Regulations for CompetitivenessMon, 09/01/2014 - 16:04
Q: What is the Ministry of Economy’s main strategy to support growth within Mexico’s automotive industry?
A: Our current strategy emanates from the National Development Plan, which was announced by President Enrique Peña Nieto last year. One of the main anchors of this strategy, in the automotive sector and other important areas, focuses on the active promotion of competitiveness. In recent years, the Ministry of Economy has played an important role in this topic but this administration is taking a more active role than ever. The Ministry of Economy, the World Economic Forum, and the World Bank have been working on measuring and identifying high impact actions that will strengthen competitiveness in Mexico. This year, two new consulting bodies have also been created to link and coordinate actions between the government and businesses: the Business Advisory Council for Economic Growth and the National Committee for Productivity.
Our priorities are aligned with the development of the Special Program for Democratizing Productivity, which has four central aims: to promote the efficiency of production through actions that stimulate reliability, including increased access to credit and efficient use of the land; to improve the country’s business environment through better conditions for economic competition, legal certainty, investment in strategic sectors, and a simpler tax system; to increase productivity within firms through investment in human capital, innovation processes, and technological development; and to boost the productivity of all regions and sectors though the development of infrastructure and projects which address regional needs.
Q: What measures are being implemented to address barriers for growth in the domestic automotive market?
A: Over the last decade, the automotive industry has moved from vehicle assembly processes at low value added levels to producing more technologically sophisticated models focused on the global market. The top five OEMs in Mexico have eight centers of engineering, development, and design in the country. The competitiveness of the Mexican labor force, competitive production costs, and logistical advantages ensure a strong supply of vehicles not only to international markets but also to the domestic market.
A number of actions are being applied by the federal government to promote the automotive industry, as well as to develop and strengthen the domestic market.
Q: What steps are being taken to address the impact of used cars being imported into Mexico from the US?
A: The used cars that flow from the US into Mexico impact internal prices and safety conditions. This is a crucial economic issue for the Mexican industry, a regulation topic for the government, and one of the principal topics for the Business Advisory Council. A possible solution is to improve regulatory cooperation between the US and Mexico in order to better control financial, safety, and security risks, and to promote commercial and investment flows across the border. With this in mind, the US and Mexico have been working together since 2010 on an initiative known as the High Level Regulatory Cooperation Council (HLRCC).
Q: What can be done to increase FDI flows into Mexico, and what role can the automotive industry play here?
A: During 2013, Mexico received a record of US$35.2 billion in FDI, which was 178% higher than in 2012 of which the Grupo Modelo buyout by Anheuser-Busch InBev accounted for US$13.2 billion. Mexico has been attracting increasing foreign investment interest following President Peña Nieto’s proposed reforms in areas such as telecommunications, energy, banking, and tax legislation. These FDI flows to Mexico are expected to remain buoyant in the coming years as legal overhauls, especially in areas such as energy and telecommunications, start to be implemented. The impact of the automotive industry on the country’s economic growth is clear. The most important automobile producers are China, the US, Japan, Germany, South Korea, India, Brazil, Mexico, Spain, and France. Mexico ranked eighth among the principal global producers for the second consecutive year, above countries such as Spain, France, Russia, the UK, and Belgium. Mexico is now the world’s fourth largest exporter of vehicles, the fifth largest exporter of auto parts, and 89 of the world’s top 100 auto parts firms operate in Mexico. Automotive production accounted for 2.64% of total GDP and 21.6% of manufacturing GDP, and represented 15% of total FDI. Automotive industry exports represent 27% of total national exports, and the automotive industry employs almost 700,000 people. The activities of foreign OEMs in Mexico have stimulated the country’s economy, and it has become one of the most important and productive value chains. The renowned quality of Mexican automotive manufacturing has enabled several assemblers to choose Mexico as the unique manufacturing platform for their markets. Many models sold around the world are produced exclusively in Mexican plants, such as the Ford Fusion, the Lincoln MKZ, and the Volkswagen Beetle. In November 2013, Nissan opened a US$2 billion assembly plant, and other manufacturers, such as Audi, Honda, and Mazda are following suit with billion dollar investments. Finally, Global Insight Forecast expressed that in 2016, Mexico could produce more than 3.7 million vehicles, representing a 28.5% increase from 2012.
Q: What direction should regulation take in order to promote competitiveness?
A: High entry barriers limit competition and foster abuse, usually through high prices and poor quality of goods or services. On the contrary, low barriers usually discipline markets and benefit consumers by forcing companies to innovate, invest, and be more productive. A competition reform goes far beyond the prosecution of monopolistic practices and should refer primarily to the elimination of all those unjustified or unreasonable barriers that could favor dominance or private interests. For example, the constitutional reform in telecommunications and competition is extremely positive in the sense that it allows free participation of foreign investment in telecommunications and satellites, formerly capped at 49%, and up to a 49% participation in broadcasting, which was previously reserved only for Mexicans or companies with a foreigner exclusion clause. The Mexican government has the responsibility to create conditions conducive to productivity. In our case, even the Constitution provides that national development should be guided by competitiveness. Consequently, the legal overhaul of telecommunication and competition will allow us to monitor regulatory barriers that generate excessive transaction costs, discourage formality, impede trade or investment, and inhibit competition.
In May 2010, the presidents of the US and Mexico gave the newly created HLRCC a mandate to increase economic growth for both nations. This means lowering costs for citizens, businesses, producers, governments, and consumers; increasing trade in goods and services across borders; and creating a greater focus on health, safety, and environment concerns through more regulatory transparency and coordination. Mexico and the US rely on regulation to maintain a high level of health, safety, and environmental standards, while acknowledging that regulation can sometimes impose significant burdens and costs. The HLRCC created a working plan to identify areas of mutual interest for cooperation to facilitate intra-North American commerce and to enhance the competitiveness of North American producers in key export markets. This will place a special emphasis on SMEs, while enhancing our collective ability to achieve goals. The work plan identifies areas of mutual interest for cooperation and has outlined sectorial initiatives in seven key areas, including food safety, e-certification for plants and plant products, trucking safety, nanomaterials, e-health, oil and gas, and conformity assessment.
Q: How is the Ministry prepared to deal with pressure on infrastructure that will arise as automotive production levels increase and internal sales grow?
A: In order to promote industrial development in Mexico, the regulation of railway services is going to change. The specific objective is to stimulate competitiveness among concession holders of railway routes in order to reduce transportation fees, improve the trade of goods and services, and promote investment. The National System of Logistics Platforms (SNPL) is comprised of 85 strategic nodes, within which several logistics activities will occur with specific advantages. To achieve this, there will be a comprehensive analysis of the production and consumption of different goods and services. In terms of the automotive industry, the production and distribution input of auto parts and vehicles in the most important clusters in the country has already been taken into consideration. As a result, the SNPL has three main development zones that specifically target logistical infrastructure for automotive industry. Hermosillo, Silao, and El Salto have all shown great potential.
Q: What contribution will the Mexican manufacturing industry make to the country’s economic growth over the coming decade?
A: Mexico’s manufacturing sector is one of the most competitive in the world. According to Deloitte’s Global Manufacturing Competitiveness Index Report, this sector will be among the top 15 worldwide for the next five years at least. Therefore, it is very important that the secondary laws, following the recent approval of reforms in areas such as energy and finance, are promptly implemented to ensure that both the manufacturing and other sectors can begin to profit from the outcomes of the changes in legislation. Mexico aspires to become a source of advanced manufacturing and global services with the highest quality. We aim to transition from the ‘Made in Mexico’ label to a ‘Designed and Engineered in Mexico’ label.