Mexico’s Free Trade Agreements

[Excerpt] Mexico has had a growing commitment to trade integration through the formation of free trade agreements (FTAs) since the 1990s and its trade policy is among the most open in the world. Mexico\u27s pursuit of FTAs with other countries not only provides economic benefits, but could also potentially reduce its economic dependence on the United States. The United States is, by far, Mexico\u27s most significant trading partner. About 80% of Mexico\u27s exports go to the United States and 49% of Mexico\u27s imports come from the United States. Mexico\u27s second largest trading partner is China, accounting for approximately 6% of Mexico\u27s exports and imports. In an effort to increase trade with other countries, Mexico has a total of 11 trade agreements involving 41 countries. These include agreements with most countries in the Western Hemisphere including the United States and Canada, Chile, Costa Rica, Nicaragua, Guatemala, El Salvador, and Honduras. In addition, Mexico has negotiated FTAs outside of the Western Hemisphere and entered into agreements with Israel and the European Union in July 2000. Mexico also has an FTA with Japan. The large number of trade agreements, however, has not yet been successful in decreasing Mexico\u27s dependence on trade with the United States. Economic motivations are generally the major driving force for the formation of free trade agreements among countries, but there are other reasons countries enter into FTAs, including political and security factors. One of Mexico\u27s primary motivations for the unilateral trade liberalization efforts of the late 1980s and early 1990s was to improve economic conditions in the country, which policymakers hoped would lead to greater investor confidence and attract more foreign investment. Trade agreements were also expected to improve investor confidence, attract foreign investment, and create jobs. Mexico may have other reasons for entering into FTAs, such as expanding market access and decreasing its reliance on the United States as an export market. The slow progress in multilateral negotiations may also contribute to the increasing interest throughout the world in regional trade blocs. Some countries may see smaller trade arrangements as building blocks for multilateral agreements. Since Mexico began trade liberalization in the early 1990s, its trade with the world has risen rapidly, with exports increasing more rapidly than imports. Mexico\u27s trade balance with all countries went from a deficit of $13.5 billion in 1993 to surpluses of $7.1 billion in 1995 and $6.5 billion in 1996. Since 1998, Mexico\u27s trade balance has remained in deficit, reaching $17.5 billion in 2008. The trade balance with the United States went from a deficit of $2.4 billion in 1993 to a surplus of $82.0 billion in 2008. Exports to the United States increased 447% between 1993 and 2008, from $42.9 billion to $292.6 billion. Mexico\u27s imports from the United States increased 237% during the same time period, from $45.3 billion to $152.6 billion. In the 110th Congress, issues of concern related to the trade and economic relationship with Mexico involved mostly economic conditions in Mexico, issues related to the North American Free Trade Agreement (NAFTA), the effect of NAFTA on Mexico, and Mexican migrant workers in the United States. The 111th Congress will likely maintain an active interest concerning Mexico on these issues. This report provides an overview of Mexico\u27s free trade agreements, its motivations for trade liberalization and entering into free trade agreements, and some of the issues Mexico faces in addressing its economic challenges. This report will be updated as events warrant