Mexico is looking to attract businesses from Asia with a new trade deal. The long-awaited agreement will open up Mexico's markets and attract foreign investment, particularly from countries in the Asian region.
The deal was negotiated by Secretary of Economy Ildefonso Guajardo Villarreal and his team, which lobbied hard for it, according to a statement issued by the government this week.
The agreement aims to open up Mexico's markets and attract foreign investment, particularly from countries in the Asian region. It also aims to improve business opportunities for Mexican firms by tightening foreign ownership rules across the economy.
The deal surprised many Mexicans after the government had publicly insisted that it would not involve changes to labor laws or other economic regulations.
But last month, Guajardo suggested that "we can't ignore the importance of this market because we need more export revenue."
What the new trade deal entails.
The agreement, which has been put in place to increase trade between the countries, is expected to boost bilateral trade by $11 billion by 2020. The deal will also be beneficial for multinationals, as they can benefit from securing a more favorable legal framework.
The new pact — known as the "free-trade agreement" — has been in the works for nearly two years and is one of several new agreements Mexico has been aiming to obtain since it suffered a recession during the 2008 financial crisis.
Such agreements are standard for many countries. And while Mexico's economy was hit hard after that slump, its large population and high-value export markets have made it an attractive place to do business. According to a recent Moody report, Mexico's economy is expected to grow by 3.4% this year — one of the largest growth rates in Latin America.
Why Mexico is an attractive destination for businesses from Asia.
Mexico is taking steps to become an attractive destination for businesses from Asia, with a new trade deal that could be finalized within the next few weeks. The new agreement aims to open up Mexico's markets and attract foreign investment, particularly from countries in the Asian region. Aides to President Enrique Pena Nieto said this week's signing of a trade pact with Japan (in which Mexico had been expected as one of the first recipients) marks a turning point in Mexican-Japanese relations. The pact is seen as spurring Mexico into being more open to Japanese investment in its infrastructure and other sectors while also cutting tariffs and boosting trade between the two countries.
The new pact could be finalized as early as next month and will replace old agreements negotiated by former presidents Felipe Calderón and Vicente Fox, which are now still signed but not yet ratified.
Mexico has traditionally been Asia's most welcoming foreign investment destination. Still, it has often been at odds with countries such as China over what it sees as its undervalued peso currency – especially since the 2015 devaluation caused widespread losses for Mexican exporters. However, according to recent comments from Mexican officials, including Pena Nieto, there are signs that more is changing: "We want more businesses in Mexico from Japan than we have now because our products are very good there," said Castillo Ferreyra on Tuesday during a visit to Tokyo, according to Reuters news agency.
However, it appears that this latest agreement may prove even more ambitious than either of their previous attempts at resolving such disputes: on Friday, China announced that it would not impose anti-dumping duties on imports of several manufactured goods from Japanese companies, while on Saturday Japan vowed to take "necessary measures" against those same imports should they continue to be imported into Japan under previous deals.
For its part, China has long complained about Chinese firms taking advantage of Mexican industries through dumping – where they receive lower prices than competitors selling in China – something which has come under increasing scrutiny after the collapse of the Foxconn factory in Wisconsin this past year. However, some say these new protections could cut out possible collaboration with Chinese firms willing to find ways around anti-dumping rules or avoid them altogether (as recently when Apple announced plans for a $5 billion factory).
How the new trade deal will benefit businesses from Asia.
According to an official linked with the negotiations, Mexico is eager to lure firms from Asia under a new trade deal that could be finalized within the next few weeks. The agreement aims to open up Mexico's markets and attract foreign investment, particularly from countries in the Asian region.
The official said Mexico had made more progress than expected in its latest talks with the United States, but a final deal still needed to be in sight. "We are working as steadily as possible to get there," he said. "We are very close to having something acceptable between both sides. We have been negotiating for months now."
The landmark deal would narrow the gap between Mexico and its northern neighbor, Canada. It has been lobbying Washington for a free trade pact with Asia long before Mexico reached out to Beijing and New Delhi. Canada has already signed a deal with China; Mexico will look for similar deals with other Asian countries such as Japan, South Korea, and Indonesia.
The Mexican official said there were two big sticking points: who should be included in the deal and how much it would cost — including interest rates and tax rates on imported goods — but both were dropping off fast under negotiation. One of those issues is expected to be solved this month when representatives from India and China are expected to arrive for talks that could last several days.
Mexico also hopes it can reach an agreement on autos this year, allowing companies from across all three parties — including automotive suppliers — to work together across borders. That could pave the way for cars produced at Ford Motor Co (F), General Motors Co (GM), and Toyota Motor Corp (TM). Ford executives have said they wanted a deal by late 2019 or early 2020; GM executives expect it by mid-2020; Toyota officials say they want it sometime after 2020.
The potential implications of the new trade deal.
In a nutshell: The deal would make Mexico a more attractive destination for foreign investors and their workers, reversing years of protectionism.
The deal won't be easy to pull off — and it's not clear how effective the approach will be — but it could be a major step toward bringing Asia into the Mexican economy.
Mexico's government is opening up its markets to a wide range of goods and services to attract more foreign investment. The new agreement aims to reduce tariffs on goods from Asia, including China, and give foreign companies greater access to Mexico's infrastructure.
One of the big benefits of this agreement is that it will allow more foreign investment into Mexico. Currently, Mexico only allows foreigners with direct investments in the country (including private businesses) to do business there. This means that most large-scale investments from Hong Kong or Singapore cannot happen in Mexico (at least not yet).
China, Japan, and South Korea are currently exempt from these restrictions because they have agreements with the US for their goods and services. The new deal would lift these restrictions in a few years (10). It would also be important for Canada, France, Germany, and the UK as they have agreements with Europe which contain similar provisions on tariff-free access to goods from Asian countries.
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