Strategic Players for the Development of Commerce Economic Update

VOL.6 ISSUE 6 A monthly newsletter on NAFTA and related Mexico issues SEPTEMBER 2001

Small Businesses: Strategic Players Economic Update for the Development of Commerce TRADE BALANCE: Mexico registered a trade deficit of $538 million for July 2001, up from a $437 million deficit in July 2000. Total exports in June 2001 reached $12.96 billion, a decrease of 4% with respect to mall and medium busi- Support to small and medium July 2000, while oil exports amounted $1.13 billion, down 20% from S nesses are the corner- size companies is being July 2000. Imports for July 2001 were $13.50 billion, a decrease of 4% stone of economic activity. channeled through the over the same month in 2000. According to the OECD, they FAMPYME (Fondo de Apoyo FINANCIAL INDICATORS: Mexico registered an inflation rate of represent more than 95% of a la Micro, Pequeña y 0.59% for August 2001 compared to 0.55% in August 2000. The lead- all businesses among its Mediana Empresa), the ing Mexican interest rate, CETES 28 averaged 7.3%, 7.9% points member countries and gener- FIDECAP (Fondo de lower for the same month in 2000. The Mexican Stock Exchange ate between 60 and 70% of Fomento a la Integración de Market Index (IPC) reached a maximum of 6233 points, 720 higher than the level of August 2000. The average Pesos/Dollar spot employment. This is particu- Cadenas Productivas), the exchange rate (bid) for August 2001 was 9.13 compared to 9.39 larly the case for Mexico CETRO (Centro para el Pesos/Dollar for the same month in 2000, and the international where small and medium size Desarollo de la Competividad reserves at the Central Bank reached $41.28 billion in September 7th firms represent the vast Empresarial), the CRECES 2001, up 20.7% from their level a year ago. In September 2001, open interest at the Mexican Derivatives Exchange (MexDer) amounted majority of all businesses; (Centros Regionales para la 945,543, an increase of 901,987 futures contracts traded over the they account 41% of the GDP Competividad Empresarial), same month in 2000. and generate 64% of total and the Distribution Centers employment. Program implemented in the EMPLOYMENT AND ECONOMIC GROWTH: Open unemployment US among others. These pro- reached 2.32% in July 2001, down from 2.58% in July 2000. Economic growth in Mexico, as measured by the Global Economic Activity Index The Fox Administration is grams seek to enhance the (IGAE), slowed down 3.3% in June over a year earlier. The monthly committed to promoting the competitiveness of Mexican IGAE measures 96% of the economy covered in quarterly GDP data. development of small and small and medium size firms medium size businesses, par- and integrate them to their INDUSTRIAL ACTIVITY: Mexico's industrial production decreased ticularly those in the export respective production chains, 3.3% in July 2001 over the same month in 2000. Likewise, manufacturing output contracted 4.1%, mining activity increased 3.3%, and sector. During 2001, this providing them with training construction activity decreased 2.7%. Administration has imple- and consulting services, mented various programs to access to state-of-the-art Source: INEGI, Banxico, SHCP, BMV, MexDer and SE-NAFTA. help small companies grow, technology, development of with the aim of stimulating quality control systems, and economic activity and favor- funding. They also help com- ing job creation. continues on page 3 Mexico’s Financial Markets

Financial markets play a cru- Trade in Financial Services IN THIS ISSUE cial role in any economy. In the NAFTA, Mexico had They allocate and price capi- Small Businesses ...... 1 originally scheduled a lengthy tal and help investors detect Mexico Economic Update ...... 1 transition period in the liberal- which firms and sectors are Impact on Mexico’s Financial Markets ...... 1 ization of financial services to able to grow and face the protect the newly privatized Diario Oficial Notices ...... 2 challenges of competing in banking sector. However, the Profile of New Mexico ...... 4 international trade and global 1995 peso crisis and the melt- Business News Digest ...... 4 markets. A country with an down of the Mexican financial Select Readings ...... 4 open economy, stable real sector ushered a series of Profile of Tamulipas ...... 5 growth and a solid financial legal reforms that accelerated sector will always attract this process, deeply liberaliz- investors. It is a win-win ing this sector and transform- On behalf of the Mexican Embassy and the Trade and proposition. One of Mexico's ing Mexico's regulatory bodies NAFTA office we wish to express our most heartfelt condo- goals has been to foster such and banking institutions. As a lences and solidarity to all those affected by the recent an environment through the result, foreign capital participa- tragedies. Our thoughs and prayers are with those who liberalization of the financial have suffered. service sector, with broad foreign investor participation. continues on page 3 NAFTA Works September 2001

continues from page 1 2.88 million small and medium size businesses in Diario Oficial Notices panies to identify potential Mexico; 24% of these firms • Supplement to the 2001 National Standardization Program. (August markets for direct export, or are located in the central 3, 2001). indirectly as suppliers to other region of Mexico. • Agreement regarding the list of manufacturers, makes and types of companies. motor vehicles that may be imported into the U.S.-Mexico border. NAFTA has boosted the par- (August 9, 2001). The third quarter report for the ticipation of small and medi- • Official Mexican Standard NOM-085-SCFI-2001, commercial prac- 2001 fiscal year issued by um size businesses in tices-information requirements for repair and/or maintenance servic- Mexico's Secretary of export-oriented activities. es of electric or gas based appliances. (August 13, 2001). Economy shows these finan- Today, approximately 94% of • Agreement that establishes the 2001 import quota increase, under cial programs are already Mexican exporters are small the North American Free Trade Agreement, for poultry cuts from the facilitating the development of United States of America, published on November 30, 2001. and medium size firms. (August 17, 2001). new small companies. For Although the amount of their example, during the first nine exports may not be significant • Emergency Official Mexican Standard NOM-EM-04-PESC-2001, months of 2001, the Incidental capture of yellow-fin tuna (Thunnus albacore) and bigeye (less than 5 million dollars), tuna (Thunnus obesus) in the Eastern Pacific Ocean and the FAMPYME contributed to the the fact that they realize sales Atlantic Ocean, including the Gulf of Mexico and Caribbean Ocean. creation of 31 new companies abroad is; it shows that they Requirements for marketing tuna products in Mexico. (August 21, 2001). generating 548 jobs. Projects have learned to participate in such as Primer Paso world markets, and they are • Agreement regarding the 2001 import quota increase under the Productivo have resulted in North American Free Trade Agreement, for potatoes from the United contributing to job creation States of America, published on November 30, 2000. (August 24, 1651 temporary new jobs and and to the development of 2001). other funds from the FONAES stronger domestic markets. (Fondo Nacional de Empresas • Resolution that discards the antidumping review petition requested Increasing the number of by Poliestireno y Derivados, S.A. de C.V. and Resirene, S.A. de C.V. de Solidaridad) and from state small and medium size on the final resolution that imposed antidumping duties on poly- governments have generated exporters presents chal- styrene crystal from the United States of America, published on March 23, 2001. (August 24, 2001). over 11,800 indirect jobs. lenges, but also great opportunities for development in • Amendment to the agreement that establishes specific requirements In parallel, the Fox Mexico. Introducing more for temporary imports. (August 27, 2001). Administration's program to small and medium size firms • Decree that modifies the import tariff for powdered milk. (August 29, help Mexican companies intro- to export-oriented activities 2001). duce their products to the US either directly or indirectly, • Agreement that establishes the 2001 import tariff increases for pow- market seeks to leverage mar- through supply chains to dif- dered milk from World Trade Organization member countries, pub- ket access created by NAFTA. ferent industries, including lished on November 30, 2000. (August 30, 2001). The recently instituted distribu- maquiladoras, is a way to take • Amendment to the application criterion of the agreement that estab- tion centers in Texas and advantage of NAFTA's chan- lishes specific requirements for temporary imports. (August 31, California, for example, have nels to simultaneously pro- 2001). enabled 24 Mexican compa- mote economic growth and • Interpretation criterion of Mexican Official Standard NOM-051-SCFI- nies to establish new promo- growth of small and medium 1994, general specifications for labeling, prepackaged foods and tional commercial contacts. size enterprises. non-alcoholic beverages, published on January 24, 1996. (August According to the WTO Annual 31, 2001). Report 2000, Mexico is the 8th The promotion of small and • Decree that modifies the import tariff for several goods of the largest exporter in the world. medium size businesses is a Mexican Tariff Schedule. (September 5, 2001). Since NAFTA went into effect priority of the Fox • Amendment to the agreement that establishes the classification in 1994, Mexican exports have Administration. Hence, it has and codification of imports and exports subject to a permit from registered double-digit growth introduced programs to help the Ministry of Economy. (September 10, 2001). rates. In 2000, Mexican sales them become viable abroad exceeded US$ 166 bil- exporters. NAFTA and lion, over half a million jobs Mexico's network of FTAs were created in the formal (Free Trade Agreements) thus NAFTA RELATED EVENTS sector of the economy and play an important role in the • EXPO MAQUILA 2001 (17th Annual maquila product and services real wages increased by 15% development of small and exhibition): Ciudad Juarez, Chihuahua, Mexico. in the manufacturing sector. medium size businesses. For further details: http://www.ts.com.mx November 7-9 2001 The Fox Administration seeks They stimulate the creation of to build on this growth and • ImageWorld TM (sign making, screen-printing and digital imaging joint ventures and businesses international fair). World Trade Center, Mexico City. leverage it to benefit small and partnerships, as Mexican con- For further details: http://www.stpubs.com/imageworld.html medium size enterprises. tent in export products November 8-10, 2001 becomes the key to access • EXINTEX INTERNATIONAL TEXTILE & APPAREL EXHIBITION. The 1999 Economic Census over 800 billion consumers in Puebla,Mexico. Forfurtherdetails: http://www.exintex.com.mx of INEGI reports that there are 32 countries across the world. November 13-16, 2001

2 NAFTA Works September 2001

continues from page 1 tions in Mexico, from 20 in Investing in Mexico Yields High Returns 1993 to 34 in the third quar- Main Stock Exchange Market Indexes tion and ownership in ter of 2000. Joint ventures, Mexico's financial sector mergers, acquisitions and 1993=100 soared, injecting much need- even hostile take-overs --a IPC (Mexico) ed capital, promoting compe- phenomenon characteristic 500 DOW JONES (NY) tition and renewing the growth of developed financial mar- 450 NIKKEI (Tokio) 386.8 potential of this sector. kets-- further evidence an 400 FT (London) MILA N ( Italy ) increasingly competitive 350 Although NAFTA's Chapter financial sector in Mexico. 14, Financial Services, cannot 300 331.4 250 be fully credited with the liber- In 1993, only one foreign 229.3 alization of this market in institution was allowed to 200 Mexico, it did promote the operate in the country with 150 171.2 participation of new players restrictions. By 2000, 18 out 100 85.4 as it provided additional cer- of the 34 financial institutions 50 tainty to investors, and a are subsidiaries of foreign 0 framework for the deregula- banks with 100% foreign tion that followed in 1998. It ownership; 10 of them are Source: INEGI and SE-NAFTA. established clear and pre- from our NAFTA partners. dictable rules and extended to The number of ATMs in the services the basic obligations country has also jumped from In equity markets, the Mexican independent Central Bank of national treatment and 4,869 in 1993 to 14,293 in Stock Exchange has grown and a floating exchange rate-- most favored nation treat- 1999, while the number of almost 400% since 1993, sur- have enabled Mexico to earn ment. That is, each NAFTA branches grew from 4,739 to passing leading stock "investment grade" BBa+ by country must treat service 7,915 in those years. This has exchanges in North America, Moody's investor's services providers of the other NAFTA had a direct impact on the Europe and Japan. Hedging since the first quarter of countries no less favorably number of bank accounts in against volatility in these mar- 2000. than it treats its own service Mexico that expanded to 27 kets and financial turmoil else- providers or those of any million by the end of 1999; an where in the world has been The liberalization of Mexico's other country. Even banks explosive growth of 108% made possible in Mexico financial services sector is from non-NAFTA countries when compared to the 13 mil- thanks to the creation, in 1998, contributing to develop more took advantage of the NAFTA lion accounts registered in of the MEXDER Futures and competitive financial markets provisions: Until the end of 1993. Options Market. Open interest and enhancing Mexico's 1998, when Mexico eliminat- in Mexico's derivatives has attractiveness for FDI flows. ed the restrictions to foreign The opening of Mexico's finan- grown from 290 contracts in Both US and Canadian finan- ownership in the banking sys- cial sector has also resulted in 1998 to 59,319 in 2000 and to cial institutions have estab- tem, these banks invested in competitive interest rates. a historical record of 264,290 lished a foothold in the Mexico's financial sector Interest rates have become contracts by July 4, 2001. Mexican market and are pro- through their subsidiaries in less volatile and have fallen viding new long-term financ- the US or Canada. sharply from the peaks These developments, together ing opportunities to Mexican observed in the middle of the with Mexico's export perform- firms and consumers. Thus, In addition, the NAFTA estab- 1995 economic recession. For ance and the monetary and international investors are lished a Financial Service example, the rate of return of fiscal policy mix that the profiting from Mexico's stable Committee comprised of the the Mexican Treasury bill, authorities have implemented - path of growth and legal cer- corresponding government CETES 28, fell from 70.2% in --a tight budget deficit, a one- tainty envisioned by NAFTA. authorities responsible for 1995 to 7.3% in August, 2001. digit inflation rate, an financial services of each Likewise, the TIIE rate --the party. Among other tasks, the Mexican equivalent of LIBOR-- Financial Service Committee lost 70.31 percentage points Mexico: Composition of the Financial System supervises the implementa- since it peaked in 1995 and Number of Banking Institutions and Financial Groups tion of Chapter 14 and partici- closed at 18.16% in 2000. 40 R epublic National Bank Foreign Subsidiaries (NAFTA) pates in dispute settlement J. P. Morgan 35 procedures regarding this Investing in Mexico yields Foreign Subsidiaries (non- Bank of Boston matter as established under 30 NAFTA) Citibank 10 high returns New Mexican Banks Comerica Bank the Agreement. On May 16, 2001, the potential 25 Bank of Am erica Traditional Mexican Banks for growth of the Mexican 20 C hase M anhattan 8 Development of Mexico's financial sector was signaled to G. E. C apital Financial Markets international investors: 15 Am erican Express The disciplines for the liberal- Citigroup, the US banking 10 20 Bank One 10 ization of financial services giant, acquired Banamex, 5 and enhanced legal certainty Mexico's second largest bank 6 have dramatically increased in national hands, for US$12.5 0 the number of financial institu- billion. 1992/93 2000* /* 3Q. Source: ABM, CNBV and SE-NAFTA. 3 NAFTA Works September 2001 New Mexico Business News Digest CISCO Expands Installations in Mexico-City NEW MEXICO’S EXPORTS TO MEXICO BY SECTOR (NAICS),* Cisco Systems, Internet networks group, has inaugurated its JANUARY-JUNE 2001 = US $921 MILLION laboratories for the next generation of Net technology (and also expanded its existing installations) in Mexico City. Through this expansion, the firm hopes to be able to offer clients and business partners space and facilities suitable to its vanguard sta- Fabricated Metal Products 2% tus within the industry and for demonstrations of its solutions Transportation equipment 2% and products, as well as permitting room for constant training

Plastic & rubber products 1% of its employees. COMTEX Newswire, September 10, 2001 Machinery, except electrical 4%

Chemicals 2% Three Mexican Universities to Benefit from US$263 Million CAD/CAM/CAE System Donation UGS, a leading supplier of product lifecycle management (PLM) solutions, announced that they have teamed up with General Motors Corp., Sun Microsystems and Electronic Data Computer and electronic Systems to make a donation, valued at $283 million, of com- products puter-aided design, manufacturing and engineering 87% (CAD/CAM/CAE) software, hardware and training. The donation is being disbursed between three universities: Instituto Tecnológico Autónomo de México (ITAM), Universidad Iberoamericana (UIA), and Instituto Tecnológico y de Estudios /* NAICS stands for North American Industry Classification System Superiores de Monterrey (ITESM). This corporate alliance ini- tiative, titled Partners for the Advancement of CAD/CAM/CAE Education (PACE), was formed in 1999 to help provide future New Mexico's Exports to Mexico engineers from key institutions the education and experience 1993-2001* desired by each of the partnering corporations.

$160 (Millions of US Dollars) $148.71 PRNewswire, August 30, 2001 $136.91 $140 Hewlett Packard de México Aims for Strategic Growth $120 HP de Mexico's new service strategy aimed at companies of all $102.00 $100 $95.41 sizes includes growing its services for printers, desk- and lap- tops and should mean an extra 2% in market share to reach $80 $76.78 $69.85 5% of the equipment and services segment in 2001. In the $62.12 $60 $55.23 $55.32 computing consulting area, HP rose its share 2.2% in the first half of 2001 to reach 11.2%. HP is to help Telmex transform $40 70% of voice processing over the next 7 years. $20 South American Business Info, September 11, 2001

$0 1993 1994 1995 1996 1997 1998 1999 2000 2001* Select Readings

/* Forecast using the annual average rate of state exports to Mexico growth since NAFTA entered into force. Caught in the Middle: Border Communities in and Era of Globalization. Demetrios G. Papademetriou and Deborah Meyers, Eds. (Carnegie Endowment, October 2001) •Between 1993 and 2000 New Mexico's exports to In a world where the flow of goods and people is tremendous and Mexico grew 178%. growing, little attention has been paid to the communities through which these goods and people pass. This book provides a fascinat- ing look into the inner workings and realities of border communities along 5 international borders: US-Canada, US-Mexico, Germany- • Mexico is the 6th largest consumer of New Mexico's Poland, Russia-China and Russia-Kazakhstan. The case studies goods. focus on innovative cross-border initiatives and contribute unique insights into the daily lives of border communities. They also bring a better understanding of the nature of relationships between fed- Success Story eral and local governments, community leaders, government offi- cials and local communities. McKinley Paper Gains in Recycling Business Managing Global Issues: Lessons Learned. P.J. Simmons Prewitt, New Mexico-based McKinley Paper Co., a wholly- and Chantal de Jonge Oudraat, Eds. (Carnegie owned subsidiary of Mexico's Grupo Industrial Durango S.A. Endowment, October 2001) (Gidusa), runs two recycling centers in the United States for Globalization is spotlighting problems that no single country, no pair Gidusa. The recycled fibers produced at the facilities are sent to Gidusa's paper mill and made into shipping cartons for of countries, no one region can effectively resolve. This book exam- reuse by maquiladoras. ines efforts over the past 50 years to address 16 such global challenges --communications, development assistance, finance, trade, Bloomberg News, The Wall Street Journal money laundering, environment, pollution, global commons, health, human rights, labor rights, refugees, corruption, violence, conven- New Mexico New tional weapons, nuclear warfare-- outlining the meaning of both success and failure for official policy makers and private activists. Source: U.S. Census Bureau, with adjustments made by the Massachusetts This book features the findings of an international, multidisciplinary Institute for Social and Economic Research and SE-NAFTA. group of experts and offers a cutting-edge countribution to the

NAFTA Works Works for NAFTA growing literature on governance. 4 NAFTA Works September 2001

T amaulipas

Source: Secretary of Economy Infrastructure: 4,662 miles of highways and roads 605 miles of railroads 4 international airports (Matamoros,Nuevo Laredo, Reynosa and Cd. Victoria) 498 medical units 75 universities and technical schools 31 industrial parks

Source: SCT, INEGI, SEDEEM,

Maquiladoras: Prior to NAFTA's implementation, 292 maquiladoras were operating in the state of Tamaulipas. By the end of 2000, there were 215 new maquiladoras, the 505 maquiladoras are employing 200,000 workers. Capital: Ciudad Victoria Main Cities: Matamoros, Reynosa, Nuevo Laredo, Ciiudad Victoria, Tampico, Ciudad MAJOR ECONOMIC ACTIVITY IN 2000 Madero and Altamira Financial Agriculture and livestock Population: 2.8 million services and Construction 55 people per square mile insurance 9% 4% 1% Mining 85% in urban areas 14% 78% yonger than 40 years old 94% literacy rate Transportation and 15% Other services communications 14% Source: INEGI, XII Census

Exports (2000): US$ 7 billion 18% Imports (2000): US$ 6 billion 21%

Source: Secretary of Economy Retail Manufacturing

Major exports: electric and electronic products, petrochem- Source: Bancomext, with INEGI data. icals, autoparts, plastics and textiles Foreign Direct Investment (FDI): Source: INEGI • Between 1994 and March 2001, cumulative FDI in • Highlights: Tamaulipas reached US$ 2.8 billion. • Main sources of foreign investment in the State of • Tamaulipas has two main deepwater ports: Tampico and Tamaulipas are: the United States, Germany, Canada, the Altamira Netherlands and Spain Tamaulipas shares with the United States 15 border • By April 2001, 16 companies with foreign investment were crossings. established in the Tamaulipas. Source: Secretary of Economy Trade Fairs and Exhibitions in 2001

Main foreign companies operating in the State: Source: SCT, SEDEEM

Event Month Description Company Country - EXPORTAM October Trade and Cultural - Expo-Maquila Delphi US Matamoros October Trade and Industrial Visteon US Dupont US TRW US Basf Germany Source:SEDECO Web-pages: www.tamaulipas.gob.mx E-mail : [email protected] NAFTA Works Works for NAFTA

NAFTA Works is an informational newsletter published monthly by the Embassy of Mexico, SE-NAFTA Office, 1911 Pennsylvania Avenue, N.W., Washington, D.C. 20006. For more detailed information or questions, contact NAFTA Desk at (202) 728–1700; e-mail [email protected], website http://www.naftaworks.org. To receive NAFTA Works via e-mail, please send a message to [email protected]