country was to develop a new industry even if it was not internationally competitive. However, in a normal case, the completion of the development of import-substitution industries is far from the completion of industrialization. The view that the development of import-substitution industries has been completed fails to ask the important question, namely, why these industries have not developed to the extent so that they would be internationally competitive.

## Wavering policies on foreign capital (Table 4)

In 1973 Mexico enacted a new foreign capital law and made it clear that it would accept foreign capital on a selective basis. In 1975, the foreign capital commission decided to require its prior approval for a change in the ratio of capital participation and the establishment and transfers of plants, stores and branch offices. Cigarella Nacional, a wholly-owned subsidiary of Philip Morris, merged with La Tabaccarela, a company under the wing of the government development bank. Exportadora de Sal, in which a Japanese trading company had a 75% stake, became a company in which the Mexican government had a 50% stake. This was part of the implementation of the Mexicanization policy.

The selective acceptance of foreign capital and the implementation of Mexicanization policy severely constrained the inflow of foreign capital. Moreover, the economy was beset by inflation, the depreciation of the value of the peso and stagnant domestic demand. As a result, Mexico was unable to foster international competitiveness. This is to say that the unstable policy toward foreign capital and poor fundamentals constrained the development of international competitiveness of the Mexican economy.

Similar trends were also seen in Brazil. The establishment of the Industrial Development Council in 1974 signaled the strengthening of the selective acceptance of foreign capital and the adoption of a policy which attached priority on domestic corporations. In 1975, Brazil adopted a measure to restrict overseas remittance of profits by foreign corporations. Furthermore, it began to discriminate against those companies in which foreign corporations had a stake of more than 50% in processing applications for product price increases. The extremely negative conclusions on multinational corporations presented in the report of the Commission to Study the Impact of Multinational Corporations on the Brazilian Economy in 1975 made the government and the public very wary of foreign capital. Restrictions on the overseas remittance of royalties from the introduction of technology and prior screening of contracts for technology introduction also had a large impact on the flow of foreign capital.

As described so far, Brazil and Mexico saw considerable progress in industrialization from early days helped mainly by foreign capital. These countries had completed the development of import-substitution industries, but their industrialization did not reach the level where they could be internationally competitive. It appears that the nationalistic view had prompted changes in their policies toward foreign capital and caused these economies to lose the fruit of earlier achievements. This is because there were limits to domestic investment in industries and there were no appropriate policies on investment.

## Expectations pinned of NAFTA

Mexico proclaimed default in 1982. Although Poland had proclaimed default immediately