COVID-19 and Mexico: will USMCA intellectual property laws support the recovery?

While Mexico’s economy is being badly hit by COVID-19, the US-Mexico-Canada Agreement (USMCA) – and, in particular, new intellectual property (IP) laws – could potentially boost the long-term prospects of its industrial and pharmaceutical sectors.

On July 1 the USMCA replaced the North American Free Trade Agreement (NAFTA) as the framework governing trade between the three countries.

In addition to strengthening environmental and working regulations and incentivising domestic vehicle production, the agreement has updated IP protections in a move that authorities hope will spur research and development (R&D) in industry.

To fall into line with the conditions of the USMCA, Mexico enacted the Federal Law for Industrial Property Protection, which will be effective 90 working days after its initial publication on July 2.

For Mexico, the updated IP legislation is expected to incentivise innovation and R&D in local industry. This could help further strengthen Mexico's supply chains and industrial productivity – which is especially important after the pandemic exposed certain vulnerabilities in global trade. 

It is thought that the new rules, which align IP laws between Mexico, the US and Canada, will not only encourage local companies to expand R&D, but could also make Mexico more attractive to larger foreign firms looking to invest in the country.

“The arrival of the USMCA in 2020 represents a positive milestone for Mexico, creating long-term certainty for investors and establishing clear rules for the business community,” Fernando Cruz, country president and head of Novartis México, told OBG. “In addition, there will be more possibilities for intra-regional trade and R&D collaboration as a result.”

Although Mexico’s economy has become more sophisticated since the establishment of NAFTA in the mid-1990s – producing items such as medical devices, pharmaceuticals and automobiles – adding further value through innovation and R&D in manufacturing and services will be key to escaping the middle-income trap.

This is particularly relevant for Mexican industry, which could benefit from multinational companies relocating to the country as part of nearshoring efforts in the wake of COVID-19.

Under the USMCA, protection for industrial designs – defined as the ornamental or aesthetic aspects of a product – has been increased from 10 years to 15.

One particular area where the new IP laws could have a significant impact is the pharmaceuticals industry. The sector has considerable growth potential. In 2017, 20 of the world’s top-25 pharmaceutical companies were active in Mexico, and some 22.7% of total health spending went towards the pharmaceutical industry, according to the OECD.

Pharmaceutical exports were valued at $1.2bn in 2018, with Mexico first in Latin America and 27th worldwide.

The COVID-19 pandemic could potentially boost the sector further. The production of generic pharmaceuticals has been stepped up, particularly to meet demand for exports to the US, and Mexico could leverage this to become a global leader in medical exports in the medium term.  

Even before the coronavirus and the implementation of USMCA, the generics segment was forecast to grow at an annual rate of 11% until 2025, by which point investment firm Seale & Associates believes it could be worth $9.5bn.

The strengthened IP protections should accentuate this growth, not least by incentivising innovation in the space.

“Whereas R&D in the pharmaceutical sector has not been a priority for this government so far, the entry into force of the USMCA and the related IP law could lay the groundwork for bolstering Mexico's R&D ecosystem,” Karel Fucikovsky, general manager of medical care Mexico at Pierre Fabre, told OBG. “However, this needs to be accompanied by a more cohesive approach from government entities such as COFEPRIS [Federal Commission for Protection against Sanitary Risks].”

The protections will also streamline processes. “One aspect of the new IP law is the Bolar provision, which allows for companies to prepare the information required to apply for a marketing authorisation while the patent is still valid, thereby allowing for a smoother transition to large-scale production,” Cristóbal Thompson, executive director of the Mexican Association of Pharmaceutical Research Industries, told OBG.

The development aligns with earlier efforts to bolster the country’s medical sector. Launched last year, the National Health Plan 2019-24 seeks to strengthen the domestic pharmaceutical industry through innovation and R&D, among other aims.

It follows a series of significant investments in recent years. Last year US firm Pfizer announced plans to invest $26m in the country, of which $15m would go towards R&D, while Swiss multinational Novartis is looking to establish Mexico as its clinical research centre for Latin America after investing between $3.5m and $5m in the country in 2018.