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Friday, July 13, 2012

Mexico’s Free Trade Agreements

M. Angeles Villarreal
Specialist in International Trade and Finance

Mexico has had a growing commitment to trade integration and liberalization through the formation of free trade agreements (FTAs) since the 1990s and its trade policy is among the most open in the world. On June 18, 2012, President Barack Obama announced that an invitation was extended to Mexico to join the ongoing negotiations for the Trans-Pacific Partnership (TPP), a proposed free trade agreement involving the United States and eight other countries. Canada was also invited to join the negotiations. Mexico’s 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’s most significant trading partner. Almost 80% of Mexico’s exports go to the United States and about 50% of Mexico’s imports are supplied by the United States. In an effort to increase trade with other countries, Mexico has a total of 12 free trade agreements involving 44 countries. These include agreements with most countries in the Western Hemisphere including the United States and Canada under the North American Free Trade Agreement (NAFTA), Chile, Colombia, Costa Rica, Nicaragua, Peru, Guatemala, El Salvador, and Honduras. In addition, Mexico has negotiated FTAs outside of the Western Hemisphere and entered into agreements with Israel, Japan, and the European Union.

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’s primary motivations for its 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, attract more foreign investment, and create jobs. Mexico could also 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 trade negotiations may also contribute to the increasing interest throughout the world in bilateral and regional free trade agreements under the World Trade Organization (WTO). 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’s exports to all countries increased 475% between 1994 and 2011, from $60.8 billion to $349.6 billion. Although the 2009 economic downturn resulted in a decline in exports, the value of Mexican exports has since recovered, increasing in both 2010 and 2011. Total imports also increased rapidly, from $79.3 billion in 1994 to $350.9 billion in 2011, an increase of 342%. Mexico’s top five exports in 2011 were crude petroleum oil, passenger motor vehicles, flat panel screen TVs, mobile telephones, and vehicles for the transportation of goods. Mexico’s top five imports were gasoline, parts for flat panel screen TVs, mobile telephones, and passenger motor vehicles.

In the 112
th Congress, issues of concern related to the trade and economic relationship with Mexico have involved mostly economic conditions in Mexico, issues related to the North American Free Trade Agreement (NAFTA), the effect of NAFTA, and Mexican migration to the United States. This report provides an overview of Mexico’s 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.

Date of Report: July 3, 2012
Number of Pages: 25
Order Number: R40784
Price: $29.95

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