MINING IN MEXICO — New opportunities expected with NAFTA

The Canadian mining industry should carefully consider the new opportunities in Mexico which will result from ratification of the North American Free Trade Agreement (NAFTA), says James Buchanan, a principal with Ernst & Young’s international trade advisory service.

Many Canadian companies have recognized the implications of the Canada-U.S. Free Trade Agreement which took effect Jan. 1, 1989, he says. For some, new export markets have been penetrated while for others, Canadian operations have been downsized as part of a rationalization process.

The recent announcement of an agreement-in-principle on a NAFTA is expected to affect also many Canadian companies. The objectives of NAFTA are to eliminate barriers to trade in goods and services, promote fair competition and increase investment opportunities. The deal, which requires ratification in each country, is scheduled to take effect Jan. 1, 1994.

Mexico is not expected to become a major export market for Canadian mining companies because it is largely self-sufficient in metallic and non-metallic minerals.

However, Mexico may provide new investment opportunities for mining firms, in addition to new export markets for mining equipment and service companies. There are a number of changes to the rules restricting foreign investment in Mexico. The rules which apply specifically to the mining industry require prior approval for foreign investors to own 49% or more of either an established or new mining operation. As of Jan. 1, 1999, 100% foreign ownership of mining enterprises will be allowed.

In addition to the changes within NAFTA, the Mexican government has, during the last several years, initiated a number of programs and policies to stimulate growth in the mining industry.

These moves have included privatization of state-owned companies, revisions to claims processes and publication of a complete inventory of the countries mineral deposits.

The elimination of foreign-investment restrictions, and other regulatory changes underway, are expected to help the modernization of the Mexico mining industry. Elimination of tariffs as outlined in NAFTA should also encourage some further downstream processing of certain metals.

Revitalization of the Mexico mining industry will create significant opportunities for Canadian equipment and service firms. However, U.S. firms will gain the same advantages in terms of access to the Mexico market. Many of these firms have already been active in Mexico.

In light of the new opportunities, companies need to ask three basic questions:

— What are the key features of NAFTA which may affect my business? — What impact will NAFTA have on my industry, my customers, my suppliers and my business specifically?

— What are the appropriate action plans to capitalize on opportunities and minimize threats?