Mexico and Japan expect to sign trade agreement

New York Times | September 17, 2004

Mexico and Japan Expect to Sign Trade Agreement

By ELISABETH MALKIN

MEXICO CITY, Sept. 16 - President Vicente Fox of Mexico and Prime Minister Junichiro Koizumi of Japan will sign a free trade agreement Friday that Mexico hopes will attract more investment from Japanese manufacturers and spur exports across the Pacific.

Mexico has long been seeking to reduce its dependence on the United States for trade and investment and has engaged in a flurry of deal-making over the last decade. It has 11 free trade agreements covering 32 countries.

The accord, which is subject to approval by legislatures in both countries, is Japan’s second, after an agreement with Singapore.

Japan’s exports to Mexico - about $7.6 billion last year - dwarf Mexico’s sales of about $1.2 billion to Japan.

For Japan, the deal offers a chance to compete on equal footing with American and European companies that manufacture in Mexico.

"It’s a huge domestic market as well as a gateway to Latin America and into the European Union," said Ryu Yamazaki, Japan’s chief negotiator for the agreement, in an interview. Most imports from the United States, Canada and Europe enter Mexico duty-free, while Japanese goods face an average tariff of 16 percent.

The automakers Nissan, Honda and Toyota all supported the pact because it would lower the cost of importing parts from Japan for the models they produce in Mexico, both for the domestic market and for export.

Electronics giants like Sony and Matsushita, which have been manufacturing in Mexico for the American market since the 1980’s, will also benefit from more predictable rules for importing components from Japan. Almost two-thirds of Japan’s exports to Mexico are components used in export industries.

The agreement includes a chapter on the business environment and will create a committee to address Japanese companies’ concerns about doing business in Mexico, touching on subjects from capricious regulations to the high crime rate.

"You need security, predictability and transparency to get the investor here," Mr. Yamazaki said.

The government of Mexico hopes that by lowering tariffs and reducing uncertainty for investors, the pact will lead to more Japanese investment in the country. The government aims to increase investment from Japan to about $12.7 billion over the next 10 years. Mexico received just 1.3 percent of the $26 billion that Japanese companies have invested overseas since 1994, according to Mexico’s economy ministry.

"This economic partnership agreement hopefully will bring Mexico back onto the Japanese radar screen," Mr. Yamazaki said.

The economy ministry is also promoting the free trade agreement as a boon for the country’s agricultural exporters, arguing that it opens access to the nation that is the world’s largest food importer. Japan imports about 60 percent of its food needs - about $50 billion - but Mexico accounted for just $395 million of that last year, the Mexican economy ministry said. Haggling over agriculture delayed the pact’s completion for months as Japanese pig farmers and orange juice producers fought to defend their market from Mexican imports. Mexico eventually won quotas for pork, oranges and orange juice.

The government expects that increased trade and investment will create about 82,000 jobs a year in Mexico during the next 10 years.

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source: NYT