After a hiatus of about six months, Japan and Mexico will resume tough negotiations next week on concluding a pact aimed at shoring up the flow of investment across the Pacific.
Although some signs of progress have emerged recently in the form of informal contacts, it remains uncertain whether the two countries will be able to conclude an agreement by December, as Mexico desires.
Government sources said Thursday that senior Japanese and Mexican officials will hold a fresh round of negotiations on the investment pact on Sept. 28 and Sept. 29 in Tokyo, and that Mexico has indicated a willingness to grant Japanese companies already in the country the same privileges its U.S., Canadian and European Union rivals enjoy.
Mexico wants to conclude the investment negotiations under the administration of its current president, Ernesto Zedillo. Mexico’s president-elect, Vicente Fox of the National Action Party, will be sworn in on Dec. 1. Fox won the presidential election on July 2, ending the Institutional Revolutionary Party’s uninterrupted 71-year reign over the country.
The Japan-Mexico investment pact could pave the way for a free-trade agreement between the two countries sometime in the future. Although Mexico City has expressed a strong desire to negotiate a free-trade agreement with Japan, Tokyo has taken a cautious position that a bilateral free-trade agreement should be considered only after the investment pact is concluded.
In mid-March, the two countries began formal negotiations on concluding the investment pact, which will be primarily aimed at protecting and facilitating Japanese investments in the Latin American country.
But the first round of negotiations immediately hit a snag over the basic question of whether Mexico should give Japan the same investment privileges it grants its free-trade partners under the principle of most-favored-nation, or MFN, agreement. Mexico’s free-trade partners include the United States, Canada and the 15-nation EU.
The planned abolition next year of the Maquiladora system, under which foreign manufacturing companies with operations in the Maquiladora Zone along the border with the U.S. can import raw materials and parts without tariffs, is expected to further put Japanese investors at a disadvantage.
The North American Free Trade Agreement, reached by Mexico, the U.S. and Canada, went into force in January 1994. Mexico is heavily reliant on its giant northern neighbor, the U.S., for economic growth. In an apparent move to diversify its trade and investment partners, Mexico also concluded a free-trade pact with the EU earlier this year that took effect on July 1.
According to Japanese officials, Tokyo insisted in the first round of talks that the investment pact grant Japanese investors the same protection and liberalization benefits its U.S., Canadian and EU rivals enjoy in Mexico, based on the MFN principle. Mexico adamantly rejected the request.
Mexico claimed that free trade agreements take precedence and that any bilateral investment pacts it has so far concluded with other foreign countries, including Argentina, do not guarantee equal investor treatment under the MFN principle between those countries and Mexico’s free-trade partners.
The government sources said Mexico has indicated its willingness to grant Japanese companies already in the country the same privileges given to their U.S., Canadian and EU rivals based on the MFN principle.
But Mexico remains opposed to Japan’s request that it allow new Japanese investors to enter some sectors that are restricted but open to investors from its free-trade partners, the sources said.
“The distance that divides Japan and Mexico over the MFN issue seems to have been cut in half, but the distance itself is still long,” one government source said.
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