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Chinese Taipei, 2011

BENEFITS OF THE TRADE AGREEMENTS AND TRADE

LIBERALIZATION

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The Trade Agreements offer benefits for the countries that provide both the consumer side and producers, whether large, medium and small businesses.

The most visible benefit is the increase in the international trade with partner countries and regions. The following graph shows the evolution of trade in Mexico to the world and to the main partner regions.

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Exports Imports Total Trade

Mexico World Trade(Millions of Dollars)

Mexico- North America Trade

(Millions of Dollars)

Mexico - European Union Trade

(Millions of Dollars)

Exports Imports Total TradeExports Imports Total Trade

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DYNAMIC OF OPERATION.

Preferential Entry

New market niches

Reduction of non-tariff barriers

Incentive for technological development

Lower prices to consumers

Increases the profitability of exports

Encourages competition

Simple Steps

Certainty to the investor

Attracting FDI

Better Wages

More Business

Access to Markets

Fair conditions of competence

Tariff Elimination

Clear legal framework

Intellectual Property Protection

Investment Opportunities

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Foreign Investment

Million

s o

f d

ollars

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TRADE AGREEMENTS

Mexico has signed trade agreements on 3 continents, and it stands as a gateway to a potential market of over one million consumers and 60 percent of world GDP.

Mexico has a network of 11 free trade agreements covering 43 countries. Also has 6 Economic Complementation Agreements. We have signed Agreements for the Promotion and Reciprocal Protection of Investments (which promote legal protection of capital flows to the productive sector) with 25 countries and signed agreements to avoid Double Taxation with more than 31 countries.

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Mexico's

accession to GATT

NAFTAUS

Canadá

Entry into

force of the

WTO

MERCOSUR ALADI

(Framework Agreement)

FTACosta Rica

G3 Colombia

FTA

FTANicaragu

aFTA

ChileFTAEU

FTAUrugua

y

FTAIsrael

EPA Japan

EFTA FTA Iceland

Liechtenstein Norway Switzerlan

d

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RISKS ASSOCIATED WITH TRADE

LIBERALIZATION FACING SMEs

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WHY DO WE EXPORT IN THE NAFTA REGION?

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EXPORTING IN NORTH AMERICA: FREQUENTLY ASKED QUESTIONS

1. I know that there is demand for my product in other NAFTA countries, but I don´t know where to start looking for customers. Where do I begin?

Each of the NAFTA countries has agencies or offices that help businesses develop new international markets for their products.

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2. How do I find out whether my product is subject to a duty in one of other NAFTA countries?

On January 1, 2008, the last scheduled duties and quotas were eliminated. However, not every good shipped from one country to another is eligible for duty-free treatment under the NAFTA. In order to receive NAFTA treatment, the product must meet the rule of origin. These rules underline the production that must occur in order for a product to be eligible for NAFTA treatment. For example, a product imported into one NAFTA country from outside North America, then shipped onward to another NAFTA country may not qualify for duty-free treatment.

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3. What is a Certificate of Origin?

The NAFTA Certificate of Origin is used by the United States, Canada and Mexico to determine if imported goods are eligible to receive reduced or eliminated duty as specified by the NAFTA. For purposes of obtaining preferential tariff treatment, this document must be completed legibly and in full by the exporter and be in the possession of the importer at the time the declaration is made. This document may also be completed voluntarily by the producer for use by the exporter.

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4. I´d like to export, but I need help with financing. What resources are available?

Each of the NAFTA countries has its own export financing programs. In some cases, you may be eligible to receive working capital, export insurance, or other assistance.

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SMEs CURRENT SITUATION

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Our SMEs were not prepared for the opening of a globalized world:

Organizational and technological problems

Effect of negative externality on manufacturing (among these is the exchange rate with a tendency towards overvaluation and facilities in tax refunds in the import of raw materials for export).

THE LACK OF A STRATEGY

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Asymmetric economic and financial conditions of operation where smaller segments of manufacturing enterprises are not encouraged to join the international competition

The ineffectiveness of the policies and plans for the promotion of SMEs and impulse to an entrepreneurship

Coinvestment of manufacturing industry to the maquila model

Rapid opening to imports of consumer goods, elimination of prior import licenses and the unilateral reduction of tariffs, resulted in the lack of care in keeping the proper tariff consistency.

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SMEs in Mexico constitute a strategic sector for the economic and social development of the country, unfortunately in Mexico, this segment is under a constant cycle of opening and bankruptcy that many times is inevitable, because the current situation surrounding them is characterized by requiring a high level of adaptability to constant changes in their environment, mainly in the macroeconomic field.

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Also they are surrounded by serious problems:

Limited access to financing sources

Higher interest rates in developed countries

Limited participation in foreign trade, as there are not many opportunities for companies to export and be competitive

Lack of linkage with Universities and R&DC

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Inefficient promoting programs

Lack of coordination among national programs

Weak structure in its organization and operation

Globalization, rapid technological changes and obsolescence of technology, machinery and equipment

High costs of raw materials and components, and limited bargaining power

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PROBLEMS IN THE EXPORT SECTOR TO TRADE LIBERALIZATION

Nowadays one of the greatest obstacles to the export process of SMEs stems from the lack of knowledge, by the entrepreneur, in how external markets behave, which is reflected in the following aspects:

The mistakes in the adequacy of the product to the requirements of the external market and competitiveness with major enterprises (via low-cost, payment of wages and regulatory compliance)

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The lack of information about international markets and financial inability to develop promotional strategies in foreign markets (advertising, direct marketing, public relations, sales promotion)

The absence of training in access to appropriate distribution channels and training in international marketing

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All these factors, cause that the useful life of SMEs, become short, bringing as a consequence: unemployment, low sales, depreciation of enterprises, limited market resulting in inability of international insertion, poor economy, low social efficiency, low quality of life, among others.

If this problem is not overcome, it is very unlikely that SMEs take advantage of the great opportunities that the global market offers.

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COMMON CHALLENGES FOR

SMEs

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CHALLENGES OF FOREIGN TRADE More SMEs

More regions DEMOCRATIZATION More sectors

OF THE OPENING

• There are more than 37,000 exporting companies

• 500 firms concentrate 83% of the exports

• 5 of 19 manufacturing sectors concentrate more than 70% of the total exports

• 8 regions concentrate more than ¾ parts of the total exports

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1. Amount of exports

Although SMEs comprise the majority of firms in each of the NAFTA countries, the majority of them do not export. SMEs accounted for approximately 30 percent of U.S. merchandise exports between 1997 and 2007. In 2007, only nine percent of Canadian SMEs exported goods and services but 47 percent of their total revenues came from those exports. In 2008, SMEs in Canada were responsible for 35 percent of total value of exports. Mexico indicated that 99 percent of Mexican companies are classified as SMEs. They are responsible for 72 percent of national employment, but less than six percent of Mexico´s SMEs export.

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Access to information about foreign markets remains a challenge for SMEs.

insufficient access to finance

complex and sometimes nontransparent domestic and foreign regulations

rising and unpredictable transportation costs

the small scale of SME production

tariff and nontariff barriers

time-consuming foreign customs procedures

language and cultural differences, and

lack of knowledge of foreign markets.

2. Access to information about foreign markets

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Access to financing plays an important role for SMEs. Lack of access to

trade financing can reduce trade and worsen economic downturns. The

financial crisis decreased the supply of available trade financing and

increased the perceived risk associated with international transactions.

Although all types of firms were hurt by the downturn, SMEs have been

particularly vulnerable because of their more limited access to funds. Larger

companies obtain much of their financing in equity and bond markets –

sources that smaller firms largely cannot access. Banks are the main source

of external finance for SMEs. During the downturn, bank loans for smaller

companies have been harder to obtain and more costly than loans for larger

firms, despite the greater importance of such financing for small firms.

3. Access to financing

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When North America SMEs do begin to export, they are most likely to

export to a customer in one of the NAFTA countries . A 2005 Industry

Canada report noted that Canadian SMEs largely export to the United

States, regardless of their size, although evidence suggests that small

enterprises may be focusing more on new markets than their medium

and large counterparts. For Canadian SMEs, The United States and

Mexico represented 74 percent and one percent, respectively, of the

total value of SME exports in 2008. For U.S. firms, Canada and Mexico

represented 22 percent of total SME exports between 2002 and 2007.

The situation for Mexico is similar.

4. Exports culture

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STRATEGIES

a) The parties developed “Opportunities for Small-and Medium-Sized

Enterprises in North America”, a brochure that answers basic

questions about exporting in North America and provides links to

helpful government resources.

b) To continue the work on competitiveness, which will drive down

costs for business of all sizes. Governments agreed to

consult with agencies responsible for export promotion and

small business development in order to explore the following

four areas:

• Supporting for small business development centers and creation of regional SME-to-SME initiatives to promote matchmaking opportunities between businesses.

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•Training and export assistance programs for SMEs

•Promoting export opportunities for competitive industries, including increased SMEs engagement as suppliers and therefore indirect exporters along North America supply chains, and

•Enhancing access to export financing for SMEs by sharing best practices.

c) Governments agreed to work with agencies responsible for small business and export promotion in order to address one of the biggest hurdles to exporting:

•changing the mindset from focusing on domestic sales only to exporting.

•Identifying and contacting prospective buyers in other NAFTA countries should be the first step that North American SMEs take to begin to export.

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CONCLUSIONS

(1) Increase efforts to disseminate information about the NAFTA through engagement with SMEs.

(2) Explore regional cooperation mechanisms to formalize cooperation in this matter and provide concrete results for SMEs.

(3) Where appropriate, develop additional “plain language” material for use by SMEs.

(4) Explore use of virtual networks to facilitate contact between SMEs.

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SMALL AND MEDIUM-SIZED ENTERPRISES WILL BE

COMPETITIVE IF THEY SPECIALIZED AND BECOME

CONSCIOUS OF THE NECESITY TO ENGAGE IN

DIFFERENT FIELDS: RESEARCH AND DEVELOPMENT

INNOVATION; USE OF NEW PRODUCTIVE AND

INFORMATION TECHNOLOGIES.

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PARTICIPATION IN GLOBAL PRODUCTION CHAINS

NEXT GENERATION TRADE AND INVESTMENT ISSUES

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PROPOSAL

Mexico proposes to address the issue of enhancing SMEs participation in global production chains through:

Defining core principles that could be included, on a voluntary basis, in the XXI century FTAs.

Developing capacity building activities, such as carrying out a seminar to exchange experiences on public policies and collaboration between trading partners, to incorporate SMEs in global production chains.

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CORE PRINCIPLESAPEC could promote the inclusion of a set of recommendations in free trade agreements, to encourage parties to cooperate in the promotion and development of supporting industries in order to foster trade and investment in the region. These recommendations could include:

To assist private enterprises of either Party to enter supporting industries market of the other Party through direct investment or joint ventures.

To assist private enterprises of supporting industries to establish their business ties with other private enterprises of supporting industries, as well as final goods suppliers.

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CORE PRINCIPLES

To assist actual or potential private enterprises of supporting industries trough financial and technological support;

To exchange experts and information on best practices and methodologies for the development of supporting industries.

To develop human resources on: entrepreneurial incubation, technical skills, and industrial standardization.

To assist interested parties to enhance capabilities to create policies to expand SMEs´ access to ICT.

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EXCHANGE OF EXPERIENCE AND BEST PRACTICES

APEC economies that have developed programs to foster the participation of SMEs as supporting industries to other enterprises which participate trade could share their experiences both positive and negative, so as to allow all APEC economies to learn from such experiences.

The seminar could include items such as: public polices established by governments to develop local providers to international trading companies established within their territory; joint programs agreed between parties of an FTA, both government to government and government to private sector ; sectorial experiences; methodologies to measure the results of those public policies and joint programs ; case studies; among others.

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