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ministration, important privatization sales included all 18 government owned commercial banks, the telephone company, a television network, airlines, film theaters, several sugar and food processing plants, large copper mines, and steel production facilities. The privatization drive also opened the door for private investment in Mexico's surface transportation infrastructure such as the modernization of air and maritime ports. In its early response to the December financial crisis, the Zedillo Government has clearly signaled that it will continue to rely on privatization as a key element of its structural reform policy.
Regulation of the Mexican economy has decreased significantly since 1990. In 1993, the government introduced legislation to promote greater competition, limit monopolistic behavior and prohibit practices to restrain trade. A new foreign trade law, adopted in July 1993, eliminated most non-tarist trade restrictions and established procedures for remedying unfair trade practices such as export subsidies and dumping. The number of unfair trade investigations has grown steadily over the past five years, yet they are, with some exceptions, considered to be conducted in an equitable and transparent manner. Most new regulations affecting U.S. trade have been formulated in anticipation of increased trade under NAFTĂ. At times, however, these regulations have disrupted trade as a result of poor drafting and or lack of coordination between various government agencies responsible for their implementation. The Mexican customs service has been modernized and automated, and a program to professionalize personnel and weed out corrupt practices is ongoing. 4. Debt Management Policies
Prior to the December financial crisis, Mexico had made considerable strides in regaining access to international financial markets. During 1993, Mexico reaped the benefits of a sound macroeconomic program
and the successful renegotiation of its external debt, concluded in February 1990. Greater confidence among investors and creditors has resulted in large investment capital inflows in late 1993 and early 1994 and increased access to international credit markets at progressively more favorable terms. During 1993, public and private sector Mexican companies made 77 issues on international debt markets valued at USD 9.8 billion, or 138 percent above the 1992 level. This situation was largely reversed following the assassination of Luis Donaldo Colosio, the ruling Institutional Revolutionary Party's presidential candidate in March, 1994. The fear and political uncertainty generated by this event resulted in massive capital outNows which were hastened again nine months later by the devaluation crisis. International borrowing slowed over the course of 1994 because political conditions in Mexico and interest rate trends internationally made the environment less hospitable to new issues. Debt flows became increasingly short-term.
Mexico's external debt increased by USD 12.6 billion during 1993 to USD 130.2 billion, or 36 percent of GDP. Most of the increase was on the part of private companies and commercial banks. Public sector debt has been declining as a proportion of total debt. At yearend 1993, public sector debt was 83.5 billion, an increase of USD 3 billion for the year, but USD 2.3 billion below 1988 levels and only 64 percent of all external debt. The ratio of debt service to exports fell to 24.9 in 1993 from 34.0 in 1992. 5. Significant Barriers to U.S. Exports
Import Licenses: Mexico eliminated its universal regime of import license requirements in 1985 and has committed, under GATT and the NAFTA, to eventually eliminate all import licensing requirements. The Mexican Government still requires import licenses for slightly under 200 product categories, many of which are in the agricultural sector. For U.S. and Canadian exporters to Mexico, NAFTA replaced ag. ricultural import licenses with tariff rate quotas and, it may be argued, in some cases with phytosanitary and zoosanitary requirements. The agricultural sector of the NAFTA negotiations was one of the most difficult, with the result that many products will be slowly liberalized over a fifteen-year span. Readers who wish more information in this area should contact the U.S. Department of Agriculture to obtain specialized information.
Automobiles: Investment and trade in the automobile sector are subject to the restrictions of the Mexican Auto Decree, including such performance requirements as local content, foreign exchange balancing, and quantitative import restrictions. Foreign ownership in most auto parts manufacturing companies is limited to 49 percent, rising to 100 percent in January 1999. The Automotive chapter of NAFTA has created new opportunities for U.S. automobile manufacturers and parts suppliers in Mexico. One of the eye-catching commercial stories in Mexico in 1994 was the success of new imported automobile models in the Mexican market. Mexican automobile imports jumped from 3,278 units in 1993 to 25,729 units in the first six months of 1994, capturing 13 percent of the domestic retail market.
Insurance: Foreign ownership of Mexican insurance companies is limited by law to 49 percent. Under NAFTA, US. insurers will be allowed to increase their equity participation in new joint ventures to 51 percent by 1998 and 100 percent by the year 2000, with no limitations on market share. US, insurers will also be permitted to establish wholly-owned subsidiaries in Mexico, subject to aggregate market share limits which will be eliminated in 2000. U.S. insurers that have ownership in exist. ing joint-ventures may increase their equity participation to 100 percent by 1996. Telecommunications: The main restriction in the telecommunications
sector is a limitation on foreign investment in telephone and value-added services to a 49 percent equity position. In addition, under the Mexican constitution, satellite services and the operations of earth stations with international links are reserved for the Mexican Government. In early 1995, the government announced it would open satellite services to foreign participation. Long distance telephone service is reserved for Telmex until 1997 by a concession the government announced in January 1995. Numerous American companies have shown interest in participating in this market when it opens
Financial Services: Mexico's Foreign Investment Law permits foreign investors to own minority interests in most Mexican financial services companies (banks, brokerages, insurance companies, etc.) while they may not invest in foreign ex change houses and credit unions. The NAFTA provides an exception for U.S. and Canadian companies which can establish wholly-owned subsidiaries in most financial sectors, subject to initial market share limits that will be eliminated in the year 2000. U.S. and Canadian companies submitted 102 applications to establish Mexi. can subsidiaries, and by late October 1994, 52 of these had been approved, including 18 requests to establish banks. Foreign banks and brokerage houses may also set up representative offices in Mexico. The government indicated in early 1995 that it intends to accelerate the timetable for foreign participation in financial services but full details were not available as of the end of January.
Motor Carriers: As a result of bilateral consultations and the Mexican Govern. ment's deregulation of truck and bus operations, U.S. truckers and charter bus operators now have substantial access to Mexico. Although full trucking authority for U.S. carriers is still limited to the border commercial zone, U.S. freight carriers have open access for trailer entry into Mexico and may thus deliver door-to-door. Mexican tractors and drivers are required by law to haul all trailers bound for interior points, but this has not been considered a major obstacle by U.S. transportation companies. This practice, however, does increase risks for shippers of goods. U.S. charter tour buses now have full access to all points in Mexico; regularly scheduled bus operations are restricted reciprocally to the border zones. Mexican authorities are implementing new safety, weight and dimension regulations to meet U.S. standards, and the two countries are preparing for the standardization and reciprocal recognition of commercial drivers' licenses. A schedule for full liberalization has been negotiated under NAFTA. In December 1995, U.S. trucks will be allowed access to
of Mexico's border states for the delivery and haul-back of cargo. By January 2000, this access will be extended to all of Mexico's territory.
Standards, Testing, Labeling and Certification: The Government of Mexico has traditionally been the primary actor in determining product standards, labeling and certification policy, with some input from the private sector and less from consumers. But the 1992 Law on Metrology and Standards included a provision for the establishment of private standardization and certification bodies, as well as for private sector certification services to regulatory bodies. A U.S. Government officer will be stationed at the U.S. Embassy permanently starting in January 1995 to cooperate in standards' development.
The 1992 law also provides for greater transparency and access by the public and interested parties to the regulation formulation process. This exercise has resulted in a reduction of obligatory product standards to just above three hundred.
Under the NAFTA, Mexico has reaffirmed its GATT obligations to base its obliga. tory norms on international standards. Mexico is working to make its standards compatible with U.S. standards in a number of sectors, and to recognize U.S. standards-certifying entities beginning on the fourth year after NAFTA's entry into force. Toward the end of 1994, Mexico revised its testing and certification procedures to require more frequent re-testing of products or, in its stead, certification of import. ers' quality control procedures to ensure that tested products are representative of production models.
Investment Barriers: The National Foreign Investment Commission, chaired by the Secretary of Commerce and Industrial Development, decides questions of foreign investment in Mexico. The country's constitution and new Foreign Investment Law of December 1993 reserve certain sectors to the state (such as oil and gas extraction and the transmission of electrical power) and a wide range of activities to Mexican nationals (for example, forestry exploitation, domestic air and maritime transpor. tation, and gas distribution). Despite these restrictions, the Foreign Investment Law greatly liberalizes the investment process and eliminates the requirement for government approval in around 95 percent of foreign investment applications.
Provisions contained in NAFTA will open Mexico to greater U.S. and Canadian investment by assuring U.S. and Canadian companies' national treatment, the right to international arbitration and the right to transfer funds without restrictions. NAFTA will also eliminate some barriers to investment in Mexico such as trade bal. ancing, and domestic content requirements. Mexico has already implemented its commitment under NAFTA to allow, since June 1993, the private ownership and operation of electric generating plants for self-generation, co-generation, and independent power production. The NAFTA will also lift Mexican investment restrictions in the chemical sector on all but eight basic petrochemicals reserved to the state.
Investment restrictions exist prohibiting foreigners from acquiring title to residential real estate within 60 kilometers of the nation's coasts and 100 kilometers of the borders. The new Foreign Investment Law eliminated these restrictions for all nonresidential property. Foreigners may acquire the effective use of residential property in the restricted zones via a trust through a Mexican bank. In addition, both for. eigners and Mexican citizens may encounter problems with enforcement of property rights. Only Mexican nationals may own gasoline stations, whose gasoline is supplied by Pemex, the state-owned petroleum monopoly. These gasoline stations only carry Pemex lubricants although' other lubricanis are manufactured and sold in Mexico.
Government Procurement: There is no central government procurement office in Mexico. Government agencies and public enterprises use their own purchasing of: fices to buy from qualified domestic or foreign suppliers, subject to guidelines issued by the Finance Ministry. Suppliers from all countries, whether GÅTT members or not, may bid on government tenders, and requirements for participation are the same for foreign and domestic suppliers. In 1991, Mexico abandoned the rule that state-owned enterprises give preference in procurement to national suppliers. But Mexico's new procurement law, enacted in 1994, distinguishes between procurement contests open to national versus international suppliers. The law vaguely acknowl. edges Mexico's procurement obligations under NAFTA and other international trade agreements. Still, Mexican nationals enjoy preferential treatment, both official and unofficial, in bidding for government orders. A specific preferential treatment in public procurement is granted to domestic drug suppliers (which includes foreign companies established in Mexico). NAFTA will increase U.S. suppliers' access to the Mexican Government procurement market, including the state-owned oil company, PEMEX, and the Federal Electricity Commission, CFE, which are the two largest purchasing entities in the Mexican Government. Under NAFTA Mexico immediately opened 50 percent of PEMEX and CFE procurement to U.S. suppliers and this percentage will increase in steps until all PEMEX and CFE procurement is open by the tenth year.
Customs Procedures: The Mexican Government introduced in 1993 a system to combat under-invoicing of certain imports for customs purposes. The system, ostensibly, aimed at Mexico's large informal sector, established a "reference price” on which duty would be charged, absent evidence that the lower declared price was a valid arms-length commercial transaction. Fine tuning of this directive has allowed large, frequent importers to be exempted from its bond-posting requirements.
In September 1994, the Mexican Government began to require certificates of origin for all goods subject to Mexican unfair trading orders, and imposed more stringent proff of origin requirements for textiles, apparel and footwear produced in cer. tain South and East Asian countries. The directive has disrupted some U.S. retailers' inventory and logistics systems, precluding them from exporting such thirdcountry goods to stores in Mexico. The Mexican Government is expected to come to an understanding to exempt certain large volume U.S. exporters from the directive's most burdensome requirements.
Traders and Mexican customs brokers (by law, imports into Mexico must be handled by Mexican customs brokers) agree that Mexican customs procedures have improved in recent years. Remaining complaints center on vaguely worded regulations that prescribe excessively strict penalties, and a general increase in customs' assessment of minor infractions and fines. 6. Export Subsidies Policies
The Mexican Government has no export subsidy program and has informed the U.S. Government that it is in full compliance with a 1986 bilateral understanding on export subsidies. The U.S. International Trade Commission found in April 1990 that past Mexican export subsidy programs have either ended or the subsidy element has diminished. Provisions for promoting exports in Mexico's new foreign trade law are limited to training and assistance in finding foreign sales leads, project financing (at market rates) for export oriented business ventures, and special tax treatment for companies that have significant export sales. There is no provision for export subsidies. 7. Protection of U.S. Intellectual Property
Mexico is a member of the major international organizations regulating the protection of intellectual property rights (IPR)-the World Intellectual Property Organization, the Berne Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, the Universal Copyright Convention, the Geneva Phonograms Convention and the Brussels Satellite Convention.
The Mexican Government strengthened its domestic legal framework for protecting intellectual property by amending its 1991 industrial property law (patents and trademarks), effective October 1, 1994, to create the Mexican Institute for Industrial Property (IMPI) and give this agency enhanced powers to implement and enforce Mexico's IPR laws. The amended law clarifies the protections afforded inventions related to living materials by excluding specific processes from patent protection. It also incorporates Mexico's IPR obligations under NAFTA. These NAFTA provisions will further strengthen IPR protection by providing for nondiscriminatory national treatment of IPR matters, establishing certain minimum standards for protection of sound recordings, computer programs and proprietary data, and by providing express protection for trade secrets and proprietary information. Product patent protection was extended to all processes and products, including chemicals, alloys, pharmaceuticals, biotechnology and plant varieties. The term of patent protection was extended from 14 to 20 years from the date of filing. Trademarks now are granted for 10-year renewable periods. One of the new features of the amended law is that it is sufficient for a company to have its mark recognized among the U.S. industry to be protected in Mexico.
At the same time, Mexico has requested and received over 600 pages of private sector comments on amending its copyright law of August 1991 to bring it into accord with the most up-to-date international practices. The amended copyright law should be promulgated in early 1995. The 1991 copyright law provides protection for computer programs against unauthorized reproduction for a period of 50 years. Sanctions and penalties against infringements were increased and damages now can be claimed regardless of the application of sanctions.
Although raids by federal authorities led to the confiscation and destruction of several million pirated audio and video cassettes between 1992 and the end of 1994, music industry sources estimate that two out of every three audio tapes sold in Mex. ico still are pirated products (an annual loss of about USD 240 million). These raids have affected street vendors and have closed some pirate cassette fabrication oper: ations. However, the ease in which pirate tapes may be fabricated and the continued growth of the informal sector economy create a major challenge for the Mexican Government. In an effort to put teeth into its IPR laws, the Mexican Government formed a commission in October 1993 to cut through the bureaucratic obstacles hin. dering effective action. Much work remains to be done in combatting piracy in Mexico, but the Mexican authorities have demonstrated their interest in making substantial progress in intellectual property enforcement. 8. Worker Rights
For an introduction to the Mexican labor law, see "A Primer on Mexican Labor Law" (USDOL) and "A Comparison of Labor Law in the United States and Mexico an Overview" (USDOL 1992). In general, worker benefits mandated by law include paid vacations, maternity leave, end-of-year bonuses, generous severance packages, mandatory profit sharing and social security coverage, including comprehensive medical care, plus mandatory individual savings and retirement accounts to which employees and employers must contribute.
a. The Right of Association.-The Mexican Federal Labor Law (FLL) gives workers the right to form and join trade unions of their own choosing. Mexican trade unionism is well developed with thousands of unions and a number of labor centrals. Once formed, unions must register with the labor secretariat or equivalent state government authorities to acquire legal status to function. In theory, registration requirements are not onerous, involving the submission of basic information about the union. However, there are allegations that the federal or state labor au. thorities use this administrative procedure improperly to withhold registration from groups considered disruptive to government policies, employers, or unions. Unions and labor centrals are free to join or affiliate with international trade union organizations and do so.
b. The Right to Organize and Bargain Collectively. The FLL strongly upholds the right to organize and bargain collectively. On the basis of only a small showing of interest by employees, or a strike notice by a union, an employer must recognize the union concerned and make arrangements for a union recognition election or to negotiate a collective bargaining agreement. The degree of private sector organization varies widely by states; while most traditional industrial areas are heavily organized, states with a small industrial base usually have sew unions. Workers are protected by law from anti-union discrimination. Collective bargaining had been institutionalized in many sectors in the "Contrato Ley," industry or sector-wide agreements that carry the weight of law and apply to all firms in the sector whether unionized or not, but this is less-and-less common.
c. Prohibition of Forced or Compulsory Labor.The constitution prohibits forced labor. There have been no credible reports for many years of forced labor in Mexico.
d. Minimum Age for Employment of Children. - The FLL sets 14 as the minimum age for employment by children. Children age 14 to 15 may work a maximum of six hours, may not work overtime or at night, and may not be employed in jobs deemed hazardous. In the formal sector, enforcement is reasonably good at large and medium-sized companies; less pervasive at small companies. As with employee safety and health, the worst enforcement problem lies with small companies and the informal sector. Eighty-five percent of all registered Mexican companies have fifteen or less employees, indicating the vast scope of the enforcement challenge just within the formal economy. In 1992, the Mexican Government increased from six to nine the minimum number of years that children must attend school and made parents legally liable for their children's non-attendance.
În 1991, the Secretariat of Labor and Social Welfare (STPS) and the U.S. Depart. ment of Labor undertook joint studies of both the child labor problems and the nature of the informal economies in Mexico and the United States. The studies were published in late 1992 and are serving as a basis for cooperative efforts to discourage child labor in both our countries. In 1993, the International Labor Organization (ILO) was developing a national action plan against child labor with the Mexican Government's Social Development Secretariat (SEDESOL). There were also Mexican government and non-governmental organization media campaigns to convince parents to keep their children in school.
e. Acceptable Work Conditions. The Constitution and the FLL provides for a min. imum wage for workers, set by the Tripartite National Minimum Wage Commission (governmentlabor/employers). In December 1987, this commission agreed on an accord to limit wage and price increases, which has since been renewed annually. Generally in the private sector in the past sew years, wages set by collective bargaining agreements have kept pace with insation even though the minimum wage did not. In January 1994, the minimum wage was increased.
The FLL sets 48 hours as the legal work week and provides that workers who are asked to exceed three hours of overtime per day or work any overtime in three consecutive days be paid triple the normal wage. For most industrial workers, especially unionized ones, the real work week has declined to about 42 hours. Mexico's legislation and rules regarding employee health and safety are relatively advanced. All employers are bound by law to observe the "General Regulations on Safety and Health in the Work place issued jointly by STPS and Mexico's Institute of Social Security. The focal point of standard setting and enforcement in the work place is in FLL-mandated bipartite (management and labor) safety and health committees in the plants and offices of every company. These meet at least monthly to consider work place safety and health needs and file copies of their minutes with federal or state labor inspectors. Government labor inspectors schedule their own activities largely in response to the findings of these work place committees. Extent of U.S. Investment in Selected Industries.-U.S. Direct Investment Position Abroad on an Historical Cost Basis–1993
(Millions of U.S. dollars)
Food & Kindred Products
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