Your current main objective is to attract medium size suppliers to Mexico. Regarding the Asian companies, could you tell us what your strategy is and its situation?
First of all, Asia is very important to us, mostly because Asia was under represented in Mexico. Ten, fifteen years ago, there were only a number of Japanese and Korean firms but they were only at the finest end of production (what we call maquila) with parts coming from all over the world. It was not so much an industrial investment. So Asia has become very important to us, we want to have a balance. With the NAFTA, and geography dictates it, obviously our main trade comes from the USA and Canada and there's no way out of it. But we want to balance our relations, both our investment relations and our trade relations, so Asia is very important and we are trying to foster investment. There are many companies interested in Mexico, mostly Japanese, Korean and Taiwanese. We go to these countries to promote investment. For instance, this year we had some one-week seminars in Tokyo and Osaka. We visited companies that are already here, as a courtesy and others we are trying to attract. In Japan what we do is to ask some of the companies that are already here about their suppliers. It's very important for them to have their known suppliers here, so they help us contact their suppliers. For instance, on one occasion Sharp said "Yes, we'd like you to visit some of our suppliers". So we arranged a meeting and we talked about what we could do for them and so forth and since then there are a couple of projects that are already proceeding. Then we also have help from the chambers and they have been very helpful (Jetro, Bank of Tokyo, etc.). For instance, the bank of Tokyo said "We're going and we'd like to talk to people in these sectors", and they invited Japanese companies in those sectors in order to come to a conference with us. We have done that several years but this year we were in Tokyo, Osaka, Taipei and Seoul.
Had you gone in the past?
We have been in the past but this year we were there in April. We have several meetings in Japan in September. Then, what we're going to do is not only go to these big cities but also to the "backyards" of these cities because there are many smaller companies there (Fukuoka, Nagasano). That means we are certainly interested in Asia. The Asians mainly come to Mexico from the electronics industries, TVs, VCRs, sound systems, etc. They are mostly in the northwestern part of Mexico, close to California. I can mention the project we are now working on with Asian countries. I shall say that this does not include all the projects that are coming from Asia, only the ones we are collaborating with, many others don't pass through us. From Japan we have currently 19 projects, from Korea there are 4, Taiwan 1, Singapore 2, Australia 2. These are projects to attract medium size companies, (some aren't that medium, and 4 are large). For instance, there's a plant for vacuum cleaners, two for car cabling, TV sets, condensers, cardboard (it's interesting because Sharp requested this one because they import this raw material which needs to be handled with care and are a special kind of cardboard), electronic components, water pumps for automobiles, parts for air conditioning systems, speakers, and DVDs.
As of the 1st of July, Mexico established another free trade agreement, with the EU, which couldn't have been possible without the NAFTA that was so positive. The new EU-Mexico free trade agreement compared to the NAFTA will probably not have the same importance. How do you see the future agreements with Asian economies such as Singapore and Japan?
Before going into future trade agreements with Asia, allow me to say that probably the economy that may profit more (besides Mexico and Europe itself), from the trade agreement with Europe is Asia. The reason is this: since many of these companies already have certain manufacturing in Mexico, mostly in the electronics industry, they may export from here to Europe at very low tariffs and eventually at zero tariffs. Whereas if they do it directly from any other country to Europe, they will have higher taxes. So, since Japan has already a rather well established foothold here for precisely these types of things, they can export from here to Europe. I think is quite important to open markets. So, the EU free trade agreement with Mexico was done for Asia in this sense. And this is something very few people appreciate, you should stress that in your review.
Nonetheless, the tariff and the tax system which is being applied to companies exporting products to Mexico other than those the country has made agreements with are going to be amended pretty soon. In the interview we conducted with Jetro's General Director, he complained that there are going to be additional problems for Japanese exports as well as for American-Asian companies. What will be the impact of those measures in the bilateral aspect?
I think what he is referring to is something different, the maquila. All Japanese make this complain but they haven't understood that with the NAFTA the maquila sort of disappears because you can have a region with zero tariffs at one time and that means that parts coming from other countries, Asia, pay a tariff. They are integrated into a product, they are exported to the USA and then there is a so-called "drawback" which is the reimbursement of the tariff that was paid on the entry, so this is going to disappear. This is what Japanese companies complain about but they don't understand that (and the Mexican government has explained) that there's a XXX of tariffs for all those parts here in the country. So those parts that are produced in the country have higher tariffs, all the parts not produced in the country will have very low tariffs in order not to lay obstacles in the development of this "maquila". The Mexican government has particularly asked the Japanese companies to provide the list of items that they think should have a better tariff. Many have not done it and I don't know why people have not understood it. For instance, in Japan (and we repeated this 20 times to each one of the companies), we asked "Which are the parts you export from Japan? Of those, which are not produced in Mexico?," those will get a special tariff treatment. We are in the process of doing that and I cannot understand very well why they insist so much on that. Of course, in certain cases the tariffs that remain will be totally reversed but nonetheless, this will help. Obviously, the Mexican government wants the industry to flourish, we would kill it with common high tariffs. But I think that's what Jetro is complaining about.
He said that a Japanese company producing speakers for TV sets will be put in the list to receive a special treatment for their electronic parts, but then you also need to ensemble this material made of wood or iron and it isn't an electronic component and therefore will not be included, so they are wondering what is going to happen.
In this case, you would have to ask the Secretary
of Commerce but very generally speaking, if what
they need to cover these parts not made in Mexico
is to import them at a lower tariff, this could
be arranged, if they are made in Mexico, obviously
not. But some companies haven't handed in the list.
In several cases, it may affect them a lot but these
are very special cases. |
How do you think Japan and Mexico would benefit from eventual free trade agreements?
First of all, Mexico is ready to begin negotiations with Japan. Japan always takes a long time to decide, everybody has to agree and they don't have the tradition of free trade agreements, their policy used to be "No free trade agreements at all". They had trade markets and world trade organizations but no free trade agreements, they were opposed to them. There is now a free trade agreement with Singapore, which is useless. Singapore doesn't manufacture anything, it is a free port, what do you negotiate then? There is nothing to negotiate. And they say they want to do that in order to get the feeling of what a free trade agreement is. There's a story that goes like this: it's at night and there's a lamp post in the street and there's a guy in the street that can't find something he's looking for, somebody passes by and says "What are you looking for", "Well, a key", "Where did you drop it", "About five blocks from here", "And why are you looking for it here", "Well, because there's light here". So, that's what they are doing. Since there is no negotiation there, they are looking for a key somewhere else.
What would you expect from a future trade agreement considering the projected 12.4 billion dollars of foreign investment this year?
First of all, that is not quite true because there are some Japanese and Korean companies that invest here but as part of an American subsidiary so the money comes in as if it were from the USA. The origin is Asia but they have to registered in their organization, which is headquartered in Charleston, Virginia. For instance, the German investment in Mexico is 3% of the total, but the German Embassy says it's 10% because they registered all the originally German capital coming in even if it comes from the USA. So the incoming amount from Germany is more than twice the amount registered. With Japan it's exactly the same thing, it's more than that amount.
Nevertheless, what would you suggest to improve this climate of investment in Mexico?
There are several things that can and should be done in the future, some are more important for us here than for ant foreign investors. One is security and the other is the enhancement of infrastructure. We need far better infrastructure, we can't have any more electrical blackouts. In Germany, I think there's a blackout every ten years, if at all, and here we have one every week. So it's security, infrastructure and bureaucracy that need to be optimized. Obviously, it takes time to do that but I think it's in the process. For instance, the ports have been improved since their privatization, the enhancement of containers in the port of Veracruz increased almost 100% in 3 or 4 years. They used to handle 40 containers per hour and now its 80 containers per hour. The railway system has now unitary trains that can go from one place to the other, deliver and then come back. Formerly, you couldn't even use the train, the wagons got lost in some station. So, infrastructure is getting more efficient but there are still a lot of things to do. And they have a reason to complain, what can I say?
Could you explain which XXX the new program drawn by the Ministry of Finance of the Financial Strengthening 2000-2001, XXX Mexican economy if you could give us a few figures and how it will affect foreign investment in Mexico?
It simply fortifies the basis of financial security for the next year, it doesn't add too much because the country was already stable. Mexico has a crisis every six years, when the administration changes hands, the outgoing administration does foolish things and so the next administration receives a problem-filled country. The most important crisis happened six years ago because they allowed a highly irresponsible situation that was possible because Mexico was not yet quite a democracy. For instance, when the new administration came they had short-term installments that had to be paid (overdue), they had to reimburse foreign countries 32 billion dollars in the first six months of the new administration and Mexico didn't have the capacity to pay. Zedillo's administration received a pined country and the former Minister of Finance, the one that laid the pins there, said "Well, why did you pull them out?," that's a very irresponsible thing to say. No one was held accountable, so there was a crisis every six years. Now, this President has been extremely honest with himself, very prudent and tough. He said "No more crisis, whatever it may take". So he established things in such a way that there's a stable exchange rate, the deficit in the current account is not very large and is mostly financed by foreign direct investment, the government deficit is 1% of the PIB (which is quite manageable), and the reserves are reasonable. He did it with great responsibility. But now, in order to have another shield to protect that, you have certain lines of credit from certain banks. Stand-by credits amounted to about 30 billion dollars, just in case, now they added 2 billion more.
Could you just name some interesting joint ventures that have already been signed between Asian companies and Mexican capitals and what would be your assessment now that Mexico is entering a process of transition?
There are not many Asian companies with joint ventures here in Mexico, there are less Asian joint ventures than American or European. I don't know why, maybe because of the culture (they have to go step by step and study the ground). For instance, we have many joint ventures with Spaniards but Japanese take more time to open themselves to joint ventures.
I think the future, with Mexico's transition, will be extremely positive because of several reasons. One of them is that the economic policy this new government will be taking is very similar to the one we are having now and that gives us continuity, and that is extremely important for countries. Continuity gives confidence and good expectation. There will be some changes but in reinforcing certain things and doing other things better but the policy, as a whole, will be the same and with the same instruments. The second reason is that now we are really in a situation of accountability, the government has to do well and account for whatever happens (in the past this was partial). So, with a more open society, the government has to do things much better and deliver far better than before. And then, Mr. Fox is a very energetic person, he's also very charismatic and has a lot of push. He is quite interested in relations with foreign countries, mostly investment. He says that Mexicans grow at 7% but Mexico doesn't have resources to grow at 7%, it has resources to grow at 3.5%. So the rest has to come from the outside, not from borrowing but from direct investment. He will obviously push for treaties with foreign countries, such as Japan. Besides that, he will do better in putting certain things in order, optimizing things. For instance, in the petrochemical and electrical industry there have been laws in congress in order not to open them. He will have strength in order to open them. Certain things remain to be dealt with and will be dealt with in a better way because he has support from the people. I feel it's great, he'll do very well. The only problem is that there are so many challenges in this country that you cannot solve them all at the same time. Obviously the greatest problems are income distribution and education. Those are centuries-old problems. We owe that to you, the Spaniards.
Thank you very much.
Thank you. |
Mexican Investment Board