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Mexico Table of Contents


Trade Agreements

In 1991 Mexico and Chile signed a bilateral free-trade agreement under which each country would gradually reduce tariffs on three categories of products. As a result, Chilean exports to Mexico increased 112 percent between 1991 and 1993, and an additional 33 percent (US$89 million in value) between January and August 1993.

Mexico also formed a trilateral free-trade association with Colombia and Venezuela known as the Group of Three (G-3). Negotiations were concluded in 1993, and the agreement took effect during 1994. Tariffs on most products were to be gradually eliminated over ten years (twelve years for automobiles). The agreement was expected to create a US$373 billion economic market encompassing some 145 million people. In October 1993, the G-3 countries announced their intention to establish a wider Association of Caribbean States (ACS). In March 1994, Mexico and Costa Rica negotiated a bilateral free-trade agreement that was expected to provide a model for similar agreements between Mexico and other Central American countries. Mexico also discussed a free-trade agreement with the EU and membership in the new Asia-Pacific Economic Cooperation forum.

President Salinas's most significant commercial achievement, however, was the successful conclusion of NAFTA negotiations with the United States and Canada in 1993. Salinas sought free trade with the United States largely in order to increase private investment, attract new technology, and ensure continued access for Mexican goods to the United States market. Mexico's neoliberal development strategy depended on promotion of manufactured exports, which in turn required expanded United States-Mexican trade. Salinas also sought a free-trade agreement with the United States and Canada to reassure potential investors of the continuity and stability of Mexican economic policy, and to provide formal legal procedures for resolving commercial disputes. The agreement provided for ongoing consultation on issues of mutual concern to member countries, including health regulations, product subsidies, rules of origin, and quality standards (see President Salinas, ch. 1).

NAFTA provides for the elimination of Mexican tariffs on 5,900 categories of imports from the United States and Canada (mostly machinery and intermediate goods), representing more than 40 percent of Mexico's overall trade. Other products are reclassified in a simplified tariff list having four rate bands--5 percent, 10 percent, 15 percent, and 20 percent. The United States eliminated tariffs on 3,100 additional categories of Mexican goods, bringing to 80 percent the portion of all Mexican exports to the United States that will be free from tariffs. Some 4,200 categories already had been included in the General System of Preferences (GSP) and were thus already exempt from tariffs. The treaty eliminates some tariffs immediately and phases out the rest over five, ten, or fifteen years, with vulnerable industries in the United States and Mexico receiving the longest protection.

Mexico's deadlines for lowering trade barriers are generally longer than those for Canada and the United States. The latter countries are required to lift immediately their tariffs on some 80 percent of Mexico's nonoil exports, while Mexico must grant immediate free entry to 42 percent of United States and Canadian exports. Special rules apply for trade in textiles, vehicles and auto parts, and agricultural products. The treaty also governs trade in services, including overland transport, telecommunications, and financial services, and it includes provisions for the liberalization of government procurement.

NAFTA requires Mexico to abolish protectionist limitations on foreign investment (except in the energy sector), allow free profit repatriation by United States and Canadian firms, and guarantee investors against property seizure without full compensation. The treaty allows foreign banks to take up to 25 percent of Mexico's banking market and allows foreign brokerages to take 30 percent of the securities business by 2004, after which all restrictions are to be eliminated.

NAFTA is expected to create a free-trade area with a combined population of 356 million and a GDP of more than US$6 trillion. It commits future Mexican governments to preserve liberal trade and investment policies, and it maintains pressure on Mexico to increase its trade competitiveness. The agreement is likely to spur both foreign investment and increased exports, which will allow expansion of private consumption and domestic investment as monetary controls are relaxed and interest rates fall. NAFTA's accession clause (Article 2005) allows any country or group of countries to join the treaty provided it negotiates mutually acceptable terms. New accessions are to be ratified according to each member's "standard approval procedures." Each current member enjoys an effective veto over admission of new members. Although Mexico has not opposed Chilean accession, it is unlikely to support a Central American application for fear of competition from these countries for new textile factories and other light industrial installations.

Balance of Payments

Data as of June 1996

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Mexico Table of Contents