Mexico: October 1997
Mexico's rapid recovery from the economic recession of 1995 owes much to the economic reforms begun in the mid-1990s. A new WTO Secretariat report on Mexico's trade policies and practices states that those reforms have resulted in efficiency gains, a greater openness of the investment framework and closer integration in the world economy.
Mexico's regional agreements stimulate liberalization but complicatetrade regime
Mexico's rapid recovery from the economic recession of 1995 owes much to the economic reforms begun in the mid-1990s. A new WTO Secretariat report on Mexico's trade policies and practices states that those reforms have resulted in efficiency gains, a greater openness of the investment framework and closer integration in the world economy. However, the reform process is not yet complete. The WTO report concludes that its continuation is necessary for Mexico to achieve a higher sustainable rate of economic growth.
The Secretariat report and a policy statement prepared by the Government of Mexico will provide the basis for a discussion on Mexico's trade policies and practices in the WTO's Trade Policy Review Body on 7 and 8 October.
The WTO report states that though unilateral liberalization on an MFN basis has been carried forward, trade policy changes in the past four years have been dominates by regional liberalization under the North American Free Trade Agreement (NAFTA) and other agreements. Reflecting their growing bilateral trade relationship, the share of Mexico's merchandise trade with the United States rose from 75 per cent in 1992 to 80 per cent in 1996.
In addition to NAFTA, Mexico has free trade agreements with Costa Rica, Bolivia, and Colombia and Venezuela (the Group of Three). It is reinforcing its regional agreements within the Americas, with the EU and within the Asia-Pacific Economic Cooperation (APEC). The report notes that complications in Mexico's trade regulations arise from the different regimes applied in its regional agreements, especially concerning exceptions, phase-in periods and rules of origin.
Spurred by the signature of NAFTA in 1992, Mexico has reduced its non-tariff barriers, liberalized its investment laws and changed its government procurement, customs valuation and competition laws. Mexico has also further improved its regime of protection for intellectual property rights. While some elements of its regional liberalization have benefited all WTO Members, others clearly favour regional partners.
Since its accession to the GATT in 1986, all of Mexico's tariff lines are covered by bindings; Mexico's bound ceiling rate for manufactures was reduced from 50 to 35 per cent in the Uruguay Round. Applied rates are considerably lower. The report notes that Mexico has reduced its trade-weighted average tariff, but that the gap has widened between the simple average most-favoured-nation rate (13.2 per cent) and preferential rates (e.g. 4.2 per cent on imports from the US). The report notes that to protect sensitive sectors such a beef, clothing and footwear, some tariffs have been increased substantially, albeit within bound levels.
The report states that Mexico has reduced its non-tariff barriers but increased its use of contingency measures (mostly anti-dumping) and the number of mandatory standards. Mexico also maintains a number of measures to support exports, mostly in the manufacturing sector, which will be phased out under NAFTA, but not necessarily on an MFN basis.
In agriculture, major adjustments have resulted from the economic liberalization programme. Mexico has converted all its non-tariff measures into tariffs or tariff quotas, as required by NAFTA and the WTO. It has reduced support to the sector and introduced assistance mechanisms based on direct income support. However, the report notes that very high out-of-quota duties protect sensitive areas. Agriculture as a whole still suffers from weaknesses linked to low labour productivity and inadequate rural incomes.
Overall, the manufacturing sector appears to have taken advantage of trade liberalization and investment inflows to increase efficiency and profitability. The in-bond or maquiladora industry has played a particularly important role in the export rally since 1994. The import-competing sector, however, has had difficulties in adapting to the more liberal environment. Remnants of the earlier import-substitution policy still affect the automotive industry.
On the services sector, the report says that though Mexico has a number of world-class suppliers, inefficiencies have at times handicapped other economic activities. The report remarks that fully extending past and future liberalization on an MFN basis would ensure that Mexican producers have access to the lowest cost services, making them more competitive vis-Ó-vis foreign producers.
The WTO report notes that Mexico's focus on negotiating liberalization in a regional context reflects the Government's view that the multilateral system presently affords fewer opportunities for advancing liberalization at the pace and depth than Mexico would wish. The report concludes that this regional strategy, however, has to be weighed carefully against potential costs; there remains scope for Mexico to bring together its regional and multilateral efforts, for example, by binding its regional commitments under the WTO. This would consolidate the shift that Mexico has made over the past decade away from its earlier protectionist policies and would, in the Secretariat's view, be in line with the political responsibilities ensuing from Mexico's significant and growing role in world trade.
Note to Editors
The WTO Secretariat's report, together with a report prepared by Mexico will be discussed by the WTO Trade Policy Review Body (TPRB) on 7 and 8 October 1997. The WTO's TPRB conducts a collective evaluation of the full range of trade policies and practices of each WTO member at regular periodic intervals and monitors significant trends and developments which may have an impact on the global trading system. The two reports, together with a report of the TPRB's discussion and of the Chairman's summing up, will be published in due course as the complete Trade Policy Review of Mexico and will be available from the WTO Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.
The reports cover the development of all aspects of Mexico's trade policies, including domestic laws and regulations, the institutional framework, trade policies by measure and by sector. Since the WTO came into force, the "new areas" of services trade and trade-related aspects of intellectual property rights are also covered. Attached are the summary observations from the Secretariat and government reports. Full reports will be available for journalists from the WTO Secretariat on request.
Since December 1989, the following reports have been completed: Argentina (1992), Australia (1989 & 1994), Austria (1992), Bangladesh (1992), Benin (1997), Bolivia (1993), Brazil (1992 & 1996), Cameroon (1995), Canada (1990, 1992, 1994 & 1996), Chile (1991 & 1997), Colombia (1990 & 1996), Costa Rica (1995), C˘te d'Ivoire (1995), Cyprus (1997), the Czech Republic (1996), the Dominican Republic (1996), Egypt (1992), El Salvador (1996), the European Communities (1991, 1993 & 1995), Fiji (1997), Finland (1992), Ghana (1992), Hong Kong (1990 & 1994), Hungary (1991), Iceland (1994), India (1993), Indonesia (1991 and 1994), Israel (1994), Japan (1990, 1992 & 1995), Kenya (1993), Korea, Rep. of (1992 & 1996), Macau (1994), Malaysia (1993), Mauritius (1995), Mexico (1993), Morocco (1989 & 1996), New Zealand (1990 & 1996), Nigeria (1991), Norway (1991 & 1996), Pakistan (1995), Paraguay (1997), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995), South Africa (1993), Sri Lanka (1995), Sweden (1990 & 1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Tunisia (1994), Turkey (1994), the United States (1989, 1992, 1994 & 1996), Uganda (1995), Uruguay (1992), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).
The Secretariats report: summary
TRADE POLICY REVIEW BODY: MEXICO
Report by the Secretariat Summary Observations
Mexico has continued the process of economic reform initiated in the mid-1980s. The efficiency gains achieved since then, the greater openness of the investment framework and closer integration in the world economy, together with the support of the international financial community, have assisted recovery from the 1995 recession. However, the health of the banking system remains a concern, as do a number of lagging sectors in agriculture and manufacturing. Modernization of the institutional and legal framework is continuing. While unilateral trade liberalization on an MFN basis has been carried forward, trade policy changes have been dominated by regional liberalization under NAFTA and other agreements, and the share of Mexico's merchandise trade with the United States - including maquiladora trade - rose from 75 per cent in 1992 to 80 per cent in 1996. Some elements of regional liberalization have benefited all WTO Members, others more clearly favour regional partners. Moreover, remnants of the earlier import-substitution policy still affect the automotive industry, while selective tariff increases (within bound levels) have been introduced to support other activities. The active use of anti-dumping measures makes them a potential trade barrier. The reform process is thus not yet complete; its continuation is necessary for Mexico to achieve a higher, sustainable rate of economic growth.
The Economic Environment
The dominant macroeconomic event since the previous Trade Policy Review in 1993 was the financial crisis of December 1994 and the subsequent recession and recovery. While the recession of 1995 was sharper than the debt crisis of the 1980s, recovery has been more rapid; however, real GDP is still below the level of 1994. In contrast with the crisis of the early 1980s, export growth was driven by manufactures rather than crude petroleum, imports contracted substantially less, reflecting the increased import content of exporting activities, and Mexico avoided imposing new trade barriers or controls on the capital and current accounts.
While macroeconomic stabilization has been at the forefront since the financial crisis, the increased openness of the economy (as measured by trade to GDP) and the scope of structural reforms since the mid-1980s facilitated recovery. Under the influence of a more realistic real exchange rate, real growth of 5.1 per cent was achieved in 1996, and the current account deficit has also fallen. Immediate pressures on the financial market seem to have eased: short-term nominal interest rates and inflation are falling; the performance of the stock market has improved; and gross international reserves are moving towards their pre-crisis level. Mexico has also improved its access to international capital markets; this is likely to be important in consolidating the recovery, as the domestic banking system remains fragile.
Trade Policy Framework
Mexico's trade policy is closely associated with the promotion of foreign investment flows. This link has been formalized through a permanent framework of trade and investment rules embodied in multilateral and preferential arrangements. In the multilateral arena, Mexico became a member of the Organization for Economic Cooperation and Development (OECD) in 1994 and a founding Member of the WTO in 1995. Mexico's active programme of regional negotiations - adding to its earlier co-operation agreement with Chile - resulted in the entry into force of the North American Free Trade Agreement (NAFTA) with Canada and the United States in 1994, and of free-trade agreements with Costa Rica, Bolivia, and Colombia and Venezuela within the Group of Three in 1995.
Mexico's trade strategy has progressively shifted away from unilateral reforms bound in the multilateral system, to negotiated liberalization in a regional context. The reduction of non-tariff trade barriers and the liberalization of investment agreed with preferential partners have often benefited third parties, for example in services. However, variations in treatment have emerged in areas such as government procurement and customs valuation. By modelling its new free-trade agreements on the NAFTA, Mexico has sought to achieve a high degree of uniformity across agreements but, pending full implementation, complexities arise from different regimes covering exceptions, phase-in periods and rules of origin.
These commitments, jointly with Mexico's continued efforts to facilitate trade and investment flows, have resulted in substantial modifications to the legal framework. Work is ongoing to harmonize domestic rules and external commitments, reduce the number of regulations and strengthen the judicial system and law enforcement institutions. Mexico's new investment rules, in particular, demonstrate its greater openness towards foreign capital, notwithstanding the restrictions that still apply in a few activities. Recent changes have also improved the regime of protection for intellectual property rights, which was already widely regarded as fundamentally sound.
Overall, Mexico's use of trade instruments since 1993 seems to be consistent with an increasingly open trade regime. However, assessment is difficult, because various instruments have evolved in differing directions.
The major change in the use of tariffs has been the implementation of new regional preferences, reducing the trade-weighted average tariff but, at the same time, widening the gap between the simple average MFN rate (13.2 per cent) and preferential rates (e.g. 4.2 per cent on imports from the United States). During the period, Mexico also liberalized about 1,000 items to duty-free levels; this was to some extent offset by increases in MFN rates on certain sensitive goods (e.g. beef, clothing and footwear) using the flexibility available under ceiling bindings. Tariffication in agriculture has created new tariff peaks and increased tariff dispersion. As a result of the Uruguay Round, Mexico reduced its bound ceiling rate for manufactures from 50 per cent to 35 per cent; however, this is still more than double the average level of duties currently applied. All of Mexico's tariff lines have been covered by bindings since its accession to the GATT in 1986.
Since the last Trade Policy Review, Mexico has made increased use of contingency measures, mostly anti-dumping, although the number of new initiations has declined in the wake of the currency depreciation and booming exports. Nevertheless, with some 90 measures currently in force, Mexico operates one of the world's most active trade defence systems. Anti-dumping measures have thus become a potentially significant trade barrier, despite Mexico's use of a "general interest clause". Such measures detract from the general liberalization undertaken since the mid-1980s, and reduce economic efficiency, particularly since they have often been directed at primary and intermediate goods.
There has also been a significant increase in the number of mandatory standards; queries have been raised about new marking and labelling requirements. Mexico has not signed the Plurilateral Agreement on Government Procurement, and restricts participation in national public tenders to national suppliers and domestic goods. Mexico also maintains various schemes of intervention in the automotive industry (including parts) that have been notified under the provisions of the WTO Agreement on Trade-Related Investment Measures (TRIMs). Mexico's NAFTA partners will benefit from the liberalization of both public procurement and investment measures, but these benefits may not necessarily be extended to other trading partners.
In part to offset the anti-export bias resulting from trade measures affecting imports and a periodically overvalued exchange rate, Mexico has adopted a number of measures to support exports. These include various official tariff concession programmes, notably the maquiladora regime. Under the NAFTA, Mexico will phase out this regime, but assistance may continue to be granted to exports directed to non-NAFTA countries.
The entry into force of a new competition law in 1993 and the subsequent establishment of the Federal Competition Commission were important steps complementing Mexico's privatization programmes; their further development could help to ensure that consumers benefit fully from Mexico's liberalization efforts and that the high market concentration observed in certain activities does not impair economic efficiency.
Sectoral Policy Developments
Since 1993, practically all sectors of the Mexican economy have come under strong pressures for change from the intensified liberalization of trade and investment rules spearheaded by the NAFTA, building on the unilateral opening begun in the mid-1980s.
The agricultural sector has been particularly affected by economic liberalization. Steps have been taken to reduce support to the sector and introduce assistance mechanisms based on direct income support; as a result, the average Producer Subsidy Equivalent has recently been calculated at only 13 per cent. As required by the NAFTA and WTO Agreements, Mexico converted all its non-tariff measures into tariffs or tariff quotas; very high out-of-quota duties protect sensitive areas. Despite important structural changes, the sector as a whole still suffers from historical weaknesses arising from low labour productivity and inadequate rural incomes. Large differences also exist between subsistence farmers and a modern sector selling on domestic and international markets.
Mexico has a long tradition as a mining country, although the relative economic importance of mining has diminished in recent decades; new regulations were introduced in 1993 to promote the sector. Despite significant diversification away from petroleum exports over the last decade, the hydrocarbons industry remains economically important, and world oil prices still have a considerable impact on the Government budget. Limited public-sector capacity to finance new investment has resulted in falling proven oil reserves and slow production growth; such constraints have also affected the petrochemicals industry. The authorities have thus sought ways to allow greater private-sector involvement in these activities and have taken steps, within the constraints imposed by the Constitution, to liberalize private participation in natural-gas-related operations and petrochemical projects. Measures have also been taken to open up parts of the electricity sector.
Mexico's manufacturing sector is quite diversified; overall, the sector appears to have taken advantage of the trade liberalization programme and large investment inflows to increase efficiency and profitability. Based on these gains, and stimulated by real exchange rate depreciation, the sector was able to overcome the 1995 slump in domestic demand by increasing production for export markets. The in-bond or maquiladora industry, played a crucial role: in 1996, maquiladora exports accounted for some 40 per cent of Mexico's total exports and 47 per cent of its manufactured exports, while maquiladora imports amounted to just over 40 per cent of total imports. Maquiladora operations have generated substantial employment, but have had more limited success in establishing backward linkages with other activities in Mexico. By contrast, the import-competing sector has, in general, had great difficulties in adapting to the more liberal environment of the last ten years. The still limited availability of labour skills, high-quality suppliers, and an efficient transportation system represent serious structural weaknesses affecting Mexico's manufacturing.
Although there has been a radical change in Mexico's approach to industrial policy since the mid-1980s and the promotion of inward-looking manufacturing has largely been abandoned, echoes of the previous import-substitution strategy still linger in some industrial policies. The most conspicuous case is the special regime for the motor vehicle and parts industry, which has become a major export activity, competing from behind a heavily protected domestic market. More recently, industry-specific schemes have emerged for textiles, clothing and footwear; increases in tariffs, albeit conceived as temporary, and anti-dumping actions in these areas, appear to run counter to the drive towards greater neutrality of sectoral protection under the liberalization programme. In view of the sharp currency depreciation since 1994 and subsequent strong growth in Mexican automotive, textiles, clothing and footwear exports, the rationale for intervention in, and preferred treatment for, these industries appears weak.
The degree of involvement of the Mexican State in the supply of services has decreased dramatically during the last decade. Mexico has a number of world-class suppliers, but inefficiencies have at times imposed constraints on other sectors of the Mexican economy; the most serious problems have more recently arisen in relation to financial services, although transport and telecommunications services have also been areas of concern. Steps have been taken to reduce such inefficiencies, strengthen the regulatory framework, and attract foreign investment. The NAFTA in particular has proved a powerful catalyst for liberalization, both through its formal requirements and because of the competitive pressures it has created to increase overall efficiency in the Mexican economy. Mexico has also participated actively in the Uruguay Round General Agreement on Trade in Services (GATS) and subsequent services negotiations, undertaking sector-specific commitments in a large number of areas. Mexico's accession to the OECD is also helping to promote further liberalization. Fully extending past and future liberalization on an MFN basis would ensure that Mexican producers have access to the lowest cost services, making them more competitive vis-Ó-vis foreign producers.
Trade Policies and Foreign Trading Partners
Mexico provides a generally positive example of progressive liberalization maintained over an extended period, at times in the face of serious macroeconomic shocks. Its persistence in carrying through this process has begun to pay dividends, and the bases are now in place for achieving long-term sustainable economic growth. Continuing trade and economic liberalization are vital factors in achieving this goal; ensuring that the resulting benefits flow more visibly to a larger proportion of the population would also be important in securing continuing support for the reforms.
Mexico's current focus on negotiated liberalization in a regional context is crystallizing into an extended network of regional arrangements. This strategy reflects the Government's view that the multilateral system presently affords fewer opportunities for advancing liberalization at the pace and with the depth that Mexico would like. However, the benefits of Mexico's regional strategy, including greater market access based on reciprocity, and the enhanced trade and investment security implicit in locking-in its reforms, have to be weighed carefully against potential costs. These include possible problems created by a growing number of arrangements as well as a possible perceived need to forgo unilateral, efficiency-enhancing liberalization to preserve trade and investment barriers as bargaining elements for negotiations.
Given the importance of economic relations with the United States, NAFTA has become the cornerstone of Mexico's trade and investment policies. Mexico is also actively forging new trade links through its regional agreements within the Americas, with the EU, and also within APEC. In this light, there is scope for Mexico to bring together its regional and multilateral efforts, for example, by binding its regional commitments externally under the WTO; this would also confirm internationally the major shift that Mexico has made, over several years, away from its earlier protectionist policies. Such actions would be in line with the political responsibilities ensuing from Mexico's already significant and growing role in world trade. For Mexico, such active participation in a vigorous multilateral trading system would represent a credible counterpoint to an otherwise dominant regional relationship, and the soundest way to create stronger links outside the Western Hemisphere. However, this would also require a positive response from the trading community as a whole, through a demonstrated interest in carrying forward multilateral liberalization.Back to top
TRADE POLICY REVIEW BODY: MEXICO
Report by the Government
The intensification of structural change, and in particular the opening up of trade, has been a defining feature of Mexico's economic policy over the past four years. This has been carried out both unilaterally and through regional and multilateral negotiations, in keeping with the commitments entered into in the World Trade Organization (WTO). A noteworthy aspect of this openness in recent years is that it has continued despite the economic crisis of late 1994.
The following presentation is divided into four sections. The first deals with the economic context of liberalization. The second describes some of the more important trade policy measures, while the third deals with Mexico's trade negotiation agenda at regional level. The final section contains conclusions.
I. The 1994 Crisis and Renewed Economic Growth
For Mexico, the entry into force of the Uruguay Round commitments in 1995 coincided with the worst economic crisis in the country's recent history. The sudden interruption of foreign capital flows to Mexico in late 1994 led to a sharp devaluation of the peso and imposed the need for a severe adjustment programme. Despite the crisis, the Government did not adopt protectionist measures, as had occurred in the 1982 crisis. In fact, it even proceeded to intensify the economic reforms undertaken in recent years, particularly with respect to the liberalization of trade and investment, while at the same time pursuing a far-reaching agenda of international trade negotiations.
By maintaining and pushing on with reforms, particularly in the trade area, Mexico laid the foundations for renewed economic growth after only 20 months, whereas it had taken several years to overcome the 1982 crisis.
During 1995, economic activity shrank very significantly, with a 6.9 per cent decline in the value of GDP compared with growth of 2.0 per cent and 4.4 per cent in 1993 and 1994 respectively. Nevertheless, the economy turned around and grew by 5.1 per cent in 1996, and is forecast to expand at about 5 per cent annually until the year 2000.
Over the last two years, exports have made a fundamental contribution to GDP growth, and today account for about a quarter of the product. Between 1993 and 1996, the average annual growth rate of total exports was 20 per cent, and in 1995 alone they increased by 30.6 per cent. In 1996, the value of Mexican exports totalled 96 billion dollars.
Manufacturing exports grew at an average annual rate of 22.7 per cent over the period 1993-1996, reaching 80.3 billion dollars in 1996. A striking feature has been the 27.0 per cent annual average growth rate of manufacturing exports excluding the maquiladora (in-bond processing) sector during this period, for a value of 43.4 billion dollars in 1996.
Along with renewed economic growth, inflation has followed a downward trend since the 1994 crisis. Inflation climbed from 7.1 per cent in 1994 to 52 per cent in 1995, but in 1996 almost halved to 27.7 per cent while the economy picked up strongly. This trend is continuing, and June 1996-June 1997 inflation stood at 20.4 per cent. The rate for this year is expected to be 15 per cent, with a continuing downward trend for subsequent years.
The weakness of economic activity in 1995 was reflected in the labour market. The open unemployment rate rose from 3.9 per cent in November 1994 to 7.6 per cent in August 1996, the highest level since the crisis. It has steadily declined since then, reaching 3.4 per cent in June 1997, a level comparable to that before the crisis.
Lastly, Mexico's economic crises over the last 20 years have been characterized by a low level of domestic saving and high dependence on external saving. The measures set in place between 1995 and 1996 to boost domestic saving succeeded in raising it considerably, from 15.0 per cent to 20.4 per cent of GDP. At the same time other measures have been introduced to bolster private saving in the coming years, such as a new pension system, the promotion of popular saving and a tax policy aimed at encouraging saving and investment. The goal is to make domestic saving the main source of financing for economic growth, only supplemented by external saving.
II. Unilateral Liberalization
On joining the General Agreement on Tariffs and Trade (GATT) in 1986, Mexico began to speed up the structural change and unilateral liberalization launched three years earlier. Opening up the economy has increased its efficiency and enabled Mexico to compete more aggressively on world markets, with the ensuing impact on economic growth, exports and job creation. It also laid the foundations for negotiating free-trade agreements (see section III) and for Mexico's participation in the Uruguay Round of multilateral negotiations. Some of the measures taken by Mexico over the last four years are described below.
(1) Tariffs and non-tariff barriers
Between 1993 and 1997, Mexico unilaterally eliminated most-favoured-nation tariffs on over 1,200 products; the number of duty-free products increased from 414 in 1993 to 1,658 in 1997. This tariff elimination primarily concerned inputs and machinery used in the agricultural, chemical, electrical, electronic, textile and publishing sectors.
Although the simple average tariff has remained at about 13 per cent over the last four years, the weighted average tariffSee footnote 1 has fallen significantly, down from 7.8 per cent in 1993 to 2.9 per cent in 1996 and 2.7 per cent in 1997.
In connection with the elimination of prior import licences, it is significant that they have been replaced by tariffs for 67 agricultural products, in accordance with the Uruguay Round tariffication commitment. Mexico has also established tariff quotas to ensure entry of specific quantities of agricultural products to the Mexican market.
In order to attract a higher inflow of foreign capital, in December 1993 the Government issued the Foreign Investment Law, subsequently amended in December 1996. This Law, together with the North American Free Trade Agreement, intensified the policy shift on foreign direct investment towards greater liberalization.
Over the last four years the foreign investment regime has been liberalized in sectors that are fundamental for the country's development, such as ports, telecommunications, air transport, natural gas storage, transportation and distribution, railways, financial services and airports. As a consequence, Mexico has become one of the most open countries in the world for competition by foreign service suppliers.
In addition, Mexico has included disciplines on investment in the various free trade agreements it has signed, thus providing investors with greater legal certainty. So far, reciprocal investment promotion and protection agreements (APPRI) have been concluded with Spain (1995), Switzerland (1995) and Argentina (1996), and similar ones are being negotiated with the Netherlands, Germany, France, the United Kingdom, Italy and Austria.
Mexico has also been an active participant in various international forums dealing with investment, such as the WTO, the Organization for Economic Cooperation and Development (OECD), in which the Multilateral Investment Agreement (MIA) is being negotiated, and the Asia-Pacific Economic Cooperation mechanism (APEC).
As a result inter alia of the liberalization of its foreign investment regime, Mexico received 31.5 billion dollars in foreign direct investment from 1994 to 1996, and was the second biggest recipient among developing countries, after China. For 1997 it expects to receive at least a further 8,750 million dollars.
(3) Customs procedures
Customs procedures have been progressively simplified and automated over the last four years, making customs operations more streamlined and efficient. These changes are reflected in the new Customs Law that came into force in 1996.
Four of the changes made are particularly important. Firstly, goods can now be loaded and unloaded in seaport customs offices in facilities run by the private sector. Secondly, to give users greater legal security, consultations concerning tariff classification can be made in advance and the responsibilities of customs agents and importers in foreign trade operations have been delimited. Thirdly, unnecessary red tape has been eliminated to allow inland customs to deal primarily with the clearance of intermediate and capital goods, and to enable eventual exporters to use bank account deposits for import taxes; in addition, regulations were established for virtual exportation of goods. Finally, in accordance with international commitments the computed value method was introduced as the dutiable basis for imports in accordance with the WTO Customs Valuation Code.
Standards in Mexico are mandatory or voluntary. Mandatory standards are termed Mexican Official Standards (NOM) and are aimed at establishing specifications for goods and services or processes in order to guarantee safety, protection of human, animal or plant life or health or the environment, and prevention of misleading or fraudulent practices. Voluntary standards, known as Mexican standards (NMX), are used as guides for consumers and producers and also as means of guaranteeing quality.
The legal basis of the Mexican standardization and conformity assessment system is the Federal Metrology and Standardization Law. A considerable amount of work has been carried out on the elaboration of standards since the Law entered into force in 1992. In order to adjust the legal framework to new international circumstances, the Law was amended on 20 May 1997: the chief revisions focus on the following aspects.
Firstly, private sector participation has been encouraged in the elaboration, certification and verification of standards, and greater transparency has been sought in these activities. Secondly, the process of elaboration of standards has been deregulated, and in particular cost-benefit analysis has been replaced by the requirement of demonstration of regulatory impact. Thirdly, procedures for verification of compliance with Mexican Official Standards have been simplified, thus strengthening the inspection and checking processes, and fairer parameters have been established for imposition of penalties. Finally, another objective has been to obtain recognition abroad of Mexico's technical infrastructure (testing and calibration laboratories, accreditation and certification bodies etc.) as well as recognition in Mexico of such infrastructure in other countries: this provides the basis for concluding mutual recognition agreements.
(5) Competition policy
Promotion of economic competition has underpinned the trade liberalization process in Mexico over the last four years. The Federal Economic Competition Law that came into force in 1993 is aimed at protecting economic competition and unrestricted participation in markets by prohibiting monopolies, anti-competitive practices and other restrictions that affect the efficient operation of markets for goods and services. The Law established the Federal Competition Commission as the independent body responsible for its implementation. Besides investigating the existence of prohibited monopolies, practices and concentrations, the Commission can give its opinion on programmes, laws and regulations that may have an impact on economic competition.
Implementation of an effective competition policy has been fundamental in order to ensure that possible market concentration in some sectors of the Mexican economy does not impair economic efficiency.
Competition policy is a major instrument for the Mexican Government to maintain free access to international markets. Thus, Mexico has sought to improve communication with the competition authorities of our main trading partners to combat monopolistic practices generated abroad. Our country also participates actively in international forums working in this area and maintains active contacts with its counterparts abroad.
In the WTO Working Group on Trade and Competition Policy, Mexico has proposed a comprehensive approach that analyses the relationship between all competition measures and trade. In particular, our country is concerned that the benefits of the liberalization achieved so far should not be restricted by the use of anti-dumping measures for protectionist purposes.
(6) Intellectual property
As part of the drive towards trade liberalization in recent years, Mexico has modernized its system of protection of intellectual property rights in order to increase substantially the level of protection of such rights. This has been achieved by changes in the regulatory framework and by strengthening the institutions responsible for enforcing these rights.
The Industrial Property Promotion and Protection Law, considered one of the most advanced in the world, was enacted in 1991. It was updated in 1994 and retitled the Industrial Property Law. In addition, a new Copyright Law was enacted in December 1996, replacing the law of 1984. With respect to the bodies responsible for enforcing intellectual property rights, two new independent institutions were set up: the Mexican Industrial Property Institute in 1993, and the National Copyright Institute in 1997.
Pursuant to the WTO provisions, the above-mentioned laws include more efficient procedures for ensuring compliance and also increase penalties in the case of trademark forgery and copyright piracy. A specific law concerning plant varieties was enacted in October 1996.
Finally, despite having a transition period to the year 2000 to implement its commitments under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights, Mexico has already made large strides in this regard.
Since 1989, one of the main aspects of structural reform in Mexico has been the improvement of the regulatory framework governing economic activity. For this purpose, various legal provisions relating to different economic sectors have been updated and simplified. The sectors concerned include tourism, railways, air transport, ports, land transport, petrochemicals, electricity, telecommunications, satellites, customs, foreign exchange, water supply, financial institutions, mining and fishing. As a consequence, the efficiency of the Mexican economy has increased significantly.
Furthermore, as from November 1995 the Federal Government began to implement the Business Activity Deregulation Agreement, which is a programme for improving administrative procedures and cutting down on red tape affecting the establishment and operation of businesses. The programme is coordinated by the Ministry of Trade and Industrial Development (SECOFI) with the collaboration of the Economic Deregulation Council (consisting of representatives of the public sector, industry, labour and the academic community). Its purpose is to review all the formalities required for setting up and operating businesses, as well as the relevant legislation, in order to reduce the administrative burden on companies. The country's State governments have all adopted a similar approach at their level.
(8) Implementation of the results of the Uruguay Round
The measures described above are in keeping with Mexico's commitments under the Uruguay Round.
In accordance with the Mexican Constitution, international treaties signed by the President and ratified by the Senate, which is the case of the Uruguay Round Agreements, have the status of supreme law and therefore do not require any further legislative act for their application. The changes and reforms introduced in Mexican legislation have been prompted by the need to harmonize domestic trade rules with the international rules so as to facilitate their application.
Mexico considers implementation of the Uruguay Round commitments and disciplines by all WTO Members to be fundamental for strengthening the multilateral trading system. Mexico has fully complied with all these commitments, including the notification ones. With respect to services, it is important to stress that Mexico's initial commitments under the General Agreement on Trade in Services (GATS) cover 68 sectors and 329 activities, which bears witness to Mexico's desire to contribute to opening up this sector on a most-favoured-nation basis. Our country has also played an active part in the working groups on services that arose out of the Uruguay Round: financial services, standards, professional services and basic telecommunications. In this last sector, Mexico granted considerable liberalization as a result of the negotiations concluded last February.
Mexico has participated and will continue to participate actively in all WTO forums and initiatives for multilateral liberalization, including the new dispute settlement mechanism when its interests are affected.
III. Regional Agreements
Free trade agreements are a fundamental component of Mexico's trade policy in recent years. They began to be negotiated before the conclusion of the Uruguay Round in order to enhance the Mexican economy's competitiveness and open up new export markets.
Mexico has signed the following free trade agreements: Economic Complementarity Agreement with Chile (1992); North American Free Trade Agreement with the United States and Canada (1994); Group of Three Free Trade Agreement with Colombia and Venezuela (1995); and free trade agreements with Bolivia and Costa Rica (1995).
The agreements include disciplines and commitments in the following areas: trade in goods, including agriculture; technical barriers to trade; government procurement; investment; trade in services; intellectual property; and institutional provisions, including dispute settlement.
The disciplines and types of commitment in the different agreements are mutually compatible. This simplifies their application by avoiding a heavy administrative burden for the authorities and for the private sector engaged in trade and investment activities under the agreements. In addition, they enable the private sector to have a reliable medium and long-term planning horizon.
The North American Free Trade Agreement is very important for Mexico, not only owing to the participation of its biggest trading partner and as the most comprehensive agreement negotiated so far, but also because it generated an incentive and interest among other trading partners for negotiating similar agreements. Mexico has continued to try to broaden and diversify its markets, particularly with countries of the American continent and the European Union.
On the American continent, Mexico is negotiating a free trade agreement with Guatemala, Honduras and El Salvador. Bilateral negotiations are also under way for other agreements with Nicaragua, Panama, Ecuador and Peru, as well as for expanding the agreement with Chile. In addition, negotiations are continuing with Mercosur (Argentina, Brazil, Paraguay and Uruguay) for a transitional agreement to replace the existing agreements under the Latin American Integration Association (LAIA), which will then serve as a basis for broader negotiations. Finally, together with 33 other countries Mexico is participating in negotiations for the progressive elimination of trade and investment barriers and creation of a Free Trade Area of the Americas; these negotiations are to be completed by 2005.
Likewise, Mexico completed the first stage of negotiation of a new bilateral agreement with the European Union. The texts of an agreement on economic association, political concertation and cooperation, an interim agreement and a joint declaration were concluded in July 1997. As far as trade is concerned, the parties have undertaken to begin negotiations to achieve bilateral and preferential, progressive and reciprocal liberalization of trade in goods and services, including payments and capital movements and government procurement, as well as the establishment of disciplines concerning competition, intellectual property and dispute settlement. The trade liberalization negotiations are expected to begin in early 1998.
In addition, Mexico has signed other kinds of cooperation agreements relating to trade and investment with various countries, including the Republic of Korea, Australia and New Zealand, and has set up ad hoc groups, committees and binational commissions to administer trade relations. Mexico also participates in other regional initiatives such as APEC, which has set the goal of achieving a free trade and investment regime by the year 2020.
The regional agreements to which Mexico belongs establish important precedents in some areas that could be included in future multilateral negotiations. The regional agreements have generated incentives for greater regional and multilateral liberalization. Accordingly, together with other WTO Members Mexico favours the holding of a new round of negotiations for industrial goods, in addition to the negotiations scheduled in other areas such as services and agriculture. Mexico will continue to negotiate regional trade agreements in so far as they go beyond multilateral liberalization.
Mexico's international trade negotiations have fundamentally strengthened its trade policy.
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Since its accession to the GATT in 1986, Mexico has been one of the countries where the pace of liberalization has been swiftest. This liberalization was not checked by the 1994 economic crisis; on the contrary, it was pursued and intensified, which played an important part in the rapid recovery of economic growth.
Mexico has implemented important measures of structural change and liberalization in recent years, with the fundamental goal of enhancing its economic competitiveness. These measures concern in particular tariffs, non-tariff barriers, investment, customs procedures, standards, competition policy, intellectual property and economic deregulation, and they are compatible with Mexico's WTO commitments.
These unilateral measures have been accompanied by an ambitious policy of international trade negotiations. That is precisely what the free trade agreements have achieved: greater openness and greater access to international markets. Mexico will continue to seek agreements of this kind as a complement to multilateral liberalization under the WTO.
Footnote: 1Calculated on the basis of the tariff rate applicable at the time of importation.