FOCUS

The Big Trade Off

Mexico has forged a plethora of free trade agreements with countries and blocs around the world, and has shown itself to be a paragon of free trade among emerging economies.

Mexico’s foray into free trade agreements (FTAs) began in 1994, when it created what was to be the world’s largest trade bloc with the US and Canada, the North American Free Trade Agreement (NAFTA). From Mexico’s perspective, it was hoped that signing up would promote FDI and create jobs. Along with a desire to boost investment, further FTAs were aimed at lowering the country’s trade dependence on North America, which is the destination for over 80% of Mexico’s exports, as well as the origin of around 50% of its imports.

Aside from NAFTA, Mexico has 11 more FTAs. The country signed separate agreements with Costa Rica in 1995, as well as with Colombia and Venezuela, creating the G3 FTA. In 2006, Venezuela left the bloc, with Mexico announcing that a replacement would be sought. In 1998 and 1999, the country signed deals with Nicaragua and Chile, respectively. This was followed up by agreements with the EU and Israel in 2000 and 2001, and the Northern Triangle, including Guatemala, El Salvador, and Honduras, and the European Free Trade Association, including Iceland, Liechtenstein, Norway, and Switzerland in 2001. The country also signed an FTA with Uruguay in 2004, and more recently, the Economic Partnership Agreement with Japan in 2005, the first comprehensive deal the Asian country had entered into. Mexico also once held aspirations to join the Common Southern Market (MERCOSUR), an FTA comprising Argentina, Brazil, Paraguay, and Uruguay, but passed on the opportunity during the Salinas administration, instead choosing to join NAFTA. Mexico does, however, enjoy economic ties with MERCOSUR, and at the end of 2011 an agreement was signed to liberalize the automotive trade. With countries in the bloc boasting an annual trade value of $25 billion in the auto industry, it is set to prove fruitful. “Most certainly the agreement will enable greater investments of Mexican corporations in MERCOSUR and reciprocally; I’m sure that in coming months there will be a greater supply of Mexican cars and brands in South America and we will be receiving more cars from MERCOSUR,” Cassio Luiselli Fernández, Mexican ambassador to Uruguay, described the situation.

Although the FTAs have yet to dent Mexico’s trade dependence on the US, they have been vital in attracting investment to the country, while also boosting exports overall. Exports have risen from just under $140 billion in 1994, to over $350 billion in 2011, and imports have grown in a similar fashion. Indeed, Mexico’s resilient economy is predicted to attract up to $28 billion in FDI in 2012, according to HSBC, boosting hopes that a diversifying export base will finally allow Mexican exports to enjoy the kind of success in European and Asian markets that they have enjoyed in the US market for so long. However, the continuing significance of NAFTA cannot be ignored, with the bloc representing an additional market of 460 million people and a combined GDP of $18 trillion. With obvious trade benefits, “NAFTA [also] contains a mechanism for resolving disputes and provides protection for investments,” Andrés Franco, Under Secretary of Foreign Investment and International Commerce in the State of Nuevo León, told TBY, adding that “Mexico is the third-largest partner of the US and the second-largest destination of all US exports.” Kai Bethke, Regional Director for Mexico, Central America and the Caribbean at UNIDO (UN Industrial Development Organization) Mexico, reinforced the idea in an interview with TBY, commenting that “Mexico’s greatest advantage is also its greatest weakness, namely its proximity to the US,” concluding that “being part of NAFTA is a big advantage.” And for many firms, it is an advantage that is rapidly making Mexico a world top-10 economy.