WT/TPR/S/97 Trade Policy Review
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IV. TRADE POLICIES BY SECTOR
(1) OVERVIEW
1. The progressive opening to foreign competition of the Mexican market has continued to place
strong pressure for change on all economic sectors, and has brought about considerable improvements
in numerous areas.  In the agriculture sector, while most activities have modernized and have
benefited from increased access to foreign markets, notably in the United States, others remain smallscaled and mainly oriented to self consumption.  Largely to increase the participation of the private
sector in the commercialization of agricultural products, Mexico has introduced important
institutional changes since 1997, including the el imination of CONASUPO.  Mexico maintains
various programmes designed to provide direct income support to farmers and to promote their
productivity and competitiveness.  Indicators of assistance to the agricultural sector have increasedsubstantially since 1997, mainly as a result of depressed international prices.  As noted in Chapter III,
Mexico applies tariff quotas to several agricultural products, with most quotas reserved for specific
countries, as indicated in its WTO Schedule of Commitments.
2. The energy sector remains largely under state control, as constitutional provisions restrict
private participation in strategic areas such as the exploitation of hydrocarbons and the supply ofelectricity to the public.  The capital-intensive nature of petroleum and electricity projects means that
these two industries draw close to 57% of public sector investment.  In view of Mexico's fiscal
constraints (see Chapter I) and to meet the investment requirements imposed by its growing energy
demand, the Government is seeking ways to increase private participation in energy while retaining its
control of existing state-owned companies in the sector.
3. The manufacturing sector has confirmed its crucial role as a key catalyst for economic
growth.  The sector is well diversified and includes several world-class industries;  its expansion hasbeen closely tied to its ability to compete in fore ign markets.  The sector has also benefited, however,
from strong government support through special trade and investment regimes.  The close
interlocking of the Mexican manufacturing sector with production chains in the United States has
brought about considerable benefits;  however it has also exposed the sector to U.S. cyclical
downturns, as evidenced by the significant contraction of manufacturing activity since late 2000.
4. In the services sector, important changes have been made to the legal and institutional
framework, often secured or otherwise linked to Mexico's multilateral and preferential liberalization
initiatives.  The degree of State involvement in the sector has continued to decrease in recent years
although, as noted, not in the electricity sector.  Increased competition and growing foreign
participation have gone hand-in-hand with major adjustments to the market structure of key activities,notably financial and telecommunications services.  However, competition policy concerns have
arisen in recent years in the telecommunications market, and in domestic transport, which remains
largely closed to foreign participation.
(2) A
GRICULTURE
(i) Main features
5. Agriculture is an important sector for the Mexican economy in terms of employment, but less
so in relation to value added or trade, both of which have been declining with respect to other sectors.
Between 1997 and 2000, the agriculture sector (including forestry and fishing activities) grew at a real
annual average rate of 2.4%, compared with an average growth rate for total GDP of 5.2%.  As a
result, the share of agriculture in total GDP fell from 6.5% in 1996 to 5.6% in 2000.  The contribution
of forestry to agricultural GDP remained minor but increased slightly, from 4.1% in 1996 to 4.4%Mexico WT/TPR/S/97
Page 83
in 2000, while that of fishing activities fell from 3.2% to 2.7%.1  Over the same period, employment
in the sector contracted from 22.5% of total employment to close to 18%, mainly as a result of rural
migration and the increase of non-agricultural activities in the rural communities.
6. Mexico's geography favours the production of a wide variety of agricultural products, ranging
from temperate to tropical crops.  In 2001, the value of agricultural output amounted to some
Mex$272 billion;  grains and oilseed production accounted for around 17% of the total, followed byfruit (10%) and vegetables (10%).  Maize (princ ipally for human consumption) remains the main
agricultural commodity in terms of value (10.3% of  the total), followed by sugar cane, alfalfa, and
tomatoes.  Livestock products account for some 51% of the total value of agricultural output:  bovine,
poultry, and swine meat are the major livestock products, followed by dairy products.  Large
differences in production conditions persist within the agriculture sector:  on the one hand, a largenumber of farmers work small plots of rain-fed land for subsistence;  on the other, there is a modern
sector, with large, plots, producing for the domestic and international markets.
7. Mexico exported agricultural products (WTO definition) with a value of US$9.1 billion
in 2000.  Main export products include fresh vegetables, fresh fruit and coffee;  prepared food and
beverages, notably beer, tequila, and tinned products are also important exports.  Mexico is a netimporter of agricultural products;  the total value of imports of these pro ducts reached US$11.6 billion
in 2000.  Major agricultural imports include fresh or refrigerated meat, soybeans, corn, oilseeds,
sorghum, cotton, and wheat.
8. FTAs are fostering trade and structural change in Mexican agriculture.  Mexican agricultural
products have benefited from NAFTA integration through new market access opportunities arising
both from tariff reductions and increased disciplines with respect to sanitary and phytosanitary
measures, which have secured market access for products such as fruit and vegetables.  Meanwhile,import growth has been particularly strong for livestock, bovine meat, cotton, maize, sorghum,
soybeans, and soybeans oil.  The volume of Mexican livestock and grain production, though, has
remained generally constant in recent years;  exceptions include relatively large increases in barley,
poultry and dairy output, and a significant fall in  cotton production.  For several products, domestic
production has been growing at a lower rate than consumption, which has led to higher imports:between 1996 and 2001, the ratio of imports to domestic consumption increased significantly for
bovine and swine meat, rice, sesame, sorghum, and wheat.  On the other hand, this ratio fell for beans,
a trend that might be explained by decreasing per capita consumption for this product.  In maize, the
increase in production and imports has been mainly driven by consumption in the livestock sector.
The import-consumption ratio also fell for milk and eggs, the only products for which this occurreddespite an increase in per capita consumption (Table AIV.1 and Table AIV.2).
9. The sugar industry in Mexico has a high social impact, and is defined in the Mexican
legislation as of public interest due, in particular, to the employment it generates in rural areas and the
importance of sugar as a basic consumption product for low income families.  Since Mexico's
previous Review, the sugar industry has come under strong pressure, notably as a result of the debtburden contracted during the privatization process which increased during the 1994 financial crisis;
the production of increasing surpluses, which have resulted in depressed domestic prices;  the
increasing share of domestic production exported at international prices, which affected the
profitability of the sugar mills;  and the increasing use of sugar cane substitutes, mainly high fructose
corn syrup, by the beverage industry.  In January 2002, in a move to try to discourage substitution of
sugar cane by other sweeteners, Mexico established an excise tax of 20% on soft drinks that are not
sweetened with sugar cane (Law published in the Official Journal on 1 January 2002).
                                                     
1 These shares are based on real GDP (at 1993 prices) and thus differ slightly from the shares presented
in Table I.1, which are based on nominal GDP.WT/TPR/S/97 Trade Policy Review
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10. These adverse circumstances have led several sugar mills into serious financial problems,
notwithstanding substantial support, notably through loans and border protection.  FINA, the
government-controlled bank for the sugar indus try held a debt of some Mex$16.1 billion (some
US$1.7 billion) at the time of its liquidation in September 2000.  Border protection has helped
maintain domestic sugar prices well above their international levels – over 200% higher – at a
considerable cost to domestic consumers.2  In September 2001, the Mexican Governmentexpropriated 27 sugar mills in an effort to address their financial problems, and to allow an efficient
functioning of the industry.  The Department of Ag riculture took charge of the administration of the
expropriated mills, which account for half of Mexican sugar production.  A state trust was created inDecember 2001 to run the mills, with a view to reprivatization.
3
11. Preferential trade in sugar between Mexico and the United States has been the subject of a
dispute between the partners.  For Mexico, the arrangement should allow the export of its total net
surplus of sugar production to the United States from October 2000, which given the higher prices for
sugar in the United States compared with condi tions in the international market, might result in
substantial profits for Mexican exporters.  For fiscal year 2001, the sugar quota allocated to Mexico
on the basis of its historical trade with the United States amounted to 7,258 tonnes of raw sugar
(which accounted for 0.6% of the total allocated on this basis);  in addition, Mexico was granted2,954 tonnes of refined sugar, and 105,788 tonnes of raw sugar on the basis of bilateral agreements.
4
(ii) Policy objectives and instruments
12. Since Mexico's previous Review in 1997, important changes have been introduced to increase
the participation of the private sector in the commercialization of agricultural products and strengthen
the links between the productive sector and market signals.  The major change was the elimination of
the state entity, Compañía Nacional de Subsis tencias Populares (CONASUPO) in 1999, which
resulted in the redistribution of its exclusive rights on import tariff quotas for powder milk to
consuming and processing firms through a new allocation mechanism (Chapter III(2)(v));  the
elimination of guaranteed prices for maize and beans;  and the transfer of most of CONASUPO's
warehouse network to producers, through the state governments, or to the private sector through
public bids.
13. In January 2002, the new Administration's agricultural objectives for the period 2000-06 were
about to be published.  For the period 1997-01, the agricultural policy pursued the objectives
established in the Agricultural and Rural Development Programme for 1995-2000, which included:  to
raise producers' income and contribute to rural poverty alleviation;  to increase agricultural and
livestock production more rapidly than population growth;  to contribute to food security in basic
foodstuffs;  and to balance agricultural trade.  The main instruments to achieve these objectives
included the following programmes:  PROCAMPO;  the Alliance for Agriculture;  and Marketing
Support and Regional Markets Development (see below).
(a) Instruments directly affecting trade
14. Agricultural products benefit, on average, from higher MFN tariff protection than non-
agricultural products (respectively 24.9% and 15.6% as at May 2001).5  Tariff protection for non-
MFN originating goods is, however, relatively low (e.g. 4.9% for imports from the United States);
moreover, such protection is being reduced progressively as provided for in Mexico's preferential
trade liberalization schemes.  In the case of NAFTA , tariffs for most agricultural products should be
                                                     
2 In may 2001, the average domestic producer price for standard sugar was some US$0.195 per pound
(Mex$197 per 50 kg.) while the international price was US$0.0895 per pound (Caribbean price, New York).
3 Decree published in the Official Journal  on 3 September 2001.
4 USTR (2000).
5 Based on the WTO definition of agricultural products.Mexico WT/TPR/S/97
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eliminated in 2003, except for maize, dry beans, milk, and sugar for which tariffs should be
eliminated in 2008.
15. In its WTO Schedule of Concessions Mexico included tariff quotas for several agricultural
products, including poultry meat, animal fats, milk, cheese, beans, potatoes, coffee, wheat,
barley, maize, and products with a high sugar content.  Mexico also maintains certain tariff quotas for
imports from all preferential partners except from Bolivia, EFTA countries, and El Salvador(Chapter III(2)(v)).
16. In some cases tariff quotas have proved to be too limiting, and the Mexican authorities have
allowed imports in excess of the quota at the in-quota rate to avoid a negative impact on expanding
food-related industries and to meet other consumer demands;  this was the case for barley, maize, and
poultry meat, of which extra imports at the in-quota rate were authorized in order to supply the needsof the beer, maize's chemical derivates, and foodstuff industries.
6
17. Between 1994 and 1999, as a proportion of domestic production, in-quota imports from
NAFTA partners, which as noted account for almost all in-quota imports, remained on average below
5% for milk, eggs, and potatoes;  the highest ratio corresponded to barley, maize, and poultry
(Table IV.1).
Table IV.1
Ratio of NAFTA tariff quota imports to domestic production, 1988-99(percentage)
Product Average 1988-1993 Average 1994-1999
Poultry 11.01 17.14
Milk 6.92 4.30
Eggs 0.65 0.58
Potatoes 1.32 2.40
Barley 28.12 60.79
Maize 16.00 22.33
Beans 7.17 8.31
Source: Department of Economy (2000).  El TLCAN en el sector agroalimentario mexicano a seis años de su entrada en vigor ,
[online].  Available at:  http://www.economia-snci.gob.mx/ [22 October 2001].
18. The importation of several agricultural commodities is subject to the "special safeguard"
clause available under the WTO Agreement on Agriculture;  however, Mexico has not invoked thisprovision to date.
19. Specific safeguard provisions for a few agricultural products are also contained in Mexico's
free-trade agreements.  In particular the NAFTA provides for a special safeguard mechanism, which
is activated through the publication of a decree in the Official Journal  when imports exceed a given
quantity.  Imports exceeding the quota are subject to the base tariff rate applied in 1994 or the MFN
rate in force, whichever is lower.  This mechanism should expire ten years after the entry into force of
the NAFTA.  In the case of Mexico, 17 tariff items are covered, including products such as live swine,swine meat, potatoes, apples and extracts, and essences or concentrates of coffee,.  Based on
information for the period 1994-99, imports into Mexico exceeded the agreed quotas at least once for
all items covered, except coffee products, thus resulting in the activation of the mechanism.
7  Quotas
are based on average imports for 1989-91, increased by 3% or 5% per year depending of the country
of origin or the product.
                                                     
6 Department of Agriculture, Rural Development, Fisheries and Food (2000).
7 See SAGARPA (2000) for details on Mexico's imports of products covered by NAFTA special
safeguards.WT/TPR/S/97 Trade Policy Review
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20. In relation to sanitary and phytosanitary measures, isolated complaints were raised about
Mexico's practices (Chapter III(2)(ix)).  Some Mexican states have been found to be restricting
competition through unnecessary barriers to out-of-state imports of agricultural products
(Chapter III(4)(i)).8  Mexico also imposed anti-dumping duties on agricultural products
(Chapter III(2)(x)).
21. Export taxes have been used sporadically to discourage exports of subsidized agricultural
products destined for domestic consumers (Chapter III(3)(ii)).
(b) Internal policy instruments
22. The PROCAMPO programme, created in 1994, make s payments to eligible farmers according
to the area planted during a historical base period, on condition that the land continues to be used for
agricultural activities or for an environment pr ogramme.  PROCAMPO, a direct support programme,
aims to increase farmers' income, and favour progressive shifts in production patterns to better reflect
comparative advantages.
23. The number of farmers and the cultivated area benefiting from PROCAMPO's disbursements
remained relatively stable between 1996 and 2001, at some 3 million farmers and 14 million hectares.
The rate of payment per hectare increased from Mex$440 (some US$56) for the 1996 autumn-wintersowing season to Mex$778 (some US$86) for the 2001 autumn-winter sowing season;  as a result,
the total PROCAMPO payments increased from Mex$6.8 billion (some US$866 million) to
Mex$11.7 billion (some US$1.3 billion) (Table IV.2).  However, as noted by the authorities, these
figures remain below their 1994 levels;  payments per hectare in 2000 were, in real terms, some 30%
lower than in 1994.
Table IV.2
Direct payments under the PROCAMPO programme, 1996-01
1996 1997 1998 1999 2000 2001a
Total payments (million pesos) 6,793 7,533 8,492 9,372 10,379 11,752
Rate of payments (pesos per hectare)
Autumn-winter 440 484 556 626 708 778
Spring-summer 484 556 626 708 778 829
Benefiting area (thousand hectares) 14,305 13,885 13,869 13,528 13,571 14,000
Benefiting producers (thousand) 2,987 2,850 2,780 2,724 2,681 2,800
a Provisional figures.
Source:  Poder Ejecutivo Federal, Primer Informe de Gobierno , [online].  Available at:  http://www.presidencia.gob.mx/.
24. The Alliance for Agriculture (Alianza para el Campo) consists of a set of specific measures
primarily aimed at improving farmers' skills and stimulating technological development to increase
the productivity and competitiveness of the agriculture sector.  A key feature of the Alliance is thedecentralization of decision-making from federal to state level through state agricultural councils,
involving state governments and agricultural producers.  The Councils are responsible for the
allocation of federal and state resources to the various programmes available under the Alliance.  The
authorities consider this decentralized approach to decision-making essential for improving the
efficiency of resource-use, given Mexico's large regional differences.  For 2001, the Allianceconsisted of some 24 schemes coordinated at the federal level and 11 schemes defined at the state
level.
                                                     
8 See for instance the CFC case I0-08-99 on barriers to trade in the State of Sinaloa [online].  Available
at:  http://www.cfc.gob.mx/.Mexico WT/TPR/S/97
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25. Between 1996 and 2001, the federal resources en gaged in the Alliance increased at a real
average annual rate of some 11%.  For 2001, the budgeted federal contribution to the Alliance
amounted to Mex$4.7 billion while the states contribution amounted to Mex$1.7 billion.  Most of
these resources were allocated to the Department of Agriculture for programmes in the following
areas:  agriculture and livestock (36.6% of the total);  rural development (44.2%);  and animal and
plant health (6%).  The remaining resources were allocated to the National Water Commission,mainly for the development and modernization of irrigation infrastructure (Table IV.3).  In order to
benefit from Alliance support programmes, producers are required to finance part of the cost of the
project;  in 2001, budgeted producers' contributi on was equivalent to some Mex$4.5 billion (some
70% of the total resources from the federal and state governments).  Some Alliance programmes
under the heading "Rural Development" include training and extension and elementary technicalassistance activities aimed mainly at low income producers.
Table IV.3
Budgetary outlays allocated to the Alliance for Agriculture programme, 1996-01
(Million pesos unless otherwise specified)
Type of programme 1996 1997 1998 1999 2000 2001a
Total outlays 1,880.2 2,918.5 3,512.7 4,513.0 4,737.5 6,449.6
Share by state governments (%) 36 38 32 33 31 27
Department of Agriculture (SAGARPA) 1,880.2 2,669.6 3,010.3 3,959.8 4,117.9 5,802.9
Agriculture and livestock 1,109.3 1,495.6 1,762.7 2,164.4 1,835.0 2,636.8
Irrigation system 959.5 1,175.7 1,509.3 1,693.4 1,341.7 426.6
Mechanization 209.1 245.8 201.0 239.0 217.7 267.5
Kg. per kg. programme 50.2 155.1 187.0 232.7 137.9 227.2
Oilseeds 34.3 49.2 114.6 148.3 88.0 127.8
Transfer of technology 126.5 133.0 150.8 176.7 162.5 339.3
Other agricultural programmes 16.0 59.0 141.1 298.4 180.5 284.6
Prairie programmes 152.5 239.6 187.5 205.4 180.2 178.7
Milk programme 112.3 113.5 111.3 145.1 124.9 134.1
Cattle programme 96.9 145.0 138.7 158.0 176.9 n.a.
Genetical improvement 70.0 80.1 61.6 50.0 59.6 292.8
Beekeeping programme 0.7 13.3 21.4 19.4 22.3 27.8
Other livestock programmes 17.6 19.2 47.7 84.2 89.2 155.3
Information programme 4.5 22.4 22.5 26.6 29.0 48.9
Other programmes 20.0 20.0 11.0 74.0 82.2 126.2
Rural development 488.7 805.7 970.8 1,451.1 1,911.9 2,648.5
Support for rural development 238.1 360.3 383.8 591.0 659.8 948.4
Training 91.5 240.8 279.5 360.6 360.2 444.0
Coffee programme 135.2 128.7 199.3 200.1 265.7 338.0
Development in rural areas n.a. 41.5 56.1 140.2 171.5 335.6
Rubber programme 15.3 21.1 20.1 20.6 26.5 59.2
Cocoa programme 7.3 5.8 9.2 12.4 20.9 52.3
Marketing training n.a. n.a. n.a. 91.0 168.0 218.9
Other programmes 1.2 7.3 22.7 35.2 239.2 252.1
Sanitary programmes 155.8 235.3 276.9 344.2 370.9 517.5
National Water Commission (CAN) n.a. 249.0 502.4 553.2 619.7 646.7
n.a. Not applicable.
a Preliminary figures.Source : Poder Ejecutivo Federal (2001).WT/TPR/S/97 Trade Policy Review
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26. The marketing of agricultural products is supported through the Programme of Marketing
Support and Regional Markets Development run by  ASERCA (Support Services for Agricultural
Marketing), which is also responsible for th e implementation of the PROCAMPO programme.
ASERCA does not itself purchase agricultural commodities.   Between 1995 and 2000, marketing
support was granted to specific regions and products;  major products covered included maize, rice,
sorghum, and wheat.  The amount of support was estimated on the basis of a target price;  resourceswere channelled to producers indirectly through support granted to the buyers who requested the
lowest amount of support per tonne.  This scheme was changed in 2001:  currently support is granted
directly to the producers without intervention of the buyers, and the range of eligible products and
regions has been extended (it now also includes barley, canola, copra, peanuts and safflower),
transactions are made at market prices rather than on the basis of a target price;  and a fixed budgetis granted to each State for this programme.  The total outlays under ASERCA's programmes
increased from Mex$491 million (US$64.6 million) in 1996 to Mex$3,5 million (US$376.8 million)
in 2001.  This increase is essentially due to the significant fall in the price of many agricultural
products since 1996 (Table IV.4).
Table IV.4
Marketing support programme, 1996-00
('000 pesos and tonnes)
Product 1996 1997 1998 1999 2000 2001a
Total outlays pesos 490,843 2,035,217 1,930,620 1,573,619 2,928,509 3,544,142
Rice tonnes 254 290 349 281 276 300
pesos 18,812 25,452 50,904 42,224 69,087 76,407
Wheatbtonnes n.a. 2,355 2,780 2,820 1,782 2,740
pesos 17,508 707,298 844,563 831,059 766,510 966,149
Sorghum tonnes 1,234 2,376 1,652 1,435 699 1,628
pesos 358,437 366,787 264,668 200,917 123,366 391,740
Maize tonnes 238 3,069 1,750 1,377 2,885 3,792
pesos 64,098 935,680 770,485 368,133 825,241 1,402,278
Soya tonnes n.a. n.a. n.a. n.a. n.a. 132
pesos n.a. n.a. n.a. n.a. n.a. 56,201
Safflower tonnes n.a. n.a. n.a. n.a. n.a. 120
pesos n.a. n.a. n.a. n.a. n.a. 47,983
Cotton tonnes 60 n.a. n.a. 146 n.a. 17
pesos 31,988 n.a. n.a. 131,286 n.a. 10,216
Peanutsctonnes n.a. n.a. n.a. n.a. n.a. 26
pesos n.a. n.a. n.a. n.a. n.a. 8,000
Barleyctonnes n.a. n.a. n.a. n.a. n.a. 11
pesos n.a. n.a. n.a. n.a. n.a. 2,291
Canolachectares n.a. n.a. n.a. n.a. n.a. 2
pesos n.a. n.a. n.a. n.a. n.a. 1,200
Coprachectares n.a. n.a. n.a. n.a. n.a. 20
pesos n.a. n.a. n.a. n.a. n.a. 15,000
tonnes n.a. n.a. n.a. n.a. 3,116 2,595 Development of regional
marketspesos n.a. n.a. n.a. n.a. 1,144,305 566,677
n.a. Not applicable.
a Preliminary figures.
b Support for wheat was suspended for 1996, payments included in the table correspond to payments due from the previous year.c Programme started in 2001.
Source: Poder Ejecutivo Federal, Primer Informe de Gobierno , [online].  Available at:  http://www.presidencia.gob.mx/.Mexico WT/TPR/S/97
Page 89
27. Although the agriculture sector is serviced by various development banks and trusts funds,
notably BANRURAL and the Trust Fund for Agricu lture (FIRA), the authorities indicated that
Mexican producers face serious credit-access difficulties;  credit granted to the sector has decreased
significantly in recent years.  Between December 1996 and May 2001, the total credit granted by
commercial banks decreased from the equivalent of US$6.3 billion to US$3.3 billion, while credit
from development banks fell from some US$2.4 billion to US$1.7 billion.9  
28. Specialized insurance services for the agriculture sector are provided by AGROASEMEX at
government subsidized rates;  coverage is offered mainly for meteorological risks.  Due to the high
administrative costs of AGROASEMEX operations and the high levels of claims, it was shifting its
operations to second-tier activities.  Before 2001, the subsidy of the cost of insurance premiums by
other companies was 30%.  In 2001, in order to enhance the use of insurance, the subsidy wasmodified to a range between 25% and 45%, depending on the product and the region.  The total area
covered by insurance has increased steadily since 1996, reaching 2.1 million of hectares in 2001.
 10
(iii) Indicators of assistance to agriculture
29. The total producer subsidy equivalent (PSE) esti mated by the OECD indicates that the value
of transfers to Mexican farmers associated with agricultural policies reached some US$6.1 billionin 2000, or 18% of the value of agricultural production, which is substantially higher than its 1996
level (some US$1.9 billion or 13% of the value of production).  In 2000, the total support estimate
(TSE), which includes transfers from consumers and taxpayers and net tax revenues, amounted to
US$7.5 billion in 2000, which represented 1.3% of GDP (Table IV.5).  The increase of the PSE
observed between 1999 and 2000 was mainly due to a significant increase of price support, from some
9.2% of the total value of agricultural output in 1999 to some 13.6% in 2000.  This increase was
mainly explained by the sharp decrease of international prices observed between 1996 and 2000, andthe subsequent increase in marketing support outlays (Table IV.4).
30. According to the authorities, federal public expenditures for the agriculture sector reached
Mex$24.7 billion pesos (some US$2.6 billion) in 2000;  PROCAMPO accounted for 42% of total
expenditures, the Alliance for Agriculture accounted for 11%, and marketing support programmes for
some 17%.
31. In its Uruguay Round commitments, Mexico undertook to cut financial support
for agricultural producers, as defined for the purposes of the negotiations, from just
under Mex$29 billion, the level of the Aggregat e Measurement of Support (AMS) in the base
period 1986-88, to a little over Mex$25 billion in 2004 at 1991 prices.  In its notification concerning
domestic support commitments for 1996, 1997 and 1998, Mexico indicated that the total AMSincreased from Mex$0.9 billion in 1996 to some Mex$3.8 billion in 1998.
11  Despite this significant
increase, the total AMS remained substantially lo wer than the committed level, which for 1998 was
just under Mex$27.5 billion.12  In 1998, the bulk of support was granted to maize (74.5% of the total
AMS);  other products supported were beans ( 16.6%), wheat (6.5%), sorghum (2.0%), and rice
(0.4%).
32. Mexico notified that in 1997 and 1998 export subsidies were granted to sugar and wheat.
In 1997, some 241,000 tonnes of sugar were subsidized, representing an outlay of US$40.9 million
(commitment levels stood at 1.446 million tonnes and US$525 million);  while in 1998 some
                                                     
9 Poder Ejecutivo Federal (2001).
10 Poder Ejecutivo Federal (2001).
11 Figures in 1991 constant prices.
12 WTO document G/AG/N/MEX/7, 15 September 2000.WT/TPR/S/97 Trade Policy Review
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224,000 tonnes of wheat were subsidized, representing an outlay of US$5 million (commitment levels
were 374,000 tonnes and US$10.9 million).  No other export subsidies for agricultural products have
been notified to the WTO.13
Table IV.5
Producer subsidy equiva lents and total support estimate, 1996-00
(Million pesos, unless otherwise specified)
1996-98 1998 1999 2000a
Producer subsidy equivalent
All commodities total 31,056 37,022 41,259 58,004
(US$ million) .. 4,052 4,315 6,134
% 1 41 41 5 1 8
Wheat total 1,253 1,504 1,822 2,086
% 2 23 03 7 3 7
Maize total 6,356 9,762 12,089 15,707
% 2 33 23 9 4 6
Other grains total 1,551 1,954 2,756 3,514
% 1 82 33 3 3 7
Rice total 67 49 206 361
%9 6 2 5 3 8
Oilseeds total 44 113 207 171
% 1 22 64 8 4 5
Sugar total 3,378 4,667 6,878 7,478
% 3 43 95 7 5 6
Milk total 5,886 8,327 10,377 11,774
% 3 44 24 3 4 5
Beef and veal total 231 3,330 1,719 2,842
%1 1 9 9 1 4
Pigmeat total 3,163 347 1,645 1,680
% 24 4 15 12
Poultry total 654 -359 -2,018 2,059
% 3 -2 -11 8
Eggs total -1,883 -3,253 -4,580 -5,112
% -20 -32 -44 -45
Total support estimate (TSE) .. 50,786 52,158 71,048
(US$ million) .. 5,559 5,456 7,514
Transfers from consumers .. 29,458 34,665 52,222
Transfers from taxpayers .. 26,855 24,522 26,084
Budget revenues .. -5,526 -7,029 -7,257
TSE as a share of GDP % .. 1.3 1.1 1.3
a Provisional figures.
.. Not available.Source: OECD, Agricultural Policies, Markets and Trade in OECD Countries, Paris, various issues.
(3) ENERGY
33. The energy sector contributes some 3% to Mexico's GDP, 8% to total exports, and draws
close to 57% of public sector investment.14  In 2000, the total supply of primary energy to the
domestic market amounted to 4.8 million barrels of oil equivalent per day;  of this, 8.2% was supplied
by imports, up from 4.4% in 1995.  In 2000, domestic production of primary energy reached
4.4 million barrels of oil equivalent per day, of which hydrocarbons represented 89%.  Demand forprimary energy increased at an average annual rate of 4.1% during 1995-00.  At the end of this period,
                                                     
13 WTO document G/AG/N/MEX/8, 14 September 2000.
14 Data in this and the following paragraph from Department of Energy (2001).Mexico WT/TPR/S/97
Page 91
37% of Mexico's primary energy was destined for export, 15% for transport, 13% for industry, 8% for
residential, commercial and public-sector consumers, and the remainder for other users.
34. The authorities estimate that over 2000-09 the total investment necessary to meet Mexico's
growing energy demand will amount to some US$139 billion, of which US$59 billion will be
required by the electricity industry, US$40 billion by exploration and production of crude petroleum,
US$21 by the natural gas industry, and US$19 billion by refining activities.
35. Articles 27 and 28 of the Constitution give the State the exclusive right to exploit
hydrocarbons and to supply electricity to the public.  These constitutional provisions have restricted
private participation in the sector, and, over  time, quasi-monopoly powers on key energy activities
have been ceded to the national oil company, Petróleos Mexicanos (PEMEX), and on the public
distribution of electricity to the Federal Electricity Commission (CFE) and its affiliate Central Lightand Power (LFC).
36. The Department of Energy is responsible for, among other things, the exercise of the nation's
rights over petroleum and electricity, the formul ation of energy policies, participation in energy-
related international matters, the formulation of short- and long-term plans for the sector, the
establishment of guidelines for state-owned enterpri ses in the sector, the issue of permits as provided
by the law, and the definition of official standards in areas under its responsibility.
37. The Energy Regulatory Commission (CRE), established in 1995, is a decentralized,
autonomous agency under the Department of Energy.   The CRE is responsible for overseeing areas
such as the supply and sale of electricity;  electricity generation, trade and export by private firms;
acquisition of electricity for public distribution; transport and storage of natural gas not related to its
production;  natural gas distribution;  the first-hand sales of natural gas and liquefied petroleum gas
(LPG);  and the pipeline transportation and distribution of LPG.  The Commission also has authorityto grant and revoke permits, and participates in the setting of electric power rates.
38. The 1995-2000 Development and Restructuring Prog ramme for the Energy Sector preserved a
central role for the State in strategic energy-rel ated activities, while acknowledging the need for
greater private participation.  In 2001, the current Administration issued the 2001-2006 Sectoral
Energy Programme (PSE), prepared as part of the process of consultations that led to the
establishment of the 2001-2006 Development National Plan, and after gathering expert opinions
within the Energy Sector National Forum and other feedback from the various entities operating in the
sector.
15  The PSE reflects the Administration's commitment to transform the energy sector to ensure
that world-class energy firms operate in the Mexican market, give state enterprises the ability to
compete successfully, while at the same time using the sector as a instrument to promote economicdevelopment and social justice.  The Administration has also expressed its unequivocal determination
not to privatize PEMEX, CFE or LFC.
39. The authorities have emphasized that the Mexican energy sector is at a crossroads that will
determine the sector's long-term sustainability.  To secure this, they seek to pursue a policy that grants
state enterprises in the sector the administrative autonomy required for an efficient operation, whichwill in turn necessitate reform of the existing fiscal and regulatory framework affecting the sector.
The authorities also aim to increase private particip ation in energy, which will also require regulatory
reforms, promote competitive markets and, thus, create greater certainty, transparency, and equity for
all participants in the sector.
                                                     
15 Department of Energy (2001).  The PSE is also contained in the Department of Energy's online
information.  Available at:  http://www.energia.gob.mx.WT/TPR/S/97 Trade Policy Review
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(i) Petroleum
40. In 2000, Mexico was the world's sixth largest producer and tenth largest exporter of crude
petroleum.  Mexico's hydrocarbon reserves are among the world's ten largest but have been declining
since the early 1980s;  proved reserves have been estimated at just under 27 billion barrels of oil
equivalent in early 2001.16  After years of stagnation, petroleum production experienced an increase
from 2.7 million bbl/day in 1993 to around 3 million bbl/day in 1997, a level at which it has beenmaintained (Table IV.6).  The authorities attribut e falling reserves and slow production growth to
public-sector financial constraints on new investment.
Table IV.6
Selected indicators for the petroleum and gas industry
1996 1997 1998 1999 2000a
Production indicators
Crude petroleum production ('000 bbl/day) 2,858.3 3,022.2 3,070.5 2,906.0 3,012.0
Natural gas production (million cubic feet) 4,194.9 4,467.1 4,790.7 4,790.6 4,678.9
Petrochemicals production ('000 tonnes)
Nationalb25,027 22,369 26,065c23,916a21,437d
PEMEXe15,103 12,920 11,210c10,112a9,319d
Installed capacity utilization (index)
Refining 90.6 88.5 91.4 87.5 91.5
Petrochemicals 83.4 72.6 66.1 61.8 60.8
Exports
Crude petroleum ('000 bbl/day) 1,543.8 1,720.7 1,741.2 1,553.5 1,652.1
Natural gas (US$ million) 31.8 37.0 30.9 114.3 48.8
Gasolines (US$ million)f298.7 542.5 419.1 56.7 711.3
Other refined products (US$ million) 372.9 104.5 87.0 326.0 320.4
Imports
Natural gas (US$ million) 67.1 107.9 121.7 132.2 366.5
Gasolines (US$ million)f936.6 936.6 1,230.0 1,248.8 1,733.9
Other refined products (US$ million) 613.4 1,569.7 859.5 1,267.7 2,527.1
PEMEX investment and fiscal payments
Gross revenue (US$ million)g31,031 34,035 29,089 36,084 50,625
Fiscal payments (US$ million)g19,420 22,919 18,709 21,951 33,862
Investment (US$ million)g,h3,395 4,625 5,820 5,568 6,806
Fiscal payments as a % of federal budget revenue 37.6 36.0 31.4 31.1 37.0
Investment as a % of fiscal payments 17.5 20.2 31.1 25.4 20.1
a Preliminary data.
b Includes total production from 19 sub-sectors technically classified as petrochemicals.
c Data under revision.dE s t i m a t e .
e Includes PEMEX's production of products historically classified as petrochemicals, excluding carbon dioxide.
f Including diesel.g Data provided by the Mexican authorities.
h Including physical and financial investment.
Source: WTO Secretariat, based on data from the Department of Energy's online information.  Available at:  http://www.energia.gob.mx/
energia/estadisticas.html.
41. Amendments in 1995 to the Regulatory Law of Constitutional Article 27 on Petroleum
formally defined the part of the petroleum industry that comes under direct state control as comprising
(i) the exploration, exploitation, refining, transport, storage, distribution, and first-hand sales of
petroleum and the products obtained from its refining;  (ii) the exploration, exploitation, manufacture,
and first-hand sales of natural gas, as well as the transport and storage operations required for its
                                                     
16 Includes condensates and liquids.  Estimates from Department of Energy (2001).Mexico WT/TPR/S/97
Page 93
exploitation and production;  (iii) the manufacture, transport, storage, distribution, and first-hand sales
of refined petroleum products that may be used as basic raw materials, and gas products considered as
basic petrochemicals.
42. The Mexican oil industry was nationalized in 1938 and over time PEMEX has become the
world's sixth largest petroleum firm by volume of oil production.  PEMEX is structured as a holding
company with four separate subsidiaries:  (i) exploration and production;  (ii) refining;  (iii) naturalgas and basic petrochemicals;  and (iv) secondary petrochemicals.  The authorities have noted that
PEMEX operates in an environment characterized by excessive regulation, price controls, managerial
shortcomings, and a heavy fiscal burden that has impeded it from undertaking short and long-term
investment projects.  The oil company hands over just over 60% of its total income to the Federal
Government.  This has prevented it from reacting quickly and effectively to domestic andinternational challenges, which has in turn resulted in inefficiencies, reduced supply, and under-
investment both in the company and the energy sector as a whole.
17
43. Moreover, despite Mexico's diversificatio n away from oil exports, petroleum revenue
continues to have a considerable impact on its economy, defining to a large extent the public-sector
budget, a dependence that the Mexican authorities are seeking to break, through a comprehensivefiscal reform package (Chapter I(3)).  In 2000, PEMEX paid almost US$34 billion in taxes and
royalties to the Government (Table IV.6), a contribution greater than all the taxes paid by the rest of
Mexico's companies combined.
44. The PSE argues for abandoning the current 'command and control' approach to managing the
petroleum industry, and establishing instead a flexible framework to give PEMEX management
responsibility for decision-making with respect to exploration, extraction, processing, strategic
alliances, and export decisions.  The PSE also pr oposes defining a new fiscal regime that would
permit PEMEX to generate profits and undertake the necessary investment while providing tax
revenue to the Government.  The Programme notes that PEMEX needs greater financial resources for
exploration and the development of new fields, a nd for the modernization and expansion of refining
and petrochemical plants.  The new fiscal regime would seek to quantify and capture the oil rents by
imposing a resource rent tax on PEMEX extraction operations, and a tax on petroleum profits on allother activities would be equivalent to Mexico's general income tax.
45. Mexico has six major refineries with a distillation capacity of some 1.5 million bbl/day.
Investment in refining capacity has fallen short of growing domestic demand for refined petroleum
products, which has turned Mexico into a net importer of such products since 1996 (Table IV.6).  To
address this, PEMEX is making efforts to modernizing its refineries, and anticipates increasingcapacity by 150,000 bbl/day.  Also, the National Re fining System Re-conversion Programme seeks to
bring about technological changes to increase the processing capacity for heavy crude, which make up
most of Mexico's petroleum reserves.
46. Meanwhile, PEMEX is processing heavy oil in  refineries abroad, notably the Deer Park
refinery in Texas, which it operates as a joint venture with Shell.  As noted in the PSE, it is
paradoxical that legal restrictions to private investment in the Mexican petroleum industry have
compelled Mexico to invest abroad in order to en sure an outlet for its heavy oil and meet domestic
demand for refined products.
18  The Programme thus calls for increasing refining capacity,
particularly to produce higher-value-added products and increase the processing capacity for heavy
crude, give PEMEX greater administrative autonomy, and implement a new fiscal regime.  The PSE
                                                     
17 Department of Energy (2001), p. 33.
18 Department of Energy (2001), p. 35.WT/TPR/S/97 Trade Policy Review
Page 94
foresees that the deficit in refined oil products will persist unless resources over and above the current
investment programme of PEMEX become available.
47. The domestic price of hydrocarbons and refined products is set administratively with
reference to world prices, in general reflecting opportunity costs as well as the need to ensure
competitiveness and encourage rational use and conservation.
48. Mexico has supported the stabilization of petroleum prices in world markets, coordinating
with the main oil exporting countries the implem entation of adjustments to oil supply.  As oil
represents an important revenue source, the Programme considers it important for Mexico to continue
participating in the stabilization of world oil prices.  It also calls for Mexico to set an export platform,
improve the quality of its export petroleum mix, and explore alternative foreign markets.  Reflecting
those policy aims, Mexico announced in early 2001 that it would cut petroleum exports slightly, from1,825 million bbl/day to 1.75 million bbl/day, following an agreement with oil producers countries to
curtail oil production.
(ii) Natural gas
49. Mexico has proven natural gas reserves of some 30 billion cubic feet;  production was about
4.8 billion cubic feet in 2000(Table IV.6).  Mexico has not needed to emphasize natural gasdevelopment and exploration until recently, as most of the gas produced is "associated" gas that
occurs as a co-product of oil production.  It is a small but growing net importer of natural gas from the
United States, the most readily available source by fa r, a trend that is expected to continue in the
coming decades.  The import tariff on Mexican imports of natural gas was eliminated in mid-1999,
which has encouraged growing imports of this product.
50. The domestic market for natural gas has undergone considerable changes in recent years as a
result of growing internal demand and structural reform;  this market is the most liberalized in theMexican energy industry.  PEMEX controls the upstream sector but amendments in 1995 to the
Regulatory Law of Constitutional Article 27 on Petroleum opened up the transport, storage, and
distribution of natural gas, and the transport and distribution through pipelines of LPG.  Regulations
were also issued in 1995 on the first-hand sales of natural gas and related activities (e.g. pipelines and
gas equipment) not formally considered part of the petroleum industry.
51. The 1995 reforms gave the State resource ownership and responsibility for operating services
of a public nature, through PEMEX, and regulating, through the CRE.  As at late 2001, the CRE had
granted 105 permits for transport and distribution projects to national and foreign firms (from
Belgium, Canada, Spain, and the United States), involving investment engagements of some US$2.3
billion.  The authorities have noted that the distribution permits were granted through public tenders,except in regions where there was an existing operator.
52. Changes are likely to continue, mostly as a result of increasing reliance on natural gas to
generate electricity, with regulations favouring the use of less polluting fuels.  The PSE foresees that
natural gas will fuel just over 60% of electricity generation in 2010, up from some 22% in 2000.  If
current demand trends remain and no reforms are made to the legal framework, the Programmeforesees Mexico's imports of natural gas expanding to the equivalent of some 24% of internal demand
by 2006.
53. In view of the growing domestic demand for natural gas, the PSE calls for developing the
domestic reserves of non-associated gas, encouraging investment in extraction activities, giving
greater administrative autonomy to public enterprise s, and promoting private participation in naturalMexico WT/TPR/S/97
Page 95
gas activities within the existing legal framework.19  It also envisages establishing liquefied natural
gas terminals to break Mexico's current absolute reliance on U.S. sources.
54. Mexico's growing natural gas imports have coincided with historically high prices for the fuel
in North America.  As U.S. natural gas prices rose , calls from Mexico's industry led to an agreement
between the Mexican Government and the private sector whereby, since January 2001, PEMEX sells
natural gas to firms at a fixed price of US$4.00 per million Btu, compared with the U.S. Houston ShipChannel price of over US$9.00 per million Btu.  PEMEX covers the difference when gas prices
exceed US$4.00 per million Btu but firms must pay the agreed price even if U.S. prices fall below this
level.
55. Mexico is the world's fourth largest consumer of LPG, and the largest per capita user.
In 2001, LPG was used in more than 80% of Mexican homes, and supplied about 65% of the energyrequirements of the residential and commercial sectors.  Imports supplied about one third of the
domestic demand, which was expected to continue growing despite the ongoing substitution of natural
gas for LPG.  Its use as a motor fuel has also expanded sharply in recent years, in good part
because, unlike gasoline, LPG is not subject to the special tax on products and services (IEPS,
Chapter III(2)(vi)).
56. LPG regulations give PEMEX responsibility for first-hand sales, transport through its own
pipelines, and the operation of delivery plants.  Private operators may engage in  transport, storage,
and distribution;  the later being reserved to Mexican participants.  LPG imports are subject to prior
licensing from the Department of Economy, which up to August 2001 was granted exclusively to
PEMEX.  Subsequently, the Departments of Economy and of Energy have spelled out the criteria for
obtaining prior import permits, which allow operators to obtain LPG from sources other than
PEMEX.
(ii) Petrochemicals
57. Although technically not part of the energy sector, the petrochemicals industry is included
with the energy sector because of the close linkage between hydrocarbons and petrochemicals.
Mexico's secondary petrochemical plants produce 13 types of petrochemicals at 61 plants located
mainly in 10 complexes throughout the country.  Most of PEMEX's plants have suffered in recentyears from under-investment, falling capacity utilization (Table IV.6), and a slowdown in the
development of the petrochemicals industry in general.
58. The production of petrochemicals in Mexico is divided into two subsectors:  basic
petrochemicals, reserved for PEMEX, and non-basic petrochemicals, in which there are no restrictions
on private domestic or foreign investment.  Basic petrochemicals include nine products:  methane,
ethane, propane, butane, pentane, hexane, heptane, naphtha, and carbon black feedstocks.  PEMEX is
the sole supplier of inputs to the petrochemicals industry.  PEMEX and numerous private firms,
accounting for some 83% of total production, participate in the non-basic petrochemicals industry.
59. Although the subsector is, in principle, ope n to private investment, PEMEX is the sole
producer of ethylene, ethylene oxide, polyethylene, and ammonia.  The PSE attributes this to the lackof integration in production chains, which undermines supply security, as well as to PEMEX's
monopolistic power in the production, distribution, and sales of basic petrochemicals, to the high
domestic price of natural gas, and the private sector's expectation that the petrochemical activities of
PEMEX will eventually be privatized.
                                                     
19 Department of Energy (2001), p. 98.WT/TPR/S/97 Trade Policy Review
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60. The PSE also notes that the division between basic and non-basic petrochemicals is unique in
the world, and results in a lack of integration that undermines the competitiveness of whole
production chains.  According to the Programme, a fundamental condition for attracting private
investment into the industry is the elimination of ex isting legal restrictions causing this fragmentation,
as well as searching for solutions that will permit strategic associations between PEMEX and the
private sector.
61. The Federal Government has sought to promote private-sector participation in the non-basic
petrochemicals industry, recognizing that it does not have enough resources to invest in new plants
and that there is a need to address technological lags and low productivity.  The PSE points out that
attracting private investment into petrochemical plants is also appealing because of their highly
capital-intensive nature, low profitability compared with returns in hydrocarbon extraction, and thefact that private sector is explicitly allowed to participate in the industry.
62. The Government originally planned to sell a controlling stake of 70-80% in 61 petrochemical
plants but these plans had to be scaled down foll owing a ruling by Mexico's comptroller's office
that the laws defining the petrochemical plants that could be privatized needed clarification and
reform.  A new strategy was announced in 1996, accompanied by necessary legal reforms, wherebythe Government proposed to sell minority holdings of up to 49% in PEMEX plants.  In 1998, a
tendering process was initiated for the sale to the private sector of 49% of the shares in PEMEX's
Petroquímica Morelos;  however, lack of interest in the arrangement led to the process being declare
void.  Also studied was a scheme whereby PEMEX would seek associations with the private sector in
the expansion of existing plants;  the authorities subsequently deemed the scheme unfeasible because
of constraints imposed by the existing regulatory framework.
63. In view of the disappointing recent experience, the PSE considers it vital to eliminate existing
legal restrictions to vertical integration and to strategic alliances between the private sector and
PEMEX.  Among other objectives, the Programme also seeks:  the restructuring and strengthening of
PEMEX's petrochemical operations, and thus guarantee the supply of inputs to downstream
industries;  review of current prices for basic inputs  to bring them into line with world prices through
long-term contracts;  and using the country's resource base to produce refined products that wouldbenefit from Mexico's free-trade agreements.
(iii) Electricity
64. The electric energy industry has experienced rapid growth, Mexico's generating capacity rose
from 26.8 to 36.1 GW between 1991 and 2000, when some 60% of such capacity was hydrocarbon-
based and 26% hydroelectric-based (Table IV.7).  Mexico's energy policy calls for the conversion of
many oil-fired power plants to natural gas by 2005, with most new power plants to be run on naturalgas.
65. In 2000, electricity sales amounted to 155,349 GWh, of which 60.4% were consumed by
industry, 23.2% by residential users, 7.5% by comm ercial users, 5.1% by agriculture, and 3.8% by
services.
20  Over the 1990s, average annual growth for electricity demand (5.2%) surpassed GDP
growth, a situation expected to continue over the current decade.  A modest amount of electricity is
traded, mostly with the United States, with a widening deficit:  in 2000, exports and imports wereestimated at US$3.2 million and US$73.7 million, respectively.
66. At the end of 2000, there were 172 generating plants, of which all but one were state-owned.
The electricity industry is dominated by the CFE, a state-owned decentralized organism with
independent legal status.  The CFE controls almost 90% of total assets in the industry;  its operations
                                                     
20 Department of Energy (2001), p. 45.Mexico WT/TPR/S/97
Page 97
span power generation, transmission, and distribution.  The LFC is in practice, a CFE affiliate but it
maintains a formal separate corporate identity.  The vast majority of its customers are in Mexico City.
References to CFE in the following sections include the LFC unless otherwise specified.
Table IV.7
Selected indicators for the electricity industry, 1996-00
1996 1997 1998 1999 2000a
Installed capacity (Megawatts)b34,791 34,815 35,255 35,666 36,213
of which (% of total):
Thermal 57.8 57.8 59.3 59.2 59.3
Hydro 28.8 28.8 27.5 26.2 26.5
Gross power generation (Gigawatts-hr) 160,494 170,519 180,490 202,694 216,166
of which (% of total):
Public sector 94.6 94.6 94.7 89.3 87.0
Private sector 5.4 5.4 5.3 10.7 13.0
Domestic sales (Gigawatts-hr) 121,573 130,255 137,209 144,996 155,349
of which (% of total):
Industrial 58.9 59.8 59.8 60.2 60.4
Households 23.4 22.8 23.1 23.0 23.2
Commercial 7.7 7.6 7.7 7.6 7.5
Agriculture 6.2 5.9 5.6 5.5 5.1
Public service 4.2 3.9 3.8 3.7 3.8
Budgeted Expenditures by CFE and CLF (US$ million)c5,295 6,752 6,513 7,894 9,306
of which (% of total):
Operating expenditures 78.6 75.1 75.5 75.8 79.0
Capital expenditures 21.4 24.9 24.5 24.2 21.0
a Preliminary data.
b State owned, refers to real power.
c WTO estimates, based on the end of period exchange rate.
Source: WTO Secretariat, based on data from the Department of Energy's online information.  Available at:  http://www.energia.gob.mx/
energia/estadisticas.html.
67. The constitutional provisions introduced in 1960, which created a state monopoly for the
distribution of electricity as a public service, still stand but the Law for the Electric Energy Public
Service of 1992 eased the terms for private-sector investment, both foreign and domestic.  Private
concerns may thus build and own plants for se lf-consumption and co-generation, as well as power
generation plants of less than 30 megawatts.  Electricity may also be shared among private producers
and users through the establishment of a jointly ow ned firm, either using their own infrastructure or
contracting CFE services.  Private producers are not allowed to distribute electricity to the public but
may sell excess power to the CFE.  Investments in these areas require a permit from the CRE;  if
foreign participation exceeds 49%, authorizations from the Department of Economy and the ForeignInvestment Commission are also required.  Electricity imports may be used only by the importing
firm.
68. In May 2001, a Decree reforming the Law for the Electric Energy Public Service allowed
holders of permits for self-supply or co-generati on to transfer their surplus energy to CFE without
prior notice and for any amount, thus defining the criteria under which state-enterprises will acquiresuch energy.
69. Electricity rates are set by the Department of the Treasury and Public Credit, which takes
account of consumer interests and the need to encourage investment.  There are considerable
differences in the average electricity tariffs paid by various users.  In 2000, the following average
rates applied (Mex$ per KWh):  for commercial users, 1.2603;  public service, 1.0468;  domesticWT/TPR/S/97 Trade Policy Review
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users, 0.5590;  industry, 0.5346;  and agriculture, 0.2868.21  Energy analysts estimate that some of
these prices do not cover operating costs, let alone capital depreciation.
70. The PSE notes that current tariff policies distribute electricity subsidies with little regard
to equity or energy-efficiency considerations.  Due to the ineffective system of generalized subsidies,
there is a wide gap between the price and cost  of electric power.  Data for 2000 show that
tariffs covered 70% of the cost of electricity provided by the CFE and only 51% of that supplied bythe LFC.  The cost of subsidies granted by the Federal Government amounted to Mex$56.8 billion;
some three quarters of this assisted residential and agricultural users.
71. Deregulation of the electricity sector is a contentious but pressing issue in Mexico.  Although
the investment level has allowed demand to be met, it has resulted in a negligible reserve margin.
Thus, due to a combination of high demand, maintenance and failures reducing available capacity,and delays in the commissioning of new plants, in April 2000 the reserve margin fell to 0.4%, while
the minimum margin envisaged by international standards is some 6%.
22
72. The PSE also notes that in recent years fiscal restrictions have resulted in under-investment in
the electricity industry.  This in turn has caused losses equivalent to 10% of low-tension sales, in
addition to commercial losses due to insufficient measuring and other equipment.  The Programmeestimates that for the period 2001-10 the industry's investment requirements will amount to almost
Mex$676 billion (equivalent to some US$75 billion at the end-2001 exchange rate).  As public
investment in the industry is insufficient, it is considered essential to supplement public resources by
national and foreign private investment.  The PSE suggests that unless this is achieved the sector's
modernization and expansion would be jeopardized, and public resources would continue to be
diverted away from unmet basic needs in areas such as education, health, and security.
23
73. The PSE argues that private investment in the electricity industry has been constrainted by
factors such as the need to attain minimum scales and reach long-term contracts, and the fact that
potential generators and consumers are often in different regions.  To address these factors and
finance electricity infrastructure, the Government has made use of schemes such as build-lease-
transfer (BLT) arrangements.  The State continues to assume all risks related to most of these
investments, however, each of which must be registered as contingent government expenditure.  Oncea project becomes operational, it generates liabilities that are considered as expenditures in the federal
budget and as part of the public debt.
74. The PSE also points out that the monopolistic conditions in Mexico's electricity market
and the political limitations inherent in its curr ent legal framework make involvement in self-supply,
co-generation and small-scale generation projects unattractive to private operators.  As there is nomarket in which such operators may sell their excess energy on a cost-recovery basis, projects are
profitable only when the generator uses up all its capacity for its own consumption.
75. As an alternative to investing in new plants, the authorities have offered for tender capacity
and energy purchase contracts (CCCE) to independent power producers (IPPs).  This scheme,
nevertheless, still demands guarantees from the CFE with respect to long-term electricity purchases,which are backed by the Federal Government and thus are linked to the State's capacity to acquire
contingent debts.  Also, annual payments to IPPs  are part of the federal budget, and of Mexico's
public external debt.  The PSE thus observes that as the State's limit to acquire new debt has been
reached, the need for private investment involving no State guarantees is undeniable.
                                                     
21 Data from the Department of Energy online information.
22 Department of Energy (2001), p. 48.
23 Department of Energy (2001), p. 47.Mexico WT/TPR/S/97
Page 99
76. As at early 2001, 12 IPP permits had been issued for a total investment of some US$3 billion;
ten of these projects were in northern Mexico, with half entirely dependent on natural gas imported
from the United States and the rest partially dependent on such imports.
(4) MANUFACTURING
(i) Main features
77. Mexico's manufacturing sector is large and diversified, accounting for an average 21% of
total GDP over 1996-00.  During this period the sect or confirmed its important role as a catalysts for
economic growth:  manufacturing GDP expanded at an annual average rate of 7.1% in real terms,
outpacing growth in the economy as a whole (Chapter  I).  Growth in manufacturing activities was also
considerably higher than the 2.1% achieved during the first part of the 1990s.  Moreover, while
activity was subject to strong cyclical fluctuations in the first half of that decade over 1996-2000growth was sustained across most manufacturing activities (Table IV.8).
Table IV.8
Manufacturing GDP, 1990-2001
(Mex$ billion, constant 1993 prices and per cent)
1990-95a1996 1997 1998 1999 2000b2001b,c
Mex$ billion, constant 1993 prices
Food products, beverages and tobacco 58.0 63.3 65.4 69.7 72.5 75.1 77.1
Textiles, clothing and leather 19.3 21.1 23.3 24.2 24.9 26.3 24.4
Wood and wood products 7.1 7.2 7.7 8.0 8.0 8.1 7.3
Paper, paper products, printing and publishing 11.2 10.9 12.3 13.0 13.7 14.0 13.5
Chemicals and plastics 35.5 38.3 40.9 43.4 44.4 45.8 43.6
Non-metallic mineral products, except petroleum derived 16.8 17.5 18.6 19.5 19.9 21.0 19.9
Basic metal industries 9.9 12.7 14.2 14.7 14.8 15.3 14.7
Metal products, machinery and equipment 53.6 63.2 75.3 83.9 89.7 102.1 97.8
Other manufacturing industries 6.3 6.9 7.6 8.2 8.7 9.7 10.0
All manufacturing 217.7 241.2 265.1 284.6 296.5 317.5 308.1
Index, real GDP, 1993=100
Food products, beverages and tobacco 98 107 110 118 122 127 130
Textiles, clothing and leather 100 110 121 126 129 136 127
Wood and wood products 100 100 107 112 112 114 102
Paper, paper products, printing and publishing 99 96 109 115 121 124 119
Chemicals and plastics 101 109 117 124 127 131 124
Non-metallic mineral products, except petroleum derived 96 100 106 111 113 120 113
Basic metal industries 102 131 146 152 152 158 151
Metal products, machinery and equipment 99 117 139 155 166 189 181
Other manufacturing industries 96 105 116 125 132 148 152
All manufacturing 99 110 121 129 135 144 140
a Annual average for the period.
b Preliminary estimates.c Annualized estimates based on first semester.
Source: WTO estimates, based on Poder Ejecutivo Federal (2000), Primer Informe de Gobierno , September, p. 248..
78. The dynamism of Mexico's manufacturing in recent years is linked to a favourable policy
environment, the sharp devaluation of the peso in late 1994, and the impetus provided by thecontinuous expansion of the U.S. economy, which is by far the main export market for MexicanWT/TPR/S/97 Trade Policy Review
Page 100
manufactures.  Because of the latter, the cyclical slowdown in the U.S. economy that began in late
2000 was expected to have a major impact on the Mexican manufacturing sector;  activity in the
sector contracted in almost all manufacturing industries during the first semester of 2001.
79. In 2001, the largest manufacturing industries by value added are (share of manufacturing
GDP between parentheses):  metal products, machinery and equipment, which includes in particular
motor vehicles (32%);  food products, beverages,  and tobacco (24%);  and chemicals and plastics
(14%).  Between 1996 and 2000, value added expanded fastest in the metal products, machinery and
equipment industry (with an average annual real growth rate of almost 12.7%);  "other"
manufacturing industries (9%);  and textiles, clothing, and leather (5.6%).  In 2001, only the food
products, beverages, and tobacco industry was likely to continue expanding, while a contraction was
expected in other industries, particularly in wood and wood products, and textiles, clothing, andleather.
80. The manufacturing sector has come under strong pressure to increase productivity as a result
of Mexico's closer integration in the global economy, notably through the NAFTA, which has forced
domestic industries to compete directly with some of  the world's most competitive producers.  At the
same time, a more closely knit North American market has given Mexican producers access to thedemand base, capital, and technology necessary to exploit economies of scale and sustain productivity
gains.  Productivity per person employed in the sector and per man-hour worked have thus increased
steadily since at least 1990, although with average annual growth for 1996-00 slightly lower than for
1991-1995 (Table IV.9).  This trend was halted in 2001, when slowing activity in the sector led to a
slight fall in productivity per person.
Table IV.9
Productivity indexes in the manufacturing sectora
(Base 1993=100)
Personnel
employedbAverage real
salaries per
personAverage
productivity
per workerAverage
productivity
 per man-hourReal unit cost
of labourc
1990 .. 83 83 83 100
1991 .. 88 88 87 100
1992 .. 96 93 92 103
1993 100 100 100 100 100
1994 97 104 109 110 95
1995 88 91 114 115 80
1996 90 82 125 126 65
1997 95 81 131 131 62
1998 98 84 136 136 61
1999 99 85 140 139 61
2000 100 90 146 145 62
2001d98 90 145 146 62
.. Not available.
a Period averages.
b WTO estimates, based on Banco de Información Económica, INEGI.
cB a s e d  o n  M e x $ .d Average for January-May.
Source : WTO Secretariat estimates, based on Poder Ejecutivo Federal (2001), Primer Informe de Gobierno , September, p. 248;  and
Banco de Información Económica online information.  Avilable at:  http://www.inegi.gob.mx/estadistica/espanol/economia/feconomi a.html.
81. Increased productivity in manufacturing reflects in part the substantial foreign direct
investment (FDI) flowing into the sector.  The authorities indicated that this amounted to some
US$28.4 billion during 1997-00, or about 64% of the total (Chapter I(5)(iv)).  The two largest
magnets of FDI in manufacturing were metallic products, machinery, and equipment (particularlyMexico WT/TPR/S/97
Page 101
motor vehicles and electronics), which attracted almost half of total manufacturing FDI, and food
products, beverages, and tobacco, which attracted about one fifth.  About one third of manufacturing
FDI went into the maquiladora  industry.
82. As noted in the Secretariat Report for Mexico's previous Review, productivity increases in
manufacturing during the early 1990s were linked to the shedding of workers even as the sector's
output expanded.  This tendency was reversed in 1996, with the number of persons employed in thesector expanding and returning in 2000 to its 1993 level.  However, in 2001 employment in the sector
started to fall again as producers responded to contracting demand.
83. Average real salaries per person have increased since 1998, after falling sharply over 1995-
1997 in the wake of the financial crisis and sharp currency devaluation of late 1994.  Nevertheless,
and notwithstanding the productivity increases noted, in real terms, salaries in 2001 remained below
the level in 1994.  As productivity outpaced salary gains, the real unit cost of labour tended to fall
until 1998, increasing slightly thereafter.  Profitability in the sector would also appear to have
increased, as the share of value added secured by labour has expanded less rapidly in recent years than
aggregate value added.  By this measure, manufacturing as a group seems to have adjusted well to,
and benefited from the trade liberalization efforts Mexico has undertaken since the mid 1980s.
84. Much of Mexico's increased participation in foreign trade is explained by the close
interlocking of its manufacturing sector with international production chains geared in large part to
supplying the U.S. market.  The resulting high import content of Mexican manufactures has meant
that export growth has gone hand-in-hand with increased imports.  Thus, the shares of manufactures
in total exports and imports increased, respectively, from 44% and 75% in 1990 to some 83% and
86% in 2000 (the value of total exports and imports also expanded considerably, Chapter I(5)(ii)).
85. As noted in the Secretariat Report for Mexico's previous Review, intra-industry trade between
Mexico and the United States is atypically high for trade between developing and developed
countries, and more like the levels recorded between industrialized countries.  This results from the
geographic proximity between Mexican and U.S. producers, and Mexico's maquiladora  programme,
which has encouraged both intra-industry and intra-firm trade.  As a result, the largest export
industries tend also to be the most important importers.  Thus, in 2000, electrical machineryapparatus, appliances, and supplies (ISIC 383) accounted for some 33% and 27% of total
manufacturing exports and imports, while the respective shares for motor vehicles (ISIC 3843) were
21% and 13% (Table AIV.3).
(ii) The in-bond or maquiladora  industry
86. One of the most striking characteristics of the Mexican manufacturing sector is the important
role played by the maquiladora  industry, which is based on the duty-free temporary importation of
inputs (including machinery) for use in export-oriented manufacturing activities;  a description of the
specific instruments comprising the maquiladora  regime and the considerable changes introduced as
of 1 January 2001 is provided in Chapter III(3)(vii).
87. The maquiladora  industry has traditionally been concentrated along Mexico's border with the
United States.  In recent years, however, there has been a tendency for maquiladora  operations to
expand more rapidly in non-border areas;  thus, while in terms of number of establishments,
employment, and value added slightly more than three quarters of maquiladora  operations were
located in municipalities along the Mexican-U.S. border in 1990, that proportion had fallen to
about 60% by 2000.
24  The maquiladora  industry comprised around 3,600 establishments employing
                                                     
24 WTO estimates, based on Poder Ejecutivo Federal (2001).WT/TPR/S/97 Trade Policy Review
Page 102
almost 1.3 million workers in 2000 (Table IV.10);  maquiladora  firms generated a value added of
about US$17.5 billion and exported products worth almost US$79.5 billion.
Table IV.10
Maquila industries, structural indicators, 1990-2001
Wages All inputsDomestic
inputs Value addedValue of
outputbValue added
sharecLabour's
sharedPrice-cost
margineDomestic
inputs
(current US$ million)a(as a % of value of output)
1990 1,732 10,161 174 3,364 13,525 24.9 12.8 12.1 1.3
1991 2,088 12,198 218 4,092 16,290 25.1 12.8 12.3 1.3
1992 2,625 14,336 267 4,797 19,133 25.1 13.7 11.4 1.4
1993 3,091 18,035 313 5,560 23,595 23.6 13.1 10.5 1.3
1994 2,379 14,493 214 4,212 18,704 22.5 12.7 9.8 1.1
1995 2,119 18,595 311 4,332 22,927 18.9 9.2 9.7 1.4
1996 3,067 28,202 566 6,320 34,522 18.3 8.9 9.4 1.6
1997 4,394 35,823 779 8,874 44,697 19.9 9.8 10.0 1.7
1998 4,857 37,254 1,028 9,999 47,253 21.2 10.3 10.9 2.2
1999 6,782 46,976 1,413 13,943 60,919 22.9 11.1 11.8 2.3
2000f8,713 54,438 1,761 17,492 71,931 24.3 12.1 12.2 2.4
2001g4,125 24,546 852 8,384 32,929 25.5 12.5 12.9 2.6
Number of
establishmentsPersons
employedLabour
productivityAverage
wage Exports ImportsNet
exports
(000 US$/worker) (current US$ million)
1990 1,703 446,436 7,942 1,017 13,873 10,321 3,551
1991 1,914 467,352 8,511 1,091 15,833 11,782 4,051
1992 2,075 505,698 9,221 1,265 18,680 13,937 4,743
1993 2,114 542,074 11,162 1,462 21,853 16,443 5,410
1994 2,085 583,044 8,971 1,141 26,269 20,466 5,803
1995 2,130 648,263 10,764 995 31,103 26,179 4,925
1996 2,411 753,708 14,319 1,272 36,920 30,505 6,416
1997 2,717 903,528 16,451 1,617 45,166 36,332 8,834
1998 2,983 1,014,006 15,841 1,628 53,083 42,557 10,526
1999 3,297 1,143,240 18,477 2,057 63,854 50,409 13,444
2000f3,590 1,285,007 20,036 2,427 79,467 61,709 17,759
2001g3,735 1,276,911 8,816 1,104 44,631 33,329 11,301
a Derived from data in Mex$ using end of period exchange rates.
b Estimated as the sum of value of inputs and value added, the latter corresponding to the value of output which accrues to valu e
adding factors of production such as labour and capital.
c Ratio of value added to value of output.d Proportion of value of output paid to labour in the form of wages (equivalent also to the ratio of average wage to labour
productivity).
e The price-cost margin is the residual, as a proportion of value of output, which accrues to all value adding factors other tha n
labour.
fP r e l i m i n a r y .
g Preliminary estimates for January-May, or January-July for exports, imports and net exports.
Source: WTO Secretariat estimates, based on Poder Ejecutivo Federal (2000), Primer Informe de Gobierno , September, p. 254.
88. Main maquiladora  activities are (per cent of total maquiladora  value added in 1996/2000
between parentheses):  electric and electronic materials (26/30);  automotive equipment and
accessories (23/17);  textiles and clothing (12/16);  and electric and electronic machinery (11/8).25
The existence and development of the maquiladora  industry is due in large part to foreign investment:
                                                     
25 WTO estimates, based on INEGI online information.  Available at:  http://www.inegi.gob.mx/.Mexico WT/TPR/S/97
Page 103
in the mid 1990s, half the investment in the industry was of U.S. origin, 44% Mexican, 4% Asian, and
the rest European or Latin-American.
89. The maquiladora  industry has expanded for some three decades, with growth accelerating
since Mexico's previous Review.  Indeed, the r ecent good performance of manufacturing as whole is
in good part due to the remarkable expansion of the maquiladora  industry:  between 1996 and 2000
value added and value of output expanded at the remarkable average annual rates of almost 33% and26%, respectively.
26  During that period, employment increased at lower but still brisk rates that
doubled the number of positions, confirming the traditional capacity of maquiladora  operations to
create jobs;  similar trends were observed for average (nominal) wages and labour productivity.
90. Underpinning the expansion of the maquila  industry was rapid export growth, which averaged
almost 21% per year during 1996-00.  Although this in turn resulted in higher imports, the industrymanaged to increase steadily its use of domestic inputs;  nevertheless, in 2000 these represented only
about 2.4% of the value of output or 3.5% of the value of all inputs used in maquiladora  operations.
The industry thus seems to have had some suc cess in establishing more backward linkages with
domestic activities.
91. Given its still relatively weak linkages with other domestic activities, Mexico's economic
slowdown in 1995 had no apparent negative impact on the industry's value of output, as exports
continued to expand;  however, the value-added share fell in 1995 and 1996 as both the price-cost
margin (a proxy for profitability) and labour's share were depressed.  Since then, these two variables
have increased, reflecting rising wages and, probably, profits in maquiladora  operations.  While it
was not yet evident from preliminary statistics for early 2001, a slowing U.S. economy was expected
to have a sizeable negative effect on the maquiladora  industry in that year.
(iii) Policy objectives and instruments
92. Mexico's approach to trade and industrial policies since the mid 1980s has gradually increased
the exposure of the manufacturing sector to foreign competition;  as a result, the sector as a whole
may now be clearly characterized as outward oriented although import-substitution objectives still
tinge policies towards certain activities.  Mexico's overall industrial policy objectives for 1995-00
were defined in the Industrial Policy and Foreign Trade Programme (PPICE).
27  Described in the
Secretariat Report for Mexico's previous Review, the PPICE foresaw achieving greater
competitiveness through the State creating conditions for high profitability in export activities;
expanding access to foreign markets;  accelerating the development of regionally and vertically
integrated industrial groups;  and encouraging "efficient import substitution".
93. Given the trends mentioned above, in recent years the PPICE appears to have succeeded in
achieving its main aims of generating faster growth in manufacturing relative to the rest of the
economy and creating a large number of jobs.  As this took place against a generally favourable
economic background, the sustainability of Mexico's industrial policies is likely to be tested by the
downturn in domestic and foreign demand that began in late 2000 combined with a relatively strong
exchange rate and growing wage pressures.  Moreover, the use of some policy instruments will needto be modified under commitments made by Mexico both under preferential agreements (e.g. tariff
protection) and in the multilateral context (e.g. TRIMs).  The expected entry of China into the WTO
may also affect access conditions for certain Chinese manufactures that would compete directly with
                                                     
26 Based on current US dollars.
27 The main legal basis for the PPICE was provided by the decree published in the Official Journal  on
31 May 1995 establishing the 1995-2000 National Development Plan.WT/TPR/S/97 Trade Policy Review
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Mexican products both in Mexico itself and in the U.S. market (e.g. textiles, clothing, footwear, and
certain electronic products).
94. As at late December 2001, the PPICE's overall aims still served as guiding principles for the
various programmes in force, since no successor programme had been statutorily established.  In this
regard, the Department of Economy carries out th e PPICE's strategy through three main programmes
that seek regulatory improvements, opening foreign markets, and promoting fair competition both indomestic and foreign markets.
28
95. Mexico's industrial policy is implemented, in practice, largely through various trade
instruments detailed in Chapter III.  The net assistance they provide to individual manufacturing
activities is difficult to assess, though, and raises questions about the overall coherence of policy
instruments.  For example, the protection provided to Mexican producers through MFN tariffs wouldseem to be seriously undermined by the preferential access granted to foreign manufactures covered
by regional agreements;  effective tariff protection would be enhanced by concessions given to
domestic producers for the duty-free importation of i nputs from non-preferential sources, concessions
which, however, are no longer available to exports destined to the NAFTA region.
96. At the border, tariff escalation is intended to provide downstream processing industries with
more protection from import competition than other industries, a feature that became more evident
after tariffs were increased in January 1999;  escalation is also likely to be magnified by tariff
concessions granted on inputs.  Overall, tariff increases have brought the average MFN tariff in
manufacturing to 16.5% in 2001.  Under a four-digit ISIC definition, nominal tariff protection is the
highest in a number of activities related to the processing of agricultural products, textiles and
clothing, and footwear (Table AIV.3).
97. As also described in Chapter III, other trade-related measures with an industrial focus include
the use of non-automatic import permits (e.g. for petrochemicals reserved to the State;  used tyres,
machinery and office equipment;  vehicles;  and used clothing) and of government procurement rules
to provide domestic firms an advantage in public tenders (especially affecting pharmaceuticals and
capital goods).  The active use of contingency measures, particularly anti-dumping, suggests that they
too are an important element to support certain industries (e.g. steel, petrochemicals, plastics, textiles,and footwear).
98. Another key policy instrument in manufacturing takes the form of fiscal concessions under
the PITEX, ECEX, and the maquiladora  regimes.  In view of the narrowing down of benefits under
these programmes a new scheme for sectoral promotion, PROSEC, was established in 2000
(Chapter III).  Under PROSEC, firm s may import selected inputs at reduced tariff rates, in some cases
subject to compliance with national-content requ irements or to no domestic substitutes being
available.
99. In addition, special assistance is provided to the motor-vehicles industry, which has been a
priority sector in industrial policy since the early 1960s.  Support has been provided through strong
tariff protection, tax incentives, and local-content requirements, while restrictions on foreigninvestment have been used to promote the domestic auto-parts industry.  As also noted in the
Secretariat Report for Mexico's previous Review, th e motor-vehicle industry was relatively unaffected
by the unilateral liberalization undertaken in the late 1980s, as the industry successfully argued that it
required more time to adjust.  In 2001, noting that particular difficulties were being encountered
                                                     
28 Details on recent progress on these programmes may be found in the Department's online
information.  Available at:  at http://www.se.gob.mx/.Mexico WT/TPR/S/97
Page 105
concerning the implementation in the motor-vehicle industry of the WTO TRIMs Agreement, Mexico
requested an extension of two years, from 1 January 2002, for the elimination of TRIMs.
100. Meanwhile, the motor-vehicle industry continues to be governed by the decrees of 1989
described in Chapter III(4)(viii).  Additionally, the NAFTA rules of origin provide incentives to use
intermediate inputs produced in the NAFTA region.  Moreover, imports of used motor vehicles are
prohibited except for imports into the border zone, which are subject to special rules.  Although theNAFTA provides for a gradual liberalization of this prohibition, to be completed on 1 January 2019,
such liberalization will apply onl y to NAFTA-originating vehicles.
(5) S
ERVICES
(i) Financial services
(a) Overview
101. The Mexican financial system is composed of the following institutions:  banks;  auxiliary
credit organizations (financial factoring companies,  financial leasing companies, currency exchange
houses, general deposit warehouses, credit unions, and savings and loans);  securities houses;
insurance;  bonding;  and retirement savings.  Primary responsibility for the regulation and
supervision of the financial sector lies with the Department of the Treasury and Public Credit (SHCP)
and its regulatory agencies:  the National Banking and Securities Commission (CNBV) supervises the
banking, securities, and credit ancillary organizations and activities sector;  the National Insurance
and Bonding Commission (CNSF) supervises the in surance and bonding sector;  and the National
Savings and Retirement System Commission (CONSAR) supervises retirement savings.  In addition
to its normal operations (including regulating the payment system and operating as a reserve bank and
lender of last resort for credit institutions), the Central Bank regulates financial operations, the foreign
exchange, and derivatives markets.
102. Two regulatory entities have been established since Mexico's previous Review:  the Institute
for the Protection of Bank Savings (see Box IV.1);  and the National Commission for the Protection
and Defense of Financial Services Users (CONDUSEF), which provides advice and defends
customers of financial institutions (Chart IV.1).  Ot her important regulatory reforms have resulted in
the easing of foreign ownership restrictions, with significant changes to the prudential regulatoryregime also introduced (see Table IV.11).
103. Mexico took part in the extended GATS negotiations on financial services and accepted the
Fifth Protocol on 29 January 1999.
29  For banking and other financial services (excluding insurance
services), Mexico made commitments only with resp ect to commercial presence:  national treatment
was bound for all such services included in Mexico's schedule;  while market access was bound ingeneral at 40% or 49% of common capital stock (under the Uruguay Round market access was
generally bound at 30%), and individual holdings limited to 5% of the capital stock or 20% with
SHCP authorization.  With respect to insurance services, commitments on market access and national
treatment were made only for commercial presence except in the case of re-insurance services, for
which national treatment was bound for cross-border supply.  Market access through commercialpresence for insurance services included in Mexico's schedule was bound at 40% of the paid-up
capital (under the Uruguay Round market access was generally bound at 30%);  the limit on
individual holdings by foreign investors was bound at 10% or 20% with SHCP authorization.
30
                                                     
29 WTO document WT/LET/288, 18 February 1999.
30 WTO document GATS/SC/56/Suppl.3, 26 February 1998.WT/TPR/S/97 Trade Policy Review
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Box IV.1:  The Institute for th e Protection of Bank Savings
Following the financial crisis of the mid-1990s, the Mexican authorities adopted a number of measures
aimed at averting the collapse of the Mexican financial market.  These measures included financialassistance to distressed banks, debtor support progra mmes, and bank restructuring operations.  The Institute
for the Protection of Bank Savings (IPAB) was established by the Law for the Protection of Bank Savings(LPAB) of 19 January 1999, with the principal objectives of establishing a system for the protection ofbank savings and concluding the rehabilitation processes of banking institutions.  The IPAB is a
decentralized public entity with legal personality and pa trimony;  it is governed by a board chaired by the
Minister of the Treasury and Public Credit and including the Governor of the Central Bank, the Presidentof the CNBV, and four members designated by appointment of the President and ratified by the Congress.
The LPAB was the starting point for the creation of an explicit, limited, and obligatory deposit insurance
mechanism in Mexico.  The Law contemplates the gradual elimination of the existing universal deposit
guarantee by no later than 1 January 2005, when coverage of bank liabilities will be limited to a maximum
of 400,000 UDI per person and per institution.  Commercial banks are required to pay a contribution to theIPAB ranging between 0.4% and 0.8% of their liabilities per year;  the IPAB must retain access to three-fourths of the revenue from such contribution to conclude the financial strengthening programmes andliquidate the FOBAPROA (Fund for the Protection of Bank Savings) and FAMEVAL (Support Fund forthe Securities Market);  the remaining fourth is to be used to cover the IPAB’s administrative and operating
expenses and to create a Reserve Fund for the Protection of Bank Savings.
The LPAB entitles the banks holding FOBAPROA notes to exchange them for IPAB notes provided they
submit a financial consolidation plan approved by the CNBV.  By end 1999, all banks entitled to thisexchange – BANAMEX, BANCOMER, BANORTE, BITAL and BBV – had requested it and had begun toimplement their financial consolidation.  The IPAB  also assumed the obligations contracted by the
FOBAPROA and the FAMEVAL relative to the financial strengthening and bank debtors support
programmes implemented by the financial authorities;  at the end of 2000, total IPAB liabilities derived
from the bank financial strengthening and debt or support programmes am ounted to Me x$882 b illion
(equivalent to some 16% of GDP).
In 1999, the IPAB intervened in two commercial banks – Banca Serfin and BanCrecer – to protect more
than 3.5 million accountholders.  In both cases, the IPAB prevented their bankruptcy by injecting resources
for their recapitalization;  shareholders  lost the capital invested.  Banca Se rfin returned to the private sector
in mid 2000, although the IPAB remained the largest creditor;  in September 2001, BanCrecer was sold toBanorte, through public bid, for Mex$1.6 billion (some US$176 million).
Source:   I P A B  ( 2 0 0 0 ) ,  Annual Report  [online].  Available at:  http://www.ipab.org.mx/ [15 November
2001].
104. Foreign financial institutions may establish representative offices in the Mexico with prior
SHCP authorization;  representative offices may not act as financial intermediaries, nor promote
acceptance of funds by the firm they represent.  Foreign financial institutions without commercial
presence may not solicit and transact business with customers in Mexico.
105. Access to the financial services market provided for in Mexican laws is in practice
more favourable than Mexico's GATS commitments. In January 1999, the Credit Institutions Law, the
Securities Market Law and the Law to Regulate Financial Groups were amended in order toallow foreign investment to participate up to 100% in the capital of commercial banks, financial
groups, securities brokerage firms, and securities market specialists.  The total percentage of foreign
investment in other financial institutions (including general deposit warehouses, financial leasing
companies, financial factoring companies, currency exchange houses, and insurance and bonding
institutions) remains limited to 49% of the paid-up capital.  Foreign investment is still prohibited incredit unions and development banks.Mexico WT/TPR/S/97
Page 107
Chart IV.1Structure of the Mexican financial system, December 2001
Institute for the Protection of
Bank Savings (IPAB)Bank of Mexico National Commission for the Protection and Defense of
Financial Services Users (CONDUSEF)
28 Holding companies
(multi-service banking)
48 Commercial banks (b)
(of which 18 are foreign subsidiaries)
6 Development banks
 7 Developments trust funds
34 Limited-scope
 financial companies (d)
1 National savings
patronageBanking sector
25 Factoring companies (a)
35 Financial leasing
companies (c)
266 Credit unions
11 Savings and loans
associations
27 Money exchange
houses
26 General deposit
warehouses (d)
1 Credit bureauAncillary credit activities
Mexican Stock Exchange
25 Brokerage houses (d)
332 Investment fundsSecurities sectorNational Banking and
Securities Commission (CNBV)
61 Insurance companies
15 Bonding ins titutions (e)Insurance and bonding sectorNational Insurance and
Bonding Commission (CNSF)
Retirement fund administrators
13 Specialized investment
companiesRetirement Fund SystemNational Savings and Retirement
Commission (CONSAR)Department of the Treasury
and Public Credit
a Of which six are under intervention.
b Of which ten are under intervention.
c Of which one is under intervention.d Of which two are under intervention.
e Of which three are under intervention.
Source: WTO Secretariat, based on information provided by the Mexican authorities.
106. Notwithstanding the above provisions, unrestricted foreign ownership is possible only
through the legal figure of subsidiaries of foreign financial institutions.  The limits on foreign
ownership of financial institutions do not apply to s ubsidiaries of foreign financial institutions based
in countries with which Mexico has concluded agreements covering financial services providing for
such establishment.  Besides the NAFTA, Mexico has signed such agreements with Colombia and
Venezuela, the European Free Trade Association, and the European Union.  In the case of the FTAs
with Bolivia and Nicaragua, which also include provisions on financial services, the establishment of
subsidiaries is not allowed.
107. Foreign financial institutions from other countries may hold only non-controlling interests in
domestic institutions.  However, pursuant to its accession to the OECD, Mexico allows the
establishment of subsidiaries of foreign financial institutions from all OECD countries.
108. As noted, the Mexican legislation allows the establishment of financial groups (holding
companies) controlling different types of institutions.  Such groups must include in general at least
three of the following institutions:  (i) a bank;  (ii) a brokerage house;  (iii) an insurance company;(iv) a bonding company;  (v) a mutual fund management company;  (vi) a currency exchange broker;
(vii) a general deposit warehouse;  (viii) a financial leasing company;  (ix) a financial factoring
company;  (x) a limited scope financial institutio n company;  (xi) a retirement savings company;
(xii) managing companies of investment companies.  Financial groups may also be established with
only two types of entities provided they are selected among the following:  (i) a bank;  (ii) a brokeragehouse;  or (iii) an insurance company.  The establishment of holding companies must be authorized byWT/TPR/S/97 Trade Policy Review
Page 108
the SHCP, which grants such authorization on a discretionary basis.31  The majority of board members
of a financial group must be Mexican nationals or foreigners residing in Mexico.
Table IV.11
Main financial sector laws
Laws Date of publication (latest amendment)
General Law on Organizations and Auxiliary Credit Activities
(Ley General de Organizaciones y Actividades Auxiliares del Crédito)14 January 1985 (4 June 2001)
Investment Company Law
(Ley de Sociedades de Inversión)4 June 2001
Credit Institutions Law
(Ley de Instituciones de Crédito)18 July 1990 (15 January 2002)
Law to Regulate Financial Groups
(Ley para regular las Agrupaciones Financieras)18 July 1990 (4 June 2001)
Central Bank Law
(Ley del Banco de México)23 December 1993 (19 January 1994)
Regulations for the Establishment of Affiliates of Foreign Financial Institutions
(Reglas para el Establecimiento de Filiales de Instituciones Financieras del Exterior)21 April 1994
Law on Saving Systems for Retirement
(Ley de los Sistemas de Ahorro para el Retiro)23 May 1996 (16 January 2002)
General Law of Insurance Companies and Mutual Institutions
(Ley General de Instituciones y Sociedades Mutualistas de Seguros)31 August 1935 (19 January 2001)
National Insurance and Bonding Commission Regulations, on Inspection, Vigilance and
Accountancy
(Reglamento de la Comisión Nacional de Seguros, y Fianzas en Materia de Inspección,Vigilancia y Contabilidad)14 January 1991
People's Savings and Credit Law
(Ley de Ahorro y Crédito Popular)4 June 2001
National Banking and Securities Commission Law
(Ley de la Comisión Nacional Bancaria y de Valores)28 April 1995 (1 June 2001)
Securities Market Law
(Ley del Mercado de Valores)2 January 1975 (1 June 2001)
Law for the Protection of Bank Savings
(Ley de Protección al Ahorro Bancario)19 January 1999 (1 June 2001)
Federal Law on Bonding Institutions
(Ley Federal de Instituciones de Fianzas)29 December 1950 (16 January 2002)
Law for the Protection of Financial Services Users
(Ley de Protección y Defensa al Usuario de Servicios financieros)18 January 1999 (5 January 2000)
Source: The Mexican authorities.
(b) Banking
109. The Mexican financial system is dominated by banking institutions, including commercial  or
multi-service banks (entitled to receive money from the public);  development banks;  limited scope
financial companies (exclusively dedicated to one activity, e.g. operation of credit cards, or motor
vehicle or housing credits);  the National Financial Services Bank32;  and public trusts (intended to
support specific activities).
110. Between December 1997 and March 2001, the total credit granted by commercial  banks to
the productive sector decreased significantly, from Mex$539 billion (some US$66 billion) to
Mex$463 billion (some US$48 billion) (Table IV.12).  This is explained by the mid-1990s financial
crisis, which moved a large portion of the credit to the IPAB (see Box IV.1), more cautious behaviour
on the part of commercial banks, and the limited the resources available to them, which between 1995
and 1998 were mostly allocated to building reserves and strengthening the overall quality of their
                                                     
31 Financial Groups Law published in the Official Journal  on 18 July 1990.
32 In June 2001, the National Savings Patronage was transformed into the National Financial Services
Bank, which is responsible for coordinating the Mexican Popular Saving System.Mexico WT/TPR/S/97
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balance sheet.  Credit to the productive sector was also affected on the demand side by relatively high
interest rates and access to alternative financing sources such as suppliers' credit and inter-company
credit.
Table IV.12
Total credit granted by commercial banks, by sector, 1997-01
(per cent, unless otherwise specified)
Sector 1997 1998 1999 2000 2001a
Total credit (Mex$ million) 895,348 949,169 1,026,820 946,633 914,540
Total credit (US$ million) 113,070 103,893 107,403 100,113 100,546
Agriculture, forestry and fishing 5.6 5.3 4.5 4.2 4.3
Industry 26.2 27.0 23.1 22.1 21.9
Mining 0.6 0.4 0.4 0.6 0.6
Manufacturing 17.4 18.4 16.1 15.9 15.4
Construction 8.2 8.2 6.6 5.6 5.9
Services and other activities 28.4  26.5 22.4 24.8 24.5
Housing 24.7  26.4 24.6 22.2 21.8
Consumption 3.4  3.5 3.4 4.7 5.3
Domestic financial sector 1.7  2.1 14.4 15.4 14.8
Private 1.6  1.8 2.4 2.8 3.0
Public 0.1  0.3 0.4 0.4 0.1
FOBAPROA and IPAB n.a. n.a. 11.7 12.2 11.8
Government and public administration 4.8 5.7 5.0 5.2 5.6
Entities abroad 0.9 1.3 0.3 0.5 0.7
Past due credit (% of total credit) 24.0 31.1 29.0 24.7 23.2
Agriculture, forestry and fishing 43.4 75.0 78.6 76.8 66.2
Industry 18.7 28.1 32.1 30.6 29.2
Mining 10.7 28.9 35.3 26.6 28.9
Manufacturing 16.1 24.4 29.0 27.1 26.1
Construction 24.8 36.2 39.3 41.0 37.1
Services and other activities 27.4 39.0 44.5 36.0 32.6
Housing 28.9 28.7 27.1 20.9 21.6
Consumption 24.1 20.7 18.0 10.4 10.2
Domestic financial sector 52.7 43.8 5.1 4.5 5.0
Government and public administration 0.4 0.4 0.4 0.3 0.3
Entities abroad 4.5 0.2 11.6 0.9 ..
.. Not available.
a Preliminary estimate as of May 2001.
Source:  Poder Ejecutivo (2001), Primer Informe de Gobierno , [online].  Available at http://www.presidencia.gob.mx/.
111. Financial indicators for commercial banks have improved since the mid-1990s crisis.  The
proportion of past due loans to total loans has decreased sharply since 1994, standing at less than 5%
in December 2001;  capital adequacy (measured as the ratio of net capital to risk assets) has also
improved and was close to 15% in 2001 (Table IV.13).
112. More stringent capitalization and reserve regulations increased the need for additional capital,
which required the participation of additional investors.  In January 1999, foreign investors were
allowed to own a controlling share of a Mexican commercial bank, regardless of the bank's size.33
This reform resulted in a striking rise of foreign participation which, measured as the share of foreign-
                                                     
33 Before the reform, foreign investors were not allowed to hold more than 20% of the outstanding
shares of banks that held more than 6% of the aggregate capital of the Mexican banking system, thus, inpractice, precluding foreign control of the three largest Mexican banks.WT/TPR/S/97 Trade Policy Review
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controlled banks in total assets, rose from 24% in 1998 to nearly 50% at the end of 2000;  this share
rose to some 73% in 2001 following the purchase of BANAMEX by CITIGROUP.
Table IV.13
Commercial banking soundness indicatorsa
(Per cent)
YearTotal loans
(real change)Past due loans
(real change)Provisions for credit risks/
Past due loansPast due loans/
Total loans(Past due loans minus
provisions)/CapitalNet capital/
Risk assets
1994 25.7 36.3 20.8 17.1 151.4 10.4
1995 -19.0 -29.4 34.9 14.9 83.7 12.9
1996 -10.7 -29.3 56.1 11.8 45.0 12.6
1997 6.9 -0.5 61.4 11.0 33.2 13.9
1998 0.3 -7.4 66.4 10.1 25.8 14.8
1999 -11.2 -29.8 95.6 8.0 2.1 16.2
2000 -2.2 -41.7 112.8 5.3 -4.0 14.5
2001b-7.3 -33.3 127.7 4.7 -8.3 14.8
a These figures should be interpreted cautiously.  In 1997 more stringent criteria for defining past due loans were adopted, thu s the
reported figures for previous years would be higher if they were to be calculated with the new rules.  The same applies for cap ital
adequacy rules changed in 1996 and 1999.
b Preliminary estimate as at September 2001;  do not include Banco Atlántico.
Source: National Banking and Securities Commission.
113. The opening up of the banking sector to foreign investment was accompanied by substantial
efforts to upgrade the financial regulatory and supe rvisory framework to international standards.  In
terms of prudential regulations, changes aimed at strengthening the banking system included the
adoption of:  solvency regulations, including more stringent BIS capital rules and credit rating rules as
well as loan provisioning requirements;  financial information and disclosure regulations;  andoperating regulations, which included guidelines for overall risk management and the granting of
credit.  Additional reforms in June 2001 were aimed at increasing domestic savings through the
financial system;  introducing a more stringent framework on related parties lending;  introducing
prompt corrective actions providing better protection for bank depositors;  promoting credit channels
to all sectors of the economy;  and strengthening the structures of corporate governance of financial
institutions and securities issuers.
114. A compulsory deposit insurance mechanism was established in 1999 resulting in a gradual
lifting of the universal deposit guarantee and limiting the coverage of bank liabilities (Box IV.1).  The
adoption in 2000 of a new bankruptcy law also contributed to the strengthening of the financial
environment.
115. In December 2001, the banking system in Mexico included five government-owned
development banks, and seven public trusts intended to promote and finance specific activities.  Thethree major development banks in terms of total credit granted were:  Nacional Financiera (NAFIN)
accounting for 42% of total development banks credit;  Banco Nacional de Obras y Servicios Públicos
(BANOBRAS) accounting for 33%;  and Banco Nacional de Comercio Exterior (BANCOMEXT)
accounting for 17%.  In addition two development banks were in the process of liquidation, including
the sugar industry bank (FINASA) (see section (2) above), and two others had been authorized tooperate but were yet to begin their activity.  In March 2001, total outstanding credit from development
banks amounted to Mex$406 billion (equivalent to some 7% of GDP).
116. BANCOMEXT's main objective is to increase the competitiveness of small and medium-size
companies working in export or import substitution activities, granting support through trainingMexico WT/TPR/S/97
Page 111
services, information, financial assistance, projec t coordination, and financing.  NAFIN provides
support to the productive sector by offering multiple financing programmes through a network of
intermediaries, including commercial banks and other financial agents.  In addition, NAFIN promotes
domestic and foreign equity investments in private projects, encourages growth in the less developed
regions by increasing and improving availability of financial resources, and supports domestic
companies in becoming more competitive by offering technical assistance and training programmes(see Chapter III(3)(x) and (4)(iii)).
117. A recent study by the International Monetary Fund assessing the stability of the Mexican
financial system pointed out that the role played by development banks and public trusts was seriously
undermining an otherwise efficient financial system.  Major concerns were related to most
development banks:  making losses despite various rounds of recapitalization;  having been involved
in quasi-fiscal activities outside the scope of the budget;  having the fiscal incentives involved in their
operations channelled in a non-transparent manner;  incurring high operational costs;  and engaging in
operations overlapping the activities of other development or commercial banks either because their
mandates were not clearly established or they did not live up to their mandates.
34
(c) Insurance and bonding
118. Mexico's insurance and bonding sector comprises insurance companies, mutual insurance
companies, and bonding institutions.  As at September 2001, there were 70 insurance firms of which
two were state-owned (including AGROASEMEX, whic h provides specialized insurance services for
the agricultural sector - see section (2)), two were mutual companies, and 66 were private companies.
Among private companies, 34 firms – accounting for close to 40% of direct insurance premiums –
were subsidiaries of foreign financial institutions, while 16 were part of Mexican financial groups.
Additional market information is provided in Table IV.14.  With respect to bonding activities, therewere 15 companies in 2001 of which seven were part of Mexican financial groups and four were
subsidiaries of foreign financial institutions.  The total bonds issued by the bonding sector amounted
to some Mex$2 billion as at September 2001.
Table IV.14
Mexico's insurance market, January-September 2001(% unless otherwise specified)
Direct premiums (Mex$ million) 75,964
Life 34.0
Pensions 13.4
Injuries and illness 11.1
Damages 41.5
Vehicles damages 17.3
Vehicles 24.2
Reinsurance (Mex$ million) 2,731
Total (Mex$ million) 78,695
Source: National Insurance and Bonding Commission (CNSF).
119. The insurance industry is governed by the General Law of Insurance Companies and Mutual
Institutions of 1935, as amended.  Main responsibility for the application of these statutes rests with
the SHCP and CNSF.
                                                     
34 IMF (2001b).WT/TPR/S/97 Trade Policy Review
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120. In addition to the foreign participation limitations described above, individual foreign
investors may hold no more than 20% of the capital of an insurance company.  Mexican nationals
must have both majority ownership and administrative control of domestically established insurance
companies.  There are no nationality requirements for board members of domestic insurance
companies.  For subsidiaries of foreign financial institutions, the majority of board members and the
director must reside in the Mexican territory, regardless of their nationality.
121. The law establishes several prohibitions for co ntracting services with companies established
abroad, including:  damage insurance for maritime and air transport vehicles registered in Mexico;
civil responsibility insurance and any other kind of insurance covering events that might occur in
Mexico;  and credit insurance by firms subject to Mexican laws.35
122. Foreign reinsurance companies may have representatives in Mexico, but these may only
accept or assign reinsurance liabilities in the name of their main offices.  To participate in reinsurance
operations, foreign reinsurance companies must be registered with the SHCP.  Companies engaged in
reinsurance operations may use the services of intermediaries residing in Mexico or abroad.
Reinsurance intermediaries residing in Mexico mu st be authorized by the CNSF, while reinsurance
intermediaries residing abroad and wishing to offer services in Mexico must be registered with both
the CNSF and the SHCP.
(ii) Telecommunications
(a) Performance and market structure
123. The Mexican telecommunication sector has expanded substantially over the last decade;  the
sector has grown some five times faster than the economy as a whole, resulting in a sharp increase in
its contribution to GDP, from some 1.1% in 1990 to about 3% in 2000.  During the same period some
US$28 billion were invested in network expansion and modernization.   TELMEX (Teléfonos de
México), the former state-owned monopoly, remains Mexico's dominant telecommunications
company, despite the increasing participation of competitors mainly in long-distance and international
services.  TELECEL, which was divested from TELMEX in September 2000 is the main player in
Mexican wireless market, accounting for some 77% of the total number of mobile phone subscribers
as at September 2001;  the second-largest mobile operator accounted for 9% of total subscribers.
124. Following the introduction of competition in domestic long-distance and international
services in January 1997, and the entry of new operators, prices for these services have fallen
substantially.  According to data provided by the authorities, between the fourth quarter of 1996 and
the third quarter of 2000, average rates for long-distance services fell by some 60% in real terms,
average rates for calls to Canada and the United States fell by some 55%, while rates for internationalcalls to other countries fell by some 61%.  These rate reductions have contributed to the sharp
increase in the volume of long-distance and international calls.
125. One of the most notable development in the telecommunications market since Mexico's
previous Review has been the sharp increase in mobile services, particularly since the introduction on
1 May 1999 of the "calling party pays" billing system:  mobile penetration increased from 1.1 usersper 100 inhabitants in 1996 to 3.5 in 1998, reaching a rate of 8 per 100 in 1999.  For 2001 mobile
penetration stood at 17.3, surpassing the penetration level of the fixed service, which, despite sizable
increases since 1998, remains low at some 13 lines per 100 inhabitants in 2001 (Table IV.15).
                                                     
35 Article 3 of General Law on Insurance Companies and Mutual Institutions.Mexico WT/TPR/S/97
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Table IV.15
Structural and performance indicators of Mexico's telecommunications sector, 1995-01
1995 1996 1997 1998 1999 2000 2001
Fixed local telephony
Total number of lines ('000) 8,801.0 8,826.1 9,253.7 9,926.9 10,927.4 12,331.7 13,368.3a
Density (number of lines per 100 inhabitants) 9.6 9.5 9.8 10.3 11.2 12.4 13.0b
Long distance telephony
National calls (million minutes) 7,294 7,867 9,143 11,717 14,425 16,811 ..
Average ratesc.. 3.1 1.9 1.4 1.4 1.2 ..
International calls (million minutes) 3,055 3,558 4,033 4,286 5,570 7,776 ..
Outward calls 950 1,055 1,214 1,316 1,563 1,883 ..
Inward calls 2,105 2,503 2,819 2,970 4,007 5,893 ..
Average rates for calls to the U.S. and Canadac.. 9.1 5.8 5.0 4.3 4.1 ..
Average rates for calls to the rest of the worldc.. 17.5 11.2 9.3 7.2 6.9 ..
Mobile telephony
Number of users ('000) 689 1,022 1,741 3,349 7,732 14,078 19,396a
Density (users per 100 inhabitants) 0.8 1.1 1.8 3.5 8.0 14.2 17.3
Public telephony
Number of public phones ('000) 246.5 238.6 259.6 316.6 .. .. ..
Paging (number of users) 252 330 448 651 806 667 471
Trunking (number of users) 65 89 113 140 243 268 272
Restricted television services ('000 subscribers)
Cable TV 1,250 1,450 1,383 1,611 1,983 2,282 2,437a
Microwaves 286 236 267 288 355 346 330a
Via satellite (DTH) 0 0 152 308 491 668 843
Internet users ('000) 94 187 596 1,222 1,822 2,712 ..
Digitalization of facilities (%) 87.6 89.8 90.1 97.7 99.6 99.9 ..
Optical fiber network ('000 kilometres) 42.8 56.1 85.1 75.3 85.7 98.1 ..
.. Not available.
a September 2001.
b June 2001.c Constant Mexican pesos of September 2000;  all rates correspond to averages for the fourth quarter of each year, except for 20 00,
for which the figure corresponds to the second quarter.
Source: WTO Secretariat, based on information provided by the Mexican authorities.
126. As described in the Secretariat Report for Mexico's previous Trade Policy Review, from the
early 1990s Mexico has engaged in a major programme to open up the telecommunications market,
including deregulation, the introduction of competition, and the liberalization of foreign investment.In 1990, the Government initiated the privatization of TELMEX, then state-controlled, selling a
controlling share to a private consortium including a Mexican group, Grupo Carso, and two foreign
companies, France Telecom and SBC Communicati ons, a division of Southwestern Bell;  the
privatization process ended in 1994, when the State sold its remaining shares in TELMEX.
127. The privatization of TELMEX came with a concession title which will expire in 2026
(corresponding to a 50 year concession from 1976, the date of the original concession title).  Under
the concession title, TELMEX was granted a monopoly for long-distance and international telephony
until 31 December 1996.  For other services, such as local telephony, wireless telephony, paging,
truncking, or value-added services, the entry of new operators was allowed.  The concession alsoWT/TPR/S/97 Trade Policy Review
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included obligations with respect to infrastructure expansion, in particular in rural areas;
improvement of the quality of the services;  and infrastructure interconnection.
128. Before introducing competition in long-distance and international services several steps were
taken to ensure that competition would be viable, including the granting of concession titles, starting
in 1995, to allow new entrants to develop their infrastructure and be prepared to provide their services
under good conditions from January 1997.  Moreover, TELMEX was required to rebalance its rates toeliminate the cross-subsidies between local and long-distance or international services;  and the rules
governing interconnection agreements between long-distance carriers and the incumbent company
were established through a Resolution published on 1 July 1994, which also established that
TELMEX would provide interconnection to new operators in 60 cities by 1997, spreading to 200 by
the start of 2000.
129. Until 2002, concessionaires had not succeeded in reaching agreement on interconnection
conditions between fixed networks or between fixed and mobile networks;  these had to be
determined by the authorities.  An important is sue underlying the determination of interconnection
conditions concerned the rebalancing of TELMEX's local and long-distance rates.  The tariff
rebalancing programme, initially scheduled to be completed before the market liberalization inJanuary 1997, was delayed due to the financial crisis in 1994.  Although most firms acknowledged
this situation, there was a disagreement on the extent of the misalignment as well as on whether this
justified the imposition of interconnection charges well above the long-run incremental cost.  The
authorities resolved the dispute between TELMEX and long-distance operators by establishing a
transitional interconnection regime for 1997 and 1998, which allowed TELMEX to recover part of the
subsidies incorporated in the local services while tariff rebalancing was completed.
36  Subsequently,
interconnection charges established by the authorities for 1999-00 and for 2001 were substantiallyreduced:  for instance, according to figures from the Mexican authorities, interconnection charges for
long-distance operators were reduced in constant terms from some Mex$0.71 per minute in 1997 to
Mex$0.11 per minute in 2001.
37  For 2002, concessionaries agreed to set the interconnection rate at
Mex$0.09 per minute.
130. Competition in local services started progressively in 1999;  previously, competition had been
hampered mainly by the subsidized rates offered by TELMEX.  The advance of the rebalancing
programme and the establishment of interconnection agreements for local service networks have
allowed various concessionaries to start local services operations.  At the end of 2000, 17 concession
titles for operating fixed local telephony services had been granted (including with wireless
technology), of which seven had started operating in eight Mexican cities.
(b) Regulatory framework
131. The main law regulating the telecommunication sector in Mexico is the Federal
Telecommunications Law (7 June 1995).  Other bill s and regulations include:  the Law of General
Means of Communications (19 February 1940, as amended);  the Telecommunications Regulations
(29 October 1990); and the regulations and rules issued by the Department of Communications andTransportation (SCT) and the Federal Telecommunications Commission (COFETEL).  The latter
includes long-distance services (21 June 1996), rules for international long-distance services
(11 December 1996), rules for local services (22 October 1997), and regulations for satellite
                                                     
36 For additional details on developments in interconnection conditions in the Mexican market see
OECD (1999b) and  International Telecommunication Union (2001).
37 Figures from Department of Communications and Transportation (2000), based on constant prices of
September 2000, and on an inflation assumption of 9% for 2000.Mexico WT/TPR/S/97
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telecommunications (1 August 1997).38  The SCT and its autonomous regulatory body, the
COFETEL, oversee compliance with the relevant laws and regulations.
132. COFETEL is the primary regulatory author ity, although SCT retains certain important
responsibilities including the authority to grant concession titles and permits, and impose sanctions;
COFETEL’s main functions include providing opinions  to the SCT with respect to applications for
the granting, modification, extension and cession of concessions and licences;  resolvinginterconnection controversies among concessionaries;  issuing administrative rules for the provision
of telecommunications services;  submitting for approval by the SCT the programme for the
allocation of frequency bands and coordinating the corresponding bidding procedures;  coordinating
the bidding procedures to exploit geostationary orbital positions, and satellite orbits assigned to
Mexico;  establishing the procedures for the homologation of equipment;  maintaining the registry oftelecommunications;  overseeing the observance of what is set forth in concessions and permits;  and
proposing to the SCT the imposition of sanctions for the violation of legal, regulatory or
administrative provisions.
133. Under the Federal Telecommunications Law (LFT) a concession title is required for:  the use
of a frequency band, except for unlicensed spectrum that can be used by everyone and official-usespectrum;  the installation, operation or exploitation of public telecommunications networks;  the
occupation of geostationary orbital positions and satellite orbits assigned to Mexico and the
exploitation of its corresponding frequency bands;  and the exploitation of signal transmission and
reception rights of frequency bands associated to foreign satellite systems that may cover or render
services in the Mexican territory.  Frequency band concessions are granted for a 20-year period and
may be extended once for an equal term;  concessions over public telecommunications networks are
granted for a 30-year period and may be extended once for an equal term.
134. Concession titles may be granted only to Mexican individuals or companies;  foreign
investment participation is allowed up to a maximum of 49%, except for mobile telephony services
where foreign participation may exceed this maximum provided permission is obtained from the
National Foreign Investments Commission (CNIE).
135. A permit issued by the SCT is required for the establishment, exploitation or operation of a
telecommunication services company that does not have a public network nature, and of land
transmitting stations.  Providers of value-added services are not required to obtain a licence, although
they must be registered with the COFETEL.
136. The LFT does not establish conditions to be set in the concession titles.  However, the OECD
noted that COFETEL's ability to impose conditions on the concession titles, through a process ofnegotiation over the business plan of individual companies, has been the principal instrument used by
the authorities to regulate the telecommunications market.
39  For instance, to promote infrastructure
expansion, COFETEL has imposed obligations on new entrants to build infrastructure in excess of the
level they would otherwise have built.  This policy  of promoting infrastructure development through
the regulation of entry into the market raises so me concerns as it might limit the ability of new
suppliers to respond quickly to market developments and technological changes since the investment
obligations are set in the concession contracts months or years in advance;  moreover, COFETEL's
ability to set specific conditions in each concession generates incentives for lobbying from established
concessionaires to raise entry conditions for new firms.
                                                     
38 Laws and Regulations applying in the telecommunications sector may be consulted in the CFT
online information, available at:  http://www.cft.gob.mx/.
39 See OECD (1999b).WT/TPR/S/97 Trade Policy Review
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137. Provisions regulating interconnection in Mexico are contained in the LFT, the concession
titles, and various rules issued by the SCT and COFETEL.  The LFT establishes that concessionaires
of public telecommunications networks must adopt architecture designs that allow interconnection
and inter-operability of the networks.  Concessionaires of public networks are required to negotiate
interconnection agreements within a time-period not exceeding 60 calendar days.  Discriminatory
practices in the application of rates or any other terms of interconnection are prohibited.  Althoughinterconnections do not have to be approved by the authorities to be valid, concessionaires are
required to register agreements with COFETEL.  In case of failure to reach an agreement, the parties
can appeal to COFETEL to rule on outstanding issues, including to determine the level of
interconnection rates.
138. With respect to price regulations, TELMEX's c oncession title established a system of price
control based on a price-cap mechanism, which applies over a basket of basic services including
installation charges, monthly rates, and local, long -distance, and international services.  The weighted
average price of these services is constrained to a ceiling level.  For all other prices, the LFT
establishes that concessionaires may freely determine the rates for telecommunication services, in
terms that will allow the rendering of such services within satisfactory conditions of quality,competitiveness, safety and permanence.  The Mexi can authorities indicated that tariff application
was denied once to TELMEX because one of these conditions was not met and the company did not
comply with its concession title.  The law also established that COFETEL is entitled to impose
specific obligations on prices (as well as on quality of service and information) on concessionaires
that have been found by the Federal Competition Commission (CFC) to have substantial power in a
given market.
139. Since its previous Review in 1997, Mexico has signed new agreements and protocols on
telecommunications issues with Argentina, Belize, Canada, Chile, Costa Rica, El Salvador, Ecuador,
France, Germany, Nicaragua, the Republic of Korea, Spain, and the United States.  These agreements
included memoranda of understanding, protocols for transmission and reception of satellite signals,
agreements for the promotion of the Spanish language on the Internet, and cooperation agreements.
40
140. Mexico adopted the Fourth Protocol to the GATS as well as the Reference Paper to this
Protocol on pro-competitive and transparency practices (Chapter II(4)).  Mexico's offer generally
consolidated the basic features and principles contained in the LFT.  Most services were included in
Mexico's offer, although radio broadcasting, cable television, and satellite transmission services were
excluded.  With respect to national treatment, all telecommunication services included in the Mexico's
Schedule were bound (except for the presence of natural persons as specified in the horizontalcommitments).  Market access for cross-border supply was bound with the only restriction that
international traffic must be routed through the facilities of an enterprise with a concession granted by
the SCT.  Matching LFT provisions, market access through commercial presence was bound at a
ceiling of 49% foreign participation and remains subject to the obtention of a concession title or
permit as described above (Table AIV.4).
141. In August 2000, the United States requested consultations with Mexico alleging that Mexico
had adopted anti-competitive and discriminatory regulatory measures, tolerated certain privately
established market access barriers, and failed to take needed regulatory action in the basic and value-
added telecommunications sectors.
41  Subsequently, the United States requested the establishment of a
Panel, concerned that TELMEX would challenge the two corrective steps taken by Mexico, i.e. rules
to regulate the anti-competitive practices of TELMEX and the announcement of significant reductions
                                                     
40 A comprehensive description of international agreements and protocols signed by Mexico is
available online at:  http://www.cft.gob.mx/html/6_inter/inter03.html.
41 WTO document WT/DS204/1, 29 August 2000.Mexico WT/TPR/S/97
Page 117
in interconnection rates for 2001.42  Mexico blocked the establishment of this Panel in December
2000;  and their has been no subsequent action.43
(iii) Transport
(a) Air transport
142. In 2001, Mexico's airport network comprised 1,270 aerodromes, 57 international airports and
28 national airports.  Between 1996 and 2001, the total number of passengers on national and
international flights increased at an annual average rate of 6.6%, reaching some 36.5 million in 2001.
Over that period, the volume of freight transported on national and international services also
increased substantially, with international freight growing three times faster than national freight;
in 2001, some 403,000 tonnes of freight were transported (Table IV.16).
Table IV.16
Main indicators for the air transport sector, 1996-01
Concept 1996 1997 1998 1999 2000 2001
Infrastructure and air operations
Number of airports 1,116 1,280 1,309 1,333 1,215 1,355
National 30 29 29 29 28 28
I n t e r n a t i o n a l 5 35 45 55 55 75 7
Aerodrome 1,033 1,197 1,225 1,249 1,130 1,270
Number of aircraft 6,255 6,429 6,014 6,224 6,476 6,553
Commercial 1,184 1,271 1,055 1,155 1,173 1,198
Official 534 536 389 412 517 520
Private 4,537 4,622 4,570 4,657 4,786 4,835
Number of passengers ('000) 26,493 28,896 30,922 32,662 33,974 36,483
National services 14,199 15,428 17,046 18,248 17,762 18,650
International services 12,294 13,468 13,876 14,414 16,212 17,833
Freight transported ('000 tonnes) 285 335 388 407 379 403
National services 94 103 112 116 99 108
International services 191 232 276 291 280 295
Source: WTO Secretariat estimates, based on Poder Ejecutivo Federal (2001), Primer Informe de Gobierno , September, 2001.
143. The most important regulations affecting the air transport sector are:  the Civil Aviation Law
of 12 May 1995 and its Regulations of 7 December 1998;  and the Airports Law of 22 December 1995
and its regulation of 17 February 2000.  The Depart ment of Communications and Transport (SCT) has
ultimate responsibility for the air transport sector;  its General Directorate of Civil Aviation has directresponsibility for regulating the sector, and approving the entry of new airlines.  Other state agencies
in the sector include the Mexican Air Space Navigation Service (SENEAM), in charge of air transit;
and the Airports and Auxiliary Services Agency (ASA), responsible for operating, managing, and
maintaining state-controlled airports.
144. Since Mexico's previous Trade Policy Review, the administration of airport infrastructure has
undergone important changes, many relate to partial transfer to the private sector.  The possibility of
transferring the construction, administration, and operation of airport infrastructure to the privatesector through concessions was established in the 1995 Airport Law, which paved the way for the
modernization and development of Mexican airport infrastructure.  The general guidelines for the
effective opening up of airport infrastructure to private investment were published on 9 February
1998.  These guidelines established that 35 (out of 58) of the airports controlled by ASA were to be
                                                     
42 WTO document WT/DS204/2, 16 November 2000.
43 WTO document WT/DSB/M94, 15 February 2001.WT/TPR/S/97 Trade Policy Review
Page 118
offered to the private sector on the basis of a "build-operate-transfer" (BOT) concession for a
renewable 50-year period.  Airports were divi ded into four regional groups and State-owned
concessionary company was established for each.
145. A two-stage strategy was designed to transfer the control of these companies to the private
sector.  In the first stage, effective control and 15% of the capital of the concessionary company were
to be sold to a strategic partner selected through international bid.  Three of the four groups were
transferred to the private sector between 1998 and 2000, for a total amount of US$470 million.  Thefourth group, Mexico City Airport Group, which accounted for more than 35% of passengers serviced
by Mexican airports in 1999, was not transferred to the private sector.  The second stage consisted in
the selling of the remaining 85% of the shares on national and international stock markets.  The
Mexican authorities started this process in December 2000, with the sale of 74% of the capital of one
of the group (South-eastern Airport Group) for a total amount of some US$428 million.
146. Under the Airports Law, foreign investment in concessionary companies is unrestricted up to
a maximum of 49%;  a permit from the National Fo reign Investments Commission (CNIE) is required
for a higher percentage of foreign investment.
147. The Airports Law distinguishes three categories of services offered in airports:  airport
services (use of runways, aprons, platforms, vi sual aids, lighting, passenger and cargo terminals,
boarding services, security, and fire fighting and rescue services);  auxiliary service (ramps, traffic,
fuel supplying, aircraft food, cargo storage and security, maintenance and repair services for aircraft);
and commercial services (commercial areas, car rental, restaurants, bank advertising, hotels, and
others as required).  The SCT is entitled to establish rules to govern the rates charged for airport
services;  auxiliary services may also be subject to regulation, where the Federal Competition
Commission (CFC) determines that reasonable comp etition conditions are not met.  All rates for
airport and auxiliary services must be registered with the SCT.
148. The provision of regular national air transport services is subject to the obtention of a
concession which is issued by the SCT and granted only to Mexican companies;  holders of a
concession may also supply regular international serv ices provided they obtain an authorization for
the corresponding destination.  Other air transport services are subject to the obtention of a permit
which may be granted to:  Mexican companies for non-regular national services;  foreign companiesfor regular international services, as established in international treaties;  foreign and Mexican
companies for non-regular international services;  and to Mexican or foreign persons or companies for
commercial private air transport services.  Cabotage services are reserved for Mexican companies.
149. The Civil Aviation Law establishes that operators may freely determine the rates for their air
transport services, in terms that will allow the rendering of such services within satisfactory
conditions of quality, competitiveness, safety, and pe rmanence.  All rates must be registered with the
SCT.  Rates for international routes must be approved by the SCT.  In addition, the SCT is entitled to
regulate rates in the absence of effective competition between operators, as determined by the CFC.
150. With CFC approval, a holding company, CINTRA, was set up in 1995 to manage the two
principal domestic airlines (Aeroméxico and Mexicana);  in the wake of Mexico's economic problems
both companies were facing precarious financial situation.  CINTRA was established on a temporary
basis to enable the recovery of the two airlines through debt capitalization;  additional investment;and selling the companies separately once their fi nancial and operating viability was re-established.
151. The situation of Aeroméxico and Mexicana improved significantly, but the resulting market
concentration raised serious concerns with respec t to competition in domestic markets for passenger
and freight transport.  Figures for December 1999 show that CINTRA's subsidiaries (Aeroméxico,
Mexicana and regional companies) accounted for about 80% of total passengers transported ondomestic flights.  CINTRA's dominant position in domestic routes is reinforced by important marketMexico WT/TPR/S/97
Page 119
access restrictions applying to foreign companies on both cross-border supply (cabotage is reserved to
Mexican companies) and commercial presence (foreign investment in domestic air transportcompanies is limited to 25% of total capital).
152. In October 2000, the CFC confirmed that CINT RA should sell Aeroméxico and Mexicana as
independent companies to different buyers to prevent the consolidation of a single company with
market power to set prices and prevent the entry of or unduly displace other competitors in the
domestic market for commercial passenger and cargo air transportation.  The competition authoritybelieved that this would be contrary to the interests of users at large and hinder the development of air
transport and, more generally, of Mexico's economy.
 44  As at January 2002, CFC's order to break
CINTRA's dominant position had not been carried out, reflecting, in part, divergent views in Congressand political pressure from labour unions.
153. The objectives of Mexico's air transport policy, as established through an Accord published
on 29 October 2001, include:  to maintain Mexican control on the administration of national airlines;
and to foster healthy competition and prevent predatory practices and dominant positions.  This
Accord also reaffirmed that the principles underlying international agreements on air transport areeffective reciprocity and equivalent markets.  Mexico has signed 36 bilateral civil aviation
agreements:  seven with countries in Asia, ten in the Caribbean and South America, three in Central
America, 14 in Europe, and two in North America.  Mexico's commitments on air transport servicesunder the GATS were limited to some supporting services to air transport (see Table AIV.4).
(b) Maritime transport
154. Mexico has 11,500 kilometres of coast line and 108 ports (97 maritime and 11 fluvial);  54 of
these ports are located on the Pacific and 54 on the Caribbean or Gulf of Mexico.  In 2001,
commercial, industrial, and tourist activities were carried out at 38 ports;  the remaining 70 ports have
mainly engaged in fishing activities.  Between 1997 and 2001, freight traffic through the national portsystem increased by some 12%, reaching 247 million tonnes in 2001.  Maritime transport continues to
play a central role in Mexico's international trad e, handling some 80% of the country's total trade
volume, equivalent to 179 million tonnes in 2001 (Table IV.17).
Table IV.17
Main indicators of the maritime transport sector, 1997-01
1997 1998 1999 2000 2001
Number of ports 107 107 108 108 108
M a r i t i m e 9 69 69 79 7 9 7
F l u v i a l 1 11 11 11 1 1 1
Quay length (km.) 176.8 179.2 184.4 184.9 184.9
Storage capacity (million m2 ) 3.5 3.7 5.3 5.5 5.5
Freight handling (million tonnes) 220 237 231 244 247
High-seas 159 169 164 177 179
Cabotage 61 68 67 67 68
External trade (million tonnes) 159 169 164 177 179
I m p o r t a t i o n 3 34 34 55 2 5 2
Exportation 126 126 119 125 127
Source: Poder Ejecutivo Federal (2001), Primer Informe de Gobierno , [online].  Available at:  http://www.presidencia.gob.mx/.
155. Mexico maintains 97 regular maritime routes serving 339 destinations in 94 countries.
In 2001, 97 foreign shipping companies were serving Mexican ports.  Between 1995 and 2000, the
number of ships under Mexican flag increased sharply, from 9 to 171.  In 2000, some 66% of thefreight handled through cabotage (which remains reserved to Mexican shipping companies) was
undertaken by ships under the Mexican flag.
                                                     
44 CFC (2000).WT/TPR/S/97 Trade Policy Review
Page 120
156. The reforms initiated in the mid 1990s to fost er competition between ports, increase private
investment, eliminate cross-subsidies and deregulate service tariffs have apparently brought
significant results.  As at December 2000, 64 ports had been grouped in 18 Federal-Government-
owned Integral Port Administration entities (APIs) , property of the Federal Government, five State-
Governments-owned APIs, and one API in priv ate hands.  From 1996 to 2000, some 50 public bids
were conducted for granting contracts to provide and develop port services, which resulted in aneffective transfer of port services to the private sector and increased infrastructure investment.
157. According to Mexican authorities, at the end of 2000 virtually all commercial freight handling
was managed by private operators;  cumulated investment in infrastructure between 1996 and 2000
amounted to some Mex$14 billion (in constant prices of 2000), 82% of which corresponded to private
and 18% to public investment.  Coupled with productivity gains this investment resulted in anincrease of handling capacity for non-petroleum products from 59 million tonnes in 1994 to some
120 million tonnes in 2000.
45  Significant improvements were also registered in terms of time at ports,
and reductions in handling rates;  between 1995 and 2000, these decreased in real terms by some 22%
for non-packed freight;  6% for containers;  25% for bulk mineral products;  and 36% for bulk
agricultural products.
158. Mexico's main legal provisions governing mar itime transport are contained in several articles
of the Constitution (e.g. Articles 27 and 28), the Port Law of 19 June 1993, its Regulations of
21 November 1994, the Shipping  Law of 4 January 1994 (amended on 26 May 2000), and itsRegulations of 10 November 1998.  The Department  of Communications and Transport, through its
specialized Directorates, is the main agency responsible for policy formulation and implementation in
the maritime transport sector.
159. Under the Foreign Investment Law, foreign participation in the sector is limited to a
maximum of 49% of total capital in the following activities:  Integral Port Administration entities
(APIs);  piloting port services for vessels carrying out inland navigation operations;  and shipping
companies commercially exploiting ships for inland and coastal navigation, with the exclusion of
tourism cruisers, and certain port operations such as dredging.  Foreign participation above 49% maybe authorized by the Foreign Investment Commission in port services for inland navigation operations
such as towing, mooring and lighterage, as well as in companies operating ships solely for high-seas
traffic.
160. Foreign shipping companies and vessels from any country may participate in international
maritime transport activities provided their country of  origin provides reciprocal treatment to Mexico.
Inland and cabotage shipping, except for tourist and cruising services, is reserved for Mexicanshipping companies owning Mexican vessels;  when these are unavailable or where the public interest
so requires, Mexican shipping companies may be given temporary shipping permits to carry cargo on
foreign vessels, and if no Mexican company is intere sted in providing the service such permits may be
granted to foreign shipping companies.  In gran ting these temporary permits priority is given to
foreign vessels employing the highest number of Mexican crew members.
161. The Shipping Law provides for the possibility of reserving specific international
transport activities for Mexican companies, wholly or partially, if the national economy is affected by
anti-competitive practices by foreign operators.
162. By December 2001, Mexico had signed 129 multilateral and bilateral agreements relating to
maritime activity;  multilateral agreement were mainly within the International Maritime
Organization, the United Nations Conference on Trade and Development and the International Labour
Organization.
                                                     
45 Department of Communications and Transportation (2000).Mexico WT/TPR/S/97
Page 121
163. Mexico made no specific commitments under the GATS with respect to maritime transport
services (Table AIV.4).  This sector has also been excluded from Mexico's free-trade agreements
(FTAs) covering services, with the exception of the FTAs negotiated with the European Union and
the EFTA countries, which included international maritime transport services;  among other things,both agreements allow for the establishment of subsidiaries in the partner country.
(iv) Professional services
164. Article 5 of the Constitution stipulates that each Mexican State has discretion to define the
professions that require a licence, the specific requirements for the obtention of such a licence, and the
authorities in charge of its issuance.  Thus, the list of professions requiring a licence may differ across
States;  professionals covered by such provisions may include:  architects;  anthropologists;bacteriologists; biologists;  chemists;  computer scientist;  economists;  education workers;  engineers;
health related professionals;  journalists;  lawyers;  mathematicians;  metallurgist;  aircraft pilots;
public accountants; social and political scientists;  social workers;  translators;  and veterinarians.
165. Among the requirements to obtain a licence to engage in a profession in Mexico are a degree
recognized by the Department of Public Education, and "to complete a social service".
46  This latter
requirement, which is intended as a mechanism for Mexican students to pay back part of the socialcost of their education, also applies to foreigners  who complete their studies abroad.  In any case,
foreigners can exercise a profession in Mexico su bject to the conditions specified in international
treaties signed by Mexico, which are based on the reciprocity principle.  Specific provisions on trade
in professional services and temporary entry of businessmen were incorporated in a majority of the
FTAs signed by Mexico.  When no specific treaty has been signed, foreigners can exercise their
profession provided they meet all provisions included in Mexican laws and that their country of
residence grants reciprocal treatment to Mexican residents.  The reciprocity condition applies also inStates, for instance in Nuevo León, while in Baja California and Colima foreigners appeared to
receive national treatment regardless of whether it is provided for in international treaty or reciprocal-
treatment agreements.
47  However, the exercise of certain professions may be exclusively reserved to
Mexicans, as is the case in the State of Mexico.48
166. The following professional and technical services are reserved for Mexican nationals in all
States:  aircraft pilots; ships' captains, masters, engineers, and mechanics;  crews of ships and aircraftunder the Mexican flag;  airport managers;  harbour pilots;  customs brokers;  and train crews. For the
provision of primary, secondary, teachers training or worker or peasant educational services, prior and
express authorization granted by the Department of Public Education or the competent state authority
is required.  Authorization is decided on a case-by-case basis in accordance with public convenience
and necessity, at the discretion of the Department of Public Education or the competent state
authority.  No legal remedy is available under Mexican law for the denial or revocation of such
authorization.
49
                                                     
46 Law Regulating Article 5 of the Constitution.
47 Law regulating professional activities in Baja California State (10 July 1957);  Law on professions in
Colima State (26 December 1964);  and Law on professions in Nuevo León State ( 25 July 1984).
48 Law on professional activities in the State of Mexico (24 June 1957).
49 Article 3 of the Constitution.Mexico WT/TPR/S/97
Page 123
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