Miguel Sahagun Mexico: Regional Leader

Mexicos Trade Strategy

Mexico has pursued a three-dimensional trade strategy perhaps more diligently than even the United States according to Schott (Studer & Wise, 2007). Mexico has been an active participant in multilateral talks since its GATT accession in 1986 and was the host country for the special Summit of the Americas in Monterrey and for the hemispheric trade talks in Puebla. Mexico is perhaps most famous as the instigator of NAFTA as well as many other FTAs with countries around the world including key industrial markets such as the European Union (EU, The European Free Trade Association (EFTA), and Japan. In addition, Mexico entered in FTAs with Bolivia, Chile, Costa Rica, El Salvador, Guatemala, The G3 (Colombia, Mexico, and Venezuela), Honduras, Israel and Nicaragua during the period January 1995 to June 2001 (Schott in Studer & Wise, 2007). It is important to emphasize that Mexico has many more FTAs than United States and these pacts are an integral part of Mexicos broader development strategy.

Bilateral and Regional Agreements

Bilateral and regional agreements have been a mainstay of Mexican trade policy in recent years. They complement and promote greater multilateral liberalization and are consistent with the WTO provisions.

Mexico is one of the WTO Members with the greatest number of FTAs: it has a network of 12 which afford it preferential access to over a billion consumers in 44 countries, representing about 75 per cent of world GDP. Thanks to these agreements, Mexico now ranks as the tenth largest exporter in the world in terms of value of exports and the largest in Latin America and the Caribbean, and is one of the main developing country recipients of FDI, with all attendant benefits that this brings for economic growth, job creation and wages.

In 2002, Mexico had FTAs with the following Members: United States and Canada (1994); Colombia and Venezuela (1995); Bolivia (1995); Costa Rica (1995); Nicaragua (1998); Chile (1999), Israel (2000); the European Union (2000); the “Northern Triangle” with Guatemala, Honduras and El Salvador (2001); the European Free Trade Association (EFTA) with Iceland, Norway, Liechtenstein and Switzerland (2001).

Between 2002 and 2006 two new FTAs entered into force: with Uruguay (2004), and Japan (2005). Venezuela gave notice of termination of its FTA with Mexico on 22 May 2006 and that notice took effect 180 days following its communication (on 19 November 2006). Mexico is currently in negotiations to adjust and extend an FTA with Colombia and to develop FTAs with Korea and Peru.

The trade agreements which have been negotiated have opened up markets for Mexican exports and have increased Mexicos attractiveness for investment, by affording greater certainty for economic agents, including exporters, investors and consumers. These agreements and the multilateral trading system are complementary mechanisms for moving towards liberalization of the economy and maintaining consistency between the instruments.

Mexico is also involved in other regional initiatives such as the Asia-Pacific Economic Cooperation (APEC) mechanism, the goal of which is to achieve a free-trade and investment regime by 2020 at the latest. Mexico is the seat of the Secretariat of the Free Trade Area of the Americas (FTAA). Furthermore, Mexico has been a member of the Organization for Economic Cooperation and Development (OECD) since 1994, and it is in that capacity that it is taking part in discussions to draw up an international trade agenda.

According to Schott (Studer & Wise, 2007), Mexico is crafting its own Free Trade Area of the Americas (FTAA) through an agglomeration of bilateral FTAs with trading partners in the region. These agreements are key to its strategy to attract European and Asian investment to build up Mexico as the locale for servicing the broader hemispheric market. Yet, there still is a confused debate on whether the FTAA or a similar approach is good for Mexico since it will erode Mexicos preferences in the U.S. market. It is important to emphasize that NAFTA preferences are being devalued every year as the United States negotiates other FTAs and reduces its most favorite nation trade barriers.

Where South America is concerned, Chinas trade impact in the Mercosur is relatively light. Argentina and Brazil, the two powerhouses of the Mercosur region, benefit significantly from the relationship, however. China is Argentinas fourth largest export destination, and Brazils third (ICTSD, 2007). Inversion of the relationship is seen in the trade picture with the two smallest Mercosur nations, Paraguay and Uruguay.

Uruguays exports to China reached just U.S.$119 million in 2005, while imports totaled approximately U.S.$242 million. Paraguays position is even more disaggregated, at U.S.$69 million in exports compared to an approximate U.S.$716 million for imports during the same period (ICTSD, 2007). Prospectus to the region of course is advancing, yet with the decline in the Mercosur regions currency in the last two years since the 2008 world financial crisis, with exception of Brazil and Mexico which have actively courted the relationship with China, Latin Americas market remains relatively unimportant as an export destination. Even still, both nations retain index positions on the China export scale below the 20th rank, with the value of Chinese exports to Mercosur exponentially growing since earlier in the decade when a mere 0.6% of the nations exports reached the region (ICTSD, 2007).

In the last decade, China has successfully built strong commercial and investment with Latin American and Caribbean countries. Despite the global economic downturn, China continues to pour billions of dollars into Latin America through investments, loans, acquisitions, and currency swaps. China hopes to be perceived as a friendly economic partner rather than a competitor and to lay foundation for stable, long-term commercial relations.

China became Mexicos second largest trading partner in 2003, behind only the United States. China is Mexicos new economic neighbor and not always a welcome one according to Dussel (2008). The growth in the economic relationship has not been matched by growth in institutional ties and as mentioned by Dussel (2008), Mexico benefits less from Chinas commodity demand and competes directly with China in many manufactured goods.

The rise of China in the global economy has raised three major issues for the Mexican economy according to Dussel (2008). First, Mexico was not prepared for the enormous new trade relationship with China; second, Mexicos integration to the world market; and third, Chinas massive exports cause that several industrial sectors in Mexico suffer substantially from Chinese competition both domestically and internationally, especially with the U.S. One pronounced area of concern in this regard has been Mexicos competitive position against Chinas in the export auto part industry to the U.S. market. This comes at a time when there is an insurgence of anti-dumping disputes prompted by the United States, against the threat of influx of Chinese industrial exports to the NAFTA region.

Since Chinas turn of the 21st century entrance into accord with the WTO as a member state, the nations accelerated growth as an export economy on the global market has instigated a number of WTO disputes. Most of those complaints have been filed by developed countries. As China amasses stockpiles of inexpensive products for trade, particular market segments have been virtually saturated with a massive flow of cheap goods represented in competitive products already existing in the national markets of the NAFTA region. Everyday mass consumer items like auto parts, and especially ecologically costly products to manufacture such as petroleum-based tires, which require full cost pricing inputs in the parallel U.S. manufacturing sector in response to environmental regulatory compliance, are flooding the retail consumer sector with low cost, alternatives from China. The disputes against China are obviously supported by NAFTA region members, as this impinges upon the competitive edge of Canadian and Mexican industrial outputs. Trade surplus impacts those decisions as seen in Figure 1.

Figure 1

Figure 1: U.S. Trade Balance with Major Trading Partners FY08 ($ Billions).

In United States WTO complaint, DS340 Auto Parts Dispute against China, the export tire industry and the countrys anti-dumping violations in the United States expressly denies China of continued agreement for bulk export those goods to its national market. It is also important to put the DS340 Auto Parts Dispute into comparative scope with other anti-dumping suits filed against China by the United States, in order to perceive the entire protectionist picture that has emerged by way of the Anti-Dumping protocols. Commenced in 2006, the European Union, United States and then followed by Canada, filed dispute (DS340) for mediation against China in complaint that the country had violated WTO anti-dumping guidelines in the auto parts sector in export trade to the EU and NAFTA regional markets. Two years later, in 2008, the WTO reached decision regarding the complaint, and mandated control measures to Chinas agreement to export Auto Parts to the plaintiff countries,.

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