_23_ policies." A good example is the so-called "stand-still" obligation relating to cross-border provision of financial services. This provision would not permit NAFTA countries to introduce "ne " measures restricting cross-border sales or consumption of financial services.

57. The collective effectiveness of the above provisions will depend criticallv upon the monitoring capability of the parties of the agreement. In this context, the provisions that specifv penalties for non-observance and the reservations and exclusion clauses are critical. Reservations or exclusions to provisions within the treaty may be obtained for (i) prudential reasons; (ii) in pursuit of monetary or credit policies; and (iii) subject to conditions relating to exchange rate policies. These clauses could appear to give Mexico fairly wide latitude to reverse policies if such conditions are broadly interpreted. However, it must be remembered that the large dependence of Mexico on foreign non-debt creating capital flows would limit the degree to which Mexico will want to employ these clauses.

58. _Legal Reform and Judicial Process:_ Many legal procedures and processes which are not an explicit part of NAFTA, will have to be streamlined. Mexican law enforcement will have to improve, and several critical laws may have to be harmonized; delays or departures from this trend will slow down the pace of investment and modernization of Mexico. NAFTA will make the need for these changes more obvious and could alter the political economy incentives to favor tlleir implementation. Eventually, these changes could turn out to be more important than NAFTA per se.

59. _<or example. increasing pressure will exist to further modernize the legal framework rel :w to the corporate sector in such areas as bankruptcy, law of negotiable instruments, and the wx relating to secured transactions. There is significant evidence that the present legal frai-'ewrrk and the forms of self-regulated monopolies supported (e.g. notaries or receivers), as wei is ->lated problems in many forms of registries, substantially increase transactions costs and Ihinc -< -owth and investment.: NAFTA will place increasing pressure to break such mol op, ies that are in part supported by that subset of the legal profession that currently profits from the present legal framework.

60. _1'roperty Rights and Confiscation:_ A very critical concern for foreign investors in all countries relates to confiscation and the degree to which different forms of property rights are preserved in their equity or other forms of investments in business enterprises. This is important whether in respect to the claim on the flows of revenue from investments or in respect to definition of intellectual property. The NAFTA treaty will act to provide more certainty in respect to these rights through several channels. First, the treaty tries to limit the events under which expropriation of investments could occur and spells out the conditions under which " For example the treaty specifies that a NAFTA country cannot adopt any new measures restricting cross-border financial services that are permitted by that NAFTA country on the date the treaty enters into force. -') There is a need to radically improve Mexico's many registries that serve as a key source of information to financial market participants. As of now, Mexico's registries relating to land, real property, vehicles, commercial registries, warehouse registries, etc. do not functions particularly well. Moreover, notaries, (Notarios) and receivers (sindico) are legally mandated monopolies that greatly increase the costs and hinder efficiency of undertaking secured transactions or bankruptcy proceedings respectively. For example, problems with the registries, combined with the notary system, result in extremely high costs to lenders to perfect security interests in collateral. For example the costs of perfecting a security interest in a mortgage can be 6% of the value of the loan extended.