A World Bank publication recently concluded that "for nearly 30 years, Mexico has been considered a leader among developing countries with respect to economic policy". Considering the role of international trade strategy during that time, the World Bank states:
"Mexico was one of the first liberalisers and has been cited as a country that may be a bellwether for international trade policy in developing countries. In the case of [temporary trade barriers], Mexico captured the world's attention early as an aggressive user of anti-dumping measures."
The paper suggests that the decline in anti-dumping measures is primarily due to Mexico's inability to advance legal support for its early anti-dumping efforts. It considers the effect of China joining the World Trade Organisation (WTO) and explains that:
"Mexico's imposition of measures against China predated China's entrance to the WTO and, upon entering, China was able to successfully negotiate the removal of Mexico's extensive anti-dumping coverage."
The paper also indicates that, at least until the date on which research for the paper was finalised, Mexico had not replaced the fall in coverage with an increase in new anti-dumping duties. Accordingly, it seems clear that as far as China is concerned, Mexico's anti-dumping initiations from 2005 to 2010 were relatively modest, despite the pervasive effects of the global financial crisis. Moreover, given Mexico's WTO experience, a probability analysis also suggests a decline in affirmative findings over time.
On October 15 2008 a trade remedy agreement between Mexico and China entered into force (for further details please see "Anti-dumping duty agreement marks new dawn for trade with China"). Under this agreement, anti-dumping duties were eliminated on Chinese goods classified under 953 tariff headings, and transitional duties were established for around 200 tariff categories. The new measures were to be applied as a phase-out in four stages, with final expiry on December 12 2011. The most significant protected sectors included apparel, textiles, footwear and toys.
Following the same free trade course, in late 2008 Mexico witnessed a series of measures towards trade facilitation, including:
- the elimination of anti-dumping duties on China (partly replaced by transitional duties);
- the elimination of the estimated pricing for customs valuation purposes and simplification of origin certification mechanisms on goods that are subject to anti-dumping duties; and
- a unilateral reduction of import duties.
However, as the transitional period with China nears its end, many industrial sectors have demanded that the government take strong action against low-price imports from China which threaten to damage Mexican industries.
Lobbying efforts at all levels of government have received ambivalent responses. For instance, the Senate recently approved a bill to amend the Foreign Trade Law, seeking to make it easier for an investigating authority to act against unfair practices by creating an independent commission that would assume the authority of the existing International Trade Practices Unit within the Ministry of Economy.
Secretary of the Economy Bruno Ferrari has gone as far as to promise the private sector that his office will not hesitate to act against China "if a clear violation of fair trade is demonstrated on the record". Ferrari has stated that the government is prepared to impose transitional safeguards against China within 20 days, pursuant to Paragraph 16 of China's WTO accession protocol, if the elimination of the transitional duties is followed by a surge of imports.
However, recent trade developments have led many industry sectors to question these assurances. Mexico has not been expeditious in investigating trade remedy cases - most are resolved in 18 months, rather than the intended 12-month period. Moreover, Mexico recently dropped the first ever anti-dumping/countervailing duty investigation against China, and in late October 2011 decided not to impose anti-dumping duties on denim imports from China as a result of a non-injury finding, despite an average dumping margin of 125%.
The message seems clear. Despite the lobbying of industries that are alarmed by Mexico's increasing trade imbalance with China and the upcoming elimination of the transitory duties, the government is against protectionist practices in the absence of sufficient evidence of dumping or subsidies, injury and causal link. However, the pressure is mounting by the day. Ferrari has sent a letter to Minister Chen Deming of China's Ministry of Commerce, expressing Mexican concerns over various recurrent practices by Chinese manufacturers and exporters "which distort and injure our internal market". He stated that these activities have prompted legitimate complaints by Mexico's private sector and created a need for the authorities to take measures; among the concerns addressed were undervaluation practices, false origin declaration and misrepresentation in the description of goods to circumvent duties. Mexico also raised such concerns during China's WTO Tenth Transitional Review Mechanism.
Moreover, the Taxation Service Administration has recently implemented a red flag or price alert for customs valuation purposes, similar to the old estimated pricing mechanism, hidden in a function of the electronic system for the customs dispatch of goods. This new mechanism could ultimately be challenged at the WTO as being inconsistent with the WTO Valuation Agreement.
What will happen after the expiry of the transitional duties? It seems likely that there will be a surge in the number of trade remedy investigations against China, particularly in apparel, textiles and footwear. There may even be transitional safeguards actions. However, it remains unclear whether Mexico will go back to its unsuccessful protectionist practices or whether it has renounced protectionism and is the beacon for developing countries that the World Bank has described.
For further information on this topic please contact Adrián Vázquez, Horacio A López-Portillo, Eduardo Zepeda or Veronica Vázquez Bravo at Vázquez Tercero y Asociados by telephone (+52 55 5534 36 36), fax (+52 55 5534 91 95) or email ([email protected], [email protected], [email protected] or [email protected]).