNIE) whenever they acquire, directly or indirectly, capital of a company (higher than 49 per cent) whose assets are above the amount fixed each year by the CNIE (currently, approximately US$999 million (approximately 20,184,671,346.26 pesos)).

Special issues for certain products

Cannabis

After the publication in June 2017 of the Amendment to the General Health Law and the Federal Criminal Code, the interest of food (edible) and cosmetic companies in developing products that contain products derived from cannabis and its components, including cannabidiol (CBD) has significantly increased, together with the interest of consumers in acquiring and consuming innovative products.

In general, the use of cannabis derivates with less than 1 per cent tetrahydrocannabinol as a compound in food, beverage and cosmetic products is legal, as is the marketing and importation of such products, being (currently) only subject to compliance with the general legal framework and requirements of cosmetic and food products.

It is expected that more strict regulations regarding labelling, advertising and the formulation of industrial products will finally be drafted and published within the next year.

Outlook and conclusions

There is no doubt that innovation in technology, research, new ingredients, manufacturing processes and consumer trends is changing, and will continue to change, the way the food, beverage and cosmetic industries operate and will be regulated.

Adaptability to change will be the new challenge for actors that are part of the supply chain, not only at the operational level but also at the legal level – they must look for and implement new business models that ensure innovation, safety and compliance.

Footnotes

1 Cecilia Stahlhut Espinosa is a counsel at Hogan Lovells.

 

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