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Contents | Executive summary | How to obtain this publication | Additional info
The following OECD assessment and recommendations summarise chapter 3 of the Economic survey of Mexico published on 4 October 2007.
Click here to read the addendum to the Economic Survey of Mexico 2007.
Contents
Further opening the economy to trade and investment
Over the past twenty years, Mexico’s development strategy has been to open the economy to foreign trade and investment. The process has led to some structural changes in the production sector and a gradual shift in the economy’s trade specialisation towards medium and high technology products. The presence of foreign firms, through spill overs and modern management practices, has brought substantial benefits, mostly in manufacturing, but also in services such as banking. The example of several fast-growing OECD countries shows that Mexico could gain even more by combining competition-enhancing reforms with greater trade integration and FDI inflows. A reduction of remaining barriers to trade and FDI would encourage a more efficient allocation of resources, give access to lower-price, higher-quality, inputs for domestic firms and increase competition in the domestic market, thereby raising productivity and long-term growth.
Lifting tariff and non-tariff barriers
Mexico has reduced its most favoured nation (MFN) tariff barriers over the past years and has concluded twelve regional trade agreements. However, average MFN tariffs remain well above levels prevailing in the OECD and many non OECD middle-income countries. Although many tariff lines were reduced in September 2006, there is scope for further action. Potential gains for Mexico's productive sector would be substantial, since the tariff reduction would create new opportunities for firms to access competitive inputs. By limiting the scope for corruption and fraud at borders, it would reduce private sector transaction costs. It is also important to reduce non tariff barriers, including complex customs procedures and burdensome technical requirements which hamper Mexico’s trade. At the same time, there may be a need to introduce measures to help labour market adjustments. In particular, time-limited, targeted policies may be considered to ensure that the most vulnerable population groups do not bear too high costs. However, the most promising option is to improve the functioning of the labour market more generally (see below).
Total trade barriers (tariff and non tariff) in comparison
1. Most favoured nation (MFN) average tariff (simple average, i.e. not import weighted).
2. Tariff equivalent of non tariff barriers (simple average).
3. OECD does not include Korea, Luxembourg and the Slovak Republic.
4. EU15 minus Luxembourg.
Source: UNCTAD’s TRAINS database; World Bank Data on trade and import barriers; Kee, Nicita Olarrega (2005); and OECD.
Easing FDI restrictions and maximising benefits
Mexico has made significant progress in lifting restrictions to foreign direct investment (FDI), and gross FDI inflows, after peaking in the early 2000s, have stabilised at a solid level – close to 2% of GDP – over the past few years. However, there is scope to further ease restrictions, particularly in some services and infrastructure sectors, including telecommunications, domestic land transport, coastal shipping and airports. Lifting ownership restrictions on foreign investment in these sectors would help to increase FDI inflows and boost productivity by promoting technological spill overs. To maximise benefits from higher FDI, broad policy measures are required to improve the business environment, including for smaller firms, and to upgrade human capital. Such moves would help linkages between foreign firms and suppliers to develop more deeply into the domestic economy, thereby maximising technological spill over effects. Higher foreign investment in services and infrastructure sectors, such as transport, telecommunications and the energy sector, would contribute to improving the quality and price of services used as inputs by Mexico’s business sector, thereby helping their competitiveness and making the country even more attractive to FDI. More generally, further strengthening of the rule of law would create a better environment for domestic and foreign firms alike.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.
Una versión para imprimir de la síntesis en Español, en formato pdf, también puede ser descargada. Esta incluye la “Evaluación y recomendaciones” de la OCDE, pero no incluye todas las figuras que aparecen en las paginas anteriores.
The complete edition of the Economic survey of Mexico 2007 is available from:
- SourceOECD for subscribing institutions and many libraries
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OLISnet, under "Publication Locator", for government officials with accounts ( subscribe)
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Additional information
For further information please contact the Mexico Desk at the OECD Economics Department at eco.survey@oecd.org. The OECD Secretariat's report was prepared by Bénédicte Larre, David Haugh and Bruno Rocha under the supervision of Stefano Scarpetta. Research assistance was provided by Roselyne Jamin.
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