Environmental Technologies Industries
||Environmental Technologies Industries
|Mexico Environmental Export Market Plan|
|4. Legal and Regulatory Framework|
Institutional Framework within Mexico
Mexico’s principal federal environmental agency is the Secretariat of the Environment and Natural Resources (SEMARNAT). That agency, formerly called SEMARNAP, was first created in late 1994 at the beginning of the Zedillo administration. It is the umbrella ministry for Mexico’s policy-making and enforcement agencies in the environmental sector. SEMARNAT itself is focused on environmental policy-making and setting sector priorities for this sector rather than in promoting particular projects.
The Fox administration is currently restructuring SEMARNAT and its decentralized entities. (See Figure 4.1 for a diagram of the current framework.) Each unit will be responsible for specific functions inside SEMARNAT. The changes call for the Undersecretariat of Planning and Environmental Policy to be responsible for the design of plans, policies, and overall coordination of actions inside SEMARNAT. The Undersecretariat of Promotion and Environmental Regulation will be responsible for coordinating entities within the sector, producing environmental regulations, and developing links between the environmental sector and other economic sectors. The Undersecretariat of Management and Environmental Protection will be responsible for managing the government’s environmental program and dealing directly with industry and individuals. It will be responsible for issuing permits, licenses, concessions, authorizations, and any other documents related to the environment and natural resources. Other changes will further decentralize functions to the state and municipal levels.
SEMARNAT is also evaluating the creation of a sustainable development cabinet formed with representatives from most federal secretariats. That cabinet would play a central role in environmental policy-making and would ensure that environmental policies were implemented within the different sectors of the economy.
Within SEMARNAT are three decentralized entities that play major implementing roles in the sector and have a more direct impact on market conditions and opportunities:
- CNA. The National Water Commission, the central player in Mexico’s potable water and wastewater markets, has both regulatory and enforcement authority and is also the main source of federal monies for water infrastructure. CNA derives its near total authority over water issues directly from article 27 of the Mexican Constitution. As its core responsibilities, CNA assigns water rights to users, including rights to discharge into bodies of water and to assess usage fees; enforces water-related environmental regulations set by INE; and plans the overall goals for water resources with an emphasis on the efficient development of the resource. It also provides technical assistance to local water authorities, assists in project development, and provides financial support to priority water projects, particularly in low-income areas. SEMARNAT is analyzing the possibility of removing CNA from the secretariat to increase its autonomy within the sector.
- INE. The National Institute of Ecology is responsible for developing environmental standards and regulations, approving environmental impact assessments, and granting federal environmental permits for major works. Currently, INE is also responsible for setting and implementing policies and programs for hazardous waste. Under the institutional reorganization, most of INE’s responsibilities will be transferred to SEMARNAT, and INE will become more of a research center rather than a policymaking entity. A new role for INE will be to develop additional economic incentives for environmental protection.
- PROFEPA. The Office of the Attorney General for Environmental Protection is Mexico’s primary environmental enforcement agency. It is responsible for enforcing hazardous waste regulations, policing industrial activities with an interstate environmental impact, and overseeing federal lands and protected natural areas. PROFEPA is organized into three entities: one oversees regulatory enforcement, one deals with community involvement and complaints, and one oversees the voluntary industrial audit program. At the state level, PROFEPA has 32 local offices, one in each of Mexico’s 31 states and one in the Federal District.
|National Water Commission (CAN)||National Institute of Ecology (INE)||General Attorney for Environmental Protection|
|Mexican Institute for Water Technologies (IMTA)||National Commission for Protected Areas||National Commission for Forests |
(To be created)
U.S. and Binational Institutions
As a result of NAFTA, two binational institutions were created to contribute to the development of environmental infrastructure in the border region (considered the territory 100 kilometers north and south of the U.S.-Mexico boundary). The border region was targeted for special attention because of its high rate of economic growth as well as the need for a regional approach to resolving growing environmental problems. The new institutions are as follows:
- BECC: The Border Environmental Cooperation Commission (BECC) works with border communities to identify and develop infrastructure projects. BECC then has a review process for certifying environmental projects after which they are eligible for financing from NADBank. BECC focuses on projects in the areas of wastewater treatment, drinking water supply, and solid waste management facilities. Beginning in 2001, BECC will also consider projects in the areas of managing hazardous waste, recycling, and installing new water taps.
- NADBank: The North American Development Bank, using capital provided by the U.S. and Mexican governments, provides loans and loan guarantees to public- and private-sector environmental infrastructure projects. NADBank recently established a modest program for solid waste management projects as well as an initiative to begin offering below-market-rate loans.
Additional BECC and NADBank information is included later. Other environmental institutions concerned with the border region are as follows:
- IBWC: The International Boundary and Water Commission (IBWC) has increasingly become a policy-making entity focused on allocating water rights along the border. IBWC’s previous responsibilities for developing and operating water-related infrastructure have largely been supplanted by BECC and NADBank.
- U.S. EPA: The U.S. Environmental Protection Agency, working through BECC and NADBank, plays an important role in developing environmental infrastructure on the Mexican side of the border. The U.S. EPA is a board member of both institutions and administers several million U.S. dollars in construction grants for border infrastructure projects in both countries. The U.S. EPA has provided over $211 million to the Border Environmental Infrastructure Fund (BEIF) administered by NADBank. It has contributed another $22.5 million to the Project Development Assistance Program (PDAP).
The number of regulations has decreased from 85 to 55 since the government has simplified its water regulations. Before 1997, special discharge regulations applied to different industry segments depending on the level of environmental hazard associated with the processes of each activity. That regulatory framework was cumbersome to oversee and enforce, and many industries went unregulated.
In 1997, NOM-001-ECOL-1996 replaced 43 existing water discharge regulations and also made the municipalities responsible for monitoring and enforcing discharges to municipal sewer systems. NOM-001-ECOL-1996 set forth limits for discharges into national bodies of water by both municipalities and industries. One year later, two additional regulations were enacted: NOM-002-ECOL-1996 set industrial discharge limits to urban sewage systems, and NOM-003-ECOL-1997 set regulations for water reuse.
In addition to federal regulations, 29 of the 31 Mexican states have local environmental laws. The provisions of those laws must meet the general criteria outlined in the federal General Law. Although state laws can be broad based, they usually affect most directly the two areas over which local authorities have direct statutory authority:
(1) the markets for wastewater facilities and services and
(2) municipal waste collection and disposal.
A main priority of the Fox administration is to review current NOMs in an effort to rationalize their application. Currently, the regulatory framework is not complete and spreads enforcement responsibilities among different federal, state, and municipal entities. The Fox administrationwill propose changes to clarify enforcement responsibilities, while seeking to expand enforcement and compliance to cover small and mid-sized companies. To date, enforcement has been directed mostly at larger and multinational operations.
Other Laws That Affect Environmental Markets
The Mexican market is generally very open to U.S. firms wishing to sell environmental technologies and services. U.S. firms wanting to sell directly to the Mexican government need to follow the provisions set forth in both the Law of Public Works and Related Services and the Law of Public-Sector Acquisitions, Leases, and Services. Those laws detail the conditions under which firms must bid for the right to sell goods and services to Mexican government entities. The two laws were enacted on Jan. 4, 2000, replacing the old Public Works and Acquisitions Law.
U.S. firms should note that the new laws give freedom to the tendering agencies to request a minimum level of domestic content in the equipment or services sought. The new regulations also stipulate that tenders should be available on the Mexican government procurement Internet site CompraNet, www.compranet.gob.mx, and that the tendering agency should be allowed to receive offers through electronic means. U.S. companies can also procure bid documents through that Internet-based service.
Mexico offers two types of tenders for public works projects and acquisitions of equipment and services. The most common tenders are national tenders, which bar foreign companies from participating and which generally involve older technologies. U.S. companies can participate in national tenders through a Mexican representative, in conjunction with a Mexican partner, or by incorporating a local subsidiary company in Mexico.
Case Study 4.1 Flood-Control Units for Mexico City
In October 2000, the Mexico City government, through the General Directorate for Construction and Operation of Hydraulics (DGCOH), released a national tender for the acquisition of two flood-control vehicles. In the tender documents, DGCOH requested a minimum level of domestic content equal to 50 percent of the total value of the units. Because Mexico does not manufacture flood-control units, the bidders had to integrate imported equipment into vehicles manufactured in Mexico. In addition some Mexican structural parts (e.g., hoses, sirens, and tires) were integrated into the vehicles to reach the minimum level of domestic content required by DGCOH.
Three companies participated in the tender. The acquisition was awarded to the Mexican company GH Maquinaria y Equipo. This company, the leader in sales of municipal service vehicles, participated in the tender integrating the flood system of its represented company, Vac-Con, into Frainliner trucks, which are manufactured in Mexico and thus considered 100-percent Mexican. In addition, GH Maquinaria y Equipo used Mexican-manufactured hoses and labor, achieving a domestic integration content of more than 60 percent.
Vac-Con, based in Green Coves Spring, Fla., is fast becoming Mexico’s leader in the supply of municipal service vehicles. The quality of its vehicles and the work performed by its representative in Mexico have led to strong brand recognition within Mexico’s municipal utilities.
Conversely, international tenders allow foreign companies to participate directly as bidders under the same conditions as domestic players. That type of tender usually involves purchases of technologies not available in Mexico or is associated with an internationally financed project.
Enforcement Activities and Trends
Enforcement of environmental regulations in Mexico is spread among different authorities at the federal, state, and municipal level. At the federal level, the primary enforcement authorities are PROFEPA and CNA. CNA’s role is discussed further. This section mainly focuses on the efforts of PROFEPA.
PROFEPA’s enforcement strategies have focused on resolving environmental problems with violators through voluntary means rather than through the imposition of fines or criminal penalties. For example, if a company’s operations have contaminated its soil with hazardous waste, PROFEPA is likely to seek an agreement with the owner to remedy the damage rather than to seek financial or criminal sanctions.
To date, PROFEPA has focused much of its enforcement efforts through an inspection program to identify and mitigate pollution sources within areas under federal jurisdiction. PROFEPA has federal jurisdiction over industries in the power generation, pulp and paper, cement, chemical, petrochemical, oil, and mining sectors, as well as industries located in federal areas. Enforcement activities have been focused on larger industrial establishments, which are perceived to be the most polluting.
Under the inspection program, environmental compliance has increased significantly within multinational and large Mexican corporations. Inspectors have reported a gradual decrease in the number of grave infractions cited at those facilities. That increased compliance is the result of the scrutiny that the large entities have received as well as their capacity to invest in pollution control technologies. The compliance story is different for small companies, which lack the financial resources to invest in environmental equipment needed to comply with regulations.
The number of inspection visits has decreased continuously over the last five years, but those conducted have been much more thorough, resulting in greater industrial investment and compliance. The number of small infractions remains high, and the authorities believe that making visits more exhaustive will lead to the highest level of compliance.
The Fox administration is expected to clarify and centralize enforcement activities in a single entity within SEMARNAT and will strengthen this federal entity. It has not been decided yet if enforcement activities will remain in PROFEPA or be vested in a new undersecretariat within SEMARNAT. It is clear, however, that the enforcement activities currently in the hands of the National Water Commission will be transferred to the new enforcement agency. The new administration is also expected to work harder to assist municipalities and local governments in strengthening their enforcement capabilities.
Other Federal Programs
The Programa Nacional de Auditoria Ambiental (Environmental Audit Program), also known as Programa Industria Limpia (Clean Industry Program), was introduced in 1992 as a voluntary environmental audit program. The goals of the program were to increase environmental compliance in a nonadversarial manner and to allow companies to invest in needed technologies over time, thereby avoiding an undue financial burden. Under the program, companies volunteer to submit themselves to a strict independent audit of their environmental practices, applying not only national but also international standards. By agreeing to do so, such firms forestall enforcement actions and may receive certification as a “clean company.”
To participate in the program, a company must apply to PROFEPA. Participation is both voluntary and confidential. Once the application is accepted, the company contracts an independent auditor from a list of private environmental auditors certified by PROFEPA. The independent auditor reviews the company’s operations, evaluating the level of pollution emissions, the quality of pollution minimization efforts, and the effects of such efforts on worker health and accident prevention. The independent auditor conducts the audit under the supervision of the PROFEPA.
The audit results in an inventory of needed improvements along with an action plan that includes all the measures and investments the company needs to perform to comply with national and international standards. The final action plan is a result of a negotiation between the company and PROFEPA and is put forth in an agreement providing a grace period from enforcement action as long as the company complies with the action plan. When the plan is completed, PROFEPA grants the company a clean industry certificate. (The certificate provides that inspectors will not visit the company for a two-year period, except in case of accident.) The company can also use the certificate to enhance its public image as a clean company.
As of August 2000, a total of 1,614 companies (mostly large industrial companies) applied and 1,431 concluded their environmental audits. A total of 1,239 action plans were signed, and PROFEPA had granted 542 clean industry certificates.
Because audits under the program almost always result in action plans requiring technology investments, the program is a strong generator of business opportunities for U.S. companies. Although many larger companies have now complied, audits continue and will increasingly extend to medium-sized companies that are not yet part of the program.
PROFEPA is also undertaking a program to identify and remedy sites polluted with hazardous waste throughout Mexico. The program has been slow to develop over the past several years because of budgetary constraints. The goal of the program is to identify, inventory, and characterize abandoned hazardous waste sites. Under this program, PROFEPA has identified 105 contaminated sites in 17 different Mexican states. Only in the case of 15 sites has PROFEPA performed the necessary studies to characterize the types and quantities of hazardous materials present in the land. PROFEPA is expected to accelerate the program given the health and environmental risks associated with such sites. See Table 7.3 for a list of the sites.
Other Key Environmental Market Players
In Mexico, most industrial sectors have chambers that represent the interests of their member companies. Most Mexican industrial chambers now have environmental councils, which serve as industry advocates with environmental regulatory authorities. Visiting members of those councils allows companies providing environmental equipment and services to have a clear and detailed picture of the particular environmental challenges and needs within specific industries.
In addition, two independent organizations have been formed to advance the interests of environmental companies in Mexico. The following organizations are actively involved in the areas of policy and regulatory development, and they also serve as a clearinghouse for information on Mexican environmental companies and technologies:
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- CONIECO. The Consejo Nacional de Industriales Ecologistas (National Council of Environmental Industries, or CONIECO) is a nonprofit business association with more than 1,100 members, most of which are environmental companies. The main objective of CONIECO is to promote environmental awareness among Mexican industry and society. CONIECO is particularly involved in promoting energy savings, waste recycling, and rational water use, including water recycling. CONIECO also participates in establishing Mexican environmental regulations. A specific unit within CONIECO promotes investments in environmental technologies. That unit serves as a link between technology suppliers and companies seeking specific solutions. CONIECO has also been very useful in linking new technology and service providers with potential Mexican partners.
- CESPEDES. The Centro de Estudios del Sector Privado para el Desarrollo Sustentable (CESPEDES, the Private-Sector Center for Studies Toward Sustainable Development) was created by the former director of INE, Gabriel Quadri, in collaboration with the Consejo Coordinador Empresarial (CCE, the Business Coordinating Council). CCE is an influential organization representing the interests of major Mexican corporations. CESPEDES develops and publishes studies suggesting policy changes needed for the country to move toward more sustainable development. The center works on creating public awareness of the need for environmentally responsible economic growth. CESPEDES also assists Mexican companies in finding the best available technologies to develop environmentally friendly processes.
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