By David Lawder
MEXICO CITY (Reuters) -The U.S. and Mexico agreed on Wednesday to cooperate on stronger screening of investments to reduce national security risks and discussed integrating cross-border payments systems, but U.S. Treasury Secretary Janet Yellen insisted that the moves were not motivated by concerns about China.
The Treasury and Mexican Finance Ministry signed an agreement to exchange information on technical information and best practices as Yellen wrapped up a three-day visit to Mexico City.
The Biden administration is promoting Mexico as a premier investment destination for U.S. supply chains and wants to ensure that it has a robust screening regime in place to handle a growing influx of factory investment.
The effort is aimed at helping Mexico develop a screening body similar to the Treasury-run Committee on Foreign Investment the U.S. (CFIUS), which reviews purchases of American companies by foreign-owned entities and other inbound investments.
"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 said in announcing the memorandum of intent with Mexican Finance Minister Rogelio Ramirez de la O.
FENTANYL VS WEAPONS
Yellen's trip focused on enhancing economic ties and boosting cooperation to stem the flow of the deadly opioid fentanyl to the United States via Mexico, where precursor chemicals from China are often mixed.
Ramirez asked for help in fighting the flow of weapons from the United States into the hands of Mexican criminal gangs that he said often outgun police departments and Mexico's military.
"On this side of the border we're doing everything we can to detect and prevent" the shipping of fentanyl to the U.S., he said. "So we have also asked for the same level of cooperation from the U.S. with these (arms) shipments."
Mexico is attracting a major influx of manufacturing investments to supply the U.S. market, raising concerns that China or other countries could use it as a back door to get around restrictions on U.S. export controls for sensitive technologies such as semiconductors.
The near-shoring boom brought Mexico $32.2 billion in foreign direct investment in the first three quarters of 2023, close to the full-year 2022 total of $36 billion.
High-profile projects include an estimated $5 billion Tesla electric vehicle factory in northern Mexico that has prompted Chinese suppliers to announce plans to invest over $1 billion nearby.
While CFIUS' increased scrutiny in recent years has sharply reduced Chinese investment in the United States, Yellen said the investment screening talks with Mexico were "not just China-focused." She said China was welcome to make investments in Mexico to supply the U.S. as long as these could pass national security screenings and meet new tax credit content rules limiting EV battery value chains to 25%.
"If Chinese involvement triggered those rules, which are meant to avoid undue dependence on China, then that's a no," Yellen said earlier.
Ramirez, asked whether Mexico was worried increased cooperation with the U.S. would strain its relationship with China, Ramirez said Mexico's trading relationship with its northern neighbor was "overwhelmingly dominant" and a higher priority than with other countries.
The Treasury and other members of CFIUS, which include the U.S. departments of State, Defense, Homeland Security, and Commerce, regularly work with governments to improve their investment screening, including recently in Europe, Yellen said. More than 20 countries have implemented or enhanced their regimes over the past decade.
Yellen said that Treasury and Mexican Finance Ministry officials on Thursday also discussed cross-border payment systems, including possibly integrating them more deeply, which could enhance trade and investment benefits.
Possible deeper integration of the payment systems between the two countries was "not about China," Yellen said.
Financial cooperation with the U.S. enabled Mexico to look at issues of interest to the country "in particular digital payments and reducing costs to send remittances," Ramirez said.
(Reporting by David Lawder; Additional reporting by Kylie Madry; Editing by Richard Chang)