MEXICO EXPORTA

1
The Mexican transport equipment and auto parts
industry under the Mexico EU Free Trade
Agreement
July 2003
2
The Mexico-EU FTA

• The Mexico-EU FTA is part of a broader Global
  Agreement (Economic Partnership, Political
  Coordination and Cooperation Agreement).
• The trade aspects of the Global Agreement were
  adopted through two decision of the EU-Mexico
  Joint Council
• The Decision 2/2000 known as the FTA in goods
  effective since July 1, 2000, and
• The Decision 2/2001 called the FTA in Services
  effective since March 1, 2001.

3
The Mexico-EU FTA. Decision 2/2000

• The Mexico-EU FTA provides that by 2007, around
  96 per cent of bilateral trade will be duty free.
• The bulk of tariff dismantling for industrial
  products will be completed by January 1, 2007.
• Specific packages were agreed for products
  considered sensitive such as transportation
  equiment.

4
The transport equipment and autoparts sector
under the Mexico-EU FTA

• By 2007 Mexican-EU trade in transport equipment
  and autoparts will be duty free.
• A transition period was established
• At the entrance into force of the Mexico EU
  FTA (July 1, 2000), the estimated percentage of
  EU duty free imports in the auto sector in Mexico
  was 7.4. That percentage went to 15.2 by 2003
  and will be 20.6 in 2005.
• When the Agreement became effective, the
  estimated percentage of duty free imports in the
  automotive sector for Mexican products to the EU
  was 76.6 and went to 100 by 2003.

Source ME, with data from BANXICO and EUROSTAT
5
Duty Phase-Out
Weighed average duty applied to exports of
transport equipment and autoparts in Mexico and
the EU
Source ME, with data from BANXICO and EUROSTAT
6
Duty phase-out in the Mexico-EU FTA for some
Mexican products that faced high duties in the
EU
Percentage
/ MFN preference granted by the EU / Base
rate for vehicles was established in 4.4 / If
a vehicle weighs less than 8.8 tons. the base
rate is 4.4 Source ME with data from EUROSTAT
7
Acceleration of duty phase-out in the sector

• During the second Mexico-EU Joint Council
  meeting, (13 May 2002) Mexico and the EU agreed
  to accelerate the liberalization of several
  industrial products
• As a result the EU eliminated duties for Mexican
  products such as vehicles, among others.
• Mexico agreed to an early acceleration by 5 years
  (from 2007 to 2002), of the duty phase-out for
  European auto parts.

Source European Commission
8
Rules of Origin

• The Mexico-EU FTA provides specific rules of
  origin for transportation equipment and
  autoparts.
• The rules of origin established aimed at
• increasing exports of those products that include
  inputs and originating materials from the region.
  
• avoiding that the agreed rules turn into trade
  barriers
• guaranteeing that the benefits of the agreement
  remain within the region.

9
Rules of Origin

• The agreed rules of origin guarantee that
  regional products will benefit from the
  preferential treatment (Decision 2/2000) upon
  submission of either
• (a) a movement certificate EUR.1 or
• (b) an invoice declaration, given by the exporter
  which describes the products concerned in
  sufficient detail to enable them to be
  identified.

10
Rules of Origin Transport Equipment

• For vehicles, the agreed rule of origin
  establishes that, during a transitional period,
  the regional content required to obtain
  preferential access in the EU or in Mexico is the
  following
• 45 between the entry into force of the FTA and
  January 2001
• 50 between January 1, 2002 and 2004 and
• 60 starting January 1, 2005 and thereafter.

11
Rules of Origin Transport Equipment

• The rule of origin for trucks, heavy trucks and
  buses establishes a regional content requirement
  of 60.
• Furthermore, a transitory rule for an export
  quota to the EU of 2,500 units was established,
  where the regional content is
• 45 between the entry into force of the FTA and
  up to 2002
• 50 between 2003 up to 2006
• 60 starting in 2007.
• A revision clause was established, in case
  Mexican producers cannot obtain the inputs from
  the EU, then the regional content will be 45.

12
Rules of Origin Autoparts

• For the most important products for Mexico, there
  is a rule that allows the use of raw materials
  that are not available in Mexico, which could be
  transformed and exported.
• The rule or origin recognizes the transformation
  of raw materials (iron, aluminum, etc.) into
  final products (pistons, axles, bodywork parts,
  etc.).
• For engines, the rule establishes 50 of regional
  value from the entry into force of the FTA until
  2005. After 2005, the regional value rule will be
  60.

13
Mexicos automotive policy under the MEUFTA

• The Mexico EU FTA allows Mexicos Decree for
  the automotive industry to remain in place until
  December 31, 2003.
• Mexico maintains import permits for new cars, as
  well as export and national content requirements.
  
• Since the entry into force of the Mexico EU FTA
  and up to 2004, Mexico will allow an import quota
  for new vehicles of 14 of the national vehicle
  market. Between 2005 and 2006 the share increases
  to 15.
• During the time Mexicos automotive decree is in
  force, the main part of the quota is reserved to
  producers that comply with the decree. After
  that, any person can request part of the quota,
  which will be administered by Mexico through
  principles of non-discrimination and quota
  optimization.
• As of January 1, 2004 the Mexican auto industry
  will be fully liberalized.

14
Mexicos automotive policy under the MEUFTA

• The Mexico EU FTA eliminates all import
  prohibitions or restrictions other than customs
  duties and taxes, whether made effective through
  quotas, import licenses or other measures (Art.
  12)
• However, FTA Annex IV.6 allows Mexico to maintain
  import prohibitions or restrictions on nearly all
  used vehicles.
• Mexico requires an import permit for used
  vehicles made in the U.S., Canada or the EU.
  Permits are granted only for special purpose
  vehicles for which there is no relevant
  production in Mexico, such as ambulances and
  vehicles adapted for handicapped people.

15
Commercial development of the Mexican transport
equipment and auto parts industry under the
Mexico-EU FTA
16
Liberalization policies have allowed the Mexican
transport and equipment industry to become a
major player in international trade
Mexican Total trade of transport equipment and
auto parts
Trade growth (93/02)
186
Imports
Exports
Includes products from chapters 73, 84, 85, 86,
87, 88, 89, 95 and 98 of the HS. Source ME with
data from BANXICO
17
Mexican vehicles compete well in the
international market

• Mexico is the 10th biggest exporter of transport
  equipment.

Mexican Vehicle Exports
Billion Dollars
Source ME
18
In 2002, Mexicos top transport equipment and
auto parts exports accounted for 70 of the total
exports of the sector
Top ten transport equipment and auto parts
industry products exported by Mexico in 2002,
million of US
Product Total US EU Rest
Motor cars of a cylinder between 1,500 and 3,000 cc 8,599.5 7,261.5 324.4 1,013.6
Motor cars of a cylinder exceeding 3,000 cc 4,637.3 4,376.3 0.9 260.1
Vehicles of a gross weight not exceeding 5 tonnes 3,826.7 3,683.4 0.0 143.3
Diesel vehicles of a gross weight not exceeding 5 tonnes 1,394.3 1,394.2 0.0 0.1
Spark-ignition engines exceeding 1,500 cc 1,243.3 1,201.7 15.3 26.3
Brakes, servo-brakes and parts thereof 1,050.3 997.3 21.5 31.5
Safety belts 776.9 774.6 0.1 2.2
Road tractors for semi-trailers 631.7 610.8 0.0 20.9
Other parts and accessories for motor vehicles 616.3 591.0 11.9 13.4
Diesel vehicles of a cylinder between 1,500 and 2,500 cm3 527.9 316.3 89.9 121.7
Source ME
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Trade in transport equipment and auto parts
between Mexico and the EU represents 7.1 of
Mexicos trade in the sector

• In 2002, Mexican exports of vehicles and auto
  parts to the EU reached 927 million dollars
  (md).

Mexico - EU Trade
Transport equipment and auto parts
3.7
3.7
3.3
Mexican Imports form the EU
2.6
2.0
1.9
1.5
1.3
1.3
Mexican Exports to the EU
Includes products from chapters 73, 84, 85, 86,
87, 88, 89, 95 and 98 of the HS. Source
Ministry of the Economy (ME) with data from
BANXICO and Eurostat
20
Trade in vehicles between Mexico and the EU
represents 6.4 of Mexicos trade in these
products
Mexico - EU Trade
Transport equipment
1,863
1,568
1,510
1,094
327
487
134
89
83
Source Ministry of the Economy (ME) with data
from BANXICO
21
For the Mexican industry of transport equipment
and auto parts, the European market offers a
great potential given the size of the market
Extra EU imports Estimated for the EU Source
ME with data from EUROSTAT and USDOC
22
The Mexican industry has the potential to improve
its position as an EU supplier
Percentage of EU Imports Main suppliers of
vehicles and auto parts (2002)
Estimated data for 2002 Source ME with data
from EUROSTAT
23
Foreign Direct Investment has transformed the
Mexican transport equipment and auto parts
industry into a competitive worldwide producer

• In 2002, 614 enterprises with foreign capital
  operated in Mexicos transport equipment and auto
  parts industry
• Between 1999 and 2002, Mexico received US6.5
  billion in foreign direct investment (FDI), which
  accounted for 33 of total FDI in Mexicos
  manufacturing sector
• The main investors in the sector are the US
  (51.6), Japan (32.8), Canada (9.9), Germany
  (5.0) and Spain (2.8)
• This FDI concentrates mainly on production of
  parts and accessories for cars and trucks
  (47.7), car and truck assemblies (24.9), parts
  and accessories for the electrical system
  (11.2), and suspension and their parts (4.1).

Source ME
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The transport equipment and autoparts industry
plays an important role in the Mexican economy

• In 2001, this sector
• represented 16 of Mexicos GDP
• between 19 of total Mexicos exports
• employed more than more than 18 of Mexicos
  labor force
• attracted US1.3 billion in Foreign Direct
  Investment (FDI).

25
Clusters in the transport equipment and auto
parts industry
FORD (ENGINES)
CHIHUAHUA
LINAMAR (ENGINES)
BAJA CALIFORNIA NORTE
G. PALACIO
SONORA
CHIHUAHUA
KENWORTH (TRUCKS)
MEXICALI
COAHUILA
RAMOS ARIZPE
G.M. (PC UV)
GARCIA
NAVISTAR (TRUCKS)
BAJA CALIFORNIA SUR
1
NUEVO LEON
SCANIA (TRUCKS)
S.L.P.
SINALOA
DURANGO
FORD (PC)
TAMPS.
HERMOSILLO
Dimler-Chrysler (TRUCKS)
CD. SAHAGUN
ZACATECAS
S.L.P.
FORD (PC UV)
CUAUTITLAN
AGS.
NAYARIT
GTO.
CHRYSLER (ENGINES UV)
YUCATAN
2
SALTILLO
QRO.
D.F.
CHRYSLER (UV)
HIDALGO
NISSAN (PC ENGINES)
QUINTANA ROO
JALISCO
AGS.
3
MEX.
TLAX.
COLIMA
GUADALAJARA
MICHOACAN
CAMPECHE
MOR.
VERACRUZ
HONDA (PC)
PUEBLA
TABASCO
G.M. (UV)
SILAO
GUERRERO
TOLUCA
G.M. (ENGINES)
OAXACA
CHIAPAS
CHRYSLER (PC UV)
TOLUCA
SANTIAGO
M.BENZ (PC UV)
TOLUCA
TOLUCA
PUEBLA
BMW (PC)
V.W. (PC ENGINES)
CIVAC
NISSAN (PC UV)
TULTITLAN
MASA (TRUCKS)
26
EU firms in the automotive sector are already
established in Mexico
Firm
Location

• BMW Toluca, State of Mexico
• Daimler-Chrysler Toluca, State of Mexico
  Saltillo, Coahuila Lake Alberto, State of
  Mexico.
• Ford Cuautitlan, State of Mexico Hermosillo,
  Sonora Monterrey, Nuevo Leon.
• General Motors Ramos Arizpe, Coahuila Silao,
  Guanajuato
• Honda El Salto, Durango.
• Mercedes Benz Santiago, State of Mexico.
• Nissan Aguascalientes, Aguascalientes
  Cuernavaca, Morelos
• Volkswagen Puebla, Puebla

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Challenges ahead

• The strong presence of Mexican vehicles and auto
  parts in the world market reflects the quality
  and competitiveness of the Mexican industry. The
  Mexico EU FTA, gives the opportunity for Mexico
  to
• enjoy preferential access in one of the most
  important markets in the world,
• further specialize in production of certain type
  and models
• attract more FDI and promote strategic alliances
• incorporate more firms to the export sector,
  mainly small and medium sized enterprises
• generate more and better paid jobs

28
Challenges ahead

• Mexicos National Development Plan 2001-2006,
  establishes, as one of the priorities, to
  increase and extent competitiveness in the
  country. Therefore the Ministry of the Economy
  has produced Competitiveness Programs.
• For the moment, Mexico has developed specific
  programs for the textile-garment sector, the
  electronic sector and the software sector. The
  transport equipment and autoparts sector
  competitiveness program is on the verge of being
  concluded.

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• To obtain further information visit
• www.economia.gob.mx
• www.economia-bruselas.gob.mx
• bruselas_at_economia.gob.mx
• Mexicos Mission to the EUMexican Ministry of
  the Economy94, Av. Franklin Roosevelt1050
  Brussels, Belgium