Ties That Bind

Free Trade Agreements

Mexico may be the country that has signed the largest number of free trade agreements (FTAs), but 12 is not enough for the growing nation. In Summer 2012, Mexico was […]

Mexico may be the country that has signed the largest number of free trade agreements (FTAs), but 12 is not enough for the growing nation. In Summer 2012, Mexico was invited to join negotiations surrounding the potential Trans-Pacific Partnership (TPP), led by the US and eight other countries. After joining officially in October 2012, Mexico announced its backing of Japan as a possible member state in an immediate show of support for the nascent concept. Mexico’s commitment to expand the TPP is expected to encourage US-Japan negotiations and accelerate Japan’s acceptance into the agreement. Although a final agreement has not been concluded, the leading actors of the TPP movement are expected to reach a decision by October 2013. Once complete, the TPP could encompass 40% of the world’s economy—700 million people and a GDP worth $25 trillion.

The goal of the proposed TPP agreement is to link the member states’ economies to all of the fast-growing markets in the Asia Pacific region. Those involved in the talks are aiming to draft an agreement that demands higher standards in areas like labor costs and quality, environmental protection, and intellectual property rights. Like FTAs, the TPP would also reduce regulatory barriers to trade. Other countries currently involved in the negotiations are the US, Canada, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam.

A great shift in Mexico’s economy over the past 20 years, working away from oil dependence and import-substitution economics, has led to an open market with rapidly increasing trade activity. “Mexico’s foreign trade in 2012 reached a record of $740 billion, accounting for two-thirds of our GDP,” José Antonio Meade Kuribreña, Secretary of Foreign Affairs of Mexico, explained to TBY. “We have been extremely successful in achieving increased trade volumes with our North American partners.”

Mexico’s foray into FTAs began in 1994, when it created what was to become 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 on would promote FDI and create jobs. Along with a desire to boost investment, further FTAs are 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.

The country also signed a separate agreement with Costa Rica in 1995, as well as Colombia and Venezuela to create 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, 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, an 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 strong 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, the agreement 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,” explained Cassio Luiselli Fernández, Mexican ambassador to Uruguay, in an interview.

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 some $371 billion in 2012, and imports have grown in a similar fashion. Indeed, Mexico’s resilient economy attracted $12.7 billion in FDI in 2012, boosting hopes that a diversifying export base will finally allow Mexican exports to enjoy the kind of success in European and Asian markets that has been enjoyed in the US market for many years. 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 has helped a variety of companies across Mexico in addition to international investors. In the case of manufacturers such as Whirlpool, NAFTA has been the deciding factor about whether or not to go global with a North American company.

“With NAFTA, there are no trade wars or tariffs to negotiate, and everything is set. These are a few reasons why the world is bullish about Mexico,” Alejandro Burillo Azcarraga, President of the Board of Directors at Grupo Pegaso, told TBY. As a complement to NAFTA, the proposed TPP will support the elimination of inefficiencies at the border and open up wider access for Mexican-made products with embedded US content.

The Mexican Association of Intermodal Transport (AMTI) is seeking to use NAFTA to its advantage as it further develops the concept of intermodal transportation hubs. “We need to focus on the NAFTA area and bring more cargo on trains that come from Canada and the US,” Fernando Ramos Casas, President of AMTI, explained.