Investment in Mexico: a Springboard Toward the NAFTA Market - an Asian Perspective
Total Page:16
File Type:pdf, Size:1020Kb
NORTH CAROLINA JOURNAL OF INTERNATIONAL LAW Volume 22 Number 1 Article 3 Fall 1996 Investment in Mexico: A Springboard toward the NAFTA Market - An Asian Perspective Chiana-Feng Lin Follow this and additional works at: https://scholarship.law.unc.edu/ncilj Recommended Citation Chiana-Feng Lin, Investment in Mexico: A Springboard toward the NAFTA Market - An Asian Perspective, 22 N.C. J. INT'L L. 73 (1996). Available at: https://scholarship.law.unc.edu/ncilj/vol22/iss1/3 This Article is brought to you for free and open access by Carolina Law Scholarship Repository. It has been accepted for inclusion in North Carolina Journal of International Law by an authorized editor of Carolina Law Scholarship Repository. For more information, please contact [email protected]. Investment in Mexico: A Springboard toward the NAFTA Market - An Asian Perspective Cover Page Footnote International Law; Commercial Law; Law This article is available in North Carolina Journal of International Law: https://scholarship.law.unc.edu/ncilj/vol22/ iss1/3 Investmentt in Mexico: A Springboard toward The NAFTA Market-An Asian Perspective Chiang-feng Lin Table of Contents I. Introduction ......................................................................... 74 II. Mexico: A Country in the Process of Revival ................... 77 A. Macroeconomic Adjustments ...................................... 77 1. Inflation .................................................................. 77 2. Trade Liberalization ............................................... 78 3. Peso C risis ............................................................. 79 B . Political Reform ........................................................... 85 C. The Challenges of Cross Cultural Labor M anagem ent .................................................................. 87 D. Bureaucratic Red Tape and Insufficient Infrastructure ............................................................... 91 III. Legal Reforms in Mexican Foreign Investment Regime .... 95 A. Foreign Investment Law ............................................... 95 1. P olicy ...................................................................... 96 2. Definition and Scope of Foreign Investment .......... 97 3. Registration and Approval Procedures ................... 99 4. Capital Repatriation and Profit Remittance ............ 100 5. Acquisition of Real Estate Property ........................ 100 B. Law on the Promotion and Protection of Industrial Property ......................................................................... 10 1 1. P olicy ...................................................................... 102 2. Scope and Term ..................................................... 102 3. License and Transfer of Technology Procedures .... 104 4. Protection and Enforcement .................................... 105 t The term "investment" indicates "direct investment." Dissertator, S.J.D., LL.M. 1995, M.L.I., 1992, University of Wisconsin- Madison Law School; M.B.A., 1994, University of Wisconsin-Milwaukee, LL.B. 1988, Chinese Culture University, Taiwan. I want to express my deepest appreciation to Professor Charles R. Irish for his valuable opinions in the early draft of this article, and to my family for their loving support. N.C. J. INT'L L. & COM. REG. [Vol. 22 C. Copyright Law Reforms ............................................... 106 D. The Maquiladora Program ............................................ 108 1. Registration and Approval Procedures ................... 109 2. Temporary Importation ........................................... 110 3. Domestic Maquiladora Sales .................................. 111 4. Future Development of Maquiladoras .................... 112 IV. Using the Comparative Advantages of NAFTA ................. 115 A. Economic Benefits of NAFTA ..................................... 115 B. Elim ination of Tariffs ................................................... 119 1. Staged Reduction of Import Duties ......................... 119 2. Elimination of Duty Drawback Program ................ 120 C. Restrictive Rules of Origin ........................................... 121 1. The Policies Behind the Rules of Origin ................ 122 2. General Mechanisms of the Origin Rules ............... 122 D. The Reduction of Non-Tariff Barriers to Trade ............ 127 E. Gateway Into the Latin American Market .................... 129 V. Market Access in Potential Sectors ..................................... 132 A . Autom otive Goods ........................................................ 132 B. Textiles and Apparel Goods .......................................... 135 C. Computers and Computer Peripherals .......................... 137 D. Telecommunication Equipment .................................... 140 E. M achine Tools .............................................................. 142 V I. Conclusion .......................................................................... 144 I. Introduction On December 17, 1992, U.S. President Bush, Mexican President Salinas and Canadian Prime Minister Mulroney signed the North American Free Trade Agreement (NAFTA) and, as expected, NAFTA was ratified by the three nations and went into force in January, 1994.2 This agreement creates an enormous free trade area, with 360 million people and a total trade output of almost 6.5 trillion dollars in annual production? NAFTA is I North American Free Trade Agreement, Dec. 17, 1992, U.S.-Can.-Mex., Pub. L. No. 103-182, 107 Stat. 2057, reprinted in 32 I.L.M. 605 (1993) [hereinafter NAFTA]. 2 Id. art. 2203. 3. U.S. CHAMBER OF COM., A GUIDE TO THE NORTH AMERICAN FREE TRADE AGREEMENT: IMPLICATION FOR U.S. BUSINESS xi (1992); see also NAFTA Opens New Market for U.S. Accountants; North American Free Trade Agreement: Column, ACCT. 1996] MEXICAN INVESTMENT expected to provide considerable free trade benefits for North American countries, particularly for Mexico, through trade creation and the resulting effect on consumer welfare. However, non-participating countries in Asia are likely to suffer economic hardships because of NAFTA's potential to divert trade away from Asian countries. NAFTA's impact on Asia is particularly significant. From an economic perspective, Mexican goods will likely replace some labor-intensive Asian goods bound for the U. S. market due to the elimination of tariff and non-tariff barriers, and relatively inexpensive and abundant Mexican labor. In addition, NAFTA will also pose a strong threat to industries in the Asian Newly Industrialized countries (NICs) because many of them rely on the North American market as their major export destination. Many Asian NIC-made products will face strong competition from Mexican-made products in the U.S. market, 4 and the competition is expected to be fierce as soon as Mexico acquires enough foreign capital and advance technologies. Therefore, the impact of NAFTA seems by extension important to the overall Asian economy. Facing imminent adverse impact from NAFTA, Asian enterprises need to study investment feasibility in Mexico in order to maintain their competitiveness and secure access to the NAFTA market. On the other hand, Mexico is undergoing a fundamental transformation in its economic strategy and its relations with the international community in order to revive itself from the debt TODAY, Oct. 10, 1994, available in LEXIS, World Library, Allwld File. 4 Anna Taing, Malaysia:East Asia Faces Big NAFTA Challenge-Lehmans, Bus. TIMES, Dec. 15, 1993, available in LEXIS, World Library, Txtfe File. According to a report unveiled by Lehman Brothers, facing the impact of NAFTA, Asian "new" NICs, Malaysia, China, Indonesia, the Philippines and Thailand, may be more vulnerable in the long run, because of their growing dependence on the North American market. Id. On the other hand, Hong Kong, Singapore, South Korea and Taiwan will experience greater trade diversion in the short term. Id. In addition, a study made by U.S. DRIiMcGraw-Hill consulting firm also forecasted that competition from Mexico would cut Taiwan's exports to the U.S. by US$ 4.4 billion between 1994 and 2000 as a result of NAFTA. See DRIiMCGRAW-HILL, THE IMPACT OF THE NORTH AMERICAN FREE TRADE AGREEMENT ON INDUSTRIES IN THE REPUBLIC OF CHINA ON TAIWAN 2 (1993). Moreover, Korean studies also suggest that their exports, such as computers, textiles, automotive products, and consumer electrical equipment, in the U.S. market will face strong competition from Mexican made ones. Lee Hang-koo, South Korea: The Impact of North America Free Trade Agreement on Korean Industries, KOREA ECON. DAILY, Apr. 1, 1992, availablein LEXIS, World Library, Txtfe File. N.C. J. INT'L L. & COM. REG. [Vol. 22 crisis of the 1980s.' One important task in Mexico's economic reforms is to encourage foreign investors to participate in its economic revitalization.' Because a deregulated and liberalized legal framework can pave the way for foreign investors to participate in Mexico's economy, the Mexican government made a structural improvement in its foreign investment regime. Mexico's efforts in its reforms combined with the establishment of NAFTA indeed create a favorable climate for attracting foreign investments. The purpose of this article is to examine the feasibility with which Asian enterprises might strengthen their competitiveness in the NAFTA market by investing in Mexico. To serve this purpose, part II will give Asian investors a brief picture of Mexico's structural reforms in its economy as well as the potential