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.

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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,
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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 customers to the Internet is a key to adding value. The value of the network grows exponentially with the increase in the number of nodes. Telmex is looking to swiftly increase the number of Internet users.

At the same time, Prodigy allows Telmex the opportunity to introduce great Internet value to its customers. Another value to customers is the improvement in the content available to Internet users. Te Uno will be a portal that will enrich the user's experience.

Another important characteristic of the Internet is its capacity for evolution into different experiences. What starts as a purchasing experience can be an educational and communication experience.

Telmex is a 100% digital network providing a platform that will provide voice, data, and video to the Mexican market in the future. The most important role is to find ways for young people to become players in this new society, not only as users and customers but also as creators of these new experiences and applications. Telmex, through its foundation, is supporting (a) a national program to encourage the digital culture in public secondary schools throughout Mexico, (b) a national prize for young people engaged in Internet creativity, (c) a high capacity Internet backbone connected with research institutions in the US and Mexico and (d) advanced multimedia applications at the MIT media lab run by Nicholas Negroponte. Telmex wants to include all Mexicans in these national projects without regard to their place of residence.

Questions and Answers

Mr. Vazquez del Mercado responded to a question by noting that wireless is the "way to go." TelMex is moving toward "wireless local loop" for the rural and mountainous regions but primarily for long distance. The other method is with Sailor (?), wireless phones within the Sailor network which can be used with prepaid calling cards to receive calls from the US and Mexico.

Mr. Vasallo noted that improving details of e-commerce transactions (credit cards, addresses, lack of delivery) is key. UPS is taking a lead. Internet companies are trying to put pressure where appropriate to remove the barriers to e-commerce. The real question is how soon.

Mr.Marcos said that Patagon sends money on behalf of customers who maintain a "P-account" with cash deposits because many Latin Americans do not use credit cards. These issues will take some time. Adoption of online securities trading was more rapid in Brazil, due in part to cultural issues. PetroNet (which is not running yet) will allow money from the U.S. to be sent to gas stations in Mexico that will then be delivered to the family.

Mr. Fernandez responded that the financial services industry has made great strides in accepting electronic transmissions. Electronic signatures have now been accepted in the U.S. "Dematerialization" will result in the reduction or elimination of paper checks. Meta-tagging in the U.S. will eliminate paper transactions in B2B transactions. The technology is there. The changes are coming.

Mr.Jones added that half of the e-commerce in Latin America may be conducted with U.S. credit cards. Some LA start-ups may require the use of U.S. credit cards. Mr. Vazquez said that Telmex is allowing their customers to utilize their telephone account for the purchase of other products.

Mr. Jones commented that the numbers don't work well for B2C companies. A high burn rate and the problem of second round capital raising makes businesses that are focused on increasing the number of "eyeballs" a very high risk investment. Latin America is more inefficient than the U.S. and the use of the Internet can help to overcome that inefficiency and provide large margins (e.g., in industries such as collectibles) but maybe those margins will compress. If valuation problems continue, will ad prices reduce to make the advertising revenues less of a quality revenue source?

Mr. Fernandez pointed out that 32% of all NASDAQ trades are done on line. The majority of investors in U.S. securities markets are individuals. The customers are driving the business model, not the businesses. The businesses that are most successful are likely to be those that listen closely to their customers and adapt accordingly.

Mr. Vazquez added that there may not be enough capital available any more to allow a B2C company to build a brand. For an established company, B2C is probably great. For the entrepreneurial company, it is much more difficult.

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Health

Sponsors: The U.S.-Mexico Chamber of Commerce and its Health Task Force which to thank Tenet Corporation for sponsoring this conference at the Presidential Sponsor Level. In addition, thanks goes to the Discovery Latin America, which provided financial support to this Task Force.

Moderator: Michael Carricarte, President & CEO., Amedex

Rapporteur: Roger Wesley, Administrative Law Judge, Department of Defense

Speakers:

Institutional & Academic Challenges on the HIV/AIDS Prevention Efforts between US & Mexico; a Socio-economic Perspective
Pablo Valencia, Director, International AIDS Prevention Projects, Office of Technology Transfer. Keck School of Medicine, University of Southern California

Health and the Media: Promoting a Healthier Lifestyle Through Cable and the Internet
Luis Silverwasser, Vice-President of Affiliate Sales & New Business, Discovery Networks. Latinamerica/Iberia, Discovery Health Channel. El Canal de la Salud

Private & Public Health Systems: University Collaboration between U.S. & Mexico
Dr. Antonio Caso, Secretario Académico de la Escuela de Medicina
Universidad Nacional Autónoma de México

Challenges on Health Issues in the US - Mexico Border & it's Economic Impact on the Regional Industry
Lori Senini, Coordinator, Office of Binational Health, San Diego County

The Cross Border Health Insurance Initiative: A Collaborative Project Exploring the Development of "Portable" Health
Margaret Laws. Director of Health Policy, California HealthCare Foundation.

Introduction and Overview

This panel concentrated on addressing the public/private challenges associated with the increasing HIV/AIDs prevalence among cross-border populations along the Mexico-California border in recent years. Along with these challenges come emergent binational trends in providing medical services designed to address the HIV/AIDS problem. This entails enlisting leadership employed by American and Mexican universities, medical schools and the private sector. In California, the public health community has called upon the development of partnerships and joint projects between state and private institutions to devise strategies for dealing with the HIV/AIDS problem that has fallen so disproportionately on minorities.

Providing some background for discussing border health issues in general was the panel moderator, Michael Carricarte. Mr. Carricarte related his own company's (Amedex) experience with providing health insurance to middle to high-income. earners in Mexico. With health expenditures lagging far behind per capita expenditures in the U.S. (currently only 4.8% compared to l4.3% in the U.S.), Mr. Carricarte confirmed a large under supply of health insurance services in Mexico. He noted a trending shift from public to private insurance, manifested by (1) an increasing middle class demand for health insurance, (2) growth of HMO insurance, (3) a highly fragmented current insurance market and (4) a projected evolving of private-insurance based markets. As demands for managed care increases in Mexico, he foresees government operated health care systems increasingly succumbing to demand pressures and an emerging larger role for private capital to supplement government programs. While only one-half of the current work force in Mexico is currently privately insured, Mr. Carricarte expects to see dramatic changes in the percentage of health insured relying on private health insurance in the coming years. With these changes more entrepreneurial activity is anticipated in underwriting private health insurance in all of Latin America (Mexico included). Tracing yesterday's principal reliance on fee for service health delivery to today's emergent emphasis on managed care, Mr. Carricarte projects tomorrow's health market to be dominated by global communications, private insurance services, joint ventures, reinsurance and bank financing. To meet the projected innovative needs of future health delivery systems in the Americas, the focus should be on adapting to these anticipated new needs and demands for medical services, developing effective cost controls, promoting cultural understanding, designing new insurance products and staying abreast of technology changes.

Institutional & Academic Challenges on the HIV/AIDS Prevention Efforts between US & Mexico; a Socio-economic Perspective

Mr. Pablo Valencia, Director, International AIDS Prevention Projects, Office of Technology Transfer, Keck School of Medicine, University of Southern California, discussed goals and strategies for promoting binational cooperative efforts in devising effective medical responses to HIV/AIDs. AIDs has become a cross-border national security issue. Mr. Valencia focused on specific concerns of the AIDs issue. Using a mortality curve, he illustrated how deaths from AIDs in 25-44 age groups in the U.S. during the period of 1982-1993 exceeded deaths from all other causes combined. AIDs-related death among blacks was shown to be much higher than other population segments. He cited poverty, education shortages and lack of preventative techniques as the principal causes of the high AIDs cases extant in African countries. He drew similar parallels to hispanics in LA County, who statistics confirm are even more vulnerable to AIDs. The problem is compounded in LA County by the dearth of medical resources available for illegal immigrants in the Hispanic community. Mr. Valencia stressed the special importance of AIDs as a US-Mexico strategic issue that needs to be addressed before it reverses all of the progress that has been made on the disease between the two countries. He challenged US-Mexico partners to commit to finding a joint solution to the serious medical problem represented by HIV/AIDs.

Health and the Media: Promoting a Healthier Lifestyle Through Cable and the Internet

Mr. Luis Silverwasser, Vice-President of Affiliate Sales & New Business, Discovery Networks talked about the important role of the media in bringing vital information about critical health issues into the homes of families in Mexico and Latin American countries who have less medical access. Discovery Networks recently launched a channel called Discovery Health in Latin America (already available in US). Data confirms the increasing penetration of Pay TV in Latin America. Cable and Satellite have shown considerable increase as well. Cable, for example, compares favorably (a 14.3% market share in 2000, up from 12.9% in 1999); while satellite reception has increased from a 1.8% market share in 1999 to its current 2.3% market share in 2000. With increased access to the Internet in Latin America, Mr. Silverwasser conservatively projected 24 million to be connected by 2003. By 2004, he expects more Latin American families to be on line than have access to Pay TV. What is fueling this increased interest is the rapid growth in technology characterized by cheaper computers, lower telephone costs, higher percentages of younger people, more pronounced interest in obtaining information and economic reforms put in place by governments. Most important information captured on line is divided into two major categories: broader issues of health concerning men and women among younger generations and older populations interested in more specific diseases and treatment (cancer being a prime example of a hot topic). Looking to the future, Mr. Silverwasser foresees a much larger role for private health insurance, both in the US and Latin America. The media can have a major influence in explaining technical information in simple ways and furnishing informational access to financing of medical care. People who access information from TV and on- line will be healthier for it. Mr. Silverwasser believes Discovery Networks can provide an important service by using its outlets to transmit information to the most at risk segments of the population: those in the lower economic strata. TV's greatest hope for the world is that it can be a valuable contributor to lifting us out of our health rut.

Private & Public Health Systems: University Collaboration between U.S. & Mexico

Dr. Antonio Caso, Secretario Académico de la Escuela de Medicina, Universidad Nacional Autónoma de México spoke about the ongoing collaborative efforts between the US and Mexico in developing and improving private and public health delivery systems for addressing AIDs. AIDs treatment is highlighted by the higher costs of anti-retroviral medications and new products in development. Populations without any alternatives can become social and political risks. For US/Mexico research collaborators, the main objective must be to find support for patients without financial means. Financial options include private, public and international loans and funding. Both public and private sources have disadvantages. Whereas public sources suffer from increasing patient demand and rising costs, private funding sources tend to be selective and restrictive. Dr. Caso provided some suggestions for developing projects for AIDs research: A hypothetical plan should ideally make provision to obtain resources to buy medications, reduce development costs, ensure effective information flow, create efficient organizational use of resources, make better utilization of non-government organizational support, and develop treatment centers that can attract medical specialists. Besides explaining specific steps necessary for developing financial structures designed to yield optimum benefits, Dr. Sosa explored various models for addressing specific programs, ensuring access to drugs and medicines and deploying physician staff.

Challenges on Health Issues in the US - Mexico Border & it's Economic Impact on the Regional Industry

Ms. Lori Senini, Coordinator, Office of Binational Health (OBBH), San Diego County, prefaced her remarks by summarizing her office's multipurpose mission that includes numerous programs designed to address infectious disease problems that impact on people of both Mexican and US descent who reside along the 60-mile international border region that includes the San Diego and Imperial Counties of California. To achieve its many missions, OBBH has developed a variety of programs and services: a US-Mexico Border Health Comm. Admin. Office, Border Infectious Disease Surveillance, Ten Against TB, Cure-TB, EPA-Border XXI, Binational Case Management and Substance Abuse Prevention Initiative. With the increasing cross-border population comes an increasing need for early intervention of infectious diseases. Among OBBH's many challenges is to increase awareness, develop portable integrated benefits, ensure healthcare regardless of ethnicity and residence status and promote culturally specific outreach education to special migrant populations. Ms. Senini outlined several strategies designed to meet OBBH's challenges: collaboration, education of the public on health care, recruit culturally diverse personnel to work in health care, development of professional corps of specialists to focus on border health challenges and identification of legal, administrative and cultural barriers to health care. For meeting her offices daunting future challenges, Ms. Senini prioritized her organization's most pressing policy recommendations as follows: support legislation to fund border health services, refine data systems, improve current health care to better address special needs, develop medical coverage for immigrants that is not limited to emergencies, strengthen health care safety nets in universities with high concentrations of immigrants and promote AIDs prevention by instituting wider testing for HIV. Ms. Senini called for more funding support for Mexico while commending the high level of collaboration that now exists between the U.S. and Mexico.

The Cross Border Health Insurance Initiative: A Collaborative Project Exploring the Development of "Portable" Health

Ms. Margaret Laws. Director of Health Policy, California HealthCare Foundation, provided a review of the facilitative role her foundation has played in the current project initiative that is looking at issues of portable health insurance as a strategic option for developing cross-border health insurance. For background, the California HealthCare Foundation was created out of a conversion from Blue Cross to a non-profit health delivery system. Cal Health's stated mission is to increase the availability of affordable, high-quality care for under-served individuals and communities and to promote fundamental health care improvements for Californians. Its focus is the changing complexion of health care: from managed care to the universal health policy and regulation, consumer information and public health. To address long term health care problems and solutions, Cal Health has pursued partnerships with all of its interested stakeholders: consumers, providers, health plans and policymakers. Such a partnership is the collaborative project established to explore issues of portable health insurance. Ms. Laws explained how her foundation partnered the project with Mexican counterparts who pulled together representatives from the health provider and hospital communities in Mexico to interface with insurers, providers and members of the public sector in California. The project has been looking at private insurance and regulation issues to explore the feasibility of delivering portable insurance products to individuals living in the California-Mexico border region. Ms. Laws spoke about a scheduled meeting of the project's members in San Francisco this year, where they expect to look at the private insurance market in Mexico and the US-Mexico border region. Recognizing that 70 per cent of the people in Mexico still don't have health insurance, Ms. Laws expects her project to concentrate on financial barriers to obtaining health insurance and hopefully come up with some creative strategies.

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Maquiladora Manufacturing- Automotive/Electronics/Textiles & Apparel

Sponsors: The U.S.-Mexico Chamber of Commerce and its Manufacturing Task Force wish to thank Delphi Automotive Services for sponsoring this conference at the Industry Sponsor Level. Thanks also goes to the State of Yucatan for its financial support for the Manufacturing Task Force.

Moderator: John Harrington, Senior Economist, U.S. Mexico Chamber of Commerce

Rapporteur: Al Perez, Director of Development, U.S. Mexico Chamber of Commerce

Speakers:

The New Tax Laws Impacting Maquiladora Operations
Mauricio Monroy, Managing Partner, Tijuana Office, Deloitte & Touche LLP

Yucatan: Strategic Manufacturing and Distribution Base for NAFTA and EUFTA
Roberto Ponce, President Business Development, Yucatan Industrial Parks
Susanna Werner, Director, State of Yucatan Trade and Investment Bureau

Maquila 2000
Eduardo Duran, Latin American Trade Affairs Coordinator, Mattel

Mexico as a Platform for Global Exports
Larry Emrich, Director of Government Relations for Mexico, Delphi Automotive Products, Inc.

The Apparel Sector in Mexico
Walter Martindale, Director of Government Relations, Guilford Mills

Opening and Introductions

Dr. John Harrington introduced the topic and panelists noting expanding U.S.-Mexico trade and the increase in maquiladora activity.

The New Tax Laws Impacting Maquiladora Operations

Mauricio Monroy, Managing Partner, Tijuana Office, Deloitte & Touche LLP reviewed key issues on maquiladora operations underscoring three items: Permanent establishment or PE; taxes; and social security.

Mr. Monroy analyzed how recent regulations by the Mexican Tax Administration (SAT) provide ways to delay the entry into force of Mexican rules that would deem maquiladoras as permanent establishments of their foreign parent companies. The bottom line is that foreign parent companies can avoid having their maquiladoras in Mexico being declared as permanent establishments to avoid the new taxes. The two options are: to have taxable income in excess of a specified safe harbor, or to have to apply for an advance pricing agreement (APA) from SAT. Mr. Monroy described the benefits of each of the options. He also noted that service maquiladoras (i.e., companies that provide service to other maquiladoras) had been excluded from the January 1, 2000 SAT rules, but would be included in future SAT rules. The key issue is that SAT declared that service maquiladoras could have permanent establishment in Mexico and would thus be subject to taxes after a year of protection. U.S. companies were getting around the tax laws by creating Mexican companies or agreeing with Mexican companies to produce goods with equipment or machinery rented from the U.S. company. SAT ruled that if a Mexican company pays rent to a U.S. company for equipment or machinery, the Mexican company is deemed to be a PE of the U.S. firm.

Mauricio Monroy reported that in 2001, value added taxes will have to be paid on many parts (especially electronic parts from Asia) currently entering Mexico without duty.

Finally, Mr. Monroy added that there is ongoing review of the treatment of U.S. employees working in Mexico. Taxes paid by these employees in Mexico are credited for the purpose of U.S. taxes. However, social security taxes paid by the employees are not credible for U.S. tax purposes.

Dr. Harrington asked if U.S. companies doing business in Mexico are treated differently than Mexican companies in Mexico. Mr. Monroy said that if a maquiladora gets inventory, equipment and employees from the United States and if the maquiladora produces mostly for exports, it will be taxed both as a Mexican and U.S. company. A Mexican company is considered as only one taxpayer.

Dr. Harrington asked what percent of the maquiladora production had to be shipped from Mexico. Monroy said that in previous years, about 85 percent of production had to be exported, but that as of November 1, 2000, 50 percent could remain in Mexico.

A workshop participant asked whether the 50-50 percent ratio would affect a maquiladora's Permanent Establishment status. Mr. Monroy replied that PE status would be 50 percent Mexican and 50 percent foreign.

Another participant asked whether anything was being done to address the different treatment of borrowing and loaning of money (i.e., borrowing of money is adjusted for inflation but not the lending of money, and this creates liquidity problems.) Mr. Monroy said nothing was being done, but noted that two ways to avoid this problem is to make capital infusions instead of loans, or to make UDI (Unidades de Inversiones), which are protected from inflation.

Yucatan: Strategic Manufacturing and Distribution Base for NAFTA and EUFTA

Roberto Ponce, President, Business Development, Yucatan Industrial was accompanied by Susanna Werner, Director, State of Yucatan Trade and Investment. They briefly spoke about European/Latin America trade and investment noting that of the 25 largest companies in Latin America, 14 are European, and that the EU has surpassed the United States in investment in Latin America.

Mr. Ponce and Ms Werner then made a slide presentation (followed by a short video film) about economic and trade opportunities for U.S. and EU firms in the Yucatan peninsula and the expected gains from the modernization and expansion of the Port of Progreso. In that presentation they listed the top ten reasons for companies to select Yucatan, Mexico as a site for industrial development: strategic location; low production costs; skilled labor with low turnover; infrastructure; transportation and logistics; pro-business government; strong economy; natural resources; security; and quality of life.

Maquila 2000

Eduardo Duran, Latin America Trade Affairs Coordinator, Mattel Corporation reviewed the growth of the maquiladora sector in Mexico and Mattel's operations in Mexico. He noted the upcoming changes on duties imposed on imports from non-originating countries (especially from the Far East) and provided a chart showing how duties would be assessed. Duran explained the status and growth of Mattel's expansion in Mexico, which now has 5,000 employees and produces 62,000 toys per day. Duran outlined the main barriers to doing business in Mexico: slow custom clearances on goods entering the United States; different product classification systems for U.S. and Mexican goods; inability of Mexican truckers to operate in the United States; difficulty in obtaining working visas, and some labor difficulties. Despite problems, Mr. Duran was bullish on doing business in Mexico.

Mexico as a Platform for Global Exports

Larry Emrich, Director of Government Relations for Mexico for Delphi Automotive Products outlined Delphi's operations in Mexico, noting that the company now has 51 centers in Mexico and is the largest private employer after the Mexican government. He noted that the growth in the quality and quantity of Mexico's workforce has surpassed expectations. He said there is a possibility that Mexico could become a platform for global exports given the recent trade agreements it signed with the EU, Israel, and several Latin American countries. He mentioned the following as problem areas: if the peso increases in value, Delphi will have to find ways to reduce costs; there is a saturation of maquiladoras along the border; affordable housing is lacking; there is a high turnover of employees; lack of trained engineers, and vehicular congestion at border crossings.

The Apparel Sector in Mexico

Walter Martindale, Director of Government Relations, Guilford Mills noted Guilford's vision to establish in Cuernavaca an industrial park only for apparel and textile. He said Mexico had become the largest supplier of apparel to the United States. Mr. Martindale also noted that Guilford is making a new $446 million investment in Mexico. He flagged that the new CBI bill provides some advantages to Caribbean countries over Mexico.

Discussion

Workshop participant Sandy Navarro commented on the new duties to be paid on parts entering Mexico from non-NAFTA countries. This generated a discussion of anti-dumping duties. Susanna Werner noted the increase in "knowledge" maquiladoras in Mexico. Mauricio Monroy emphasized that "knowledge maquiladoras" are not the same as "service maquiladoras."

Dr. Harrington asked if the increase in the value of the peso might impact on Mexico global competitiveness. Mr. Emrich replied that it was not clear, but that what is clear is that Mexico must still bring down inflation to single digits. Mr. Duran said Mexican authorities were aware of the danger that Mexico would not remain competitive with Asia countries and was confident Mexico would take the correct steps to remain globally competitive.

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