JETRO Report Examines Effects of Japan-Mexico EPA One Year After its Entry into Force.
Between April and December 2005, Mexico's imports from Japan jumped 22.3% over the same period last year, reaching US $10.4 billion. Japan's imports from Mexico during this period also saw strong growth, increasing by 19.2% to US $1.9 billion. Overall trade between the two countries grew by 21.9% in the April to December period, more than surpassing the last decade's average annual growth rate of 7.9%.
Mexico's imports from Japan grew most notably in the auto sector, specifically in small cars and trucks, surging 42.0% (over the same period last year) to US $996 million (total amount for passenger cars, trucks and buses). The major driving force behind this huge increase was the introduction of new tariff-free quotas on finished cars from Japan brought by the Japan-Mexico EPA, which also paved the way for three Japanese automakers to begin selling their products in the Mexico market. Previously, zero tariff quotas only applied to foreign automakers with production bases in Mexico (including four Japanese firms); others faced tariffs of 50% on car imports, effectively pricing Japanese (and some other foreign) automakers
out of the market.
Mexico's imports from Japan also increased in product categories that saw tariffs abolished after the EPA came into force, including motorbikes (over 250cc), uninterruptible power supply systems and railway rails.
Japan's imports from Mexico in the April-December 2005 period increased in agricultural products for which the EPA abolished or reduced tariffs (within tariff quotas). Imports of orange juice grew by 46.3% over the same period last year, reaching US $2.5 million, and imports of Mexican bananas increased by 7.3% to US $2.82 million. Imports of Mexican beef saw a three-fold rise to US $38 million (this large increase, however, was mainly due to Mexico becoming an alternative source for beef imports after Japan banned beef from the US, traditionally its largest beef supplier, after BSE (mad cow disease) was found in US cattle in December 2003.)
Japanese investment in Mexico in 2005 soared three-fold (year-on-year), reaching US $629 million (balance of payments, provisional), the second highest figure on record, according to Japanese Ministry of Finance statistics. Most Japanese automakers already in Mexico when the EPA took effect announced plans to boost their Mexico operations, prompting Japanese parts suppliers to set-up or expand their production in the country as well.
And increased institutional stability brought by the EPA made the country more attractive among Japanese manufacturers seeking a base to target other markets in the North American Free Trade Agreement (NAFTA).
The Japan-Mexico EPA has benefited Japanese firms in other ways. More firms can now compete in bids for Mexican government procurement contracts (related to power plants, hospitals and the like). And under the EPA, tariffs on items imported from Japan for use in such projects will be gradually reduced or abolished. These benefits brought by the EPA greatly increase the chances for Japanese firms to win government bids.
Furthermore, Mexico is fulfilling its commitments (made under the EPA) to upgrade its business environment by, for example, improving the safety at Mexico City airport, increasing protection of intellectual property of Japanese firms and improving immigration (and emigration) procedures at US-Mexico border crossings near where Japanese exporting manufacturers are concentrated.
In JETRO's latest survey of Japanese-affiliated firms operating in Latin America (conducted between January and February 2006), JETRO asked firms operating in Mexico if the Japan-Mexico EPA benefited their business. Of the 60 respondents (a 24.2% response rate), nearly two-thirds (63.3%)-mainly trading firms and automaker-found the EPA beneficial, with most citing "abolishment of tariffs" (66.7%), followed by "simplified customs clearance procedures" (17.1%) and "improvement in business environment" (10.5%).
The Japan External Trade Organization, or JETRO, is a government-related organization that works to promote mutual trade and investment between Japan and the rest of the world. Originally established in 1958 to promote Japanese exports abroad, JETRO's core focus in the 21st century has shifted toward promoting foreign direct investment into Japan and helping small to medium size Japanese firms maximize their global export potential.
Japan External Trade Organization (JETRO) Public Relations Division E-mail: email@example.com
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