09 Jun 04. The FT reported that the leaders of Mexico and Russia have struck a deal to assemble helicopters for Russia’s military, giving an unexpected boost to Mexico’s ailing maquiladora sector.

The announcement followed a day of meetings in Mexico City between Vladimir Putin, the Russian president, and Mexican President Vicente Fox. Manufacturing helped bring Mexico out of recession during the 1990s, but the country is now losing ground to China and other lower-wage competitors.

Mr Fox said the manufacturing venture would be limited to assembling military equipment such as helicopters, rather than weapons. It will use a factory in Ciudad Sahagún, in Hidalgo, one of Mexico’s poorest states, which does not traditionally have a strong manufacturing sector.Mr Putin said the project, which is still being negotiated, was “concrete and interesting, but small” and that Russia would support it.

Mr Fox said the project “could open the market to heavy vehicles which have multiple uses – both by the army and in construction, and in rescue work after natural disasters”. If successful, it will be the first such deal that Mexico has reached with a foreign government.

The project could help Mexico move its “maquiladora” sector, which uses imported parts to assemble goods for export, towards new sectors that are easier to defend from lower-wage competition, a long-term aim of Mr Fox’s government. Mr Putin also offered Russian investment and expertise in developing liquid natural gas plants in Baja California. Mexico’s constitution requires that all natural resources are the property of the state, which has restricted the government’s efforts to attract foreign investment.

However, there is a recent precedent for using foreign investment in liquid natural gas, as Shell is involved in a project to build a new plant in Altamira, on Mexico’s Gulf coast. Several private companies are also involved in the distribution of gas within Mexico. It should therefore be possible to arrange for Russian help in building new plants without requiring the approval of Congress. However, there is strong political opposition to any foreign involvement in Mexican energy, and such a move would be unlikely to escape controversy.

Mr Fox also used the meeting with Mr Putin to make a strong call for Mexico’s investment rules to be liberalised. “Really, it is Mexico which is the exception in this area, as Chile, Brazil, Argentina, Cuba, Russia, the US, Canada, all of Europe and all the other countries operate under a system of total openness to investment, always maintaining control and sovereignty over resources,” he said. Mr Fox was wounded last week by the resignation of his energy secretary, Felipe Calderon. His replacement, Fernando Elizondo, has pledged to look for consensus on energy investment.