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Thursday, July 22, 2010

Mexico’s Free Trade Agreements

M. Angeles Villarreal
Specialist in International Trade and Finance

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'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. About 80% of Mexico's exports go to the United States and 49% of Mexico's imports come from the United States. Mexico's second largest trading partner is China, accounting for approximately 6% of Mexico's 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.

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 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 are 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's 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's trade balance has remained in deficit, reaching $17.5 billion in 2008 and then declining to $4.8 billion in 2009. The trade balance with the United States went from a deficit of $2.4 billion in 1993 to a surplus of $72.5 billion in 2009. Exports to the United States increased from $42.9 billion in 1993 to $234.6 billion in 2008, and then declined to $184.9 billion in 2009. Mexico's imports from the United States increased from $45.3 billion in 1993 to $152.6 billion in 2008, and then declined to $112.4 billion in 2009 due to the economic downturn.

In the 111th Congress, issues of concern related to the trade and economic relationship with Mexico involve mostly economic conditions in Mexico, issues related to the North American Free Trade Agreement (NAFTA), the effect of NAFTA, economic conditions in Mexico and Mexican migrant workers in 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 12, 2010
Number of Pages: 22
Order Number: R40784
Price: $29.95

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