6. Case Examples

Mexican Chemical Co.: A Harsh Business Environment Limits Participation in Global Trade

Mexican Chemical Co. is hampered by numerous barriers from participation in global trade and supply chains. In particular, inspection and testing regulations in the European Union limit market access and an adverse business climate related to the rise of Mexico’s illegal drug trade imposes burdens that harm exports. 

Mexico’s chemical manufacturers are subject to strict market access measures imposed by the European Union (EU) that limit Mexican exporters’ ability to compete. Specifically, an EU regulation called Registration, Evaluation, Authorization and Restriction of Chemical Substances (REACH), imposed in 2007 and in full compliance with World Trade Organization (WTO) guidelines, sets testing standards that Mexican producers find difficult to meet. Applying to all non-EU chemical manufacturers, REACH requires prospective importers to the EU to conduct registration testing in certified European laboratories. Tests conducted outside the EU are not accepted as valid, even when they use the same methodologies. The restrictions result in registration delays that can run for several weeks.  

The industry in Mexico is also hobbled by an adverse business environment created by the rise of drug cartels and drug-related violence in recent years. An increasingly aggressive inspection regime by Mexican authorities intended to curb the trade of chemicals used to synthesize illegal substances has imposed heavy burdens on chemical imports. The inspections add between US$ 750 and US$ 1,800 to the cost of a shipment and increase lead times by between 10 and 24 hours. 

Concerns that Mexico is a supplier of illegal drugs to the US market have also increased inspections of chemical shipments at the US-Mexico border, raising shipment costs and causing delays (see figure). 

Figure 19: Negative business environment – due to war on drug cartels – increased revisions

An expanding number of specific chemicals that can be used to synthesize illegal drugs come under especially rigorous scrutiny by Mexican authorities. The government bans their use, even though many such products are not necessarily direct precursors of the unlawful substances. By putting these chemicals off limits or highly restricting permission to import them, the government creates major inconvenience and extreme delays for companies that need them. 

One compound that falls under the ban is pseudoephedrine, a key ingredient in cough and cold medicines, as well as an illegal drug precursor. As a result, cold medications in Mexico will lack this compound, rendering them less effective, or their manufacturers will have to settle for a less suitable substitute. Adding further complexity to the stiff drug control laws, some of the controlled products are not regulated as strictly or at all in other markets. 

The conflicting rules bite hard when products are designed and synthesized in a global supply chain. Governments could potentially alleviate the problems they create by agreeing to harmonize restrictions on a global basis rather than country by country.