No can do

On August 18, 2010, the Mexican government published an updated list of U.S. products on which import duties will be applied, beginning August 19, 2010.  The duties were originally introduced in March 2009 in retaliation for the U.S. Congress’ termination of a pilot program allowing Mexican freight trucks to cross the border to complete deliveries in the United States.  Cross-border trucking, including the circulation of Mexican trucks in the United States, was intended to be implemented under the North American Free Trade Agreement (NAFTA), but is currently blocked by the United States.

The original list of 89 products affected by the Mexican duties has now been expanded to 99, by the addition of 26 items and removal of 16.  The current list includes key agricultural products in addition to processed foods, household goods and personal care items, among others.  Import duties under the scheme range from 5% to 25%.

Since the original retaliatory tariffs were implemented in 2009, the Obama administration has huffed and puffed unconvincingly about finding a solution to the trucking dispute.  As recently as last month, U.S. Secretary of Transportation Ray LaHood said that the administration was “closer than soon” (sic) to presenting a proposal to resolve the standoff.  So far nothing has been presented, as apparently the Teamsters union is unwilling to grant the President of the United States permission to comply with the negotiated terms of NAFTA.

We imagine the current situation delights Mexican President Felipe Calderón, as it gives him an opportunity to score points on two fronts at once.  On one hand, Mexico is taking advantage of a rare opportunity to use NAFTA to punish the United States, which customarily pulls Mexico around by the hair in trade disputes.  And at home, the new duties on pork and apples throw a bone to domestic producers of these products, who seem to spend far more time sobbing uncontrollably in the media over the influx of U.S. imports than they do producing pork and apples.

Our take: U.S. exporters are being held hostage by the Teamsters union.  Considering the Democrats’ fears of being flayed in the November Congressional elections, it appears highly unlikely that any action will be taken to resolve the issue in the foreseeable future.   Which is ironic, considering President Obama’s fervent entreaties to America to increase exports under his National Export Initiative.

Selected products on the current duty list include:

Source: Diario Oficial de la Federación, Secretaría de Gobernación

NOTE: Product descriptions, HTS numbers and duties are cited here unofficially for general reference only, please consult appropriate government documents for official information.

Despite the sullen economy, the business press continues to report new investment. Here’s a few items from the past couple months:

• Logistics: Costco Mexico, a joint venture between Mexico’s CCM and U.S.-based Costco Wholesale Corporation, inaugurated a major new distribution center in the central state of Hidalgo. The facility, built at a cost of approximately US$98 million, will serve Costco’s 32 Mexican stores.
• Automotive: U.S.-based Cummins, Inc. announced it will boost production at its Cummins Filtration division plant in San Luís Potosí, Mexico. The increase in filter production at the site comes as the result of consolidation of manufacturing operations at Cummins plants in other countries.
• Automotive: General Motors announced plans to increase production at its Mexico plants located in the states of Guanajuato and Coahuila. The hike in output of vehicles such as the Chevrolet Avalanche and Silverado and the GMC Sierra and Cheyanne, among others, is expected to help reactivate the area’s hard-hit autoparts supply chain as well.
• Beverage: The Coca-Cola Company announced grand plans to invest US$5 billion in its various Mexico operations over the coming five years. The announcement came at the inauguration of the US$200 million upgrade of the company’s Jugos Del Valle juice bottling plant in the State of Mexico, on the outskirts of Mexico City.
• Environmental: New legislation took effect in August requiring retailers to substitute biodegradable bags for plastic where plastic bags are provided to customers. Although the law gives businesses up to one year to begin complying, some major retailers have already begun switching to bags made from alternative materials.
• Automotive: General Motors de Mexico inaugurated a new manufacturing plant in the north eastern state of San Luís Potosí. The plant, built at a cost of US$300 million, will produce six-speed transmissions for GM vehicles.
• Logistics: Major Mexican grocery and general merchandise retailer Soriana announced plans to invest approximately US$18 million in upgrades to its distribution centers in the states of Jalisco and Nuevo León. Soriana plans to install advanced automation equipment in the facilities to increase operational efficiency.
• Electronics: U.S.-based electronics manufacturer Jabil announced plans to expand its Guadalajara production plant. The company, which operates plants at three locations in Mexico, will invest US$60 million in the Guadalajara expansion in the face of a projected 30% increase in its exports this year.
• Financial services: Spanish financial services giant Grupo Financiero Santander launched a new customer services call center in the central state of Queretaro at a cost of approximately US$192 million. The company is lauding its new facility as one of the most modern and technologically advanced in the world.
• Food processing: Mexican dairy product maker Chilchota Alimentos will invest US$10 million this year in the construction of a new processing plant in the northern state of Durango. The new facility, to be located in Mexico’s Laguna dairy region, is planned to bottle 100,000 liters of milk daily.
• Water management: Mexico City mayor Marcelo Ebrard revealed publicly that his administration is studying the possibility of privatizing the management of the city’s water supply, currently managed by the municipal government. The plan purportedly considers participation by multiple private companies in the distribution and billing of the city’s water system, which would presumably generate major upgrades in systems and equipment for water management.

View from BDP conference room. Well, in 1986 maybe. It's much more glamorous now.

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