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Prime Minister Junichiro Koizumi and visiting Mexican President Vicente Fox agreed Tuesday to set up a study group to examine the possibility of a free-trade agreement between the two countries.

Fox proposed that the two countries discuss a free trade agreement, saying that an FTA is important to further promote ties and strengthen the strategic alliance between Japan and Mexico, a Foreign Ministry official said.

In response, Koizumi acknowledged the importance of a comprehensive study of bilateral ties, including the possibility of signing an FTA, and proposed the creation of a study group including government officials, scholars and private sector representatives, the official said.

The timing and other details of such a group, however, have yet to be agreed upon, the official said.

The Japanese business community has been calling for the creation of an FTA with Mexico, which is becoming an important manufacturing base for exports to the United States.

With Mexico already concluding a free trade agreement with the U.S. and the European Union, Japanese industry has been voicing concerns that Japanese companies may be at adisadvantage in competing against rival American and European companies in the Mexican market.

During Tuesday’s meeting, Koizumi raised that concern and asked Fox to ensure that Japanese companies are treated the same as their U.S. and European counterparts.

He also called on Mexico to create a new mechanism similar to the now-defunct “maquiladora” system, under which companies manufacturing in Mexico and exporting the finished goods were given preferential tax treatments on parts used in the manufacturing process.

Fox explained that the Mexican government plans to solve any problems arising from last year’s termination of the maquiladora system through dialogue with respective companies operating in Mexico, the official said.

In the meeting, Koizumi also called for efforts to conclude a “quality” investment treaty that the two countries have been negotiating. At the same time, Koizumi expressed his intention to cooperate in the energy sector, saying that Japan’s private sector is interested in exploiting oil and natural gas deposits in Mexico.

Fox also showed his willingness to expand bilateral cooperation in the energy sector, which presents opportunities for large-scale investment, while also commenting on the importance of financial assistance for such development, the official said.

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