TRADE NEWS BULLETIN Volume 2 Number 169 Thursday, September 23, 1993 Headlines: UNCERTAINTY ABOUT NAFTA CAUSES STOCKS TO DROP MEXICO REQUIRED TO MODIFY ITS LEGAL STANDARDS UNDER NAFTA NAFTA IS REQUIREMENT FOR MEXICO TO ENTER OECD ECONOMIC SLOW-DOWN WILL LAST UNTIL 1995 IF NAFTA DELAYED BORDER INCOMES MUST RISE TO PAY FOR INFRASTRUCTURE FARM SUBSIDY PROGRAM IN DANGER U.S. AGRICULTURAL PRODUCERS SHIFT NAFTA STANCE INDIA OUTLINES MARKET-ACCESS CONCESSIONS, TEXTILES TARGETED _____________________________________________________________ NAFTA/ECONOMIC NEWS FROM THE MEXICAN PRESS SEPTEMBER 15-21, 1993 _____________________________________________________________ UNCERTAINTY ABOUT NAFTA CAUSES STOCKS TO DROP Contrary to expectations that the signing of NAFTA parallel accords would lead to a surge in Mexican stocks, the market dropped 27.7 points Tuesday as key members of Congress, including Michigan Democrat David Bonior, spoke out against the trade pact. U.S. House Majority leader Richard Gephardt's (D-Missouri) announcement that he would not support the proposed free trade accord also led to an immediate weakening of the Mexican peso against the U.S. dollar. "There was a lot of activity after Gephardt spoke," said one foreign exchange broker. "The strong demand accelerated the rising tendency of the dollar by increasing fears NAFTA would not be ratified in the U.S." Foreign investors -- especially in North America -- reportedly believe that President Bill Clinton has calculated the political costs of supporting the NAFTA and is therefore not backing it with as much force as in previous months. Sources: El Financiero, September 15, 1993; "Mexican Peso Drops Against Dollar on Gephardt News," REUTER, September 21, 1993. _____________________________________________________________ MEXICO REQUIRED TO MODIFY ITS LEGAL STANDARDS UNDER NAFTA Mexico will have to modify further its legal standards if NAFTA and its parallel accords are approved by the U.S. Congress. Sources at the Ministry of Trade and Industrial Development (Secofi) admitted that the legal changes already enacted by the federal government during the economic liberalization "fell short" of those needed in the negotiation of the NAFTA. To make Mexico's laws consistent with the NAFTA, more than a dozen more laws regarding industrial property, copyrights, legal norms, foreign trade, General Routes of Communication and the Federal Code of Civil Procedures will need to be reformed in the next session. The private sector argues that the changes in the economy and international trade treaties that Mexico will sign during the Uruguay Round of GATT require further modification of legal statutes. Source: El Financiero, September 15, 1993. _____________________________________________________________ NAFTA IS REQUIREMENT FOR MEXICO TO ENTER OECD The NAFTA is the only way in which Mexico can be sure to leave behind its membership in the "third world", according to the European Community's Ambassador to Mexico, Jacques Lecomte. He added that, although it is not in writing, the ratification of the NAFTA is an explicit condition for Mexico to enter the Organization for Economic Cooperation and Development (OECD). According to Lecomte, Mexico must guarantee the continued flow of foreign investment in order to develop, since it will not benefit from development funds within the NAFTA, as Spain did when it entered the EC. Therefore, foreign investment in Mexico takes the place of a development fund, and for this to work, the Mexican government must guarantee a secure environment for foreign investors. Source: El Financiero, September 17, 1993. _____________________________________________________________ ECONOMIC SLOW-DOWN WILL LAST UNTIL 1995 IF NAFTA DELAYED The most recent projections of the Macroeconomic Service Ciemex- Wefa indicate that a delay in the ratification of NAFTA -- which is scheduled to take effect in the beginning of 1994 -- will prolong the economic slow-down until 1995, provoke an inflation rate of two digits next year, reduce the inflow of foreign capital, affect foreign exchange reserves, and widen the margin of exchange rate fluctuation. Specialists of Ciemex-Wefa argue that the delay would reduce the impact of President Carlos Salinas de Gortari's achievements in stabilization and growth, but they also believe that Mexico is less vulnerable as a result of Salinas' economic reforms and can withstand such pressures. Sources: La Jornada, September 20, 1993; El Financiero, September 19, 1993. _____________________________________________________________ BORDER INCOMES MUST RISE TO PAY FOR INFRASTRUCTURE According to a recent study by the Mexico-U.S. Business Council (which includes members such as American Express, Coca Cola and General Motors), developing U.S.-Mexico border infrastructure over the next ten years will cost $6.5 billion. Approximately $4.4 billion would be spent along the Mexican side of the border. The Council estimates that $4.5 billion would come from the two governments and international agencies, while another $2 billion would be financed primarily by the recipients of services -- both businesses and residents in the area; and secondarily by increased municipal funds, which could be collected through greater property taxes. The study, entitled "Analysis of the Environmental Infrastructure Requirements and the Financial Deficit on the Mexico-U.S. Border," carried out by the U.S. Committee of the Business Council, argues that it is unrealistic to think that Mexicans could currently pay the full cost of services, since 60-70% of Mexican families on the border earn about $500 per month, and 25% of them earn $300 or less per month. However, the report argues that the NAFTA will lead to economic growth and an increase in Mexican incomes, enabling them to pay increased service costs in the future. Source: La Jornada, September 20, 1993. _____________________________________________________________ FARM SUBSIDY PROGRAM IN DANGER The $4.5 billion national agricultural subsidy program is in jeopardy because of uncertainty surrounding NAFTA and the Uruguay Round of GATT, according to members of the National Agricultural Council of Secofi. The program, which is expected to be approved in November and go into effect in 1994, could cover approximately 4 million producers in all. In the case that NAFTA is not ratified by the U.S. Congress or if the Uruguay Round isn't completed as scheduled by December 15, the government may announce a partial plan that would include a limited number of commodities. Producers argue that subsidies alone are not enough, and that the program must, at the least, ensure that: - the subsidies make up for the level of support that U.S. and Canadian producers receive; - the support be maintained for at least ten years so that producers can plan for the long term; - if a producer decides to change crops, they won't lose the initially promised support. Source: El Financiero, September 20, 1993. _____________________________________________________________ U.S. AGRICULTURAL PRODUCERS SHIFT NAFTA STANCE Many previously anti-NAFTA or undecided agricultural producers in the U.S. have undergone a radical transformation: they have converted into quiet supporters of the treaty after weighing its potentially beneficial results, due to their comparative advantage over Mexican producers. In Mexico, with a 1,000% increase in the overdue bank loans to agricultural producers during the Salinas administration (which now total more than $1.26 billion), with the resulting inability of small and large producers to obtain new loans, and with market prices below their costs of production, Mexican producers are finding it increasingly difficult to compete with U.S. producers. According to the U.S. Department of Agriculture, between 1988 and 1992, total exports of fresh, dry, prepared, and frozen vegetables and fruits from the U.S. to Mexico grew 699%, while Mexican fruit and vegetable exports to the U.S. hardly changed during the same period. Source: El Financiero, September 20, 1993. _____________________________________________________________ GATT News Summary _____________________________________________________________ INDIA OUTLINES MARKET-ACCESS CONCESSIONS, TEXTILES TARGETED India plans to offer a number of market access concessions during GATT negotiations in Geneva this week. India's proposal includes tariff cuts on most industrial raw materials, intermediates and capital goods to a maximum 40% from the current top rate of 85%, according to the JOURNAL OF COMMERCE. Where the present customs duty is less than 40%, India will reduce it to 25% over six years. India is also expected to push for quicker integration of textile trade into the Uruguay Round of GATT talks. Textile trade currently is governed by a system of quotas under the Multi-Fiber Arrangement. Textiles comprise nearly one-third of India's total exports, most of which are sold to the United States. The U.K. textiles industry joined with federations in France and Germany last week to demand more liberalized textiles markets under GATT. "There are barriers in just about every country in the world," said Colin Purvis, spokesperson for the British Textiles Association. "It is absolutely essential that the negotiations going on should improve access to other countries' market." Julien Charlier, chairperson for France's Union des Industries Textiles (UIC), said 50 percent of Europe's textile firms and jobs could be lost if textile markets are not opened under GATT. Europe's textile industry directly or indirectly employs nearly five million people. "There are serious threats weighing on the future of the European textile industry from European and international meetings over the next few weeks on GATT," the federations of Germany and France said in joint statement. Sources: N. Vasuki Rao, "India Ready to Slash Tariffs to Help GATT Talks Along," JOURNAL OF COMMERCE, September 21, 1993; "U.K. Textile Industry Joins GATT Liberalization Call," REUTER, September 17, 1993; "French, German Textile Bodies Link on GATT Defense," REUTER, September 17, 1993. _____________________________________________________________ Co-produced by Equipo PUEBLO and RMALC. Equipo PUEBLO, Francisco Field Jurado 51, Col. Independencia 03630, Mexico DF, MEXICO Tel: 011-525-556-0642 Fax: 011-525-672-7453 E-mail: pueblo@laneta.igc.apc.org Red Mexicana de Accion Frente al Libre Comercio (RMALC) Address: RMALC, Godard 20, 07790 Mexico DF, MEXICO Tel: 011-525-556-0642 Fax: 011-525-556-9316 E-mail: pueblo@laneta.igc.apc.org (temporarily) Edited and distributed by the Institute for Agriculture and Trade Policy (IATP), 1313 5th Street, SE, #303, Minneapolis, MN, 55414- 1546. Tel: 612-379-5980 Fax: 612-379-5982 E-mail: iatp@igc.apc.org _____________________________________________________________