The Role of Public-Policies on the Development Path of the Auto Industry in Mexico and Thailand

The Role of Public-Policies on the Development Path of the Auto Industry in Mexico and Thailand

1Juan Manuel Perez Debrand 1Soka University, [email protected]

Abstract

The paper assesses the role of public policies on the development process of the auto industry in Mexico and Thailand. In addition the paper examines the economic and social externalities created after the auto industry in Mexico and Thailand liberalization process (early 1990s). The auto industry in Mexico and Thailand was selected due to the similarities in industrial capabilities and the coincidental time of the liberalisation of their markets. The empirical evidence suggests that, Mexico utilized its location and labour cost advantages to attract foreign direct investment while, on the other hand, Thailand utilized a detailed public programme to attract foreign direct investment and develop specific type of local product development capabilities. These different public policies strategies resulted in distinctive types of externalities. For instance, it helped to create green technology capabilities and a large indigenous supply chain in Thailand. On the other hand, in the case of Mexico, a large production capacity and export portfolio were created combined with a limited internal market.

Keywords: Auto industry, Externalities, Public policies, Mexico, Thailand.

1. Introduction

The growth of the auto industry is often associated with important benefits and drawbacks to society,

such as, technology progress, and job creation, but also pollution and traffic congestion. The benefits of manufacturing localization are perceived to outweigh the drawbacks it creates, thus, it incentivise governments to create and implement public policies to encourage the auto industry growth.

There are two fundamental ways to create policies to encourage the development of industries. One approach relates with policies to protect the target industry from foreign competition, helping the industry to follow a more natural and organic growth path. The other approach relates with less government intervention and more related with free competition.

These two approaches are not mutually exclusive, but there is a strong tendency that countries implement protectionist policies followed by a shift towards free competition policies. The latter shift towards free competition tends to occur after the local industry reaches a mature stage in which it can compete against international competition.

The auto industry creates externalities that can be found in many areas that are commonly associated with automobiles, such as, congestions and pollution. But also, positive or benefit externalities can be present within the flexibility of mobility that an automobile creates and the economic benefit that automakers generate creating jobs. Due to the uniqueness of the auto industry, the industry can be categorised as producer of consumption and production type of externalities.

The paper answers the question of the role public policies played on the development process of the auto industry in Mexico and Thailand. The paper is based on empirical data collected during March 2014 from 15 semi-structured interviews conducted with MNEs officials, scholars and officials of auto industry associations in Mexico. These three types of target audience were interviewed in order to triangulate the results from three different vantage points. Secondary data is utilized to cover the industry in Thailand and to further confirm and expand the information collected from the interviews.

Next section examines the public policies and the development path of the auto industry in Mexico and Thailand. The third section compares key externalities created by the development of the industry after the liberalisation of the markets.

2. Public policies and industrial development

Fundamentally the word “development” can be applied to many areas and can be defined based on

the area of study. In the area of economics, development is often referred to as; a classic industry

The Role of Public-Policies on the Development Path of the Auto Industry in Mexico and Thailand Juan Manuel Perez Debrand

International Journal of Engineering and Industries (IJEI) Volume 5, Number 4, December 2014

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development model that integrates the economic and social side. Development is also usually associated with the creation of jobs. Economic development leads to industrial development. In addition, it is common that industrial growth leads to economic development as well.

Over history, industrial development was in the forefront of the economic growth strategy of many countries. Governments have played an important role in the development process of many industries, but it is also true that many industries started because of natural and endogenous characteristics (Porter, 1990).

Efforts of policy makers to encourage industrial development can be traced to the beginnings of industries itself. Traditional policies that develop competitiveness in national industries lie in two approaches. The first approach is based on import substitution policies to protect local production and the second is based on policies to encourage local and foreign competition. Stiglitz (1987) explains that the latter development strategy tends to be towards “free market and export oriented policies”, while the former development strategy advances a “natural path of development” that is often associated with interventionist trade and import substitution policies (Stiglitz, 1987).

At early stages of development, many industries need some type of protection from foreign competition. This is the case of, among others, Japanese automobile industry, and the US’s semiconductors, to mention a few.

For instance, Japanese practices after the Second World War to create industrial competitiveness are described as practice with close collaboration between the government and the private sector. The main idea of this approach was to steer the economy to create competitive advantages rather that retaining the current advantages of the time (Pitelis, 2009).

China has been able to combine the two traditional development strategies into its own advantage. China created a successful hybrid model, in which free market and interventionist characteristics are combined. Nevertheless, this hybrid model is not taking into consideration a participatory (stakeholder) development strategy.

During early ages of protectionism, before the GATT and WTO, many tariff policies were created to protect local market from imports. This was also the case in Latin American countries during the fifties and sixties (Baer, 1972).

Import substitution policies are usually created to protect locally produced products from import products. Under these policies is common that the products that were imported pass to be produced locally. Some of the objectives of these policies are to create and protect local industries and generate employment.

Protectionism policies did not always work, as the cases of Brazilians and Mexican show (Baranson, 1969). Furthermore, the case of the Malaysian auto industry is a more recent case of a protected industry that still has not been able to gain international competitiveness (Segawa et al., 2014). Barason (1969) presents that auto industry’s factory costs were 60 per cent to 150 per cent higher than in the United States.

Free market policies encompass policies that encourage local and foreign competition while allowing flows of FDI and exports. After the age of protectionism policies, polices changed to accept more local and foreign competition. During this stage, tariff barriers were lifted, but non-tariff barriers were created to protect local market. Non-tariff barriers can be soft and are more difficult to clearly identify, in comparison with the tariff barriers counterparts.

The comparative advantage theory of David Ricardo has its roots in free market theory. Ricardo first suggested the comparative advantage theory in 1817, and stated that countries should focus on the industries that were internationally competitive; thus, improving the trade between countries.

The theory of “systems of innovations” argues that the best generator of innovation is free market competition. The downside is that in order to work properly, this theory requires the complete system (government policies, institutions that promote innovation, and markets) work effectively (Pitelis, 2009).

Furthermore, Michael Porter’s diamond model (1990) suggests four elements that determine the competitiveness of a nation. These elements are, factor conditions, firm and sectorial structure and strategy and related and supporting industries. This stage of free market competition also encouraged the creation of free trade agreements between two or more countries.

In the case of developing countries, FDI is often required in order to have the necessary capital resources to invest in the development of industries. However, governments need to be cautious on how they handle large flows of FDI into their economy. Pitelis (2009) argues that country size is not a


25

constraint to competitiveness especially if FDI and clusters strategies are aligned with the overall country strategy and competitive advantages.

A country’s main economic goal should be to elevate the living standards to adequate levels. By achieving this goal the economy can be sustained by the economic activity of the local market and international trade. No country can close its doors to international trade. Thus, international competitiveness is important to support the local economy, but domestic competitiveness should remain strong.

With the emergence of auto industries in developing countries, industrialised countries are finding difficult to keep their competitive advantage. Especially, countries with small local markets and local companies are not integrated in the global value chain. The current business strategies to protect the environment while generating economic benefits, suggest that long-term economic gains are more important than short-term economic costs. Despite whether implementing a protectionism or liberalism approach to industrial development, both can negatively affect the environment.

2.1. Mexican auto industry development model

-Import substitution stage The auto industry in Mexico began in 1925 with the establishment of the first automobile plant by

Ford in Mexico City to assemble the Ford model T. with 295 employees, followed by General Motors in 1937. Automex later became Chrysler, established in 1938. Falling behind the above mentioned companies, Volkswagen and Datsun made their arrivals in 1962 and 1966.

During the 1960s and mid 1970s all government policies were in the category of Import Substitution Industrialisation (ISI). For instance, import taxes and local content requirements are implemented. Around that time, this was a common trend in most Latin American countries (Gereffi, 2009).

In 1962 a presidential decree was passed to establish a 60 per cent local content requirement to all the automobiles manufactured in Mexico. From this decree 60 per cent of the value of the automobile needed to be outsourced from parts and components made in Mexico (Bennett, 1986).

In 1972 a second presidential decree was passed. This new decree established that all new parts and components suppliers must have a Mexican ownership of at least 60 per cent (Bennett, 1986).

-Liberalization stage In 1965 public polices changes in the US and Mexico allowed exports of parts and components from

the US to Mexico. Subsequently, the assembled cars were allowed to be exported without duty to the US. These policy changes lead to the creation of the maquiladora export industry in Mexico (Carrillo & Zarate, 2009). Late 1970s, government policies were restructured towards neoliberalism. For instance, import barriers were eliminated, imports were liberalized, and local requirements were reduce to 36 per cent to increase quality and encourage exports. Furthermore, in 1977 an expansion of the maquiladoras program was implemented, giving more freedom to government officials in the US/Mexico border state to approve maquiladora programs thus increasing the industrial development in the region (Carrillo & Zarate, 2009). Foreign ownership was also allowed, but only to suppliers that exported automobiles (Barragan, 2005). In 1986 Mexico joins the GATT and import tariffs are lowered.

-Free Trade Agreements Stage In 1994, NAFTA started and marked the shift towards trade agreements and regional integration.

Besides NAFTA, there are more than 40 trade agreements. One of the most important agreements is with the European Union and MERCOSUR due to the preferential access to European and largest Latin American markets. Before 1994, only Ford, VW, Nissan, and Chrysler had production operations in Mexico (Barragan, 2005). After the NAFTA agreement other automakers, such as Honda, Toyota, and Mazda, have established manufacturing facilities in Mexico.

The auto industry in Mexico increased its growth path and international competitiveness after encouraging local and foreign competition in the 90s. Mexican government played a less interventionist role in the development of the auto industry, showing its best results at the end of 2000s.

(See Appendix) Table 1. Mexico’s auto industry Public Policies


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2.2. Thailand’s auto industry development model -Import substitution The auto industry in Thailand begins in 1961 with the joint venture of Ford of Britain and the Thai

Motor Industry Corporation. In 1969, the ministry of Industry (MOI) set up the special committee to formulate a master plan of auto industry development.

During late 1970s and 1980s, the Thai government implemented incentives and trade barriers to protect the domestic producers, such as local content requirements. Nevertheless, the policies favoured MNEs and encouraged FDI. As a result, Japanese makers developed supplier network locally and intra-firms collaboration. During this period, most of manufacturers were join-ventures between local and foreign firms. Later on, the devaluation of the local currency in 1997 affected the manufacturing sector seriously.

-Liberalisation The Thai government liberalised the industry in the 1990s, and in 1994, the protection policies were

eliminated. This pushed Japanese, European and American parts suppliers to invest in Thailand. After local content requirements (LCR) were completely abolished in year 2000, “Thai government

introduced industrial policies using discretionary power to select particular models and functions to be developed in the automotive industry” (Natsuda & Thoburn, 2013).

The Thai government decided to open the market in a good time period. During this period, Malaysia, Indonesia, and Philippines still maintained their protectionism policies (Suehiro, 2009).

Suehiro (2009) argues that three different elements helped Thai auto industry to develop post their import substitution policies. These elements are: Economic liberalisation, agglomeration of auto-parts makers, and MNCs regional strategy.

-National strategy During the 2000s, the Thai government has created, in collaboration with private sector, a series of

action agenda to attract FDI and create specific competitive advantages in certain technologies. These action agendas are called “Thailand Automotive Industry Master Plan”. Three master plans

were developed, starting from 2002-2006, 2007-2011, and 2012-2016. On the latest master plan, the government has the “vision towards 2021” in which it is planning to

develop Thailand as “a global green automotive production base with strong domestic supply chains which create high value added for the country.”

After Thailand liberalisation of the auto industry it is relatively successfully keep attracting FDI and it has focused on creating a comparative advantage with its neighbours on manufacturing a specific product, the “eco-car”. As Natsuda and Thoburn (2013) corroborate.

(See Appendix) Table 2. Thailand’s auto industry Public Policies Strategies


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Figure 1. Mexico and Thailand Public Policies Overview

Figure 2. Mexico and Thailand Production & Sales

The auto industry in Mexico and Thailand increased its growth path and international

competitiveness after encouraging local and foreign competition in the 90s. However, both countries have chosen different paths implementing public policies.

Mexico government played a less interventionist role in the development of the auto industry, showing its best results at the end of 2000s. While Thailand, with more aggressive political initiatives, the auto industry has been growing at a slower pace but with higher levels of indigenous capabilities integration.

Nevertheless, the current state of development of both countries is quite similar. One of the common aspects is the weak local activity of product development and R&D. Thailand is trying to fix this weakness with its green-car program, while Mexico is creating the right environment to increase FDI.

Both Mexico and Thailand developed their auto industry thanks to FDI. In the case of Mexico, the majority of the FDI came from the US. In the case of Thailand, the majority of the FDI came from Japan. Currently, the continuous growth of both industries is helping to attract more FDI, increasingly coming from diverse sources from Europe; for instance, VW investment in Mexico. As well, various Japanese firms have increased their investment in both countries by taking advantage of the strong Yen valuation.

3,001,974

2,483,043

987,747

1,423,580

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Mexico and Thailand Production & SalesSource: OICA, AMIA & TAI

Mexico Production Thailand Production Mexico Sales Thailand Sales


28

3. Externalities of the auto industry development The externality theory explains about the positive and negative costs or benefits of activities to third

parties. The economist A.C. Pigou greatly contributed to this theory in the area of welfare. His contributions helped to understand the impact of the different types of externalities into the society and how externalities could be controlled with the intervention of the government and the use of public policies.

The development of the auto industry fits into consumption and production categories of externalities. Local industrial activity creates production externalities, while sales of automobiles create consumption externalities. This paper does not cover the production externalities of automobile production, but rather of the growth and development of the industry itself.

This section examines three key externalities created by the growth of the auto industry in Mexico and Thailand. The following three externalities are selected, (local capabilities, employment, and the environment), to understand the impact of the auto industry growth.

This section first compares how the local capabilities of Mexico and Thailand have been affected. Second is compared the trend of employment created by the auto industry. And Third is compared the environment and the implementation of policies that encourage the protection of the environment.

3.1. Local capabilities

As the auto industry develops, the influence can be seen in areas such as knowledge transfer and

industrial capabilities development (Barragan & Usher, 2009; Natsuda & Thoburn, 2013). Furthermore, it helps the creation of indigenous companies working directly with the auto industry (Contreras et al., 2012; Ueda, 2009).

Mexico has been able to attract 10 manufacturers from United States, Europe, and Japan. These automakers have automobile and engine facilities around 12 states. Including all the related activities of the auto industry, the activities of the industry expand to 26 Mexican states (AMIA et al. 2012).

Thailand has been able to attract 16 manufacturers from United States, Europe, and Japan. However, Japanese manufactures account for more than 80 per cent of total production (Natsuda & Thoburn, 2013).

-Production exports share Mexico and Thailand export a significant share of their local production. Based on data compiled

from OICA, AMIA and TAI, in 2012 Mexico exported 78 per cent of its production while Thailand exported 41 per cent. These numbers suggest that local production in these two countries does not only have to meet local quality standards but also international. In addition, this affects the level of technology applied locally.

Figure 3 shows the export ration and local market trends in both countries. In the case of Thailand, the local sales increase since 2009 helped to reduce the export ratio. This trend indicates the allocation of local production to satisfy local market needs. On the other hand, the Mexican local sales increase did not affect the export ration growth. This trend suggests that the production growth in Mexico has been allocated to satisfy both foreign and local markets.


29

Figure 3. Percentage of Production that is Exported & Sales

-Export destinations The NAFTA market represented 76 per cent of total Mexican exports in 2013, followed by Brazil

and Germany with 6 per cent and 5 per cent respectively (AMIA, 2014). Mexico became one of the most important exporters of vehicles to the US. Only Canada and Japan export more vehicles into the US.

The Australian market is the largest export destination and represented 17 per cent of total automobiles and parts exported in 2010. Followed by Indonesia and Malaysia with 10 per cent and 7 per cent respectively (Natsuda & Thoburn, 2013).

-Related industries By localising more manufacturing in Mexico and Thailand, other industries have been affected as

well. These industries are ranging from services to manufacturing related. In the case of Mexico, most the companies related with the auto industry are in the service industry,

such as cleaning, food, after sales, and security. There are relatively weak indigenous Mexican companies.

In the case of Thailand, many indigenous direct suppliers emerged because of the localisation of manufacturing. Around 50 per cent of tier 1 suppliers are indigenous. Other industries beneficed by the auto industry are machinery and vehicle maintenance and repairing services (Ueda, 2009).

Mexico has concentrated most of its efforts to attract FDI and increase local capacity to export. At the same time its indigenous firms has been struggling to compete with firms with foreign capital backup. In the positive side, because of NAFTA, there are many firms with foreign capital that are considered local due to the regional laws of investment. This is the case of manufacturers and suppliers as well.

In the case of Thailand, public polices created a slower and organic growth that has helped to grow more indigenous firms inside and outside the auto industry. Thailand does not face the challenge of meeting regional guidelines of investment and local content, thus providing a flexible framework of public polices. Nevertheless, the increasing integration to the ASEAN community is restricting the flexibility of the framework (Natsuda & Thoburn, 2014).


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Figure 4. Structure of the Auto Industry in Mexico

Figure 5. Structure of the Auto Industry in Thailand

3.2. Employment

Manufacturing industries are known for their labour intense activities and for being an important

source of blue-collar jobs. Due to the advancement of technology and manufacturing methods, it is expected that the number of blue-collar jobs will decline while the number of high skilled jobs will grow. This section will compare the role of the auto industry in the creation of Jobs.

Certainly there is direct and strong correlation between economic growth and the number of jobs created. This is also true in the case of the auto industry development. In a report published by McKinsey (2014), they argue that Mexico’s economy has two economies (Bolio et al., 2014). One economy is helped by NAFTA to create jobs in leading industries, such as the auto industry. But in the other hand, the productivity of small traditional firms has been declining at the time that these firms are creating jobs at a faster rate than modern firms.

During the import substitution process, one of the main objectives was to secure local jobs (Ueda,


31

2009). Nevertheless, table 3 shows the latest labour force reports said that the auto industry in Thailand occupied 525,000 direct workers, while in Mexico it occupied 580,208 direct workers.

Table 3. Workers Occupied in the Auto Industry 2012

Mexico 580,208

Thailand 525,000

Source: INEGI 2013, TAI and Ministry of Industry 2012

The growth of the auto industry goes beyond the number of jobs that it creates. An important

externality is the increasing training that workers receive. This can be observed in the increasing number of turnover of employees in the auto industry. This is the case of small and medium size company poach employees from bigger companies based on the training and experience gain. The same pattern can be observed in the movement of talent from automobiles manufacturers into suppliers. This trend can be observed in the state of Guanajuato, in which suppliers offer higher salaries to attract automobile manufacturers employees.

3.3. Environment

-Green technology and policies The auto industry growth is also affecting cities’ ecosystems and the overall environment. Studies

estimate that motor vehicles contribute between one fifth and one third of total CO2 emissions depending on the country (Sartzetakis & Tsigaris, 2005). Cities in developed countries have been implementing restrictions to vehicles with high contamination rates and imposing tax benefits to cars equipped with “green” technologies, such as hybrids and electric motors. This section discus to what extent “green” technologies is implemented in Mexico and Thailand.

Mexico introduced in late 1968 a federal annual tax to car ownership called “Tenencia”. After 2012, the tax was changed to be collected on a states basis, leading to some states, such as the City of Mexico, to adapt it to incentive the ownership of new cars. Nowadays Mexico City is exempting new cars buyers from paying this tax, as an effort to reduce pollution in city and reduce the average age of its vehicles fleet.

However, Mexico is facing the challenge of import of used vehicles from the US. Due to the NAFTA agreement, vehicles up to 8 or 9 years old can enter the Mexican market. As a result, more than 600 thousand vehicles from the US enter Mexico every year (AMIA et al., 2012). AMIA et al. (2012) estimates that 50 per cent of the automobiles are 16 years old, in comparison in the US is only 10 years old. The relative old vehicular fleet contributes to pollution and low safety technology.

Thailand devised the series of policies and incentives to promote investment into green technologies. In the “Master Plan for Automotive Industry 2012-2016” (TAI & Ministry of Industry, 2012). Thailand presents the details of the strategies to become a production hub of green, Eco-friendly, cars and technologies. As part of their efforts, Thailand has already implemented emission standards similar to the one implemented in Europe, such as EURO4 and EURO3. It also implemented a limit of 120 gram of CO2 emissions per kilometre similar to the international regulations.

-Pollution In both countries, the CO2 emissions have been growing for more than four decades. CO2 emissions

have been increasing in Mexico since late 1960s, while in the case of Thailand it increased significantly since late 1980s. Both cases coincide with the growth of expansion of the manufacturing capacity locally. Mexico’s CO2 emissions have been relatively stable since the early 1980s until 2003. Afterwards CO2 emissions started to raised again due to the shift towards export-oriented industries (Gonzalez & Martinez, 2012). Thailand reached similar levels of emissions as Mexico in early 2000s, and surpassed Mexico in 2008. Figure 6 shows in more details the emission trends of each country since early 1960s (The World Bank, 2014).

Nevertheless, good progress has been made in the expansion of the public transportation use and efficiency has been helping to control CO2 emissions, congestion and over all fuel economy


32

(Tanatvanit et al., 2003; Wohrnschimmel et al., 2008).

Figure 6. CO2 emissions (metric tons per capita)

4. Findings and conclusions

The empirical data suggests that industrial policies played an important role to develop the auto

industry in Mexico and Thailand. Taking in consideration that before the development of the auto industry these countries had relatively weak expertise in industrial and manufacturing related activities (Tai & Hung, 2013).

Mexico’s government played a less interventionist role in the development of the auto industry in comparison with Thailand. Despite that fact, Mexico has a bigger international advantage because it locally produces vehicles for world’s markets, gaining global export share in the last 20 years. Currently Mexico’s competitive strengths are in its location advantages, relative low labour costs, and access to develop markets thanks to free trade agreements (AMIA et al., 2012).

Despite the different development strategies utilised by both countries, the externalities created by the auto industry are similar but different at the same time. The findings suggest that positive and negative externalities can be found in the development of industries.

The policies to liberalise the industry in early 1990s helped both countries to exports vehicles to neighbours countries, attracting even more FDI to develop local capabilities. Mexico is using its proximity to the US market as a location advantage to attract FDI and compete based on lower costs. While, Thailand is becoming a regional production hub and one of the most important pick-up truck manufacturer, heavily helped by Japanese FDI.

Unfortunately, the expansion of the auto industry also had been contributing to create negative environmental externalities, such as pollution and traffic congestion. But there are initiatives to implement policies that encourage the industry to gain competitive advantage in developing and implementing environment friendly “green” technologies, such as Thailand’s Master Plans for the auto industry.

In the case of Mexico, an important externality is the increasing import of used automobiles from North America that was enhance by the liberalisation public policies. The increasing number of used cars imports to Mexico is affecting the sales of new cars, especially cars manufactured in Mexico. The main negative externality of the export-oriented model is the relative weak support to the internal market. Because most of the vehicles built in Mexico are for advanced export markets, such as the US and EU, the vehicles are manufactured with higher technology and safety standards than vehicles commonly sold in less advanced markets, such as Mexico. As well, an export-oriented model increases the risk for local production, because of its dependence on foreign markets and economic and diplomatic relations. The ideal model will be a balanced shared of exports with locally sold vehicles.

In the long term, Thailand’s policies strategies seem to generate more positive externalities than Mexico. For instance, Thailand utilizes its policies to encourage the investment in green technologies

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009CO2 emissions (metric tons per capita)

Source: The World Bank

Mexico

Thailand


33

with the hope to trickle down these into developing markets. On the other hand, Mexico has a softer approach towards policy intervention, and rather focusing on creating the right business environment to keep attracting FDI.

Mexico seems to be more affected than Thailand by the policies to create an export hub. Due to Mexico's focus to increase its export share to developed markets, it is depending on the developed markets technologies to locally develop technological capabilities. This situation is hampering Mexican capabilities to discover its local market needs and characteristics, thus contributing to reduce the opportunities of indigenous suppliers to compete, which could lead to develop native and local innovation capabilities.

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[28] Ueda, Y., "The Origin and Growth of Local Entrepreneurs in Auto Parts Industry in Thailand", Center for Contemporary Asian Studies, Doshisha University, Working Paper no.25, 2009.

[29] Miranda, A. V., "La industria automotriz en Mexico: Antecedentes, situacion actual y perspec-tivas", Contaduria Y Administracion, UNAM, vol.221, pp.211-248, 2007.

[30] Wohrnschimmel, Zuk, Ceron, & Cardenas, "The impact of a Bus Rapid Transit system on com-muters' exposure to Benzene, CO, PM2.5 and PM10 in Mexico City", Atmospheric Environment, Elsevier, vol.42, no.35, pp.8194-8203, 2008.

6. Appendix

Table #1: Mexico’s Automobile Industry Public Policies

Year Action Details

1925 Establishment

Ford is the first carmaker to start assembly cars.

20% local content

Sale Price control by Government

1962 Import substitution

60% local content

40% FDI limit to components factories

60% Mexican capital minimum for suppliers

49% limit of FDI in certain projects

Limit cars, engines and transmissions imports

Sales price control by Government

1972 Export promotion

decree

Imports and exports must be balanced.

40% of parts can’t be produced by the automobile manufacturer

All new parts manufacturers must be 60 per cent Mexican own

1977 Shift towards Exports USA / Mexican border starts to develop


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36% local content (reduced to encourage exports)

Foreign ownership allowed for suppliers, but only to export

1984- 1987

Local production restrictions

Restrictions to production lines and vehicle models per manufacture.

1986 Neoliberalism Mexico joins GATT

Lower import tariffs

1989 Trade restrictions

Tighter trade balance is implemented.

15% of the total vehicles sold nationally could be imported.

36% of added value should come from national suppliers.

1994 NAFTA

North American market access without duty tariffs

Shift from National content requirements to regional.

50% regional content from 1995 to 1997

56% regional content from 1998 to 2000

62.5% regional content from 2001

USA’s companies invest massively

Shift towards FTAs

Besides NAFTA there are 44 FTAs, among the most relevant do to market potential are:

Colombia and Venezuela (1995), Costa Rica (1995)

Bolivia (1995), Nicaragua (1998), Chile (1999)

European Union (2000)

EFTA (European Free Trade Association) (2001)

Japan (2005), Mercosur, South Korea

Source Own elaboration based on data from: AMIA et al., 2012; Barragan, 2005; Bennett, 1986; ProMexico, 2013; Vicencio, 2007

Table #2: Thailand’s Automobile Industry public policies strategies

Year Action Details 1961 Import substitution JV between Ford of Britain and the Thai Motor

Industry Co 1978 Local content program Local content requirement increased to 25% 1983 Local content program Local content requirement increased to 50% 1985 Import tax increase From 150% to 200% on passenger cars with

2000cc and over engines 1990 Neoliberalism Lifted tax import on cars with lass than 2300cc

engines 1994 Abolition of protection policies Liberalise new entry of local and foreign firms

in the industry 2000 Abolition of protection policies Abolition of localisation auto parts scheme

Thailand joins the WTO 2007 AutoInd master plan - phase 1

(Eco-Car policies to attract FDI)5 Year corporate tax holiday Duty Free imports of Machinery Lower sales tax rate (17% instead of 30%)

2012 AutoInd master plan - phase 2 (Eco-Car policies phase 2)

8 Year corporate tax holiday Duty Free imports of Machinery Lower sales tax rate (12/14% instead of 30%)

Source Own elaboration based on data from: Tai and Hung (2012),


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The Role of Public-Policies on the Development Path of the Auto Industry in Mexico and Thailand

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