RESTRICTED
WORLD TRADE WT/TPR/S/29
2September 1997
ORGANIZATION(97-3475)
TRADE POLICY REVIEW
MEXICO
Report bytheSecretariat
Thisreport, prepared forthesecond Trade Policy Review ofMexico, hasbeendrawn
upbytheWTO Secretariat onitsownresponsibility. TheSecretariat has,asrequired
bytheAgreement establishing theTrade Policy Review Mechanism (Annex 3ofthe
Marrakesh Agreement Establishing theWorld Trade Organization), sought
clarification from theGovernment ofMexico onitstrade policies andpractices.
Document WT/TPR/G/29 contains the policy statement submitted bythe
Government ofMexico.
Note: Thisreport issubject torestricted circulation andpress embargo untiltheendofthemeeting oftheTrade
Policy Review Body onMexico.Mexico WT/TPR/S/29
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS xiii
(1) Introduction xiii
(2) TheEconomic Environment xiii
(3) Trade Policy Framework xiii
(4) Trade Instruments xiv
(5) Sectoral Policy Developments xv
(6) Trade Policies andForeign Trading Partners xvi
I. THE ECONOMIC ENVIRONMENT 1
(1) Introduction 1
(2) Recent Economic Developments 2
(i) Aggregate supply anddemand 3
(ii) Public finances 3
(iii) Monetary policy andexchange ratepolicy 9
(iv) Balance ofpayments 10
(3) Composition andDirection ofTrade 13
(i) Composition ofmerchandise trade 13
(ii) Direction ofmerchandise trade 15
(iii) Trade inservices 17
(4) Outlook 17
II. THE TRADE AND INVESTMENT POLICY FRAMEWORK 18
(1) Introduction 18
(2) Trade Policy Framework 19
(i) General legal framework 19
(ii) Structure oftrade policy formulation 20
(iii) Trade policy objectives 21
(iv) TheIndustrial Policy andForeign Trade Programme 23
(v) Trade laws andregulations 24
(3) Trade Relations 24
(i) WTO andother multilateral agreements 24
(ii) Preferential agreements 26
(iii) Dispute settlement 30WT/TPR/S/29 Trade Policy Review
Page iv
Page
(4) Investment Policy Framework 32
(i) Policy objectives andinstitutional framework 32
(ii) The1993 Foreign Investment Law 32
(iii) Investment restrictions 33
(iv) International engagements andrelations 35
III. TRADE POLICIES BYMEASURE 37
(1) Overview 37
(2) Measures Directly Affecting Imports 38
(i) Registration anddocumentation 38
(ii) Customs valuation andinspection 39
(iii) Rules oforigin 40
(iv) Tariffs 41
(v) Variable import levies 50
(vi) Other levies andcharges 50
(vii) Minimum import prices 51
(viii) Licensing andauthorization 51
(ix) Import prohibitions 51
(x) Import quotas 52
(xi) Import surveillance 52
(xii) Import monopolies, cartels orsoledistributors 52
(xiii) Countertrade 52
(xiv) Technical requirements 52
(xv) Anti-dumping andcountervailing measures 58
(xvi) Safeguard actions 64
(xvii) Measures implemented inexporting countries 65
(xviii) Balance-of-payments andother measures 65
(3) Measures Directly Affecting Exports 65
(i) Registration, documentation andorigin certification 65
(ii) Export charges andrelated measures 65
(iii) Minimum prices 66
(iv) Export licensing 66
(v) Export prohibitions 66
(vi) Export quotas 66
(vii) Export cartels, etc. 66
(viii) Voluntary export restraints 66
(ix) Actions byother countries affecting Mexican exports 67
(x) Export subsidies 67
(xi) Duty andother taxconcessions 67
(xii) Export finance 69
(xiii) Export insurance andguarantees 70
(xiv) Export promotion andmarketing assistance 71
(xv) Export-performance requirements 71Mexico WT/TPR/S/29
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Page
(4) Measures Affecting Production andTrade 71
(i) Competition policy 71
(ii) State-trading, public enterprises andprivatization 75
(iii) Marketing andpricing arrangements 76
(iv) Production controls 77
(v) Local-content schemes 77
(vi) Government procurement 77
(vii) Production subsidies, taxconcessions 80
(viii) Credit programmes 82
(ix) Adjustment assistance 82
(x) Assistance forresearch anddevelopment 83
(xi) Regional assistance 84
(xii) In-bond (maquiladora )industry 84
(xiii) Free-trade zones 85
(xiv) Trade-related investment measures (TRIMs) 85
(xv) Trade-related aspects ofintellectual property rights (TRIPS) 86
IV. TRADE POLICIES AND PRACTICES BYSECTOR 92
(1) Overview 92
(2) Agriculture andRelated Processing Industries 92
(i) Main features 92
(ii) Policy objectives 95
(iii) Policy instruments 96
(iv) Indicators ofassistance toagriculture 101
(v) Fisheries 104
(3) Mining andEnergy 104
(i) Mining, excluding hydrocarbons 104
(ii) Energy 105
(4) Manufacturing 110
(i) Main features 110
(ii) General policy objectives andinstruments 116
(iii) Developments inselected industries 117
(5) Services 127
(i) General features 127
(ii) Banking 129
(iii) Insurance 136
(iv) Telecommunications 139
(v) Airtransport 143
(vi) Maritime transport 146
(vii) Land transport 150
REFERENCES 154
APPENDIX TABLES 159WT/TPR/S/29 Trade Policy Review
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CHARTS
Page
I. THE ECONOMIC ENVIRONMENT
I.1 Selected economic indicators, 1980-1996 5
I.2 Stock offoreign direct investment inMexico, 1980 and1995 12
I.3 Composition ofMexico 'smerchandise trade, 1992-95 14
I.4 Merchandise trade bymain origin anddestination, 1980 and1996 16
II. THE TRADE AND INVESTMENT POLICY FRAMEWORK
II.1 SECOFI 'smain trade-related sections 20
II.2 Mexico 'strade withFTA partners, 1992-96 byquarter 27
III. TRADE POLICIES BYMEASURE
III.1 Frequency distribution ofMFN rates andimports, 1997 43
III.2 Tariff escalation by2-digit ISIC industry 44
III.3 Average MFN andpreferential tariffs, byISIC group 50
III.4 Official Mexican Norms (NOMs) andvoluntary Mexican Norms (NMXs), 1997 54
III.5 Anti-dumping measures, 1987-1996 59
IV. TRADE POLICIES AND PRACTICES BYSECTOR
IV.1 Crop andanimal production, 1994 93
IV.2 Distribution ofGDP andemployment bymanufacturing industry, 1994 and1996 111
IV.3 GDP bymanufacturing industry, 1993-96 112
IV.4 Employment andrealremuneration inmanufacturing, 1993-96 113
IV.5 Production trends inthemaquiladora industry andmanufacturing, 1993-96 115
IV.6 Credit andnon-performing loans, 1990-96 130
IV.7 Official banking institutions 134
IV.8 Evolution ofRailTransport Services 151Mexico WT/TPR/S/29
Page vii
TABLES
Page
I. THE ECONOMIC ENVIRONMENT
I.1 Basic social andeconomic indicators oftheeconomy, 1970-96 2
I.2 Performance oftheeconomy, 1980-96 6
I.3 Portfolio investment inMexico, 1990-96 10
I.4 Foreign direct investment inMexico, 1980-96 11
I.5 Merchandise trade, 1992-97 15
III. TRADE POLICIES BYMEASURE
III.1 Simple average applied MFN tariff, bystage ofprocessing, January 1997 44
III.2 MFN tariffs andbindings, byHSchapter 46
III.3 Anti-dumping measures inforce, December 1996 60
III.4 Countervailing measures andundertakings inforce, December 1996 62
III.5 BANCOMEXT 'ssupport totheexport sector, 1992-96 70
III.6 Public procurement, 1994 80
IV. TRADE POLICIES AND PRACTICES BYSECTOR
IV.1 Volume ofagricultural production, 1990-96 94
IV.2 Trade inagricultural products, January-December 1996 95
IV.3 Producer subsidy equivalents, 1993-96 102
IV.4 Government expenditure inagriculture, 1996 103
IV.5 Basic hydrocarbons statistics 106
IV.6 Basic automotive statistics, 1993-96 118
IV.7 Preferential textiles andclothing quotas under theNAFTA 125
IV.8 Maturity ofcredit granted bydevelopment banks, 1993-96 131
IV.9 Credit channelled through financial intermediaries, 1995 131
IV.10 Main banking laws 135
IV.11 Mexico 'sinsurance market, 1993 137
IV.12 Main insurance laws 137
IV.13 Main indicators ofairtransport sector 143
IV.14 Main laws governing airtransport sector 144
IV.15 Main organisms controlling theairtransport sector 146
IV.16 Mexican legislation onports andmaritime transport 148
IV.17 Institutional framework forports andmaritime transport 149WT/TPR/S/29 Trade Policy Review
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APPENDIX TABLES
Page
AI.1 Cumulative foreign direct investment inMexico bycountry oforigin, 1980-96 161
AI.2 Cumulative foreign direct investment inMexico bysector, 1980-96 162
AI.3 Merchandise exports bygroup ofproducts, 1970-96 163
AI.4 Merchandise imports bygroup ofproducts, 1970-96 164
AI.5 Merchandise exports ofmaquiladoras bygroup ofproducts, 1992-96 165
AI.6 Merchandise imports ofmaquiladoras bygroup ofproducts, 1992-96 166
AI.7 Merchandise exports bymain country ofdestination, 1970-97 167
AI.8 Merchandise imports bymain country oforigin, 1970-97 168
AII.1 Mexico 'snotifications under theWTO Agreement 169
AII.2 Dispute-related GATT/WTO matters involving Mexico,
January 1993 -March 1997 171
AIII.1 Products subject tospecial export provisions 173
AIV.1 Summary ofMexico 'ssector specific commitments 174Mexico WT/TPR/S/29
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GLOSSARY
English Spanish Acronym
Advisory Council forInternational Trade
NegotiationsConsejo Asesor paralasNegociaciones
Comerciales Internacionales
Agrarian Sectoral Programme, 1995-2000 Programa Sectorial Agrario 1995-2000
Agreement onReciprocal Promotion and
Protection ofInvestmentsAcuerdo paralaPromoción y
Protección Recíproca delasInversionesAPRI
Agricultural Marketing, Support and
ServicesApoyos yServicios ala
Comercialización AgropecuariaASERCA
Alliance forAgriculture Alianza paraelCampo
Central Bank Banco deMéxico BANXICO
Copyright Law LeyFederal deDerechos deAutor LFDA
Countervailing duties Cuotas compensatorias
Customs Law LeyAduanera
Development andRestructuring Programme
fortheEnergy Sector, 1995-2000Programa deDesarrollo y
Reestructuración delSector dela
Energía 1995-2000
Energy Regulatory Commission Comisión Reguladora deEnergía CRE
Federal Competition Commission Comisión Federal deCompetencia CFC
Federal Economic Competition Law LeyFederal deCompetencia
EconómicaLFCE
Federal Electricity Commission Comisión Federal deElectricidad CFE
Federal LawonMetrology and
StandardizationLeyFederal sobre Metrología y
NormalizaciónLFMN
Fiscal areas Recintos fiscales
Fiscal Code oftheFederation Códico Fiscal delaFederación
Foreign Investment Law LeydeInversión Extranjera LIE
Foreign Investment Registry Registro Nacional deInversiones
ExtranjerasRNIE
Foreign Trade Act LeydeComercio Exterior LCE
Foreign Trade ActRegulations Reglamento delaLeydeComercio
Exterior
Foreign Trade Commission Comisión deComercio Exterior COCEX
Foreign Trade Service Centre Centro deServicios alComercio
Exterior
Foreign Trading Companies Programme Programa deEmpresas deComercio
ExteriorECEX
General Directorate ofCopyrights Dirección General delDerecho de
AutorDGDAWT/TPR/S/29 Trade Policy Review
Page x
English Spanish Acronym
General Directorate ofStandards Dirección General deNormas
General Import TaxLaw LeydelImpuesto General de
Importación
General LawofCommercial Organizations LeyGeneral deSociedades Mercantiles
High Volume Exporting Companies
ProgrammePrograma deEmpresas Altamente
ExportadorasALTEX
In-bond firm/industry Firma/industria maquiladora
Industrial Policy andForeign Trade
ProgrammePrograma dePolítica Industrial y
Comercio ExteriorPPICE
Industrial Property Law LeydelaPropiedad Industrial
Joint Commission forExport Promotion Comisión Mixta paralaPromoción de
lasExportacionesCOMPEX
LawtoPromote Mexican Investment and
Regulate Foreign InvestmentLeyparapromover laInversión
Mexicana yregular laInversión
ExtranjeraLIMIE
LawfortheProtection ofTrade and
Investment against Foreign Rules that
Contravene International PrinciplesLeydeProtección alComercio yla
Inversión deNormas Extranjeras que
contravengan alDerecho Internacional
LawonPublic Procurement andWorks LeydeAdquisiciones yObras Públicas LAOP
Mexican External Promotion System Sistema Mexicano dePromoción
ExternaSIMPEX
Mexican Institute ofIndustrial Property Instituto Mexicano delaPropiedad
IndustrialIMPI
Mexican Institute ofSocial Security Instituto Mexicano delSeguro Social IMSS
Mexican Investment Council Consejo Mexicano deInversión
Ministry ofAgriculture Secretaría deAgricultura, Ganadería y
Desarrollo RuralSAGAR
Ministry ofCommunications andTransport Secretaría deComunicaciones y
Transporte
Ministry ofComptrollership and
Administrative DevelopmentSecretaría delaContraloría y
Desarrollo AdministrativoSECODAM
Ministry ofEnergy Secretaría deEnergía
Ministry oftheEnvironment Secretaría delMedio Ambiente,
Recursos Naturales yPesca
Ministry ofFinance andPublic Credit Secretaría deHacienda yCrédito
PúblicoSHCP
Ministry ofForeign Affairs Secretaría deRelaciones Exteriores
Ministry ofHealth Secretaría deSalud
Ministry ofLabour andSocial Welfare Secretaría delTrabajo yPrevisión
SocialMexico WT/TPR/S/29
Page xi
English Spanish Acronym
Ministry oftheNavy Secretaría deMarina
Ministry ofSocial Development Secretaría deDesarrollo Social
Ministry ofTrade andIndustrial Promotion Secretaría deComercio yFomento
IndustrialSECOFI
Mutual Insurance Institutions and
Companies LawLeyGeneral deInstituciones y
Sociedades Mutualistas deSeguros
National Banking andSecurities
CommissionComisión Nacional Bancaria yde
ValoresCNBV
National Calibration System Sistema Nacional deCalibración
National Consultation Fora onForeign
Trade NegotiationsForos Nacionales deConsulta sobre
Negociaciones Comerciales
Internacionales
National Copyright Institute Instituto Nacional deDerechos de
AutorINDA
National Council forMicro, Small and
Medium-Size EnterprisesConsejo Nacional delaMicro, Pequeña
yMediana EmpresaCNMPME
National Council forScience and
TechnologyConsejo Nacional deCiencia y
TecnologíaCONACYT
National Development Bank Nacional Financiera, S.N.C. NAFIN
National Foreign Investment Commission Comisión Nacional deInversiones
ExtranjerasCNIE
National Foreign Trade Bank Banco Nacional deComercio Exterior,
S.N.C.BANCOMEXT
National Institute ofStatistics, Geography
andInformaticsInstituto Nacional deEstadística,
Geografía eInformáticaINEGI
National Insurance andBonding
CommissionComisión Nacional deSeguros y
Fianzas
National Metrology Centre Centro Nacional deMetrología CENAM
National Programme forIndustrial
Modernization andForeign TradePrograma Nacional deModernización
Industrial ydelComercio Exterior
1990-1994PNMICE
National Railways ofMexico Ferrocarriles Nacionales deMéxico FNM
National Sustenance Company Compañía Nacional deSubsistencias
PopularesCONASUPO
National System ofTesting Laboratory Sistema Nacional deLaboratorios de
Pruebas
North American Free Trade Agreement Acuerdo delibre comercio deAmérica
delNorteNAFTA
Official Journal Diario Oficial delaFederación DOFWT/TPR/S/29 Trade Policy Review
Page xii
English Spanish Acronym
Prior inspection Reconocimiento previo
Productive Sectors Programmes Programas deSectores Productivos
Programme ofTemporary Imports forthe
Production ofExportable GoodsPrograma deImportación Temporal
paraproducir Artículos deExportaciónPITEX
Register ofImporters Padrón deimportadores
Social Security andServices Institute for
State WorkersInstituto deSeguridad yServicios
Sociales delosTrabajadores delEstadoISSSTE
Special Products andServices Tax Impuesto Especial sobre Productos y
ServiciosIEPS
State corporation Paraestatal
Trust Fideicomiso
Trust Fund forAgriculture Fideicomisos Instituidos enRelación a
laAgriculturaFIRAMexico WT/TPR/S/29
Page xiii
SUMMARY OBSERVATIONS
(1) Introduction
1. Mexico hascontinued theprocess of
economicreforminitiatedinthemid-1980s.The
efficiency gains achieved sincethen,thegreater
opennessoftheinvestmentframeworkandcloser
integration intheworld economy, together with
thesupport oftheinternational financial
community, have assisted recovery from the
1995 recession. However, thehealth ofthe
banking system remains aconcern, asdoa
number oflagging sectors inagriculture and
manufacturing. Modernization ofthe
institutional andlegalframework iscontinuing.
While unilateral tradeliberalization onanMFN
basis hasbeen carried forward, trade policy
changes have been dominated byregional
liberalization under NAFTA and other
agreements, and theshare ofMexico 's
merchandise trade withtheUnited States -
including maquiladora trade -rose from
75percentin1992 to80percentin1996.
Some elements ofregional liberalization have
benefitedallWTOMembers,othersmoreclearly
favour regional partners. Moreover, remnants
oftheearlier import-substitution policy still
affect theautomotive industry, while selective
tariffincreases (within bound levels) havebeen
introduced tosupport other activities. The
activeuseofanti-dumpingmeasuresmakesthem
apotential trade barrier. Thereform process
isthusnotyetcomplete; itscontinuation is
necessary forMexico toachieve ahigher,
sustainable rateofeconomic growth.
(2) TheEconomic Environment
2. Thedominant macroeconomic event
sincetheprevious Trade Policy Review in1993
wasthefinancial crisis ofDecember 1994 and
thesubsequent recession andrecovery. While
therecession of1995wassharper thanthedebt
crisis ofthe1980s, recovery hasbeen more
rapid; however, realGDP isstillbelow the
levelof1994. Incontrast withthecrisis ofthe
early 1980s, export growth wasdriven bymanufactures rather than crude petroleum,
imports contracted substantially less,reflecting
theincreased import content ofexporting
activities, andMexico avoided imposing new
trade barriers orcontrols onthecapital and
current accounts.
3. While macroeconomic stabilization has
beenattheforefront since thefinancial crisis,
theincreased openness oftheeconomy (as
measured bytrade toGDP) andthescope of
structuralreformssincethemid-1980sfacilitated
recovery. Under theinfluence ofamore
realistic realexchange rate,realgrowth of5.1
percentwasachieved in1996, andthecurrent
account deficit hasalsofallen. Immediate
pressures onthefinancial market seemtohave
eased: short-term nominal interest rates and
inflation arefalling; theperformance ofthe
stock market hasimproved; and gross
international reserves aremoving towards their
pre-crisis level. Mexico hasalsoimproved its
access tointernational capital markets; thisis
likely tobeimportant inconsolidating the
recovery, asthedomestic banking system
remains fragile.
(3) Trade Policy Framework
4. Mexico 'strade policy isclosely
associated with thepromotion offoreign
investment flows. Thislinkhasbeenformalized
through apermanent framework oftrade and
investment rules embodied inmultilateral and
preferential arrangements. Inthemultilateral
arena, Mexico became amember ofthe
Organization forEconomic Cooperation and
Development (OECD) in1994 andafounding
Member oftheWTO in1995. Mexico 'sactive
programme ofregional negotiations -adding
toitsearlier co-operation agreement withChile
-resulted intheentry intoforce oftheNorth
American FreeTrade Agreement (NAFTA) with
Canada andtheUnited States in1994, andof
free-trade agreements withCosta Rica, Bolivia,
andColombia andVenezuela within theGroup
ofThree in1995.WT/TPR/S/29 Trade Policy Review
Page xiv
5. Mexico'stradestrategyhas
progressively shifted away from unilateral
reforms bound inthemultilateral system, to
negotiated liberalization inaregional context.
Thereduction ofnon-tariff trade barriers and
theliberalization ofinvestment agreed with
preferential partners haveoftenbenefited third
parties, forexample inservices. However,
variations intreatment haveemerged inareas
suchasgovernment procurement andcustoms
valuation. Bymodelling itsnewfree-trade
agreements ontheNAFTA, Mexico hassought
toachieve ahighdegree ofuniformity across
agreements but,pending fullimplementation,
complexities arise from different regimes
covering exceptions, phase-in periods andrules
oforigin.
6. These commitments, jointly with
Mexico'scontinuedeffortstofacilitatetradeand
investment flows, haveresulted insubstantial
modifications tothelegal framework. Work is
ongoing toharmonize domestic rules and
external commitments, reduce thenumber of
regulations andstrengthen thejudicial system
andlawenforcement institutions. Mexico 'snew
investment rules, inparticular, demonstrate its
greater openness towards foreign capital,
notwithstanding therestrictions thatstillapply
inafewactivities. Recent changes havealso
improvedtheregimeofprotectionforintellectual
property rights, which wasalready widely
regarded asfundamentally sound.
(4) Trade Instruments
7. Overall, Mexico 'suse oftrade
instruments since 1993 seems tobeconsistent
with anincreasingly open trade regime.
However, assessment isdifficult, because
various instruments haveevolved indiffering
directions.
8. Themajor change intheuseoftariffs
hasbeentheimplementation ofnewregional
preferences, reducing thetrade-weighted
average tariff but,atthesame time, widening
thegapbetween thesimple average MFN rate
(13.2percent)andpreferentialrates(e.g.4.2percent onimports from the
United States). During theperiod, Mexico also
liberalized about 1,000 itemstoduty-free levels;
thiswastosome extent offset byincreases in
MFNratesoncertain sensitive goods (e.g.beef,
clothing andfootwear) using theflexibility
available under ceiling bindings. Tariffication
inagriculture hascreated newtariffpeaks and
increased tariff dispersion. Asaresult ofthe
Uruguay Round, Mexico reduced itsbound
ceiling rateformanufactures from50percent
to35percent; however, thisisstillmore than
double theaverage level ofduties currently
applied. AllofMexico 'stariff lineshavebeen
covered bybindings since itsaccession tothe
GATT in1986.
9. Since thelastTrade Policy Review,
Mexico hasmade increased useofcontingency
measures, mostly anti-dumping, although the
number ofnewinitiations hasdeclined inthe
wakeofthecurrency depreciation andbooming
exports. Nevertheless, withsome 90measures
currently inforce, Mexico operates oneofthe
world 'smost active trade defence systems.
Anti-dumping measures have thusbecome a
potentially significant trade barrier, despite
Mexico 'suseofa"general interest clause".
Such measures detract from thegeneral
liberalization undertaken since themid-1980s,
andreduce economic efficiency, particularly
since theyhaveoften beendirected atprimary
andintermediate goods.
10. There hasalso been asignificant
increase inthenumber ofmandatory standards;
querieshavebeenraisedaboutnewmarkingand
labelling requirements. Mexico hasnotsigned
thePlurilateral Agreement onGovernment
Procurement, andrestricts participation in
nationalpublictenderstonationalsuppliersand
domestic goods. Mexico alsomaintains various
schemes ofintervention intheautomotive
industry(includingparts)thathavebeennotified
under theprovisions oftheWTO Agreement on
Trade-Related Investment Measures (TRIMs).
Mexico 'sNAFTA partners willbenefit fromthe
liberalization ofbothpublic procurement and
investment measures, butthesebenefits maynotMexico WT/TPR/S/29
Page xv
necessarily beextended toother trading
partners.
11. Inparttooffset theanti-export bias
resulting fromtrade measures affecting imports
andaperiodically overvalued exchange rate,
Mexico hasadopted anumber ofmeasures to
support exports. These include various official
tariff concession programmes, notably the
maquiladoraregime.UndertheNAFTA,Mexico
willphase outthisregime, butassistance may
continue tobegranted toexports directed to
non-NAFTA countries.
12. The entry into force ofanew
competition lawin1993 andthesubsequent
establishment oftheFederal Competition
Commissionwereimportantstepscomplementing
Mexico 'sprivatization programmes; their
further development could helptoensure that
consumers benefit fully from Mexico 's
liberalization efforts andthatthehighmarket
concentration observed incertain activities does
notimpair economic efficiency.
(5) Sectoral Policy Developments
13. Since1993,practicallyallsectorsofthe
Mexican economy have come under strong
pressures forchange from theintensified
liberalization oftrade andinvestment rules
spearheaded bytheNAFTA, building onthe
unilateral opening begun inthemid-1980s.
14. The agricultural sector hasbeen
particularly affected byeconomic liberalization.
Steps havebeentaken toreduce support tothe
sector andintroduce assistance mechanisms
based ondirect income support; asaresult,
theaverage Producer Subsidy Equivalent has
recently beencalculated atonly13percent.
Asrequired bytheNAFTA and WTO
Agreements, Mexico converted allitsnon-tariff
measures intotariffs ortariffquotas; veryhigh
out-of-quota duties protect sensitive areas.
Despite important structural changes, thesector
asawhole still suffers from historical
weaknessesarisingfromlowlabourproductivity
and inadequate rural incomes. Largedifferences also exist between subsistence
farmersandamodernsectorsellingondomestic
andinternational markets.
15. Mexico hasalongtradition asamining
country, although therelative economic
importance ofmining hasdiminished inrecent
decades; newregulations were introduced in
1993topromote thesector. Despite significant
diversificationawayfrompetroleumexportsover
thelastdecade, thehydrocarbons industry
remains economically important, andworld oil
prices stillhaveaconsiderable impact onthe
Government budget. Limited public-sector
capacity tofinance newinvestment hasresulted
infalling proven oilreserves and slow
production growth; suchconstraints havealso
affected thepetrochemicals industry. The
authorities have thussought ways toallow
greater private-sector involvement inthese
activities andhave taken steps, within the
constraints imposed bytheConstitution, to
liberalize private participation innatural-gas-
related operations andpetrochemical projects.
Measures havealsobeentaken toopenupparts
oftheelectricity sector.
16. Mexico 'smanufacturing sector isquite
diversified; overall, thesector appears tohave
taken advantage ofthetrade liberalization
programme andlarge investment inflows to
increase efficiency andprofitability. Based on
these gains, andstimulated byrealexchange
rate depreciation, thesector wasable to
overcome the1995 slump indomestic demand
byincreasing production forexport markets.
Thein-bond ormaquiladora industry, played
acrucial role: in1996, maquiladora exports
accountedforsome40percentofMexico'stotal
exports and47percentofitsmanufactured
exports, while maquiladora imports amounted
tojustover 40percent oftotal imports.
Maquiladora operations have generated
substantial employment, buthave hadmore
limitedsuccessinestablishingbackwardlinkages
withother activities inMexico. Bycontrast, the
import-competing sector has,ingeneral, had
great difficulties inadapting tothemoreliberal
environment ofthelasttenyears. ThestillWT/TPR/S/29 Trade Policy Review
Page xvi
limited availability oflabour skills, high-quality
suppliers, andanefficient transportation system
representseriousstructuralweaknessesaffecting
Mexico 'smanufacturing.
17. Although there hasbeen aradical
changeinMexico'sapproachtoindustrialpolicy
since themid-1980s andthepromotion of
inward-looking manufacturing haslargely been
abandoned,echoesoftheprevious
import-substitution strategy stilllinger insome
industrial policies. Themostconspicuous case
isthespecial regime forthemotor vehicle and
partsindustry,whichhasbecomeamajorexport
activity, competing from behind aheavily
protected domestic market. More recently,
industry-specific schemes have emerged for
textiles, clothing andfootwear; increases in
tariffs, albeit conceived astemporary, and
anti-dumping actions inthese areas, appear to
runcounter tothedrive towards greater
neutrality ofsectoral protection under the
liberalization programme. Inviewofthesharp
currencydepreciationsince1994andsubsequent
strong growth inMexican automotive, textiles,
clothing andfootwear exports, therationale for
intervention in,andpreferred treatment for,
these industries appears weak.
18. Thedegree ofinvolvement ofthe
Mexican State inthesupply ofservices has
decreased dramatically during thelastdecade.
Mexico hasanumber ofworld-class suppliers,
butinefficiencies have attimes imposed
constraints onother sectors oftheMexican
economy; themostserious problems havemore
recently arisen inrelation tofinancial services,
although transport andtelecommunications
services havealsobeenareas ofconcern. Steps
havebeentaken toreduce suchinefficiencies,
strengthentheregulatoryframework,andattract
foreign investment. TheNAFTA inparticular
hasprovedapowerfulcatalystforliberalization,
both through itsformal requirements and
because ofthecompetitive pressures ithas
created toincrease overall efficiency inthe
Mexicaneconomy.Mexicohasalsoparticipated
actively intheUruguay Round General
Agreement onTrade inServices (GATS) andsubsequent services negotiations, undertaking
sector-specific commitments inalarge number
ofareas. Mexico 'saccession totheOECD is
alsohelping topromote further liberalization.
Fully extending pastandfuture liberalization
onanMFN basis would ensure thatMexican
producers have access tothelowest cost
services,makingthemmorecompetitivevis-à-vis
foreign producers.
(6) Trade Policies andForeign Trading
Partners
19. Mexico provides agenerally positive
exampleofprogressiveliberalizationmaintained
overanextended period, attimes inthefaceof
serious macroeconomic shocks. Itspersistence
incarrying through thisprocess hasbegun to
paydividends, andthebases arenowinplace
forachieving long-term sustainable economic
growth. Continuing trade andeconomic
liberalization arevitalfactors inachieving this
goal; ensuring thattheresulting benefits flow
more visibly toalarger proportion ofthe
population would alsobeimportant insecuring
continuing support forthereforms.
20. Mexico 'scurrent focus onnegotiated
liberalization inaregional context is
crystallizing into anextended network of
regional arrangements. Thisstrategy reflects
theGovernment 'sview thatthemultilateral
system presently affords fewer opportunities for
advancing liberalization atthepaceandwith
thedepth thatMexico would like.However, the
benefitsofMexico'sregionalstrategy,including
greater market access based onreciprocity, and
theenhanced trade andinvestment security
implicit inlocking-in itsreforms, have tobe
weighed carefully against potential costs. These
include possible problems created byagrowing
number ofarrangements aswellasapossible
perceived needtoforgo unilateral, efficiency-
enhancing liberalization topreserve trade and
investment barriers asbargaining elements for
negotiations.
21. Given theimportance ofeconomic
relations withtheUnited States, NAFTA hasMexico WT/TPR/S/29
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become thecornerstone ofMexico ’strade and
investment policies. Mexico isalsoactively
forging newtrade links through itsregional
agreements within theAmericas, withtheEU,
andalsowithin APEC. Inthislight, there is
scope forMexico tobring together itsregional
andmultilateral efforts, forexample, bybinding
itsregional commitments externally under the
WTO; thiswould alsoconfirm internationally
themajor shiftthatMexico hasmade, over
severalyears,awayfromitsearlierprotectionist
policies. Suchactions would beinlinewiththepolitical responsibilities ensuing fromMexico 's
already significant andgrowing roleinworld
trade. ForMexico, suchactive participation
inavigorous multilateral trading system would
representacrediblecounterpointtoanotherwise
dominantregionalrelationship,andthesoundest
waytocreate stronger linksoutside theWestern
Hemisphere. However, thiswould alsorequire
apositive response fromthetrading community
asawhole, through ademonstrated interest in
carrying forward multilateral liberalization. 