Japanese Eye Mexico for Investments, Causing Worry in U.S.
Japanese Eye Mexico for Investments, Causing Worry in U.S.
Jul. 05, 1987
MEXICO CITY (AP) _ Japanese manufacturers are eyeing Mexico's northern border area as a prime spot for new plants, and Americans are concerned they'll use it as a cheap export base for the rich U.S. market.
''The numbers are not great, but the prospect is,'' said Theodore Jacobs, counsel to the U.S. House Government Operations subcommittee on commerce, consumer and monetary affairs.
''Many, many Japanese companies have indicated they are interested,'' said Jacobs, whose panel recently held hearings in San Diego on so-called in-bond plants along the U.S.-Mexican border.
Japanese businessmen predict 10 new Japanese in-bond plants will open by year's end, nearly doubling the dozen or so that now exist.
Under the in-bond program, components and raw materials can be imported duty free for assembly in Mexico and re-exported, generally to the United States, as final or semi-finished products. Under U.S. rules, companies pay duties only on the amount of labor or the valued added to the products.
Because of Mexico's low labor rates, the in-bond program lets companies cut their costs and become more competitive.
U.S. companies have dominated the program since its inception in the 1960s and are expected to continue to do so.
U.S. companies are estimated to operate almost 95 percent of the 1,000 or so in-bond plants.
Japanese firms take advantage of the program by sending components made by their U.S. subsidiaries to their operations in Mexico, which are sometimes backed by U.S. or Mexican capital.
''Almost all Japanese manufacturing companies are very much interested in investing (in Mexico) to produce their original products,'' said Goichi Shimojo, president of the 111-member Japanese Chamber of Commerce and Industry of Mexico.
Manuel Armendariz Etchegaray, the Mexican Commerce Department's undersecretary of foreign investment regulation, expects a further flow of Japanese money.
''We would like to increase (investments) and we think there are many fields in which potential operations can be foreseen,'' he said.
Ambassador Takeshi Naito of Japan said Japanese investment ''is going to gradually increase. ... There can be no doubt it is increasing.''
Shimojo, who heads the local subsidiary of the giant Mitsui & Co. trading concern, said Japanese firms in the past wanted a foothold in Mexico, which, with about 80 million people, offers a potentially large consumer market.
''But,'' he said, ''right now many Japanese companies are very interested in exporting their products ... to the United States. So there is a historical change.''
The Japanese electronics giants Sony Corp., Sanyo Electric Co., Matsushita Electric Industrial Co., Hitachi Ltd., and TDK Corp. already are operating border plants, according to the Mexican Commerce Department.
Jose M. Martinez Ayala, executive director of the department's industrial promotion and regional development office, said Casio Computer Co. is considering joining its competitors.
Japanese firms, he added, ''want to conquer the American market.''
Mexico, as a developing country, offers a number of attractions: low labor and energy costs, nearness to the American market, a large labor pool, and a developed infrastructure.
''The labor quality is good, especially in the Juarez area. It's one of the major factors to decide this place for us,'' said Hideaki Yasukawa, chairman of Epson El Paso (Texas) Inc., in announcing plans for a border plant.
Seiko Epson Corp. will begin making plastic lenses next year in Ciudad Juarez, just across the border from El Paso.
Another major Japanese company, Toshiba Corp., will start producing television chassis in late October at a new Ciudad Juarez plant for shipment to its Tennessee operations. The frames are now being made in Singapore, according to company officials.
Flush with a record trade surplus, Japan snapped up $142.2 million worth of Mexican factories, real estate, equipment and other assets last year, up a hefty 15.9 percent from 1985. It was the largest gain since $212.1 million in 1981.
In all, Japanese firms have put a little more than $1 billion into factories and other assets in Mexico since 1951, accounting for 6.1 percent of the nation's direct foreign investment.
Japan is outranked by the United States, with investments of $11 billion, and West Germany, with $1.4 billion, according to the Commerce Department.
As part of recent negotiations on a financial aid package for Mexico, Japan pledged $1 billion in loans for industrial and petroleum projects.
With Mexico's serious economic problems, the government has increasingly welcomed foreign money. President Miguel de la Madrid visited Japan last fall to drum up support.
The government's in-bond program provides Mexico with its second largest source of foreign revenues after oil sales.
Even though the Japanese investment in the program is tiny compared to the U.S. participation, the specter of a growing number of Japanese firms on the U.S. border worries some in Congress.
''There is some concern the Japanese may be using Mexico as an export base ... and it might use Mexico in such a way to take advantage of tariff preferences extended to Mexico because it is a neighbor and it is poor,'' Jacobs, the House subcommittee counsel, said.
Some also question whether the Japanese want to invest in other countries to try to defuse current trade frictions between the United States and Japan. Exports from Mexico, for example, would not add to Japan's heavy trade imbalance with the United States.
But Armendariz Etchegaray seeks to allay such U.S. fears.
''I don't think the Japanese are so (naive) as to think that they can protect themselves by diversifying their operations in a third country,'' he said.
Shimojo, though, acknowledged the U.S. concern and said Japanese companies must invest in a ''low key'' manner.
''We don't want to ... stimulate American fears,'' he said. ''For the American consumer and American laborer, we have to behave ourselves.''
End Adv July 5