According to the science of composition, a semiconductor is a material which, when subject to light, heat or a specific electrical voltage may be transformed into a conductor. Semiconductors are used to produce memory sticks, PC cards, smart cards, microchips, microprocessors, transistors, compact flash, start media, among many other items. Semiconductors have become critical components in the electronic and automotive industries focused on technology because they are needed to produce laptops, televisions, cellphones, medical equipment, printers, automobiles and almost any other technologically advanced product.
Over 60% of the semiconductors production manufacturers are based in Asia, mainly in China and Taiwan and many companies around the globe depend on them for their semiconductor supply. Nonetheless, as those of us in the trade industry know regarding Section 301, prior to Covid-19, the United States and China began a trade war. This became a bigger problem with Covid-19, as companies shut down their operations to prevent the spread of the virus. In addition, the international supply chain showed to be a fragile one, all of which resulted on a semiconductor shortage and crisis. These were some of the factors that ended up affecting many companies dependent upon on semiconductors in their manufacturing process.
The semiconductor crisis and shortage also affected Mexican companies as their production was reduced and consequently their prices increased. Some companies with their headquarters in the U.S. who produce or supply their goods via Mexico were also affected, especially those which need semiconductors. Thus, the domino effect was put in play between the US and Mexico.
On August 9, 2022, in an attempt to reduce the U.S. semiconductor dependency from the Asian companies and position the U.S. as a semiconductor global leader, President Joe Biden, signed the “Chips and Science Act”, which is aimed to protect the semiconductor industry, the corresponding scientific and technological research involved, and strengthen the economy and national security. In addition, economic support was allocated for companies investing in this industry.
On September 13, 2022, high level representatives from Mexico and the U.S. had the second Mexico – United States High Level Economic Dialogue (DEAN) which prioritizes the promotion of regional prosperity, expansion and creation of employment, investment and reduction of inequality and poverty. During this dialogue, the representatives from both countries discussed the importance of the economic and social growth of the North American region in order to rebuild the economy together, promote the economic and social sustainable development in the south of Mexico and Central America, and guarantee the tools for a future of prosperity and investment in their communities.
The representatives also discussed that the Chips and Science Act provide an opportunity to improve the supply chains of both countries, which will be working together to improve investments in the semiconductor industry.
As a result, Mexico is preparing to obtain investors in these industries. There are multiple advantages that Mexico offers in this area. It is not just limited to the quality of its labor or the geographic proximity it has to the Unites States, which is the largest semiconductor consumer, but also the trade relations which are supported and strengthened by the United States Mexico, Canada Agreement. (USMCA)
Thus, it is expected that there will be a significant growth of the semiconductor industry in Mexico. The Chips and Science Act and the DEAN are viewed as significant opportunities to expand and strengthen the semiconductor industry and the industries than depend on them. In addition, on April 20, 2022, The Mexican Minister of Economy signed a collaboration agreement with Intel Mexico, committed to strengthening the semiconductor supply chain and in promoting innovation and long term-training of Mexican talent. This would foster a favorable environment for the U.S. and MX economy.
However, Mexico still needs to offer a legal and administrative environment that gives certainty to the U.S. companies interested in investing in this industry. So too should companies interested in participating become well informed regarding the legal requirements that may benefit or affect their operations. This is necessary because semiconductors and the machines needed for their production have a wide set of regulations in Mexico that must be observed, or the business may not succeed as planned.
Should your company need advice on these topics, please feel free to reach out to any of our expert attorneys.
This is for informational purposes only. It is not intended to provide legal advice.