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The experiences and responses of Mexico to globalization, Challenges
and Opportunities
Ángel Villalobos Rodríguez
Undersecretary for International Trade Negotiations
OCTOBER, 2006
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I. IMPACT OF FREE AND OPEN TRADE AND INVESTMENT
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Honduras
Nicaragua
Venezuela
Guatemala
El Salvador
Colombia
Bolivia
ChileUruguay
12 FTAsCanada
United States
Honduras
Nicaragua
Costa Rica
Venezuela
Guatemala
El Salvador
Colombia
Bolivia
ChileUruguay
Israel
European Free Trade Association
European Union
Japan
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Argentina
Cuba
Peru
Brazil
Mercosur(Framework Agreement ) (Automotive Agreement)
I. IMPACT OF FREE AND OPEN TRADE AND INVESTMENT
MERCOSUR – Framework Agreement
MERCOSUR – Automotive Agreement
Argentina
Brazil
Cuba
Peru
6 Economic Complementation Agreements ( ECAs)
5
23 Bilateral Investment Treaties (BITs)
Germany
Austria
Belgium-Luxembourg
Spain
Italy
Denmark
Finland
France
Argentina
Uruguay
Panama
Cuba
Australia
South Korea
Trinidad & Tobago
Greece
Netherlands
Portugal
Sweden
Czech Republic
United Kingdom
Iceland
Switzerland
6
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Oil exp. Non oil exp.
Exports represent 38% of Mexico’s GDP
26.7
213.7
60.8
Mexico’s Exports 1985-2005 (US billion dollars)
Source: Ministry of the Economy with data from Banxico
Market access
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Source: Ministry of the Economy with data from Banxico
3.5
14.6
1986-1993 1994-2005
Average annual FDI flows in Mexico (US billion dollars)
Market access
Certainty for FDI
4th recipient of FDI among developing countries
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II. CHALLENGES POSED BY THE GLOBAL ECONOMY
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U.S. Chile, Australia, Singapore, Israel, Central America, Thailand*, South Korea*, Andean countries*, etc.
Canada Chile, Costa Rica, Israel EFTA*, South Korea*, Central America* and Singapore*, etc.
Preferential access is gradually eroding as a result of trade negotiations by our main trading partners.
Limitations of FTAs as an additional source of competitiveness.
* In process or about to enter into force
95% of the exports are duty-free.
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2.0
5.5
9.0
12.5
16.0
19.5
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
New competitors in Mexico's export markets, mainly from Asia
Competition in the U.S. market(%)
6.8%
5.4%
14.0%
10.8%
Mexico
China
Source: UNCTAD. World Investment Report, U.S. Department of Commerce and Banco de Mexico.
11Source: UNCTAD. World Investment Report, U.S. Department of Commerce and Banco de Mexico.
8.3%
5.8%6.0%
3.2%
1.9%
1.7%
0.8%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
China
Japan
South Korea
Taiwan
Malaysia
Singapore
Asia’s share in Mexico’s imports(%)
New competitors in the domestic market
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FDI main recepients among developing countries 1994-2005 (billion dollars)
Source: UNCTAD. World Investment Report, U.S. Department of Commerce and Banco de Mexico.
45.348.952.658.0
77.5130.1
170.7
193.9218.3
494.3
Malaysia
South Korea
Chile
Poland
Argentina
Singapore
Mexico
Brazil
Hong Kong
China
Increased competition in the attraction of FDI flows
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They are also embarked upon free and open trade.
China Thailand, ASEAN, Chile, New Zealand*
South Korea Chile, Singapore, EFTA, U.S*, Canada*, China* and Japan* (in process or study)
Mexico’s most important competitors among developing countries have similar or lower tariff levels.
9.16.69.7
ChinaSouth KoreaMexico
Average industrial tariffs
* In process or about to enter into force
Source: World Trade Organization (WTO) and Mexico’s Law of the General Import and Export Taxes
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Macroeconomic stability has been firmly at the top of the priority list. As a result, the Mexican economy, supported by prudent fiscal and monetary policies and a solid financial system, has continued along its path of stability.
Energy, labor and fiscal structural reforms are still to be introduced so as to foster investment and economic development.
Also, to promote economic efficiency, it is important to strengthen the functioning of markets, by improving the institutional framework and enhancing economic competition for the benefit of all economic agents.
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Being conscious that the development of the ICT industry
can play an important role in achieving a better economic
performance and increasing competitiveness, higher human
capital levels, increased R&D investments and improved
infrastructure are required.
Source: OECD Factbook 2006
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III. STRATEGY TO COPE WITH GLOBALIZATION
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Automotive
Electronics
Software
Aeronautics
Textile and apparel
Agriculture
“Maquiladora” industry
12 Sectoral promotion programs being developed
In order to contribute to the modernization of a number of industrial sectors and to increase their competitiveness, sectoral promotion programs are being implemented.
Chemicals
Leather and footwear
Tourism
Trade
Construction
Measures including:
Tariffs reduction or elimination on inputs,parts and components
Fiscal and administrative incentives for exporting firms
Issuance of new quality standards
Actions againstcounterfeit
SECTORAL PROMOTION PROGRAMS
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Mexico is working to:
Become a world class producer of higher value-added manufactures and services.
Achieve higher levels of specialization to benefit from the country’s comparative advantage.
Increase investment flows.
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The Mexican Government is working on unifying
the two most important export promotion
programs: The “Maquiladora” and Temporary
imports programs.
The purpose is to solve the complexity of Mexico’s
tariff structure, while adapting to the new ways of
doing business, including outsourcing and
offshoring, and the importance of reducing the
logistic and administrative costs for exporting
firms.
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On September 29, a unilateral reduction of the Most Favored Nation tariffs (MFN) applied to 6,089 inputs took place.
9.711.9
AfterBefore
Mexico’s average tariff on industrial goods
(before and after the reduction on inputs) Reduce production costs for Mexican enterprises
Reduce tariff inconsistencies
Contribute to decrease counterfeit and triangulations through Mexico’s FTAs
Reduce customs administrative costs
Facilitate SMEs’ access to inputs
This measure will:
Source: Mexico’s Law of the General Import and Export Taxes and Tariff reductions decree.
TARIFFS REDUCTION ON INPUTS
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USD $5billion dollars of ICT related goods
Latin AmericanLeader
Expenditure on ICT equivalent to the
average of Mexico’s trade partners
Exports and investment promotion
Human capital development
Improvement of the legal framework
Strengthening the domestic ICT market
Strengthening the local industry
Achievement of world quality levels
Clusters development
3 7Goals By 2013
Strategies
Promotion Program on Software (PROSOFT), launched four years ago.
PROSOFT
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2,345
1,880 2003
2004 1,926
2005 2,132
2006p
3%
7%
10.7%
11.4%
Annual Production
(USD$ millions)
Production growth rate
Exports 2003-2006(USD$ millions)
50
105
300
500
So far, the implementation of PROSOFT has brought positive results.
More than USD$ 226 million of investment .
Over 3,000 firms have benefited from the program.
Nearly 22,000 jobs, which pay five times the manufacturing average.
PROSOFT
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ITA-Plus has been established with the aim of enhancing competitiveness for the ICT industry in Mexico.
It is intended to go beyond the international (WTO) ITA by promoting local integration in backward linkages along the productive chains including:
Subassemblies.
Raw materials required by the ICT industries such as steel and other metals, plastics and chemicals.
Electronics final goods, by liberalizing their entire productivechain, including inputs and raw materials.
INFORMATION TECHNOLOGY AGREEMENT (ITA) PLUS PROGRAM
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Promotes the access of all Mexican population to information technologies regardless of the geographic situation and social condition.
Internet connections in all of the municipalities with access to informative and cultural contents.
e-Government services.
e-MEXICO BROADENING THE USE OF ICT
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Mexico’s expenditure on education has increased.
The benefits of ICT were brought to the classrooms through Enciclomedia, an interactive system providing school manuals anddigital educational materials.
Scholarships are provided for undergraduate and graduate students in science and technology.
Curricula updates for ICT-related programs to reflect industry’s requirements.
Support to public and private universities, involving firms thatdemand these human resources.
HUMAN CAPITAL DEVELOPMENT
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R&D Expenditure
Goals Strategies
2006 = 1% of GDP
2025 R&D Expenditure
= 2% of GDP
Training Equipment Consultancy Product design Prototyping Infrastructure
Training Scholarships and
specialized capacity building
Research and modernization projects
Science and technology dissemination
R&D centers
RESEARCH & DEVELOPMENT (R&D)
Research funds
Tax incentives
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The Mexican government has established a network of Digital Community Centers (7,200 so far).
Free access to e-Mexico is provided as well as general access to the internet.
Digital Community Centers are located in public schools, libraries, health centers and post offices, especially in disadvantaged and rural areas.
INFRASTRUCTURE
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Financial funds are being allocated to provide business assistance to SMEs in order to raise productivity and increase competitiveness through the use of ICT and partnerships with other enterprises, universities and the public sector.
Technology Business Accelerator Program (TechBa)
Operated by a U.S.-Mexico nongovernmental body.
The objectives of this program include :
Promotion of successful Mexican ICT firms in the global markets.
Facilitating the interaction of these firms in the international environment to accelerate their growth.
SMEs
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4 TechBas
Madrid (October12, 2006)
Quebec
Austin, Texas
Silicon Valley
TechBa
100.79Montreal, Canada
151.06Madrid, Spain
3 countries
Austin, Texas, U.S.
San Jose, California, U.S.
Location
112
32
55
SMEs
10.06
2.45
5.76
Investment (USD$ Million)
TechBas include SMEs from sectors such as software, multimedia, biology, biometrics and biotechnology.
SMEs
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Mexico needs to evaluate itself in terms of the best practices.
Being an OECD member and trade partner of Japan, the U.S., Canada and the EU, among others, Mexico has a comparative advantage to adopt the best practices and expertise.
By 2010 the world demand of ICT services will reach USD$ 150 billion dollars and the U.S., Mexico’s main trade partner will be demanding 50% of that amount.
Multinational corporations are encouraged to establish R&D centers and laboratories.
FDI represents a major contribution to employment, technology transfer and competitiveness.
BENCHMARKING AND TAKING ADVANTAGE OF CURRENT TRENDS
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IV. WHAT LAYS AHEAD
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Free and open trade and investment policies have served us well.But as the world changes, Mexico must effectively cope with new challenges to increase competitiveness.
A number of policies are being implemented by the Mexican government to develop the ICT industry which shall result in improved economic performance and productivity.
Strengthened efforts are required, most of all in the technical skills area and the development of physical and communications infrastructure.
Strategy must be complemented by improvements to the economic infrastructure.
The combination of global integration, economic and technological changes is creating a unique opportunity for Mexico.