Mexico Summary
Introduction
Mexico's strong backing for the launch of the Doha Development Agenda and its offer to host the WTO's Fifth Ministerial Conference in 2003 demonstrate the government's strong support for the multilateral trading system. Mexico continues to press for a wider range of negotiations, emphasizing the need to cover the interests of all participants, especially developing countries. The WTO conducted its most recent Trade Policy Review (TPR) of Mexico in April 2002, noting that the country had succeeded in encouraging trade and foreign investment via deregulation, structural change, growing productivity, and higher per capita income since its previous TPR in 1997.
Free-trade Agreements
In advance of broader liberalization initiatives and negotiations, Mexico's main thrust for opening its trade and investment regimes has been the negotiation of free-trade agreements (FTAs). Most of Mexican trade is governed by such preferential rules, with NAFTA remaining of principal economic significance. In 2002, the United States was the source of some 73% of Mexico's imports and the destination of about 89% of its exports. Though Mexico maintains FTAs with over 30 countries, no individual country outside NAFTA absorbed more than 1% of total Mexican exports that year.[1]
Its economic growth has therefore receded with the US slowdown after 2000. Mexico hopes to conclude an FTA with Argentina during the first half of 2003 as a first step for entering Mercosur, the trade bloc that also includes Brazil, Uruguay and Paraguay. It also expects to reach an agreement with Japan in early 2004, despite the two countries' major contentions over trade liberalization in the agricultural sector.
Tariff Escalation and Export Promotion
While the growing number and depth of FTAs has reduced preferential tariffs for many of its trading partners, Mexico's most-favored-nation (MFN) tariff structure has shown clear tariff escalation. The gap has therefore widened between the treatment granted to imports from MFN and preferential sources by Mexico's complex import regime, which involves numerous different tariff-quota schemes and requires import permits for sensitive products including petrochemicals; vehicles; and used tires, machines, clothing, and office machines.
Mexico is seeking to involve more firms in export activities, to improve the supply of foreign and domestic inputs to export firms, and to increase domestic value added per unit exported as means to boost sales, create better-paid employment, and modernize domestic industry. During the 1980s Mexico's exports and government revenue depended almost exclusively on the foreign sale of petroleum. By 2001, however, 89% of Mexican exports were manufactured goods.[2]
More than 90% of Mexican exports, however, are undertaken by firms benefiting from various export-promoting duty and tax concessions.[3]
Agriculture
Agricultural production makes up only 5% of Mexican GDP, and as production continues to decline and the economy develops and diversifies, Mexico is becoming an increasingly large net importer of
agri-food products.[4] The government, however, maintains a variety of programs to provide direct income support to farmers and to promote their productivity and competitiveness. Tariff rates for agricultural products had been substantially more protective than those for other products until January 2003, when Mexico lifted import tariffs from all U.S. agricultural products, except corn, sugar and dairy. Most of the rates had averaged only about 2 percent, but some had been as high as that of 20% on pork.[5]
The U.S. supplies about 75% of agricultural imports to Mexico, followed by Canada with about 7%.[6]
Energy and Services
Mexico's energy sector remains for the most part under state control, with the 1917 Constitution largely restricting private participation in the hydrocarbons industry and electricity sales to the public. The government is seeking some strategic privatization in energy to alleviate fiscal constraints and develop the industry to meet rapidly rising domestic demand, though it will seek to retain maximum possible control of the state-owned companies that dominate the sector.
Though important changes have been made to the legal and institutional framework in the services sector, complaints have also arisen regarding competition policy in the telecommunications market and in domestic transport, which remain largely closed to foreign participation. Mexico has not signed the WTO plurilateral Agreement on Government Procurement; therefore this business also excludes foreign competition, and public procurement is often used to support domestic activities through local-content and pricing requirements.
Conclusion
Several activities in Mexico remain relatively inefficient, as they are protected from competition and hindered by trade or investment barriers. Commitment to international agreements for economic liberalization has helped Mexico transition away from its formerly inward-looking policies. Advancing the reform agenda through unilateral and multilateral liberalization initiatives in the WTO will continue to be essential to Mexico's restructuring efforts.
Last updated January 2003
[1]
Trade Policy Review: Mexico. First Press Release. 16 April 2002.
[2] Trade Policy Review: Mexico. Report by the Government of Mexico - Part II and III. 16 April 2002.
[3]
Trade Policy Review: Mexico. Report by the Secretariat - Summary Observations. 16 April 2002.
[4]
CIA World Factbook 2002.
[5]
Brooks, Karen. "Mexican farmers protest over loss of protective tariffs," Fort Worth Star-Telegram. Knight Ridder/Tribune News Service. 1 January 2003.
[6]
O'Connor, Marcia. "Mexico - Agricultural Briefing." Agriculture and Food Branch, Alberta Economic Development. 7 June 2002.
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