3.1 Tariff and tariff administrative measures

3.1.1 Tariff peak

In Mexico, some tariff rates of imported goods go beyond 35.0 percent and the highest rate of agricultural products reaches 72.0 percent. Among the agricultural products, the average bound tariff rate of animals and related products is 36.5 percent, and its average applied tariff rate is 42.3 percent; the average bound tariff rate of dairy products is 33.8 percent, and its average applied tariff rate is 42.2 percent; the average bound tariff rate of tobacco products is 52.5 percent, and its average applied tariff rate is 53.1 percent. All these statistics have shown that among the three major categories, the tariff rates of some products are on the high side.

3.1.2 Tariff escalation

Mexico levies much higher average tariff on processed products than on raw materials, and the most concerned industries include textiles, clothing, leather, and basic metal industry. The average tariff rate of the processed textile products is 20 percent higher than that of the raw materials, and this, to some extent, has restricted China's textiles exportation to Mexico. In 2005, the tariff rates of some textile raw materials were reduced by 10 percent, which further widened the gap between the tariff rate of the processed textiles and that of the raw materials. As to pharmaceuticals, although the average tariff rate of the semi-processed products is a litter lower than that of the raw materials, the average tariff rate of the processed products is still much higher than that of the raw materials.

3.1.3 Tariff quotas

In 2005, tariff quotas were implemented on 0.5 percent of the total Mexican subject goods. 5.2 percent of the agricultural products were affected by tariff quota, including poultry, animal fat, milk, cheese, beans, tomato, coffee, wheat, barley, corn and products rich in sugar. In addition, Mexico applies different kinds of tariff quotas schemes to the trading partners with whom Mexico has signed some preferential agreements. The numerous different tariff quotas schemes contribute to the complexity of Mexico's import regime.

3.2 Import restrictions

At present, Mexico conducts import licensing administration for certain imported goods, such as petrochemical products, motors, large freight vehicles and cars, weapons, office equipment, etc. The written application for import license must be accompanied by the quoted invoice issued by the foreign exporter, and the validity of the import license is 9 months and can be extended to another 3 months if necessary. For used vehicles and used machines, the Ministry of Economy issues import licenses only when the foreign product has no domestically produced substitute. The tariff items of the products which are subject to import licensing are to be published in the Official Journal, but the introduction of frequent changes to the tariff items and the vagueness of the conditionality of import licensing undermine the predictability of access to the Mexican market for the products affected.

3.3 Barriers to customs procedures

The Mexican government sets reference prices or officially established evaluation prices for some 200 goods, including categories of liquor, apparel, chemicals, footwear, steel, hand tools, appliances, plywood, apples, rice, poultry, etc. If the declared customs value is less than the established reference price, a guarantee must be posted to represent any difference between duties and taxes. The Mexican government have the right, within six months, to decide whether to start a formal investigation or to release the guarantee. These measures do not specify the process of verification or determination regarding the customs value of the imported goods, and therefore lack the corresponding remedy measures, thus bringing about possible unfair treatment to parties concerned. In addition, the Mexican government requires a guarantee for a product whose declared value is lower than the reference price. The 6-month long decision- making period is too lengthy and may constitute difficulties in capital turnover on the part of importers involved. This measure obviously impedes low cost imports from entering into Mexican market.

In 2005, The Mexican Customs Ministry announced modifications to the designated ports of entry for certain agri- food products such as apples, beans, corn, fish, fat, sugar, meat, animal skins, and alcoholic beverages. This practice has caused great inconveniences to Chinese exporters of agricultural products.

3.4 Discriminatory taxes and fees on imported goods

Mexico imposes a 20 percent tax on the transfer or, as applicable, the importation of soft drinks and other beverages that use any sweetener other than cane sugar. The services related to those products, for example, consignment, agency, etc. shall be levied a 20 percent distribution tax as well, but drinks sweetened with Mexican cane sugar are not subject to these measures. In addition, the taxpayers of the above two taxes must also meet the bookkeeping requirements. In 2004, the United States appealed to the WTO for establishing a panel to deal with the above-mentioned practice of Mexico. On October 7, 2005 the WTO Dispute Settlement Body ruled that Mexico's practice of imposing soft drink tax and distribution tax on imported soft drinks and syrups (final products), together with its bookkeeping requirements, was discriminatory and inconsistent with the national treatment in Article 3.2 and Article 3.4 of the GATT 1994.

3.5 Technical barriers to trade

On September 23, 2005, the Mexican Ministry of Environment and Natural Resources, Ministry of Energy Resources, and Ministry of Economy jointly published the Draft Official Standards on Environment Protection of Fossil Fuel, which sets the environmental protection standards for both liquid fossil fuel and gas fossil fuel in Mexican market. The standards are binding both to producers and importers of these products. China will keep a close watch on the development and implementation of the above mentioned draft documents and standards.

3.6 Sanitary and phytosanitary measures

On September 16, 2005 Mexico adopted the Guidelines for Regulating Wood Packing Materials used in International Trade (ISPM15). It sets a certain transitional period and requires that this official standard be applicable to wooden padding and wedges as of July 1, 2006. China will continue to observe the implementation of the above regulations.

3.7 Trade remedies

3.7.1 Anti-dumping

Mexico is an active user of anti-dumping measures and ranks among the top ten countries which have initiated anti-dumping investigations against China. In 2005, Mexico initiated 5 anti-dumping investigations against Chinese products. The involved products are toothbrushes, tires for station wagons and light trucks, leather and similar goods, canned mushrooms, and plastic pencil sharpeners. The investigations against toothbrushes and leather and similar goods have finished and the Mexican Ministry of Economy has decided not to impose anti-dumping duties; in the case of plastic pencil sharpeners, Mexico has decided to levy a temporary anti-dumping duty of US$34.5 per kilogram and will continue the investigation. In addition, the Mexican Ministry of Economy still imposes an anti-dumping duty of US$18 per piece on the 1.5-20 ton hydraulic bottle jacks imported from China, and a high temporary anti-dumping duty of 191.5 percent on Chinese mushrooms. On July 26, 2005, the Mexican Ministry of Economy decided to investigate the alleged evasion of anti-dumping duties on concrete steel valves imported from China. This is the first anti-circumvention investigation against China in the past few years.

3.7.1.1 The unfair practices in the Mexican anti-dumping measures

In 2005, the Mexican Ministry of Economy decided to maintain high anti-dumping duties of 533 percent, 312 percent and 181 percent respectively on baby garments, selected hardware tools, and brass and bronze padlocks imported from China. Since the above mentioned baby garments and hardware tools are not manufactured in Mexico, these Chinese imports will not cause injury to Mexican domestic firms. Mexico's imposition of anti-dumping duties on imported products which are not produced domestically is inconsistent with Article 3 of the WTO Anti-dumping Agreement and Articles 28 and 29 of the Mexican Foreign Trade Act.

According to the WTO Anti-dumping Agreement, anti-dumping investigation is conducted to determine whether the involved products are dumped during the investigation period. However, since Mexico selected an irrelevant time period to investigate the case, the result would not truly reflect the actual situation. This practice may lead to judicial decisions unfavorable to Chinese side.

The Mexican Foreign Trade Act specifies that all interested parties shall submit to the investigators their arguments, information and evidence within a period of 28 days from the day following the publication of the initiating resolution. By using the date of publication of the initiation notice instead of the date of receiving a questionnaire as the starting point for the time period for questionnaire responses, the Act in effect shortens the time period for the affected Chinese firms to make response. This practice on the part of Mexico is inconsistent with the unequivocal requirement in the Anti-dumping Agreement and Agreement on Subsidy and Countervailing Measures to provide both parties with 30 days for them to respond to questionnaires.

The Mexican Foreign Trade Act coercively stipulates that the principle of "acquired facts" shall be applied to the producers who fail to respond to a lawsuit or to furnish information timely and properly or who have furnished incomplete information and that highest dumping margin shall be adopted. This stipulation is inconsistent with the Anti-dumping Agreement and the Agreement on Subsidy and Countervailing Measures. The Mexican investigation bodies did not inform the affected exporters or producers of the consequence of not providing information or providing incomplete information. As a result, some affected Chinese firms, without knowing the consequence, had not provided or provided only incomplete information. These firms suffered a loss because they had been subject to the "acquired facts" and the highest dumping margin meted out by the Mexican government.

Article 68 of the Mexican Foreign Trade Act stipulates that annual reviews can be applied to producers whose margin of alleged dumping or subsidization was found to be negative as the result of the original investigation. This is inconsistent with the Anti-dumping Agreement and the Agreement on Subsidy and Countervailing Measures which clearly provide that an investigating authority should terminate the investigation "in respect of" an exporter found not to have a margin above de minimis. Owing to the unfair practice carried out by the Mexican government, anti-dumping duties were imposed on some affected Chinese firms, even though their anti-dumping margins were not positive.

The Mexican Foreign Trade Act enacts a provision to penalize any firm that imports products which are subject to investigation. This is not in conformity with the GATT 1994, the Anti-dumping Agreement and the Agreement on Subsidy and Countervailing Measures.

The Mexican Foreign Trade Act stipulates that once the judicial proceedings against anti-dumping or countervailing measures begin, the investigation body shall immediately terminate all the administration reviews, new exporter reviews or changed circumstances reviews, which should not be resumed until the completion of the judicial proceedings. This stipulation deprives the Chinese exporters of the rights to apply for reviews which they are entitled to enjoy in line with the Anti-dumping Agreement and the Agreement on Subsidy and Countervailing Measures.

In addition, the Mexican authorities, in their anti-dumping investigations, denied China's market economy status. Subsequently, they have adopted the surrogate country method in determining the normal value of Chinese products. Article 48 of the Foreign Trade Act specifies the conditions for a country to be deemed as a market economy, but the stipulation leaves ample room for interpretation and a high degree of discretion to the Mexican government in anti-dumping investigations. Under the circumstances, the involved Chinese firms are most likely to be subject to high anti-dumping duties.

3.7.1.2 The Fulfillment of Mexico's Commitment to its Reserved Anti-dumping Measures as Described in the Protocol on the Accession of the People's Republic of China

Mexico used anti-dumping measures on many Chinese products before China's entry into the WTO. Mexico has committed to have the measures lifted gradually after China's accession and to bring its existing anti-dumping measures in conformity with the WTO Anti-dumping Agreement. The transitional period is 6 years (until January 1, 2007). Mexico's fulfillment of its commitments up till December 31, 2005 is as follows:

(1) Anti-dumping measures have been removed from the products including wrought iron joint, fluorspar, furazolidone, some toys, inner and outer tires of bicycles, generators, electrical appliances, equipment and related parts, high-frequency receiving and emitting instruments, instant coffee machines, and selected organic chemicals.

(2) Anti-dumping measures remain effective on the products including bicycles, shoes and boots, brass and bronze padlocks, baby carriage, door locks, gas- fuelled, non-refillable lighters, some hardware tools, textiles, toys, pencils, apparels, some organic chemicals (consisting of 26 products including citric acid, sodium citrate, etc.), porcelain tableware and other wares, concrete steel valves, candles, and wireless dust collector.

3.7.2 Safeguard measures

On October 23, 2005, the Mexican Ministry of Economy published in its Official Journal the Guidelines on the Implementation of the Transitional Safeguard Mechanism specified in China's WTO Accession Protocol. The guidelines stipulate that in line with the relevant Mexican laws, the General Administration of International Trade Practices under the Ministry of Economy shall, in the name of the federal government, conduct investigations on Chinese products and adopt corresponding special safeguards. The Guidelines also contains specific stipulations on conditions of implementation of the special safeguards, investigation proceedings, confirmation of damages, and time of implementation. However, Mexico is believed to negotiate with China before adopting the special safeguard measures.

3.8 Subsidies

Currently, the Mexican government provides subsidies amounting to 26.6 billion Peso (about US$2.3 billion) for farmers producing basic agricultural products through its "target income plan" every year. Other financial support schemes include supply of diesel oil, electricity and other necessities. These schemes belong to the amber box (trade-distorted subsidy) of the WTO Agreement on Agriculture and affect market price and production.

Among the developing countries, only Mexico boasts a high ratio of 34 percent in terms of the ratio of amber box aggregate measurement of support to its total agricultural output. In other developing countries, it is on average less than 4 percent. Therefore, Mexican domestic agriculture is greatly supported by the government and its agricultural products can enjoy a competitive advantage over foreign agricultural products.