iron ore, manganese, sulfur, tin, potash, phosphate, and salt. Petroleum, natural gas and uranium are reserved exclusively for government exploitation. There can be little doubt that nationalization of Mexico's petroleum, natural gas, and energy industries before World War II has had some adverse effect on the attitude of foreign investors toward mining in Mexico. Production by Pemex, the state-owned petroleum industry continues to increase at a slower rate than does the domestic demand. In fact, production of some petrochemicals actually declined in 1971. Last year, Mexico became a net importer of petroleum products for the first time in recent years, and no immediate reversal of this position appears possible. Taxation The Mexican government imposes five separate taxes on mining enterprises operating in the country a production tax, export tax, income tax, commercial receipts tax, and concession tax. Of these, the first is excessively high and is the most inequitable since it must be paid even if an enterprise is operating at a loss. Profit-sharing with employees is also required by the government. Income taxes are assessed on a sliding scale to a maximum of 42 percent on annual taxable income exceeding US$40,000. The commercial receipts tax is levied on all commercial transactions and amounts to 3 percent. The concession, or surface area, tax is usually less than 15 pesos per hectare per year. Mexicanized companies, however, qualify for substantial reductions in taxes, including a 50 percent reduction in the production tax and, under special conditions, an additional 25 percent reduction in the combined production and export taxes. Copper or gold producers are also elligible for a further 50 percent reduction in the production tax. Furthermore, if the copper or gold producer is a new mining enterprise operating in a remote area, it can obtain a 100 percent reduction in its production and export taxes (federal portion) and a 40 percent reduction in income taxes for a period of five years. Although the combined base tax schedules appear to be exorbitantly high, there are a number of reductions and incentives available that cancel out or greatly reduce the overall tax impact. To take advantage of these opportunities for tax relief, a company must maintain a very close working relationship with the federal tax authorities. A highly important factor in any negotiations to obtain tax reductions is the amount of money that the company plans to reinvest in Mexico. Finally, negotiations for tax reductions other than the automatic 50 percent reduction in the production tax for Mexicanized companies are subject to special conditions and interpretations which vary from project to project. 6