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Japan: Trade deal with Mexico culminates Latin America visit

17 September 2004

Trade Deal with Mexico Culminates Latin America Visit

Diego Cevallos*

MEXICO CITY, Sep 17 (IPS) - Mexico signed a free trade agreement Friday with Japan, reconfirming its world record in free trade accords — which have failed, however, to bear the promised fruits.

The accord signed by Mexican President Vicente Fox and Japanese Prime Minister Junichiro Koizumi is designed to phase out almost all import tariffs between the two countries from 2005 to 2014.

Koizumi flew to Mexico, Latin America’s second-largest country, after a three-day visit to Brazil, the region’s giant.

Fox and Koizumi said the new trade deal, to go into effect next year after it is ratified by the two countries’ respective parliaments, will help generate new investment and jobs in both Mexico and Japan.

Mexico, a country of 100 million people whose total exports and imports amount to 320 billion dollars a year, has now signed 12 free trade deals with 43 countries since 1992, making it the world leader.

By contrast, the agreement is only the second for Japan, one of the world’s leading economies, with a population of 128 million and a global trade turnover of 800 billion dollars. Its first trade accord was with Singapore.

The two countries hope to see bilateral trade rise threefold in five years. The trade flow between Mexico and Japan stood at 4.7 billion dollars in the first quarter of 2004, with a huge deficit for Mexico.

The agreement is also aimed at boosting technical cooperation, investment and tourism.

Japan, most of whose exports go to the United States, Europe and Asia, would like the new treaty with Mexico to help open doors to other markets in Latin America as well.

The agreement will serve as a motor for expansion, principally for the Mexican economy, but also for its trade partners in Latin America and North America, said Fox in the accord signing ceremony.

With each free trade agreement signed, Mexico’s authorities have promised prosperity. But the country’s poverty levels remain high.

Between 1992 and 2002, per capita Gross Domestic Product (GDP) grew just 0.96 percent on average and poverty continues to affect over half of the population.

Julio Boltvinik, a researcher at the College of Mexico who specialises in measuring poverty, says the incomes of Mexican households today are similar to 1980s levels, and wealth distribution remains highly unequal.

The National Institute of Statistics, Geography and Informatics reports that the poorest 10 percent of the population receives a mere 1.64 percent of the total income, while the richest 10 percent takes in 35.5 percent.

”The promises of development linked to free trade are a fallacy, and Mexico is a clear example of that,” Héctor de la Cueva, one of the leaders of the Mexican Network of Action Against Free Trade, told IPS.

But not everyone agrees. Víctor Tavárez, at the Ibero-American University, underlines that poverty has multiple causes.

If Mexico had kept its doors closed to global trade or had failed to sign the free trade agreements it has negotiated, it is very possible that poverty levels would be even higher today, Tavárez commented to IPS.

But despite the 12 treaties signed and the 13 still under negotiation, the promise of diversification of markets has also gone unfulfilled.

More than 90 percent of Mexico’s trade is with the United States, with which it has been a partner since 1994 in the North American Free Trade Agreement (NAFTA), along with Canada.

Mexico is also now essentially an exporter of manufactured goods produced in maquiladora or export-assembly plants, which import raw materials or components duty-free and subsequently re-export abroad.

That trend will basically be heightened by the agreement with Japan, said Mexican Economy Secretary Fernando Canales.

With the new treaty, ”we will become the typical destination of Japanese investment, which will take advantage of our young and willing labour force, our country’s ideal maquiladora conditions, and our preferential location,” said Canales.

Japan, which ranks among the 10 countries in the world with the highest levels of human development according to the United Nations Development Programme (UNDP), invests around 26 billion dollars a year abroad.

Mexico, which ranks 40th on the UNDP human development index, currently receives around 1.5 percent of that investment.

Negotiations of the agreement, which involved sensitive areas like Japanese agriculture, one of the most heavily protected agricultural sectors in the world, took 16 months.

As of next year, one-third of Mexico’s farm exports to Japan will enter that country duty-free. That proportion will gradually rise to 50 percent over the following seven years.

Mexico exports to Japan food products like tomatoes, garlic, onions, lemons, mangoes, avocados, wine, tobacco and eggs.

In the meantime, Mexican tariffs will be immediately lifted on 44 percent of Japanese produce, and on 90 percent of that country’s manufactured and industrial exports.

Mexico’s leading free trade agreement is NAFTA. It also has free trade deals with Colombia and Venezuela (with which it makes up the Group of Three), the European Union, the so-called Northern Triangle (Guatemala, Honduras and El Salvador), the European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland), and Bolivia, Costa Rica, Chile, Nicaragua, Israel and Uruguay.

It is currently involved in the negotiations for the 34-member Free Trade Area of the Americas (FTAA) and in talks on a preliminary agreement with Mercosur (Southern Common Market, comprised of Brazil, Argentina, Paraguay and Uruguay.)

Less farther along are talks with Belize, South Korea, Ecuador, New Zealand, Panama, Peru, Singapore, Thailand, and Trinidad and Tobago.

While the trade deal signed with Mexico was the highlight of Koizumi’s trip to Latin America, his visit to Brazil was based on already strong ties between the two countries.

Brazil is the ”most Japanese” country outside of Asia. More than 1.2 million of its nearly 180 million people are Japanese immigrants or their descendants (nikkei).

Koizumi’s three-day visit to that country started out in the southern Brazilian city of Sao Paulo, where the largest number of nikkeis are concentrated. His meeting with the Japanese community on Wednesday actually moved him to tears, when he was reunited with a cousin who was a close childhood friend, who emigrated to Brazil 50 years ago.

In the 1980s the migration flow turned around, and some 270,000 Brazilians of Japanese origin have since moved to Japan, where they are known as dekaseguis. They send billions of dollars a year in remittances to Brazil, dreaming of returning one day to open up a business with their savings.

The prime minister’s trip to Brazil was aimed at revitalising bilateral relations, especially in trade, which has dropped off in the past few years. Japan was the fourth largest market for Brazilian exports in 1997, sliding to seventh place last year.

The bilateral trade flow, which amounted to 6.6 billion dollars in 1997, shrunk to 4.8 billion in 2003, according to official Brazilian statistics.

Japan’s decision to add three percent ethanol to its gasoline to reduce air pollution will open up a huge new market for which Brazil will be the natural supplier.

But Brazil wants more than trade. It wants to be, as it has been in the past, a preferential destination for Japanese ”investment and know-how”, said President Luiz Inácio Lula da Silva.

In recent years, Japanese investment has become scarce in Brazil.

In Sao Paulo, Koizumi stated his intention of strengthening economic ties with all of Latin America, a region capable of providing minerals, energy sources and foodstuffs that his country lacks.

Japan is investing 4.6 billion dollars in infrastructure projects in Latin America, must of which is aimed at physical integration within the region.

Brazil and Japan also pledged mutual support for their shared aim of winning a permanent seat on the United Nations Security Council.

In addition, the two countries share concerns about the environment, and agreed to intensify cooperation in that area. Both Japan and Brazil want the Kyoto Protocol, which sets targets for reductions of greenhouse gases for industrialised countries, to go into effect.

(* Additional reporting from Mario Osava in Brazil).

 source: IPS