A MONTHLY NEWSLETTER ON NAFTA AND RELATED ISSUES. The Newest Mexican Pacific Coast Resort

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1 October 2008 * Volume 15, Issue 8 NAFTA Works A MONTHLY NEWSLETTER ON NAFTA AND RELATED ISSUES INSIDE THIS ISSUE 1 The Newest Mexican Pacific Coast Resort 1 Trilateral NAFTA Website 1 Trade Highlights 2 International Trade Opportunities... 3 Infrastructure Projects in Mexico 3 NAFTA Related Events 3 Diario Oficial 4 Success Stories 4 Selected Readings 4 Mexico Economic Update 5 Profile of Washington 6 Profile of Guerrero The Newest Mexican Pacific Coast Resort In late September 2008 Mexican President Felipe Calderon launched the construction of a large tourist resort in the Mexican coastal state of Sinaloa on the Pacific Ocean. Provisionally called the Pacific Coast Integrally Planned Center (Centro Integralmente Planeado de la Costa Del Pacífico CIP Spanish acronym), it will be created in the midst of the Sinaloa National Wetlands. This area is located 80 miles south of Mazatlán in the municipality of Escuinapa. The project is one of the most significant tourism developments supported by the public sector and as President Calderon put it - the most important project in the last 25 years and the most important in the first two decades of the 21st century". The overall complex is expected to include 7.5 miles of beaches; two marinas with a capacity to dock 1,000 vessels; four golf courses; 44,200 hotel rooms (hotels, condominiums, etc.); a five mile beachfront walk; and a light railway. It also allows for further expansion in the future, such as the possibility of constructing a new airport or the expansion of the small airport at Teacapán. Mexico's economy relies heavily on tourism, which is the third largest source of income immediately after the exports and the remittances. For that reason, President Calderon s National Development Plan established the continuous development of the tourism sector as a national priority giving foreign investment all of the means and legal guarantees needed. Public investment in the project will total $470 million and is expected to pave the way for additional private investments worth upward of $6.2 billion. The first stage of construction on the basic infrastructure is scheduled to begin during the first half of 2009, requiring some $262 million in investments, according to Fonatur, Mexico s national trust for the promotion of Continues on page 2 Page 1

2 tourism. That first phase is scheduled for completion in The second phase will commence in 2013 and run through 2025, and will require government investments of over $208 million. Based on the strength of tourism in Mexico, the Government is expecting to attract investments and generate permanent jobs while also stimulating regional economic development. By 2025, the CIP is expected to host 3 million tourists per year, generating $3 billion in income and providing direct and indirect employment for over 78,000 people in southern Sinaloa. Mexico is a top destination for international travelers and offers great potential for growth in the tourism sector. It ranks first in the world in number of archaeological zones and protected natural reserves, and ranks fourth in the number of cities declared as Humankind s heritage by the UNESCO. Mexico is the seventh most visited country in the world, receiving more than 21.5 million tourists annually and generating more than $12.1 billion in revenues. Despite the severe real estate and financial crisis around the globe, tourism in Mexico grew by 5 percent this year, attracting 13.6 million international travelers who have spent over $8.4 billion from January through July of In addition to the huge governmental investment that will spur private investment, this project has other advantages. First, it will be accompanied by investments on highway improvements to connect the region with the rest of the country. Second, the project has been conceived as environmentally sustainable where 25 percent of the total surface will be dedicated as natural protected areas, acreage that must be devoid of development. Furthermore, 109 acres of the surrounding wetland environment will be kept intact. Pacific Coast CIP developments will also have to meet Mexico s marine and land environmental standards included in the 2006 Marine Ecological Ordinance of the Gulf of California Program. For more information, visit International Trade Opportunities for California Metropolitan Areas California has a large GDP that make it ranks amongst the ten largest economies in the world if thought of as a country, and it would be 35 th among the most populous countries. As an economic powerhouse, California is well placed to take full advantage of the growing demand experienced by the international markets. The global economy is expected to provide continuing opportunities for U.S. and Californian exporters. California s Metropolitan Areas play an important role as the engines that move forward the entire economy of the state, where having fast and easy access to global markets is a condition to succeed. International trade is the fastest growing component of regional goods movement which contributes to promote continuing infrastructure improvements in ports, airports, rails, and highways that moves commercial freight from its point of origin to its destination. With 95 percent of the world s consumers outside the United States, and 8 percent of the California s GDP tied to exports, the stakes for Californian companies in an open trading system and increased market access are high. In recent years, regional and bilateral trade agreements have been the primary vehicle for reducing barriers to trade. Data from the U.S. Bureau of Economic Analysis and the Census Bureau suggests that exports of manufactured goods support more than 730,000 jobs in California, including 1 in 3 jobs in the computer and electronics sector, 1 in 4 jobs in transportation equipment manufacturing, and 2 in 9 jobs related to fabricated metal products. In all, this accounts for 1 of every 18 private sector jobs. Nearly 59,000 California businesses sell their products overseas. Mexico is California s largest export market with $18.3 billion worth of products, and Canada is ranked 2 nd with exports surpassing $16.1 billion in The combined exports to the NAFTA countries accounted for 25 percent of California s total exports. Los Angeles Metropolitan Area is the California s largest exporting region, accounting for 39 percent of the states total exports to the world and the third largest export region nationwide. With more than $8.2 billion worth of products exported in 2006, Mexico is the largest export market for companies established in Los Angeles area, and Canada was ranked second. Mexico is also ranked as the largest export market for companies located within the San Diego Metropolitan Area, the third major California s export urban conglomerate. In 2006, San Diego Areabased companies exported more than $5 billion of products to the Southern NAFTA partner accounting for nearly 37 percent of their exports worldwide. The Bay Area exports of goods totaled nearly $48 billion in 2006, accounting for over one-third of California s exports and ranks as fourth largest exporting region in the U.S. NAFTA countries accounted for 15 percent of the Bay Area exports to the world, buying products over $7 billion worth. For San Francisco-based companies alone, Mexico is the third largest export market. According to a recent study released by the Bay Area Council Economic Institute, Nearly 20 percent of manufacturers in the region export, while many others sell components to other companies that incorporate them into exports. The region s exports are led by technology, including computers and electronic equipment, telecommunications equipment, environmental technology, medical technology and bio-pharmaceuticals. Notwithstanding the prominence of technology in the region s export profile, the Bay Area sells a diverse range of products and services internationally, including apparel, consumer products, business and finances services, engineering, urban planning and architectural design, processed food and wine. This indicates a continuing shift of sales toward global markets, although many companies also saw strong growth in their domestics business. Additionally, many companies combine U.S. sales with sales to Canada and Mexico (North America), which are counted together as domestic sales. What is true for Bay Area companies can also translate to companies operating across California which are increasing their international orientation, and that global markets are assuming a progressively greater importance in their revenue flows and business strategies. Although many large Bay Area companies operate globally and account for the lion s share of trade volume, overseas markets are important to many small and medium-sized Bay Area businesses. 98 percent of exporters in the San Francisco Metropolitan Statistical Area, are small and medium-sized companies. Like many large companies, small and medium-sized companies orientation toward global markets is growing. Cross-border business opportunities, improvements in technology and reductions in the cost of exporting will substantially increase the number of U.S. small business trading globally. Global demand for the Bay Area s technology products and services has been a driving factor behind the region s economic expansion for the last two decades and accounts for a large share of revenue for Bay Area technologies companies. California is the top producer and exporter of agricultural products in the United States. While California s agricultural products can be found in markets around the world, Canada and Mexico are ranked the largest and fifth largest export markets, respectively. Page 2

3 Infrastructure Projects in Mexico Zapotillo Reservoir Project Sponsor: National Water Commission (CONAGUA) Location: Guanajuato and Jalisco Total Project Value: $770 million The project will involve the construction of a potable water treatment facility, a dam on the Rio Verde, an aqueduct to serve the States of Guanajuato and Jalisco, and associated pumping stations. The construction of a 411 Mm 3 reservoir (10.4 m 3 /sec) will supply water to the city of Leon, Guadalajara s metropolitan zone, and Los Altos de Jalisco. Business Opportunities: Financing, construction, maintenance, water treatment & equipment, pipes & pumps, drilling, instrumentation and controls for the hydraulic facilities. Nuevo Pemex Cogeneration Plant Sponsor: Petroleos Mexicanos (PEMEX) Location: Nuevo Pemex, Tabasco Total Project Value: $180 million By building this cogeneration plant, PEMEX seeks to promote selfsufficiency while making a profit by selling the excess energy to the Federal Electricity Commission (CFE in Spanish). This project will be bid as a build-own-operate project. It will involve the construction of a natural gas fueled cogeneration facility utilizing gas turbines, with a net capacity of 300 MW and heat recovery systems, which will generate 550 t/hr of steam. PEMEX will use around 60 MW, transferring the remaining energy to the CFE. This project will save PEMEX approximately $50 million per year. Business opportunities: Construction, turbines, transmission lines, substations. NAFTA Related Events November 1 st 30 th, 2008 METALFORM Mexico 2008 November Exhibition for metal forming industries: Tool and die, metal stamping, forming, fabricating and assembly Location: Centro Banamex, Mexico City Telephone: 52. (81) marcela.ordaz@tradeshowconsult.com Website: Cumbre Mundial de la Leche & Expo November Networking event about international diary industry Location: Centro Banamex, Mexico City Telephone: 52. (55) info@wds2008mexico.com Website: wds2008mexico.com Expo Transporte ANPACT 2008 November The most extensive show of trucks and busses in the transportation industry. Location: Expo Guadalajara. Guadalajara Jalisco Telephone: 52 (55) Ext horacio.gonzalez@mexico.messefrankfurt.com Website: Feria Internacional de Acuacultura y Pesca AQUAMAR November Trade fair for producers, researchers, investors, academics, and all people related to aquaculture production and fishery. Location: Hotel CID. Mazatlan, Sinaloa. Telephone: Fax: ext zoila_lopez@aquamarinternacional.com Website: México FIRE and Safety Expo November Exhibition of fire protection, life, security and electrical safety; including access control, building materials, extinguishing equipment, and sprinkler systems Location: Centro Banamex, Mexico City Telephone: hochoa@rocexhibitions.com Website: Festival Internacional Gastronómico November Equipment, products and services for the restaurant industry Location: Expo Guadalajara. Guadalajara Jalisco Telephone: info@fig.com.mx Website: INTERNATIONAL STANDARD FURNITURE STORE EXPO November 28 December 1st. Furniture Trade Show Location: Cintermex. Monterrey, Nuevo León Telephone: mmarquez@muebleriastandard.com.mx DIARIO OFICIAL NOTICES Notice modifying the official announcement to participate in a tender for granting concessions to construct, operate, exploit and/or provide services for railway lines, rail freight services, container terminal, and port authority in or from Colonet Bay, Ensenada, Baja California. This modification granted an extension to submit bids. October 2 nd Notice that formally declares the state of Michoacán de Ocampo as fowl salmonella and velogenic Newcastle disease free territory. October 3 rd Final determination of the countervailing duty order on imported plate steel sheets classified under tariff items , , and of the Mexican Tariff Schedule, originating from the People's Republic of China, regardless of shipping country. October 6 th Approval Decree and Promulgation Decree of the Agreement between Mexico and the People's Republic of China regarding trade remedy measures; signed in Arequipa, Peru on June 1 st, October 8 th and October 13 th Decree adding article 60 Bis 2 to the General Law on Wildlife. October 14 th Notice implementing a temporary transitional measure on several imported goods originating from the People's Republic of China. October 14 th Final determination that concludes the administrative review of the countervailing duty order on imported strollers classified under tariff item of the Mexican Tariff Schedule, originating from Taiwan regardless of shipping country. October 14 th Final Resolutions that conclude the countervailing duty orders on imported bicycles; footwear and parts; brass and bronze padlocks; strollers; locking knobs or knobs, non-rechargeable gas lighters; tools, yarns and fabrics, toys and Christmas trees; pencils; machinery, equipment and parts; apparel goods, organic chemicals, iron and steel valves; and candles, from the People's Republic of China. October 14 th Notice amending the rules that determine the country of origin of imported goods and provisions for certification, relating to countervailing duty orders. October 16 th Ninth resolution that amends the General Rules and Criteria for Foreign Trade, issued by the Ministry of the Economy. October 16 th 2008 National Standardization Program Supplement. October 20 th Notice announcing a tariff rate quota to import barley and malt. October 21 st Notice reforming the tariff rate quota to import oats, except for sowing. October 21 st Decree amending several import rates of the Mexican Tariff Schedule. October 24 th Notices establishing a tariff rate quota to import baby products, and textile goods. October 24 th Promulgation Decree to add the government procurement Chapter to the Free Trade Agreement between Mexico and Chile. October 27 th Ex-officio initial determination review of the countervailing duty order duration on imported cut to size writing and cover paper, classified under tariff item of the Mexican Tariff Schedule, originating from the United States of America regardless of shipping country. October 29 th Page 3

4 Success Stories Ternium to Invest in Mexico Steel Plant Latin American steel company Ternium will invest $4.2 billion over the next five years to build a flat steel plant in Mexico to bolster production capacity. Ternium expects demand for value-added flat steel products in Mexico will grow steadily, driven by new construction and industrial development. The project's initial phase involves building a flat-rolled mini mill in the Monterrey area, intended to produce two million tons per year of hot rolled coils. The second phase covers the construction of a cold rolled and galvanizing plant, including a pickling line and a cold rolled tandem mill with annual capacity of one million tons and a hot-dipped galvanizing line with annual capacity of 300,000 tons. igate Opens Mexican Operations igate Corporation, an integrated technology and operations firm from India, will begin to operate a new $2 million facility in Guadalajara this year. In addition to the company s international network of locations in the United States, Canada, India, Malaysia, Australia and the United Kingdom, the new center will utilize local workers to offer near-shore itops, IT and BPO services to a variety of U.S. and Latin American clients. Mexico's proximity to the U.S. and participation in NAFTA makes it an ideal location for a state of the art delivery facility, said Phaneesh Murthy, CEO, igate Corporation. ATC Logistics & Electronics Expands To Mexico ATC Logistics & Electronics (ATCLE), a subsidiary of ATC Technology Corporation headquartered in Downers Grove, Illinois, will expand operations into Mexico to offer additional repair and kitting & packaging services for both current and new customers. The facility, located in the border city of Matamoros across from Brownsville, Texas, will initially utilize 56,000 sq. feet, and has the potential to expand to 200,000 sq. feet. "We are dedicated to partnering with our customers to help them remain competitive in a global economy," said Anthony Francis, president of ATCLE. Kerio Teams Up With Habeas Data to Grow Channel Presence in Mexico Kerio Technologies, Inc., a provider of Internet security and messaging software based in San Jose, California, announced its partnership with Habeas Data Mexico, a company dedicated to offering complete network security solutions and information technology solutions headquartered in Mexico City. With this new alliance, the joint business is expected to result in a 50 percent increase in Mexico revenue over the next year. Recent momentum in the Mexican market has set the stage for choosing a strategic partner to help further advance Kerio's sales and support capabilities. "Kerio's products are a great fit for our marketplace," said Fausto Escobar Sanchez, general director of HD Mexico. Selected Readings International Trade and the Bay Area Economy Author: Bay Area Council Economic Institute. September 2008 In a period when the U.S. economy is slowing sharply, the global economy is expected to stay relatively strong, providing continuing opportunities for U.S. exporters and cushioning declines in the domestic economy. The region s stake in access to global markets is substantial. The Bay Area is the United States fourth largest exporting region, after New York-New Jersey, Houston and Los Angeles-Long Beach, and accounts for 36 percent of California exports. As a long-term trend, major Bay Area companies across a range of industries are deriving an ever-larger share of their revenues from global sales. Likewise, there is a clear trend toward small- and medium-sized businesses entering global markets at an earlier stage in their development. IntlTradeBAEconomy2008Web.pdf Mexico: Travel Trends to the United States Author: U.S. Commercial Service October 2008 The United States is the most important destination for Mexican travelers. Preliminary results show that in 2007, 14.3 million Mexicans traveled to the United States, representing over a quarter of the total foreign arrivals to the country. Mexico is the second source of international travelers to the United States just after Canada. Therefore, it is important for U.S. destinations and tourism services to market themselves aggressively in Mexico to tap into this lucrative market. The Economic Contributions of Anglers to the Los Cabos Economy Author: Produced on behalf of The Billfish Foundation by Southwick Associates, Inc., Nelson Resources Consulting, Inc., and FIRMUS Consulting. August 2008 In recent years, the Los Cabos region of Baja California Sur has experienced rapid growth as a major North American tourist destination. From its roots as a small, quiet fisheries-based town, its world-class striped marlin fishery has helped foster rapid growth. Now, the Los Cabos is a major provider of jobs to the Mexican economy. In 2007 and 2008, a comprehensive study was conducted to estimate the dollars, jobs and tax revenues created by anglers. In 2007, an estimated 354 thousand people, most all of them international visitors, fished in Los Cabos whose expenditures started a series of economic effects rippling through the local economy. Page 4

5 Washington In 2007, Washington's exports to Mexico reached $1.2 billion, up $908 million from their level in Exports to Mexico * (Millions of US Dollars) In the first half of 2008, Washington exported $682 million worth of products to Mexico, an increase of 28.4% in comparison with the same period last year. In 14 years of NAFTA, Washington's exports to Mexico have increased by 301%, while those to the rest of the world rose 125%. This means that the export growth rate to Mexico is 2.4 times higher than its export growth rate for the rest of the world. Since NAFTA was implemented, Washington's sales to Mexico have grown at an annual average rate of 10.4%. Mexico is an important trade partner to Washington. It was ranked as the 15th largest export market for goods from Washington in the first six months of 2008, up from 20th in 1993, illustrating the impact of NAFTA for Washington's growing businesses. Mexico accounted for 1.8% of Washington'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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