A MONTHLY NEWSLETTER ON NAFTA AND RELATED ISSUES

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the OECD, on January 12th in Mexico City. President Calderon indicated that a top to bottom review of regulations is a priority for his Administration.

The Ministry of Economy will lead this effort to complete the extensive review of the proposals and changes with the intent to remove every regulation deemed unnecessary by mid 2010.

1 February 2010 * Volume 15, Issue 2 NAFTA Works A MONTHLY NEWSLETTER ON NAFTA AND RELATED ISSUES INSIDE THIS ISSUE President Calderon Commits to a Reduction on Regulatory Requirements 1 President Calderon Commits to a... 1 Trade Highlights 2 Mexico Continues to Invest to Upgrades... 3 NAFTA Related Events 3 Diario Oficial 4 Success Stories 4 Selected Readings 4 Infrastructure Projects in Mexico 4 Mexico Economic Update 5 Profile of Nevada 6 Profile of Veracruz Mexico s President Felipe Calderon reaffirmed his commitment to reduce government regulations and bolster competitiveness during the Regulatory Reform Forum, cosponsored by the Mexican Ministry of Economy and the OECD, on January 12th in Mexico City. President Calderon indicated that a top to bottom review of regulations is a priority for his Administration. Thus, he has requested that all Federal Government Ministries review regulations that affect the business sector and propose ways to eliminate unnecessary red tape by March 31st, The Ministry of Economy will lead this effort to complete the extensive review of the proposals and changes with the intent to remove every regulation deemed unnecessary by mid Therefore it has identified five main focus actions: simplify the red tape for opening a new business, reduce administrative barriers to trade, ease the development of infrastructure, simplify tax payment, and strengthen the institutional and regulatory framework for competition. The deregulatory measures will also focus on enhancing interconnection between government entities by bolstering the use of new and better technologies. One example of this strategy is the online platform tuempresa.gob.mx already operating which facilitates the opening of new businesses, eliminating the tedious process of doing procedures with three separate governmental entities. In fact, from August when the website was launched, to date, its use has increased by a 40 percent monthly average, allowing savings by 50% of government resources involved during the process of opening a new business at a federal level. And, even better, this easy-to-use website reduces both time and paperwork for businesses, guaranteeing the safety and transparency of the procedure. As a result of these efforts, OECD estimates that administrative burdens on employers have fallen from 16 percent in 2007, to only 6 percent. Many municipalities and states governments have expressed interest to link their formalities to this technological platform, seeking for a simpler, less costly and more efficient regulation. Additionally, the plan will include legal initiatives to increase productivity, transparency and accountability. Therefore, President Calderon will send to Continues on page 2 Page 1

2 Congress a proposal that will allow the use of digital signatures on government forms, helping to streamline productive processes. The advances achieved in regulatory improvement have been considerable in the last decade, playing a key role in the modernization and structural reform of Mexico s economy. In 2000, the Federal Commission on Regulatory Improvement (COFEMER) was created to promote transparency in the implementation of regulations to gain benefits in time and costs, and in 2002 the creation of the Rapid Business Start-up System (SARE) and the Federal Registry of Formalities and Services (RFTS) meant important measures forward in transparency and regulatory simplification. The regulatory reform in Mexico has contributed throughout this time in the development of transparency between public and private sectors, taking barriers away, making the government an open door for opportunities and not an obstacle, and facilitating competition. The Mexican government is convinced that the country can make more progress in this area, which represents an opportunity to adopt world class standards that increase productivity and reduce costs for business. President Calderon reiterated that 2010 will be a year of economic recovery and growth for Mexico. These measures are steps in that direction. Mexico Continues to Invest to Upgrade its Port Capacity The expansion and incorporation of new technologies to the Mexican port system will continue to be executed in 2010, according to Mexico s Ministry of Communications and Transportation (SCT). Important ports like Lazaro Cardenas, Michoacán; Manzanillo, Colima; Mazatlan, Sinaloa; and Tuxpan, Veracruz will be the first in starting the expansion of their current infrastructure through different bidding processes, which will allow for the participation of private investors from all around the world. In recent years, Mexico has advanced significantly in the consolidation of current port capacity, increasing productivity, quality services, capacity installed and investments. In 2009 alone, Mexico invested more than $600 million to improve port capacity across the country. Thus, the Mexican ports have high-tech port infrastructure for all types of cargo activities through specialized terminals for handling containers, agricultural products and minerals, natural gas receiving and automobiles, among other operations. project the Mexican government is planning to invest 490 million dollars. After this entire project is finished, the port of Lazaro Cardenas will be the second largest port along the Pacific coast of the American continent. In addition, Kansas City Southern Railway (KCS), through its Mexican subsidiary, is willing to invest 100 million dollars to build a multimodal cargo terminal in Isla La Palma, adjacent to the port of Lazaro Cardenas. This project is aimed to improve the logistics chain along the NAFTA corridor through the industrial heartland of Mexico and the strategic markets in the Southeastern and Midwestern U.S. Currently, the Tuxpan port is evaluating the bids that have been submitted by investors to the tender of a port facility for handling general and containerized cargo. In the first half of 2010, the bid for a multi-purpose terminal in Mazatlan will also be ready to re-launch. The terminal will have 15.3 hectares and the capacity to handle 60 thousand TEUs in the first stage, requiring private investment of approximately $35 million. Also, the construction of a container terminal at the port of Guaymas initiates the process of competition between investors. The estimated $40 million new infrastructure will initially handle 175 thousand TEUs in a year over a 5.3 hectares surface with 320 linear meters of dockage. Importantly, the investment portfolio includes the proposed extension to the north of the port of Veracruz, the protection zone of Laguna de Cuyutlan in Manzanillo and Punta Colonet bidding. President Calderon s ultimate goal is to transform Mexico into the main logistical platform of North America. During the first three years of his administration, private investment in communications and transport infrastructure has been 2.5 times higher than the previous twelve years. It is expected that investments on 2010 will overtake the investments made in the port system last year. Foreign and domestic investors are welcome to invest in the expansion and upgrade of Mexico's port capacity, which will make trade more efficient, faster and cheaper. However, Mexico has experienced a dramatic growth of trade carried by vessels in the last decade. In 2008, more than 92 million tons of products, excluding oil, were traded through the Mexican ports, an increase of 40 percent in comparison to In the same period, the tonnage loaded and unloaded by containers grew by 155 percent, reaching 25.7 million tons of products handled by 3.3 million TEUs (Twenty-Foot Equivalent Units). Mexico s growing trade has carried maximum levels of utilization, which has generated a strong demand for new infrastructure. The expansion or development of new ports is necessary to meet current and future demand that the ports in Mexico are facing and will face in the long-term. Global trade has evolved rapidly toward the containerization of manufactured products and highly specialized cargo terminals, creating strong incentives to improve logistics and to make the supply chain more efficient. Therefore, Mexico has embarked in an ambitious infrastructure program aimed to incorporate the new technologies and restructure its port system. According to the National Infrastructure Program for , Mexico aims to invest 5 billion dollars in the ports sector, with approximately three-quarters of those resources to be invested by private companies that will be in charge of the construction and operation of the ports. The most important project scheduled for 2010 will be the expansion of the Lazaro Cardenas port. It will include the development of a 252 acre area with the capacity to handle 2 million TEUs annually. In this Page 2

3 NAFTA Related Events Expo Tecnología de Negocios Compushow 2010 March 1-2 Expo that presents software developers and providers as well as hardware and telecommunications equipment vendors and will offer products, services and solutions. Location: Cintermex, Monterrey Nuevo León. Phone: Website: Expo Manufactura 2010 March 2-4 International supplier s expo for the metal working, in-bond, production line, metal pre-forming, automation and control industries. Location: Cintermex. Monterrey, Nuevo León. Phone: info@cintermex.com.mx Website: Feria Internacional de Franquicias March 4 6 Companies from the entire world will show their franchises in order to do business in Mexico Location: World Trade Center, Mexico City. Phone: Miriam@grupomfv.com Website: AgroBaja 2010 March: 4 6 Exhibition of Agricultural products. Location: INIFAP Field Kilometer 7.5. Carretera Mexicali San Felipe. Mexicali, Baja California. Phone: info@agrobaja.com Website: Expo ANTAD 2010 March Suppliers of goods and services for grocery stores, supermarkets and department stores Location: Expo Guadalajara, Guadalajara, Jalisco. Phone: ext malvarez@antad.org.mx Website: Feria Internacional Artesanía México March Exhibition of Mexican crafts and handicrafts from all around the country Location: Expo Reforma, Mexico City. Phone: info@lasmanosdelmundo.com Website: Expo Light March Exhibition bringing together producers and distributors of light products, and low fat or low in calorie products for the skin care, health and beauty. Location: Expo Guadalajara, Guadalajara, Jalisco. Phone: / displayart@displayart.com.mx Website: Mexico Outdoor Expo March International hunting, fishing and adventure exhibition Location: Cintermex, Monterrey, N.L. Phone: info@mexicooutdoorexpo.com Website: Plastimagen 2010 March The leading event of the plastic industry in Latin America presents trends and technologies. Location: Centro Banamex, Mexico City. Phone: sergiom@ejkrause.com Website: DIARIO OFICIAL NOTICES Mexican Official Standard Draft PROY-NOM-007-SESH-2009, related to vehicles for transportation and distribution of liquid propane gas. Safety conditions, operation and maintenance. Jan. 4 th. Mexican Official Standard Draft PROY-NOM-012-SESH-2009, related to liquid propane or natural gas household heaters. Safety requirements and test methods. Jan 5 th. Final resolution of the annual review on the countervailing duty order applied to steel chains of welded links originating from the People s Republic of China, regardless the shipping country. These goods are classified under the tariff item of the Mexican Tariff Schedule. Jan. 5 th. Final resolution of the antidumping duty order on imports of carbonated steel line pipes with straight longitudinal seam, with a wall thickness from to 1 inch (14.3 and 25.4 millimeters, respectively) and with an external diameter exceeding 16 but not exceeding 48 inches (406.4 to 1,219.2 millimeters, respectively) originating from the United Kingdom of Great Britain and Northern Ireland, regardless the shipping country. These goods are classified under the tariff item of the Mexican Tariff Schedule. Jan 5 th. Contracting administrative guidelines for acquisitions, leasing, construction works and services covered under the productive substantive activities of Petroleos Mexicanos and its subsidiary bodies. Jan 6 th. Mexican Official Standard NOM-001-SSP-2008, for the determination, assignment and installation of the vehicle identification number. Jan 13 th. Amendments to the Mexican Official Standard NOM-005-FITO- 1995, related to the establishment of a foreign quarantine to prevent the introduction of the khapra beetle. Jan 21 st. Official announcement to participate in a public bidding process to lease capacity and consequently to grant operating concessions on dark fiber optic network of the power utility Federal Commission of Electricity (CFE). Jan 26 th. Resolution modifying the general dispositions applicable to credit institutions. Jan 27 th. Notice announcing the Decision number 55 of the México- Colombia FTA Commission granting a temporary exception to use of some non-originating textiles materials. Jan 29 th. Page 3

Success Stories Heineken Buys Mexican Brewer FEMSA-Cerveza Dutch brewer Heineken NV, the world's third largest brewer, will buy the beer-making operations of Mexico's FEMSA, Latin America's largest

Heineken would secure FEMSA's brands, beers it already sells in the United States, and an operation with a 43% share of the Mexican beer market and a 9% share in Brazil.

4 Success Stories Heineken Buys Mexican Brewer FEMSA-Cerveza Dutch brewer Heineken NV, the world's third largest brewer, will buy the beer-making operations of Mexico's FEMSA, Latin America's largest beverage company and Mexico s second largest beer producer, in an allshare deal that values the maker of Dos Equis and Tecate beers at US$7.6 billion, including debt and pension obligations. Heineken would secure FEMSA's brands, beers it already sells in the United States, and an operation with a 43% share of the Mexican beer market and a 9% share in Brazil. The deal would give FEMSA a 12.5 percent stake in Heineken NV and 14.9 percent of parent Heineken Holding, allowing FEMSA to participate in value creation from Heineken's transformation of its brewing assets while focusing attention on its other business divisions. HSBC Injects $700 million Into Mexican Unit The British-based bank HSBC has pumped $700 million into its Mexico subsidiary to increase the operating capital by about 30 percent. The capital injection will grow lending and fund the remodeling of its branch network, helping HSBC grant more consumer and business loans. The bank's loan book fell slightly during Mexico's deep recession last year, but lending is expected to expand as the country s economy recovers. "This commits us very strongly to say how we're going to make this investment profitable -- preserving it and producing a return on capital that's attractive," the head of HSBC's Mexican unit said. Accor Will Invest $25 Million in Mexico In 2010, the French Company Accor will invest over $25 million in Mexico to start operating four executive class hotels in Cancun, Hermosillo, Coahuila and Chihuahua, which are areas that represent great development opportunities. Jean Philippe Claret, CEO in Mexico for Accor Hospitality, pointed out that Mexico has great growth potential for investment in tourism and hotels, and will provide service to businessmen and businesswomen, families, sports events and conventions. An aggressive investment strategy has been planned for Mexico and Latin America. As far as Mexico is concerned, plans are to open Motel Six hotels, of which there are over one thousand in the U.S. and Canada. Mitsubishi Invested in a New Manufacturing Plant in Queretaro Mitsubishi Electric invested US$10 million in a new plant to manufacture parts for trains in San Juan del Rio, Queretaro, creating 300 direct and around 900 indirect jobs. Mtisubishi Electric will manufacture electric engines and speed controls for urban and suburban train cars, which will be exported from Mexico mainly to the United States, United Arab Emirates and Chile. "Mexican labor is well appreciated, and therefore the company made the decision to make such high quality and precision products in Mexico for the rest of the world". The new plant has 139,930 square feet. In another 30 year-old factory, which Mitsubishi has in San Juan del Rio, they produce elevators, escalators and their components for the Mexican, Latin American and U.S. markets. Selected Readings Reconciling Climate Change and Trade Policy Author: Aaditya Mattoo, The World Bank, Arvind Subramanian, Peterson Institute for International Economics, Dominique van der Mensbrugghe, The World Bank, and Jianwu He, The World Bank. December, 2009 There is growing clamor in industrial countries for additional border taxes on imports from countries with lower carbon prices. While this paper confirms the findings of other research that unilateral emissions cuts by industrial countries will have minimal carbon leakage effects, output and exports of energy-intensive manufactures are projected to decline, potentially creating pressure for trade action. A key factor affecting the impact of any border taxes is whether they are based on the carbon content of imports or the carbon content of domestic production. Border tax adjustment based on the carbon content in domestic production would broadly address the competitiveness concerns of producers in high income countries and less seriously damage developing country trade. Infrastructure Projects in Mexico Puebla Geothermal Power Plant Sponsor: Electricity Federal Commission (CFE) Location: Los Humeros, Puebla Project Value: $40 million Alstom has entered an agreement with the state-owned electric power company Electricity Federal Commission (CFE) to build a 25 megawatts geothermal central in the State of Puebla as a part of Los Humeros II Phase B project. Previously the company won a grant to develop Los Humeros II Phase A. Alstom pointed out that once construction of the two centrals is completed in May 2012, they will jointly produce more than 400 gigawatts/hour of cost-effective, reliable and green electric power, which will supply more than 100 thousand homes in the State of Puebla. Business opportunities: construction, civil engineering, engineering services, equipment. Tuxpan Container Terminal Sponsor: Port Authority (API) Location: Tuxpan, Veracruz Project Value: NA The Port Authority of Tuxpan will grant a contract for partial assignment of rights for the use, development and operation of a terminal for handling containerized and general cargo. The area encompasses 51 thousand squared meters, of which 45 thousand are located on federal maritime zone, and five thousand square meters of federal land. In 2009, the port recorded an increase of 25% in cargo operations to reach 9.6 million tons, mostly of bulk mineral and agricultural products, fluids and general cargo. Business opportunities: construction, civil engineering, logistics services, equipment. Page 4

Nevada In 2008, Nevada's exports to Mexico reached $185 million, up $160 million from their level in 1993.

6% in comparison with the same period last year. In 15 years of NAFTA, Nevada's exports to Mexico have increased by 630%.

5 Nevada In 2008, Nevada's exports to Mexico reached $185 million, up $160 million from their level in Exports to Mexico * (Millions of US Dollars) In the first half of 2009, Nevada exported $91 million worth of products to Mexico, an increase of 9.6% in comparison with the same period last year. In 15 years of NAFTA, Nevada's exports to Mexico have increased by 630%. Since NAFTA was implemented, Nevada's sales to Mexico have grown at an annual average rate of 14.2%. Mexico is an important trade partner to Nevada. It was ranked as the 4th largest export market for goods from Nevada in the first six months of 2009, up from 13th in 1993, illustrating the impact of NAFTA for Nevada's growing businesses. Mexico accounted for 3.1% of Nevada's exports worldwide in the January-June period of Source: US Census with adjustments made by the World Institute for Strategic Economic Research (Wiser), and SE-NAFTA by SIC AND by NAICS. *\ January - June Page 5

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Mexico's Logistics Infrastructure Update " Ciudad Juárez, Chihuahua May 16,2008

Mexico's Logistics Infrastructure Update " Ciudad Juárez, Chihuahua May 16,2008 Global Logistics Update Comparative Country Rankings (Quality of Infrastructure) MEXICO USA BRAZIL JAPAN GERMANY CHINA 61