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Mexico country brief

Introduction

The partnership between Australia and Mexico is strong and growing. Both countries work closely together in multilateral forums such as APEC, the G20, Climate Change negotiations, the World Trade Organization, the International Whaling Commission and within the United Nations. There is also a comprehensive framework of bilateral agreements which supports increased cooperation, including a bilateral Plan of Action (2011), a Memorandum of Understanding (MOU) on Cooperation in Agriculture (2010), an MOU on Mining (2010), an MOU on Political Consultations (2009), an MOU on Education and Training (2008), and an MOU on Energy (2005). In 2009, Mexico joined the Australian led Global Carbon Capture and Storage Institute (GCCSI) as a founding member.

In order to reinvigorate the trade and investment relationship between Australia and Mexico, a Joint Experts Group (JEG) was formed in 2006 and published a report in 2009 on strengthening bilateral economic relations. The JEG report recommended that Ministers revitalise the Joint Trade and Investment Commission (JTIC) through Ministerial level meetings pending emergence of other opportunities to stimulate economic engagement, such as through negotiation of a trade liberalising agreement. Ministerial level meetings of the JTIC were subsequently held in April 2010 (in Mexico) and February 2012 (in Australia), and in October 2012 Mexico formally joined the Trans Pacific Partnership (TPP) negotiations to which Australia is also a party.

A Double Taxation Agreement entered into force from 1 January 2004, clarifies the taxation rights of the two countries and introduces measures to relieve double taxation and prevent fiscal evasion. The Investment Promotion and Protection Agreement (IPPA) between Australia and Mexico, signed in Mexico City on 23 August 2005, entered into force on 21 July 2007.

In July 2013, Virgin Australia expanded its partnership arrangements with Delta Airlines (US) to add six Mexican cities to its destinations. A bilateral Air Services Agreement was signed in April 2010.

Political overview

Mexico is a congressional democracy with a directly elected President. The President serves a six-year term and cannot be re-elected. The bicameral Congress comprises 128 Senators, each serving a six-year term, and 500 members in the Chamber of Deputies, serving a three-year term. Senators and Deputies cannot stand for re-election.

Mexico's political climate has changed significantly over the past decade or so. In 2000, the political hegemony of the Institutional Revolutionary Party (PRI), which had endured in Mexico for 71 years, was broken by the election of President Vicente Fox of the National Action Party (PAN). Fox, a former Chief Executive of Coca-Cola in Mexico and Governor of Guanajuato, defeated the PRI candidate, Labastida, on a platform of democratic change, an end to corruption and wider community prosperity. During six years in office, Fox's Government pursued macroeconomic goals focused on increasing investment and employment. Sound fiscal management promoted economic growth and moved Mexico out of recession.

The 2006 election of Felipe Calderón of the PAN as President continued Fox's economic liberalisation and stable macroeconomic policies. Calderón, who won the Presidency by the slimmest margin in Mexican history, campaigned on a platform of improving employment rates, strengthening investment, and tackling growing crime rates. He sought to enhance national security through police and judicial reform, and confronted organised crime. In the six years of his presidency there were some successes in addressing security concerns but also a high death toll associated with organised crime (estimated at over 60,000), and violence spread beyond the US-border towns to some of Mexico's biggest cities, such as Monterrey. He presided over continuing economic stability, implementation of universal health coverage and some improvements to education. 

Enrique Peña Nieto of the PRI won the July 2012 elections and was inaugurated as President in December 2012. He identified five key goals for his presidency: improving security and justice; combatting poverty; providing quality education for all; maintaining solid economic growth; and re-positioning Mexico in the world, with a focus on enhancing ties with the Asia-Pacific region. Peña Nieto has set out his agenda for meeting these goals in the cross-party “Pact for Mexico” (Pacto por México) which outlines a very ambitious and wide-ranging program of structural and regulatory reforms (95 in total) in sectors including education, energy, fiscal policy, internal security, telecommunications and politics. By September 2013, congress had passed legislation for major reforms in the education and telecommunications sectors, the former resulting in large-scale protests. Drug-related violence, organised crime and high levels of poverty remain intractable challenges for the Peña Nieto administration.

Economic overview

According to the IMF, Mexico's economy is ranked 14th in the world in 2013 (only Brazil has a larger GDP among Latin American countries). It is currently one of only two Latin American members of the OECD (the other is Chile). Mexico is also one of the WTO members with the greatest number of Free Trade Agreements (it currently has a network of 12 FTAs with 44 countries).

The interconnectedness of the Mexican and US economies is well known, stimulated by the North America Free Trade Agreement (NAFTA) which groups Canada, the US and Mexico. The economic integration is derived from close linkages across four important economic channels: trade, remittances, investment, and financial channels. The trade channel is especially well developed, with 70 per cent of all Mexican exports destined for sale in the US domestic market. Mexico slipped into a steep recession in 2009 as a result of the global economic crisis and an outbreak of swine flu in April of that year. The economy recovered from a 6.0 per cent contraction in 2009, achieving 5.6 per cent growth in 2010. Growth of 1.8 per cent is predicted in 2013.

Mexico can attribute its transformation from a highly protected economy to its more open, regionalised and market-based economy of today to widespread trade liberalisation over the past several decades. This has encouraged foreign firms to set up plants to take advantage of relatively low labour costs and proximity to the US market. Economic activity is increasingly dominated by the private sector, but is characterised by a mixture of modern, export-oriented industry and agriculture, alongside more outmoded sections of the domestic economy.

Much of Mexico's modern economy has been driven by competition and export opportunities stemming from Mexico's extensive network of Free Trade Agreements (FTAs), covering more than 90 per cent of the country's trade. They include FTAs with Chile, the United States and Canada (NAFTA), the European Union; Israel; Colombia; Bolivia; Guatemala, El Salvador and Honduras; Uruguay; the European Free Trade Area (Norway, Iceland, Switzerland and Liechtenstein), Peru and Japan. Mexico is currently negotiating an FTA with Brazil, Korea, and Panama, and is a party to the Trans Pacific Partnership negotiations. Mexico is also a founding member of the outward-looking and Asia-oriented Pacific Alliance, a trade liberalising pact between Chile, Colombia, Mexico and Peru.  Australia became an observer to the Alliance in 2012 and attended the May 2013 Summit in Colombia.

Mexico is one of only five countries in Latin America that currently has 'investment grade' ratings from the major international ratings agencies.

Bilateral relationship

Australia has a strong bilateral relationship with Mexico. In 2012, Prime Minister Gillard, Deputy Prime Minister and Treasurer Swan, Trade Minister Emerson and former Foreign Minister Rudd visited Mexico during its hosting of the G20. In February 2012, former Mexican Minister for the Economy Ferrari visited Australia for Joint Trade and Investment Commission (JTIC) discussions with Trade Minister Emerson. In September 2011 Mr Rudd visited Mexico and signed an Action Plan which provided a framework for strengthening cooperation in key areas of mutual interest. In April 2010 then Trade Minister Crean visited Mexico where he and his Mexican counterpart, then Minister for the Economy Ruiz, convened a meeting of the JTIC. In November 2008, then Minister for Foreign Affairs Smith visited Mexico and signed a MOU on Education to deepen educational ties between the two countries. A visit by President Calderón to Australia for the September 2007 APEC Summit underscored our mutual interest in strengthening bilateral trade, investment, political and people-to-people links.

The latest Australian Census (in 2011) revealed that there were around 3,255 Mexican-born persons resident in Australia at that time. Also in 2011, around 11,000 Australians travelled to Mexico whilst over 6,000 Mexican nationals visited Australia.

Mr Tim George is Australia's Ambassador to Mexico, having taken up his appointment in December 2012.

Bilateral economic and trade Relationship

For detailed information on Australia and Mexico's bilateral economic and trade relationship, see our Mexico Fact Sheet [PDF 111 KB]

Australian Trade and Investment Interest

Mexico was Australia's largest merchandise trading partner in Latin America in 2012 with two-way trade worth $2.9 billion. Australia's merchandise exports to Mexico are valued at over $880 million, dominated by coal. Other exports include: aluminium, medicaments, copper ores and concentrates and a growing range of services. The trade in Australian education and training services has been especially strong and student numbers continue to grow. Mexico is Australia's fifth largest education and training market in Latin America. In 2012, nearly 1,600 Mexican students were enrolled in Australian educational institutions, most pursuing higher education. Australian food and wine brands are increasingly on sale in Mexico. The stock of Australian investment in Mexico increased by 46 per cent between 2008 and 2011 to over A$3 billion.

Imports of merchandise goods from Mexico have increased significantly over the last decade and were valued at $1.9 billion in 2012. The major imports from Mexico were lead ores and concentrates, telecom equipment and parts, fertilisers and passenger motor vehicles. Mexican investment in Australia has largely been concentrated in private real estate and manufacturing, although one of Mexico's largest food companies, tortilla manufacturer, Gruma, has its factory Mission Foods located in Victoria. In December 2009 Mexican manufacturing company Metalsa, a subsidiary of Grupo Proeza, acquired two manufacturing plants in Melbourne previously owned by Dana Holding Corporation. Metalsa manufactures structural components for the light and commercial vehicle markets.

Mexico is one of the world's most important developing countries and a key economy in Latin America. Its size and geographical proximity to the world's largest economy and NAFTA partner, the United States, and very good links to markets in Central and South America, make it an attractive trading partner for Australia. Given complementary economic and trade profiles, there are strong prospects for expanding Australia-Mexico trade and investment, particularly under an eventual TPP.

The energy sector is becoming an increasingly important element of the trade relationship, with the sale of Australian coal to Mexico creating new opportunities for Australian business. Expansion of energy and mining-related services also offers strong potential for future growth. The relationship has grown as Australian companies in a range of industries (mining services and technology, agribusiness, food and beverages, IT, software, biotechnology, automotive parts and education and professional services) enjoy success in Mexico. There is potential for new areas such as water management equipment and services, clean technology and environmental services including clean energy.

Coal is Australia's largest single export to Mexico, with a total value of A$518 million in 2012. Coal trade with Mexico was enhanced by the Mexican Government's decision in 2002 to remove a 3 per cent tariff from most primary and intermediate goods (including coal) imported from all non-NAFTA sources, which had previously favoured US and Canadian coal exporters.

Mexico attracts significant foreign direct investment due to NAFTA membership and its generally liberal investment laws. The investment environment has improved markedly over the last several decades as a result of domestic reform and the introduction of more simplified procedures, higher ceilings on foreign equity and greater intellectual property protections. Australian direct investment in Mexico is modest but growing, and concentrated in mining, consolidated services (linked to finance and leasing arrangements) followed by manufacturing. Australian companies with interests in Mexico include Macquarie Capital, Incitec Pivot, Nufarm, Elders, Azure Minerals, Global Resources Corporation (Cloncurry Metals), Worley Parsons, Chep, Spotless Group, QBE Insurance, UGL Equis, TNA Packaging, Securency, CSL, Orica, Boart Longyear, Boral, Howe Leather and Lend Lease.

Export opportunities

The Australian Government is working actively to promote and facilitate bilateral trade. The Australian Embassy and Austrade work closely with Australian companies in a range of sectors to help enhance new market opportunities in Mexico. Promotional events are conducted regularly to boost sales of Australian food and wine, education, tourism and mining technology and services. In most sectors, Australian exporters face competition from other sources that benefit from significantly lower tariffs, due to Mexico's existing free trade agreements. However, Mexican companies are continually looking at diversifying their trade relationship and doing business with Australia is now a viable option for many. In addition, the Australian Government devotes considerable effort to improving the regulatory environment for Australian exporters and investors and in assisting Australian exporters to resolve market access issues as they arise.

Energy

Australian capability is well placed to benefit from Mexico's fast rising energy requirements. There are growing opportunities in renewable energy. Australia has also emerged as a major and continuing supplier of thermal coal to Mexico. Proposed reforms to the energy sector in Mexico could potentially open up new opportunities in oil and gas in the longer term.

Food and Agriculture

Opportunity exists for Australian investment in Mexico's food processing sector and for wider engagement on agriculture. There is considerable potential to increase export volumes out of Australia and to boost Australian investment in Mexico's food processing industry. Australian wine is also well positioned to increase sales among Mexico's growing middle class and the number of Australian wine brands available in Mexico continues to rise. Australian exports of live animals and meat have declined in recent years due to such factors as limited supply from Australia (due to drought conditions), competition from countries with FTAs with Mexico, and the high value of the Australian dollar. Australia agricultural technologies and services have potential in the Mexican market.

Water

Mexico faces complex water management challenges, including droughts, floods, and issues with sanitation and insufficient or outdated infrastructure. The Mexican Government is expected to carry out a number of key water infrastructure improvement projects in the coming years. Such projects will offer opportunities to foreign companies able to supply relevant technologies. In addition to Government and utility companies, the agriculture and mining sectors in Mexico are potential customers for Australian water management technologies and services.

Infrastructure

Construction and engineering account for some 4 per cent of Mexican GDP. New investment in highways, utilities and resorts make Mexico a very attractive potential market for the Australian building, construction and engineering industries. Australian companies are already enjoying success in supplying high-end building products, water treatment technology and a range of services.  Macquarie Capital and Lend Lease are two high profile Australian companies active in the market.

Mining

Mexico is the world's largest producer of silver and bismuth. It is the world's fifth largest lead, sixth largest zinc and tenth largest copper producer. Mexico has a long history of mining and has an attractive regulatory regime and business environment for foreign investment and participation in the sector. They have been joined by a number of Australian technology and services exporters. Two of the major Mexican players (Grupo Mexico and Luismin) have mining investments in Australia.  The Australian Embassy in Mexico has worked closely with the Mexican Government and private sector to promote greater trade and investment in the sector.

Mexico has large tracts of highly prospective but under-explored land, which offer good opportunities for Australian exploration and mining equipment and technology services companies. There have been a number of significant discoveries in recent years including gold, silver and uranium. Australian Mining Equipment, Technology and Services (METS) companies are under-represented in the Mexican market, and Austrade works with individual companies and maintains a presence at important sectoral events, such as the International Mining Expo in Acapulco, to promote Australian expertise to potential Mexican customers.

Education and Training

There are excellent prospects for expanding Australia's education and training relationship with Mexico. Mexico is now Australia's fifth largest education and training market in Latin America, after Brazil, Colombia, Peru and Chile. Increased demand for training to improve productivity and skills is also expected to provide new opportunities for Australia's Vocational and Training Education sector (VTE). Australian education services are well regarded in Mexico and the Department of Foreign Affairs and Trade, and Austrade continues to promote Australia as a quality provider of education services.

Other Services

Market opportunities exist for Australian businesses providing services linked to productivity/ efficiency gains across the major industry sectors (energy, mining, construction, agriculture and food processing). The growth of Mexico's middle-class also presents the chance for expansion in tourism, financial, professional services and franchising. Australia now has some eight active franchises in the Mexican market.

For further information or assistance developing business opportunities in Mexico, please contact Austrade on 13 28 78 (anywhere within Australia), visit www.austrade.gov.au or e-mail info@austrade.gov.au.

Updated November 2013