Mexico Economic Policy and Trade Practices
Country Reports on Economic Policy & Trade Practices / Courtesy UM-St. Louis
Match 56 DB Rec# - 60,900 Dataset-ECOPOL
Source :U.S. Department of State
Source key :ST
Program key :ST ECOPOL
Program :Country Reports on Economic Policy and Trade Practices
Update sched. :Annually
ID number :ST ECOPOL MEXICO
Title :Mexico Economic Policy and Trade Practices
Date of record:04/27/1992
Data type :TEXT
Country :054 | MEXICO
End year :1992
Text :
Mexico
Key Economic Indicators
1989 1990 1991 (est)
Income, Production and Employment
GDP (bil. current US$) 208.5 238.2 280.0
Per Capita GDP (Curr US$) 2,623.0 2,937.0 3,386.0
Real GDP Growth Rate 3.1 3.9 4.5
Contribution by Sector
(Percent of GDP)
Agriculture, Forestry 7.5 8.8 N/A
and Fishing
Mining 2.7 2.3 N/A
Manufacturing 24.4 22.6 N/A
Construction 3.6 3.4 N/A
Electricity 1.3 1.3 N/A
Commerce, Restaurants 27.0 27.4 N/A
and Hotels
Transport, Storage 7.5 7.8 N/A
and Communications
Financial Services, 10.3 11.0 N/A
Insurance and Real Estate
Communal Services, 15.8 15.4 N/A
Social and Personal
Size of Labor Force (million) 26.6 27.2 27.9
Open Unemployment Rate 4.0 4.0 4.0
(Percent of Workforce)
Money and Prices
Money Supply (M1 growth rate) 40.6 62.6 66.0
Commercial Interest Rates 45.9 36.1 23.0
(Annual Perc. Comm. Paper)
Savings Rate 36.0 39.0 41.0
(M4 as Percent of GDP)
Investment Rate (Perc. GDP) 17.4 18.9 19.0
Consumer Price Index 19.7 29.9 17.0
(Dec.-Dec. Growth Rate)
Wholesale Price Index 15.6 29.2 14.0
(Dec.-Dec. Growth Rate)
Exchange Rate
Official 2453.0 2807.0 3012.0
Parallel 2483.0 2838.0 3016.0
Balance of Payments and Trade
(Billions of U.S. Dollars)
Total Exports (CIF) 41.5 44.3 48.3
Exports to U.S. 27.2 30.9 34.1
Total Imports (FAS) 35.3 44.0 56.3
Imports from U.S. 1/ 25.0 28.4 37.3
Aid from U.S. N/A N/A N/A
Aid from other Countries N/A N/A N/A
External Public Debt 76.1 77.8 78.5
External Debt Service Paymnts 11.3 10.4 12.5
(Public Sector Debt)
Gold and Forex Reserves 6.9 10.3 16.5
Balance of Payments 0.3 3.1 6.2
1/ Based on U.S. data, which includes imports and exports for the in-bond
sector. (Mexican data is calculated free on board for exports and imports,
and excludes the in-bond sector.)
1. General Policy Framework
A principal feature of the management of economic policy in
Mexico since December, 1987 has been a series of government-labor-
private sector price and wage restraint pacts, currently known as the
Pact for Stability and Economic Growth (PECE). The pacts have
combined traditional austerity measures (tight fiscal and monetary
polices), heterodox economic measures (price, wage, and exchange rate
controls), and rapid trade liberalization. They have been successful
in sharply reducing inflation and restoring economic confidence.
Complemented by bold measures to privatize and deregulate the economy
and steps to attract investment, these policies have also succeeded in
reigniting balanced and sustainable growth.
Prices of a number of basic goods and services (both publicly
and privately produced) were frozen under the original pact. Labor
unions and producers were discouraged from raising wages and prices.
The controlled peso first was devalued sharply and then frozen from
March to December, 1988. Thereafter the controlled peso was devalued
by one peso a day against the dollar, with the slide slowing to 80
centavos and then 40 centavos in May 1990 and December 1991
respectively. In 1989 some of the wage and price controls were
relaxed and the process continued in 1990 and 1991. Only a relatively
few prices, primarily on goods and services defined as basic
necessities, are currently controlled.
Trade liberalization was accelerated, reducing the maximum
tariff to 20 percent and eliminating most import permits. The Mexican
government reduced the fiscal deficit by increasing revenue and
slashing expenditures. It slowed growth of the money supply by
limiting monetary creation and freezing the banks' ability to lend.
It also accelerated the process of privatization of parastatals to
increase productive efficiency and to reduce subsidies. The economy
grew by 4.8 percent in the first half of 1991, up from the 3.9 percent
GDP growth registered in 1990.
The public sector financial deficit has fallen sharply, a
reflection of the success of the Mexican government's efforts to
increase revenues and cut expenditures. In 1990 public sector income
increased in real terms by 3.5 percent, largely because of rigorous
efforts to improve tax collection, while public sector expenditures
fell by 4.5 percent in real terms. Public sector expenditures remain
higher than income because of debt servicing expenses. Interest
payments make up over 30 percent of all expenditures, and over 70
percent of those interest payments are on internal debt. The cost of
servicing the internal debt as a percentage of GDP fell from 8.4
percent in 1989 to 6.5 percent in 1990 and is expected to fall again
in 1991 because of lower interest rates.
The public sector deficit is financed through short, medium and
long term floating rate domestic debt. The public sector obtains
fresh external debt only for specific projects and in relatively small
amounts. About 70 percent of the internal debt is held by the private
sector; the balance is held by commercial banks and the central bank.
Since 1987 the Mexican government has moved from heavy reliance on
required lending by the banking system to greater borrowing from the
central bank and the private sector through the issuance of internal
debt. In April 1990, banks' reserve requirements were reduced and
interest rates were liberalized. Banks reserve requirements were
reduced again in September 1991.
Mexico is currently engaged in the negotiation of the North
American Free Trade Agreement (NAFTA) with the U.S. and Canada. The
agreement will result in significant economic benefits to the United
States. Mexico is the U.S.' third largest trading partner (after
Canada and Japan) and the U.S.' fastest growing export market.
2. Exchange Rate Policies
On November 11, 1991, Mexico announced the repeal of its 1982
Foreign Exchange Law, and a new foreign exchange rate mechanism was
put into effect. Previously, Mexico had an exchange rate mechanism in
which a controlled rate was used to cover the majority of trade and
payments transactions. A market rate was used for transactions
involving investments and remittances of dividends and royalties, and
other private transactions. The market rate was subject to
intervention by the Bank of Mexico, in order to keep the differential
between the market and controlled rates at a minimum. Now Mexico has
only one exchange rate, market based, but subject to intervention by
the Bank of Mexico so that the nominal rate will be devalued by 20
centavos per day.
Under Mexico's Pact for Economic Solidarity and Growth, the
controlled rate was depreciating at a nominal rate of 40 centavos per
day. The rate of depreciation against the dollar is less than the
inflation differential between the United States and Mexico. Thus in
real terms, the peso is appreciating against the dollar. The effect
of this real appreciation will be to make U.S. exports to Mexico more
affordable to Mexicans. In real terms, the peso has appreciated
against the dollar since 1988.
In addition to creating a unitary exchange rate, the new
regulations allow transactions previously limited to banks to be
handled by either banks or currency exchange houses. The new
regulations should make international transactions simpler and less
costly for Mexicans.
3. Structural Policies
In 1991, the Government of Mexico continued its efforts to
restructure the Mexican economy, privatizing large state-owned
companies, including the commercial banks and the telephone company,
and emphasizing the importance of diversified exports for earning
foreign exchange. In 1982, petroleum accounted for 77 percent of
merchandise exports. By 1990, petroleum represented only 37 percent
of merchandise exports. In addition, the Mexican government has moved
to divest itself of most parastatal enterprises, both to accelerate
the privatization of the economy and to reduce the drag of subsidies
on fiscal resources. In 1982, there were over 1,100 parastatal
enterprises. As of March 1991, this number had dropped to 269. Some
key enterprises up for sale in 1991 were: the second part of the
state-owned telephone company (TELMEX), two large steel companies and
9 of the country's 18 commercial banks. During the first 6 months of
1991 the government received the equivalent of over $5.9 billion from
the sale of state-owned companies. At the same time, the Mexican
government has initiated an ambitious program of deregulation to
reduce the role of the government in the economy. Highway freight
transportation, container shipping and aquaculture are examples of
important sectors that have been deregulated.
In May 1989, the Mexican government introduced new rules which
facilitate the foreign investment approval process and open the door
for automatic or near automatic approval of majority foreign ownership
of companies in many sectors. Already the maquiladoras (up to 100%
percent foreign-owned companies that assemble from U.S. components
products which then reenter the U.S. paying duty only on the value
added in Mexico) are a major source of employment and export earnings.
In June 1991, the Mexican government promulgated new legislation which
provides improved protection for intellectual property in Mexico, and
is expected to encourage more foreign investment.
The Mexican government has also continued its trade
liberalization program. As a result of tariff reform, Mexico's
weighted average import tariff is now around 10 percent. Mexico has
greatly reduced the number of items subject to export taxes and
controls and has expanded government programs and financial incentives
to exporters. Nonetheless, Mexican imports have continued to grow
more rapidly than exports which will likely result in about a 3.2
billion dollar trade deficit with the United States in 1991.
By far the most important recent development in Mexico's trade
policy was the decision announced in June 1990 by Presidents Bush and
Salinas that the United States and Mexico would investigate the
viablility of negotiating a free trade agreement. Presidents Bush and
Salinas, joined Canadian Prime Minister Mulroney to announce in
February, 1991 the intent of the three countries to pursue a
trilateral pact. Formal negotiations among the three countries began
in June 1991. The negotiations are comprehensive, covering barriers
to trade, investment and services among all three countries. The 19
negotiating groups cover the six major areas of work: market access,
trade rules, services, investment, intellectual property rights and
dispute settlement. Negotiations are proceeding well and prospects
appear good that the negotiations will produce an agreement in 1992
for submission to the domestic processes required by all three
countries.
4. Debt Management Policies
In 1989 Mexico reached agreements for large new loans from the
IMF and World Bank and for debt rescheduling in the Paris Club. In
February 1990 the Mexican government signed an agreement for debt
reduction and new money from commercial banks. As a result of these
agreements, the Mexican government estimates that net external
financial transfers will fall from an average of 5.75 percent of GDP
during 1982-88 to an average of 2.43 percent of GDP in the 1989-94
period. Mexico's external debt as a ratio to GDP fell from 59 percent
in 1988 to 42 percent in 1990.
During 1991 Mexico continued to reap the benefits of the
successful renegotiation of its external debt concluded in February
1990. One of the major benefits of the debt agreement, besides its
direct impact on the balance of payments, has been greater confidence
in Mexico among investors and creditors, which has resulted in large
capital inflows and the reopening of international credit markets to
Mexican borrowers at progressively more favorable terms. In December
1990, Mexico's total external debt was 98.2 billion dollars, 77.8
billion dollars of which was held by the public sector.
5. Significant Barriers to U.S Exports
Import Licenses: As part of its policy of rationalizing its
system of protection for domestic producers and in accordance with its
GATT accession obligations, Mexico agreed to eliminate its previously
universal regime of import license requirements in 1985. Nonetheless,
the Mexican government continues to require import licenses for 269
product categories. Although import license requirements affect only
eight percent of total U.S. exports to Mexico, they are still required
on several very important agricultural commodities such as corn, dry
beans, wheat, barley, milk, eggs, table grapes, bacon, and poultry.
Mexico in the past year eliminated the import license requirement for
apples, peaches, and nectarines. However, some phytosanitary
restrictions have been placed on these exports.
Automobiles: Investments in the automotive sector are subject to
the restrictions of the Mexican Automotive Decree, including such
performance requirements as local content, exchange balancing and
quantitative import restrictions. Foreign participation is only
permitted up to 40 percent in auto parts manufacturing.
Services Barriers: Insurance: Foreign ownership of Mexican
insurance companies is limited to 49 percent by law. U.S. access to
the Mexican reinsurance market is also limited by the requirement that
Mexican insurers place at least 50 percent of their reinsurance
business in the local market. Premium volume is around $1 billion
annually.
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 operation of earth stations with international links are reserved
for the Mexican Government.
Financial services: Foreign participation in the financial
services sectors is severely limited. Foreigners may own, in
aggregate, up to only 30 percent of a privatized Mexican bank,
financial holding company, or brokerage house. Foreign exchange
houses are limited to Mexican ownership only. All other financial
sectors are limited to 49 percent foreign ownership. Many foreign
banks have representative offices in Mexico City but those offices are
strictly limited to facilitating the operations of the head office,
e.g. no transactions can be booked in Mexico. One foreign bank, the
U.S.-owned Citibank, operates 5 full branch offices in Mexico and is
able to compete with Mexican banks in most commercial banking
activities.
Motor Carriers: As a result of bilateral consultations and the
Mexican Government's deregulation of truck and bus operations, U.S.
truckers and charter bus operators now have substantial cross-border
access to Mexico. U.S. truckers still do not have direct access to
Mexico; direct access is limited to the border commercial zone.
Mexican tractors and drivers are required by law to haul all trailers
bound for interior points, and interchange of trailers takes place on
the U.S. side of the border. Closer contractual relationships between
Mexican and U.S. carriers have produced expedited through service and
bills of lading. U.S. charter tour buses now have full access to all
points in Mexico; regularly scheduled bus operations are prohibited.
Mexican authorities are implementing new safety, weight and dimension
regulations to meet U.S. standards, and the two countries have agreed
to the standardization and reciprocal recognition of commercial
drivers licenses. The U.S. and Mexican Trucking Associations hold
joint meetings.
Standards, Testing, Labelling and Certification: With the
continued removal of import licenses, Mexico has sought to impose new
and more restrictive sanitary and phyto-sanitary requirements on
imports than previously existed. These new regulations have
frequently been drafted in ways which have created confusion and have
resulted in disruptions to normal trade flows.
Mexico maintains poorly defined procedures for the importation
of almost all agricultural products, including processed foods. At
times, the Government of Mexico has been unwilling to specify which
foreign documents or certifications are acceptable to meet its
requirements causing confusion, substantial legal and research costs,
and lengthy delays. When standards are changed, Mexican authorities
have not always complied with their agreed-to obligations to inform
the U.S. Government in a timely fashion.
The United States and Mexico are actively discussing possible
means for enhancing the exchange of standards information and
increasing transparency in the overall process. Recently, to further
this exchange of information and to avoid trade disruptions, the
United States and Mexico established several committees to discuss
sanitary and phytosanitary issues in agricultural trade between the
two nations.
Investment Barriers: A national foreign investment commission,
chaired by the Ministry of Commerce and Industrial Development,
regulates foreign investment in Mexico. The country's laws reserve
certain sectors to the state (such as oil and gas extraction and the
generation and transmission of electrical power) and a considerably
wider range of activities to Mexican nationals (for example, forestry
exploitation, domestic air and maritime transportation, and gas
distribution). Since 1982, the Mexican Government has taken a
generally favorable attitude towards foreign investment; this approach
accelerated in the later years of the de la Madrid Administration and
has continued with the Salinas Government.
Reflecting this increasingly favorable attitude toward foreign
investment, the Mexican government issued in May 1989 a series of
regulations governing foreign investment which liberalized rules in
several key areas. Automatic investment approval is now granted
foreign majority-owned projects in accordance with certain investment
amount, foreign exchange generation and geographic location, etc.,
criteria. The regulations specify those areas where foreign majority
ownership is now permitted, but leave standing those sectors in which
state or Mexican national ownership is required by law. However,
"temporary" foreign participation in investment projects in sectors
limited to Mexicans has been made possible through the development of
a system of 20-year renewable trusts to be held by Mexican partners.
Government Procurement Practices: In a departure from past
practice, the Government of Mexico eliminated its previous requirement
that parastatal enterprises give preference to national suppliers;
however, Mexican Government agencies are still required by law to
procure from Mexican national firms unless authorized to procure
internationally or if goods are not available domestically. Mexico
has indicated a willingness to become a signatory to the GATT
Procurement Code, but has not yet done so. The free trade agreement
is expected to cover government procurement practices.
6. Export Subsidies Policies
In 1986, Mexico signed a bilateral understanding on export
subsidies with the United States. The Mexican government has informed
the United States Government that it maintains no export subsidy
program and is in full compliance with its obligations under the
subsidies agreement; an April 1990 report by the U.S. International
Trade Commission stated the export subsidy programs maintained in the
past by Mexico have either "been terminated or the subsidy element has
diminished." The United States continues to monitor loans provided to
the Mexican steel sector through Nafinsa, the state-owned development
bank, to consider whether such loans constitute financial subsidies
for Mexican steel exports.
7. Protection of U.S. Intellectual Property
Mexico is a member of the World Intellectual Property
Organization, as well as 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 significantly increased its protection of
intellectual property by means of a new Act for the Protection of
Industrial Property (patents and trademarks) that came into effect on
June 28, 1991, and reforms to the copyright act that became effective
in August 1991. As a result, Mexico now provides intellectual
property protection that is relatively strong in comparison with that
afforded by other developing countries and even a number of
industrialized countries.
Several U.S. concerns over Mexican intellectual property
protection remain to be addressed in the ongoing NAFTA negotiations,
such as patent protection for plant species, a statutory right of
importation for copyrighted works, protection for semiconductor chip
layout design and general intellectual property rights enforcement
issues. Whatever changes are negotiated in these areas will be
strongly influenced by the outcome of the Trade Related Aspects of
Intellectual Property (TRIPS) segment of the Uruguay Round/GATT
negotiations, still in progress at the time of this report.
Product patent protection was extended to all processes and
products, including chemicals, alloys, pharmaceuticals, biotechnology
and plant varities. The patent protection term was extended from 14
to 20 years from the date of filing. Trademarks are now granted for
ten year renewable periods. The enhanced copyright law provides
protection for computer programs against unauthorized reproduction for
a period of 50 years. Of particular importance to U.S. producers,
sanctions and penalties against infringements have been increased. In
addition, damages now can be claimed regardless of the application of
sanctions. With the sweeping new legal framework only recently
enacted, enforcement of the new regime will be the key intellectual
property concern over the next year, as past losses to U.S. producers
have been large.
8. Worker Rights
a. The Right of Association
The Constitution guarantees workers and employers the right to
form unions and professional associations. Unions must register with
the Labor Secretariat, though registration requirements are not
onerous. Leftist labor activists complain, however, that their
effects to register new unions are rejected unjustifiably. Mexico
enjoys a well-developed trade union movement with close to 30-35
percent of a workforce of an estimated 23-26 million organized into
union confederations (largely affiliated with the ruling Institutional
Revolutionary Party) and a small number of independent unions. Almost
all public sector employees are unionized, and have the right to
strike, although this is rarely exercised.
b. The Right to Organize and Bargain Collectively
Both the right to organize and bargain collectively are
guaranteed by Mexican labor law and generally honored in practice.
Collective bargaining is common, particularly in industry and
commerce, less so in the public sector. The right to organize is
respected in the in-bond (Maquila) industry, although relatively few
workers of the firms belong to unions. Generally speaking, nonunion
in-bond firms provide benefits and working conditions that match or
exceed those established by union contracts. Workers are protected by
law from antiunion discrimination but this law is unevenly enforced,
especially in states with a low degree of unionization.
c. Prohibition of Forced or Compulsory Labor
The Constitition prohibits forced or compulsory labor. There
have been no credible reports for many years of forced labor in
Mexico.
d. Minimum Age of Employment of Children
Mexican law sets the minimum age of employment for children at
14 years of age, with those 14 and 15 permitted to work a maximum of 6
hours daily in nonhazardous areas. Fourteen and 15 year olds also may
not work at night or do overtime. Child labor laws are strictly
enforced in large and medium-sized manufacturing and commercial
establishments. Enforcement is less effective in smaller shops and
factories, and even less still among street vendors or others engaged
in the underground economy.
e. Acceptable Conditions of Work
Mexican labor legislation provides substantial protection for
workers with respect to occupational safety and health, though again,
compliance with the law varies in accordance with the size and formal
organization of the establishment. The law provides for a maximum
work week of 48 hours. Minimum wage legislation is often revised to
account for inflation, but has not kept up with actual rises in the
cost of living. Unionized workers generally enjoy a somewhat higher
standard of living than that provided by the legislated minimum wage,
and for the past two years their wages and benefits have kept pace
with inflation.
f. Rights in Sectors with U.S. Investment
The following sectors have U.S. investment: Food and related
products, chemicals and related products, primary and fabricated
metals, machinery (except electrical and electronic equipment),
transportation equipment, other manufacturing, wholesale trade.
(N.B. petroleum is a state monopoly.) In all of the above sectors,
the rights of association and to organize and bargain collectively, a
prohibition on the use of forced or compulsory labor, a minimum work
age, and acceptable working conditions exist and are respected. As
stated earlier, the majority of Mexican workers at in-bond plants have
not been unionized, and there have been accusations that unionization
has been discouraged and other worker rights, such as minimum age
restrictions, violated. Such accusations have not, by and large, held
up to scrutiny, with the exception of smaller plants (10 - 100
workers) which are more likely to be locally rather than
foreign-owned.
Extent of U.S. Investment in Goods Producing Sectors
U.S. Direct Investment Position Abroad
on a Historical-Cost Basis - 1990
(Millions of U.S. dollars)
Category Amount
Petroleum 80
Total Manufacturing 7,314
Food & Kindred Products 913
Chemicals & Allied Products 1,596
Metals, Primary & Fabricated 336
Machinery, except Electrical 310
Electric & Electronic Equipment 562
Transportation Equipment 1,749
Other Manufacturing 1,849
Wholesale Trade 503
TOTAL PETROLEUM/MANUFACTURING/WHOLESALE TRADE 7,897
Source: U.S. Department of Commerce, Survey of Current Business,
August 1991, Vol. 71, No. 8, Table 11.3
--------------------------------------------------------------------------
US Department of State COUNTRY REPORTS ON ECONOMIC POLICY AND TRADE PRACTICES
from US Dept. of Commerce National Trade Databank (NTDB) CD-ROM SuDoc number
C 1.88:993/10 (RCM-Libraries of the Univ. of Missouri-St. Louis)/ CRPT0055