Mexico and its trade relations with the world
Mexico maintains a solid commitment to economic development that is based on free trade. For the country, that has been the best strategy to avoid the challenges and difficulties of the international financial crisis and the leading plan of action to consolidate its participation as one of the major players in global commerce.
Trade agreements are mechanisms that seek to eliminate the obstacles to trade exchange between nations. Free trade agreements (FTAs) are regional or bilateral trade agreements that are designed to expand the market for goods and services by eliminating or substantially reducing tariff and non-tariff barriers to the flow of goods and services between the participating countries. Therefore, FTAs propose:
• To eliminate trade obstacles and to facilitate the circulation of goods and services, expanding national markets and enabling the creation of economies of scale.
• To promote conditions of fair competition, as well as to protect and assert intellectual property rights, generating certainty between the countries involved.
• To create efficient procedures for the implementation and fulfillment of the agreement for its joint administration and conflict resolution, helping to establish an atmosphere of trust among the participants.
• To generate guidelines for further bilateral or regional cooperation to expand and improve benefits, to reduce the vulnerability of exports to unilateral and discretional measures, to strengthen national industry by means of a solid and competitive export sector and to assist in job creation.
• To serve as a reference framework for subsequent trade negotiations and even foster those developed at the multilateral level.
Currently, Mexico is the country that has signed the largest number of free trade agreements in the world –12 FTAs, which include 44 countries in America, Europe and Asia, in addition to 23 bilateral investment agreements that provide preferential access to a market of close to one billion potential consumers. In only two decades, Mexico has become 1 of the 10 biggest trading powers in the world and the largest in Latin America. In addition, with a domestic market of over 112 million people, the country offers a wide range of opportunities for trade as well as investment.
Although the slump in the global economy and elevated uncertainty in financial markets has had significant impact on Mexico's level of trade and financial transactions with other countries, in 2011 Mexico's total global trade recorded a 16.8% growth.
That same year, Mexico recorded Foreign Direct Investment (FDI) revenue of 19.4 billion usd. In addition, it produced revenue in the foreign investment portfolio account of 41.7 billion usd, 40.9% higher than in 2010.
The principle underlining the existence of numerous free trade agreements in Mexico's economic agenda is diversification and the desire to venture into preferential conditions in diverse foreign markets, thus offsetting the effects of the economic stagnation that is prevailing in the US and the European Union.
Furthermore, for Mexico, like the rest of the world, it is extremely bad news that the round of trade negotiations of the World Trade Organization (WTO), known as the Doha Round, are at an impasse, making existing trade agreements all the more relevant since through them the country may aspire to reach various markets, in spite of the adverse conditions prevailing in the global economy.
Mexico's active FTAs are:
• North American Free Trade Agreement (NAFTA), with the US and Canada, which has enabled a trade increase in the North America region of over 300%.
• Free Trade Agreement with Colombia (formerly called the Group of Three), which has contributed to the increase of Mexican exports to that country by more than 600%.
• Free Trade Agreement with Costa Rica, which was the first agreement negotiated by Mexico after NAFTA and is based on the latter, including issues and provisions that had never been negotiated before between two Latin American countries. For Costa Rica, it was an enriching experience that allowed it to use this FTA as a reference for future negotiations, while bilateral trade with Mexico grew by more than 400%.
• Free Trade Agreement with Bolivia, which throughout its duration enabled bilateral trade to increase by 145%.
• Free Trade Agreement with Nicaragua, which aided an increase in exchange between the two countries of more than 600%.
• Free Trade Agreement with Chile, which throughout its duration has enabled a growth in mutual exchange by more than 600%.
• Economic Partnership, Political Coordination and Cooperation Agreement with the European Union, which is in fact the most complex and ambitious negotiation currently in effect between Mexico and a trading power of that magnitude. This agreement is made up of three sections: trade, politics and cooperation, all of which are important since the negotiation includes subjects such as democracy and respect for human rights as conditions for receiving a preferential trade agreement; these provisions may be invoked both by Mexico and the European Union.
• Free Trade Agreement with Israel, which allows Mexico to work alongside one of the economies with the greatest scientific and technological development in the world; trade has grown by more than 200%.
• Free Trade Agreement with the European Free Trade Association (Norway, Switzerland, Lichtenstein and Iceland), granting Mexico access to markets with high purchasing power.
• Free Trade Agreement with El Salvador, Honduras and Guatemala, also known as the "Northern Triangle" linking Mexico to a neighboring region of great importance, considering the cultural affinity and similarities in the challenges facing all of the countries involved.
• Free Trade Agreement with Uruguay, which is a window for Mexico into the Southern Common Market (MERCOSUR).
• Agreement for the Strengthening of the Economic Association between Mexico and Japan, which has contributed to trade liberalization, promoting Japanese investment in Mexico, improving the trade environment for both countries and stimulating bilateral cooperation.
It is important to highlight that on September 2, 2012, the Central American Free Trade Agreement (CAFTA) entered into effect and will substitute the existing agreements with Costa Rica, Nicaragua and the Northern Triangle. This ambitious agreement unified 98% of the regulations established in previous agreements and will have a single certificate of origin, which will allow companies to reduce administrative costs when exporting or importing within the region. In addition, through the CAFTA, Mexico will contribute to position Central America as a region on the international economic stage which, considering the size of the five participating economies, represents added value for the Mesoamerican area.
Through its FTA network, Mexico contributed to creating a new generation of trade agreements. Most of the agreements in which Mexico is a participant go beyond simple tariff dismantling and incorporate provisions on sanitary and phytosanitary measures, trade in services, investments, intellectual property, temporary entrance for entrepreneurs, compensatory quotas and conflict resolution mechanisms.
Mexico's accumulated experience in these types of negotiations is unquestionable and it has placed the country in a position to advise other governments and institutions on establishing FTAs. On the other hand, all negotiations contribute to coordination and the fact that Mexico has invested physical and human resources in establishing its FTAs has allowed it to become well known. At the same time, it has become familiar with other markets, some of which are remote and non-traditional, but that represent valuable opportunities for trade and investment at a time when the international economy is experiencing severe difficulties and facing protectionist tendencies.