Presented by China Advanced Research Center San Antonio, Texas, USA Investment & Trade Opportunities for Chinese Enterprises under NAFTA

What is NAFTA?

Preparietary Information Omega International Group, Inc. 3 NAFTA:  “North America Free Trade Agreement”  A trade agreement between the US, Canada and Mexico  Designed to reduce restrictions on trade and investment between the US, Canada and Mexico  Built on the Canada US Trade Agreement signed in 1989  Took effect on January 1, 1994  Scope of NAFTA:  All of North America  400 million population  US $8 trillion in goods and services

NAFTA Impact:

Preparietary Information Omega International Group, Inc. 5 NAFTA: 1994 – 1996: The First two years  A trade increase of $127 billion between the U.S., Canada and Mexico -- a 43 percent gain  U.S. exports to Mexico hit a record $57 billion -- an increase of 37 percent  In the fourth quarter of 1996 alone, the Department of Commerce reports U.S. exports to Mexico increased at an annual rate of $64 billion.  U.S. market share in Mexico increased from 69 percent to 76 percent of total Mexican imports.

Preparietary Information Omega International Group, Inc. 6 TRADE AMONG NAFTA COUNTRIES Longer term: 1985 – 2000 (Millions of 1996 USD)

Global View:

Preparietary Information Omega International Group, Inc. 8 Tri-lateral Collaboration for 21 st Century  Global economics is the wave of the 21 st Century.  With its entry to WTO, China is ready for global expansion.  Three driving forces: Culture, Management and Technology should be closely examined for this global collaboration.  Tri-lateral Collaboration among China / US / Mexico business can generate significant impact in Pan Pacific trade practices.  Chinese investments in the US can provide direct access to the North American investment and consumer markets via NAFTA

Global Trends:

Preparietary Information Omega International Group, Inc. 10 SHARE OF WORLD INCOME U.S. 21%22% P. R. CHINA 4%12% MEXICO 2% Source: IMF

Preparietary Information Omega International Group, Inc. 11 Redistribution of Income brings Opportunity  China’s share of World Income is increasing dramatically  Cash available = Opportunity for Global Investments  US share of World Income has slowed down  Welcomes Global Investments and Trade for growth  Mexico’s share of World Income remains flat  Needs Trade and Investments for growth

Preparietary Information Omega International Group, Inc. 12 MEXICO: SHARE OF GDP (Share of Mexico’s Total) Population Northern States17%21%24% Southern States11%5%  On a per-capita basis, the North contributes three times as much to Mexico’s GDP;  Regional GDP is growing more than twice as fast in the North. Source: INEGI; CONAPO

Preparietary Information Omega International Group, Inc. 13 Cross Boarder Trends

Opportunities in NAFTA:

Preparietary Information Omega International Group, Inc. 15 Investment Opportunities/Benefits:  Direct Facilities ownership in US Foreign Trade Zone  Business alliances with US owned companies for import/export under NAFTA  Business partnerships with US owned companies for import/export under NAFTA  Light Manufacturing in US Foreign Trade Zone for import/export under NAFTA  Product distribution from US Foreign Trade Zone under NAFTA  Direct access to the Maquiladora Program  Local and federal tax advantages  Access to technology and markets  Joint development of products and services  Import/Export tax advantages  Import/Export tariff advantages  Teaming with Mexican cross boarder manufacturing Opportunities Benefits

NAFTA Connection: Why Texas? NAFTA Center, Business Environment

Preparietary Information Omega International Group, Inc. 17 TEXAS - NAFTA Center  By 2002, largest exporter among U.S. states  Its exports to Mexico and Canada doubled from 1993 to 2003, from $20 to $43 bn.  Channeled 46% of all U.S. exports to Mexico (2000)

Preparietary Information Omega International Group, Inc. 18 TEXAS - Business Environment: Highly ranked among all US states Texas’ largest export market is NAFTA Second in US for new job growth Sixth in the US “e-Government” index score Competitive Tax Structure Competitive Labor Force Innovative Business Environment Active Foreign Trade Zone

NAFTA Connection: San Antonio is Unique Location, Infrastructure

Preparietary Information Omega International Group, Inc. 20 San Antonio - Location: Gateway to Mexico’s fastest growing regions

Preparietary Information Omega International Group, Inc. 21 San Antonio -Infrastructure: In place and ready to serve growing markets Highway and Rail Air Travel

China vs Mexico in trading with US

Preparietary Information Omega International Group, Inc. 23 Table 1 U.S. imports from leading suppliers, Supplier Change 2000/05 Share in 2005 Billion U.S. dollarsPercent EU Canada China Mexico Japan All other Total1,2051,1331,1551,2501,4601, Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce.

Preparietary Information Omega International Group, Inc. 24 Table 2 U.S. producers’ shipments of manufactured goods, total U.S. imports from China, Category Change 2000/05 (percent) U.S. producers’ shipments of manufactured goods (billion U.S. dollars) 4,20 9 3,970 3,89 2 3,99 9 4,37 4 4, Total imports from China (billions dollars) Ratio of total U.S. imports from China to U.S. producers shipments of manufactured goods (percent) n.a. Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce.

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Preparietary Information Omega International Group, Inc. 26 Table Apparel: U.S. imports from selected trading partners, Country Change, 2000/05 Share of total in 2005 Billion U.S. dollarsPercent China Mexico Canada Japan * All other Total * Less than 0.5 percent. Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce.

Preparietary Information Omega International Group, Inc. 27 Table Computer hardware: U.S. imports from selected trading partners, Country Change, 2000/05 Share of total in 2005 Billion U.S. dollarsPercent China Mexico Japan Canada All other Total Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce.

Preparietary Information Omega International Group, Inc. 28 Table Telephone equipment: U.S. imports from selected trading partners, Country Change, 2000/05 Share of total in 2005 Billion U.S. dollarsPercent China Mexico Canada Japan All other Total Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce.

Preparietary Information Omega International Group, Inc. 29 Table 7 Household appliances: U.S. imports from selected trading partners, Countr y Chang e, 2000/0 5 Share of total in 2005 Billion U.S. dollarsPercent China Mexico Canada Japan All other Total Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce.

Preparietary Information Omega International Group, Inc. 30 Table 8 Consumer electronics (except televisions): U.S. imports from selected trading partners, Countr y Change, 2000/05 Share of total in 2005 Billion U.S. dollarsPercent China Japan Mexico Canada All other Total Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce.

Preparietary Information Omega International Group, Inc. 31 Table 9 Furniture: U.S. imports from selected trading partners, Count ry Chang e, 2000/0 5 Share of total in 2005 Billion U.S. dollarsPercent China Canad a Mexico Japan0.1*** 0* All other Total * Denotes less than $50 million or less than 0.5 percent. Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce.

Preparietary Information Omega International Group, Inc. 32 Table 10 Motor vehicles: U.S. imports from selected trading partners, Country Change, 2000/05 Share of total in 2005 Billion U.S. dollarsPercent Canada Japan Mexico China*****0** All other28.431, Total * Denotes less than $50 million or less than 0.5 percent. Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce.

Preparietary Information Omega International Group, Inc. 33 Table 11 Auto parts: U.S. imports from selected trading partners, Country Change, 2000/05 Share of total in 2005 Billion U.S. dollarsPercent Mexico Canada Japan China All other Total Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce.

Preparietary Information Omega International Group, Inc. 34 Table 12 Television receivers and video monitors: U.S. imports from selected trading partners, Country Change, 2000/05 Share of total in 2005 Billion U.S. dollarsPercent Mexico China ,25022 Japan Canada******** All other Total * Denotes less than $50 million or less than 0.5 percent. Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce.

Preparietary Information Omega International Group, Inc. 35 Table 13 Measuring, testing, and controlling instruments: U.S. imports from selected trading partners, Countr y Chang e, 2000/05 Share of total in 2005 Billion U.S. dollarsPercent Mexico Japan Canada China All other Total Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce.

Preparietary Information Omega International Group, Inc. 36 Table 14 Electric motors, generators, and related equipment: U.S. imports from selected trading partners, Country Change, 2000/05 Share of total in 2005 Billion U.S. dollarsPercent Mexico Japan China Canada All other Total Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce.

Preparietary Information Omega International Group, Inc. 37 Table 15 Medical goods: U.S. imports from selected trading partners, Country Change, 2000/05 Share of total in 2005 Billion U.S. dollarsPercent Mexico Japan China Canada All other Total Source: Compiled by the U.S. International Trade Commission from official statistics of the U.S. Department of Commerce.

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Preparietary Information Omega International Group, Inc. 39 Products for which Mexico is an important supplier to the U.S. market, but China is not: 1.See tables 10, 11, 13, 14, and 15: Motor vehicles Auto parts Measuring, testing, and controlling instruments Electric motors, generators, and related equipment Medical goods 2.For these categories, Mexico supplied 18 percent of U.S. imports in 2005 and China supplied 2 percent. 3.Mexico is most competitive relative to China in products with the following characteristics a.High ratio of weight to value (1) Motor vehicles (2)Large screen televisions (3) Major household appliances b.Quality (rather than price) intensive (1) Medical goods (2) Process control instruments c.Are inputs for industries that require just-in-time delivery, customized production, or require frequent design changes (1)Auto parts d.Protection in intellectual property is important

Preparietary Information Omega International Group, Inc. 40 Products for which China supplied over one half of U.S. imports in Table 16Toys, dolls, games, sporting goods, and bicycles Leather goods, including footwear, luggage, & handbags Lamps and lighting fittings Umbrellas, brooms, & brushes Consumer electronics & portable electric hand tools 2.For these categories, Mexico supplied 6 percent of U.S. imports in 2005 and China supplied 66 percent. 3.These products are: (1) Labor intensive (many require sewing) (2)Have long production runs (3)Require few style changes

Preparietary Information Omega International Group, Inc. 41 Products where competition between Mexico and China is most intense: 1.See tables 4-9, & 12 Computer hardware Product life cycle: Mexico at the start up phase and end (customization) China during mature phase with long production runs ApparelChina—light weight & labor intensive Mexico—heavier items, quick turn around, less sewing Telephone and telegraph equipmentChina—hand sets & cell phones Mexico—switch gear & other equip. for phone companies Consumer electronics (except televisions)—all China FurnitureChina—wood household furniture (lathe work) Mexico—furniture for the Southern California market Household appliancesChina—counter top appliance Mexico—major appliances (washers, dryers, refrigerators) Televisions & computer monitors: Mexico—larger screen televisions China—computer monitors and smaller televisions Motors and generators:Mexico leads China in all categories, especially medium/larger sizes China—competitive only in the smaller-sized motors

Preparietary Information Omega International Group, Inc. 42 Opportunities for cooperation between China and Mexico A. Follow the Japanese and Korean models for investment in manufacturing facilities in Mexico to supply to U.S. market, using North America suppliers for materials and components, as well as suppliers in Asia 1.Household Appliance 2.Fabricated Metals 3.Auto Parts B.Invest in textile knitting and weaving mills to supply fabrics for the North American production of apparel and textile goods rather than shipping final goods from China.

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