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

2 The Mexico-EU FTA è The Mexico-EU FTA is part of a broader Global Agreement (Economic Partnership, Political Coordination and Cooperation Agreement). è 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 è The Mexico-EU FTA provides that by 2007, around 96 per cent of bilateral trade will be duty free. è The bulk of tariff dismantling for industrial products will be completed by January 1, è Specific packages were agreed for products considered sensitive such as transportation equiment.

4 The transport equipment and autoparts sector under the Mexico-EU FTA Source: ME, with data from BANXICO and EUROSTAT  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  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.

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 /* 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 Percentage Duty phase-out in the Mexico-EU FTA for some Mexican products that faced high duties in the EU

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  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. Rules of Origin

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  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 After 2005, the regional value rule will be 60%.

13  The Mexico – EU FTA allows Mexico’s Decree for the automotive industry to remain in place until December 31,  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 Mexico’s 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. Mexico’s automotive policy under the MEUFTA

14 Mexico’s automotive policy under the MEUFTA è 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) è However, FTA Annex IV.6 allows Mexico to maintain import prohibitions or restrictions on nearly all used vehicles. è 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 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 Trade growth (93/02) 186% Mexican Total trade of transport equipment and auto parts* * Includes products from chapters 73, 84, 85, 86, 87, 88, 89, 95 and 98 of the HS. Source: ME with data from BANXICO Imports Exports

17 Mexican Vehicle Exports Source: ME Mexican vehicles compete well in the international market Billion Dollars  Mexico is the 10 th biggest exporter of transport equipment.

18 In 2002, Mexico’s top transport equipment and auto parts exports accounted for 70% of the total exports of the sector ProductTotalUSEURest Motor cars of a cylinder between 1,500 and 3,000 cc8,599.57, ,013.6 Motor cars of a cylinder exceeding 3,000 cc4,637.34, Vehicles of a gross weight not exceeding 5 tonnes3,826.73, Diesel vehicles of a gross weight not exceeding 5 tonnes1,394.31, Spark-ignition engines exceeding 1,500 cc1,243.31, Brakes, servo-brakes and parts thereof1, Safety belts Road tractors for semi-trailers Other parts and accessories for motor vehicles Diesel vehicles of a cylinder between 1,500 and 2,500 cm Source: ME Top ten transport equipment and auto parts industry products exported by Mexico in 2002, million of US $

19 Trade in transport equipment and auto parts between Mexico and the EU represents 7.1% of Mexico’s trade in the sector Mexico - EU Trade Transport equipment and auto parts * 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  In 2002, Mexican exports of vehicles and auto parts* to the EU reached 927 million dollars (md) Mexican Exports to the EU Mexican Imports form the EU

20 Mexico - EU Trade Transport equipment ,510 1,094 1,568 1,863 Source: Ministry of the Economy (ME) with data from BANXICO Trade in vehicles between Mexico and the EU represents 6.4% of Mexico’s trade in these products

21 *Extra EU imports ** Estimated for the EU Source: ME with data from EUROSTAT and USDOC For the Mexican industry of transport equipment and auto parts, the European market offers a great potential given the size of the market

22 * Estimated data for 2002 Source: ME with data from EUROSTAT 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*)

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 Mexico’s transport equipment and auto parts industry Between 1999 and 2002, Mexico received US$6.5 billion in foreign direct investment (FDI), which accounted for 33% of total FDI in Mexico’s 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

24 The transport equipment and autoparts industry plays an important role in the Mexican economy  In 2001, this sector: represented 16% of Mexico’s GDP; between 19% of total Mexico’s exports; employed more than more than 18% of Mexico’s labor force; attracted US$1.3 billion in Foreign Direct Investment (FDI).

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

26 EU firms in the automotive sector are already established in Mexico 4BMWToluca, State of Mexico 4Daimler-ChryslerToluca, State of Mexico; Saltillo, Coahuila; Lake Alberto, State of Mexico. 4FordCuautitlan, State of Mexico; Hermosillo, Sonora; Monterrey, Nuevo Leon. 4General MotorsRamos Arizpe, Coahuila; Silao, Guanajuato 4HondaEl Salto, Durango. 4Mercedes BenzSantiago, State of Mexico. 4NissanAguascalientes, Aguascalientes; Cuernavaca, Morelos 4VolkswagenPuebla, Puebla FirmLocation

27 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  Mexico´s National Development Plan , 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. Challenges ahead

29 To obtain further information visit: Mexico’s Mission to the EU Mexican Ministry of the Economy 94, Av. Franklin Roosevelt 1050 Brussels, Belgium