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Mexico: October 1997

“ Members commended Mexico on the positive macroeconomic developments since the deep recession of 1995; economic growth had resumed, inflation fallen, capital inflows risen and public finances improved.”

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  > Summary of Government report

8 October 1997

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    The Trade Policy Review Body of the World Trade Organization (WTO) concluded its second review of Mexico's trade policies on 7 and 8 October 1997. The text of the Chairperson's concluding remarks is attached as a summary of the salient points which emerged during the discussion.

    The review enables the TPRB to conduct a collective examination of the full range of trade policies and practices of each WTO member country at regular periodic intervals to monitor significant trends and developments which may have an impact on the global trading system.

    The review is based on two reports which are prepared respectively by the WTO Secretariat and the government under review and which cover all aspects of the country's trade policies, including: its domestic laws and regulations; the institutional framework; bilateral, regional and other preferential agreements; the wider economic needs and the external environment.

    A record of the discussions and the Chairperson's summing-up, together with these two reports, 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.

    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), the Czech Republic (1996), Cyprus (1997), 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 & 1997), 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).

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    The second Trade Policy Review of Mexico was conducted on 7-8 October 1997. These remarks, prepared on my own responsibility, are intended to summarize the discussion and not to be a full report: this will be contained in the minutes of the meeting.

    The discussion developed under four main themes:

Economic and developmental policies

    Members commended Mexico on the positive macroeconomic developments since the deep recession of 1995; economic growth had resumed, inflation fallen, capital inflows risen and public finances improved. They praised the Mexican authorities for their courageous response to the 1994 financial crisis, particularly for having avoided protectionist measures. Members also noted the fall in per capita income following of the 1995 crisis, and the persistence of poverty, especially in rural areas. It was noted that recently some economic indicators, including the current account balance, had again deteriorated. Some Members stressed the need to maintain the exchange rate at a competitive level.

    In reply, the representative of Mexico said that the response of his Government to the financial crisis of 1994 had been to deepen the reforms, and accelerate structural change and economic liberalization, committing itself to the disciplines of the market. He gave details of fiscal policy aimed at improving the revenue-expenditure balance and reducing public debt. Pension reforms were expected to increase savings and help finance future investments. Monetary policy, acting through interest rates, had recently been used to prevent real exchange rate appreciation resulting from short-term financial inflows. As a result, exports had grown strongly. The Mexican Government was conscious of the effects of the crisis on the standard of living and was focusing on sustained medium-term growth to create employment as the best means of addressing the problem; increasing public resources were being devoted to social concerns. The prospects for growth in the next few years were positive; not less than 6 per cent this year and 5.5 per cent in 1999 and 2000, with exports continuing to play an important role.

    He added that the Industrial and Trade Policy Programme (PPICE) recognized the need for sustained development, employment creation and improved standards of living. Policy sought to alleviate market imperfections and improve industrial competitiveness. The representative elaborated on various aspects of the programme aiming at providing better information for business, promoting economies of scale, assisting the grouping of small enterprises and encouraging transfer of technology and development of labour.

Regional/multilateral trade

    Members praised Mexico's active and positive role in the WTO. They also took note of Mexico's growing participation in regional trade agreements, highlighting in particular NAFTA's major role in Mexico's trade policy reforms. Areas of concern included the continued and considerable dependency of Mexico on the U.S. market, the widening gap between preferential and MFN tariff rates, and the impact on third parties of NAFTA rules on customs valuation and rules of origin. Members thus sought Mexico's views on the link between regional and multilateral liberalization and the possibility of trade distortion, as well as the use of reciprocity as a guiding principle of trade policy. They asked under what conditions Mexico would extend the benefits of NAFTA liberalization to all WTO members. Members were also interested in Mexico's agenda for future regional integration.

    Mexico was encouraged to notify to the WTO the G-3 Agreement, and its agreements with Bolivia and Costa Rica. Details were also sought on the WTO justification for the existence in the NAFTA of some phasing out periods exceeding ten years.

    In reply, the representative of Mexico said that participation in the WTO, including the dispute settlement mechanism was fundamental to Mexico's trade policies. It was also a key element in how Mexico had addressed the financial crisis, having a positive effect on the expectation of the business and financial community and increasing confidence in Mexico's future. Mexico's relationship with the United States was intense and complex; NAFTA created a permanent legal basis for North American cooperation, that went beyond Uruguay Round commitments. Given the slow speed of improvements in the multilateral system, Mexico was continuing to explore the regional path as a means to greater liberalization. He mentioned the EU, Israel and APEC as new areas for such cooperation. However, Mexico supported the opening of a new round of multilateral negotiations that would lead to further bindings and liberalization.

    The representative pointed out that many of the benefits of NAFTA were available on an MFN basis to other WTO members, especially in services other than financial services. Mexico had recently also eliminated MFN tariffs on some 1200 tariff lines of inputs and machinery. Since 1995, imports from non FTA partners had shown great dynamism, growing very rapidly in the first half of 1997. In practice, Mexico also considered important the principles of MFN and national treatment in federal government procurement; reservations for national suppliers were clearly specified in Mexico's international treaties. The representative concluded that Mexico's regional agreements complemented the multilateral system. Most, including NAFTA, LAIA and the G-3 agreement, had been notified and others would be notified shortly.

Implementation of commercial policies, including sectoral policies

    Members appreciated Mexico's autonomous tariff reductions and the decline in other restrictions since the 1980s. However, concerns were expressed about the gap between "ceiling" bound tariffs and applied levels; this issue was highlighted by increases in tariffs for textiles, clothing, and footwear in 1995. Some Members asked about the rationale for such increases in view of the earlier strong devaluation of the Mexican currency.

    Several Members expressed concern regarding Mexico's application of a FOB customs valuation base for NAFTA and CIF for other partners. Some Members sought information on the operation of registration requirements, including on a sector-specific basis. Information was also requested on restrictions on the entry of various products through specific Mexican ports.

    Some Members noted Mexico's intensive use of anti-dumping measures, which they felt was increasing uncertainty for economic operators, while undermining Mexico's reforms. Information was requested on proposed changes to current anti-dumping legislation, and on the independence of its anti-dumping authority; it was also noted that Mexico imposed special origin certification requirements for certain products subject to anti-dumping measures; in the opinion of some Members, these requirements imposed excessive demands on traders from third countries.

    Potential problem also included the increased use of technical and labelling requirements that did not seem to conform to international standards, including brand regulations introduced in 1996. Mexico was asked about the scientific justification for measures affecting rice imports.

    Members noted that Mexico was not a member of the WTO Government Procurement Agreement, and restricted national public tenders to domestic suppliers. Mexico was asked whether it would consider acceding to a new agreement on government procurement or participate in the ongoing discussions on transparency.

    Several Members asked when Mexico would notify CONASUPO as a State trading enterprise.

    Members requested information on the current status of policy reforms affecting agriculture, including the use of tariff quotas and direct payments under PROCAMPO. Some Members thought that there was a need for further trade liberalization on an MFN basis.

    Members recognized the considerable economic importance of the maquiladora industry, but some stressed the need to encourage its closer integration in the domestic economy. Several Members sought details on the phasing out of the regime by 2001, as provided under the NAFTA, and the regime that would then prevail with respect to third countries.

    Mexico's policies to promote the automotive sector were seen as contradicting the country's general thrust towards a more liberal trade regime. Some members asked how current restrictions would be liberalized for suppliers not currently producing in Mexico. Mexico was requested to open the automotive market after the year 2000, as provided by the WTO TRIMs Agreement.

    Members asked about plans for further liberalization of trade and investment conditions in services and welcomed Mexico's active participation in current negotiations. Details were requested on Mexico's policy towards financial services. Information was also requested on how Mexico's development banks obtained funding and set interest rates.

    In reply, the representative of Mexico pointed out that Mexico's trade liberalization, including recent tariff eliminations, was largely the result of autonomous actions, benefiting all partners. The gap between applied and bound rates was due to this liberalization as well as to tariffication in agriculture. Mexico stood ready to negotiate on bound levels in a new multilateral round. He noted that recent tariff increases on textiles, clothing and leather goods were within bound levels. The difference between customs valuation on a FOB basis of NAFTA trade and CIF basis for other trade would be insignificant and temporary, given the geographical proximity, and the large share of duty-free trade, which would eventually encompass all NAFTA trade. The representative noted that initiation of anti-dumping procedures depended on requests. The new draft law, still to be approved by Congress, was intended to harmonize domestic texts with the WTO rules, which had the status of Supreme Law in Mexico. Origin certificates were intended to counter circumvention in cases where final anti-dumping duties had been imposed.

    The representative said that there was no requirement for domestic standards to be in strict agreement with international standards, although in Mexico the latter often served on the basis for domestic norms and this was considered important for promoting Mexico's economic development and international competitiveness. He gave details of the operation of the National Standardization Commission, procedures for the establishment of Mexican standards and certification, which were open, transparent and equitable, and on the use of ISO 9000 and 14000 procedures. NAFTA provisions in this regard were compatible with WTO rules and its Code of Good Practice. He also gave details of Mexico-EU cooperation. The operation of the Mexican labelling system was explained. The National Commission for Animal and Plant Health, an autonomous body, established, regulated and coordinated sanitary and phytosanitary rules.

    He said that, as noted earlier, Mexico had a transparent and non-discriminatory regime for government procurement, and most federal procurement was on an international basis. Reciprocity rules reflected international realities. Mexico had fought for this subject to be included in FTA agreements and supported the work of the WTO working party on transparency in government procurement. At present, however, the GPA was limited in membership and did not guarantee reciprocal treatment.

    The representative emphasized that, following the Uruguay Round, CONASUPO was no longer the sole channel for the import of milk powder. Others could import at the in-quota tariff with appropriate certification, or otherwise at the out-of-quota rate. The issue of licences to "traditional" importers (in this event, CONASUPO) for in-quota imports should not be confused with state-trading operations.

    The representative also gave details of the operation of various sectoral policies. He said that the in-bond (maquiladora) industry regime would be changed from 1 January 2001 as a result of NAFTA commitments, to equalize tariff treatment on inputs as between goods sold on domestic markets and exports to other NAFTA partners. MFN duties would continue to be paid on imports from non-NAFTA partners.

    In agriculture, the role and coverage of PROCAMPO was explained; imports could exceed WTO access commitments if required to ensure supplies; price controls were limited to tortillas and to corn flour. He explained the status of automotive policy, which aimed to expose the sector progressively to external competition; TRIMS provisions had been notified and NAFTA aspects discussed in the WTO Committee on Regional Trade Agreements; he noted that the transitional period allowed under the TRIMS agreement could be extended by the Council on Trade in Goods.

    The representative noted that market opening and deregulation had improved the supply in, and competitiveness of, the services sector in recent years. Mexico's commitments in the WTO were extensive and ambitious. The sole exceptions to MFN treatment related to cross-border land transport with the U.S.; Mexico was reviewing its commitments with a view to removing as many barriers as possible on an MFN basis. He provided details on certain limits to foreign investment and the circumstances in which the limits could be exceeded. He also reviewed developments, bindings and conditions for foreign direct investment in telecommunications, maritime and land transport, and financial services.

Specific questions

    Members sought information on recent foreign investment flows, and on policies and regulations to diversify the sources of new investment. They asked about the elimination of remaining restrictions on private and foreign participation in a number of sectors.

    Mexico was asked about its recent experience with the Federal Competition Commission, on plans to strengthen the Commission, and on cooperation programmes with other countries in competition policy.

    Several members expressed appreciation for the introduction of improved legislation on intellectual property, but raised various questions on plant protection, copyright and enforcement. One Member requested information on a new Health Law affecting generic drugs.

    In reply, the representative of Mexico said that the Foreign Investment Law of 1996 had extended on an MFN basis the treatment negotiated under NAFTA. He cited examples of the liberalization and simplification of the investment regime. Other regional trade agreements also included disciplines on investment. Bilateral agreements for the protection of investment had been signed with a number of countries and Mexico was participating actively in the OECD negotiations for a Multilateral Agreement on Investment.

    He said that deregulation and privatization complemented economic liberalization, especially in services, fisheries and mining. The Council on Economic Deregulation was working mainly on simplifying administrative procedures and eliminating inefficiencies, and he gave examples of legislative reform in the area. He also provided information on the operations of the Federal Competition Commission, an autonomous body charged with investigating and combatting monopolies, monopolistic practices and anti-competitive mergers, fostering deregulation and promoting a competitive environment. He gave details of international cooperation in this area.

    He drew attention to the fact that, while Mexico was using the extended period afforded to developing countries to implement the TRIPS agreement, Mexico now had modern legislation in this area, covering industrial property, authors' rights and plant protection. Work was also being undertaken to draft a law for the protection of integrated semi-conductor circuits. He gave details of penalties for infringement and confirmed that customs could seize infringing goods.

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    Overall, Members commended Mexico for its continued programme of trade liberalization and economic reform, despite the difficult circumstances faced in recent years. Mexico's open policy had assisted recovery from the 1995 recession. However, concerns about certain areas were expressed in the discussion, including: the balance between regionalism and multilateralism; the use of anti-dumping measures; government procurement policies; application of standards; and sectoral policy aspects in agriculture, manufacturing and services. Members encouraged Mexico to continue its positive participation in the WTO.