Japan and Mexico Building Stronger Economic Bridge

Residents of this huge city are holding their breath--almost literally--awaiting the outcome of Mexican President Carlos Salinas de Gortari’s three-day visit to Japan, which began Sunday. During the visit, Salinas is expected to sign a final agreement under which Japan’s Export-Import Bank will lend Mexico $1 billion to finance the purchase of anti-pollution equipment. The funds will be used, in part, for refining equipment that will reduce the sulfur content of gasoline and other fuels. Automobiles account for three-fourths of the air pollution in this city of about 18 million people.

The loan symbolizes the growing cooperation between Mexico and Japan, a relationship that trade experts and diplomats say will only be enhanced by a U.S.-Mexico trade agreement. Presidents Bush and Salinas agreed June 10 to begin preliminary work on a broad free-trade agreement between their two countries.

Japan-Mexico economic relations, already on the move, have picked up steam since Prime Minister Toshiki Kaifu’s visit to Mexico last year. Investments now being considered would double the $1.4 billion Japan has already invested in Mexico.

Japanese auto maker Nissan has begun work on a five-year, $1-billion expansion of its Queretaro plant. Industrial giant Mitsui is considering an agreement with Petroleos Mexicanos--Mexico’s state-owned oil monopoly--to build a $345-million petrochemical plant. And Japan’s Aoki hotel firm is completing plans for a hotel in Cancun and is considering sites in Puerto Vallarta and La Paz. That does not count the dozen expansion projects under way at the 50 Japanese-owned maquiladoras, factories concentrated near the U.S.-Mexico border that assemble foreign-made components for export to the U.S. market.

More investments and agreements will probably be announced during Salinas’ visit, predicted Carlos Lalanne, spokesman for the Mexico office of JETRO, the Japanese External Trade Organization.

Besides returning Kaifu’s visit, Salinas will meet with members of Keidanren, the leading Japanese association of private businesses. He has said the main purpose of his trip is to attract more Japanese capital to Mexico.

Mexico has already surpassed Brazil to become the major Latin American recipient of Japanese investment. Japan ranks fourth among foreign investors in Mexico, after the United States, Britain and West Germany. Still, Japanese investment represents just 5% of foreign capital in Mexico, compared to the United States’ two-thirds.

Japanese interest in Mexico was spurred first by oil--which still accounts for a major part of Mexico’s $1.7 billion in exports to Japan--and more recently by privatization of Mexican government- owned enterprises.

The government’s decision last year to end its monopoly on 42 petrochemical products has industrial conglomerates Mitsubishi and Sumitomo considering investments in that industry. And, according to Lalanne, Nippon Electric Co. may be interested in participating in the investor group that buys Telefonos de Mexico, the telephone company.

Anticipation of a U.S.-Mexico free-trade agreement could provide an additional incentive for Japanese and other Asian corporations to increase the pace of investment here, said Ryukichi Imai, Japan’s ambassador to Mexico.

“The majority of Japanese investors in Mexico are targeting the U.S. market,” Hajime Hatano, the Japanese Ministry of International Trade and Industry’s director for Latin America and Oceana, told the Mexican magazine Proceso.

A free-trade agreement would assure access to the U.S. market for goods produced by Japanese corporations investing in Mexico, thus making such investments more attractive. An agreement--combined with the geographical fact of Mexico’s long border with the United States--would make Mexico a magnet for Japanese investors, Hatano said.

Mexico realizes, as a Mexican Senate commission found not long ago, that its proximity to the United States is its major strategic advantage as a Pacific Rim trading nation. That awareness demonstrates a major change from Mexico’s hope during the 1980s that it could use Japan as a bargaining chip in negotiations with the United States.

The Japanese have indicated that they will not go for that, so Mexico’s goal now is to play a key role in a trade triangle in which its partners are the major economic powers of the Pacific Rim.