USTR - 1995 National Trade Estimate-Mexico
Office of the United States Trade Representative

 

1995 National Trade Estimate-Mexico

In 1994, the U.S. trade surplus with Mexico was $1.3 billion, or $359 million less than in 1993. U.S. merchandise exports to Mexico were $50.8 billion, up $9.2 billion, or 22.1 percent, from 1993. Mexico was the United States' third largest export market in 1994. U.S. imports from Mexico totaled $49.5 billion in 1994, or 24 percent greater than in 1993.

The stock of U.S. foreign direct investment in Mexico was $15.4 billion in 1993, up 12.3 percent from 1992. U.S. direct investment in Mexico is concentrated largely in manufacturing.

North American Free Trade Agreement (NAFTA)

The United States, Canada and Mexico on December 17, 1992, signed the NAFTA, a region–wide trade agreement that will progressively eliminate tariffs and non–tariff barriers to trade in goods; improve access for services trade; establish rules for investment; strengthen protection of intellectual property rights; and create an effective dispute settlement mechanism. NAFTA also contains supplemental agreements which provide for cooperation on labor standards and environmental issues. NAFTA entered into force on January 1, 1994.

IMPORT POLICIES

Tariffs

Since 1985 Mexico has pursued a policy of trade and investment liberalization. Mexico joined the General Agreement on Tariffs and Trade (GATT) in 1986. As part of its GATT commitments, Mexico reduced its tariffs from peaks of 100 percent to a maximum level of 50 percent for those products not covered by lower bindings. In December 1987 it unilaterally set its maximum applied tariff at 20 percent. Most tariffs are now between 10 and 20 percent, and the trade–weighted average tariff is about 10 percent.

Under the terms of the NAFTA, Mexico will eliminate tariffs on all industrial and most agricultural products imported from the United States within 10 years, with remaining tariffs and non– tariff trade barriers on certain agricultural items phased out over 15 years.

On February 28, President Zedillo announced his intent to raise tariffs and apply quotas on textile, apparel and footwear articles imported from countries with which Mexico does not have a free trade agreement. As this report went to print, no increases had yet been implemented. In any case, exports from the United States qualifying for NAFTA treatment will be unaffected.

Administrative Procedures and Customs

The NAFTA provides a comprehensive set of liberalizing rules. However, during the first year of the Agreement U.S. exporters experienced difficulties in certain areas due to Mexico's administration of its customs and trade regulations. Many of these will be corrected as Mexico adjusts to a new trade regime. In the meantime, certain practices hinder the movement of U.S. goods. Specific concerns are discussed with Mexico bilaterally, or within the NAFTA Working Groups and Committees.

As part of the NAFTA agricultural provisions, Mexico converted its import licensing requirements to a system of tariff–rate quotas (TRQ). Mexico has a right to allocate the in–quota imports, as long as the procedures do not have trade restrictive effects on U.S. exports other than effects caused by the imposition of the TRQ itself. Mexico has adopted procedures, such as auctions and direct assignments, to allocate the in–quota imports. While in theory such procedures could restrict market access afforded by the NAFTA or distort market prices, early experience suggests that rights to import quotas have been auctioned at prices representing marginal or insignificant percentages of the goods' value.

In some instances, Mexico has restricted NAFTA in–quota imports to: certain industries or companies (corn, barley/malt, poultry); certain end uses (corn); limited regions of Mexico (fresh potatoes, poultry); certain prices (milk powder); or limited parts of the year (whole turkey, dry beans). In at least one case (milk powder), virtually all duty–free sales must be made directly to a Mexican parastatal (CONASUPO). Information on these requirements was disseminated very slowly early in the year, creating confusion and uncertainty. The United States has also received little information or trade data on a timely basis as to how the tariff–rate quotas are being filled. U.S. exporters face some of the same uncertainty in 1995.

To stop circumvention of its dumping orders for a wide range of textiles, apparel and footwear items from the Peoples Republic of China, on September 1, 1994 Mexico implemented new requirements that goods entering Mexico from countries not subject to the dumping order must provide an additional certificate of origin attesting the fact that the goods did not originate in China. NAFTA goods and goods marked "Made in the U.S.A." are exempt from these requirements. However, U.S. retailers have been rapidly expanding operations in Mexico and have found the directive severely affects their ability to sell in Mexico the full range of goods they sell in the United States. U.S. retailers, apparel and footwear exporters, supported by the U.S. Government, are negotiating with the Mexican Government an alternative mechanism which would provide a high degree of assurance that Mexico's dumping orders are effectively enforced without unduly burdening U.S. firms.

Some U.S. exporters have registered complaints about certain aspects of Mexican customs administration. Although the Mexican Government continues to make significant improvements in customs transparency and efficiency, problems remain due to the lack of prior notification of procedural changes, and the differing interpretation that customs officials at various border posts give to regulatory requirements for imports. This has occasionally resulted in the application of outsized penalties –– including confiscation of merchandise and transport vehicles, as well as heavy fines –– for customs law violations committed because of simple mistakes, and not in any attempt to evade Mexican Customs.

An ongoing review of Mexico's import registry has been conducted so far in a manner lacking transparency and adequate advance notice. One issue has been the sudden removal from the registry for several months of some beer and cigarette importers. Certain importers appear to have had advance notice of the measure and complied with re–registration requirements quickly, thus maintaining eligibility to import. Later in the year a similar situation resulted from a review of footwear importers. In addition, a restrictive list of approved importers of construction–grade lumber and administration of TRQ's for certain lumber products has impeded U.S. wood product exports.

Other customs–related problems include: requirements to list serial numbers on invoices, laborious inspections at the border, the use of "reference prices," difficulty in clearing low–value shipments to importers not on the importer registry, cumbersome NAFTA origin audit procedures, and unavailability of reliable information on Mexican regulations.

In addition, the United States and Mexico have been consulting on the possibility of harmonizing personal duty exemptions for returning residents. Such exemptions are important to residents of border areas who often cross the border to shop, and to tourists returning home. Currently, Mexico allows $50 dollars in goods to enter duty free per crossing, and a monthly family allowance of $350. For the United States, the limits are $200 per crossing, with one $400 entry allowed each 30–day period.

STANDARDS, TESTING, LABELING, AND CERTIFICATION

Under NAFTA, U.S. exporters gained important new rights with respect to standards–related measures. NAFTA and Mexican law contain provisions to ensure that standards, technical regulations, and conformity assessment procedures are non– discriminatory, that the regulatory development process allows interested parties –– including U.S. exporters –– to comment on proposed rules, and that Mexican regulators will take these comments into account. In addition, by 1998, U.S. testing facilities, certification agencies and quality assurance system registrations programs will be able to apply for accreditation in Mexico on a non–discriminatory basis.

Nonetheless, U.S. exporters have encountered difficulties arising from implementation of Mexican standards regulations. For example, on March 7, 1994, the Government of Mexico published an executive Decree, effective the following day, identifying imported goods subject to Mexican product standards, certification and labelling requirements. The labelling provisions of the Decree changed earlier procedures for labelling of imports by requiring Spanish–language labels to be affixed to goods prior to entry into Mexican territory. Previously, imported goods could be labelled after clearing Mexican Customs, but before reaching the point of retail sale. The Decree was subsequently modified to permit labels to be presented with import documentation and be affixed prior to retail sale.

The March 7, 1994 Decree also changed Mexican technical regulations for over 400 products, as well as certain certification procedures. It stipulated that product certification could only be granted to an importer, and was non– transferable. The inability to obtain direct certification causes numerous problems for U.S. exporters who deal with multiple importers, and for exporters who wish to change their importers or distributors.

During the latter half of 1994, the Government of Mexico also revamped procedures for testing and certification of products subject to mandatory safety and performance standards (a total of about 300). New certification procedures became stricter, such that test samples and follow–up monitoring must in most cases be conducted by independent third parties, thus driving up costs of compliance. All testing must be done in Mexican labs, a requirement that occasionally presents conflict of interest when the only accredited lab belongs to the importer's domestic competitor. More significantly, the Government of Mexico will no longer permit product certifications of a particular model to be shared among different firms or between foreign suppliers and various customers. Each importer must obtain its own product certification. The inability to obtain direct certification causes numerous problems for some U.S. exporters who deal with multiple importers and for exporters who wish to change their importers or distributors. To avoid this problem, some U.S. companies have set up trading companies in Mexico to act as their importer of record. Such an option is probably not feasible for small U.S. resellers and manufacturers.

Mexican phytosanitary standards have also created barriers to exports of certain U.S. agricultural goods, such as potatoes, cherries and cling peaches. In addition to product–specific rules, the process for establishing "emergency" phytosanitary standards has disrupted trade, as such "emergencies" tend to take place on very short notice. In August 1994, the Mexican Government began publishing new sanitary and phytosanitary import regulations for a large number of agricultural products, initially on an emergency basis. In some cases, these new regulations constituted significant departures from current practices which, despite the Mexican Government's prior assurances to the contrary, impeded U.S. agricultural exports. Particularly objectionable is a proposed standard for fresh milk, limiting shelf–life to 24 hours. The U.S. Government is discussing these issues with the Mexican Government.

GOVERNMENT PROCUREMENT

NAFTA and Mexico's federal procurement law, implemented in 1994, gives U.S. suppliers immediate guaranteed and growing access to the Mexican government procurement market, including the state– owned oil company, PEMEX, and the federal power utility, CFE. These are the two largest purchasing entities in the Mexican government. NAFTA achieves greater transparency and predictability in opportunities for selling goods and services, including construction services, to government agencies and parastatal enterprises by firms from any of the NAFTA countries. A bid challenge mechanism allows for review of the bidding process.

NAFTA lifted Mexican investment restrictions on most of the basic petrochemicals previously reserved to the Mexican states, and on secondary petrochemicals. Import and export licenses will only be required on remaining basic petrochemicals, allowing free trade for other petrochemicals. NAFTA provides access for U.S. firms to Mexico's electricity, petrochemical, gas and energy services and equipment markets, for example to sell to state– owned PEMEX and CFE, under open and competitive bidding rules. U.S. firms can negotiate directly with Mexican buyers of natural gas and electricity and conclude contracts with the buyers together with PEMEX or CFE.

INTELLECTUAL PROPERTY PROTECTION

The Mexican government significantly increased its protection of intellectual property by enacting a new patent and trademark ("industrial property") law in June 1991. Patent protection was extended to all processes and products, including chemicals, pharmaceuticals, alloys, as well as to some biotechnological inventions and plant varieties. The term of patent protection was extended from 14 to 20 years from filing. Inventions patented in other countries qualify for a Mexican patent. Trademarks may be registered for 10–year renewable periods. In August 1994, Mexico revised the law to bring its coverage of patents and trademarks into compliance with the NAFTA. Implementing regulations were published in November 1994, clarifying product coverage and strengthening administrative procedures against infringement.

Mexico's enhanced copyright law provides protection for computer programs against unauthorized reproduction for a period of 50 years. Of particular importance to U.S. producers, sanctions and penalties against infringements have been increased. In addition, damages now can be claimed regardless of the application of sanctions.

On December 29, 1992, Mexico promulgated legislation for the film industry containing a troublesome provision against film dubbing. Although Mexican Trade officials gave oral indications that, in order to make the law consistent with NAFTA requirements, U.S. films would be exempted from this provision when Mexico promulgates the implementing regulations to the law, no corrective action has been taken yet. These concerns are being expressed in consultations with the Mexican Government.

The NAFTA resolved additional U.S. concerns about intellectual property protection in Mexico. For example, its copyright provisions provide for protection of sound recordings and computer databases, provide rental rights for computer programs and sound recordings, and provide a term of protection of at least 50 years for sound recordings. The copyright provisions protect computer programs as literary works and databases as compilations. NAFTA was the first international regime to guarantee the protection of trade secrets and proprietary information. Finally, NAFTA provides for explicit, timely and effective enforcement of laws governing intellectual property rights internally and at the border. It also includes provisions allowing criminal penalties for trademark counterfeiting or copyright piracy on a commercial scale. Much of the NAFTA text was echoed in the Uruguay Round Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs), which came into force with the WTO on January 1, 1995.

Private sector response to the strengthening of intellectual property protection in Mexico generally has been positive, but a principal concern remains Mexican enforcement of its laws, especially lack of criminal prosecution of violations. Cable piracy and inadequate border controls to limit the import of other "pirate" products, such as videos, sound recordings, books and software are still a problem. Despite the legal availability of satellite–carried programming in Mexico, some cable operators continue to retransmit premium and basic cable U.S. programming without authorization or payment to copyright holders. The IIAA estimates that losses due to piracy in Mexico totals $334 million. As noted above, the NAFTA's enforcement provisions are designed to address these concerns.

SERVICES BARRIERS

Land Transportation Services

NAFTA will remove most operating and investment restrictions on land transportation services. Under the terms of the Agreement, U.S. companies will be able to provide cross–border truck and bus services into the Mexican border states by December 1995, and throughout Mexico by the year 2000. In addition, NAFTA liberalizes rules for investment in trucking services for carriage of international cargo in Mexico, as well as rail, terminals and port activities, over a 10–year period. NAFTA also provides for developing compatible land transport technical and safety standards as well as for negotiations within seven years after entry into force to seek opening of the domestic cargo market in Mexico for U.S. trucking companies. It provides a work program to establish compatible land transport technical and safety standards. It also provides for negotiations within seven years after entry into force to seek opening of the domestic cargo market in Mexico for U.S. trucking companies.

U.S. small package delivery firms are experiencing significant difficulties in receiving the national treatment that Mexico is obligated to provide them under NAFTA. Despite numerous promises and an offer of U.S. reciprocity, contingent on Mexico's granting national treatment, Mexico has not yet granted full operating authority to U.S. firms in this sector. This issue has been the subject of on–going bilateral consultations between the U.S. and Mexican Governments.

U.S. trucking companies are also still awaiting authorization to be allowed to proceed to transportation terminals within 20 kilometers on the Mexican side of our common border, a capability already granted to Canadian companies.

Telecommunications

Prior to NAFTA, Mexico had taken steps to reform its telecommunications sector, such as privatization of Telefonos de Mexico (Telmex), the national telephone company; liberalization of foreign investment rules in most telecommunications services; introduction of competition in some telecommunications service sectors; and restructuring the regulatory entities managing Mexico's telecommunications sector.

Mexico is scheduled to end Telmex's monopoly on the provision of basic long distance telecommunications services on January 1, 1997. The Secretariat for Communications and Transport published an interconnection agreement describing the terms for non– discriminatory interconnection to the Telmex network. Mexico allows 49% foreign investment in telecommunications networks and services, including basic telecommunications.

Mexican certification and testing procedures for telecommunications equipment has inhibited the free flow of U.S. exports. However, under NAFTA, Mexico is taking steps to recognize technical test results performed in other NAFTA countries, and to harmonize type approval process for telecommunications equipment, including use of a no–harm–to–the– network standard for equipment attached to the public network. In addition, the NAFTA provides for a liberalized regulatory environment for enhanced or value–added services and intracorporate communications systems widely used in business.

NAFTA eliminated all investment and cross–border service restrictions in enhanced or value–added telecommunications services and private communications networks, most of them as of January 1, 1994, with the remainder, limited to enhanced packet switching services and videotext, to be eliminated on July 1, 1995. The principal remaining restriction in the telecommunications sector is the limitation to a 49 percent equity position for foreign investment in basic telecommunications services (basic telecommunications are excluded from most obligations in the NAFTA). However, the NAFTA contains language that would allow the U.S., Canada, and Mexico to negotiate an agreement on basic services in the future. The U.S. will continue to seek agreements on the provision of basic telecommunications services in Mexico both bilaterally and multilaterally.

INVESTMENT BARRIERS

Ownership Reservations

In December 1993, the Mexican Government enacted a new foreign investment law according national treatment to sectors not specifically reserved for the Government, for Mexican nationals, for Mexican companies with no foreign ownership, or for sectors subject to maximum equity restrictions. Majority foreign ownership in certain sectors requires the approval of the National Foreign Investment Commission (NFIC). In the "unclassified" activities, foreign investments of less than 85 million pesos (about $25 million) are automatically approved. The NFIC is required to act on all foreign investment applications within 45 working days. The law eliminated such restrictions as export requirements, capital controls, and domestic content percentages.

Investment and NAFTA

NAFTA's investment chapter provides new and fair rules for investment in North America. It provides broad scope, transparency and, except where specific exceptions have been taken, the application of national treatment or most–favored– nation status, whichever is better. The agreement also ends the Mexican general approval process for foreign investment; forbids the imposition of performance requirements; prohibits expropriation without full compensation; forbids restrictions on transfers of profits and proceeds from sales; and allows investors to submit disputes involving monetary damages or restitution of property to binding international arbitration. The NAFTA substantially liberalizes Mexican investment rules in sectors such as mining, many petrochemicals, computers and pharmaceuticals.

Remaining Barriers

Mexico maintains state monopolies in a variety of sectors –– including oil and gas exploration and development, a few basic petrochemicals, electricity distribution and sales, and operation of railroads –– thereby preventing U.S. private investment. In connection with Mexico's economic emergency, the Mexican Congress is currently considering legislation to privatize part or all of the national railroad company.

Mexico continues to exclude U.S. investors from owning assets in other important sectors open to its own citizens, including cable television, oil and gas distribution and retailing, selected educational services, newspapers, and agricultural land. In all sectors Mexico maintains the right to review, and impose conditions upon, large acquisitions by U.S. investors.

These investment practices will be subject to special OECD review in 1996.

 
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