In a significant move aimed at bolstering national security, the U.S. Treasury has announced a formal agreement with Mexico's finance ministry to cooperate on enhancing the screening of foreign investments. This collaborative effort includes the regular exchange of information regarding best practices in investment security.
The Biden administration has been actively promoting Mexico as a prime investment destination within U.S. supply chains. To ensure a robust screening mechanism is in place to manage this increased investment flow, the United States is assisting Mexico in developing a screening body similar to the Committee on Foreign Investment in the United States (CFIUS), which reviews foreign-owned entities' acquisitions of American companies and other inbound investments.
Treasury Secretary Janet Yellen expressed the importance of this cooperation, stating, "Like our own investment screening regime, CFIUS, increased engagement with Mexico will help maintain an open investment climate while monitoring and addressing security risks, making both our countries safer." Yellen made this announcement alongside Mexican Finance Minister Rogelio Ramirez de la O during her three-day visit to Mexico City.
Yellen's visit also focused on strengthening economic ties and collaboration to combat the illicit flow of the opioid fentanyl from Mexico to the United States, often involving precursor chemicals from China. In return, Ramirez sought U.S. assistance in curbing the flow of weapons from the United States to Mexican criminal organizations. He highlighted the challenges Mexico faces, where some criminal groups are better armed than local law enforcement and even rival the country's military in terms of weaponry.
Mexico has seen a substantial influx of manufacturing investments targeting the U.S. market, raising concerns about potential misuse of the country as a back door to circumvent U.S. export control restrictions for sensitive technologies like semiconductors. In the first three quarters of 2023, Mexico attracted $32.2 billion in foreign direct investment, nearly matching the total for the entire year of 2022, which was $36 billion.
Notable projects include the estimated $5 billion Tesla electric vehicle factory, which has led Chinese suppliers to announce investments exceeding $1 billion in the vicinity.
Despite the heightened scrutiny by CFIUS in recent years that significantly reduced Chinese investment in the United States, Yellen emphasized that she does not want to block China from injecting funds into Mexico or the United States when there are no national security concerns.
For Chinese firms seeking to enter the U.S. electric vehicle battery market through Mexico, they would need to comply with the Treasury's new "foreign entity of concern" rules, limiting Chinese control of producing subsidiaries to 25%.
Yellen also welcomed Chinese investment in the U.S. clean energy sector, particularly in light of domestic tax credits. She emphasized that private Chinese firms can contribute to diversifying the supply base in this sector.
Additionally, Yellen revealed that Treasury and Mexican Finance Ministry officials discussed the possibility of deeper integration of cross-border payment systems, which could have positive implications for trade and investment benefits between the two countries. This initiative is unrelated to China and aims to facilitate financial cooperation and reduce costs associated with sending remittances, according to Ramirez.