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PRESS/TPRB/63
2October 1997
MEXICO 'SREGIONAL AGREEMENTS STIMULATE LIBERALIZATION BUT
COMPLICATE TRADE REGIME
Mexico 'srapid recovery from theeconomic recession of1995 owes much totheeconomic
reforms begun inthemid-1990s. AnewWTO Secretariat report onMexico 'stradepolicies andpractices
statesthatthosereformshaveresultedinefficiencygains,agreateropennessoftheinvestmentframework
andcloser integration intheworld economy. However, thereform process isnotyetcomplete. The
WTO report concludes thatitscontinuation isnecessary forMexico toachieve ahigher sustainable
rateofeconomic growth.
TheSecretariatreportandapolicystatementpreparedbytheGovernmentofMexicowillprovide
thebasisforadiscussion onMexico 'stradepolicies andpractices intheWTO 'sTrade Policy Review
Body on7and8October.
TheWTO report states thatthough unilateral liberalization onanMFN basishasbeencarried
forward, trade policy changes inthepastfouryears havebeendominates byregional liberalization
under theNorth American FreeTrade Agreement (NAFTA) andother agreements. Reflecting their
growing bilateral trade relationship, theshare ofMexico 'smerchandise trade withtheUnited States
rosefrom 75percentin1992 to80percentin1996.
InadditiontoNAFTA,MexicohasfreetradeagreementswithCostaRica,Bolivia,andColombia
andVenezuela (theGroup ofThree). Itisreinforcing itsregional agreements within theAmericas,
withtheEUandwithin theAsia-Pacific Economic Cooperation (APEC). Thereport notes that
complications inMexico 'strade regulations arisefrom thedifferent regimes applied initsregional
agreements, especially concerning exceptions, phase-in periods andrules oforigin.
Spurred bythesignature ofNAFTA in1992, Mexico hasreduced itsnon-tariff barriers,
liberalized itsinvestment laws andchanged itsgovernment procurement, customs valuation and
competition laws. Mexico hasalsofurther improved itsregime ofprotection forintellectual property
rights. While some elements ofitsregional liberalization havebenefited allWTO Members, others
clearly favour regional partners.
97-4185 MOREPRESS/TPRB/63
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Since itsaccession totheGATT in1986, allofMexico 'stariff linesarecovered bybindings;
Mexico 'sbound ceiling rateformanufactures wasreduced from50to35percentintheUruguay Round.
Applied rates areconsiderably lower. Thereport notes thatMexico hasreduced itstrade-weighted
average tariff, butthatthegaphaswidened between thesimple average most-favoured-nation rate(13.2
percent) andpreferential rates(e.g.4.2percentonimports from theUS).Thereport notes thatto
protect sensitive sectors such abeef, clothing andfootwear, some tariffs have been increased
substantially, albeit within bound levels.
Thereport states thatMexico hasreduced itsnon-tariff barriers butincreased itsuseof
contingency measures (mostly anti-dumping) andthenumber ofmandatory standards. Mexico also
maintains anumber ofmeasures tosupport exports, mostly inthemanufacturing sector, which will
bephased outunder NAFTA, butnotnecessarily onanMFN basis.
Inagriculture, major adjustments haveresulted fromtheeconomic liberalization programme. Mexico
hasconverted allitsnon-tariff measures intotariffs ortariff quotas, asrequired byNAFTA andthe
WTO. Ithasreduced support tothesector andintroduced assistance mechanisms based ondirect income
support. However, thereport notesthatveryhighout-of-quota duties protect sensitive areas. Agriculture
asawhole stillsuffers fromweaknesses linked tolowlabour productivity andinadequate ruralincomes.
Overall, themanufacturing sector appears tohavetaken advantage oftrade liberalization and
investment inflows toincrease efficiency andprofitability. Thein-bond ormaquiladora industry has
played aparticularly important roleintheexport rallysince 1994. Theimport-competing sector,
however,hashaddifficultiesinadaptingtothemoreliberalenvironment.Remnantsoftheearlierimport-
substitution policy stillaffect theautomotive industry.
Ontheservicessector,thereportsaysthatthoughMexicohasanumberofworld-classsuppliers,
inefficiencieshaveattimeshandicappedothereconomicactivities.Thereportremarksthatfullyextending
pastandfuture liberalization onanMFN basis would ensure thatMexican producers haveaccess to
thelowest costservices, making them more competitive vis-à-vis foreign producers.
TheWTO report notes thatMexico 'sfocus onnegotiating liberalization inaregional context
reflects theGovernment 'sviewthatthemultilateral system presently affords fewer opportunities for
advancing liberalization atthepaceanddepth thanMexico would wish. Thereport concludes thatthis
regional strategy, however, hastobeweighed carefully against potential costs; there remains scope
forMexico tobring together itsregional andmultilateral efforts, forexample, bybinding itsregional
commitments under theWTO. Thiswould consolidate theshiftthatMexico hasmade overthepast
decade away fromitsearlier protectionist policies andwould, intheSecretariat 'sview, beinlinewith
thepolitical responsibilities ensuing from Mexico 'ssignificant andgrowing roleinworld trade.
Note toEditors
TheWTO Secretariat 'sreport, together withareport prepared byMexico willbediscussed
bytheWTO Trade Policy Review Body (TPRB) on7and8October 1997. TheWTO 'sTPRB conducts
acollective evaluation ofthefullrange oftradepolicies andpractices ofeachWTO member atregular
periodic intervals andmonitors significant trends anddevelopments which mayhaveanimpact onthe
global trading system. Thetworeports, together withareport oftheTPRB 'sdiscussion andofthe
Chairman'ssummingup,willbepublishedinduecourseasthecompleteTradePolicyReviewofMexico
andwillbeavailable from theWTO Secretariat, Centre William Rappard, 154ruedeLausanne,
1211 Geneva 21.
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Thereports cover thedevelopment ofallaspects ofMexico 'stradepolicies, including domestic
lawsandregulations, theinstitutional framework, trade policies bymeasure andbysector. Since the
WTO cameintoforce, the"new areas" ofservices tradeandtrade-related aspects ofintellectual property
rights arealsocovered. Attached arethesummary observations fromtheSecretariat andgovernment
reports. Fullreports willbeavailable forjournalists from theWTO Secretariat onrequest.
Since December 1989, thefollowing reports havebeencompleted: 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), Côted'Ivoire (1995), Cyprus (1997), theCzech Republic (1996), theDominican
Republic (1996), Egypt (1992), ElSalvador (1996), theEuropean Communities (1991, 1993&1995),
Fiji(1997), Finland (1992), Ghana (1992), Hong Kong (1990 &1994), Hungary (1991), Iceland (1994),
India (1993), Indonesia (1991 and1994), Israel (1994), Japan (1990, 1992 &1995), Kenya (1993),
Korea, Rep.of(1992 &1996), Macau (1994), Malaysia (1993), Mauritius (1995), Mexico (1993),
Morocco(1989&1996),NewZealand(1990&1996),Nigeria(1991),Norway(1991&1996),Pakistan
(1995), Paraguay (1997), Peru(1994), thePhilippines (1993), Poland (1993), Romania (1992), Senegal
(1994), Singapore (1992 &1996), Slovak Republic (1995), South Africa (1993), SriLanka (1995),
Sweden (1990 &1994), Switzerland (1991 &1996), Thailand (1991 &1995), Tunisia (1994), Turkey
(1994), theUnited States (1989, 1992, 1994 &1996), Uganda (1995), Uruguay (1992), Venezuela
(1996), Zambia (1996) andZimbabwe (1994).
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TRADE POLICY REVIEW BODY
MEXICO
Report bytheSecretariat
Introduction
Mexico hascontinued theprocess ofeconomic reform initiated inthemid-1980s. Theefficiency
gains achieved since then, thegreater openness oftheinvestment framework andcloser integration
intheworld economy, together withthesupport oftheinternational financial community, haveassisted
recovery from the1995 recession. However, thehealth ofthebanking system remains aconcern,
asdoanumber oflagging sectors inagriculture andmanufacturing. Modernization oftheinstitutional
andlegalframework iscontinuing. While unilateral trade liberalization onanMFN basis hasbeen
carried forward, trade policy changes havebeendominated byregional liberalization under NAFTA
andother agreements, andtheshare ofMexico 'smerchandise tradewiththeUnited States -including
maquiladora trade-rosefrom75percentin1992to80percentin1996. Some elements ofregional
liberalizationhavebenefitedallWTOMembers,othersmoreclearlyfavourregionalpartners.Moreover,
remnants oftheearlier import-substitution policy stillaffect theautomotive industry, while selective
tariff increases (within bound levels) havebeenintroduced tosupport other activities. Theactive use
ofanti-dumping measures makes them apotential trade barrier. Thereform process isthusnotyet
complete; itscontinuation isnecessary forMexico toachieve ahigher, sustainable rateofeconomic
growth.
TheEconomic Environment
Thedominant macroeconomic event since theprevious Trade Policy Review in1993wasthe
financial crisis ofDecember 1994 andthesubsequent recession andrecovery. While therecession
of1995 wassharper thanthedebtcrisis ofthe1980s, recovery hasbeenmore rapid; however, real
GDP isstillbelow thelevel of1994. Incontrast withthecrisis oftheearly 1980s, export growth
wasdriven bymanufactures rather thancrude petroleum, imports contracted substantially less,reflecting
theincreased import content ofexporting activities, andMexico avoided imposing newtradebarriers
orcontrols onthecapital andcurrent accounts.
While macroeconomic stabilization hasbeenattheforefront since thefinancial crisis, the
increased openness oftheeconomy (asmeasured bytradetoGDP) andthescope ofstructural reforms
since themid-1980s facilitated recovery. Under theinfluence ofamore realistic realexchange rate,
realgrowth of5.1percentwasachieved in1996, andthecurrent account deficit hasalsofallen.
Immediate pressures onthefinancial market seem tohaveeased: short-term nominal interest rates
andinflation arefalling; theperformance ofthestock market hasimproved; andgross international
reserves aremoving towards theirpre-crisis level. Mexico hasalsoimproved itsaccess tointernational
capital markets; thisislikely tobeimportant inconsolidating therecovery, asthedomestic banking
system remains fragile.
Trade Policy Framework
Mexico 'strade policy isclosely associated withthepromotion offoreign investment flows.
Thislinkhasbeenformalized through apermanent framework oftradeandinvestment rulesembodied
inmultilateral andpreferential arrangements. Inthemultilateral arena, Mexico became amember
oftheOrganization forEconomic Cooperation andDevelopment (OECD) in1994 andafounding
Member oftheWTO in1995. Mexico 'sactive programme ofregional negotiations -adding toits
earlier co-operation agreement withChile -resulted intheentry intoforce oftheNorth American Free
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Trade Agreement (NAFTA) withCanada andtheUnited States in1994, andoffree-trade agreements
withCosta Rica, Bolivia, andColombia andVenezuela within theGroup ofThree in1995.
Mexico 'strade strategy hasprogressively shifted away from unilateral reforms bound inthe
multilateral system, tonegotiated liberalization inaregional context. Thereduction ofnon-tariff trade
barriers andtheliberalization ofinvestment agreed withpreferential partners haveoften benefited
thirdparties, forexample inservices. However, variations intreatment haveemerged inareas such
asgovernment procurement andcustoms valuation. Bymodelling itsnewfree-trade agreements on
theNAFTA, Mexico hassought toachieve ahighdegree ofuniformity across agreements but,pending
fullimplementation, complexities arisefromdifferent regimes covering exceptions, phase-in periods
andrules oforigin.
These commitments, jointly withMexico 'scontinued efforts tofacilitate tradeandinvestment
flows, haveresulted insubstantial modifications tothelegalframework. Work isongoing toharmonize
domestic rulesandexternal commitments, reduce thenumber ofregulations andstrengthen thejudicial
system andlawenforcement institutions. Mexico 'snewinvestment rules, inparticular, demonstrate
itsgreater openness towards foreign capital, notwithstanding therestrictions thatstillapply inafew
activities. Recent changes havealsoimproved theregime ofprotection forintellectual property rights,
which wasalready widely regarded asfundamentally sound.
Trade Instruments
Overall,Mexico'suseoftradeinstrumentssince1993seemstobeconsistentwithanincreasingly
open trade regime. However, assessment isdifficult, because various instruments haveevolved in
differing directions.
Themajor change intheuseoftariffs hasbeentheimplementation ofnewregional preferences,
reducing thetrade-weighted average tariff but,atthesame time, widening thegapbetween thesimple
average MFN rate(13.2 percent) andpreferential rates (e.g.4.2percentonimports from the
United States). During theperiod, Mexico alsoliberalized about 1,000 items toduty-free levels; this
wastosome extent offset byincreases inMFN ratesoncertain sensitive goods (e.g.beef, clothing
andfootwear) using theflexibility available under ceiling bindings. Tariffication inagriculture has
created newtariff peaks andincreased tariff dispersion. Asaresult oftheUruguay Round, Mexico
reduced itsbound ceiling rateformanufactures from50percentto35percent; however, thisisstill
more thandouble theaverage levelofduties currently applied. AllofMexico 'stariff lineshavebeen
covered bybindings since itsaccession totheGATT in1986.
Since thelastTrade Policy Review, Mexico hasmade increased useofcontingency measures,
mostly anti-dumping, although thenumber ofnewinitiations hasdeclined inthewake ofthecurrency
depreciation andbooming exports. Nevertheless, withsome 90measures currently inforce, Mexico
operatesoneoftheworld'smostactivetradedefencesystems.Anti-dumpingmeasureshavethusbecome
apotentially significant tradebarrier, despite Mexico 'suseofa"general interest clause". Suchmeasures
detract fromthegeneral liberalization undertaken sincethemid-1980s, andreduce economic efficiency,
particularly since theyhaveoften beendirected atprimary andintermediate goods.
There hasalsobeenasignificant increase inthenumber ofmandatory standards; queries have
beenraised about newmarking andlabelling requirements. Mexico hasnotsigned thePlurilateral
Agreement onGovernment Procurement, andrestricts participation innational public tenders tonational
suppliers anddomestic goods. Mexico alsomaintains various schemes ofintervention intheautomotive
industry (including parts) thathavebeennotified under theprovisions oftheWTO Agreement on
Trade-Related Investment Measures (TRIMs). Mexico 'sNAFTA partners willbenefit from the
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liberalizationofbothpublicprocurementandinvestmentmeasures,butthesebenefitsmaynotnecessarily
beextended toother trading partners.
Inparttooffset theanti-export biasresulting from trade measures affecting imports anda
periodically overvalued exchange rate,Mexico hasadopted anumber ofmeasures tosupport exports.
These include various official tariffconcession programmes, notably themaquiladora regime. Under
theNAFTA, Mexico willphase outthisregime, butassistance maycontinue tobegranted toexports
directed tonon-NAFTA countries.
Theentry intoforce ofanewcompetition lawin1993 andthesubsequent establishment of
theFederal Competition Commission were important steps complementing Mexico 'sprivatization
programmes; theirfurther development could helptoensure thatconsumers benefit fullyfromMexico 's
liberalization efforts andthatthehighmarket concentration observed incertain activities doesnotimpair
economic efficiency.
Sectoral Policy Developments
Since 1993, practically allsectors oftheMexican economy havecome under strong pressures
forchange fromtheintensified liberalization oftradeandinvestment rulesspearheaded bytheNAFTA,
building ontheunilateral opening begun inthemid-1980s.
Theagricultural sector hasbeenparticularly affected byeconomic liberalization. Steps have
beentaken toreduce support tothesector andintroduce assistance mechanisms based ondirect income
support; asaresult, theaverage Producer Subsidy Equivalent hasrecently beencalculated atonly
13percent. Asrequired bytheNAFTA andWTO Agreements, Mexico converted allitsnon-tariff
measures intotariffs ortariff quotas; veryhighout-of-quota duties protect sensitive areas. Despite
important structural changes, thesector asawhole stillsuffers fromhistorical weaknesses arising from
lowlabour productivity andinadequate ruralincomes. Large differences alsoexistbetween subsistence
farmers andamodern sector selling ondomestic andinternational markets.
Mexico hasalongtradition asamining country, although therelative economic importance
ofmining hasdiminished inrecent decades; newregulations wereintroduced in1993topromote the
sector. Despite significant diversification away from petroleum exports overthelastdecade, the
hydrocarbons industry remains economically important, andworld oilprices stillhaveaconsiderable
impactontheGovernmentbudget.Limitedpublic-sectorcapacitytofinancenewinvestmenthasresulted
infalling proven oilreserves andslowproduction growth; suchconstraints havealsoaffected the
petrochemicals industry. Theauthorities have thussought ways toallow greater private-sector
involvement intheseactivities andhavetaken steps, within theconstraints imposed bytheConstitution,
toliberalize private participation innatural-gas-related operations andpetrochemical projects. Measures
havealsobeentaken toopenupparts oftheelectricity sector.
Mexico 'smanufacturing sector isquite diversified; overall, thesector appears tohavetaken
advantage ofthetrade liberalization programme andlarge investment inflows toincrease efficiency
andprofitability. Based onthese gains, andstimulated byrealexchange ratedepreciation, thesector
wasabletoovercome the1995slump indomestic demand byincreasing production forexport markets.
Thein-bond ormaquiladora industry, played acrucial role: in1996, maquiladora exports accounted
forsome 40percentofMexico 'stotalexports and47percentofitsmanufactured exports, while
maquiladora imports amounted tojustover40percentoftotalimports. Maquiladora operations have
generated substantial employment, buthavehadmorelimited success inestablishing backward linkages
withother activities inMexico. Bycontrast, theimport-competing sector has,ingeneral, hadgreat
difficulties inadapting tothemoreliberal environment ofthelasttenyears. Thestilllimited availability
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oflabour skills, high-quality suppliers, andanefficient transportation system represent serious structural
weaknesses affecting Mexico 'smanufacturing.
Although there hasbeenaradical change inMexico 'sapproach toindustrial policy since the
mid-1980s andthepromotion ofinward-looking manufacturing haslargely beenabandoned, echoes
oftheprevious import-substitution strategy stilllinger insomeindustrial policies. Themostconspicuous
caseisthespecial regime forthemotor vehicle andpartsindustry, which hasbecome amajor export
activity, competing frombehind aheavily protected domestic market. More recently, industry-specific
schemes haveemerged fortextiles, clothing andfootwear; increases intariffs, albeit conceived as
temporary, andanti-dumping actions inthese areas, appear toruncounter tothedrive towards greater
neutrality ofsectoral protection under theliberalization programme. Inviewofthesharp currency
depreciation since 1994 andsubsequent strong growth inMexican automotive, textiles, clothing and
footwear exports, therationale forintervention in,andpreferred treatment for,theseindustries appears
weak.
Thedegree ofinvolvement oftheMexican State inthesupply ofservices hasdecreased
dramatically during thelastdecade. Mexico hasanumber ofworld-class suppliers, butinefficiencies
haveattimes imposed constraints onother sectors oftheMexican economy; themostserious problems
havemore recently arisen inrelation tofinancial services, although transport andtelecommunications
services havealsobeenareasofconcern. Steps havebeentaken toreduce suchinefficiencies, strengthen
theregulatory framework, andattract foreign investment. TheNAFTA inparticular hasproved a
powerful catalyst forliberalization, boththrough itsformal requirements andbecause ofthecompetitive
pressures ithascreated toincrease overall efficiency intheMexican economy. Mexico hasalso
participated actively intheUruguay Round General Agreement onTrade inServices (GATS) and
subsequent services negotiations, undertaking sector-specific commitments inalargenumber ofareas.
Mexico 'saccession totheOECD isalsohelping topromote further liberalization. Fully extending
pastandfuture liberalization onanMFN basis would ensure thatMexican producers haveaccess to
thelowest costservices, making them more competitive vis-à-vis foreign producers.
Trade Policies andForeign Trading Partners
Mexico provides agenerally positive example ofprogressive liberalization maintained over
anextended period, attimes inthefaceofserious macroeconomic shocks. Itspersistence incarrying
through thisprocess hasbegun topaydividends, andthebases arenowinplace forachieving long-term
sustainable economic growth. Continuing tradeandeconomic liberalization arevitalfactors inachieving
thisgoal; ensuring thattheresulting benefits flowmore visibly toalarger proportion ofthepopulation
would alsobeimportant insecuring continuing support forthereforms.
Mexico 'scurrent focus onnegotiated liberalization inaregional context iscrystallizing into
anextended network ofregional arrangements. Thisstrategy reflects theGovernment 'sviewthatthe
multilateral system presently affords fewer opportunities foradvancing liberalization atthepaceand
withthedepth thatMexico would like.However, thebenefits ofMexico 'sregional strategy, including
greater market access based onreciprocity, andtheenhanced trade andinvestment security implicit
inlocking-in itsreforms, havetobeweighed carefully against potential costs. These include possible
problems created byagrowing number ofarrangements aswellasapossible perceived needtoforgo
unilateral, efficiency-enhancing liberalization topreserve trade andinvestment barriers asbargaining
elements fornegotiations.
Given theimportance ofeconomic relations withtheUnited States, NAFTA hasbecome the
cornerstone ofMexico ’stradeandinvestment policies. Mexico isalsoactively forging newtradelinks
through itsregional agreements within theAmericas, withtheEU,andalsowithin APEC. Inthis
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light, there isscope forMexico tobring together itsregional andmultilateral efforts, forexample,
bybinding itsregional commitments externally under theWTO; thiswould alsoconfirm internationally
themajor shiftthatMexico hasmade, overseveral years, away fromitsearlier protectionist policies.
Such actions would beinlinewiththe political responsibilities ensuing from Mexico 'salready
significant andgrowing roleinworld trade. ForMexico, suchactive participation inavigorous
multilateral trading system would represent acredible counterpoint toanotherwise dominant regional
relationship, andthesoundest waytocreate stronger linksoutside theWestern Hemisphere. However,
thiswould alsorequire apositive response from thetrading community asawhole, through a
demonstrated interest incarrying forward multilateral liberalization.
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TRADE POLICY REVIEW BODY
MEXICO
Report bytheGovernment
Introduction
Theintensification ofstructural change, andinparticular theopening upoftrade, hasbeen
adefining feature ofMexico 'seconomic policy overthepastfouryears. Thishasbeencarried out
bothunilaterally andthrough regional andmultilateral negotiations, inkeeping withthecommitments
entered intointheWorld Trade Organization (WTO). Anoteworthy aspect ofthisopenness inrecent
years isthatithascontinued despite theeconomic crisis oflate1994.
Thefollowing presentation isdivided intofoursections. Thefirstdeals withtheeconomic
context ofliberalization. Thesecond describes some ofthemore important trade policy measures,
while thethirddealswithMexico 'stradenegotiation agenda atregional level. Thefinalsection contains
conclusions.
I. The1994 Crisis andRenewed Economic Growth
ForMexico, theentry intoforce oftheUruguay Round commitments in1995coincided with
theworst economic crisis inthecountry 'srecent history. Thesudden interruption offoreign capital
flows toMexico inlate1994ledtoasharp devaluation ofthepesoandimposed theneedforasevere
adjustment programme. Despite thecrisis, theGovernment didnotadopt protectionist measures, as
hadoccurred inthe1982crisis. Infact,itevenproceeded tointensify theeconomic reforms undertaken
inrecent years, particularly withrespect totheliberalization oftradeandinvestment, while atthesame
timepursuing afar-reaching agenda ofinternational trade negotiations.
Bymaintaining andpushing onwithreforms, particularly inthetradearea,Mexico laidthefoundations
forrenewed economic growth afteronly20months, whereas ithadtaken several years toovercome
the1982 crisis.
During 1995, economic activity shrank verysignificantly, witha6.9percentdecline inthe
value ofGDP compared withgrowth of2.0percentand4.4percentin1993and1994 respectively.
Nevertheless, theeconomy turned around andgrew by5.1percentin1996, andisforecast toexpand
atabout 5percentannually untiltheyear2000.
Over thelasttwoyears, exports havemade afundamental contribution toGDP growth, and
today account forabout aquarter oftheproduct. Between 1993and1996, theaverage annual growth
rateoftotalexports was20percent, andin1995 alone theyincreased by30.6percent. In1996,
thevalue ofMexican exports totalled 96billion dollars.
Manufacturing exports grew atanaverage annual rateof22.7 percentovertheperiod
1993-1996, reaching 80.3billion dollars in1996. Astriking feature hasbeenthe27.0percentannual
average growth rateofmanufacturing exports excluding themaquiladora (in-bond processing) sector
during thisperiod, foravalue of43.4billion dollars in1996.
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Along withrenewed economic growth, inflation hasfollowed adownward trend sincethe1994
crisis. Inflation climbed from7.1percentin1994to52percentin1995, butin1996 almost halved
to27.7 percent while theeconomy picked upstrongly. This trend iscontinuing, and
June1996-June 1997 inflation stood at20.4percent. Therateforthisyearisexpected tobe15per
cent, withacontinuing downward trend forsubsequent years.
Theweakness ofeconomic activity in1995 wasreflected inthelabour market. Theopen
unemployment raterosefrom3.9percentinNovember 1994to7.6percentinAugust 1996, thehighest
levelsince thecrisis. Ithassteadily declined since then, reaching 3.4percentinJune1997, alevel
comparable tothatbefore thecrisis.
Lastly, Mexico 'seconomic crises overthelast20years havebeencharacterized byalowlevel
ofdomestic saving andhighdependence onexternal saving. Themeasures setinplace between 1995
and1996toboost domestic saving succeeded inraising itconsiderably, from15.0percentto20.4per
centofGDP. Atthesame timeother measures havebeenintroduced tobolster private saving inthe
coming years, suchasanewpension system, thepromotion ofpopular saving andataxpolicy aimed
atencouraging saving andinvestment. Thegoalistomake domestic saving themainsource offinancing
foreconomic growth, onlysupplemented byexternal saving.
II. Unilateral Liberalization
Onjoining theGeneral Agreement onTariffs andTrade (GATT) in1986, Mexico began to
speed upthestructural change andunilateral liberalization launched three years earlier. Opening up
theeconomy hasincreased itsefficiency andenabled Mexico tocompete more aggressively onworld
markets, withtheensuing impact oneconomic growth, exports andjobcreation. Italsolaidthe
foundations fornegotiating free-trade agreements (seesection III)andforMexico 'sparticipation in
theUruguay Round ofmultilateral negotiations. Some ofthemeasures taken byMexico overthelast
fouryears aredescribed below.
(1) Tariffs andnon-tariff barriers
Between 1993and1997, Mexico unilaterally eliminated most-favoured-nation tariffs onover
1,200 products; thenumber ofduty-free products increased from414in1993to1,658 in1997. This
tariffelimination primarily concerned inputs andmachinery usedintheagricultural, chemical, electrical,
electronic, textile andpublishing sectors.
Although thesimple average tariff hasremained atabout 13percentoverthelastfouryears,
theweighted average tariff1hasfallen significantly, down from 7.8percentin1993 to2.9percent
in1996 and2.7percentin1997.
Inconnection withtheelimination ofpriorimport licences, itissignificant thattheyhavebeen
replaced bytariffs for67agricultural products, inaccordance withtheUruguay Round tariffication
commitment. Mexico hasalsoestablished tariff quotas toensure entry ofspecific quantities of
agricultural products totheMexican market.
1Calculated onthebasis ofthetariff rateapplicable atthetimeofimportation.
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(2) Investment
Inorder toattract ahigher inflow offoreign capital, inDecember 1993theGovernment issued
theForeign Investment Law, subsequently amended inDecember 1996. ThisLaw, together withthe
North American FreeTrade Agreement, intensified thepolicy shiftonforeign direct investment towards
greater liberalization.
Over thelastfouryears theforeign investment regime hasbeenliberalized insectors thatare
fundamental forthecountry 'sdevelopment, suchasports, telecommunications, airtransport, natural
gasstorage, transportation anddistribution, railways, financial services andairports. Asaconsequence,
Mexico hasbecome oneofthemost opencountries intheworld forcompetition byforeign service
suppliers.
Inaddition, Mexico hasincluded disciplines oninvestment inthevarious freetradeagreements
ithassigned, thusproviding investors withgreater legal certainty. Sofar,reciprocal investment
promotion andprotection agreements (APPRI) havebeenconcluded withSpain (1995), Switzerland
(1995) andArgentina (1996), andsimilar onesarebeing negotiated withtheNetherlands, Germany,
France, theUnited Kingdom, ItalyandAustria.
Mexico hasalsobeen anactive participant invarious international forums dealing with
investment, suchastheWTO, theOrganization forEconomic Cooperation andDevelopment (OECD),
inwhichtheMultilateralInvestmentAgreement(MIA)isbeingnegotiated,andtheAsia-PacificEconomic
Cooperation mechanism (APEC).
Asaresult interaliaoftheliberalization ofitsforeign investment regime, Mexico received
31.5billion dollars inforeign direct investment from1994to1996, andwasthesecond biggest recipient
among developing countries, afterChina. For1997itexpects toreceive atleastafurther 8,750 million
dollars.
(3) Customs procedures
Customs procedures havebeenprogressively simplified andautomated overthelastfouryears,
making customs operations more streamlined andefficient. These changes arereflected inthenew
Customs Lawthatcame intoforce in1996.
Fourofthechanges made areparticularly important. Firstly, goods cannowbeloaded and
unloaded inseaport customs offices infacilities runbytheprivate sector. Secondly, togiveusers
greater legal security, consultations concerning tariff classification canbemade inadvance andthe
responsibilitiesofcustomsagentsandimportersinforeigntradeoperationshavebeendelimited.Thirdly,
unnecessary redtapehasbeeneliminated toallow inland customs todealprimarily withtheclearance
ofintermediate andcapital goods, andtoenable eventual exporters tousebankaccount deposits for
import taxes; inaddition, regulations wereestablished forvirtual exportation ofgoods. Finally, in
accordance withinternational commitments thecomputed value method wasintroduced asthedutiable
basis forimports inaccordance withtheWTO Customs Valuation Code.
(4) Standards
Standards inMexico aremandatory orvoluntary. Mandatory standards aretermed Mexican
OfficialStandards(NOM)andareaimedatestablishingspecificationsforgoodsandservicesorprocesses
inorder toguarantee safety, protection ofhuman, animal orplant lifeorhealth ortheenvironment,
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andprevention ofmisleading orfraudulent practices. Voluntary standards, known asMexican standards
(NMX), areusedasguides forconsumers andproducers andalsoasmeans ofguaranteeing quality.
ThelegalbasisoftheMexican standardization andconformity assessment system istheFederal
Metrology andStandardization Law. Aconsiderable amount ofwork hasbeencarried outonthe
elaboration ofstandards sincetheLawentered intoforcein1992. Inorder toadjust thelegalframework
tonewinternational circumstances, theLawwasamended on20May1997: thechiefrevisions focus
onthefollowing aspects.
Firstly, private sector participation hasbeenencouraged intheelaboration, certification and
verification ofstandards, andgreater transparency hasbeensought inthese activities. Secondly, the
process ofelaboration ofstandards hasbeenderegulated, andinparticular cost-benefit analysis has
beenreplaced bytherequirement ofdemonstration ofregulatory impact. Thirdly, procedures for
verification ofcompliance withMexican Official Standards havebeensimplified, thusstrengthening
theinspection andchecking processes, andfairer parameters havebeenestablished forimposition of
penalties. Finally, another objective hasbeentoobtain recognition abroad ofMexico 'stechnical
infrastructure (testing andcalibration laboratories, accreditation andcertification bodies etc.)aswell
asrecognition inMexico ofsuchinfrastructure inothercountries: thisprovides thebasisforconcluding
mutual recognition agreements.
(5) Competition policy
Promotion ofeconomic competition hasunderpinned thetradeliberalization process inMexico
overthelastfouryears. TheFederal Economic Competition Lawthatcame intoforcein1993isaimed
atprotecting economic competition andunrestricted participation inmarkets byprohibiting monopolies,
anti-competitive practices andother restrictions thataffect theefficient operation ofmarkets forgoods
andservices. TheLawestablished theFederal Competition Commission astheindependent body
responsibleforitsimplementation.Besidesinvestigatingtheexistenceofprohibitedmonopolies,practices
andconcentrations, theCommission cangiveitsopinion onprogrammes, lawsandregulations that
mayhaveanimpact oneconomic competition.
Implementation ofaneffective competition policy hasbeenfundamental inorder toensure
thatpossible market concentration insome sectors oftheMexican economy doesnotimpair economic
efficiency.
Competition policy isamajor instrument fortheMexican Government tomaintain freeaccess
tointernational markets. Thus, Mexico hassought toimprove communication withthecompetition
authorities ofourmaintrading partners tocombat monopolistic practices generated abroad. Ourcountry
alsoparticipates actively ininternational forums working inthisareaandmaintains active contacts
withitscounterparts abroad.
IntheWTO Working Group onTrade andCompetition Policy, Mexico hasproposed a
comprehensive approach thatanalyses therelationship between allcompetition measures andtrade.
Inparticular, ourcountry isconcerned thatthebenefits oftheliberalization achieved sofarshould
notberestricted bytheuseofanti-dumping measures forprotectionist purposes.
(6) Intellectual property
Aspartofthedrive towards trade liberalization inrecent years, Mexico hasmodernized its
systemofprotectionofintellectualpropertyrightsinordertoincreasesubstantiallythelevelofprotection
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ofsuchrights. Thishasbeenachieved bychanges intheregulatory framework andbystrengthening
theinstitutions responsible forenforcing these rights.
TheIndustrial Property Promotion andProtection Law, considered oneofthemostadvanced
intheworld, wasenacted in1991. Itwasupdated in1994 andretitled theIndustrial Property Law.
Inaddition, anewCopyright Lawwasenacted inDecember 1996, replacing thelawof1984. With
respect tothebodies responsible forenforcing intellectual property rights, twonewindependent
institutions weresetup:theMexican Industrial Property Institute in1993, andtheNational Copyright
Institute in1997.
Pursuant totheWTO provisions, theabove-mentioned lawsinclude more efficient procedures
forensuring compliance andalsoincrease penalties inthecaseoftrademark forgery andcopyright
piracy. Aspecific lawconcerning plant varieties wasenacted inOctober 1996.
Finally, despite having atransition period totheyear2000toimplement itscommitments under
theWTO Agreement onTrade-Related Aspects ofIntellectual Property Rights, Mexico hasalready
made large strides inthisregard.
(7) Deregulation
Since 1989, oneofthemainaspects ofstructural reform inMexico hasbeentheimprovement
oftheregulatory framework governing economic activity. Forthispurpose, various legalprovisions
relating todifferent economic sectors havebeenupdated andsimplified. Thesectors concerned include
tourism, railways, airtransport, ports, landtransport, petrochemicals, electricity, telecommunications,
satellites, customs, foreign exchange, water supply, financial institutions, mining andfishing. Asa
consequence, theefficiency oftheMexican economy hasincreased significantly.
Furthermore,asfromNovember1995theFederalGovernmentbegantoimplementtheBusiness
Activity Deregulation Agreement, which isaprogramme forimproving administrative procedures and
cutting down onredtapeaffecting theestablishment andoperation ofbusinesses. Theprogramme
iscoordinated bytheMinistry ofTrade andIndustrial Development (SECOFI) withthecollaboration
oftheEconomic Deregulation Council (consisting ofrepresentatives ofthepublic sector, industry,
labour andtheacademic community). Itspurpose istoreview alltheformalities required forsetting
upandoperating businesses, aswellastherelevant legislation, inorder toreduce theadministrative
burden oncompanies. Thecountry 'sStategovernments havealladopted asimilar approach attheir
level.
(8) Implementation oftheresults oftheUruguay Round
Themeasures described above areinkeeping withMexico 'scommitments under theUruguay
Round.
Inaccordance withtheMexican Constitution, international treaties signed bythePresident
andratified bytheSenate, which isthecaseoftheUruguay Round Agreements, havethestatus of
supreme lawandtherefore donotrequire anyfurther legislative actfortheirapplication. Thechanges
andreforms introduced inMexican legislation havebeenprompted bytheneedtoharmonize domestic
trade rules withtheinternational rules soastofacilitate theirapplication.
Mexico considers implementation oftheUruguay Round commitments anddisciplines byall
WTO Members tobefundamental forstrengthening themultilateral trading system. Mexico hasfully
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complied withallthese commitments, including thenotification ones. With respect toservices, itis
important tostress thatMexico 'sinitial commitments under theGeneral Agreement onTrade inServices
(GATS) cover 68sectors and329activities, which bears witness toMexico 'sdesire tocontribute to
opening upthissector onamost-favoured-nation basis. Ourcountry hasalsoplayed anactive part
intheworking groups onservices thatarose outoftheUruguay Round: financial services, standards,
professional services andbasic telecommunications. Inthislastsector, Mexico granted considerable
liberalization asaresult ofthenegotiations concluded lastFebruary.
MexicohasparticipatedandwillcontinuetoparticipateactivelyinallWTOforumsandinitiatives
formultilateral liberalization, including thenewdispute settlement mechanism when itsinterests are
affected.
III. Regional Agreements
Freetradeagreements areafundamental component ofMexico 'strade policy inrecent years.
TheybegantobenegotiatedbeforetheconclusionoftheUruguayRoundinordertoenhancetheMexican
economy 'scompetitiveness andopenupnewexport markets.
Mexico hassigned thefollowing freetradeagreements: Economic Complementarity Agreement
withChile (1992); North American FreeTrade Agreement withtheUnited States andCanada (1994);
Group ofThree FreeTrade Agreement withColombia andVenezuela (1995); andfreetradeagreements
withBolivia andCosta Rica(1995).
Theagreements include disciplines andcommitments inthefollowing areas: trade ingoods,
including agriculture; technical barriers totrade; government procurement; investment; trade in
services; intellectual property; andinstitutional provisions, including dispute settlement.
Thedisciplines andtypes ofcommitment inthedifferent agreements aremutually compatible.
Thissimplifies theirapplication byavoiding aheavy administrative burden fortheauthorities andfor
theprivate sector engaged intrade andinvestment activities under theagreements. Inaddition, they
enable theprivate sector tohaveareliable medium andlong-term planning horizon.
TheNorth American FreeTrade Agreement isveryimportant forMexico, notonlyowing
totheparticipation ofitsbiggest trading partner andasthemostcomprehensive agreement negotiated
sofar,butalsobecause itgenerated anincentive andinterest among othertrading partners fornegotiating
similar agreements. Mexico hascontinued totrytobroaden anddiversify itsmarkets, particularly
withcountries oftheAmerican continent andtheEuropean Union.
OntheAmerican continent, Mexico isnegotiating afreetrade agreement withGuatemala,
Honduras andElSalvador. Bilateral negotiations arealsounder wayforother agreements with
Nicaragua, Panama, Ecuador andPeru, aswellasforexpanding theagreement withChile. Inaddition,
negotiations arecontinuing withMercosur (Argentina, Brazil, Paraguay andUruguay) foratransitional
agreement toreplace theexisting agreements under theLatin American Integration Association (LAIA),
which willthenserve asabasis forbroader negotiations. Finally, together with33other countries
Mexico isparticipating innegotiations fortheprogressive elimination oftradeandinvestment barriers
andcreation ofaFreeTrade AreaoftheAmericas; these negotiations aretobecompleted by2005.
Likewise, Mexico completed thefirststage ofnegotiation ofanewbilateral agreement with
theEuropean Union. Thetextsofanagreement oneconomic association, political concertation and
cooperation, aninterim agreement andajointdeclaration wereconcluded inJuly1997. Asfarastrade
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isconcerned, theparties haveundertaken tobegin negotiations toachieve bilateral andpreferential,
progressive andreciprocal liberalization oftradeingoods andservices, including payments andcapital
movements andgovernment procurement, aswellastheestablishment ofdisciplines concerning
competition, intellectual property anddispute settlement. Thetrade liberalization negotiations are
expected tobegin inearly 1998.
Inaddition, Mexico hassigned other kinds ofcooperation agreements relating totrade and
investment withvarious countries, including theRepublic ofKorea, Australia andNewZealand, and
hassetupadhocgroups, committees andbinational commissions toadminister traderelations. Mexico
alsoparticipates inother regional initiatives suchasAPEC, which hassetthegoalofachieving afree
trade andinvestment regime bytheyear2020.
Theregional agreements towhich Mexico belongs establish important precedents insome areas
thatcould beincluded infuture multilateral negotiations. Theregional agreements havegenerated
incentives forgreater regional andmultilateral liberalization. Accordingly, together withother WTO
Members Mexico favours theholding ofanewround ofnegotiations forindustrial goods, inaddition
tothenegotiations scheduled inother areas suchasservices andagriculture. Mexico willcontinue
tonegotiate regional trade agreements insofarastheygobeyond multilateral liberalization.
Mexico 'sinternational trade negotiations havefundamentally strengthened itstrade policy.
Conclusions
Since itsaccession totheGATT in1986, Mexico hasbeenoneofthecountries where thepace
ofliberalization hasbeenswiftest. Thisliberalization wasnotchecked bythe1994 economic crisis;
onthecontrary, itwaspursued andintensified, which played animportant partintherapid recovery
ofeconomic growth.
Mexico hasimplemented important measures ofstructural change andliberalization inrecent
years, withthefundamental goalofenhancing itseconomic competitiveness. These measures concern
inparticular tariffs, non-tariff barriers, investment, customs procedures, standards, competition policy,
intellectual property andeconomic deregulation, andtheyarecompatible with Mexico 'sWTO
commitments.
These unilateral measures havebeenaccompanied byanambitious policy ofinternational trade
negotiations. Thatisprecisely whatthefreetrade agreements haveachieved: greater openness and
greater access tointernational markets. Mexico willcontinue toseekagreements ofthiskindasa
complement tomultilateral liberalization under theWTO.
END