A MONTHLY NEWSLETTER ON NAFTA AND RELATED ISSUES

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1 NAFTA Works June 2011 * Volume 16, Issue 6 A MONTHLY NEWSLETTER ON NAFTA AND RELATED ISSUES INSIDE THIS ISSUE 1 Mexico is Expanding Its Horizons in... 1 Trade Highlights 2 Processed Food Industry in Mexico 3 NAFTA Related Events 3 Diario Oficial 4 Success Stories 4 Selected Reading 4 Infrastructure Projects in Mexico 4 Mexico Economic Update 5 Profile of New York 6 Profile of Tamaulipas Mexico is Expanding Its Horizons in Latin America Mexico and Latin America not only share the same culture and vast natural resources, but also trade and economic interests. Mexico, more than ever, is making an emphasis on having stronger trade links within its southern neighbors. As globalization continues to shrink the world, it is crucial for Mexico s economy to keep up with other competitive countries. One of the strategies of doing so is by expanding international trade agreements. As one of the world s most dynamic region, Latin America is a strategic region for trade and investment. This significantly large area is doing better than any other time with an annual average growth rate of 4% during the last six years, and direct investment is arriving in record quantities. Approaching the Latin American market represents an opportunity to reach out to more than 450 million potential consumers a larger demographic than the U.S. and Canada together. The GDP of the region would count for over $6.2 trillion. In addition, Latin American imports have grown at rates higher than 10 percent in recent years-- totaling over $550 billion. Mexican President Felipe Calderón stated, This decade will soon be the decade of Latin America which, along with Asia, represents one the highest growth rates in the world market. Therefore, promoting closer trade relationships within the region will bring crucial openness to a more globalized facet of innovation, dynamic integration, technology, investments, job creation, competition and sustainable economic development. Strengthening economic relations with this area would promote larger flows of direct investments. Indeed, according to the UN-ECLA, among of all Latin American countries, Mexico was the highest investor in the region with a value $12.7 billion, an increase of 81% in Mexican direct investments have already accumulated more than $50 billion in the region. Also, Mexico is one of the most attractive destinations for foreign direct investment in the world and ranked second among Latin America countries, receiving $18.6 billion in 2010, an increase of 22%. Mexico has several free trade agreements (FTAs) with Latin American countries. Furthermore, it is in the process of improving some existing agreements as well as negotiating new ones. Mexico has signed FTA s with Uruguay, Costa Rica, Colombia, Nicaragua, Chile, and the Northern Triangle (El Salvador, Honduras, and Guatemala). It has also several limited preferential agreements with Brazil, Argentina, Ecuador, Paraguay, Peru, and Panama. Continues on page 2 Page 1

2 As a result, trade between Mexico and Latin America has more than tripled in the last decade, exceeding $33 billion last year. Likewise, Mexican exports to the Latin American region increased by 303% in the same period, totaling $20.5 billion in Manufactured products lead Mexico s exports to the region such as vehicles, TV sets, cell phones and other wireless networks, medicines, chemicals, and food preparations. Recently, Mexico and Colombia expanded the scope of the bilateral FTA by including a wider selection of products. It is expected that within five years the updated agreement will generate in Mexico 60,000 new jobs and its exports will reach $9 billion. Since the FTA went into effect in 1995, Mexican exports to Colombia have multiplied twelvefold, reaching $3.8 billion in Moreover, current negotiations with the Northern Triangle, Nicaragua and Costa Rica are on their way to achieve one single agreement with the aim of unifying the region s production advantages, which will conclude in the short term. On the other hand, on April 6, 2011, after five years of negotiations, Mexico and Peru signed a FTA, covering four areas: trade in goods, trade in services, investment, and institutional arrangements and dispute settlement. The FTA is awaiting for the Mexican senate approval. Trade between Mexico and Peru stood at $1.5 billion last year, and it is expected to double over the next five years as the agreement grants tariff preferences to 12,000 tariff items. Mexican currently exports $974 million a year to Peru, which accounts for 3.4% of Peru s imports. Mexico s exports to Peru may increase to $2.7 billion and generate 23,000 direct jobs. On February, 2011 Mexico and Brazil announced an ambitious negotiation of a FTA. The agreement would promote growth and economic development, not only through trade but also through investments between the two largest economies in Latin America. It would also foster a more efficient use of the complementary nature of their economies, creating strong synergies in leading manufacturing sectors such as the automotive and aerospace. Although bilateral trade totaled $8.1 billion in 2010 there is still room for improvement given the potential of both economies. Furthermore, the Presidents of Colombia, Peru, Chile and Mexico met on April 28, 2011 to set up an initiative called the Pacific Alliance to encourage regional economic integration and greater growth, and to foster the competitiveness of the four economies. As a first stage, the four countries will work on priority areas such as trade facilitation, customs cooperation, services, movement of business people, migratory flows facilitation, capitals, cooperation, and dispute settlement mechanisms. Mexico s export capacity has much potential to continue growing at double digit rates with the fast growing Latin American countries. The region is a land of opportunity and economic growth that Mexico is willing to participate through establishing a framework of certainty where businesses flourish. Processed Food Industry in Mexico Since NAFTA entered into force 17 years ago, the U.S. and Mexican agricultural and food processing sectors have become far more integrated, as evidenced by increased trade in a wider range of products, significant investment flows, and important changes in consumption and production. Therefore trade of processed food between the U.S. and Mexico has multiplied by 5.6 during this period, exceeding $12.6 billion worth of products in This trade consists of not only final consumer products but also intermediate inputs, as firms reorganized their activities around regional markets for both inputs and outputs, spurred in part by greater foreign direct investment (FDI). Thus, Mexico s food and beverage industries have become among the most attractive sectors for FDI. These industries received $24 billion in foreign investment between January 1999 and March Approximately half of this capital came from the United States. Through direct investments in the other NAFTA partners, several companies from Mexico have reinvented themselves as larger, stronger, and more globally viable firms. In some instances, the resulting operations outside Mexico rival the domestic operations in size and importance. Hence, Mexico has become the second largest source of direct investment in the U.S. processed food industry, reaching a stock of $3 billion in Mexican companies have important investments in certain segments of the US industry, such as baked goods, Mexican-style foods, and dairy products. Some have also expanded significantly their manufacturing capability in Central and South America and established investments in Europe and Asia. The US and Mexican processed food markets have reached a high level of integration in which both markets have combined to form a more synchronized single market, taking advantage of the complementary nature of the abundant agricultural resources available throughout the region. Another advantage is their geographic proximity, which expedites cross-border trading operations of perishable agricultural products used as inputs for food processing. These make companies located in Mexico wellpositioned to meet not only domestic and regional demand but also to export high quality food products to the international markets. Mexico s total exports of processed food have grown nearly eightfold, exceeding $8.8 billion in 2010 in comparison with $1.1 billion reached in The U.S. is by far the largest export market for Mexican food products, representing 73% of current foreign sales. However, Mexican exports have successfully expanded to other markets such as Canada, Japan, Europe and Central America through Mexico s network of free trade agreements, as well as Australia and other Asia-Pacific countries. Larger flows of FDI also increase two-way trade. US exports to Mexico have increased partly because growing flows of intraindustry trade in a variety of intermediate and final food. Many US affiliates in Mexico import products from the United States for further processing in Mexico. The cost of the finished food product made in Mexico is often less than if the finished product had been exported from the United States, making FDI attractive for expanding markets. Mexico is the US second largest processed food export market with sales of over $5.7 billion in 2010, up 311% from Indeed, some US products, such as vegetable oil, dried milk, milling products, sweeteners and flavorings, are exported to Mexico for further processing into mayonnaise, salad dressings, bakery products, confectionery and beverages. Most US exports of beef and poultry are sold directly to wholesalers and retailers and some is further processed. Likewise, Mexico is the second largest supplier of processed food to the US, reaching $7 billion worth of products last year or 13% of its total imports, which have increased eight-fold since Beer is Mexico s foremost agricultural export to the United States, leading its import market with sales over $1.6 billion in 2010, compared with just $163 million in As a result of NAFTA, the Mexican beer producers are able to import barley and malt dutyfree from the US as a complement to domestic supply, illustrating the benefits of market integration. Mexico also is the largest foreign supplier of sugar confectionary with exports of over $350 million, and ranks second in baked products with $287 million annually. Today the food industry in Mexico represents one of the fastest growing areas for foreign investment with the establishment of a growing number of food processing plants, joint ventures between US and Mexican food processers, and many restaurant chains opening up in Mexico. As Mexico s middle-income population continue growing leading to higher levels of food spending per person, the US and Mexican processed food markets are likely to advance integration to a higher level spurring even more investment opportunities, promoting job creation in both countries, and benefiting consumers through access to a wider variety of products on the supermarket shelves. Page 2

3 NAFTA Related Events Expo AFM 2011 July 6-8, 2011 Exhibition of pharmaceutical and chemical products, cosmetics, medical devices and clinical analysis suppliers Location: World Trade Center. Mexico City. Phone: 52 (55) Website: 5to. Salón Internacional del Tuning 2011 July 8-10, Automotive parts and accessories trade fair Location: Expo Bancomer Santa Fe. Mexico City. Phone: 52 (55) Website: Publicitaria Expo Guadalajara July 13-15, 2011 Exposition of products and services related to advertising, marketing and promotion industries Location: Expo Guadalajara. Guadalajara, Jalisco. Phone: 52 (33) Website: PAACE Automechanika Mexico July 13-15, 2011 Automotive products and suppliers trade show Location: Centro de Exposiciones Banamex. Mexico City. Phone: 52 (55) Website: IM Intermoda 19-22, 2011 Displaying the latest industry trends and marketing strategies for the fashion industry Location: Expo Guadalajara, Guadalajara, Jalisco. Phone: 52 (33) Website: Medical Fair Mexico July 20, 21, 22, 2011 Trade fair related to heath care products Location: Centro de Exposiciones Banamex, Mexico City. Phone: 52 (81) Website: Cancun Advertising Show July 21-22, 2011 Exhibition of advertising, design, media and marketing companies focused on tourist advertising Location: Cancún Center. Cancún, Quintana Roo. Phone: 52 (99) , 52 (998) Website: Decoestylo July 25-29, 2011 Exposition of manufacturers and distributors of decoration items and gifts Location: World Trade Center. Mexico City. Phone: 52 (55) Website: Animex July 29-31, 2011 Comics, video games, scale model products and other entertainment goods displaying Location: Citermex. Monterrey, Nuevo León. Phone: 52 (81) Website: DIARIO OFICIAL NOTICES Notices announcing new amendments and the entry into force of previous modifications to the Economic Cooperation Agreement No. 55 between Mexico and Mercosur. May 6 th and May 20 th. Amendments to the provisions for the formulation, approval, implementation, use and incorporation of texts, legends, pictures, pictograms, health messages and information to be included in all packages, packaging and external labeling of tobacco products, starting September 24, May 9 th. Amendments to the Federal Law of Economic Competition, the Federal Criminal Code and the Federal Fiscal Code. May 10 th Notice announcing new Mexican Institute of Industrial Property fees. May 10 th Final resolution of the sunset review of the countervailing duty order on imports of certain concrete steel nails originating from China, regardless of the shipping country (Mexican tariff item ). May 16 th. Resolution that declares the initiation of the sunset review and the ex officio review of the countervailing duty order imposed on imports of mushrooms of the genus agaricus, originating from China and Chile regardless of the shipping country (Mexican tariff item ). May 17 th Amendments to the General Rules for Foreign Trade May 27 th Preliminary resolution of the antidumping duty order on imports of graphite electrodes for electric arc furnace originating from China regardless of the shipping country (Mexican tariff item ). May 31 st Mexican Official Standards Project to modify NOM-077-FITO-2000, establishing requirements and specifications for studies of the biological effectiveness of plant nutrition inputs. May 10 th Amendments to NOM-247-SSA1-2008, Sanitary, nutritional provisions and specifications and test methods for cereals, cereal products and bakery products. May 10 th Project to modify NOM-004-ZOO-1994, fat, liver, muscle and kidney in birds, bovines, goats, deer, equine, sheep and swine. Maximum limits of toxic residues and sampling procedures. May 12 th Excerpt from the MRA between Factual Services, S.C. and TUV Rheinland of North America Inc. for the acceptance of conformity assessment results in electrical and electronic products. May 13 th Excerpt from the MRA extension between the Asociación de Normalización y Certificación, A.C. and Canadian Standards Association for the acceptance of tests results for electrical and electronic products. May 13 th Clarification to the amendments of NOM-155-SCFI-2003, milk, dairy formula and combined dairy products - denominations, physical-chemical specifications, commercial information and test methods, published on September 12, May 25 th Amendments to NOM-243-SSA1-2010, specifications and sanitary provisions, and test methods for milk, dairy formula, and dairy products. May 30 th Page 3

4 Success Stories DuPont to Increase Titanium Dioxide Production in Altamira, Mexico The DuPont Co. will invest $500 million in a new production line at the Altamira, Mexico site as a part of a strategy to expand its global titanium dioxide production. The new facility would be completed by the end of 2014 and provide about 200,000 metric tons of new capacity per year in order to meet increasing demand for the widely used pigment. The enlarged DuPont facility would make Mexico the third-largest producer of the pigment after the U.S. and China. Titanium dioxide is a whitening pigment used in products ranging from automotive and house paint to toothpaste. Siliken Opens Its Fifth Manufacturing Facility in Tijuana, Mexico Siliken, a Spain-based solar industry s key player celebrated the opening of its new $27 million manufacturing facility in Tijuana, Mexico. The startup of Siliken s fifth manufacturing plant is a decisive move of manufacture in Mexico in its bid to reduce production costs of their solar panels and maintain its competitiveness in the US market. Alfredo Pucre, Siliken s CTO and vice-president, praised the highly skilled work force available in Tijuana, Our associates produce 1,500 modules weekly, complying with the highest market requirements and quality specifications, which in turn allows the plant to ensure a faster certification process for its products. The number of employees is expected to grow from 180 to 500 within the next two years. Bridgestone will Invest in Mexico Bridgestone's Division in Mexico, subsidiary of the Japanese giant manufacturer of tires, will end 2011 with a 30% expansion in production capacity at their plants in Cuernavaca, Morelos and Monterrey, Nuevo León. Plans are to manufacture 28,000 tires per day at both plants, and to this purpose it will invest $100 million. In the plant located in Monterrey daily capacity will be increased from 6,000 to 8,000 units. The whole production from this plant will be exported to the United States. The expansion of the Cuernavaca manufacturing plant will increase production by 4,500 more tires per day, to reach 20,000 units daily. Wal-Mart to Expand Investments in the State of Mexico Wal-Mart Mexico is seeking to invest about $179 million in the State of Mexico in The investment will be used to modernize its logistics network and open 50 new stores. The expansion plan will involve hiring 3,800 new employees, raising its payroll to close to 42,000 people in the state that surrounds the Mexican capital. The retailer has invested $1.69 billion in the country, where it has 398 stores and restaurants. Selected Readings The Trade-Balance Creed, Debunking the Belief that Imports and Trade Deficits Are a Drag on Growth Author: Daniel Griswold, CATO Institute April 2011 A nearly universal consensus prevails that the goal of U.S. trade policy should be to promote exports over imports, and that rising imports and trade deficits are bad for economic growth and employment. The consensus creed is based on a misunderstanding of how U.S. gross domestic product is calculated. Imports are not a subtraction from GDP. They are merely removed from the final calculation of GDP because they are not a part of the domestic production. The subtraction of imports is merely an accounting method to avoid overestimating domestic production. Infrastructure Projects in Mexico El Sauz Power Plant Sponsor: Federal Electricity Commission (CFE) Location: Escobedo, Queretaro Project Value: $150 million Spain s ACS won the bidding to renovate and modernize the El Sauz combined-cycle power plant in Queretaro, one of most industrialized states in Central Mexico. The project s goal is to guarantee the reliable and sufficient electricity supply required by companies in this area of the country to increase their competitiveness. The project calls for the installation of a gas turbine and its auxiliary systems, adaptation of the existing steam turbine and expansion of the cooling tower. It will allow the integration of a combined-cycle system that will provide guaranteed gross capacity of 219 megawatts of clean energy generated from natural gas. Business opportunities: turbines, construction materials, electrical equipment. Multi-Use Terminal Sponsor: Port Authority Mazatlan (API) Location: Mazatlan, Sinaloa Project Value: $30 million Mexican port authority API Mazatlán, controlled by the Transport and Communications Ministry (SCT), has launched a tender to concession a multi-use terminal to handle cargo at the port with a capacity of 60 thousand specialized containers per year. The new terminal will help Mazatlan increase its hinterland to the northeast part of Mexico. The contract for the terminal provides a 20 year concession for the holding, use and development of an area of water and of public lands by 166 thousand square meters. Business opportunities: construction materials, engineering, container-handling equipment, cranes. Page 4

5 New York In 2010, New York's exports to Mexico reached $2.21 billion, up $1.35 billion from their level in 1993 and an increase of 25% in comparison with the previous year. Exports to Mexico (Millions of US Dollars) Among all U.S. states, New York was ranked 11th as an exporter of goods to Mexico in In 17 years of NAFTA, New York's exports to Mexico have increased by 158%, while the rest of the world rose 86%. This means that the export growth rate to Mexico is 1.83 times higher than its export growth rate for the rest of the world. Since NAFTA was implemented, New York's sales to Mexico have grown at an annual average rate of 5.7%. Mexico is an important trading partner to New York. It was ranked as the 9th largest export market for goods from New York in 2010, up from 12th in 1993, illustrating the impact of NAFTA for New York's growing businesses. Mexico accounted for 3.3% of New York's exports worldwide in Source: US Census with adjustments made by the World Institute for Strategic Economic Research (Wiser), and SE-NAFTA by SIC AND by NAICS. Page 5

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