Mexico’s Trade Policy & Trade Agreements Overview | NAPS
June 17, 2015
Mexico international trade is a complex and rapidly evolving issue. The country has long been highly economically dependent on the US; during the new millennium, an average of 80% of Mexican exports have gone to the US, and 50% of its imports come from the US. Many of Mexico’s recent actions have been taken in an effort to reduce this large dependence, and Mexico is gradually moving toward taking a larger role in international trade and engaging in more communication and trading with more countries.
Between the years of 1994 and 2011, the total amount of commodities exported by Mexico increased 475%; over the same time period, imports increased 342%. This was a result of the massive trade liberalization projects undertaken by Mexico starting in the early 1990s, and continued to bear fruit even after the effects of the recession that began in 2009. In fact, even after the recession, Mexico’s gross domestic product – which had already been rising throughout the 2000s – has continued to rise. It was $13,200 per capita in 2009, which was a drop from the previous year, but by 2011 it had more than recovered to that level and had risen to $14,800 per capita. This amounts to almost twice as much as what it had been in 1999, $8,500 per capita.
Mexico did not begin extensive trade with other countries until the end of the second world war. In 1944, Mexico established trade with the US and Canada. For the next half century, trade gradually increased, and when the North American Free Trade Agreement was enacted, the value of goods traded between the three countries increased by $200 million US. When trade was initiated, imports from the US were equal or near-equal to exports to the US. However, after NAFTA trade agreement was enacted, exports grew quickly and vastly outstripped imports, reaching a discrepancy of over $60 billion US.
In 2014, 77.8% of Mexican exports went to the United States. 2.95% went to Canada, 1.9% to Spain, 1.54% to China, 1.53% to Brazil, 1.51% to Colombia, and 1.21% to Germany. Less than 1% went to Japan, India, and the United Kingdom; the remaining 9.32% was divided among all other countries. For comparison, as of 2008, 83.7% of Mexican exports were to the United States. 2.45% went to Canada, 1.76% went to Germany, 1.51% to Spain, 1.14% to Brazil, and 1.01% to Columbia. Less than 1% of Mexican exports went to the Netherlands, Venezuela, China, and Japan. The remaining 7.69% was divided among all other countries. This shows how Mexico is, slowly but surely, moving away from its dependence on the US and opening trade relations with other countries.
In 2014, exports accounted for 18.6% of the Mexican economy. Mexico’s primary exports, which account for 80.6% of its overall exports, are: vehicles (21.6%); electronic equipment (20.1%); machines, engines, and pumps (15.2%); oil (10.6%); medical and technical equipment (3.6%); furniture, signs, and lighting (2.4%); plastics (2.2%); gems, precious metals, and coins (2%); iron and steel products (1.5%); and vegetables (1.4%). As of 2013, Mexico surpassed Japan as the second largest exporter of vehicles to the United States, and is the 4th largest exporter worldwide of motor vehicles and parts. These Mexico trade statistics are really strong.
Mexico international trade policy has remained fundamentally the same since February 2008. The primary objective of Mexico’s trade agreements is, naturally enough, to increase the country’s economic standing and its share and role in worldwide trade. The primary means of enforcing and enacting this goal is through Mexico’s Sectoral Program for the Economy (PSE), which is itself underpinned by the National Development Plan (PND). Both of these are operated by Mexico’s Ministry for the Economy (SE). Increasing foreign trade and investment is one of four “priority areas” designated by the PSE, and to that end the PSE is tasked with optimizing and improving existing trade agreements, forging new trade agreements, merging multiple existing agreements into each other, and overall strengthening and defending Mexican trade.
There are a number of trade barriers in Mexico. One of these is the language. English is considered “the language of business”, as it is one of the most common languages spoken as well as extremely widespread. Mexico’s state language is Spanish, and a Mexican tradesman who hasn’t learned English is at a severe disadvantage. When trading with countries outside the Americas, Mexico also has the problem of distance and expense of transit to contend with; those countries are more likely to get what they need from a much closer country if they possibly can. Mexico has had problems with corruption in the past as well, which makes foreign traders and investors nervous and unsure about bringing their money and business to the country. Mexico has free trade agreements with many of its trading partners, but countries it does not have an agreement with face high tariffs. This discourages new countries from initiating trade without establishing some sort of agreement first.
Mexico is also seen as economically and politically tightly woven with the United States, which might put off countries that have shaky or negative relationships with the US. Part of the reason for that is the strong US Mexico trade agreement. Additionally, Mexico also has a system of import licensing or authorization for certain goods, including used goods, weapons, food and agricultural machinery, and medicine and medical equipment. Countries that have these as primary exports would have to leap through extra bureaucratic hoops in order to export their goods to Mexico, which discourages them from establishing trade relationships at all.
There are a large number of Mexico free trade agreements; in fact, Mexico has one of the most open and liberal trading networks in the world. Any country with a free trade agreement with Mexico faces no tariffs and vastly reduced import/export costs when trading with Mexico. In 1994, Mexico, Canada, and the US entered into the North American Free Trade Agreement, creating the largest single market in the world. In the years since then, Mexico has entered into 12 other free trade agreements, involving a total of 44 countries. At present, these agreements encompass: The United States, Canada, Costa Rica, Nicaragua, Chile, all of the countries in the European Union, Israel, El Salvador, Honduras, Guatemala, Uruguay, Iceland, Lichtenstein, Norway, Finland, Japan, Colombia, and Peru. Mexican goods can be exported to any of these countries with no tariffs and minimal other trade barriers.
Mexico has also been invited to join the Trans-Pacific Partnership. Other countries involved in the TPP, a few of which Mexico already has free trade agreements with, include: the US, Canada, Australia, New Zealand, Brunei, Malaysia, Peru, Chile, Vietnam, and Singapore. Should the TPP be approved by each of these countries, they will all be incorporated into a massive multilateral free trade agreement.
Mexico has been making a concentrated effort to expand and liberalize its trade since the early 1990s; as a result, Mexico now has one of the most open trade policies in the world. The economic downturn of recent years has hurt the country, but its export system is still going strong and expands its scope to new countries at every opportunity. For vehicle, electronics, and machine parts manufacturers, relocating to Mexico opens up a huge export market and offers many, many more chances to find new buyers for their goods.