Mexico has become a prime example of trade and foreign investment as catalysts for economic modernization and growth. Using international engagements as anchors to move away from past inward-looking policies, policymakers have induced a virtuous circle of deregulation, structural change, growing productivity, and higher per capita income that has made Mexico increasingly attractive as a trading partner and foreign investment destination. Mexico's liberalization strategy has, however, opened a significant gap between its treatment of preferential partners and other WTO Members, according to a WTO Secretariat report on the trade policies and practices of Mexico.

The report says that certain activities remain relatively inefficient, both sheltered from competition and handicapped by trade or investment barriers. Important reforms have been pending for years, notably in the hydrocarbons and electricity sectors. Moving forward the reform agenda is thus essential to maintain the impetus in Mexico's restructuring efforts and to resume growth, which has slowed down since end 2000 in the wake of falling U.S. demand.

Despite the recent slowdown, Mexico's overall economic performance over the last five years has been positive. Between 1997 and 2000, GDP expanded at an annual average rate of 5.2%; Mexican trade in goods grew at an annual average rate of 17.1%, the fastest among WTO's twenty largest single Members, with imports slightly outpacing exports. This has gone hand in hand with considerably increased investment: between 1997 and 2000, private investment grew at a annual average rate of 10.6%. During that period, Mexico attracted some US$44 billion in foreign direct investment.

Underpinning this good performance were sound macroeconomic policies, marked by a stable exchange rate, and falling inflation and unemployment. Fiscal deficits were moderate but a better outcome might have been desirable in view of the economy's strong performance. A compromise fiscal package adopted by the Congress for 2002 is expected to increase tax revenue, but by less than originally sought by the Government. Mexico's fiscal position thus remains exposed to fluctuations in petroleum revenues, and to significant contingent liabilities.

The majority of Mexico's trade takes place under preferential rules, with the NAFTA remaining of paramount economic significance. In particular, Mexico's principal trade partner is by far the United States, which in 2000 supplied some 73% of Mexico's imports and attracted about 89% of its exports. That year, Canada was the second largest destination for Mexican products, accounting for some 2% of exports. Outside NAFTA, no individual country absorbed more than 1% of total Mexican exports.

The report adds that Mexico considers the multilateral trading system as the main instrument for the liberalization of world trade. Its support for this system has been recently very visible, for example through Mexico's strong backing for the launch of the Doha Development Agenda and its offer to host the WTO's Fifth Ministerial Conference.

Mexico's trade policy remains closely associated with the promotion of foreign investment, rules for which have been part of both its multilateral and preferential initiatives. With the exception of the agreement with Israel, all of Mexico's FTAs contain investment provisions that grant investors additional protection. Since 1997, Mexico has also undertaken important unilateral steps to open up to foreign investment various service activities, notably financial services and telecommunications. However, a limited number of areas remain off-limits to all private capital, are either entirely reserved for Mexican capital, or require majority Mexican capital, or are subject to prior approval for foreign investment to exceed 49% of total capital.

Since its previous Review in 1997, the report says, Mexico has implemented MFN tariff increases that raised the simple average applied rate by some three percentage points, to 16.5% in 2001. As a result, and in contrast with the situation prevailing in 1997, Mexico's tariff structure for 2001 showed clear tariff escalation.

The number of different tariff-quota schemes adds complexity to Mexico's import regime. Mexico applies tariff quotas on several agricultural products, with most quotas reserved for specific countries. The basis for customs valuation varies according to the origin of imports: f.o.b. for imports from NAFTA partners, and c.i.f. for other imports. And Mexico is an active user of contingency measures, mainly anti-dumping.

The report notes that in part to offset the anti-export bias resulting from trade barriers on imports, Mexico promotes exports through various duty and tax concessions, one of which has been notified to the WTO as an export subsidy. Under these schemes, unless otherwise specified by an FTA, imported inputs incorporated into export goods are not subject to tariffs; in addition, Mexico promotes exports through various administrative tax facilitation schemes.

Mexico also operates numerous programmes in support of selected activities. In general, support is provided through financing facilities, mostly channelled through development banks or public trust funds, or in the form of tax concessions. Certain tax concessions are contingent on meeting national-content requirements, or are granted only if no domestic substitute is available. In 2001, Mexico requested and obtained an extension for the elimination of its WTO-inconsistent TRIMs in the automotive sector.

Regarding the sectorial policies, the report notes that Mexico's manufacturing sector has confirmed its crucial role as a key catalyst for economic growth, its expansion having been closely tied to its ability to compete in foreign markets. In agriculture, while many activities have modernized and benefited from increased access to foreign markets, notably in the United States, others remain small-scale and mainly oriented to self-consumption. The energy sector remains largely under state control, as constitutional provisions restrict private participation in strategic areas such as the exploitation of hydrocarbons and the supply of electricity to the public. In the services sector, important changes have been made to the legal and institutional framework, often secured or otherwise linked to Mexico's multilateral and preferential liberalization initiatives. However, competition policy concerns have arisen in recent years in the telecommunications market, and in domestic transport, which remains largely closed to foreign participation.

Note to Editors

Trade Policy Reviews are an exercise, mandated in the WTO agreements, in which member countries’ trade and related policies are examined and evaluated at regular intervals. Significant developments which may have an impact on the global trading system are also monitored. For each review, two documents are prepared: a policy statement by the government of the member under review, and a detailed report written independently by the WTO Secretariat. These two documents are then discussed by the WTO’s full membership in the Trade Policy Review Body (TPRB). These documents and the proceedings of the TPRB’s meetings are published shortly afterwards. Since 1995, when the WTO came into force, services and trade-related aspects of intellectual property rights have also been covered.

For this review, the WTO’s Secretariat report, together with a policy statement prepared by the Government of Mexico, will be discussed by the Trade Policy Review Body on 15 and 16 April 2002. The Secretariat report covers the development of all aspects of Mexico trade policies since the previous review, including domestic laws and regulations, the institutional framework, trade policies by measure, and developments in selected sectors.

Attached to this press release are the Summary Observations of the Secretariat report and parts of the government policy statement. The Secretariat and the government reports are available under the country name in the full list of trade policy reviews. These two documents and the minutes of the TPRB’s discussion and the Chairman’s summing up, will be published in hardback in due course and will be available from the Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.

Since December 1989, the following reports have been completed: Argentina (1992 and 1999), Australia (1989, 1994 and 1998), Austria (1992), Bahrain (2000) Bangladesh (1992 and 2000), Benin (1997), Bolivia (1993 and 1999), Botswana (1998), Brazil (1992, 1996 and 2000), Brunei Darussalam (2001), Burkina Faso (1998), Cameroon (1995 and 2001), Canada (1990, 1992, 1994, 1996, 1998 and 2000), Chile (1991 and 1997), Colombia (1990 and 1996), Costa Rica (1995 and 2001), Côte d’Ivoire (1995), Cyprus (1997), the Czech Republic (1996 and 2001), the Dominican Republic (1996), Egypt (1992 and 1999), El Salvador (1996), the European Communities (1991, 1993, 1995, 1997 and 2000), Fiji (1997), Finland (1992), Gabon (2001), Ghana (1992 and 2001), Guatemala (2002), Guinea (1999), Hong Kong (1990, 1994 and 1998), Hungary (1991 and 1998), Iceland (1994 and 2000), India (1993 and 1998), Indonesia (1991, 1994 and 1998), Israel (1994 and 1999), Jamaica (1998), Japan (1990, 1992, 1995,1998 and 2000), Kenya (1993 and 2000), Korea, Rep. of (1992, 1996 and 2001), Lesotho (1998), Macao (1994 and 2001), Madagascar (2001), Malaysia (1993, 1997 and 2001), Malawi (2002), Mali (1998), Mauritius (1995 and 2001), Mexico (1993, 1997 and 2002), Morocco (1989 and 1996), Mozambique (2001), New Zealand (1990 and 1996), Namibia (1998), Nicaragua (1999), Nigeria (1991 and 1998), Norway (1991, 1996 and 2000), OECS (2001), Pakistan (1995 and 2002), Papua New Guinea (1999), Paraguay (1997), Peru (1994 and 2000), the Philippines (1993 and 1999), Poland (1993 and 2000), Romania (1992 and 1999), Senegal (1994), Singapore (1992, 1996 and 2000), Slovak Republic (1995 and 2001), the Solomon Islands (1998), South Africa (1993 and 1998), Sri Lanka (1995), Swaziland (1998), Sweden (1990 and 1994), Switzerland (1991, 1996 and 2000 (jointly with Liechtenstein)), Tanzania (2000), Thailand (1991, 1995 and 1999), Togo (1999), Trinidad and Tobago (1998), Tunisia (1994), Turkey (1994 and 1998), the United States (1989, 1992, 1994, 1996, 1999 and 2001), Uganda (1995 and 2001), Uruguay (1992 and 1998), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).

  
  
The Secretariat’s report: summary  back to top

TRADE POLICY REVIEW BODY: MEXICO
Report by the Secretariat — Summary Observations

Since its previous Trade Policy Review in 1997, Mexico has become a prime example of trade and foreign investment as catalysts for economic modernization and growth. Using international engagements as anchors to move away from past inward-looking policies, policymakers have induced a virtuous circle of deregulation, structural change, growing productivity, and higher per capita income that has been making Mexico increasingly attractive as a trading partner and foreign investment destination. This process has been driven mainly by an aggressive policy of reciprocal liberalization, buttressed by unilateral initiatives and multilateral commitments. As a result, the lion's share of Mexican trade is now governed by the preferential rules of free-trade agreements (FTAs).

Mexico's liberalization strategy has opened a significant gap between the treatment offered to MFN and FTA partners, which in areas like tariffs has widened since 1997. This raises the possibility of net trade distortion. Moreover, despite the broad coverage of Mexico's FTAs, trade barriers still hinder the access of Mexican consumers to some of the world's most competitive products. Certain activities remain relatively inefficient, both sheltered from competition and handicapped by trade or investment barriers. Moving forward the reform agenda is thus essential to maintain the impetus in Mexico's restructuring efforts. This in turn is a precondition for Mexico to resume and sustain the fast rate of economic growth required to bring its living standards nearer to those of its closest trading partners.

Mexico's economy performed very well between 1997 and 2000, when GDP expanded at an annual average rate of 5.2%; Mexican trade in goods grew at an annual average rate of 17.1%, the fastest among WTO's twenty largest single Members, with imports slightly outpacing exports. This has gone hand in hand with considerably increased investment: between 1997 and 2000, private investment grew at a annual average rate of 10.6%. During that period, Mexico attracted some US$44 billion in foreign direct investment.

Underpinning this good performance were sound macroeconomic policies, marked by a stable exchange rate, and falling inflation and unemployment. Fiscal deficits were moderate but a better outcome might have been desirable in view of the economy's strong performance. A compromise fiscal package adopted by the Congress for 2002 is expected to increase tax revenue, but by less than originally sought by the Government. Mexico's fiscal position thus remains exposed to fluctuations in petroleum revenues, and to significant contingent liabilities.

The majority of Mexico's trade now takes place under preferential rules, with the NAFTA remaining of paramount economic significance. In particular, Mexico's principal trade partner is by far the United States, which in 2000 supplied some 73% of Mexico's imports and attracted about 89% of its exports. That year, Canada was the second largest destination for Mexican products, accounting for some 2% of exports. Outside NAFTA, no individual country absorbed more than 1% of total Mexican exports.

Since late 2000, in the wake of falling U.S. demand, trade and GDP growth have slowed, accompanied by a contraction in employment. The policy options open to the authorities to address these trends appear limited with respect to both monetary and fiscal policies. Resuming and sustaining growth thus depends importantly on a turnaround in the world economy, particularly in the United States, and carrying out a number of important reforms that have been pending for years, notably in the hydrocarbons and electricity sectors.

Since its previous Review, Mexico has made no fundamental changes to its trade policy framework. The Department of the Economy (formerly SECOFI) still has main responsibility for formulating and implementing trade policy. A new administration is largely pursuing earlier trade policy objectives, which spell out formal links between industrial policy, economic deregulation and export promotion. A successor trade and investment programme for 2000-06 was to be released in early 2002. Significant improvements have been made since 1997 in terms of transparency, notably through various governmental bodies that disseminate key information, including through the internet.

Mexico considers the multilateral trading system as the main instrument for the liberalization of world trade. Its support for this system has been recently very visible, for example through Mexico's strong backing for the launch of the Doha Development Agenda and its offer to host the WTO's Fifth Ministerial Conference. Mexico accepted new multilateral commitments within the context of the Fourth and Fifth Protocols to the GATS, on basic telecommunications and financial services, which entered into force in February 1998 and March 1999, respectively.

Awaiting the outcome of broader liberalization initiatives, Mexico's main avenue to open its trade and investment regimes has been the negotiation of FTAs. Mexico acknowledges that the advantages implicit in FTAs are of a temporary nature, and hence no substitute for improving the competitiveness of its economy. As is the case for other Members following similar strategies, the large and growing number of Mexico's preferential agreements can raise concerns about complexities resulting from the application of differing regimes, and their effect on trade patterns.

Since 1997, Mexico has entered into new FTAs with Chile, the European Free Trade Association, the European Union, Israel, Nicaragua, and the Northern Triangle (El Salvador, Guatemala, and Honduras), raising to more than 30 the number of countries with which it has FTAs. In late 2001, Mexico was considering the negotiation of FTAs, or was already doing so, with Japan and Singapore, among others.

Mexico's trade policy remains closely associated with the promotion of foreign investment, rules for which have been part of both its multilateral and preferential initiatives. With the exception of the agreement with Israel, all of Mexico's FTAs contain investment provisions that grant investors additional protection. Since 1997, Mexico has also undertaken important unilateral steps to open up to foreign investment various service activities, notably financial services and telecommunications. However, a limited number of areas remain off-limits to all private capital, are either entirely reserved for Mexican capital, or require majority Mexican capital, or are subject to prior approval for foreign investment to exceed 49% of total capital.

Mexico has been involved in only a few disputes before the WTO. Most complaints against Mexico have related to Mexican anti-dumping practices; a complaint was also lodged against Mexican practices in telecommunication services. With Mexico as complainant, all but one case has also been related to anti-dumping.

Since its previous Review, Mexico has implemented MFN tariff increases that raised the simple average applied rate by some three percentage points, to 16.5% in 2001. As a result, and in contrast with the situation prevailing in 1997, Mexico's tariff structure for 2001 showed clear tariff escalation. The increase in MFN rates, and reductions in preferential tariffs, has also widened the gap between the treatment granted to imports from MFN and preferential sources. Tariff protection for agricultural products is substantially higher than for other products, with applied MFN rates on a small number of products slightly exceeding bound rates. Mexico grants at least MFN treatment to all its trading partners.

The number of different tariff-quota schemes adds complexity to Mexico's import regime. Mexico applies tariff quotas on several agricultural products, with most quotas reserved for specific countries. In addition, other products may carry a reduced MFN tariff provided they have a quota certificate; this is aimed at guaranteeing supply when domestic production is insufficient. Mexico also maintains tariff quotas for certain imports from preferential partners, and for some agricultural products imported under a special border tariff regime.

The basis for customs valuation varies according to the origin of imports: f.o.b. for imports from NAFTA partners, and c.i.f. for other imports. All of Mexico's FTAs contain specific rules of origin. Non-preferential rules of origin apply to products subject to anti-dumping and countervailing duties to prevent circumvention of such duties; the procedures to apply these rules vary by product and originating country.

Mexico maintains import permits for sensitive products for reasons of national security, public health, and protection of domestic industries. In 2001, imports from MFN sources subject to permit included petrochemicals; vehicles; and used tyres, machines, clothing, and office machines. For used vehicles and machines, permits are issued only when the foreign product has no domestically produced substitute. Since 1998, Mexico has used an import licensing mechanism to collect statistics on the price of specific goods from certain countries before the importation takes place.

Mexico is an active user of contingency measures, mainly anti-dumping. As at March 2001, there were 90 anti-dumping duties applied on a wide range of products, mainly of Chinese origin. Particularly since 2001, the number of anti-dumping cases initiated has dropped significantly, thus lessening earlier concerns that these measures could become major trade barriers in Mexico.

In part to offset the anti-export bias resulting from trade barriers on imports, Mexico promotes exports through various duty and tax concessions, one of which has been notified to the WTO as an export subsidy. Under these schemes, unless otherwise specified by an FTA, imported inputs incorporated into export goods are not subject to tariffs; in addition, Mexico promotes exports through various administrative tax facilitation schemes. More than 90% of Mexican exports are undertaken by firms benefiting from such schemes. Since Mexico's previous Review, substantial changes have been made to restrict their use for exports covered by the NAFTA. Under the FTAs negotiated with the EFTA countries and the European Union, Mexico should amend in 2003 its promotion programmes covering exports to those regions.

Mexico also operates numerous programmes in support of selected activities. In general, support is provided through financing facilities, mostly channelled through development banks or public trust funds, or in the form of tax concessions. Certain tax concessions are contingent on meeting national-content requirements, or are granted only if no domestic substitute is available. In 2001, Mexico requested and obtained an extension for the elimination of its WTO-inconsistent TRIMs in the automotive sector.

Mexico has not signed the Plurilateral Agreement on Government Procurement and it uses public procurement to support domestic activities, particularly through price preference margins and local-content requirements.

From 1 January 2000, the TRIPS Agreement applies fully to Mexico, which had taken steps in advance to implement most of the Agreement's provisions. Mexico's efforts to improve IPR protection appear to have paid off in the form of considerable technology transfers. Mexico also has an active and growing trade in IPR-intensive goods such as information technology products, pharmaceuticals, beverages, and "cultural goods".

In agriculture, while many activities in Mexico have modernized and benefited from increased access to foreign markets, notably in the United States, others remain small-scale and mainly oriented to self-consumption. Overall, labour productivity in the sector is well behind the national average. Largely to increase the participation of the private sector in the commercialization of agricultural products, Mexico has introduced important institutional changes since 1997, including the elimination of the state firm previously responsible for milk imports. Mexico maintains various programmes designed to provide direct income support to farmers and to promote their productivity and competitiveness. Indicators of assistance to agriculture have increased substantially since 1997, mainly as a result of low international prices.

The energy sector remains largely under state control, as constitutional provisions restrict private participation in strategic areas such as the exploitation of hydrocarbons and the supply of electricity to the public. The capital-intensive nature of petroleum and electricity projects means that these two industries alone draw close to 57% of public sector investment. In view of Mexico's fiscal constraints and to bring in the investment required to meet rapidly rising domestic demand, the Government is seeking to increase private participation in the energy sector while retaining its control of the state-owned companies that dominate the sector. Addressing the long-standing structural problems of the electricity and hydrocarbons industries is of vital economic importance but has faced strong resistance from entrenched interest groups.

The manufacturing sector has confirmed its crucial role as a key catalyst for economic growth, its expansion having been closely tied to its ability to compete in foreign markets. It has also benefited from strong government support through special trade and investment regimes. The close interlocking of the Mexican manufacturing sector with production chains in the United States has brought about considerable benefits; it has, though, exposed the sector to U.S. cyclical downturns, as evidenced by the significant contraction of manufacturing activity since late 2000.

In the services sector, important changes have been made to the legal and institutional framework, often secured or otherwise linked to Mexico's multilateral and preferential liberalization initiatives. The degree of state involvement has continued to decline in recent years. Increased competition and growing foreign participation have gone hand-in-hand with major adjustments to the market structure of key activities, notably financial and telecommunications services. However, competition policy concerns have arisen in recent years in the telecommunications market, and in domestic transport, which remains largely closed to foreign participation.

  
  
Government report back to top

TRADE POLICY REVIEW BODY: MEXICO
Report by the Government of Mexico — Part II and III

An open trade policy as one of the central elements of Mexico's development strategy

Mexico embarked upon the process of economic liberalization more than 15 years ago, with its accession to the General Agreement on Tariffs and Trade (GATT) in 1986, and has been increasing its presence on international markets ever since.

The trade and investment liberalization strategy has had a significant impact on the country's economic growth, which has been strengthened by permanent and reliable access to foreign markets and improvements to the regulatory framework of the national economy.

International trade negotiations are a key element of this strategy, since they provide greater security of access to the most important world markets for Mexican products, generate long-term investment, promote national productivity and the use of new technologies, and boost export volume by further diversifying the target markets for Mexican products.

The real significance of Mexico's trade liberalization lies in the fact that it is a catalyst for national development, given that it helps to bring new regions and firms into the fold of international trade. It will thus continue to encourage the creation of more and better jobs and balanced regional development.

Mexico is intent on involving more firms in export activities, since experience shows that this is a successful way to boost sales, create better-paid employment and modernize domestic industry. It also opens up possibilities of accessing new markets and quality inputs and creating strategic alliances which promote access to new technologies for the production industry. The 21,477 exporters in Mexico in 1993 had increased by 70 per cent to 36,422 by 2000. However, if the goals of diversifying and boosting the country’s penetration in international markets are to be achieved, this figure must reach 70,000 by the end of this term of government.

In the early 1980s, Mexican exports depended almost exclusively on petroleum. Hydrocarbons, the foreign sales of which represented the main source of government revenue, were Mexico's main export product and accounted for 70 per cent of the country's total exports in 1982. The pattern of exports has, however, radically changed. In 2001, 89 per cent of Mexican exports were manufactured goods. Nevertheless, our exports must continue to encompass new products and sectors.

Higher domestic value added per unit exported needs to be incorporated if the benefits of the penetration of Mexican products on international markets are to be maximized. The supply of inputs to export firms is one way of promoting the international integration of domestic firms.

Mexico and the multilateral trading system

Mexico considers the WTO the main mechanism for both trade liberalization and the establishment of a framework based on world trading rules. Mexico's trade liberalization and participation in the multilateral trading system have played a very important role in boosting its exports, spurring the economy and stimulating employment.

Mexico's accession to the GATT was motivated by the desire to create an environment conducive to economic activity by taking advantage of, firstly, the opening up of world markets with the lowering of trade barriers; secondly, the certainty which stems from foreign trade operations governed by the clear and transparent rules and disciplines of the multilateral trading system; thirdly, the fact that the rules and disciplines established by the WTO prevent the adoption of unilateral trade measures; and finally, the possibility of having recourse to a trade dispute settlement mechanism. The conclusion of the Uruguay Round and establishment of the WTO made the benefits of participating in the multilateral trading system even more obvious.

In this context, with a view to furthering its economic opening, creating greater opportunities for developing countries and strengthening the multilateral trading system, Mexico supported further trade liberalization in the form of the launch of a new round of multilateral negotiations at the Fourth WTO Ministerial Conference in Doha, Qatar, in November 2001. The agenda of this Round is sufficiently wide-ranging to cover the interests of all participants, in particular developing countries. It is against this backdrop that Mexico will host the Fifth WTO Ministerial Conference in 2003.