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.
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
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
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
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.
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
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.
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
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.
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.
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.
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.