2002 Mexico Trade Policy Review
Opening Statement by
Ambassador Linnet Deily
U.S. Permanent Representative to the WTO

April 15, 2002

Thank you Mr. Chairman. I would like to commend Undersecretary Villalobos for his opening statement, and the materials provided for this review. I also want to thank the Secretariat for its helpful report and Ambassador Cuello for his important contribution as discussant.

The United States and Mexico have very close and strong ties. Last month, after meeting with Mexican President Vicente Fox, President Bush said, "The relationship between the United States and Mexico is very strong, is very important, and it's growing stronger every day. . America respects Mexico's culture, and Mexico's achievements. By embracing markets and fiscal discipline, Mexico has created one of the most resilient economies in the region. And through NAFTA, our nations have forged one of the world's most dynamic trading relationships." We value our strong ties with our neighbor to the south. Together we have worked hard to ensure that North America continues to be a major catalyst for economic growth. This is particularly true for our work here in the WTO.

The foundation of our trading relationship has been the North American Free Trade Agreement (NAFTA). Since the United States, Mexico, and Canada began to implement the Agreement in 1994, our trade with Mexico has blossomed. In the last eight years, U.S. goods exports to Mexico have more than doubled. Two-way trade between the U.S. and Mexico grew from USD 81.5 billion in 1993 to USD 232.9 billion in 2001. In 1999, Mexico became the second largest trading partner of the United States. Today, 89 percent of all Mexican exports go to the United States, and 67 percent of Mexican imports come from the United States.

Many times you will hear our trading relationship quantified differently. Every day we exchange USD 238 million in goods with Mexico. That comes out to over USD 7000 per second. However, looking beyond the numbers, NAFTA has provided a striking demonstration of how an enhanced trade relationship can enhance the relationships between nations in many other ways.

On a personal note, I would like to add that at the time NAFTA was negotiated and considered in our respective legislatures, I was a business person in Texas and I was a strong supporter of the Agreement. Since then, it has been wonderful to watch the hopes and dreams embodied in that Agreement come to fruition. Coming from a key border state I have been privileged to watch as our relationship with Mexico has continued to grow and deepen and it is a particular pleasure for me now to work Ambassador Perez-Motta and the Mexican team here in the WTO.

Investment

NAFTA has enhanced opportunities for investors. Since 1994, investment in the NAFTA countries has been dynamic and growing. In 1999 foreign direct investment in NAFTA countries reached USD 1.3 trillion, about 28 percent of the world's total two-way foreign direct investment. In 1993, the year before NAFTA implementation began, the stock of U.S. investment in Mexico was USD 15.4 billion. By 2000, the stock of U.S. investment in Mexico had more than doubled, to USD 35.4 billion. NAFTA's ability to attract foreign investment may be considered one of the Agreement's most important legacies.
This rise in trade has been associated with increased employment and prosperity in all three NAFTA countries. Employment in Mexico grew by 28 percent, generating 2.7 million jobs, while employment in the United States grew by 12 percent, generating 15 million jobs. In Mexico, the export sector is the leading generator of job creation: more than half of the new jobs created between 1994 and 2000 were related to export activity.

Mexico and the Multilateral Trading System

The United States and Mexico have worked together to advance the multilateral trading system, both here in the WTO and elsewhere. We are grateful for the tireless efforts of Secretary Derbez in the months leading up to the launch of new negotiations at Doha and for the leadership role he played in Doha, including the vital role he played in forging a consensus on TRIPs and access to medicines. I am confident that Mexico's chairmanship will lead to another successful ministerial next year. I would also like to express our appreciation to Ambassador Perez-Motta for his willingness to take on the sensitive task of Chairing the TRIPs Council this year.

I hope that Undersecretary Villalobos and his team will touch upon the outreach efforts that they have taken to build support for further trade liberalization through the WTO. This experience, we know, has shaped Mexico's views in any number of areas from market access to the institutional questions that the WTO must face.

Ongoing Matters of Concern

While we are cooperating closely with Mexico in the WTO, I would be remiss if I didn't raise some matters of concern in our bilateral relations, and that in turn raise issues in the WTO.

Section I(i) of TPR/S/97 reports on Mexico's import licensing system, stating that such measures are authorized by the 1993 Foreign Trade Act, and listing categories covering more than 1 percent of Mexico's tariff lines subject to non-automatic licensing, and that licenses are issued "only when the foreign product has no domestically produced substitute."

- There are serious questions as to whether such import substitution restrictions are consistent with WTO provisions.
- In addition, Mexico has not completed its notification or transparency requirements on this system with the WTO Committee on Import Licensing Procedures. In the over seven years Mexico has been a member of this Committee, there has not been a single submission of the information required by Article 5 on these measures, nor by Article 7, i.e., completion of the import licensing questionnaire.

Section I(i) also reports on the "Automatic Notice of Importation" system initiated in 1998. When the invoice value of imports covered by this system is below an established reference prices, pre-shipment inspection is required. The system covered items from 30 countries and was notified under Article 5 of the Agreement on Import Licensing in 1998.

- Notwithstanding its name, this does not appear to be an "automatic" licensing system, as defined in Article 2 of the WTO Agreement on Import Licensing Procedures, and adds to the cost of importation.

- As a possible remedy for under-invoicing or inaccurate declaration of origin, it does not appear to be consistent with either the Agreement on Customs Valuation or Rules of Origin.

- Moreover, the system is not applied on an MFN basis, and would therefore appear to violate Article I of the GATT.

- Mexico notified this system in G/LIC/N/2/MEX/1, but has declined to provide information on it in the questionnaire required by Article 7.

Mexico participates actively in the Committee on Import Licensing. At the last meeting, reported in G/LIC/M/14, Mexico was requested to provide the basic information required of all WTO members on its licensing systems.

- The next meeting of the Committee is May 14. Mexico should submit the required information on both systems at that time.

- Mexico should also review its system in light of the requirements of Articles I and XI of the GATT, and the WTO Agreements on Import Licensing Procedures, Customs Valuation, and Rules of Origin, revise those elements that act to bar competitive imports from Mexico's market.

Measures Directly Affecting Exports

We would like to learn more about the Program of Temporary Imports to Produce Export Goods (PITEX). Please provide further details on which industries are eligible to benefit from the program. Please explain what qualification criteria these industries must meet to qualify for these benefits.

We would also be interested in update about the sectoral promotion program (PROSEC) program. Have any new sectors been added since the program was created? Have any duty reductions been made on an unconditional MFN basis?

Services

While the United States is pleased with the openness to increased foreign participation in the Mexican economy, and the structural adjustments that have been made, we would like to know whether additional steps are planned to enhance the transparency of procedures and regulation, continuing the progress that has recently been made with bodies like the Federal Regulatory Improvement Commission (COFEMER). If so, what kind of enhancements?

In the area of energy services, we would be interested in learning the extent to which foreign firms may participate in the various activities, such as oil and gas exploration and development; electric power transmission, distribution, and marketing; and natural gas pipeline transportation, distribution, and marketing services.

Telecommunications

Mexico continues to maintain measures that prevent competition in Mexico's international telecommunications services market. This market remains dominated by a single company (Telmex) with a government mandate to set high wholesale prices for calls to Mexico and to prevent competitive alternatives. The United States is disappointed that the Government of Mexico does not appear willing to address these concerns and reform its anti-competitive rules, particularly given the consensus that exists among affected Mexican and U.S. telecom companies regarding the need to abolish these anti-competitive rules. As the United States has stated before, we remain open to resolving these concerns with Mexico. However, absent action on the part of the Government of Mexico, the United States will continue to pursue its rights through WTO dispute settlement.

The United States welcomes the progress Mexico has made in introducing competition in its domestic telecom market. However, certain problems remain, which the United States urges Mexico to address. For instance, the Government of Mexico does not appear to be enforcing domestic rules designed to prevent Telmex from engaging in anti-competitive practices, despite numerous instances of alleged violations. In addition, Mexico's regulator has not yet resolved a dispute over the terms and conditions for local interconnection that has remained unresolved for over one year despite Mexico's WTO commitment to resolve interconnection disputes within a reasonable period of time.

Intellectual Property Rights

On intellectual property rights protection, we have concerns about the enforcement policies of the Mexican Government. There appears to be a lack of coordination between Mexican Ministries. For example, the Mexican Ministry of Health (SSA) grants health registrations to generic products without verifying with the Mexican Institute of Industrial Property (IMPI) whether a patent already exists. Mexican health authorities have stated that they are not responsible for enforcing patent laws. How do the various government agencies coordinate their enforcement activities? Is there a single national office with overall responsibility? We are also interested in how officials involved in enforcement are trained in their fields.

Conclusion

Mr. Chairman, in conclusion I would like to praise Mexico's strong leadership role in many regional and multilateral fora, including this body, APEC and the FTAA. This morning I have touched briefly upon some of the key issues with respect to our second largest trading relationship. We have provided a more detailed list of questions in writing. We look forward to discussing Mexico's trade policies and practices with Mexico's distinguished delegation and engaging with other delegations during this review.