1

The Mexican chemical and plastics industry under the Mexico – EU FTA

July 2003

2

The Mexico-EU FTA

The Mexico-EU FTA is part of a broader Global Agreement (Economic Partnership, Political Coordination and Cooperation Agreement).

The trade aspects of the Global Agreement were adopted through two decision of the EU-Mexico Joint Council: The Decision 2/2000 known as the FTA in goods effective

since July 1, 2000, and The Decision 2/2001 called the FTA in Services effective

since March 1, 2001.

3

The Mexico-EU FTA: Decision 2/2000

The Mexico-EU FTA provides that by 2007, around 96 per cent of bilateral trade will be duty free.

The bulk of tariff dismantling for industrial products will be completed by January 1, 2007.

Specific packages were agreed for products considered sensitive.

4

The chemical and plastics sector underThe chemical and plastics sector under the Mexico-EU FTAthe Mexico-EU FTA

By 2007 Mexican-EU trade in chemicals and plastics will be duty free.

The Mexico – EU FTA tariff elimination schedule acknowledges differences in levels of development:

Mexico received asymmetric treatment. While the EU completely eliminated its import duties to Mexican exports in 2003, Mexico will not have to completely liberalize until 2007.

All prohibitions and quantitative restrictions (e.g. import or export permits) were eliminated but the Parties keep the right to adopt measures to protect the life and health of humans, animals, and plants.

5

Duty Phase-OutDuty Phase-Out

8.7

6.3

5.24.2

3.1

2.2

1.3 0.7

0.0

Base Rate 2000 2001 2002 2003 2004 2005 2006 2007

Weighed average duty in the sector

Under the Mexico – EU FTA, Mexico will eliminate the duties for the EU’s chemical and plastics products as follows:

Source: ME

Per

cent

age

6

Rules of OriginRules of Origin

The MEUFTA provides specific rules of origin for the chemicals and plastics sector.

The rules of origin comply with the objective of:

increasing exports of those products that include inputs and originating materials from the region;

avoiding that the agreed rules turn into trade barriers;

guaranteeing that the benefits of the agreement remain within the region.

7

Rules of OriginRules of Origin

The agreed rules of origin:

Guarantee that regional products will benefit from the

preferential treatment (Decision 2/2000) upon

submission of either:

(a) a movement certificate EUR.1; or

(b) an invoice declaration, given by the exporter

which describes the products concerned in

sufficient detail to enable them to be identified

8

Rules of Origin for pigments and plasticsRules of Origin for pigments and plastics

Paint and colorants from HS codes 3203 to 3206:

for coloring matters of vegetable, animal, synthetic organic and lacquer, Mexico obtained a flexible percentage of national content;for feeding pigments based in flowers, chili and lacquer, Mexico obtained recognition of the transformation from non-originating raw materials.

In the case of the plastic sector, it is allowed the import of basic inputs (chapters 27 to 29) for the fabrication of primary plastics.

9

Rules of Origin for Chemical productsRules of Origin for Chemical products

Mexico obtained a flexible rule of origin for certain products that allows the use of non-originating raw material not produced in Mexico:

for di-acetone alcohol, methyl isobutyl acetone and the mistily oxide, acetone can be imported from outside the region until June 2003; it is possible to import non-originating anhydride acetic until June 2003.

The Joint Committee can review the need to extend beyond 30 June 2003 the application of the flexible rule if the economic conditions which formed the basis for establishing the rule continue.

10

Commercial development of Mexico’s chemicals Commercial development of Mexico’s chemicals

and plastics industry under the Mexico-EU FTAand plastics industry under the Mexico-EU FTA

11

During the 1990s, Mexico’s exports of chemicals and During the 1990s, Mexico’s exports of chemicals and plastics more than doubledplastics more than doubled

Between 1993 and 2002, Mexican exports in this sector increased 163 per cent.

9

4

11

5

11

6

13

7

16

8

18

8

20

9

24

10

23

10

24

10

0

5

10

15

20

25

30

35

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Mexican Exports

Mexican Imports

Bill

ion

dolla

rs

* Includes products form chapters 15, 27 –40, 55, 87 and 94- 96 of the HS.Source: ME

12.915.6

17.8

21.8

26.027.7

30.8

37.3 36.237.8

12

In 2002, Mexico’s top ten chemical and plastics exports accounted for 40% of the total exports of the sector

Product Total US EU Rest

Parts and accessories of motor vehicles 1,050.3 997.3 21.5 31.5

Other medicaments 673.3 48.8 93.1 531.4

Other articles of plastics 504.8 481.2 3.7 19.9

Boxes, cases, crates and similar articles of plastics 386.8 376.1 0.5 10.2

Other parts for the industrial assembly of vehicles 345.2 341.1 4.0 0.1

Security modules for air-bags 303.4 301.5 0.2 1.7

Waste, paring and scrap of plastics 190.0 188.1 0.2 1.7

Washing and cleaning preps. put up for retale sale 162.5 73.1 1.2 88.2

Terephthalic acid and its salts 159.5 3.2 80.5 75.8

Coloring preps. containing 80% of titanium dioxide 157.9 12.1 0.0 145.8

Source: ME

Top ten chemical and plastics industry productsexported by Mexico in 2002, million of US$

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In 2002, bilateral trade in this sector represented almost 15% of total Mexico – EU trade,

Mexico-EU Trade Chemical products and plastics, 2002 (md)

Mexico – EU trade in the chemical and plastics sector Mexico – EU trade in the chemical and plastics sector

262

1,110

293

1,313

540

1,303

469

1,427

461

1,586

560

1,857

606

1,944

707

2,181

666

2,662

613

2,953

0

500

1000

1500

2000

2500

3000

3500

4000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002**

1,3721,606

1,843 1,8932,057

2,4172,550

2,888

3,330 3,566

Mexican imports

Mexican exports

•Includes products form chapters 15, 27 –40, 55, 87 and 94- 96 of the HS. ** Estimated data for 2002

•Source: ME with data form EUROSTAT

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Mexico has improved its position as an EU supplierMexico has improved its position as an EU supplier

0.7

2

2.5

2.6

2.8

7.6

8

15.3

32.9

0 5 10 15 20 25 30 35

percentage

Mexico (22)

Hungary (8)

Poland (7)

Czech Rep. (6)

Norway (5)

Japan (4)

China (3)

Switzerland (2)

US (1)

* Estimated data Source: ME with data from EUROSTAT

Participation in Extra-EU importsMain suppliers of chemical and plastic products

(2002*)

In 2002 Mexico was the EU’s 22nd supplier, up from 26th in 2001.

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Mexican chemical and plastic products compete Mexican chemical and plastic products compete successfully in the EU and US marketssuccessfully in the EU and US markets

*Estimated dataSource: ME, with data from EUROSTAT and USDOC

1° Japan

2° Korea

3° Poland

(40) Mexico

1° Czech Rep.

2° US

3° Japan

(11) Mexico

1° Switzerland2° US3° Japan

(16) Mexico

1° Canada

2° Japan

3° Korea

(8) Mexico

1° Canada

2° Mexico3 ° Japan

1° UK

2° France3° Japan(27) Mexico

19.8

15.4

11.3

0.02

23

16.4

11.6

2

57.5

23.0

9.4

0.07

Medicaments

Plastic manufactures

Diagnostic reagents

Product EU Supplier

1° Ireland

2° UK

3° Germany

(12) Mexico

1° Canada

2° China

3° Mexico

1° Japan

2° UK

3° Germany

(28) Mexico

1° US

2° Switzerland

3° Japan

(17) Mexico

1°US

2° China

3° Switzerland

(28) Mexico

1° US

2° Japan

3° Switzerland

(24) Mexico

New pneumatic

tires

Parts and accessories for cars

Antibiotics

US SupplierPart%

69.6 21.42.0

0.05

23.3 22.3

11.2

0.22

82.1

10.7

2.2

0.03

Position Part%

Position

EU supplierPart%

Position Part%

Product

US supplierPosition

29.4

22.5

11.9

2.9

48.3

23.8

12.6

28.8

21.9

21.1

1.7

32.513.612.5

1.1

24.2 20.5

13.6

28.9

28.3

10.7

0.03

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The Mexican chemical and plastics industry has attracted The Mexican chemical and plastics industry has attracted FDI that has helped it modernize production FDI that has helped it modernize production

1,197

815

1,163

956

1,320

379

553

285

0

250

500

750

1000

1250

1996 1997 1998 1999 2000 2001 2002 2003

Mill

ion

do

llars

Foreing Direct Investment (FDI) in Mexico's chemical industry and plastics industry* (1994-2003)**

Source: ME Excludes re-investment of utilities and intra –firms accounts* Includes products form chapters 15, 27 –40, 55, 87 and 94- 96 of the HS. **Data for January-March 2003

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Foreign Direct Investment has transformed the Foreign Direct Investment has transformed the Mexican chemical and plastics industry into a Mexican chemical and plastics industry into a

competitive worldwide producercompetitive worldwide producer

In 2002, 1,269 enterprises with foreign capital operated in Mexico’s chemical and plastics industry:

Between 1999 and 2002, Mexico received US$3.2 billion in foreign direct investment (FDI), which accounted for 16% of total FDI in Mexico’s manufacturing sector;

The main investors in the sector are the US (89.2%), the Netherlands (5.3%), Canada (3.5%), Ireland (3.3%) and the Bahamas (2.0%);

This FDI concentrates mainly on production of perfumes and cosmetics (18.3%), chemical fibers (14.0%), plastic products (10.7%), and soaps (10.4%).

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The chemical and plastics industry plays an important role The chemical and plastics industry plays an important role in the Mexican economyin the Mexican economy

In 2002, this sector:represented 2.7% of Mexico’s total GDP;

represented 14% of Mexico’s manufacturing GDP;

employed more than 800,000 people;

attracted US$553.4 million in Foreign Direct Investment (FDI).

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Mexico has developed specialized production Mexico has developed specialized production centres for production of chemicals and plasticscentres for production of chemicals and plastics

Coatzacoalcos-Minatitlan: is the home of the main petrochemical complex that propitiates the establishment of private investments, representing one of the biggest sources of regional employment and income.

Altamira-Tampico-Madero: has developed as the main hub for private development for the chemical and petrochemical industry.

Mexico City-State of Mexico: this region concentrates the biggest activity of the Mexican chemical industry. There are more than 200 firms that operate and supply inputs for the rest of the industry.

Nuevo Leon: the increasing industrial activity in this Mexican state provides a healthy market for chemical and plastics products used in the production of final goods.

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Challenges aheadChallenges ahead

Mexico´s National Development Plan 2001-2006, establishes, as one of the priorities, to increase and extent competitiveness in the country. Therefore the Ministry of the Economy has produced “Competitiveness Programs”.

For the moment, Mexico has developed specific programs for the textile-garment sector, the electronic sector and the software sector. The chemical and plastics sector competitiveness program is on the verge of being concluded.

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To obtain further information visit:

www.economia.gob.mxwww.economia-bruselas.gob.mxbruselas@economia.gob.mx

Mexico’s Mission to the EUMexican Ministry of the Economy

94, Av. Franklin Roosevelt1050 Brussels, Belgium