MONTHLY NEWSLETTER ON NAFTA AND RELATED ISSUES

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In 2006, Mexico had an annual production of 16.3 million tons (Mtons) of steel, with national consumption reaching nearly 26 Mtons.

9% of Latin America s steel production. At the national level, the steel industry accounted for 2.1% of Mexico s Gross Domestic Product (GDP) in 2006.

1 November 2007 * Volume 12, Issue 11 NAFTA Works A MONTHLY NEWSLETTER ON NAFTA AND RELATED ISSUES INSIDE THIS ISSUE 1 Mexico s Growing Steel Industry 1 Trade Highlights 2 Infrastructure Projects in Mexico 3 NAFTA Related Events Mexico s Growing Steel Industry After the brief period of uncertainly in the world s steel market that began in 2000, the Mexican steel industry started to grow in In 2006, Mexico had an annual production of 16.3 million tons (Mtons) of steel, with national consumption reaching nearly 26 Mtons. This level of production established the country as the world s 15 th largest steel producer. Currently, Mexico provides 1.3% of the world s total steel output, which accounts for 25.9% of Latin America s steel production. At the national level, the steel industry accounted for 2.1% of Mexico s Gross Domestic Product (GDP) in The industry was the primary consumer of natural gas and electricity in the country (30.5% and 7.4% respectively), as well as the most frequent user of Mexico s freight rail road transportation; 9.8% of cargo traveling by rail road originates from the steel industry. Businesses in the industry directly employ near 53,700 workers, with an additional 550,000 people working indirectly for related industries. Last year, the Mexican steel industry produced about 553 kilos of steel per employed person saw the largest production with 595 kilos per employee. 3 Diario Oficial 4 Selected Readings 4 Success Stories 4 Mexico Economic Update 5 Profile of Ohio 6 Profile of Colima A great portion of steel production takes place in the states of Michoacán, Coahuila, Nuevo León, Veracruz, and Guanajuato. Companies with operations in these states include AHMSA, HYLSA, Deacero, SIMEC, IMSA, Arcelor-Mittal, and Technit. Examples of the products made in these facilities include strings, screws, nails, staples, barbed wire, locomotive wheels, construction components, and several semi-finished products. These manufacturers supply other industries, such as the automotive, appliance, and electronics industries. Mexico s consumption of steel has risen in the last five years due to an increase in domestic demand. A national index put out by the National Chamber of the Steel Industry (Cámara Nacional de la Industria del Hierro y del Acero / CANACERO) shows that in the next decade consumption is expected to grow by 6 per cent annually. Due to high domestic demand, Mexico has relied on steel Continues on page 2 Page 1

imports. From 2002 to 2006, imports rose from 7 Mtons to 8.8 Mtons, an increase of 25.3%. During the same time period, steel exports increased by 15.4%, rising from 4.8 Mtons to 5.6 Mtons.

Meanwhile, the value of imports went up from 6.2 billion dollars to 7.6 billion dollars, a 23.4% increase. Mtons annual output and Canada ranking 16 th, right behind Mexico with 15.4 Mtons per year.

2 imports. From 2002 to 2006, imports rose from 7 Mtons to 8.8 Mtons, an increase of 25.3%. During the same time period, steel exports increased by 15.4%, rising from 4.8 Mtons to 5.6 Mtons. The value of both imports and exports rose during this time as well. In 2006, exports accounted for 4.7 billion dollars, which represents a 9.7% increase with respect to the previous year. Meanwhile, the value of imports went up from 6.2 billion dollars to 7.6 billion dollars, a 23.4% increase. Mtons annual output and Canada ranking 16 th, right behind Mexico with 15.4 Mtons per year. The performance of the steel industry relies on the state of the Mexican economy. Its behavior is also tied to the trends in foreign markets. Therefore, with the Mexican economy growing at 4.8% and the forecast of an increase in domestic consumption, there appear to be no signs of an industry slow down in the near future. While the demand for steel has risen in the last years, domestic production has not kept up. The industry has been forced to invest in programs aimed towards increasing capacity. From 2005 to 2006, production capacity went up from 19 Mtons to 22 Mtons, resulting in a 14.6% increase in production. Of the amount of steel produced in 2006, 16.3 Mtons were manufactured using 72.8% of the industry s capacity. Companies have also reorganized their enterprises to increase productivity. This has helped them cut down production costs, which has played an important role in creating capital investment for the improvement of technology. Investment and Trade While the privatization of Mexico s steel industry began in 1976, it wasn t until the beginning of the globalization era in the early 90 s that investment helped bring about much needed changes. Between 1991 and 1998, 7.4 million dollars were channeled into modernizing the industry and making it competitive. While this amount dwindled to 2.7 million dollars between 1999 and 2006, the resources have been enough to maintain the level of production reached by the industry modernization. As a way to decrease imports, investment in the steel industry could reach as much as 4 billion dollars in the next six years. Mexico s President Felipe Calderon has started a fiscal reform program to allow an increase in private investment into the industry and to increase government revenue. In 2006, steel, along with copper and aluminum, accounted for the largest increase of U.S. exports to Mexico. This was the result of Mexico s economy growing at a rate of 4.5% for the first time since Mexico s steel imports are mainly utilized by the automobile and electric-appliance manufacturing sectors. Due to the country s low production level, imports are expected to grow in the coming years. Nowadays, Mexico, along with its NAFTA partners, accounts for 10% of the worldwide production of steel. The three countries rank in the top 20 list of steel producers in the world, with the United States ranking 3 rd overall with 98.6 Infrastructure Projects in Mexico Baja California Multimodal Project (Punta Colonet) Sponsor: Secretariat of Communications and Transport Location: Ensenada, Baja California Total project value: US$7 billion This project will focus on the handling and transport of freight containers originating from Asia and destined primarily for the US. The port is expected to handle 8 million TEU/year and utilizing a train line also scheduled for construction. Business Opportunities: Finance, construction, port and logistics equipment, port services and maintenance. Falcón Aqueduct Project Matamoros Sponsor: National Water Comission (CONAGUA) Location: Matamoros, Tamaulipas Total Project Value: Aprox. US$500 million This project is vital to regional economic prosperity, as it will improve water access to the growing populations and new industries settled in Rio Bravo, including 9 cities and surrounding rural areas. The aqueduct will be approximately 270 km in length with respective pumping stations that would distribute water to the population of northern Tamaulipas (from Falcon to Matamoros). The project is set to begin in the second t r i m e s t e r o f Business Opportunities: Construction, equipment: pumps, pipes, heavy machinery and administration and maintenance of hydraulic facilities. Page 2

3 N AFTA Related Events IV EXPO FERIA DE LA COMPUTACION December 1-2, 2007 Exhibition of information technologies, hardware, software, electronics, marketing and communication Location: Centro de Convenciones Yucatán Siglo XX, Mérida Yucatán Telephone: +52 (99) EXPO INTERNACIONAL HERBOLARIA Y NATURISTA LEON December 1-2, 2007 Food and beverages, food supplements and naturist products Location: Poliforum León, León, Guanajuato Telephone: +52 (33) Fax: +52 (33) alejandro@imagennatural.com.mx FERIA INTERNACIONAL DE QUERETARO December 3-17, 2007 Forum for trade opportunities in Queretaro Location: Ecocentro Expositor, Queretaro Telephone: +52 (442) ext.5069 Fax: +52 (442) mdelprete@queretaro.gob.mx Website: INTERNATIONAL GOLF TRAVEL MARKET 2007 December 3-6, 2007 The world s premier event focusing on golf travel. Golf tour operators, incentive travel agents, organizers and other suppliers of golf related products Location: Cancun Convention Center, Cancun, Quintana Roo Telephone: (1)-(203) Fax: +(1)-(203) abby.stewart@reedexpo.co.uk Website: DlGITAL FAIR December 8-9, 2007 Technological products, processing and services exhibition directed to the building and housing. Telephone: +52 (81) Location: Cintermex, Monterrey, Nuevo León informes@feriadigital.com Website: FERIA ARTESANAL December 8-18, 2007 Exhibition of Mexican handicrafts Location: Puebla, Puebla Telephone: +52 (22) Fax: +52 (22) iaip_admon@yahoo.com.mx Website: CHRISTMAS CONSUMER SHOW 2007 December 13 16, 2007 Christmas seasonal products and services. Location: Centro Internacional de Negocios, Monterrey México Telephone: 52 (81) /42 mauriciosantos@gruposie.com.mx Website: DIARIO OFICIAL NOTICES Technical Regulation (Mexican Official Standard) NOM-174- SCFI Commercial Practices. Information required for providing general services. Nov 1. Notice establishing the operational rules and function of the Consumer Public Register. Nov 8. Notice establishing a temporal closed season to catch yellowfin tuna (Thunnus albacares), bigeye tuna (Thunnus obesus), bluefin tuna (Thunnus thynnus orientalis), and skipjack (barrilete) (Katsuwonus pelamis), for commercial purposes, in the Mexican jurisdiction of the Pacific Ocean, and by Mexican vessels on high seas. Nov 20 EXPOFERIA ORO Y PLATA ACAPULCO 2007 December 6-9, 2007 Jewelry, gold and silver products Location: Centro de Convenciones de Acapulco. Acapulco, Guerrero. Telephone: +52 (744) Fax: +52 (744) ajpaac@yahoo.com Website: Proclamation Decree related to an Air Transportation Agreement signed between Mexico and El Salvador. Nov 23 Notice that modifies several TRQs to import powered milk in 2007 in order to allocate the remaining and the retrieved TRQ up to this date. Nov 30 Page 3

4 Selected Readings Entry Regulation and Business Start-Ups: Evidence from Mexico David S. Kaplan, Eduardo Piedra, Enrique Seira World Bank Policy Research Working Paper 4322 August 2007 The authors estimate the effect on business start-ups of a program that significantly speeds up firm registration procedures. The program was implemented in Mexico in different municipalities at different dates. Authors estimates suggest that new start-ups increased by about 4 percent in eligible industries, and the authors present evidence that this is a causal effect. Most of the effect is temporary, concentrated in the first 10 months after implementation. The effect is robust to several specifications of the benchmark control group time trends. The authors find that the program was more effective in municipalities with less corruption and cheaper additional procedures. Link: Mexico Crating the Foundations for Equitable Growth Document of the World Bank, June 2007 Mexico has undergone a dramatic political, institutional and economic transformation over the last two decades. The political system has evolved towards open and highly competitive elections, decentralization of the public sector has progressed, some sectors previously controlled by state owned enterprises wee privatized and barriers to international trade were substantially reduced. Sector reforms have resulted in expanded coverage of basic social services such as education and health, and the macroeconomic and trade reforms of the 1990s have established Mexico as a stable and more open economy. Developing Mexico s offshoring opportunity Diana Farrel, Antonio Puron, Ignacio Quesada McKinsey Quarterly; 2007 Special Edition The article presents the findings of a study conducted by the McKinsey Global Institute (MGI) relative to Mexico as an offshore resource compared to ten other low-wage countries. The study found that Mexico enjoys low costs, close proximity to the U.S., a growing number of college graduates, and a promising domestic market. The disadvantages limiting Mexico s growth as a market include a dearth of Information Technology vendors, costly infrastructure, and a talent pool that has limited suitability for multinational positions. The article details the findings of the study and makes recommendations for what Mexico might do to improve its positions as an offshore resource. Success Stories ArvinMeritor Announces Construction of a New Commercial Vehicle Systems Plant in Mexico ArvinMeritor announced it will open a new Commercial Vehicle Systems (CVS) facility in Monterrey, Mexico. This new facility - which will include approximately 400,000 square feet of manufacturing and office space - will provide additional capacity for the company's axle and brake assembly operations and component manufacturing. Carsten Reinhardt, president of CVS for ArvinMeritor explained that this investment demonstrates the company s commitment to being a leading supplier in the North American truck industry. The company s executives have worked closely with government officials in the state of Nuevo Leon to expeditiously plan and launch the facility so that it is operational prior to the anticipated upturn in the North American markets." Start of production is scheduled for May Aquentium, Inc. plans to Open Manufacturing Facility In Mexico The cost and emergency housing company Aquentium, Inc announced its plans to open a manufacturing facility for its low cost housing and emergency housing structures in Mexico. "The recent flooding in Mexico indicates the immediate need for our emergency housing. We also expect that our low cost housing solution will benefit the citizens of Mexico for many years," stated Aquentium President Mark Taggatz. The Aquentium SIP building system is unique in design and method of manufacture being strong enough to meet the highest world standards, yet simple in design so as it produces substantial savings of time and in building construction costs. Taggatz informed he has met with government officials and anticipates that by the end of this month Aquentium will be able to announce its first selected manufacturing location in the country. Hawker Beechcraft Corporation opened a new aerospace manufacturing facility in Chihuahua, Mexico Hawker Beechcraft Corporation (HBC) officially opened its new aerospace manufacturing facility in Chihuahua, Mexico. HBC s Chihuahua Operation has established an aerospace light sheet-metal assembly facility in the state of Chihuahua to enhance its competitive position in the world market and develop a reliable supply base to support the current and future needs of its Wichita facility. The operation will initially employ up to 250 local technicians and staff with growth opportunities for 650 employees in the next five years. We are increasing our manufacturing footprint to meet current demand and aggressive growth plans, said Jim Schuster, chairman and CEO of Hawker Beechcraft Corporation. Siemens Plans to Build Electrical Equipment Factory in Mexico Next year, Siemens AG, Europe's biggest engineering company, plans to build an electrical equipment factory in Mexico mostly to export to the U.S. The factory would begin operations in 2009 and likely be located in the northern industrial city of Monterrey, said Hans- Joachim Kohlsdorf, president of Siemens' Mexico operations. This year, the company has opened two other factories in Mexico for the production of voltage equipment and other products. Mexico continues to be very strong on the manufacturing side'' said Kohlsdorf during a conference of business leaders in Monterrey. The country has a very important local market and its proximity to the U.S is also a great advantage.'' Page 4

Ohio Exports to Mexico 1993-2006 (billions of US Dollars) In 2006, Ohio's exports to Mexico reached $2.7 billion, up $2.0 billion from their level in 1993.

Since NAFTA was implemented, Ohio's sales to Mexico have grown at an average annual rate of 10%. Mexico is an important customer of Ohio.

5 Ohio Exports to Mexico (billions of US Dollars) In 2006, Ohio's exports to Mexico reached $2.7 billion, up $2.0 billion from their level in Among all US states, Ohio ranked 6th as an exporter of goods to Mexico in In 13 years of NAFTA, Ohio's exports to Mexico have increased 261%, while those to the rest of the world rose 89%. Since NAFTA was implemented, Ohio's sales to Mexico have grown at an average annual rate of 10%. Mexico is an important customer of Ohio. It has been the 2nd largest export market for goods from Ohio in 2006, up from 5th in 1993, illustrating the impact of NAFTA for Ohio's growing business. Mexico accounts for 7.2% of Ohio total exports. There were an estimated 13,077 jobs in Ohio dependent on exports of manufactured goods to Mexico in These jobs represented 1.7% of Ohio's total manufacturing employment. Source: US Census, WISER and SE-NAFTA by SIC AND by NAICS. Page 5

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Regional Economic Report April June 2015

Regional Economic Report April June 2015 September 10, 2015 Outline I. Regional Economic Report II. Results April June 2015 A. Economic Activity B. Inflation C. Economic Outlook III. Final Remarks Regional