Mexico–Japan Economic Association Agreement
By Samuel Peña Guzman
Next September it will be two years since Mexico signed an Economic Association Agreement with Japan.
This
Agreement undoubtedly set a hallmark in our trade relations with that powerful Asian nation. The trade agreement will open
a new horizon in trade and investment flow between Mexico and Japan. With this agreement, Mexico automatically eliminated
tariffs from 44 percent of products imported from Japan. Also, acknowledging the asymmetry existing between both countries,
Mexican companies will have zero tariffs for 95 percent of goods exported to Japan. In the next few years’ tariffs will
be eliminated from the remaining 5 percent of products considered sensitive for their producers. This 5 percent includes steel,
which will pay tariffs over the next 5 years due to the fact that it competes against domestic steel, mainly that used in
automotive industry.
Japanese investment is growing at a swift pace, in some states it can even be compared to that
coming from the USA. Throughout the years Mexico and Japan have strengthened friendship and cooperation ties, with the Mexico-Japan
Economic Association Agreement making those ties even closer while linking us to the second largest economy in the world.
This will consolidate Mexico's position as the country not only with the largest number of trade agreements in the world,
but also as a country leader in promoting foreign investment and trade. From a different perspective, trade agreements entered
by Mexico provide preferential access to countries that concentrate two thirds of world production.
The challenge now
for Mexico lies precisely in taking advantage of being the second country in entering a trade agreement with Japan, which
means that Mexico will have tariff preferences way ahead of any other competing country. The Agreement represents a significant
opportunity to enter the Japanese market, and at the same time attract larger investment flow that will contribute to increase
production, employment and competitiveness.
Nowadays,
Japan imports more than 60 percent of the food they consume, and also produces large amounts of goods in the food sector for
export, therefore increasing the opportunities for the Mexican food sector. On the other hand, Japan is an important producer
and exporter of high technology goods with a significant value added and high salaries that also require supplies produced
in Mexico.
As Japan is the tenth most populated country in the world, with 127 million people and an annual per capita
GDP of US$34,510, my attention was called to a particular issue I noticed during my recent visit there: the longevity of the
Japanese people. Whereas the average age is 42 in Japan, Mexico is the eleventh most populated country in the world with 104
million people, however the average age is only 23, quite below Japan. As well, in a few years we will also be exporting qualified
labor to Japan.
In spite of cultural differences and differences in average age between the two countries, the effect
regarding other countries could mean an increase in Mexico's incentives because the Agreement will foster a larger investment
by Japanese companies in Mexico to manufacture products either meant for the domestic market, or to be exported to other countries
making use of our large network of trade agreements. Also, more companies, both domestic and of third countries, will be interested
in investing to produce in Mexico and export to Japan, bringing benefits to investors who produce or manufacture in Mexico
based on the preferential access granted by the Trade Agreement.
States like Baja California or Nuevo Leon could be
greatly benefited by this Agreement, because these are the states in northern Mexico with the largest foreign investment from
Japan. Foreign investment estimated flows from Japan in the next 10 years could reach US$12 billion, with an annual average
of US$1.2 billion; which means, translated into job creation, that around 40,000 new direct jobs could be created every year,
not to mention indirect jobs that could easily reach at least an equal amount.
In spite of being the second largest
economy worldwide, Japan is the eighth source of direct foreign investment in the world, contributing an annual average of
US$26 billion according to studies made between 1994 and 2003.
Mexico's northern states will undoubtedly have to increase their promotion for trade and investment
coming from Japan. Holding trade fairs and seminars to identify business opportunities, as well as promoting strategic alliances,
will become an essential task for all Mexican states, which will take advantage of this economic upturn to make better use
of the Trade Agreement.
The lesson to be learned is that we will not be outdone by China, as we were in the United States where, in spite
of being neighbors and in spite of the Trade Agreement that has been in force for over 10 years, China displaced Mexico in
third place as a US economic partner. We cannot afford the luxury to just let the opportunities being offered by the Japanese
economy pass.
Hector Samuel Peña LL.M, MPA, currently works as a Foreign Investment Coordinator for the
State of Nuevo León. Mr. Peña, who has a Master in Laws from American University
and a Master in Public Administration from George Washington University, has advised foreign companies expanding operations
into Mexico. He can be reached via e-mail at samuel.pena@mexicoglobal.com
(Reprinted with authorization from Maquila Portal,
a specialized web site for the maquiladora industry in Mexico. “Mexico–Japan Economic Agreement,” by
Samuel Peña Guzman, Maquila Portal, April 10, 2006. Maquila Portal can be found at www.maquilaportal.com.)
