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NAFTA:
Bilateral Agenda 2000.
Proceedings from a May conference
examining sector-by-sector successes,
strategies and challenges under the
trade agreement. (November 2000) |
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Bilateral Agenda 2000
Successes, Strategies & Challenges in
the U.S.-Mexico Market
May 10-12, 2000
Washington D.C.
Wednesday, May 10
6:00 p.m. - 8:00 p.m.
U.S. Capitol / Mansfield Room
CONGRESSIONAL RECEPTION & NAFTA
CONGRESSIONAL LEADERSHIP AWARDS
(Open to Binational Board of Directors &
Sponsors Only)
Thursday, May
11
8:00 a.m. - 11:00 a.m.
Ronald Reagan Building & International
Trade Center / Horizon Ballroom
BOARD OF DIRECTORS MEETING
(Open to Binational Board of Directors &
Sponsors Only)
12:00 p.m.
-1:30 p.m.
Ronald Reagan Building & International
Trade Center / Atrium Hall
CONFERENCE OPENING & LUNCH
Kenneth "Buddy" MacKay, Special Envoy
for the Americas (U.S.)
Jesus Reyes Heroles, Mexican Ambassador
to the U.S. (Mexico)
T.J. Glauthier, Deputy Secretary of
Energy (U.S.)
2:00 p.m. -
3:00 p.m.
Ronald Reagan Building & International
Trade Center / Horizon Ballroom
DEBATE: "North American Free Trade,
Labor and Jobs"
Jerry Jasinowski, President and CEO,
National Association of Manufacturers
George Becker, International President,
United Steelworkers of America
3:30 p.m. -
5:30 p.m.
Ronald Reagan Building & International
Trade Center / Atrium Hall / Suite 208
ROUNDTABLE: STRATEGIES, SUCCESSES &
CHALLENGES
(to review the proceedings of each task
force, please click the links below)
-
Agribusiness and
Environment
-
Energy and Mining
-
Telecommunications and Information
Technology
-
Transportation & Infrastructure
7:00 p.m. -
9:00 p.m.
Residence of His Excellency Jesús Reyes
Heroles,
Ambassador of Mexico to the United
States
RECEPTION FOR SPONSORS AND BOARD OF
DIRECTORS ONLY
Friday,
May 12
8:00 a.m. - 9:30 a.m.
Ronald Reagan Building & International
Trade Center / Atrium Hall
BREAKFAST: "Globalization and
Environmental Protection in Mexico"
-Her Excellency Julia Carabias,
Secretary of the Environment, Natural
Resources & Fisheries (Mexico)
10:00 a.m. -
12:00 p.m.
Ronald Reagan Building & International
Trade Center / Atrium Hall / Suite 208
ROUNDTABLE: STRATEGIES, SUCCESSES &
CHALLENGES
(to review the proceedings of each task
force, please click the links below)
-
Education
-
Finance & Investment
-
Health
-
Maquiladora Manufacturing - Automotive
/ Electronics / Textiles & Apparel
12:30 p.m. -
2:00 p.m.
Ronald Reagan Building & International
Trade Center / Atrium Hall
CLOSING LUNCH " The United States and
Mexico Look to the Horizon"
- The Honorable Edwin Truman, Assistant
Secretary of the Treasury (U.S.)
- His Excellency José Angel Gurria,
Secretary of the Treasury and Public
Credit (Mexico)
7:00 p.m. -
12:00 p.m.
Organization of American States
GOOD NEIGHBOR AWARDS GALA [Black tie]
-Honorary Dinner Chairman: R.K. Davidson,
Chairman of the Board & CEO, Union
Pacific Corporation
-T he Honorable William Daley, Secretary
of Commerce (U.S.)
- Her Excellency Julia Carabias,
Secretary of the Environment, Natural
Resources & Fisheries (Mexico)
- His Excellency José Angel Gurria,
Secretary of the Treasury and Public
Credit (Mexico)
- Philip Anschutz, Chairman of the Board,
Qwest Communications (Denver, Colo.,
USA)
- Carlos Slim Helu (Mexico, D.F., MEXICO)
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Agribusiness
Sponsors: The U.S.-Mexico Chamber
of Commerce and its Environmental Task
Force wish to thank Concurrent
Technologies Corporation and TUV de
Mexico for sponsoring this conference at
the Industry Sponsor Level.
Moderator: Charles Cervantes,
Legal Advisor and Staff Coordinator,
Environmental Task Force, U.S. Mexico
Chamber of Commerce
Rapporteur: Richard Rortwedt,
Inter-American Development Bank
Speakers:
Food Safety
Christine F. Chaisson, Ph.D.,
Professional Advisor for Science,
Strategies and Analysis Systems
Importance of Source Protection of Water
for Public Health
Thomas Curtis, Director of Government
Affairs, American Waterworks
Binational Corporations- Successful
Strategies for Doing Work in Both
Countries
Eugenia Sangines, President, Dames &
Moore de Mexico
Taking Clean Production Initiative to
other Countries in the Hemisphere
John Mizroch, Concurrent Technologies
Corporation
Mexico's Free Trade Agreement with the
European Union - Will it Bring ISO into
the US?
José Galvan Garza, Director, TUV de
Mexico
Establishing a Mexican Corporation: Key
Mexican Personnel and Multilateral
Funding
Garry Struthers, GSA, Inc, Seattle,
Washington
US Funded Projects in Mexico - The
Laguna Flamingos Wetlands Project
Eric Gustafson, President, Monterrey
Chapter, U.S. Mexico Chamber
Bilateral Cooperation: Border
Environment Cooperation Commission
Ricardo Castañon, Border Environment
Cooperation Commission (BECC)
Access Mexico and the Seven Principles
of Environmental Stewardship for the
21st Century
Valerie Gray, National Environmental
Policy Director, U.S. Mexico Chamber.
Exporting Brownfield Processes,
Economics and Technology to Canada and
Mexico under NAFTA
Robert Colangelo, Executive Director,
National Brownfields Association;
Publisher, Brownfield
Food Safety
Christine Chaisson, Professional Advisor
for Science, Strategies and Analysis
Systems contended that food safety
issues are sometimes more than just
regulatory issues -- they are sometimes
used as convenient barriers to trade.
The "art" of food safety lies in
interpreting "how safe is safe".
Frequently, the smallest, most
vulnerable producers face the greatest
problems meeting food safety
requirements. It will be mandatory to
obtain current information on the
requirements of the new U.S. Food
Quality Protection Act, which, among
other things, requires re-evaluation of
all registered pesticides. Packaging
materials are also an important food
safety issue.
Importance of Source Protection of
Water for Public Health
Thomas Curtis, Director of Government
Affairs, American Waterworks Association,
represents the interests of 4200
drinking water utilities. The most
pressing infrastructure need of U.S.
water suppliers is to reinvest in buried
water delivery systems (which are 50-100
years old in the East). Thus far, EPA
has been driving investment in water
treatment at the expense of delivery
pipes. Currently, about $23 billion is
invested annually in U.S. water
treatment plants but much less is
invested in the delivery systems. $1
trillion will be needed to replace all
existing U.S. water and sewer pipes,
which could be financed by raising local
water rates and attracting private
capital through tax-exempt industrial
development bonds.
Binational Corporations - Successful
Strategies for Doing Work in Both
Countries
Eugenia Sangines, President, Dames &
Moore de México explained how her
environmental engineering firm got
started in Mexico by opening an office
there in response to multinational
companies' needs. Her firm's objectives
are to provide quality-consulting
services, integrate environmental and
engineering services and make long-term
commitments to clients and staff.
Working in Mexico is politically and
technically challenging. There are no "black
boxes" to assure success there, but some
key principles to keep in mind include:
- combine U.S. technical knowledge with
practical skills of working in Mexico;
- keep operation simple and cost-effective;
- be part of the clients' team;
- maintain confidentiality "to a fault";
- hire staff as part of permanent team,
not just by project;
- pay taxes and comply with labor laws.
Taking Clean Production Initiative to
Other Countries in the Hemisphere
John Mizroch of Concurrent Technologies
Corporation discussed advantages Mexico
enjoys in developing and servicing clean
production initiatives throughout the
hemisphere. This USAID promoted
initiative examines not only end-of-pipeline
waste discharge but scrutinizes the
entire production process. Even small
investments in waste minimization
typically bring large returns including
reduced production costs, improved
environmental and working conditions,
greater production efficiency and better
quality products, energy and downstream
cost savings. Mexico has very
sophisticated clean production training
programs (e.g., Monterrey Tech.) and
projects (e.g., an electroplating plant
in Mexico City where the investment paid
for itself in 5 months). Due to its
experience, strategic location, trade
pacts and common language, Mexico is
better positioned for trade growth in
Latin America in clean production goods
and services than is the United States.
Other hemispheric clean production
centers include Brazil, Bolivia, and
Colombia.
Mexico's Free Trade Agreement with
the European Union - Will it Bring ISO
into the US?
José Galvan Garza, representing TUV de
México (a German firm operating in
Mexico), spoke about how his firm
introduced the use of Environmental
Management Systems (EMS) concepts by
Mexican firms and encourages them to
require EMS use by all of their
suppliers and sub-contractors.
Specifically, TUV promotes use of ISO
14000 by industry as a preventative
environmental tool which: a) defines a
common vocabulary regarding quality
standards (e.g., safety and environment,
functionality, reasonable cost,
availability, maintainability and
compatibility); b) develops new
performance and evaluation procedures
and indicators; and c) embodies life
cycle thinking. Through NAFTA, Mexico's
ISO 14000 experiences could help
maintain and improve quality of life for
U.S. and Canadian citizens as well.
Establishing a Mexican Corporation:
Key Mexican Personnel and Multilateral
Funding
Gary Struthers, GSA, Inc. of Seattle
related how his firm established a small
Mexican corporation as an affiliate to
provide integrated, cross-disciplinary
services in construction, engineering,
and environmental services. GSA
established its Mexican affiliate in
1998 due to Mexico's growing domestic
market and its increasing
industrialization, which translate into
growing need for technical services
there. The firm is making "long-haul"
investments in Mexico including
designing a modern landfill, treating
wastewater from food processing,
stabilizing the slope of a nearly full
landfill and developing a resort. The
firm began business in Mexico by
conducting a market survey which helped
them determine their work locations (not
along the border) and helped them build
relationships with people through sister
city relationships.
U.S. Funded Projects in Mexico: The
Laguna Flamingos Wetland Project
Eric Gustafson, President, Monterrey
Chapter, USMCOC, spoke about the
wetlands restoration project at La
Laguna Flamingos near the Gulf of Mexico
and the White Wing Dove conservation
project in Tamaulipas. La Laguna
Flamingos area had been deforested for
cattle production and its lakes dried up
due to upstream dams. The White Wing
Dove area had also been deforested for
sorghum production and hunting had
become uncontrolled. U.S. hunters,
fishermen and conservation NGOs formed
legal entities in Mexico to receive
donated funds for restoring both areas
as healthy wildlife habitats and
managing them as sustainable hunting and
fishing areas. Among improvements to
date at Laguna Flamingos are canals to
restore water to the lakes, cattle
fencing and improved roads and bridges
to facilitate more environmentally sound
movement of cattle and vehicles. The
White Wing Dove project involves legal
and biological research to protect dove
nesting habitat and training and
equipping game wardens. Based upon
initial experiences with these projects,
future plans include re-establishing
more complete ecosystems, assuring
permanent water supplies, producing fish
and shrimp (aquaculture), generating
employment, reforestation, conserving
other species, and achieving financial
and biological self-sustainability.
Bilateral Cooperation: Border
Environment Cooperation Commission
Ricardo Castañon of the Border
Environment Cooperation Commission (BECC)
explained that BECC was created in 1993
under the NAFTA environmental side
agreement. BECC provides technical
assistance and certification of
environmental infrastructure projects
among all U.S.-Mexico border states.
Priorities are: 1) water and sewer; 2)
wastewater treatment; and 3) municipal
solid waste. Eligibility for BEEC
technical assistance and certification
include a project's merits based upon
environmental, health, technical,
financial feasibility, public
participation and sustainability
criteria. Technical assistance (TA)
covers initial planning to final design
and has been funded, thus far, through a
$20 million EPA grant; future TA must be
self-financed. Since 1993, 38
infrastructure projects have been
certified (22 U.S, 16 Mexico), of which
5 projects have been completed. Current
environmental infrastructure needs along
the border total $1.6 billion in the U.S
and $1.5 billion in Mexico.
Access Mexico and the Seven
Principles of Environmental Stewardship
for the 21st Century
Valerie Gray, National Environmental
Policy Advisor, USMCOC, briefed the
group on the status of Access Mexico, a
soon-to-be-on-line, searchable database
of Mexico's environmental laws. The U.S.
Department of Commerce provided a grant
to USMCOC to develop this database with
the collaboration of SEMARNAP, Mexico's
Environment Secretariat. Orion
International is providing technical
support and UTEP is responsible for data
entry. Focus groups, comprised of
principal categories of users, were
organized and a demonstration prototype
database was developed. The database
contains Federal, State and Municipal
level legislation and regulations; it
also contains case studies. An
environmental law-coding tool is being
developed to enable users to search by
industry, economic activity and subject
(air, land and water).
The Seven Principles of Environmental
Stewardship for the 21st Century are
principles that private entities on both
sides of the border voluntarily agree to
adopt in partnership with public and
private organizations. The principles
are flexible tools for guiding voluntary
actions not required by environmental
regulations. The principles are: 1) Top
Management Commitment; 2) Compliance
Assurance and Pollution Prevention; 3)
Enabling Systems; 4) Measurement and
Continuous Improvement; 5) Public
Communications; 6) Industry Leadership;
and 7) Community Environmental
Stewardship.
Panelists and roundtable attendees
expressed unanimous endorsement "in
sprit" of the seven principles.
Exporting Brownfield Processes,
Economics and Technology to Canada and
Mexico Under NAFTA
Robert Colangelo, Executive Director,
National Brownfields Association (NBA)
and Publisher of Brownfield, explained
that Brownfields are environmentally
damaged, then abandoned properties. He
estimates there are between
125,000-600,000 such distressed sites in
the United States alone, valued at up to
$2 trillion. There are currently no
regulations specifically governing sales
of Brownfields; sales are based solely
upon supply and demand for real estate.
Opportunities for economic development
involving Brownfields was first
nationally publicized at the 1993
meeting of the Council of Mayors;
Chicago was one of the first locations
in the United States to actively develop
Brownfields. The NBA provides objective
information about Brownfields to policy
makers and provides transaction support
to property owners/sellers and to
property purchasers. Since 1995, risk-based
standards for Brownfields development
have been developed, although each site
is unique based upon its specific
contaminants and uses. Some States (e.g.,
IL, MI, PA) now issue "comfort letters"
signing off on site clean-up plans,
which has lead to banks' willingness to
make loans for Brownfields transactions.
There is now more capital available for
Brownfields development than there are
feasible deals; returns on investment
typically range from 30-40%. Some Mayors
are now creating proactive incentives to
develop Brownfields in their cities.
Brownfields development in Mexico is in
its infancy, but opportunities abound.
[ Back to top ] |
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Energy & Mining
Moderator:
Larry Mellinger, Partner, Integra
Partners
Rapporteur: John M. Harrington,
Senior Economist, U.S. Mexico Chamber of
Commerce, Washington, D.C.
Speakers:
Review of Mexican Energy Policy under
President Zedillo
Fernando Alonzo, Minister for Energy
Affairs, Embassy of Mexico
Overview of the Energy Sector in Mexico
Including Cross Border Electricity
Ronald R. Cavilia, Consultant, Arizona
Public Service; Public Service Company
of New Mexico
Natural Gas Distribution in Mexico:
Obstacles and Opportunities
Kirk Sherr, President, TXU de Mexico
Overview of the Mining Industry in
Mexico
Ken Hubbard, Partner, Dorsey and Whitney
Over-view of One Company's Safety
Policies in Mining and How that Applies
to Mexico
Dennis Stover, Ph.D., Vice President,
Rio Algom Mining Company
Opening and Introductions
Larry Mellinger opened the discussion
with introductions and his observation
that energy development in Mexico, and
the evolution of the continued opening
of various aspects of energy development
to the private sector, are critical to
Mexico's continued economic development
and economic modernization.
Review of Mexican Energy Policy under
President Zedillo
Fernando Alonso, Minister for Energy
Affairs, Embassy of Mexico in
Washington, D.C. outlined the legal and
regulatory changes that have taken place
under President Zedillo. In 1995,
certain aspects of natural gas
production and distribution were
privatized. This law permitted private
investment in downstream natural gas
distribution, transportation of natural
gas, and natural gas storage. Currently
there is a bill before the Congress
proposing reform in electricity. Use of
natural gas is growing at 10 percent per
year, about one half from the generation
of electricity.
Recent statistics show that electricity
production and demand increased by 8
percent in the first quarter of 2000. As
of now, only electricity generation is
open to private companies. However,
private companies can import or export
electricity. One objective of the
Zedillo Administration is to promote
increased interconnection between U.S.
and Mexico. Currently, five new
interconnections are now under
consideration for approval.
Overview of the Energy Sector in
Mexico Including Cross Border
Electricity
Ronald R. Cavilia, Consultant to both
the Arizona Public Service and the
Public Service Company of New Mexico,
Tucson, Arizona informed the audience
that Arizona Public Service (APS) is
headquartered in Phoenix, New Mexico
while the Public Service Company is
headquartered in Albuquerque, and he
himself is from Tucson. His family
settled in Tuscon, Arizona in 1742 and
has been there ever since.
While the population of Mexico is
growing at only 1.8% per year, the
northern border region is growing much
faster with in-migration from other
parts of Mexico. The maquiladora sector
employs over one million people with
three thousand companies. Electricity
demand is growing by 8 percent per year,
with the highest demand in the northern
area of country.
Natural gas demand is projected to grow
by nine percent per year over the next
ten years. This demand is driven by
clean air standards, sustained
industrial growth, the operation of new
local distribution carriers, and the
accelerating electricity demand. In
1998, only 18 percent of electricity
generation was from the use of natural
gas. This is projected to increase to 58
percent by 2008. The goal is to create a
competitive natural gas environment,
making a level playing field for the
various energy companies.
Currently the private sector generates
only a bit more than 3 percent of
electricity generation in Mexico. The
Comisión Federal de Electricidad (CFE)
generates and distributes 90 percent
while Luz y Fuerza del Centro (LFC), the
electric company of Mexico City
generates about 2.3 percent and
distributes almost 10 percent of
Mexico's electricity. Current law
permits the private sector to generate
electricity as Independent Power
Producers (IPPs) with long run contracts
from CFE or LFC to purchase the
electricity produced. The private sector
can also generate electricity for co-generation
and for self-supply.
One of the big issues facing the
electricity sector in Mexico is the
decision between building more
interconnections between the United
States and Mexico versus developing new
electricity generation capabilities
within Mexico. Currently there are ten
interconnections between the United
States and Mexico. For example, APS has
a low voltage power line crossing the
border into Mexico. CFE is looking at
all options, particularly for the short
term of the next 3-5 years. CFE needs a
50% expansion of its current network
that will involve some $15 billion of
investment in new energy production and
distribution.
Natural Gas Distribution in Mexico:
Obstacles and Opportunities
Kirk Sherr, President, TXU de Mexico
opened his remarks by noting that prior
to joining TXU he had a career as a U.S.
Foreign Service Officer followed by
several years with Enron Corp. Prior to
joining the U.S. Foreign Service he had
practiced law in Colorado. TXU is one of
largest investor owned utilities in the
U.S. with $40 billion of assets,
.
From an investor viewpoint one can write
off the electric sector in Mexico, as
only 3.3 percent is open to private
investment. While AES and Enron have
been aggressive in their investment, the
impact to date has been small. However
there is great potential.
In the natural gas sector, there has
been some opening in the transportation,
storage, marketing, and distribution. In
the transportation of natural gas there
has been lots of smoke but little fire.
Successful projects have involved
supplying new thermal plants, shorter
runs to connect to PEMEX, and very
limited development of open access. The
reason is that there are a number of
barriers. First, there is the problem of
the right of way. There is difficulty
getting land title due to the Ejido law
as well as difficulty with eminent
domain. Second, there is the problem of
connection to PEMEX in dealing with a
national system. And third, there is a
chicken and egg issue: there will be no
market for natural gas until a pipeline
is built, but no pipeline will be built
unless there is a market.
There are a number of barriers to the
private sector being involved in natural
gas storage. The biggest now is that
PEMEX is the only client and the only
source of natural gas. LNG is not viable
due to costs, and pumping the gas
underground into salt domes raises the
issue of hydrocarbon ownership.
In marketing natural gas, the government
recently issued a directive on first
hand sales but a company still needs to
negotiate the terms and conditions with
PEMEX. Even after these are negotiated,
competition issues remain the domain of
CFC and physical delivery is not
possible. Mexico has set up a famous "Chinese
wall" of PEMEX between marketing and
transportation to avoid cross subsidies.
Nevertheless, a number of players are
active in the market mainly offering
financial products and serving an
important education function.
There have been great strides made in
opening up downstream distribution,
i.e., the retailing of natural gas.
Twenty of twenty-one permits have been
issued. The last is Guadalajara to be
finished in June. Tijuana was the only
unsuccessful bidding process. This
auctioning of permits has worked well
with over $1 billion paid by the bidders.
However, three players, which include
TXU, dominate the market with over 80
percent of the committed connections.
Five other players (Sempra, Tractebel
and three Mexican firms) share the
remaining 20 percent. There will be
further aggregation to over 50 percent
in the hands of one player if TXU sells
to Las Gas Natural of Spain. Retailers,
such as TXU, service PEMEX clients and
receive a distribution fee. However,
collection of payment from the PEMEX
monopoly can be difficult. CRE is
working well as a regulatory body.
What are the issues confronting natural
gas distribution and retailing? First,
one needs to distinguish between working
in northern Mexico, which is used to
dealing with gas and Mexico City where
there is no gas culture. Second, the
small consumption and low tariffs are
due to the bid situation. Third,
construction contractors lack experience
dealing with natural gas and there is a
lack of suitable materials. Fourth,
there is a temperate climate and
generally low income for the consumers.
Finally, there is a problem of security
in Mexico City. There is job site theft
including the theft of backhoes.
In conclusion, there have been
tremendous advances in downstream
natural gas over the last years. The CRE
is doing good job. However, there needs
to be more inroads in upstream gas
activities. There will be a doubling in
demand for natural gas over next 8 yrs,
from about 4 BCF/day today to between
8-9 BCF/day by 2008 with much of this
increase, about 3.3 BCF/day coming from
electricity generation and industrial
use.
Discussion of Energy:
Fernando Alonzo noted the progress
mentioned by Kirk Sherr. He said the
government needs to work to make PEMEX
more efficient. We need to work on the
culture in PEMEX. He added that he hopes
that the next congress will pass
electricity reform. Both candidates
support electricity reform.
Ron Caviglia added that Arizona, New
Mexico, and California are having
trouble with deregulation, similar to
the problems facing Mexico. Compared
with Brazil, Mexico is stymied by a lack
of laws. If gas and oil legal changes
are not made, then investment will be
slow.
Hank Santiago of the U.S. Department of
Energy noted that Co-Generation (Cogen)
could be an opportunity in Mexico but it
faces legal limitations. He asked Mr.
Fernando Alonso if there were any plan
to reduce the limit. Mr. Alonso noted
that now a company can add only an extra
20 MW to the grid system. Cemex has
started a Cogen project. We want legal
changes so they can do more, to be able
to add 1000MW to the grid system. Kirk
Sherr noted that if Cogen grows, these
companies putting power into the system
will have to have back up. They will
have to be able to buy power from the
system as needed
Ken Hubbard asked if there were a
solution to the Ejido problem? He noted
that mining has the same problem. Kirk
Sherr replied that permits do not help
with getting right of way. In the
largest pipeline to Merida III, most of
land was government owned.
Sam Beaty, of the USDOC asked Kirk Sherr
to explain the subsidy problem. Kirk
Sherr said that the cost of capital from
the EU is often subsidized due to EU
companies being state owned. In
addition, PEMEX may be able to cross
subsidize in transportation.
Hank Santiago observed that the CRE
originally agreed to help with obtaining
a right of way. Kirk Sherr noted that
TXU did not take political risk. Sixteen
different delegations come to Mexico
City to seek licensing. CRE has
responsibility to help with implementing
permits. However, the CRE needs to be
much more active in political process in
getting rights of way.
Hank Santiago asked will states and
local governments get authority from the
federal government? Fernando Alonzo
replied that the CRE does battle local
entities. But the PRD runs the federal
district.
Kirk Sheer noted that investors are
always looking for more. But the CRE and
Ministry of Energy are moving in the
right direction. He noted a recent
project funded at $100 million, $40
million from the IFC and $60 million
from private sources. Larry Mellinger
noted that large-scale investment needs
either good cash flow or offsets.
Overview of the Mining Industry in
Mexico
Ken Hubbard, a partner at Dorsey and
Whitney opened his remarks by noting
that he is a Colorado native. He has had
a practice in oil and gas and mining. He
has been active in the U.S. Mexico
Chamber of Commerce's mining task force.
This task force has over 100 binational
members. There are five binational
cochairs.
The SECOFI 1998 report shows a $3
billion per year level of mining from
1994 to 1998. Legal reform in the mining
area has been significant. Foreign
companies can own 100% of a Mexican
mining company. However, it is a good
idea for a foreign company to find a
joint venture partner. Mapping shows
great potential in Mexico. Job creation
in mining rose by 5.8% in 1998, with
$1.5 billion in new capacity investment
in 1998. This is in the face of a
decrease in world investment due to
depressed prices.
But Mexico has silver and other metals
and ranks in the top 10 in many
commodities. This makes Mexico a good
place to invest. There are examples of
small U.S. mining companies in Mexico
with $100 million invested with their
Mexican partners.
Over-view of One Company's Safety
Policies in Mining and How that Applies
to Mexico
Dennis Stover, Vice President, Rio Algom
Mining Company opened his remarks by
noting that the Rio Algom Mining Company
is active in all the Americas. Its
biggest investments are in Canada, Peru,
and Mexico. He noted that his background
is in Chemical engineering (fuel cells,
coal gasification).
Dr. Stover made a pitch for nuclear
generation of electricity. He noted that
17% of world electricity is made from
nuclear with the U.S. generating 20% of
its electricity from nuclear and France
generating 80% of its electricity from
nuclear.
In Mexico, ore body with uranium must be
below water table. One can then use
water to wash out the uranium and then
recover the uranium by treating water.
This is called in-situ leaching. In-situ
leaching avoids the environmentally
harmful process of digging up many tons
or ore and extracting the uranium above
the earth. Each reactor uses 400-500lbs
of uranium per year so that each plant
uses several thousand lbs of uranium per
year.
Mining Discussion
Larry Mellinger asked what were the
obstacles in mining? Ken Hubbard replied
the Ejido system is a problem. But he is
not an expert. One solution proposed
would be to pay a royalty to Ejido
members. There is a need a long run
permanent solution.
Dr. Stover noted that in-situ leaching
might be used in copper also.
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Telecommunications
& Information Technology
Sponsors: The U.S.-Mexico Chamber
of Commerce and its Telecommunications
and Information Technology Task Forces
wish to thank Orion Corporation for
sponsoring this conference at the
Industry Sponsor Level. In addition,
thanks goes to AT&T for providing
financial support to the
Telecommunications Task Force.
Moderator: Miguel Rios, President
and CEO, Orion International
Technologies, and Co-Chair of the U.S.
Mexico Chamber of Commerce Information
Technology Task Force
Rapporteur: Gil Cisneros,
Executive Director, Rocky Mountain
Chapter, USMCOC
Speakers:
Challenges and Opportunities of
Telecommunications in Mexico
Cresencio Arcos, Regional Vice President,
AT&T
Looking South for Growth
Diane Sanchez, President for Mexico,
Central America, and the Caribbean,
Global Crossing
Business-to-Business E-Commerce
Opportunities
Virgil Horton, Chairman and CEO,
Cornerstone Communication Group
B-B Internet platform - focused on the
Print Industry
Mark Willand, Vice President for
International Trade, Noosh, Inc.
Overview and Introductions
Dr. Miguel Rios introduced the speakers
and provided a brief overview of the
issues to be raised by the panel
Challenges and Opportunities of
Telecommunications in Mexico
Mr. Cresencio Arcos, Regional Vice
President, AT&T opened with a brief
background on telecommunications
regulations in Mexico and Latin America.
He noted that recently the World Trade
Organization (WTO) filed a complaint
against Mexico for not opening up its
telecommunications industry for
competition. He gave an example of the
growth of the telecommunications
industry: if you purchased Cisco stock a
couple of years ago - at $18, it would
be worth $14,000 today.
Mr. Arcos noted that telecommunications
has become the major enabler. Even
though there have been problems, there
has been much improvement over last ten
years. The growth of fiber optic cable
has ignited communications. Even with
many discrepancies between nations,
there has been an increase in
competition with a decrease in prices.
Public policy has been a problem in
Latin America. Certain poor countries
have made their publicly owned telephone
companies "cash cows", providing major
sources of government funding. On the
other hand, private monopolies are not
good for business in Latin America
either. The jury is still out on
Brazil's telecommunications regulatory
environment. Chile's environment is very
stable.
Unless there is the incentive from
competition, prices do not go down. Many
governments want to keep their "cash-cows".
However, the rapid change in technology
threatens the current systems.
Who pays the price for inefficient
telecommunications? The public!
Looking specifically at Mexico, its
overall competition policy is very good.
The one major exception is
telecommunications. Change requires more
independence from the political process.
Telmex is the most important company in
Mexico; indeed it is the largest company
in Latin America. People are afraid to
take on Telmex. There are many
regulatory breakdowns in Mexico. Telmex
is the gatekeeper in Mexico - they
control the interconnections.
We need to improve regulatory policy in
Mexico. With improvement, Mexico could
draw more investment in
telecommunications. There are many
windows of opportunity for investment in
Mexico but telecom is the prime problem.
A summit between Presidents Zedillo and
Clinton on telecom would solve many of
the problems. The key issue is that of
the inter-connection rate. We need to
get Telmex to change and reduce the cost
of connection to its local system and
bring down the cost of making
international phone calls.
The Internet is the world of the future
and E-commerce growth in Latin America
key to this region's success. As of now,
Brazil has 88% of all new growth. Most
of this growth is business-to-business
communication between companies and
their suppliers. People have confidence
in Brazil - Brazil is a good credit risk
and delivers what is promised.
Mexico has many restrictions on UPS.
Mexican Postal System does not want
competition. People need to take steps
to reduce monopolies
Looking South for Growth
Diane Sanchez, President for Mexico,
Central America and Caribbean, Global
Crossing, recently retired from ATT with
23 years experience at Lucent. She
helped start Alestra in Mexico.
She opened her presentation with an
overview of Global Crossing and the
observation that telecommunications
operators are walking away from Mexico
due to a major problem with the
regulatory arena there. She noted that
growth opportunities in
telecommunications could be found going
south. The world is looking at Latin
America.
Global Crossing has grown to a $45
billion company in 3 years. They serve
the largest metropolitan areas and focus
on Commercial Centers. They own their
own network, the largest Internet
Protocol (IP) network in the world. The
key to their success is allowing
customers to lease from one company.
Access to capital will force changes in
the telecommunications industry. For
rapid change and growth, more investment
is required from North to South. The
Internet is moving fast in Latin America.
Even though Global Crossing is
experiencing problems with its
concession in Mexico, it continues to
look south. Global Crossing's network in
Mexico connects the "golden triangle" in
Mexico: Federal District, Guadalajara,
and Monterrey
Global Crossing wants to connect the
world. Mexico itself is looking south.
Global Crossing has invested $2 billion
in Mexico. However, it is difficult
dealing with Latin American
bureaucracies; the old guard is still
there, keeping track of you. Even with
that, the market keeps growing.
Telecommunications traffic has been
growing 85% per year. Indeed, one of the
major challenges is rapid growth. The
region is growing much faster than other
regions. This rapid growth makes it
easier for new entrants and small
players to get into the market.
Countries in Latin America need to
encourage investment in
telecommunications.
Global Crossing recently acquired
Frontier. This acquisition has extended
Global Crossing's reach globally. The
key need is to identify trends. As a
protection for future change, Global
Crossing permits all web portals that
require little ongoing efforts. Global
Crossing has ten centers established in
the United States.
Ms. Sanchez noted the need to support
companies going into Mexico. These
companies need to see return on
investment.
Global Crossing business philosophy is:
Build it and they will come. They have
leapt into business opportunities in
Mexico aggressively. Competitor costs
are low in Mexico, which creates a
significant business opportunity.
Interactive TV is the key in Mexico.
However, Global Crossing is getting
nailed on rates. It is critical to work
on a solution to the Telmex charges for
the last mile of the communications. The
last mile is the heart and soul of
telecommunications. The last mile is the
tollbooth! Ms. Sanchez ended with the
admonition to watch cell phone explosion
in Mexico. Many companies, including
Global Crossing are beginning to work
with wireless.
Business-to-Business E-Commerce
Opportunities
Virgil Horton, Jr., President,
Cornerstone Communications Group (CCG)
opened with an overview of his group. He
referred to recent WSJ article on
Mexico. He noted the goal of Cornerstone
Communications Group is to help U.S. and
Mexico business cooperate.
Cornerstone Communications Group
recently created alliance with Noosh.
B-B Internet platform - focused on
the Print Industry
Mark Willand, Vice President for
International Trade, Noosh noted that
Noosh was founded in 1998 and is a
supplier to G.E. Noosh recently acquired
$100 million in capital.
Noosh has set up a vertical
Business-to-Business (B-to-B) Internet
platform - focused on the print
industry. They have acquired the Bank of
America as a new client. Mr. Willand
provided a good overview on global print
opportunities; G.E. wants its suppliers
to work through Noosh. This would allow
buyer and suppliers to work together.
This saves time and reduces cost.
Mr. Willand opined that he didn't
believe that Mexico was a good target at
this time due to lack of regulatory
accountability. He felt the need to wait
to enter Mexico market although they
will begin to expand globally.
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Transportation &
Infrastructure
Sponsors: The U.S.-Mexico Chamber
of Commerce and its Transportation Task
Force wish to thank Boeing Corporation
for sponsoring this conference at the
Industry Sponsor Level. In addition,
thanks goes to the following companies
which provided financial support to this
Task Force: Association of American
Railroads, Continental Airlines,
Landstar Ranger, Parque Industrial
Yucatan, and Roadway.
Moderator: Jim J. Marquez, Senior
Counsel, Holland & Knight LLP and Co-Chair,
Transportation Task Force, Washington,
D.C.
Rapporteur: Joe Chapa, Executive
Director, Monterrey Chapter, USMCOC
Speakers:
Transportation Opportunities and Issues
Between the United States and Mexico
Dr. Steven Van Beek, Associate Deputy
Secretary and Director, Office of
Intermodalism, Department of
Transportation, Washington, D.C.)
Improvements in the Transportation of
Goods Between the U.S. and Mexico
Sandra Scott, International Trade and
Customs Advocate, Roadway Express, Akron,
Ohio
How to Stop the Smuggling of Contraband
Via Commercial Trade
Mr. Blas Urquidez, Director of Corporate
Security, Transportación Marítima
Mexicana
The Future of Port Development in the
U.S. and its Impact on Trade with Mexico
Gary LaGrange, Executive Director,
Mississippi State Port Authority,
Gulfport, MI
NAFTA's Next Superhighway: The Gulf of
Mexico
Susanna Werner, Director, State of
Yucatan, Mexico Trade & Investment
Bureau
Introduction and Overview
Jim Marquez, Senior Counsel, Holland
& Knight LLP and Co-Chair,
Transportation Task Force provided a
welcome and introduction of the
participants. He noted that the
Roundtable was well attended by
transportation industry representatives
as well as government officials from
both sides of the border. He pointed out
that the Roundtable format allowed the
presenters and persons in attendance to
enter into very informative discussions
about the issues raised and matters
presented. It was the consensus of those
in attendance that the format was most
productive because it allowed for an
exchange of ideas and views.
Transportation Opportunities and
Issues Between the United States and
Mexico
Dr. Stephen Van Beek, Associate Deputy
Secretary and Director, Office of
Intermodalism, Department of
Transportation, summarized vital
statistics concerning the outstanding
growth in trade between Mexico and the
United States since the passage of
NAFTA. Dr. Van Beek imparted information
such as:
(1) The importance of investment along
the border. He announced the
availability of $123 million for
infrastructure development grants along
the border.
(2) The Department's role in encouraging
innovative financing techniques for the
improvement of transportation, i.e.
dedicated railroads, for the expansion
of NAFTA trade.
(3) The need for upgrading the computer
system used by U.S. Customs and its
importance to the flow of trade. He said
the Administration is concerned about
the need for such improvements and is
working with all parties affected to
succeed in the effort.
(4) The work of both governments towards
more uniform planning for sustainable
development of the border. The border
should be a good place to live as well
as to work and that the Federal
government was working with the local
governments to lift some of the burdens
which have fallen upon local governments
due to the tremendous growth in border
trade.
(5) The fact both governments realize
the importance of a multimodal approach
to transportation planning at the border
so that goods can cross the border in
the most efficient manner and the
Administration was committed to such an
endeavor.
He reiterated that the U.S. Department
of Transportation is open to all
suggestions to improve the flow of trade
and that the role transportation plays a
part in NAFTA is critical.
Improvements in the Transportation of
Goods Between the U.S. and Mexico
How to Stop the Smuggling of Contraband
Via Commercial Trade
Mr. Urquidez, as director of Corporate
Security for Transportación Marítima
Mexicana, focused his presentation on
the threat of smuggling faced by the
private and public sector as the growth
of trade has increased. Mr. Urquidez
stated that the biggest smuggling
threats are (1) illegal immigration; (2)
Drugs/Narcotics; (3) Weapons; (4)
Vehicles; and (5) Money laundering.
(1) Illegal Immigration has tremendous
economic, political and social
implications for both countries and is a
problem which will continue to grow
unless both countries find solutions to
eliminate the causes of illegal
immigration which are largely economic.
(2) The growth of Drugs and Narcotics
trafficking is undermining governmental,
military and police institutions in
Mexico and there have been incidents of
the same type corruption in the United
States. The governments must take more
affirmative action to eliminate the
corruption of law enforcement to
compliment private sector efforts to
eliminate the use of their
transportation systems as conduits for
drugs and narcotics.
(3) The illegal smuggling of weapons
poses a significant threat to the
stability of trade. Armed guerilla
groups such as those in Chiapas and
Guerrero create significant security
problems for the transportation of goods
between the two countries.
(4) There is a significant problem in
the area of vehicle smuggling to avoid
taxes and insurance requirements. It is
not surprising that transportation
systems are the conduit for this illegal
smuggling and businesses must be alert
to the illicit trade.
(5) NAFTA has created new opportunities
for those that want to launder money.
New businesses are particularly prone to
fall victim to these operators since
they can be dazzled by what appears to
be easy money.
Mr. Urquidez views the major
contributing factors to the current
environment which give rise to smuggling
are:
(1) The Mexican economy which is
recovering from the 1994 devaluation of
the Peso, financial institution failures
and the need for public rescue of
financial institutions and the
disproportionate distribution of wealth.
To a major extent, the poor economy and
low wages sets the stage for criminal
activities and common corruption.
(2) International drug cartels and the
demand for illegal drugs in the United
States has led to increased crime in
both countries and increased social
instability.
(3) The corruption culture in Mexico is
endemic. It is opportunistic in nature
and is traditionally accepted as
"leveling the playing field" by those
who see it as opportunity improve their
economic status due to low wages. In
order for this to change, the government
must increase its efforts to reduce
corruption by making wholesale changes
in police elements, customs officials
and by educating the public on the
negative impacts of corruption on the
economy. Improving the standard of
living for Mexicans especially those
involved in law enforcement and
regulating agencies, is a necessary
pre-condition to eliminating corruption.
Mr. Urquidez believes that both the
private sector and governments are
taking steps to stop smuggling and
corruption. Some of these steps are:
(1) Improved port inspection procedures
and security measures.
(2) Use of state of the art
non-intrusive technologies such as AS&E
Backscatter X-Rays systems, SAIC Gamma
Ray systems and ION scanners.
(3) Greater Mexican government police
and military operations using country
wide road blocks, stricter port
inspections and stricter railway
inspections to keep smugglers off
balance.
(4) Greater Mexican government
legislative initiatives such as Customs
cargo inspection requirements, PGR cargo
inspection requirements, military
anti-drug inspections, and a unified
cargo inspection system.
(5) A U.S. Customs focus on carrier
initiative agreements for more
comprehensive detection of smuggling in
air, rail, sea and truck transportation.
(6) A greater effort to establish
business anti-smuggling coalitions
sponsored by U.S. Customs and a greater
effort by transportation industry groups
to foil contraband.
(7) More cooperation among international
anti smuggling organizations such the
Maritime Security Council (MSC), the
National Cargo Security Council (NCSC)
and the Baltic and International
Maritime Council (BIMCO).
In summary, Mr. Urquidez opined that
businesses, whether U.S. or Mexican,
must be forewarned that security issues
are realities which must be dealt with
directly, otherwise the investment
opportunities created by NAFTA will be
lost for failure to account for those
illegal activities which can undermine
the most noble of ventures.
The Future of Port Development in the
U.S. and its Impact on Trade with Mexico
Mr. Gary LaGrange, Executive Director,
Mississippi State Port Authority,
Gulfport, MI had provided similar
prepared remarks as President, Gulf
Ports Association of the Americas-U.S.
Delegation. Mr. LaGrange made the
following observations:
(1) Because of trends towards increasing
containerization and larger volume
handlers (megaships), future shipping
trends equate to "time saved = profit
gained."
(2) Not every port can be a megaport;
not every port should be a megaport.
(3) Distribution of the future will de
dependent upon a seamless and
streamlined intermodal transportation
system (i.e. water, rail, highway and
air).
(4) Infrastructure improvements, in
order to achieve goal of "time saved =
profits gained" will depend greatly upon
and will be determined by geographic
location of future megaports ( load
centers ) in relation to market.
(5) Service to and from the
aforementioned load center sites can
then be more properly planned, designed
and funded.
(6) Identification of future port
classifications will be determined by
function identification as a result of
megaport geographic locations in
relation to market.
(7) U.S. port growth trends in the
future will lend themselves to continued
and escalated levels of container cargo
infrastructure requirements.
(8) General cargo and breakbulk cargo
between the U.S. and Mexico will
decrease proportionately as
containerized cargo increases.
(9) Future trading trends between the
U.S. and Mexico are quite logical and in
great part due as a result of NAFTA and
the EU-Mexico Free Trade Agreement
(EUFTA). Increased manufacturing and
shipping activity between the two
countries will continue to escalate as
it has since the passage of NAFTA.
Additionally, cargo value has increased
as a result of maquila activities ( i.e.
Levi's, Kraft, Sara Lee, La Pearla, etc.
)
(10) Due to near proximity of Mexico and
the U.S. ( average of 500 nautical miles
), direct trading trends in all
likelihood will continue to be serviced
by a Panamax class vessel or less ( 4K
TEUs or less/60-70K ton GRT vessels )
for the foreseeable future. Megaports (
load centers) will service primarily as
a port of call for long-haul megaships
and provide for cargo transfer to
smaller feeder vessels, rail and truck.
Megaports will service Mexico in concert
with feeder ports by providing feeder
liner services, just as a feeder port
might.
(11) The overall goal between Mexico and
U.S. should be to raise cargo value in
concert with cargo volume. This can be
accomplished by exporting basic and raw
materials and products to Mexico for
implementation of the value-added
concept to be found at maquilas
throughout the country. In turn, the
value-added products return to U.S. port
for distribution and to the marketplace.
NAFTA's Next Superhighway: The Gulf of
Mexico
Ms. Werner, Director, State of Yucatan,
Mexico, Trade and Investment Bureau
rounded out the program with her
presentation, " NAFTA's Next
Superhighway: The Gulf of Mexico". Her
presentation was a splendid summary of
the growth in trade and investment that
has been spawned by NAFTA.
Ms. Werner cited examples such as:
(1) The change in Mexican law in 1993
that transformed the Mexican port
system. The law allowed the creation of
new port administrations and opened
significant opportunities for
investment. As a result:
(a) Commercial cargo traffic in Mexican
ports doubled from 34 million tons to 60
million tons and 550,000 TEUs to almost
1.1 million TEUs between 1994 to 1999.
(b) More than US$700 million has been
invested in the last 5 years through
private capital, Mexico's federal
government and port authorities.
(c) Mexico port development has helped
Mexico become the
* #1 exporter in Latin America
* #2 trading partner of the United
States
* #7 trading nation in the world
* #8 exporter in the world ( up from #26
in 1993 )
(2) The development of Mexico's ports
have shown significant increases in
productivity and profitability in the
last 5 years.
(a) Some of Mexico's container terminals
have comparable equipment to the most
efficient U.S. ports.
(b) Some of Mexico's agricultural grain
terminals manage up to 20,000 tons
daily, representing 8 times the prior
volume.
(c) Improved operating efficiencies
combined with professional
administration and high-quality labor
have resulted in a reduction in freight
costs.
(d) A most important benefit has been
the increase in employment and improved
earnings for Mexicans. The number of
direct port jobs has doubled and port
salaries are significantly better than
before.
(e) Another key benefit is the increased
number of shipping lines serving Mexico.
Today 110 shipping lines serve Mexico as
compared to 70 in 1994 and 18 of the 20
most important shipping lines in world
are now represented in Mexico.
(3) The importance of Mexico's port
system and maritime transportation is
illustrated by the country's
distribution of cargo. In 1999, 785.7
million tons of cargo were distributed
in Mexico: 59.1% by highways, 30.6% by
ports, 10.2% by rail and 0.1% by air.
Ms. Werner highlighted the Port of
Progreso in Yucatan as an example of
growth and investment as a result of
NAFTA. She provided the following
information:
(1) The Port of Progreso is
strategically located in Yucatan with
five shipping lines serving Miami/Ft.
Lauderdale, New Orleans, Gulfport,
Houston and Jacksonville. Service is
planned to Tampa in 2000. Travel time
from the Port of Progreso to these U.S.
cities via ship is approximately 32
hours.
(2) The positive impact on industrial
development is evident by the increase
in maquiladoras and related employment.
In 1994 there were 39 maquiladoras
employing 8,000 workers and by the end
of 1999, there were 136 maquiladoras
with 31,500 workers.
(3) The fundamental platform for this
growth is international trade in
manufactured goods and agribusiness.
Yucatan's main exports are products
manufactured in maquiladoras, fish and
seafood, textiles and apparel, machinery
equipment and industrial parts,
processed food and beverages, fruits,
vegetables and other agricultural
products and artesania. Yucatan's
principal imports are materials and
components for maquiladora production,
agricultural grains, machinery,
equipment and industrial parts; textiles
and apparel, wood and electronic
products and computers.
(4) The Port of Progreso's US$120
million expansion will be completed in
the fall of 2000.
* the port's depth has been increased to
40 feet and is surface area to 125
acres, including 56 acres for a new
cargo zone.
* a new Container terminal which will
permit the arrival of specialized cargo
vessels with capacities of up to 3,200
TEUs and represents an increase of 10
times the current capacity.
* a new Agricultural grains terminal
which will permit the arrival of vessels
with capacities up to 35,000 tons and
represents an increase of 65% over
current capacity.
* a new Pemex terminal which will permit
the arrival of 60,000 ton Pemex tanker
vessels with capacities to discharge
186,000 barrels a day and reduce waiting
times and costs.
* a new Cruise terminal which will
permit the simultaneous arrivals of 2
cruise ships of the latest generation,
each with up to 3,400 passengers and a
passenger/cargo ferry. When the second
stage is completed 5 docking stations
will be available. This growth will
strengthen Mexico's position as a cruise
destination even though Mexico now
accounts for 20% of international cruise
arrivals.
Ms. Werner concluded by stating that
NAFTA has been the force behind the port
development and expects that the growth
will continue in the future. As the Port
of Progreso is Mexico's closest port to
the European Union, she also forecast
increased trade and investment as a
result of the Mexico-EU Free Trade
Agreement, effective July 1, 2000.
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Education
Sponsors: The U.S.-Mexico Chamber
of Commerce and its Education Task Force
wish to thank the Mott Foundation for
sponsoring this conference at the
Presidential Sponsor Level.
Moderator: Dr. Douglas X. Patiño,
Vice Chancellor, California State
University, Long Beach, CA, and Co-Chair,
Education Task Force.
Rapporteur: James Clark,
Executive Director, Pacific Chapter,
USMCOC
Speakers:
Welcome and Update on Education Task
Force Issues
Douglas X. Patiño, Co-Chair, United
States
Business, Industry, and Higher Education
on the US-Mexico Border,
Khosrow Fatemi, Ph.D., Dean, San Diego
State University, Imperial Valley Campus
From Querétaro to the Silicon Valley and
Back: A program of Bilateral Fieldwork
for Students and Faculty with
Implications for Use in Market Research
Armando A. Arias, Jr., Ph.D., Academic
Dean, California State University,
Monterey Bay
Welcome and Update on Education Task
Force Issues
Dr. Douglas Patiño opened the conference
with welcoming remarks. He provided the
assembled group an update on the work of
the U.S. Mexico Chamber of Commerce
Education Task Force. He thanked the
Mott Foundation for its support of the
Chambers activities in the educational
area.
Business, Industry, and Higher
Education on the U.S.-Mexico Border
Dr. Khosrow Fatemi reported on the first
annual conference on United States-Mexico
border issues held March 9-10, 2000 in
Calexico, California and Mexicali, Baja
California.
From Querétaro to the Silicon Valley and
Back: A program of Bilateral Fieldwork
for Students and Faculty with
Implications for Use in Market Research
Dr. Arias discussed a program of
bilateral fieldwork for students and
faculty
and its implications for use in market
research.
Discussion and Questions and Answers
General discussion was held on the
impact and trends of on-line
universities, future opportunities for
universities to offer accredited courses
on-line, forming relationships between
United States and Mexico universities,
strategies for maintaining effective
relationships, and about a program that
provides students with an in-depth
international learning experience in
carrying out hands-on field research
projects in the United States and Mexico.
Closing
Dr. Patiño thanked the participants for
attending the education session at the
NAFTA Conference, and told the assembled
audience that he looked forward to
seeing them at the Good Neighbor Awards
dinner that evening.
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Finance &
Investment
Sponsors: The U.S.-Mexico Chamber
of Commerce and its Finance and
Investment Task Force which to thank
Patagon.com and for sponsoring this
conference at the Industry Sponsor Level.
In addition, thanks goes to Excel
Communications, which provided financial
support to this Task Force.
Moderator: Martha Zepeda,
President, Zepeda Associates, Inc., and
Co-Chair, Finance and Investment Task
Force
Rapporteur: Bill Harrington,
Principal, Vista Ventures, LLC
Speakers:
Role of Nafinsa
Carlos Sales, General Director, Nafinsa
E-commerce Development in U.S. Markets;
NASDAQ and How it Impacts Mexico
Frank Fernandez, Senior Economist and
SVP, Securities Industry Association
Key Issues Investors Focus on in
Analyzing Internet Investment in Latin
America
Peter Jones, Managing Director, Darby
Overseas Investments
Financial Services via Internet
Targeting the Latin Markets
Daniel Marcos, President, Patagon.com
On Line Support Service for Small
Business
Carlos Vasallo, CEO, Latinvision.com
Key Issues Facing Mexico in E-Commerce
and Telmex Strategy in E-Commerce
Andrés Vásquez del Mercado, Executive
Vice President, TELMEX
Role of Nafinsa
Jose Priego, of Nacional Financiera (NAFIN),
substituted for his General Director and
opened with the view that trade is a "fantastic
tool" to enhance opportunities for all.
Opening doors to trade has allowed
Mexico to participate in the world
economy. The firm standing of the
Mexican economy since 1995 is a
consequence of Mexico's increased role
in international trade. Inflation is
still high but going in the right
direction. Public finances are sound and
external debt is under control. The
great success in the Mexican economy has
been in trade; today the volume of trade
exports is three times the volume of
1993. NAFTA has doubled the volume of
trade in only six years. A new trade
agreement with the EU also opens huge
opportunities. The transformation of the
Mexican society from a central,
hierarchical system is underway with
great promise. The removal of barriers
to political participation may in the
long term have even greater consequences.
NAFIN plays an important role with
micro, small and medium-sized
enterprises as well as with credit
markets. NAFIN has developed a strategy
to reduce transaction costs to financial
institutions; tools to modernize the
financial process; and guarantees to
increase access to the financial system
by SMEs. NAFIN will continue to provide
low cost financing and credit guarantees.
It has developed strategic alliances
with organizations in other countries to
increase the flow of trade and capital.
NAFIN manages investment funds in Mexico
with national and regional coverage.
NAFIN is working with USMCOC to set up a
fund to operate in Mexico. Jose Priego
asked Larry Mellinger of Integra
Partners to discuss this fund. NAFIN
agreed with the USMCOC to establish a
direct private equity fund to invest in
mid-sized growth companies in Mexico
including technology hardware and
software, communications, media, health,
agriculture, and transportation. The
fund size will be $100 million or $200
million with 50% of the funding from
Mexican sources and 50% from U.S.
sources. This would be a limited
partnership with 10 to 15 LPs. A co-general
partner situation has been identified
but he is not at liberty to disclose the
name at this time. The focus now is on
identifying the GP and getting the U.S.
LPs signed up. NAFIN provides key
credibility and would also be an LP.
NAFIN will help with deal flow,
structuring and exit. In the next few
weeks he hopes to have something more
concrete to announce. Jesus Rodriguez is
USMCOC contact.
Regarding e-commerce, Mr. Priego
continued that NAFIN will use a web
portal to connect SMEs and financial
intermediaries. NAFIN is also promoting
modernization of the Mexican stock
market through the use of electronic
tools. In summary, NAFIN endeavors to
increase financing for small enterprises
and to level the playing field for
participants in the Mexican economy.
E-commerce Development in U.S.
Markets; NASDAQ and How it Impacts
Mexico
Mr. Frank Fernandez, Senior Economist
and Senior Vice President, Securities
Industry Association, opened with the
view that Mexico has an opportunity to
bridge the "digital divide" but may
require a different process than the
conventional method. Both investors and
policy-makers in Mexico and other
emerging markets are concerned about
their economies' susceptibility to
external shocks. The boom and bust cycle
is a major impediment to the long-term
development of capital markets and the
investor base. Listings of Latin
American companies continue to shift
overseas and, especially with electronic
means, will continue to do so. At a
regional level, little attention has
been given to linking Latin American
markets together although one might
argue that this kind of task is now
dated. Mr. Fernandez believes that these
arguments are shortsighted. Small and
medium sized companies cannot migrate
offshore and generally have less access
to outside markets. These SMEs have a
disproportionately strong role in the
economy but need local sources of equity
capital. These corporations are too
heavily dependent on bank financing
which causes an inverted capital
structure and increases susceptibility
to financial instability. Leverage can
accelerate these issues. A coming book,
published by Oxford Press, describes
this process historically. A
contributing element is the relative
immaturity of the local equity markets.
Rather than accept these market
conditions, Mr. Fernandez recommends
taking on the neglected areas of finance.
We now have international accounting
standards and other areas but Mr.
Fernandez would propose improvements in
the areas of technology and operations.
He suggests the building of a Latin
American inter-market trading system. It
would provide for automatic or immediate
execution capability and linkages
between market centers. Under a linked
system, individual markets would retain
their own identities and compete for
order flow on the basis of price, speed,
liquidity, etc. The system could also,
if desired, function as an order
aggregation system. It also could be
combined with a regional clearinghouse
that would function to help to
accelerate the coming standards in the
financial markets.
One of the beauties of the Internet
revolution is that the Internet
drastically reduces the cost of these
new platforms.
Key Issues Investors Focus on in
Analyzing Internet Investment in Latin
America
Mr. Peter Jones, Managing Director,
Darby Overseas Investments, noted that
Darby looks at the Internet from the
point of view of an investor in private
equity and venture capital - meaning
high returns, strong fundamentals, and
sure exits. It tracks over 600 Internet
initiatives in Latin America. The
Internet offers high returns and
attractive exits. In terms of strategy,
they favor the B2B segment as well as
those firms with strong revenue models,
which are very scarce, of course. We
believe that the supply chain
efficiencies provided by the Internet
will have to be adopted by firms in the
future.
From the private equity point of view,
Darby has 18 investments in Latin
America. They have found real ways of
increasing cash flow using the Internet.
From the venture capital side, we look
at start-ups at all stages but mostly on
the B2B side. Mr. Jones addresses eight
points that Darby seeks in its
investments and those who are seeking
capital need to address
· High returns and dramatic valuation
· Attractive ways of getting money out
· Strong influence on the firm's board
of directors
· Strong fundamentals in revenues and
earnings growth
· Committed shareholders
· Strong and capable management
· Attractive entry price
· Good law, good accounting, good MIS.
In terms of Internet users, Latin
America comprises less than 5% of the
world, less than its share of the
population. There are too many B2B
Internet portals in Latin America. Very
few of these promise to be successful,
at least from our perspective today. He
estimates that each portal needs about
$1B of market in order to be successful
and yet Darby estimates that the total
market in 2003 will be $5.5B. Many of
the Latin American Internet start-ups
are in fact regional.
As an investor on an adjusted risk-weighted
basis, you would have been much better
off in a U.S. stock index fund until the
advent of the LA Internet firms. The
stock profiles of Yahoo and the Latin
American Internet firms are fairly
similar. Many of these Latin American
stocks had no interest in a local
listing. The impact of the Internet is
its scope for new value creation. The
Internet will facilitate some
transactions but will cause other
products that used to be physical to
become virtual, e.g., music. The
Internet will shrink the cost of banking
transactions by more than half. The
Internet has unleashed human capital in
Latin America, a consequence that has
great potential.
In terms of strategy, Darby believes
that the lack of a revenue model is
critical. The U.S. start-up emphasizes
the revenue model in the B2B sector but
that is lacking in the Latin American
Internet start-up. U.S. domicile,
accounting, and law is welcome for
investors (e.g., Delaware courts)
although Latin America has improved.
Businesses who are slow to adopt
procurement portals will pay dearly. The
Internet is accelerating the M&A volume.
Customization and client service has a
big opportunity in Latin America.
Solving local supply chain
inefficiencies has great promise.
Creating alliances with global market
leaders will add value, although
cultural issues might interfere.
Financial Services via Internet
Targeting the Latin Markets
Mr. Daniel Marcos, CEO, Patagon.com,
noted that current growth in Internet
users in Latin America in the next few
years is 4 times the world rate, due in
part to the lack of infrastructure
(e.g., libraries), which can make
Internet access and content very
attractive. Argentina and Brazil are the
primary sources of Internet innovation
at the present time.
He discussed entrepreneurs concerns:
· Raising additional capital
· Competition on Internet
And investors concerns:
· Restriction on foreign investments
· Illiquidity
· Currency fluctuations
· Government involvement in the economy.
· Political and economic factors.
· Legal issues.
· Good management.
· Industry experts.
· Replicate U.S. model.
· Need to replicate in other countries
due to lack of volume of users in any
single country
· First mover advantage.
Mr. Marcos reviewed the Internet eras in
Latin America, starting with the dial up
era, then portals, followed by destinies
era (verticals), free dial-up, B2B era,
wireless, and finally infrastructure
development. He pointed out that
wireless has great potential. The large
venture capital investors in Latin
America are: Chase Capital Partners,
Flatiron, Explorador.net, GP Partners,
and SLI.com.
Mr. Marcos ended by explaining the
Patagon Model (acquired recently by
Santander): one stop shopping;
comparison of products from different
vendors; and one brand but local
content. He ended "Deposit your money at
Patagon, then go shopping."
On Line Support Service for Small
Business
Mr. Carlos Vasallo, CEO, Latinvision.com
outlined what he sees as the five areas
for Internet investment opportunities in
Latin America:
· Internet infrastructure and services
is big now. ISPs and telecommunications
companies.
· Internet portals. Must be scaleable.
Some consolidation expected. Local
approach with regional scope is optimal.
· Internet commerce. Needs to be
scaleable and include local country
content but have a multi-country
strategy. Their problems will be poor
fulfillment, poor payment
infrastructure, low PC penetrationa and
telecommunications infrastructure, and
government regulations. Resolution of
some of these problems will result in an
explosion in growth.
· Internet software. Tricky due to
existing dominant players.
· B2B is the most attractive long term.
Not clear who will dominate. A different
model than in the U.S.
Road to success is different for Latin
dot-coms. Success requires more than
replicating U.S. firms. Changes in the
firm's business model should be
expected.
Mr. Vasallo outlined what he sees are
the keys to success:
· Management
· Distribution and content
· Brand name
· Ability to deliver high quality,
consistency and reliability.
· Customers are becoming more demanding.
Key Issues Facing Mexico in
E-Commerce and Telmex Strategy in
E-Commerce
Mr. Andrés Vázquez del Mercado,
Executive Vice President, Telmex
Technological noted that progress
provides opportunities for new social
energy and progress arising in part from
the telecommunications systems. The main
questions are: How can Mexico have
access to these economic benefits? How
can a Mexican entrepreneur participate?
What can we do to help Mexico acquire
the dot-com benefits?
The value of the Internet is triggered
by high connectivity rates; access
speed, and content. Telmex is
emphasizing the provision of high speed
and ubiquity. Local access will be
extended to over 400 cities by the end
of 2000. Telmex is expanding the
availability of Prodigy.
The speed and cost of acquiring new
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