U.S.-Mexico Economic Relations:
Trends, Issues, and Implications
M. Angeles Villarreal
Specialist in International Trade and Finance
July 1, 2014February 10, 2015
Congressional Research Service
7-5700
www.crs.gov
RL32934
U.S.-Mexico Economic Relations: Trends, Issues, and Implications
Summary
During the remainder of the 113th114th Congress, policymakerspolicy makers will likely maintain an interest in
Mexico on issues
related to cross-border trade, Mexico’s participation in the Trans-Pacific
and investment; Mexico’s economic reform measures, especially in
the energy sector; the Trans-Pacific Partnership (TPP) agreement negotiations, energy sector and other reforms in Mexico, economic
conditions in Mexico, migration, and border issues. Congress may take a more active interest in
the opening of Mexico’s energy sector to foreign and private investment for the first time in 76
years. President Peña Nieto began his presidency with an ambitious reform agenda. In December
2013, he signed into law a constitutional amendment that will allow oil companies to gain access
to untapped oil reserves in Mexico, which are estimated to be as high as 113 billion barrels. The
Mexican Congress must approve secondary legislation to implement the historic reforms. Most
industry experts agree that Mexico’s state-owned oil monopoly, Petróleos Mexicanos (Pemex)
lacks the financial and technical resources to operate its existing fields efficiently or to expand
into new fields.
The bilateral economic and trade relationship with Mexico is of interest to U.S. policymakers
because of Mexico’s proximity to the United States, the high level of bilateral trade, and the
strong cultural and economic ties that connect the two countries. Also, it is of national interest for
the United States to have a prosperous and democratic Mexico as a neighboring country. Mexico
is the United States’ third-largest trading partner, while the United States is, by far, Mexico’s
largest trading partner. Mexico ranks third as a source of U.S. imports, after China and Canada,
and second, after Canada, as an export market for U.S. goods and services. The United States is
the ; NAFTA and WTO
trade issues; and U.S.-Mexico border management. Congress may also take an active interest in
ongoing bilateral efforts to promote economic competitiveness, increase regulatory cooperation,
and pursue energy integration. Under the U.S.-Mexico High Level Economic Dialogue (HLED),
which was launched in September 2013, the United States and Mexico are striving to advance
economic and commercial priorities through annual meetings at the Cabinet level that also
include leaders from the public and private sectors. Another bilateral initiative that may be of
interest to policy makers is the High-Level Regulatory Cooperation Council (HLRCC), launched
in February 2012, which is intended to help align regulatory principles. In addition, the two
countries have a bilateral initiative for improving border management under the Declaration
Concerning 21st Center Border Management that was announced in 2010.
The economic and trade relationship with Mexico is of interest to U.S. policy makers because of
Mexico’s proximity to the United States, the high level of bilateral trade, and the strong cultural
and economic ties that connect the two countries. Also, it is of national interest for the United
States to have a prosperous and democratic Mexico as a neighboring country. Mexico is the
United States’ third-largest trading partner, while the United States is, by far, Mexico’s largest
trading partner. Mexico ranks third as a source of U.S. imports, after China and Canada, and
second, after Canada, as an export market for U.S. goods and services. The United States is the
largest source of foreign direct investment (FDI) in Mexico.
The United States and Mexico have strong economic ties through the North American Free Trade
Agreement (NAFTA), which has been in effect since 1994. Prior to NAFTA, Mexico had
followed a strong protectionist policy for decades until it began to unilaterally liberalize its trade
regime in the late 1980s. Not all trade-related job gains and losses since NAFTA can be entirely
attributed to the agreement because of the numerous factors that affect trade, such as Mexico’s
trade liberalization efforts, economic conditions, and currency fluctuations. NAFTA may have
accelerated the ongoing trade and investment trends that were already taking place at the time.
Most studies show that the net economic effects of NAFTA on both countries have been small but
positive, though there have been adjustment costs to some sectors within both countries.
In June 2012, President Barack Obama announced that the nine countries involved in the TPP
negotiations had extended an invitation to Mexico and Canada to join negotiations for the
proposed multilateral free trade agreement. The proposed TPP would likely enhance the
economic links Mexico already has with the United States and Canada under NAFTA. This could
include further reduction of barriers to trade and the negotiation of key issues in areas such as
agriculture, intellectual property rights protection, government procurement, regulatory cohesion,
and others.
The United States, Mexico, and Canada have made efforts since 2005 to increase cooperation on
economic and security issues through various endeavors, most notably by participating in the
North American Leaders Summits. The most recent Summit was hosted by President Enrique
Peña Nieto in Mexico on February 19, 2014. The three leaders discussed issues on the economic
well-being, safety, and security of North America and issued a joint statement renewing their
commitment to regulatory cooperation in key areas or interestMost studies show that the net
economic effects of NAFTA on both countries have been small but positive, though there have
been adjustment costs to some sectors within both countries. Much of the bilateral trade between
the United States and Mexico occurs in the context of production sharing as manufacturers in
each country work together to create goods. The expansion of trade has resulted in the creation of
vertical supply relationships, especially along the U.S.-Mexico border. The flow of intermediate
inputs produced in the United States and exported to Mexico and the return flow of finished
products greatly increased the importance of the U.S.-Mexico border region as a production site.
U.S. manufacturing industries, including automotive, electronics, appliances, and machinery, all
rely on the assistance of Mexican manufacturers.
In June 2012, Mexico and Canada joined negotiations for the proposed TPP. If approved, the
agreement would likely enhance the economic links Mexico already has with the United States
and Canada under NAFTA. Policy makers may consider how a TPP would affect the U.S.-Mexico
trade and investment relationship under NAFTA. Although nearly all U.S. trade with Mexico is
now conducted duty and barrier free under NAFTA, the TPP negotiations may provide a venue
for addressing issues that are not covered under the agreement. If approved, a TPP would not
render NAFTA obsolete, but it could alter certain rules governing U.S.-Mexico trade since
NAFTA entered into force. A TPP may have implications in several areas, including intellectual
property rights protection, investment, state-owned enterprises, services trade, agriculture,
government procurement, worker rights, and the environment.
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U.S.-Mexico Economic Relations: Trends, Issues, and Implications
Contents
Introduction...................................................................................................................................... 1
U.S.-Mexico Economic Relations ................................................................................................... 1
U.S.-Mexico Trade .................................................................................................................... 2
Bilateral Foreign Direct Investment .......................................................................................... 5
Mexico’s Export-Oriented Assembly Plants.............................................................................. 7
Regulations for Mexican Manufacturing Plants Worker Remittances to Mexico ................................................................................... 8
Worker Remittances to Mexico .............. 8
Bilateral Economic Cooperation ............................................................................................... 9
High Level Economic Dialogue (HLED) ................................................................ 8
Regulatory Cooperation................................... 9
High-Level Regulatory Cooperation Council ................................................................... 10
21st Century Border Management ..................................................................................... 10
North American Leaders Summits .................................................................................... 10
The Mexican Economy .................................................................................................................. 11
Economic Trends ..................................................................................................................... 11
Informality and Poverty ........................................................................................................... 1213
Structural and Other Economic Challenges............................................................................. 1314
Energy Sector .......................................................................................................................... 15
Mexico’s Regional Free Trade Agreements............................................................................. 16
Proposed Trans-Pacific Partnership (TPP) Agreement17
NAFTA .................................................................. 17
NAFTA ........................................................................ 17
Proposed Trans-Pacific Partnership (TPP) Agreement .................................................................. 1819
Bilateral Trade Issues ..................................................................................................................... 1920
Sugar Disputes ......................................................................................................................... 19
Mexican Tomatoes20
2014 Mexican Sugar Import Dispute ................................................................................ 20
Sugar and High Fructose Corn Syrup Dispute Resolved in 2006 .................................... 21
Dolphin-Safe Tuna Labeling Dispute. 22
Country-of-Origin Labeling (COOL) ...................................................................................... 22
Mexican Trucking Issue .......................................................................................................... 2423
Bush Administration’s Pilot Program of 2007 .................................................................. 24
Mexico’s Retaliatory Tariffs of 2009 and 2010 ................................................................. 25
The Obama Administration’s ProposalTrucking Program of 2011 ................................................. 26
2011 Memorandum of Understanding to Resolve the Dispute ......................................... 27
Mexican Tomatoes ................................................................................................................... 28
Dolphin-Safe Tuna Labeling Dispute .................................................................... 26
2011 Memorandum of Understanding to Resolve the Dispute ......................................... 2729
Policy Issues .................................................................................................................................. 2831
TPP Negotiations ..................................................................................................................... 28
Regulatory Cooperation..............31
Bilateral Economic Cooperation ............................................................................................. 2831
Mexico’s Economic Reforms .................................................................................................. 2932
Figures
Figure 1. U.S. Merchandise Trade with Mexico .............................................................................. 4
Figure 2. GDP Growth Rates for the United States and Mexico ................................................... 1213
Figure A-1. Map of Mexico ........................................................................................................... 3033
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U.S.-Mexico Economic Relations: Trends, Issues, and Implications
Tables
Table 1. Key Economic Indicators for Mexico and the United States ............................................. 2
Table 2. U.S. Imports from Mexico: 2009-2013 .............................................................................. 5
Table 3. U.S. Exports to Mexico: 2009-2013 .................................................................................. 5
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U.S.-Mexico Economic Relations: Trends, Issues, and Implications
Table 4. U.S.-Mexican Foreign Direct Investment Positions: 1994-20122013 Historical Cost
Basis ............................................................................................................................................. 6
Table 5. Percent Changes in Remittances to Mexico ....................................................................... 98
Appendixes
Appendix. Map of Mexico ............................................................................................................. 3033
Contacts
Author Contact Information........................................................................................................... 3033
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U.S.-Mexico Economic Relations: Trends, Issues, and Implications
Introduction
The bilateral economic relationship with Mexico is of key interest to the United States because of
Mexico’s proximity, the high volume of trade with Mexico, and the strong cultural and economic
ties between the two countries. The United States and Mexico share many common interests
related to trade, investment, and regulatory cooperation. The two countries share a 2,000 mile
border and have extensive interconnections through the Gulf of Mexico. There are also links
through migration, tourism, environmental issues, health concerns, and family and cultural
relationships.
The remainder of the 113th114th Congress will likely maintain an active interest in Mexico on issues
related to related to crossborder trade and investment; Mexico’s economic reform measures, especially in the energy sector; cross-border trade
between the two countries; Mexico’s participation in
sector; the Trans-Pacific Partnership (TPP)
agreement negotiations; migration; and other border issuesNAFTA and WTO trade
issues; and U.S.-Mexico border management. Congress may continue to take an
interest in the
economic policies of Mexico’s President, Enrique Peña Nieto. Since entering into
office on
December 1, 2012, Peña Nieto has advocated numerous economic and political reforms
that that
include, among other measures, opening up the energy sector to private investment,
countering countering
monopolistic practices, passing fiscal reform, making farmers more productive, and
increasing increasing
infrastructure investment.1 Peña Nieto also endorses an active international trade
policy aimed at
increasing Mexico’s trade with Asia, South America, and other markets. His
government is taking
an active role in the negotiations for a TPP.2
This report provides an overview of U.S.-Mexico economic relations, trade trends, the Mexican
economy, NAFTA, and trade issues between the United States and Mexico. It will be updated as
events warrant.
U.S.-Mexico Economic Relations
Mexico is one of the United States’ key trading partners, ranking second among U.S. export
markets and third in total U.S. trade (imports plus exports). Under the North American Free Trade
Agreement (NAFTA), the United States and Mexico have developed significant economic ties.
Trade between the two countries more than tripled since the agreement was implemented in 1994.
Through NAFTA, the United States, Mexico, and Canada form one of the world’s largest free
trade areas, with about one-third of the world’s total gross domestic product (GDP). Mexico has
the second-largest economy in Latin America after Brazil. It has a population of 116 million
people, making it the most populous Spanish-speaking country in the world and the third-most
populous country in the Western Hemisphere (after the United States and Brazil).
Mexico’s gross domestic product (GDP) was an estimated $1.3 trillion in 2013, slightly less than
8% of U.S. GDP of $16.8 trillion. Per capita income in Mexico is significantly lower than in the
1
For more information, seeSee CRS Report R42917, Mexico: Background and U.S. Relations, by Clare Ribando Seelke,
and CRS Report
R43313, Mexico’s Oil and Gas Sector: Background, Reform Efforts, and Implications for the United
States,
coordinated by Clare Ribando Seelke.
2
For more information on the Trans-Pacific Partnership negotiations, seeSee CRS Report R42694, The Trans-Pacific
Partnership (TPP) Negotiations and Issues for Congress, coordinated by
Ian F. Fergusson.
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U.S.-Mexico Economic Relations: Trends, Issues, and Implications
United States. In 2013, Mexico’s per capita GDP in purchasing power parity3 was $17,990, or
66% lower than U.S. per capita GDP of $53,104 (see Table 1). Ten years earlier, in 2003,
Mexico’s per capita GDP in purchasing power parity was $10,887, or 71% lower than the U.S.
amount of $39,652. Although there is a notable income disparity with the United States, Mexico’s
per capita GDP is relatively high by global standards, and falls within the World Bank’s uppermiddle income category.4 Mexico’s economy relies heavily on the United States as an export
market. The value of exports equaled 32% of Mexico’s GDP in 2013, as shown in Table 1, and
approximately 80% of Mexico’s exports are headed to the United States.
Table 1. Key Economic Indicators for Mexico and the United States
Mexico
United States
2003
2013a
2003
2013a2013
104
116
290
316
713
1,259262
11,512511
16,800768
1,129
2,091
11,512511
16,800768
6,877
10,830857
39,653647
53,104004
10,887891
17,990341
39,653647
53,104004
Nominal exports of goods & services (US$ billions)
178
400401
1,043
2,260262
Exports of goods & services as % of GDPd
2425%
32%
9%
14%
Nominal imports of goods & services (US$ billions)
188
409
1,544
2,757770
Imports of goods & services as % of GDPd
26%
3332%
13%
1617%
Population (millions)
Nominal GDP (US$
Nominal GDP,
PPPc
billions)b
Basis (US$ billions)
Per Capita GDP (US$)
Per Capita GDP in $PPPs
Source: Compiled by CRS based on data from Economist Intelligence Unit (EIU) online database.
a.
Some figures for 2013 are estimates.
b.
Nominal GDP is calculated by EIU based on figures from World Bank and World Development Indicators.
c.
PPP refers to purchasing power parity, which reflects the purchasing power of foreign currencies in U.S.
dollars.
d.
Exports and Imports as % of GDP derived by EIU.
U.S.-Mexico Trade
The United States is, by far, Mexico’s leading partner in merchandise trade, while Mexico is the
United States’ third-largest trade partner after China and Canada. Mexico ranks second among
U.S. export markets after Canada, and is the third-leading supplier of U.S. imports. U.S. trade
with Mexico increased rapidly since NAFTA entered into force in January 1994. U.S. exports to
Mexico increased from $54.8 billion in 1994 to $226.2 billion in 2013, an increase of 313%.
Imports from Mexico increased from $51.6 billion in 1994 to $280.5 billion in 2013, an increase
3
Purchasing power parity (PPP) reflects the purchasing power of foreign currencies in their own markets in U.S.
dollars.
4
The World Bank utilizes a method for classifying world economies based on gross national product (GNP). Mexico is
one of 48 economies classified as upper-middle-income, or countries which have a per capita GNP of $3,946 to
$12,195 per year. The United States is one of 69 economies classified as a high-income, or countries which have a per
capita GNP of more than $12,195 per year.
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U.S.-Mexico Economic Relations: Trends, Issues, and Implications
of 444% (see Figure 1). In services, the United States had a surplus of $12.2 billion in 2012. U.S.
exports in services to Mexico totaled $27.4 billion in 2012, while U.S. imports totaled $15.1
billion.5
The merchandise trade balance with Mexico went from a surplus of $3.1 billion in 1994 to a
widening deficit that reached a peak of $74.3 billion in 2007. In 2013, the merchandise trade
deficit with Mexico was $54.3 billion. In 2013, 14% of total U.S. merchandise exports were
destined for Mexico, and 12% of U.S. merchandise imports came from Mexico.
As stated previously, Mexico relies heavily on the United States as an export market; this reliance
has diminished very slightly over the years. The percentage of Mexico’s total exports going to the
United States decreased from 83% in 1996 to 79% in 2013. Mexico’s share of the U.S. market has
lost ground since 2003 when China surpassed Mexico as the second-leading supplier of U.S.
imports. The U.S. share of Mexico’s import market has also decreased. Between 1996 and 2013,
the U.S. share of Mexico’s total imports decreased from 75% to 49%. China is Mexico’s secondleading supplier of imports, accounting for 16% of Mexico’s total imports in 2013.6
Not all of the increase in U.S.-Mexico trade since the 1990s can be attributable to NAFTA. Other
variables, such as exchange rates and economic conditions, also affect trade. For example,
Mexico’s currency crisis of 1995 limited the purchasing power of the Mexican people in the years
that followed and also made products from Mexico less expensive for the U.S. market. Several
studies between 2003 and 2004 on the effects of NAFTA found that U.S. trade deficits with
Mexico were largely driven by macroeconomic trends, and, in the case of U.S.-Mexico trade,
caused by the respective business cycles in Mexico and the United States.7
5
U.S. Bureau of Economic Analysis interactive statistics, available at http://www.bea.gov.
Based on data from Global Trade Atlas.
7
For more information on the effects of NAFTA, seeSee CRS Report R42965, NAFTA at 20: Overview and Trade Effects,
by M. Angeles Villarreal and Ian F. Fergusson.
6
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U.S.-Mexico Economic Relations: Trends, Issues, and Implications
Figure 1. U.S. Merchandise Trade with Mexico
(U.S. $ in billions)
300.0
250.0
U.S. $ in Billions
200.0
150.0
100.0
50.0
0.0
-50.0
-100.0
1996
1998
2000
2002
U.S. Exports
2004
2006
U.S. Imports
2008
2010
2012
Trade Balance
Source: Compiled by CRS using the United States International Trade Commission (USITC) Interactive Tariff
and Trade DataWeb at http://dataweb.usitc.gov.
The leading U.S. import item from Mexico in 2013 was motor vehicles ($40.1 billion), followed
by motor vehicle parts ($35.2 billion), oil and gas ($32.0 billion), computer equipment ($15.0
billion), and audio and video equipment ($13.8 billion), as shown in Table 2. After sharp
decreases in 2009 caused by the global economic downturn, U.S. imports from Mexico have
increased. Imports increased from $176.5 billion in 2009 to $280.5 billion in 2013.
The leading U.S. export item to Mexico in 2013 was motor vehicle parts ($21.1 billion), followed
by petroleum and coal products ($19.3 billion), computer equipment ($14.8 billion),
semiconductors and other electronic components ($13.0 billion), and basic chemicals ($10.1
billion), as shown in Table 3.
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Table 2. U.S. Imports from Mexico: 2009-2013
(U.S. $ in billions)
Items (NAIC 4-digit)
2010
2011
Motor vehicles
18.4
27.5
30.5
35.3
40.1
14%
Motor vehicle parts
15.5
23.6
28.5
33.3
36.2
13%
Oil and gas
22.2
29.5
39.8
37.3
32.0
11%
7.6
13.6
14.5
16.0
14.8
5%
Audio and video
equipment
15.7
16.5
14.7
14.2
13.8
5%
Other
97.2
119.0
135.0
141.4
143.5
51%
Total
176.5
229.7
263.1
277.7
280.5
Computer equipment
2012
2013
% Total in
2013
2009
Source: Compiled by CRS using USITC Interactive Tariff and Trade DataWeb at http://dataweb.usitc.gov: North
American Industrial Classification (NAIC) 4-digit level.
Note: Nominal U.S. dollars.
Table 3. U.S. Exports to Mexico: 2009-2013
(U.S. $ in Billions)
Items (NAIC 4-digit)
% Total in
2013
2009
2010
2011
2012
2013
Motor vehicle parts
9.8
14.1
16.9
19.6
21.1
9%
Petroleum and coal
products
6.6
11.9
20.1
20.8
19.3
9%
Computer equipment
7.4
9.9
13.4
14.5
14.8
7%
Semiconductors and
other electronic
components
8.9
11.8
10.8
11.4
13.0
6%
Basic chemicals
6.2
7.1
9.1
10.1
10.1
4%
Other
90.0
108.5
127.3
140.0
147.8
65%
Total
129.0
163.3
197.5
216.3
226.2
Source: Compiled by CRS using USITC Interactive Tariff and Trade DataWeb at http://dataweb.usitc.gov: NAIC
4-digit level.
Note: Nominal U.S. dollars.
Bilateral Foreign Direct Investment
Foreign direct investment (FDI) has been an integral part of the economic relationship between
the United States and Mexico since NAFTA implementation. The United States is the largest
source of FDI in Mexico. The stock of U.S. FDI increased from $17.0 billion in 1994 to $101.05
billion in 20122013. Mexican FDI in the United States is much lower than U.S. investment in Mexico.
In 20122013, the stock of Mexican FDI in the United States totaled $14.917.6 billion (see Table 4).
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Table 4. U.S.-Mexican Foreign Direct Investment Positions:
1994-20122013 Historical Cost Basis
(U.S. $ in millions)
Year
Mexican FDI in the U.S.
U.S. FDI in Mexico
1994
2,069
16,968
1995
1,850
16,873
1996
1,641
19,351
1997
3,100
24,050
1998
2,055
26,657
1999
1,999
37,151
2000
7,462
39,352
2001
6,645
52,544
2002
7,829
56,303
2003
9,022
56,851
2004
7,592
63,384
2005
3,595
73,687
2006
5,310
82,965
2007
8,478
91,046
2008
8,420
87,443
2009
11,111
84,047
2010
10,970
85,751
2011
13,051
90,795
2012
14,883
101,03012,500
85,599
2012
14,458
98,377
2013
17,610
101,454
Source: U.S. Department of Commerce, Bureau of Economic Analysis.
The sharp rise in U.S. investment in Mexico since NAFTA is also a result of the liberalization of
Mexico’s restrictions on foreign investment in the late 1980s and the early 1990s. Prior to the
mid-1980s, Mexico had a very protective policy that restricted foreign investment and controlled
the exchange rate to encourage domestic growth, affecting the entire industrial sector. Mexico’s
trade liberalization measures and economic reform in the late 1980s represented a sharp shift in
policy and helped bring in a steady increase of FDI flows into Mexico. NAFTA provisions on
foreign investment helped to lock in the reforms and increase investor confidence. Under
NAFTA, Mexico gave U.S. and Canadian investors nondiscriminatory treatment of their
investments as well as investor protection. NAFTA may have encouraged U.S. FDI in Mexico by
increasing investor confidence, but much of the growth may have occurred anyway because
Mexico likely would have continued to liberalize its foreign investment laws with or without the
agreement.
Nearly half of total FDI investment in Mexico is in the manufacturing industry, of which the
maquiladora industry forms a major part. (See “Mexico’s Export-Oriented Assembly Plants”
below.) In Mexico, the industry has helped attract investment from countries such as the United
States that have a relatively large amount of capital. For the United States, the industry is
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important because U.S. companies are able to locate their labor-intensive operations in Mexico
and lower their labor costs in the overall production process.
The drug violence has taken a toll on investor confidence in Mexico, especially for those who
have not done business in the country previously.8 However, the resilience of the U.S. economy
and the expected growth in U.S. GDP in 2014 may have a positive effect on business activity and
a slight positive effect on foreign direct investment.9 In February 2014, Moody’s Investors
Service upgraded Mexico’s government bond ratings. The upgrade may have a positive effect on
investor confidence. Moody’s investors service stated that the upgrade of Mexico’s sovereign
rating was driven by the following four factors linked to the reform package: 1) approval of a
comprehensive reform agenda, which reflects political will to address long-standing structural
issues; 2) improved medium-term economic prospects associated with higher potential growth
that is likely to result from the reform package; 3) a strengthened fiscal outlook that incorporates
higher government savings and additional buffers; and 4) an overall credit profile similar to that
of other equally rated countries.10
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Mexico’s Export-Oriented Assembly Plants
Mexico’s export-oriented assembly plants are closely linked to U.S.-Mexico trade in various
labor-intensive industries such as auto parts and electronic goods. These plants generate a large
amount of trade with the United States, and a majority of the plants have U.S. parent companies.
Foreign-owned assembly plants, which originated under Mexico’s maquiladora program in the
1960s,118 account for a substantial share of Mexico’s trade with the United States. The border
region with the United States has the highest concentration of assembly plants and workers. Prior
to Most
maquiladoras currently export the majority of their production to the U.S. market. Prior to
NAFTA, a maquiladora was limited to selling up to 50% of the previous year’s export
production to the domestic market. Most maquiladoras currently export the majority of their
production to the U.S. production
to the domestic market.
Private industry groups have statedstate that these operations help U.S. companies remain competitive
in the
world marketplace by producing goods at competitive prices. In addition, the proximity of
Mexico to the United States allows production to have a high degree of U.S. content in the final
product, which could help sustain jobs in the United States. Critics of these types of operations
argue that they have a negative effect on the economy because they take jobs from the United
States and help depress the wages of low-skilled U.S. workers.
8
IHS Global Insight, Mexico Country Outlook: Capital Investment, updated on February 19, 2014.
Ibid.
10
Moody’s Investors Service, “Moody’s upgrades Mexico’s sovereign rating to A3 from Baa1; Stable Outlook,”
February 5, 2014.
11
Mexico’s export-oriented industries began with the maquiladora program established in the 1960s by the Mexican
government, which allowed foreign-owned businesses to set up assembly plants in Mexico to produce for export.
Maquiladoras could import intermediate materials duty-free with the condition that 20% of the final product be
exported. The percentage of sales allowed to the domestic market increased over time as Mexico liberalized its trade
regime. U.S. tariff treatment of maquiladora imports played a significant role in the industry. Under HTS provisions
9802.00.60 and 9802.00.80, the portion of an imported good that was of U.S. origin entered the United States duty-free.
Duties were assessed only on the value added abroad. After NAFTA, North American rules of origin determine dutyfree status. Recent changes in Mexican regulations on export-oriented industries merged the maquiladora industry and
Mexican domestic assembly-for-export plants into one program called the Maquiladora Manufacturing Industry and
Export Services (IMMEX).
9
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Some observers believe that the correlation in maquiladora growth after 1993 is directly due to
NAFTA, but in reality it was a combination of factors that contributed to growth. Trade
NAFTA, along with a combination of other factors, contributed to maquiladora growth after
1993. Trade liberalization, wages, and economic conditions, both in the United States and
Mexico, all affected
the growthincreased the number of Mexican export-oriented assembly plants. Although some
provisions in NAFTA
may have encouraged growth in certain sectors, manufacturing activity
likely has been more influenced
by the strength of the U.S. economy and relative wages in Mexico.
Regulations for Mexican Manufacturing Plants
Mexico.
Changes in Mexican regulations on export-oriented industries after NAFTA merged the
maquiladora industry and Mexican domestic assembly-for-export plants into one program called
the Maquiladora Manufacturing Industry and Export Services (IMMEX). In 2001, the North
American rules of origin determined the duty-free status for a given import and replaced the
previous special tariff provisions that applied only to maquiladora operations. The initial
maquiladora program ceased to exist and the same trade rules applied to all assembly operations
in Mexico.
NAFTA rules for the maquiladora industry were implemented in two phases, with the first phase
covering the period 1994-2000, and the second phase starting in 2001. During the initial phase,
NAFTA regulations continued to allow the maquiladora industry to import products duty-free into
Mexico, regardless of the country of origin of the products. This phase also allowed maquiladora
operations to increase maquiladora sales into the domestic market. Phase II made a significant
change to the industry in that the new North American rules of origin determined duty-free status
for U.S. and Canadian products exported to Mexico for maquiladoras. The elimination of dutyfree imports by maquiladoras from non-NAFTA countries under NAFTA caused some initial
uncertainty for the companies with maquiladora operations. Maquiladoras that were importing
from third countries, such as Japan or China, would have to pay applicable tariffs on those goods
under the new rules.
Mexico had another program for export-oriented assembly plants called the Program for
Temporary Imports to Promote Exports (PITEX) that was established in 1990 to allow qualifying
domestic producers to compete with maquiladoras. In 2007, a new set of government regulations
on export-oriented industries merged the maquiladora industry and PITEX plants into the
Maquiladora Manufacturing Industry and Export Services, or IMMEX. Industry data regarding
Mexico’s export-oriented assembly plants no longer distinguish maquiladora plants from other
Mexican manufacturing plants8
Mexico’s export-oriented industries began with the maquiladora program established in the 1960s by the Mexican
government, which allowed foreign-owned businesses to set up assembly plants in Mexico to produce for export.
Maquiladoras could import intermediate materials duty-free with the condition that 20% of the final product be
exported. The percentage of sales allowed to the domestic market increased over time as Mexico liberalized its trade
regime. U.S. tariff treatment of maquiladora imports played a significant role in the industry. Under HTS provisions
9802.00.60 and 9802.00.80, the portion of an imported good that was of U.S. origin entered the United States duty-free.
Duties were assessed only on the value added abroad. After NAFTA, North American rules of origin determine dutyfree status. Recent changes in Mexican regulations on export-oriented industries merged the maquiladora industry and
Mexican domestic assembly-for-export plants into one program called the Maquiladora Manufacturing Industry and
Export Services (IMMEX).
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change to the industry in that the new North American rules of origin determined duty-free status
for U.S. and Canadian products exported to Mexico for maquiladoras. The elimination of dutyfree imports by maquiladoras from non-NAFTA countries under NAFTA caused some initial
uncertainty for the companies with maquiladora operations. Maquiladoras that were importing
from third countries, such as Japan or China, would have to pay applicable tariffs on those goods
under the new rules.
Worker Remittances to Mexico
Remittances are one of the three highest sources of foreign currency for Mexico, along with oil
and tourism. Most remittances to Mexico come from workers in the United States who send
money back to their relatives in Mexico. Mexico receives the largest amount of remittances in
Latin America. Remittances are often a stable financial flow for some regions in Mexico as
workers in the United States make efforts to send money to family members. Most of the
remittances going to Mexico go to southern states in Mexico where poverty levels are high.
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Studies indicate that women are the primary recipients of the money, and usually use it for basic
needs such as rent, food, medicine, or utilities.129
Annual remittances to Mexico decreased from $22.4 billion in 2012 to $21.7 billion in 2013, as
shown in Table 5.1310 In 2009 remittances experienced a sharp decline of 15.2%, likely due to the
global financial crisis. Prior to this, remittances to Mexico had been increasing rapidly. Between
1996 and 2007, remittances increased from $4.2 billion to $25.1 billion, an increase of over
500%. The annual growth rate reached a high of 54.3% in 2003, and then continued at a slower
rate until 2008, when the rate of growth declined. The drop in remittances could be related to
changes in migration flows as well to increases in the exchange rate between the Mexican peso
and the U.S. dollar.14
Electronic transfers and money orders are the most popular methods to send money to Mexico.
The rapid increase in remittances during the late 1990s through the mid-2000s can be attributed to
numerous factors, but it was also largely influenced by considerable reductions in transaction fees
charged by banks. In the 1990s, these fees were as high as 8%, and went down as low as 2.5% in
2003.15 The Inter-American Development Bank reported that the average cost to send $200 was
6.0% in 2010.1611
Table 5. Percent Changes in Remittances to Mexico
(U.S. $ in billions)
2002
Amount
% Change
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
9.8
15.1
18.3
21.7
25.6
26.1
25.1
21.3
21.3
22.8
22.4
21.7
10.2%
54.3%
21.1%
18.3%
17.9%
1.9%
-3.5%
-15.2%
0.0%
7.0%
-1.8%
-3.1%
Source: Compiled by CRS using data from the Inter-American Development Bank, Multilateral Investment Fund;
and Mexico’s Central Bank.
Electronic transfers and money orders are the most popular methods to send money to Mexico.
The rapid increase in remittances during the late 1990s through the mid-2000s can be attributed to
numerous factors, but it was also largely influenced by considerable reductions in transaction fees
charged by banks. In the 1990s, these fees were as high as 8%, and went down as low as 2.5% in
9
Inter-American Development Bank (IDB), “Mexico and Remittances,” March 16, 2010, available at
http://www.iadb.org/mif.
10
See http://www.banxico.org.mx.
11
IDB, Multilateral Investment Fund, Remittances to Latin America and the Caribbean in 2012: Differing Behavior
Across Subregions, 2012.
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2003.12 The Inter-American Development Bank reported that the average cost to send $200 was
6.0% in 2010.13
Worker remittance flows to Mexico have an important impact on the Mexican economy, in some
regions more than others. Some studies on remittance flows to Mexico report that in southern
Mexican states, remittances mostly or completely cover general consumption and/or housing. A
significant portion of the money received by households goes for food, clothing, health care, and
other household expenses. Some remittances mat be used for capital invested in microenterprises
throughout urban Mexico.17 The economic impact of remittance flows is concentrated in the
poorer states of Mexico.
12
Inter-American Development Bank (IDB), “Mexico and Remittances,” March 16, 2010, available at
http://www.iadb.org/mif.
13
See http://www.banxico.org.mx.
14
IDB, Multilateral Investment Fund, Remittances to Latin America and the Caribbean in 2012: Differing Behavior
Across Subregions, 2012.
15
Federal Reserve Bank of Dallas, “Workers’ Remittances to Mexico,” El Paso Business Frontier, 2004.
16
Inter-American Development Bank, “Mexico and Remittances,” 2010.
17
The Federal Reserve Bank of Dallas report “Workers’ Remittances to Mexico” (2004) evaluated the economic
impact of worker remittances to Mexico and cites a number of reports by the World Bank and the Mexican
government.
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Regulatory Cooperation poorer
states of Mexico.
Bilateral Economic Cooperation
The Obama Administration has engaged in bilateral efforts with Mexico, and also with Canada, to
address issues related to the U.S.-Mexico border, enhance economic competitiveness, increase
regulatory cooperation, and pursue energy integration.
High Level Economic Dialogue (HLED)
On September 20, 2013, the United States and Mexico launched the High Economic Dialogue
(HLED), co-chaired by the U.S. Department of State, Department of Commerce, the Office of the
United States Trade Representative, and their Mexican counterparts. 14 The purpose of the
initiative is to advance U.S.-Mexico economic and commercial priorities that are central to
promoting mutual economic growth, job creation, and global competitiveness. The HLED is
organized around three broad pillars, including: 1) promoting competitiveness and connectivity;
2) fostering economic growth, productivity, and innovation; and 3) partnering for regional and
global leadership. The HLED’s major goals are to promote competitiveness in specific sectors
such as transportation, telecommunications, and energy; to explore ways to promote
entrepreneurship and encourage the development of human capital; and to facilitate greater
alignment on issues of shared concern in both regional and international initiatives, especially in
trade negotiation. Some of the initial steps toward accomplishing such goals have included:
continuing the work of the Mexico-U.S. Entrepreneurship and Innovation Council; collaborating
on organizing an information and communications technology road show, regulatory workshop
series, and broadband innovation information exchanges; developing an agenda for cooperation
on intelligent transportation and freight systems; making more efficient use of the North
American Development Bank and the Border Environment Cooperation Commission; and pursue
joint investment initiatives.15
12
Federal Reserve Bank of Dallas, “Workers’ Remittances to Mexico,” El Paso Business Frontier, 2004.
Inter-American Development Bank, “Mexico and Remittances,” 2010.
14
The White House, Office of the Press Secretary, “Fact Sheet: U.S.-Mexico High Level Economic Dialogue,”
September 20, 2013.
15
Ibid.
13
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High-Level Regulatory Cooperation Council
Another bilateral effort is the U.S.-Mexico High-Level Regulatory Cooperation Council
(HLRCC) launched in May 2010. The official work plan was released by the two governments on
February 28, 2012, and focuses on regulatory cooperation in numerous sectoral issues including:
food safety; e-certification for plants and plant products; commercial motor vehicle safety
standards and procedures; nanotechnology; e-health; and offshore oil and gas development
standards. U.S. agencies that are involved in regulatory cooperation include the U.S. Food and
Drug Administration, Department of Agriculture, Department of Transportation, Office of
Management and Budget, Department of Interior, and Occupational Safety and Health
Administration.16
21st Century Border Management
The United States and Mexico are engaged in a bilateral border management initiative under the
Declaration Concerning the 21st Century Border Management that was announced in 2010. This
initiative is a bilateral effort to manage the 2,000-mile U.S.-Mexico border through the following
cooperative efforts: expediting legitimate trade and travel; enhancing public safety; managing
security risks; engaging border communities; and setting policies to address possible statutory,
regulatory, and/or infrastructure changes that would enable the two countries to improve
collaboration.17 With respect to port infrastructure, the initiative specifies expediting legitimate
commerce and travel through investments in personnel, technology, and infrastructure. 18 The two
countries established a Bilateral Executive Steering Committee (ESC) composed of
representatives from the appropriate federal government departments and offices from both the
United States and Mexico. For the United States, this includes representatives from the
Departments of State, Homeland Security, Justice, Transportation, Agriculture, Commerce,
Interior, Defense, and the Office of the United States Trade Representative. For Mexico, it
includes representatives from the Secretariats of Foreign Relations, Interior, Finance and Public
Credit, Economy, Public Security, Communications and Transportation, Agriculture, and the
Office of the Attorney General of the Republic.19
North American Leaders Summits
The United States, Mexico, and Canada have made efforts since 2005 to increase cooperation on
security and economic issues through various endeavors, most notably by participating in
trilateral summits known as the North American Leaders Summits. The most recent summit took
place on February 19, 2014 in Toluca, Mexico, with an agenda focused on immigration, energy,
and commerce. Current bilateral efforts pursed by the Obama Administration with Canada and
Mexicoefforts have built upon the accomplishments of the working groups
formed under the former
Security and Prosperity Partnership of North America (SPP) established
in 2005 under the Bush
Administration. Proponents of North American competitiveness and security cooperation view
the initiatives as constructive to addressing issues of mutual interest and benefit for all three
countries. Some critics of the most recent summit contend that the agenda did not include human
16
Department of Commerce, International Trade Administration, U.S.-Mexico High Level Regulatory Cooperation
Council, http://www.trade.gov/hlrcc/.
17
U.S. Department of State, Bureau of Western Hemisphere Affairs, United States-Mexico Partnership: Managing our
21st Century Border, Fact Sheet, April 29, 2013.
18
For a fuller discussion of the 21st Century Border initiative, see: CRS Report R41349, U.S.-Mexican Security
Cooperation: The Mérida Initiative and Beyond, by Clare Ribando Seelke and Kristin Finklea.
19
U.S. Department of Homeland Security, 21st Century Border: The Executive Steering Committee,
http://www.dhs.gov/executive-steering-committee.
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security cooperation view the initiatives as constructive to addressing issues of mutual interest
and benefit for all three countries. Some critics of the most recent summit contend that the agenda
did not include human rights issues or discussions on the drug-related violence in Mexico.
During the February 2014 Summit, President Obama, Mexican President Peña Nieto, and
Canadian Prime Minister Stephen Harper announced initiatives regarding the economic
prosperity of the region; education initiatives; energy and climate change; citizen security; and
regional, global, and stakeholder outreach.1820 The leaders discussed numerous economic and
security initiatives for North America in the 21st century with the goal of setting new global
standards for trade, education, sustainable growth, and innovation. In the areas of economic
cooperation, discussions included developing a North American Transportation Plan; streamlining
procedures and harmonizing customs data requirements; facilitating the movement of people
through the establishment in 2014 of a North American Trusted Traveler Program, which will
recognize and build upon existing programs; promoting trilateral exchanges on logistics corridors
and regional development; and continuing prior initiatives such as protecting and enforcing
intellectual property rights. In energy cooperation, the leaders continued their commitment to
developing and securing affordable, clean and reliable energy supplies to help drive economic
growth and support sustainable development. The leaders committed to continuing cooperation
on climate change and environmental cooperation; security; and effective information exchanges
and coordination among law-enforcement authorities to counter drug trafficking, arms trafficking,
money laundering, and other illicit activities. The three governments also stated that they share a
commitment to combating human trafficking in all its forms and agreed to work toward
improving services for the victims of this crime.19
Most efforts to increase cooperation, either through trilateral or bilateral endeavors, generally
have followed the recommendations of special working groups created after the first North
American Leaders’ Summit in 2005. These recommendations included (1) increasing the
competitiveness of North American businesses and economies through more compatible
regulations; (2) making borders smarter and more secure by coordinating long-term infrastructure
plans, enhancing services, and reducing bottlenecks and congestion at major border crossings; (3)
strengthening energy security and protecting the environment by developing a framework for
harmonization of energy efficiency standards and sharing technical information; (4) improving
access to safe food and health and consumer products by increasing cooperation and information
sharing on the safety of food and products; and (5) improving the North American response to
1821
The Mexican Economy
Mexico’s economy is closely linked to the U.S. economy due to the strong trade and investment
ties between the two countries. After modest economic growth in 2014, the Mexican economy is
expected to improve in 2015, partly because of recent reform measures but also because the
outlook for the U.S. economy is positive. However, violence in Mexico remains an issue and
security risks could threaten economic growth.
Economic Trends
Over the past 30 years (1983-2013), Mexico has had a low economic growth record with an
average growth rate of 2.6%.22 During the term of former president Vicente Fox (2001-2006), the
average growth rate was 2.4%, and during the term of the next president, Felipe Calderon (20072012), average growth rate was even lower, at 1.9%. Economic volatility during these periods of
time may have affected Mexico’s ability to expand at a faster right. Events such as the U.S.
recession of 2001 and the global economic downturn of 2009 adversely affected the economy and
offset Mexico’s efforts to improve macroeconomic management. Factors such as plentiful natural
20
The White House, Office of the Press Secretary, Fact Sheet: Key Deliverables for the 2014 North American Leaders
Summit, February 19, 2014.
1921
The White House, Office of the Press Secretary, “Joint Statement by North American Leaders— 21st Century North
America: Building the Most Competitive and Dynamic Region in the World,” February 19, 2014.
22
Rafael Amiel, Country Reports: Country Outlook: Economic - Mexico, IHS Connect, January 28, 2015.
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emergencies by updating bilateral agreements to enable government authorities from the three
countries to help each other more quickly and efficiently during times of crisis.
The Obama Administration has engaged in bilateral efforts, both with Canada and Mexico, to
increase regulatory cooperation, enhance border security, promote economic competitiveness, and
pursue energy integration. On September 20, 2013, the United States and Mexico launched the
U.S.-Mexico High Level Economic Dialogue (HLED) to advance economic and commercial
priorities through annual meetings at the cabinet level that also include leaders from the public
and private sectors.20 Other bilateral efforts with Mexico include the High-Level Regulatory
Cooperation Council (HLRCC) launched in February 2012 to help align regulatory principles, an
effort similar to the U.S.-Canada Regulatory Cooperation Council. In addition, the two countries
have a bilateral initiative for border management under the Declaration Concerning Twenty-first
Center Border Management that was announced in 2010.
The Mexican Economy
After increasing by an average of 3.8% in 2011-12, the growth rate of Mexico’s gross domestic
product (GDP) fell to 1.3% in 2013. GDP is forecast to grow by 2.4% in 2014. However, there is
a chance that the economy will not reach its growth potential if consumer confidence does not
pick up.21 In the longer term, GDP growth could increase by an additional 1-2% if the
government succeeds in implementing the structural reforms enacted through constitutional
reforms in 2013, particularly the energy reforms approved in December 2013. This depends
largely on whether the secondary legislation to implement those reforms is approved by the
Mexican Congress and what the legislation entails. Mexico’s economic growth has been limited
by a need for structural reforms in the labor, education, energy, and fiscal sectors.
The Mexican government’s policy efforts to stimulate the economy are expected to help
economic growth in 2014. The central bank has cut interest rates, while the government has
obtained congressional approval to widen the fiscal deficit in order to increase spending and
increase economic growth.22 In addition, the expected improvement in the U.S. economy is
predicted to have a positive effect on Mexico’s economy.23 Trends in Mexico’s GDP growth
generally follow U.S. economic trends, as shown in Figure 2. The economy recovered in 2010
after a sharp contraction following the global financial crisis and subsequent downturn in the U.S.
economy. GDP is estimated to have contracted by over 4.5% in 2009, while the Mexican peso
depreciated against the dollar by 25%.24 Mexico experienced the deepest recession in the Latin
America region following the crisis. This is largely due to its high dependence on manufacturing
exports to the United States, though other factors have also contributed. In the years that
followed, Mexico’s sound macroeconomic fundamentals, solid banking sector, and competitive
export sector helped the economy and its ability to weather external conditions.
20
The White House, Office of the Press Secretary, “Fact Sheet: U.S.-Mexico High Level Economic Dialogue,”
September 20, 2013.
21
Economist Intelligence Unit (EIU), Country Report: Mexico, Generated on June 20, 2014.
22
IHS Global Insight: Country and Industry Forecasting, Country Outlook: Mexico, updated on April 24, 2014.
23
Ibid.
24
International Monetary Fund (IMF), “IMF Executive Board Concludes 2010 Article IV Consultation with Mexico,”
Public Information Notice (PIN) No. 10/39, March 16, 2010, p. 2.
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resources, a young and abundant labor force, and proximity to the United States may help
Mexico’s economy to grow at a faster rate over the next 20 years. However, violence and security
risks may hinder economic growth.23
Trends in Mexico’s GDP growth generally follow U.S. economic trends, as shown in Figure 2.
Mexico’s economy is highly dependent on manufacturing exports to the United States and
approximately 80% of Mexico’s exports are destined for the United States. After modest GDP
growth of 2.1% in 2014, Mexico’s GDP growth is projected to pick up to an annual average of
3.7% in 2015-2019. The country’s outlook will likely remain closely tied to that of the United
States, despite Mexico’s efforts to diversify trade.24
Another factor affecting the economy is the price of oil. The recent sharp decline in oil prices
may have an adverse effect on Mexico’s economy. Oil revenues make up almost one-third of
Mexico’s budget and the fall in oil prices will likely result in fiscal constraints. The Mexican
government has various mitigation strategies in place for 2015, but it will probably have to make
adjustments over the year, especially if oil prices remain low.25
The government of Mexico has put forth a bold package of structural reforms to help reverse
years of slow economic growth, high levels of labor market informality, and increasing income
inequality. After moving forward on most of his structural reform agenda in 2013-2014, President
Enrique Peña Nieto is likely to focus on the implementation of these reforms, as well as on other
efforts to boost economic growth, create more jobs, and eliminate drug-related violence.26 The
reform package comes at a time of declining oil prices that may limit the government’s ability to
gain immediate benefits in the economy. Mexico will likely need to focus on full implementation
of the reforms in the near future and combine these efforts with other actions. A 2015 OECD
report suggests that Mexico will need to enact complementary reforms to address issues such as
perceived corruption, weak administrative governance, and lack of judicial enforcement in order
to achieve potential economic growth.27
23
Ibid.
Economist Intelligence Unit (EIU), Country Report: Mexico, Generated on February 3, 2015.
25
EIU, Mexico: Estimating the Fiscal Shortfall from Weak Oil, January 30, 2015.
26
EIU, Country Report: Mexico, Generated on February 3, 2015.
27
Organization for Economic Cooperation and Development (OECD), OECD Economic Surveys, Mexico, January
2015, pp. 4-5.
24
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Figure 2. GDP Growth Rates for the United States and Mexico
8.0
6.0
% Real Change in GDP
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Mexico
United States
Source: Prepared by CRS using data from the Economist Intelligence Unit.
Informality and Poverty
Part of the government’s reform efforts are aimed at making economic growth more inclusive,
reducing income inequality, improving the quality of education, and reducing informality and
poverty. Mexico has a large informal sector that is estimated to account for a considerable portion
of total
employment. Estimates on the size of the informal labor sector vary widely. One source estimates
, with some
sources estimating that the informal sector accounts for one-quarter to one-third of total employment25, while another
estimates that formal employment in Mexico only accounts for one-third of the labor force, which
would indicate that two-thirds of the workforce is employed in the informal sector. 26 Under
Mexico’s legal about one-third of total employment and
others estimating it to be as high as two-thirds of the workforce. Under Mexico’s legal
framework, workers in the formal sector are defined as salaried workers employed
by a firm that
registers them with the government and are covered by Mexico’s social security
programs.
Informal sector workers are defined as non-salaried workers who are usually selfemployed. self-employed.
These workers have various degrees of entitlement to other social protection
programs.27 Salaried
workers can be employed by industry, such as construction, agriculture, or
services. Non-salaried employees are defined by exclusion and can be defined by various
25
Gordon H. Hanson, Understanding Mexico’s Economic Underperformance, the Woodrow Wilson International
Center for Scholars and the Migration Policy Institute, August 2012, p. 6.
26
IHS Global Insight: Country and Industry Forecasting, Mexico: Country Outlook; Labor Markets, updated on
February 21, 2014.
27
Santiago Levy, Good Intentions, Bad Outcomes, Social Policy, Informality, and Economic Growth in Mexico,
Brookings Institution, 2008.
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employees are defined by exclusion and can be defined by various categories. These workers may
include agricultural producers; seamstresses and tailors; artisans;
street vendors; individuals who
wash cars on the street; and other professions.28
Many workers in the informal sector suffer from poverty, which has been one of Mexico’s more
serious and pressing economic problems for many years. Although the government has made
progress in poverty reduction efforts, poverty continues to be a basic challenge for the country’s
development. The Mexican government’s main program from which many informal sector
workers benefit is the conditional cash transfer program call Oportunidades (formerly known as
Progresa). The program seeks to not efforts to alleviate poverty have focused on conditional
cash transfer programs. The Prospera (previously called Oportunidades) program seeks to not
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only alleviate the immediate effects of poverty through cash
and in-kind transfers, but to break
the cycle of poverty by improving nutrition and health
standards among poor families and
increasing educational attainment. This program provides
cash transfers According to the World Bank, Prospera has benefitted nearly
six million families and has been replicated in 52 countries.28The program provides cash transfers
to families in poverty who demonstrate that they regularly attend medical
appointments and can
certify that children are attending school. The government also provides
educational cash
transfers to participating families. The program also providesPrograms also provide nutrition support
to pregnant and
nursing women and malnourished children.29
Some economists and other experts cite the informal sector as a hindrance to the country’s
economic development economic development.
Other experts contend that Mexico’s social programs benefitting the informal sector have led to
increases in informal employment. A 2012 report by the Migration Policy Institute contends that
there are
two lines of argument that attempt to explain the reason for such a large informal sector:
(1)
overregulation of businesses; and (2) an unintended incentive to informality created by
Mexico’s
social protection programs.30 The report cites evidence suggesting that the scale of
informality in
Mexico may result in a lower level of productivity, but it is not clear whether it
hinders economic
growth.31 Another study published by the Brookings Institution presented a hypothesis that
Mexico’s social programs benefitting the informal sector have led to larger than optimal informal
employment that has lowered aggregate labor productivity and caused a lower rate of growth in
GDP.32 growth.31
Structural and Other Economic Challenges
NumerousFor years, numerous political analysts and economists agreehave agreed that Mexico needs significant
political and
economic structural reforms to improve its potential for long-term economic growth. After the
1995 currency crisis, the
The Mexican government implemented numerous reform measures that
after the 1995 currency crisis
that helped the country modify its macroeconomic policies and restore policy credibility. Key reforms
reforms included measures to reduce public debt, the introduction of a balanced budget rule, an inflation
inflation targeting framework and a floating exchange rate policy.33 Such policies positioned the country
country well in terms of macroeconomic and financial performance, but economic growth remains
remains insufficient and many experts agree that more needs to be done to improve well-being in all
regions of the country. A 2013 study by the Organization for Economic Cooperation and
Development (OECD) states that the Mexican government must implement structural reforms
28
Ibid, p. 12.
For more information, see the Mexican government website: Secretaría de Desarrollo Social, Oportunidades, at
http://www.oportunidades.gob.mx.
30
Gordon H. Hanson, p. 6.
31
Ibid., p. 7.
32
Santiago Levy, Progress Against Poverty, Brookings Institution, 2006.
33
“Mexico Recovering, but Crisis Spotlights Challenges, says IMF,” IMF Survey Magazine: In the News, March 16,
2010.
29
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across multiple institutional domains to raise long-term economic growth.34 The study states that
the government should follow through on already-legislated reforms, notably in the key areas of
labor markets, competition, and education to increase productivity. In addition, the study states
that Mexico should consider new legislation and regulatory reform to remove barriers to market
entry, reduce corruption, and make the civil justice system more effective.35
all regions of the country.
Much credit has been given to President Peña Nieto for being able to break gridlock in the
Mexican government and help pass reform measures that are expected to stimulate economic
growth. In its 2015 economic survey for Mexico, the OECD states that Mexico is its top reformer
over the past two years and deserves acclaim.32 The study says that the main challenge for the
government now is to ensure full implementation of these reforms and that it must progress
further in other key areas that have not been tackled. For the reforms to be fully implemented,
according to the study, Mexico must improve administrative capacity at all levels of government
and reform its judicial institutions. The study contends that such actions have a strong potential to
boost living standards substantially, stimulate economic growth, and reduce income inequality.33
Issues regarding human rights conditions, rule of law, and corruption are also challenges that need
28
The World Bank, A Model from Mexico for the World, World Bank News Feature Story, November 19, 2014.
For more information, see the Mexican government website: Secretaría de Desarrollo Social, Prospera Programa de
Inclusión Social, at http://www.prospera.gob.mx.
30
Gordon H. Hanson, p. 6.
31
Ibid., p. 7.
32
OECD 2015, p. 8.
33
Ibid, p. 9.
29
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to be addressed by the government as they too affect economic conditions and living standards.
U.S. policymakers have expressed ongoing concerns about these issues and may take an interest
in how well President Peña Nieto is implementing judicial reforms.34
According to a 2014 study by the McKinsey Global Institute, Mexico has been successful in
creating certain sectors of the economy that are highly competitive in the world market, but has
not been so successful in others.3635 The study describes a “dualistic” nature of the Mexican
economy in which there is a modern Mexico with sophisticated automotive and aerospace
factories, multinationals that compete in global markets, and universities that graduate high
numbers of engineers. In contrast, the other part of Mexico, according to the study, is
technologically backward, unproductive, and operates outside the formal economy.3736 The study
states that three decades of economic reforms have failed to raise the overall GDP growth.
Government measures to privatize industries, liberalize trade, and welcome foreign investment
have created a side to the economy that is highly productive in which numerous industries have
flourished, but the reforms have not been successful in touching other sectors of the economy
where traditional enterprises have not modernized, informality is rising, and productivity is
plunging.38
A key challenge to increasing productivity is the issue of monopolies and limited competition. A
2009 book co-published by the World Bank and Palgrave Macmillan,39 as well as numerous
reports and journal articles, report that special interest groups have blocked changes in Mexico
that would introduce more market forces into the economy. The publication states that “Mexico
seems to be caught up in a high-inequality, low growth state” and that reforms must be put into
place in order for Mexico to improve economic growth.40 A key issue discussed is the oil industry,
which, according to the book, is controlled by the government and the oil industry labor union.
The book argues that the certain interest groups, including the government, energy-intensive
industrial firms, and the industry’s labor union, have prevented change from taking place in the
oil sector because change would eliminate many of the benefits they have received for many
years.41 Pemex’s labor union is concerned that thousands of jobs are likely to be at stake as the
company is opened up to competition. The large industrial companies that use large amounts of
energy at subsidized prices do not want to lose these benefits under a more competitive
environment.42 They could potentially benefit, however, if Pemex reform and the opening of new
gas pipelines from the United States lowers energy costs (including electricity costs) for
companies and consumers. They could also benefit from increased foreign investment, which
would likely enhance competitiveness and lead to further growth.
34
Organization for Economic Cooperation and Development (OECD), OECD Economic Surveys— Mexico, May 2013.
Ibid.
36
Eduardo Bolio, Jaana Remes, and Tomas Lajous, et al., A tale of two Mexicos: Growth and Prosperity in a TwoSpeed Economy, McKinsey Global Institute, March 2014.
37
Ibid.
38
Ibid., p. 2.
39
Levy, Santiago, and Michael Walton, editors, No Growth Without Equity?— Inequality, Interests, and Competition in
Mexico, (Washington, DC: Palgrave MacMillan and The World Bank, 2009).
40
Ibid, p. 417.
41
Ibid.
42
Elisabeth Malkin, “Are Monopolies Holding Mexico Back,” The New York Times, June 2, 2009.
35
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U.S.-Mexico Economic Relations: Trends, Issues, and Implications37
Energy Sector
Mexico’s long-term economic outlook depends largely on the energy sector. 38 Mexico is one of the
the 10 largest oil producers in the world, and is the third-largest in the Western Hemisphere.
However, Mexico’s oil production has steadily decreased since 2005 as a result of natural
production declines. 4339 The oil sector generated 13% of Mexico’s export earnings in 2013.4440 The
Mexican government depends heavily on oil revenues, which provide 30% to 40% of the
government’s fiscal revenues. Many industry experts contend that Mexican oil production has
peaked, and that the country’s production will continue to decline in the coming years unless the
Mexican government reforms its energy sector. The Mexican government has used oil revenues
from its state oil company, Pemex, for government operating expenses, which has come at the
expense of needed reinvestment in the company itself. In the final quarter of 2013, Pemex
reportedly paid 50% of its revenue ($16 billion) in taxes to the federal government yet posted a
total loss of $13 billion for 2013.4541 Because the government relies so heavily on oil income, any
decline in revenue has major fiscal implications.
According to industry exports, Mexico has the potential resources to support a long-term recovery
in total production, primarily in the Gulf of Mexico.46 However, the country does not have the
technical capability or financial means to develop potential deepwater projects or shale oil
deposits in the north. Mexico’s oil and natural gas production is unlikely to increase without
improvement in Pemex’s financial situation, technical abilities, and terms for investors.47
In December 2013, President Peña Nieto signed into law constitutional reforms related to
Mexico’s energy sector that aim to bolster the country’s declining oil production and to allow
private and foreign investment to help Pemex tap into the country’s shale and deep water
reserves.48 Emilio Lozoya, the head of Pemex, has predicted that the secondary laws could boost
FDI in Mexico to $50 to $60 billion per year.49 The legal framework for the reforms must be
approved by the Mexican Congress before the changes take place. The first round of contracts is
expected to take place six months after the legislation is approved.50 The energy reform is the
centerpiece of the Peña Nieto administration’s attempts to overhaul the economy, attract greater
foreign investment and generate more jobs.51 While most experts predict that the Mexican
Congress will approve the secondary legislation, the future shape of relations between the
government, or Pemex, and private oil companies will likely be a work in progress as the sector
adapts to the new legal system.52 Foreign observers expect the secondary legislation to become
law in July 2014.53
43
34
See CRS Report R42917, Mexico: Background and U.S. Relations, by Clare Ribando Seelke.
Eduardo Bolio, Jaana Remes, and Tomas Lajous, et al., A Tale of Two Mexicos: Growth and Prosperity in a TwoSpeed Economy, McKinsey Global Institute, March 2014.
36
Ibid.
37
Ibid., p. 2.
38
See CRS Report R43313, Mexico’s Oil and Gas Sector: Background, Reform Efforts, and Implications for the United
States, coordinated by Clare Ribando Seelke.
39
U.S. Energy Information Administration (EIA), Country Analysis Briefs: Mexico, April 24, 2014.
40
Ibid.
4541
Adam Williams, “Mexico’s Oil May Offer Gusher for Foreigners,” The Washington Post, June 8, 2014, p. G3.
46
EIA, April 24, 2014.
47
Ibid.
48
For more information, CRS Report R43313, Mexico’s Oil and Gas Sector: Background, Reform Efforts, and
Implications for the United States, coordinated by Clare Ribando Seelke.
49
Valerie Volcovici, “Pemex Chief Touts Mexico’s Energy Reform in Washington Visit,” Reuters, April 24, 2014.
50
Jude Webber, “Mexico to Unveil Oil Tender Process,” Financial Times, June 17, 2014.
51
EIU, “Debate on Key Energy Bylaws Gets Underway,” June 12, 2014.
52
Ibid.
53
Diana Villiers Negroponte, Mexico's Secondary Law Provides a Path Forward for New Investments in the
(continued...)
44
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U.S.-Mexico Economic Relations: Trends, Issues, and Implications
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U.S.-Mexico Economic Relations: Trends, Issues, and Implications
deposits in the north. Mexico’s oil and natural gas production is unlikely to increase without
improvement in Pemex’s financial situation, technical abilities, and terms for investors.42
Energy reform is the centerpiece of the President Peña Nieto administration’s attempts to
overhaul the economy, attract greater foreign investment and generate more jobs. In December
2013, the Mexican President signed into law constitutional reforms related to Mexico’s energy
sector that aim to bolster the country’s declining oil production and to allow private and foreign
investment to help Pemex tap into the country’s shale and deep water reserves. On August 6,
2014, Mexican lawmakers gave final approval to rules for awarding private oil contracts for the
first time since 1938.
While it is difficult to predict how increasing private participation in Mexico’s oil and gas sectors
wouldmay affect the country’s economic development, skeptics see reason to doubt the government’s
positive predictions. Some argue that multinational companies and large Mexican conglomerates
stand more to gain from the energy reform than the Mexican people.5443 Other critics question the
government’s claim that the reforms will create thousands of jobs and maintain that because
Pemex is a bloated company with too many employees, it would likely shed workers as a result of
the reform. Others are concerned that the oil revenue will be mishandled by corrupt Pemex or
government officials rather than invested in strategic ways that will benefit the country as a
whole.5544
Mexico’s leftist PRD party firmly opposes the reformopposed the energy reforms, arguing that the reforms dodid not include
measures to address corruption, transparency, government accountability, worker rights, and
protection of affected communities and land owner rights.56 It has45 It called for a consulta popular,
or or
referendum, on the acceptance on whether the acceptance or rejection of the energy reform is
constitutionally permissible. Mexico’s Supreme Court, however, blocked this referendum.
In February 2012, the United States and Mexico signed the U.S.-Mexico Trans-Boundary
Hydrocarbon agreement, which addresses issues related to the development of oil and gas
reservoirs that cross the international maritime boundary between the two countries in the Gulf of
Mexico. After review by the U.S. Congress, the agreement was approved as part of the Bipartisan
Budget Act of 2013 (P.L. 113-67).57 The agreement clarifies U.S. interests in an estimated 172
million barrels of oil and 304 billion cubic feet of natural gas. According to the U.S. Department
of the Interior, the
agreement involves two U.S. actions: lifting a moratorium and jointly
developing resources in a
“transboundary area”— areas straddling the U.S.-Mexico marine
border.58 The Obama
Administration viewsstated that the agreement aswas a step forward in clarifying relations
between the
two countries in managing energy resources in portions of the Gulf of Mexico and
also represents also
represented an example of U.S.-Mexico efforts to develop a sustainable energy trade
relationship.59
Mexico’s Regional Free Trade Agreements
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. The pursuit of FTAs with other countries not only provides economic benefits,
but could also potentially reduce Mexico’s economic dependence on the United States. In an
(...continued)
Hydrocarbons Sector, Brookings, June 25, 2014.
54
46
42
EIA, April 24, 2014.
“Richard Fausset, “Tons of Thousands Protest Mexican Oil Reforms,” Los Angeles Times, September 8, 2013.
5544
Enrique Krauze, “Mexico’s Theology of Oil,” New York Times, November 1, 2013.
5645
Party of the Democratic Revolution (Partido de la Revolución Democrática; PRD), “National Position of the PRD
and its Parliamentary Groups in the Senate and the Chamber of Deputies regarding the Secondary Legislation on
Energy Matters,” June 10, 2014.
57
See CRS Report R43606, U.S.-Mexico Transboundary Hydrocarbons Agreement: Background and Issues for
Congress, by Curry L. Hagerty.
58
CRS Report, CRS Report R43606, U.S.-Mexico Transboundary Hydrocarbons Agreement: Background and Issues
for Congress, by Curry L. Hagerty, pp. 1-2.
5946
U.S. Department of State, “Remarks by Secretary of State Hillary Rodham Clinton at the Signing of the U.S.-Mexico
Transboundary Agreement,” February 20, 2012.
43
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U.S.-Mexico Economic Relations: Trends, Issues, and Implications
Mexico’s Regional Free Trade Agreements
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. The pursuit of FTAs with other countries not only provides economic benefits,
but could also potentially reduce Mexico’s economic dependence on 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 NAFTA, Chile, Colombia, Costa
Rica, Nicaragua, Peru, Guatemala, El Salvador, and Honduras.
Mexico has ventured out of the hemisphere in negotiating FTAs, and, in July 2000, entered into
agreements with Israel and the European Union. Mexico became the first Latin American country
to have preferred access to these two markets. Mexico has also completed an FTA with the
European Free Trade Association (EFTA) of Iceland, Liechtenstein, Norway, and Switzerland.
The Mexican government has continued to look for potential free trade partners, and expanded its
outreach to Asia in 2000 by entering into negotiations with Singapore, Korea, and Japan.
Negotiations on FTAs with Korea and Singapore are stalled. In addition to the bilateral and
multilateral free trade agreements, Mexico is a member of the WTO,60 the Asia-Pacific Economic
Cooperation (APEC) forum, and the OECD.
Proposed Trans-Pacific Partnership (TPP)
Agreement
The TPP is a proposed regional FTA being negotiated among the United States, Australia, Brunei,
Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.61 On June
18, 2012, President Obama announced that the countries involved in the negotiations at the time
had extended an invitation to Mexico and Canada to join negotiations for the proposed regional
trade agreement. With the start of the Auckland Round in December 2012, Mexico and Canada
began participating in the TPP negotiations. U.S. negotiators and others describe and envision the
TPP as a “comprehensive and high-standard” FTA that aims to liberalize trade in nearly all goods
and services. If negotiations are concluded, the agreement would likely include commitments that
go beyond NAFTA and those currently established in the World Trade Organization (WTO). The
proposed TPP potentially could eliminate tariff and non-tariff barriers to trade and investment
among member countries and could serve as a template for a future trade pact with other
countries. Twenty-nine chapters are currently under discussion. In addition to market access,
negotiations are being conducted on disciplines regarding protection of intellectual property
rights, trade in services, government procurement, foreign investment, rules of origin, labor, and
environmental standards.
The proposed TPP would likely enhance the links Mexico already has with the United States and
Canada under NAFTA. The Mexican government agreed to several conditions that TPP countries
had placed on its entry into the negotiations, including a commitment to “high standards.” The
conditions included that Mexico would not be able to reopen any existing agreements that were
60
47 the Asia-Pacific Economic
Cooperation (APEC) forum, and the OECD.
Mexico is a member country of the Pacific Alliance, a regional trade integration initiative formed
by Chile, Colombia, Mexico, and Peru on April 11, 2011. Its main purpose is for members to
form a regional trading bloc and forge stronger economic ties with the Asia-Pacific region. The
Alliance is not an FTA, but it is intended to supplement existing FTAs among member countries.
The concept is for member countries to act as a unified economic bloc to negotiate and trade with
other countries.48
NAFTA
The North American Free Trade Agreement (NAFTA) has been in effect since January 1994.49
The overall economic impact of NAFTA is difficult to measure since trade and investment trends
are influenced by numerous other economic variables such as economic growth, inflation, and
currency fluctuations. The agreement may have accelerated the trade liberalization that was
already taking place between the United States and Mexico, but many of these changes may have
taken place with or without an agreement. Nevertheless, NAFTA is significant because it was the
most comprehensive free trade agreement (FTA) negotiated at the time, and contained several
groundbreaking provisions. There are numerous indications that NAFTA has achieved many of
47
The WTO allows member countries to form regional trade agreements under Article under certain rules. The position
of the WTO is that regional trade agreements can often support the WTO’s multilateral trading system by allowing
groups of countries to negotiate rules and commitments that go beyond what was possible at the time under the WTO.
The WTO has a committee on regional trade agreements that examines regional groups and assesses whether they are
consistent with WTO rules. See The World Trade Organization, “Understanding the WTO: Cross-Cutting and New
Issues, Regionalism: Friends or Rivals?” http://www.wto.org.
61
For more information, see48
See CRS Report R42694, The Trans-Pacific Partnership (TPP) Negotiations and Issues for
Congress, coordinated by Ian F. Fergusson, and CRS Report R42344, Trans-Pacific Partnership (TPP) Countries:
Comparative Trade and Economic Analysis, by Brock R. WilliamsR43748, The Pacific Alliance: A Trade Integration Initiative in Latin America, by M. Angeles
Villarreal
49
See CRS Report R42965, NAFTA at 20: Overview and Trade Effects, by M. Angeles Villarreal and Ian F. Fergusson.
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U.S.-Mexico Economic Relations: Trends, Issues, and Implications
already made by the current TPP partners, unless they agreed to revisit something previously
agreed upon.
NAFTA
The North American Free Trade Agreement (NAFTA) has been in effect since January 1994.62
The overall economic impact of NAFTA is difficult to measure since trade and investment trends
are influenced by numerous other economic variables such as economic growth, inflation, and
currency fluctuations. The agreement may have accelerated the trade liberalization that was
already taking place between the United States and Mexico, but many of these changes may have
taken place with or without an agreement. Nevertheless, NAFTA is significant because it was the
most comprehensive free trade agreement (FTA) negotiated at the time, and contained several
groundbreaking provisions. There are numerous indications that NAFTA has achieved many of
the intended trade and economic benefits, as well as incurred adjustment costs. This has been in
keeping with what most economists maintain, that trade liberalization promotes overall economic
growth among trading partners, but that there are significant adjustment costs.
Most of the trade effects in the United States related to NAFTA are due to changes in U.S. trade
and investment patterns with Mexico. At the time of NAFTA implementation, the U.S.-Canada
Free Trade Agreement already had been in effect for five years, and some industries in the United
States and Canada were already highly integrated. Mexico, on the other hand, had followed an
aggressive import-substitution policy for many years prior to NAFTA in which it had sought to
develop certain domestic industries through trade protection. One example is the Mexican
automotive industry, which had been regulated by a series of five decrees issued by the Mexican
government between 1962 and 1989. The decrees established import tariffs as high as 25% on
automotive goods and had high restrictions on foreign auto production in Mexico. Under
NAFTA, Mexico agreed to eliminate these restrictive trade policies.
Prior to NAFTA, Mexico was already liberalizing its protectionist trade and investment policies
that had been in place for decades. The restrictive trade regime began after Mexico’s
revolutionary period, and remained until the early to mid-1980s, when it began to shift to a more
open, export-oriented economy. For Mexico, an FTA with the United States represented a way to
lock in the trade reforms, attract greater flows of foreign investment, and spur economic growth.
For the United States, NAFTA represented an opportunity to expand the growing export market to
the south, but it also represented a political opportunity to improve the relationship with Mexico.
Estimating the economic impact of trade agreements is very difficult due to a lack of data and
important theoretical and practical matters associated with generating results from economic
models. In addition, such estimates provide an incomplete accounting of the total economic
effects of trade agreements.6350 Numerous studies suggest that NAFTA achieved many of the
intended trade and economic benefits.64 Other studies suggest that NAFTA has come at a cost to
62
For more information on NAFTA, see CRS Report R42965, NAFTA at 20: Overview and Trade Effects, by M.
Angeles Villarreal and Ian F. Fergusson.
63
For more information, see CRS Report R41660, U.S.-South Korea Free Trade Agreement and Potential Employment
Effects: Analysis of Studies, by Mary Jane Bolle and James K. Jackson.
64
See, for example, Gary Clyde Hufbauer and Jeffrey J. Schott, NAFTA Revisited: Achievements and Challenges,
Institute for International Economics, October 2005; Center for Strategic and International Studies, NAFTA’s Impact on
North America: The First Decade, Edited by Sidney Weintraub, 2004; and U.S. Chamber of Commerce, Opening
(continued...)
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U.S. workers.6551 Other studies suggest that NAFTA has come at a cost to
U.S. workers.52 This has been in keeping with what most economists maintain, that trade
liberalization promotes overall economic growth among trading partners, but that there are both
winners and losers from adjustments.
Not all changes in trade and investment patterns within North America since 1994 can be
attributed to NAFTA because trade has also been affected by a number of factors. The sharp
devaluation of the peso at the end of the 1990s and the associated recession in Mexico had
considerable effects on trade, as did the rapid growth of the U.S. economy during most of the
1990s and, more recently, the economic slowdown caused by the 2008 financial crisis. Traderelated job gains and losses since NAFTA may have accelerated trends that were ongoing prior to
NAFTA and may not be totally attributable to the trade agreement.
50
See CRS Report R41660, U.S.-South Korea Free Trade Agreement and Potential Employment Effects: Analysis of
Studies, by Mary Jane Bolle and James K. Jackson.
51
See, for example, Gary Clyde Hufbauer and Jeffrey J. Schott, NAFTA Revisited: Achievements and Challenges,
Institute for International Economics, October 2005; Center for Strategic and International Studies, NAFTA’s Impact on
North America: The First Decade, Edited by Sidney Weintraub, 2004; and U.S. Chamber of Commerce, Opening
Markets, Creating Jobs: Estimated U.S. Employment Effects of Trade with FTA Partners, 2010.
52
See, for example, Robert E. Scott, Heading South: U.S.-Mexico Trade and Job Displacement under NAFTA,
Economic Policy Institute, May 3, 2011; and the Frederick S. Pardee Center, The Future of North American Trade
Policy: Lessons from NAFTA, Boston University, November 2009.
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Many economists and other observers have credited NAFTA with helping U.S. manufacturing
industries, especially the U.S. auto industry, become more globally competitive through the
development of supply chains.6653 Much of the increase in U.S.-Mexico trade, for example, can be
attributed to specialization as manufacturing and assembly plants have reoriented to take
advantage of economies of scale. As a result, supply chains have been increasingly crossing
national boundaries as manufacturing work is performed wherever it is most efficient.6754 A
reduction in tariffs in a given sector not only affects prices in that sector but also in industries that
purchase intermediate inputs from that sector. The expansion of trade resulted in the creation of
vertical supply relationships, especially along the U.S.-Mexico border. The flow of intermediate
inputs produced in the United States and exported to Mexico and the return flow of finished
products greatly increased the importance of the U.S.-Mexico border region as a production site.
U.S. manufacturing industries, including automotive, electronics, appliances, and machinery, all
rely on the assistance of Mexican manufacturers. One study estimates that 40% of the content of
U.S. imports from Mexico and 25% of the content of U.S. imports from Canada are of U.S.
origin. In comparison, U.S. imports from China are said to have only 4% U.S. content. Taken
together, goods from Mexico and Canada represent about 75% of all the U.S. domestic content
that returns to the United States as imports.68
Bilateral Trade Issues
Sugar Disputes
On March 28, 2014, the American Sugar Coalition and its members filed a petition with the U.S.
International Trade Commission (ITC) and the Department of Commerce (DOC) alleging that
(...continued)
Markets, Creating Jobs: Estimated U.S. Employment Effects of Trade with FTA Partners, 2010.
65
See, for example, Robert E. Scott, Heading South: U.S.-Mexico Trade and Job Displacement under NAFTA,
Economic Policy Institute, May 3, 2011; and the Frederick S. Pardee Center, The Future of North American Trade
Policy: Lessons from NAFTA, Boston University, November 2009.
66
Hufbauer and Schott, NAFTA Revisited, pp. 20-21.
67
Ibid., p. 21.
68
Robert Koopman, William Powers, and Zhi Wang, et al., Giver Credit Where Credit is Due: Tracing Value Added in
Global Production Chains, National Bureau of Economic Research, Working Paper 16426, Cambridge, MA,
September 2010, pp. 7-8.
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Mexico was dumping and subsidizing its sugar exports to the United States. Sugar producers are
claiming that Mexico’s actions will cost the industry $1 billion in 2014. On April 18, 2014, the
DOC announced the initiation of antidumping duty and countervailing duty investigations of
sugar imports from Mexico.69 On May 9, 2014, the U.S. International Trade Commission issued a
preliminary report stating that there is a “reasonable indication that an industry in the United
States is materially injured by reason of imports of sugar from Mexico that are allegedly sold in
the United States at less than fair value and allegedly subsidized by the Government of
Mexico.”70 Final rulings by the Department of Commerce and the ITC may not occur until 2015.
In 2006, the United States and Mexico resolved another trade dispute involving sugar and high
fructose corn syrup. The dispute involved a sugar side letter negotiated under NAFTA. Mexico
argued that the side letter entitled it to ship net sugar surplus to the United States duty-free under
NAFTA, while the United States argued that the sugar side letter limited Mexican shipments of
sugar. In addition, Mexico complained that imports of high fructose corn syrup (HFCS)
sweeteners from the United States constituted dumping. It imposed anti-dumping duties for some
time, until NAFTA and WTO dispute resolution panels upheld U.S. claims that the Mexican
government colluded with the Mexican sugar and sweetener industries to restrict HFCS imports
from the United States.
In late 2001, the Mexican Congress imposed a 20% tax on soft drinks made with corn syrup
sweeteners to aid the ailing domestic cane sugar industry, and subsequently extended the tax
annually despite U.S. objections. In 2004, the United States Trade Representative (USTR)
initiated WTO dispute settlement proceedings against Mexico’s HFCS tax, and following interim
decisions, the WTO panel issued a final decision on October 7, 2005, essentially supporting the
U.S. position. Mexico appealed this decision, and in March 2006, the WTO Appellate Body
upheld its October 2005 ruling. In July 2006, the United States and Mexico agreed that Mexico
would eliminate its tax on soft drinks made with corn sweeteners no later than January 31, 2007.
The tax was repealed, effective January 1, 2007.
The United States and Mexico reached a sweetener agreement in August 2006. Under the
agreement, Mexico can export 500,000 metric tons of sugar duty-free to the United States from
October 1, 2006, to December 31, 2007. The United States can export the same amount of HFCS
duty-free to Mexico during that time. NAFTA provides for the free trade of sweeteners beginning
January 1, 2008. The House and Senate sugar caucuses expressed objections to the agreement,
questioning the Bush Administration’s determination that Mexico is a net-surplus sugar producer
to allow Mexican sugar duty-free access to the U.S. market.71
69
For more information, see International Trade Administration, Fact Sheet: Commerce Initiates Antidumping Duty
and Countervailing Duty Investigations of Imports of Sugar from Mexico, at
http://enforcement.trade.gov/download/factsheets/factsheet-mexico-sugar-cvd-initiation-041814.pdf.
70
U.S. International Trade Commission, Sugar from Mexico, Investigation Nos. 701-TA-513 and 731-TA-1249
(Preliminary), Publication 4467, Washington, DC, May 2014, p. 3.
71
See “Bush Administration Defends Sugar Deal to Congress,” Inside U.S. Trade, November 3, 2006; “Grassley, U.S.
Industry Welcome Agreement with Mexico on Sugar, HFCS,” International Trade Reporter, August 3, 2006; and,
“U.S., Mexico Reach Agreement on WTO Soft Drink Dispute Compliance Deadline,” International Trade Reporter,
July 13, 2006.
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Mexican Tomatoes
In February 2013, the United States and Mexico reached a tentative agreement on cross-border
trade in tomatoes, averting a potential trade war between the two countries.72 On March 4, 2013,
the Department of Commerce (DOC) and the government of Mexico officially signed the
agreement suspending the antidumping investigation on fresh tomatoes from Mexico.73 The
dispute began on June 22, 2012, when a group of Florida tomato growers, who were backed by
growers in other states, asked the DOC and the U.S. International Trade Commission to terminate
an antidumping duty suspension pact on tomatoes from Mexico. The termination of the pact,
which sets a minimum reference price for Mexican tomatoes in the United States, would have
effectively led to an antidumping investigation on Mexican tomatoes. Mexico’s Ambassador to
the United States at the time, Arturo Sarukhan, warned that such an action would damage the
U.S.-Mexico trade agenda and bilateral trade relationship as a whole. He also stated that Mexico
would use all resources at its disposal, including the possibility of retaliatory tariffs, to defend the
interests of the Mexican tomato industry.74 The Florida Tomato Exchange, a coalition of Florida
tomato growers, is challenging the suspension agreement and has a pending lawsuit filed with the
U.S. Court of International Trade.75
The suspension pact dates back to 1996, when the DOC, under pressure from Florida tomato
growers, filed an anti-dumping petition against Mexican tomato growers and began an
investigation into whether they were dumping Mexican tomatoes on the U.S. market at belowmarket prices. NAFTA, which entered into force in January 1994, had eliminated U.S. tariffs on
Mexican tomatoes, causing an inflow of fresh tomatoes from Mexico. Florida tomato growers
complained that Mexican tomato growers were selling tomatoes at below-market prices. After the
1996 filing of the petition, the DOC and Mexican producers and exporters of tomatoes reached an
agreement under which Mexican tomato growers agreed to revise their prices by setting a
minimum reference price in order to eliminate the injurious effects of fresh tomato exports to the
United States.76 The so-called “suspension agreement” remained in place for years and was
renewed in 2002 and 2008.77
The 2013 suspension agreement covers all fresh and chilled tomatoes, excluding those intended
for use in processing. It increases the number of tomato categories with established reference
prices from one to four. It also raises reference prices at which tomatoes can be sold in the U.S.
market to better reflect the changes in the marketplace since the last agreement had been signed.
It continues to account for winter and summer seasons.78
72
Stephanie Strom, “United States and Mexico Reach Tomato Deal, Averting a Trade War,” New York Times,
February 4, 2013.
73
U.S. Department of Commerce, Import Administration, Fresh Tomatoes from Mexico 1996 Suspension Agreement,
available at http://ia.ita.doc.gov/tomato/index.html.
74
Rosella Brevetti, “Mexico Ambassador Warns Against ending U.S. Suspension Agreement on Tomatoes,”
International Trade Reporter, September 20, 2012.
75
Brian Flood, "Florida Tomato Trade Group Loses Bid to Block Evidence in Mexico Dispute," Bloomberg BNA, April
15, 2014.
76
U.S. Department of Commerce, Import Administration, Fresh Tomatoes from Mexico 1996 Suspension Agreement,
available at http://ia.ita.doc.gov/tomato/index.html.
77
Ibid.
78
Len Bracken, “Commerce, Mexican Tomato Growers Agree on Final Version of Antidumping Agreement,”
International Trade Daily, March 5, 2013.
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When they filed the 2012 petition asking for the termination of the suspension agreement, U.S.
tomato producers argued that the pacts had not worked. The petitioners stated that it was
necessary to end the agreement with Mexico in order to “restore fair competition to the market
and eliminate the predatory actions of producers in Mexico.”79 However, business groups urged
the DOC to proceed cautiously in the tomato dispute since termination could result in higher
tomato prices in the United States and lead Mexico to implement retaliatory measures. Some
businesses urged a continuation of the agreement, arguing that it helped stabilize the market and
provide U.S. consumers with consistent and predictable pricing. According to a New York Times
article, the Mexican tomato producers enlisted roughly 370 U.S. businesses, including Wal-Mart
Stores and meat and vegetable producers, to argue their cause.80
Dolphin-Safe Tuna Labeling Dispute
The United States and Mexico are involved in a trade dispute regarding U.S. dolphin-safe
labeling provisions and tuna imports from Mexico. U.S. labeling provisions establish conditions
under which tuna products may voluntarily be labeled as “dolphin-safe.” These products may not
be labeled as dolphin-safe if the tuna is caught by intentionally encircling dolphins with nets.
According to the Office of the United States Trade Representative (USTR), some Mexican fishing
vessels use this method when fishing for tuna. Mexico asserts that U.S. tuna labeling provisions
deny Mexican tuna effective access to the U.S. market.81
In October 2008, Mexico filed a request for World Trade Organization (WTO) dispute settlement
consultations with the United States regarding U.S. provisions on voluntary dolphin-safe labeling
on tuna products. The United States requested that Mexico refrain from proceeding in the WTO
and that the case be moved to the NAFTA dispute resolution mechanism. According to the USTR,
however, Mexico “blocked that process for settling this dispute.”82 In September 2011, a WTO
panel determined that the objectives of U.S. voluntary tuna labeling provisions were legitimate
and that any adverse effects felt by Mexican tuna producers were the result of choices made by
Mexico’s own fishing fleet and canners. However, the panel also found U.S. labeling provisions
to be “more restrictive than necessary to achieve the objectives of the measures.”83 The Obama
Administration appealed the WTO ruling.
On May 16, 2012, the WTO’s Appellate Body overturned two key findings from the September
2011 WTO dispute panel. The Appellate Body found that U.S. tuna labeling requirements violate
global trade rules because they treat imported tuna from Mexico less favorably than U.S. tuna.
The Appellate Body also rejected Mexico’s claim that U.S. tuna labeling requirements were more
trade-restrictive than necessary to meet the U.S. objective of minimizing dolphin deaths.84 The
United States had a deadline of July 13, 2013, to comply with the WTO dispute ruling. In July
2013, the United States issued a final rule amending certain dolphin-safe labelling requirements
79
Inside U.S. Trade’s World Trade Online, “U.S. Growers Seek to End Suspension Agreement on Mexican Tomato
Imports,” June 28, 2012.
80
Stephanie Strom, New York Times, February 4, 2013.
81
Office of the United States Trade Representative (USTR), “U.S. Appeal in WTO Dolphin-Safe Tuna Labeling
Dispute with Mexico,” January 23, 2012.
82
Ibid.
83
Ibid. For more information, see the USTR website at http://www.ustr.gov.
84
Daniel Pruzin, “Appellate Body Overturns Key Panel Findings on U.S. Tuna-Dolphin Labeling Requirements,”
International Trade Reporter, May 24, 2012.
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to bring it into compliance with the WTO labeling requirements. On November 14, 2013, Mexico
requested the establishment of a WTO compliance panel. On April 16, 2014, the Chair of the
compliance panel announced that it expects to issue its final report to the parties by December
2014.85
The government of Mexico had requested the United States to broaden its dolphin-safe rules to
include Mexico’s long-standing tuna fishing technique. It cited statistics showing that modern
equipment has greatly reduced dolphin mortality from its height in the 1960s and that its ships
carry independent observers who can verify dolphin safety.86 However, some environmental
groups that monitor the tuna industry disputed claims by the Mexican government, stating that
even if no dolphins are killed during the chasing and netting, some are wounded and later die. In
other cases, they argued, young dolphin calves may not be able to keep pace and are separated
from their mothers and later die. These groups contended that if the United States changed its
labeling requirements, cans of Mexican tuna could be labeled as “dolphin-safe” when it was not.87
However, an industry spokesperson representing three major tuna processors in the United States,
including StarKist, Bumblebee, and Chicken of the Sea, contended that U.S. companies would
probably not buy Mexican tuna even if it is labeled as dolphin-safe because these companies
“would not be in the market for tuna that is not caught in the dolphin-safe manner.”88
The tuna labeling dispute began over 10 years ago. In April 2000, the Clinton Administration
lifted an embargo on Mexican tuna under relaxed standards for a dolphin-safe label. This was in
accordance with internationally agreed procedures and U.S. legislation passed in 1997 that
encouraged the unharmed release of dolphins from nets. However, a federal judge in San
Francisco ruled that the standards of the law had not been met, and the Federal Appeals Court in
San Francisco sustained the ruling in July 2001. Under the Bush Administration, the Commerce
Department ruled on December 31, 2002, that the dolphin-safe label may be applied if qualified
observers certify that no dolphins were killed or seriously injured in the netting process.
Environmental groups, however, filed a suit to block the modification. On April 10, 2003, the
U.S. District Court for the Northern District of California enjoined the Commerce Department
from modifying the standards for the dolphin-safe label. On August 9, 2004, the federal district
court ruled against the Bush Administration’s modification of the dolphin-safe standards and
reinstated the original standards in the 1990 Dolphin Protection Consumer Information Act. That
decision was appealed to the U.S. Ninth Circuit Court of Appeals, which ruled against the
Administration in April 2007, finding that the Department of Commerce did not base its
determination on scientific studies of the effects of Mexican tuna fishing on dolphins. In late
October 2008, Mexico initiated World Trade Organization dispute proceedings against the United
States, maintaining that U.S. requirements for Mexican tuna exporters prevents them from using
the U.S. “dolphin-safe” label for its products.89
85
For more information, see World Trade Organization, United States— Measures Concerning the Importation,
Marketing, and Sale of Tuna and Tuna Products, available at http://www.wto.org.
86
Tim Carman, “Tuna, meat labeling disputes highlight WTO control,” Washington Post, January 10, 2012.
87
Ibid.
88
Ibid.
89
Daniel Pruzin, “Mexico Initiates WTO Dispute Proceeding Against U.S. ‘Dolphin-Safe’ Label for Tuna,”
International Trade Reporter, October 30, 2008.
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Mexican Trucking Issue
A major trade issue regarding NAFTA between the United States and Mexico for many years was
the U.S. implementation of NAFTA trucking provisions. Under NAFTA, Mexican commercial
trucks were to have been given full access to four U.S. border states in 1995 and full access
throughout the United States in 2000. Citing safety concerns, however, the United States refused
to implement NAFTA’s trucking provisions. The Mexican government objected and claimed that
U.S. actions were a violation of U.S. commitments under NAFTA. A NAFTA dispute resolution
panel supported Mexico’s position in February 2001. President Bush indicated a willingness to
implement the provision, but the U.S. Congress required additional safety provisions in the
FY2002 Department of Transportation Appropriations Act (P.L. 107-87). The United States and
Mexico cooperated to resolve the issue and engaged in numerous talks regarding safety and
operational issues. On July 6, 2011, the two countries signed a Memorandum of Understanding
(MOU) to resolve the dispute. In October 2011, the United States granted the first permit to
provide international long-haul cargo services to a Mexican trucking company. The pilot program
is expected to conclude in October 2014.55
Proposed Trans-Pacific Partnership (TPP)
Agreement
The Trans-Pacific Partnership (TPP) is a proposed regional free trade agreement (FTA) being
negotiated among the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico,
New Zealand, Peru, Singapore, and Vietnam. U.S. negotiators and others describe and envision
the TPP as a "comprehensive and high-standard" FTA that aims to liberalize trade in nearly all
goods and services and include rules-based commitments beyond those currently established in
the World Trade Organization (WTO). Mexico and Canada began participating in the TPP
negotiations in December 2012. If concluded as envisioned, the TPP potentially could eliminate
tariff and nontariff barriers to trade and investment among the parties and could serve as a
template for a future trade pact among APEC members and potentially other countries. Congress
has a direct interest in the negotiations, both through influencing U.S. negotiating positions with
the executive branch, and by considering legislation to implement any resulting agreement.56
53
Hufbauer and Schott, NAFTA Revisited, pp. 20-21.
Ibid., p. 21.
55
Robert Koopman, William Powers, and Zhi Wang, et al., Give Credit Where Credit is Due: Tracing Value Added in
Global Production Chains, National Bureau of Economic Research, Working Paper 16426, Cambridge, MA,
September 2010, pp. 7-8.
56
See CRS Report R42694, The Trans-Pacific Partnership (TPP) Negotiations and Issues for Congress, coordinated
by Ian F. Fergusson.
54
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The TPP negotiations are reportedly nearing conclusion. As the negotiations are confidential, it is
difficult to assess how many issues remain unresolved. Remaining issues are likely also the most
sensitive and their resolution may require high-level political decisions. Conclusion of the TPP
negotiations may also be impacted by congressional consideration of Trade Promotion Authority
(TPA), legislation which some Members of Congress view as necessary before TPP is concluded
and then considered by Congress.57
The proposed TPP would likely enhance the links Mexico already has with the United States and
Canada under NAFTA. The Mexican government agreed to several conditions that TPP countries
had placed on its entry into the negotiations, including a commitment to “high standards.” The
conditions included that Mexico would not be able to reopen any existing agreements that were
already made by the current TPP partners, unless they agreed to revisit something previously
agreed upon. The government of Mexico is seeking to have a unified vision with NAFTA partners
by negotiating as a North American region in the TPP talks. Mexico is interested in ensuring the
TPP addresses energy trade issues; drops foreign trade barriers in the auto sector, especially in
Japan; expands access for the Mexican aerospace industry; and protects the textile industry and
shoe makers from further competition from Asia. In agriculture, Mexico is unlikely to raise
specific concerns as it has already undertaken significant reform and market opening measures
through NAFTA and other unilateral actions. NAFTA will reportedly continue to co-exist with a
TPP so that Mexican exporters could continue to export through NAFTA.58
Bilateral Trade Issues
The United States and Mexico have had a number of trade disputes over the years, many of which
have been resolved. These issues have involved trade in sugar, country of origin labeling, tomato
imports from Mexico, dolphin-safe tuna labeling, and NAFTA trucking provisions.
Sugar Disputes
2014 Mexican Sugar Import Dispute
On December 19, 2014, the U.S. Department of Commerce (DOC) signed an agreement with the
Government of Mexico suspending the U.S. countervailing duty (CVD) investigation of sugar
imports from Mexico. The DOC signed a second agreement with Mexican sugar producers and
exporters suspending an antidumping (AD) duty investigation on imports of Mexican sugar. The
agreements suspending the investigations alter the nature of trade in sugar between Mexico and
the United States by 1) imposing volume limits on U.S. sugar imports from Mexico, and 2)
setting minimum price levels on Mexican sugar.59
Two U.S. sugar companies, Imperial Sugar Company and AmCane Sugar LLC, have requested
that the DOC continue the CVD and AD investigations on sugar imports from Mexico. The two
57
See CRS Report R43491, Trade Promotion Authority (TPA): Frequently Asked Questions, by Ian F. Fergusson and
Richard S. Beth, and CRS Report IF10038, Trade Promotion Authority (TPA), by Ian F. Fergusson.
58
Emily Pickrell and Jerome Ashton, "Mexico Focusing on Trans-Pacific Partnership for Market Access," Bloomberg
BNA, January 7, 2015.
59
See CRS In Focus IF10034, New Era Dawns in U.S.-Mexico Sugar Trade, by Mark A. McMinimy.
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companies filed separate submissions on January 16, 2015 claiming “interested party” status. The
companies claim they meet the statutory standards to seek continuation of the probes. The
submissions to the DOC follow requests to the ITC, by the same two companies, to review the
two December 2014 suspension agreements.60 The ITC is reviewing the sugar suspension
agreements to determine whether the agreements completely eliminate the injurious effect of
sugar imports from Mexico. The ITC must issue determinations no later than 75 days after the
date on which the petition was filed – January 8, 2015.61
The dispute began on March 28, 2014, when the American Sugar Coalition and its members filed
a petition requesting that the U.S. ITC and the DOC conduct an investigation alleging that
Mexico was dumping and subsidizing its sugar exports to the United States. The petitioners
claimed that dumped and subsidized sugar exports from Mexico were harming U.S. sugar
producers and workers. They claimed that Mexico’s actions would cost the industry $1 billion in
2014. On April 18, 2014, the DOC announced the initiation of AD and CVD investigations of
sugar imports from Mexico.62 On May 9, 2014, the ITC issued a preliminary report stating that
there was a reasonable indication a U.S. industry was materially injured by imports of sugar from
Mexico that were allegedly sold in the United States at less than fair value and allegedly
subsidized by the Government of Mexico.63
In August 2014, the DOC announced in its preliminary ruling that Mexican sugar exported to the
United States was being unfairly subsidized. Following the preliminary subsidy determination,
the DOC stated that it would direct the U.S. Customs and Border Protection to collect cash
deposits on imports of Mexican sugar. Based on the preliminary findings, the DOC imposed
cumulative duties on U.S. imports of Mexican sugar, ranging from 2.99% to 17.01% under the
CVD order. Additional duties of between 39.54% and 47.26% were imposed provisionally
following the preliminary AD findings.64 The final determination in the two investigations was
expected in later in 2015 and had not been issued when the suspension agreements were signed.
The Sweetener Users Association (SUA), which represents beverage makers, confectioners, and
other food companies, argues that the case is “a diversionary tactic to distract from the real cause
of distortion in the U.S. sugar market—the U.S. government’s sugar program.”65 It contends that
between 2009 and 2012, U.S. sugar prices soared well above the world price because of the U.S.
program, providing an incentive for sugar growers to increase production. According to the sugar
60
Rosella Brevetti, "Two Companies Step Up Attack on Deals Commerce Negotiated on Sugar From Mexico,"
Bloomberg BNA, January 20, 2015.
61
Rosella Brevetti, "ITC to Review Pacts Suspending Dumping Duty Cases on Sugar Imports from Mexico,"
Bloomberg BNA, January 21, 2015.
62
See International Trade Administration, Fact Sheet: Commerce Initiates Antidumping Duty and Countervailing Duty
Investigations of Imports of Sugar from Mexico, at http://enforcement.trade.gov/download/factsheets/factsheet-mexicosugar-cvd-initiation-041814.pdf.
63
U.S. International Trade Commission, Sugar from Mexico, Investigation Nos. 701-TA-513 and 731-TA-1249
(Preliminary), Publication 4467, Washington, DC, May 2014, p. 3.
64
CRS In Focus IF10034, New Era Dawns on U.S.-Mexico Sugar Trade, by Mark A. McMinimy.
65
Sweetener Users Association, "SUA Statement on Commerce Department's Postponement of Preliminary
Antidumping Duty Determination," press release, August 21, 2014, http://sweetenerusers.org.
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U.S.-Mexico Economic Relations: Trends, Issues, and Implications
users association, this resulted in a surplus of sugar and a return to lower sugar prices.66 The SUA
has been a critic of the U.S. sugar program.67
Sugar and High Fructose Corn Syrup Dispute Resolved in 2006
In 2006, the United States and Mexico resolved a previous trade dispute involving sugar and high
fructose corn syrup. The dispute involved a sugar side letter negotiated under NAFTA. Mexico
argued that the side letter entitled it to ship net sugar surplus to the United States duty-free under
NAFTA, while the United States argued that the sugar side letter limited Mexican shipments of
sugar. In addition, Mexico complained that imports of high fructose corn syrup (HFCS)
sweeteners from the United States constituted dumping. It imposed anti-dumping duties for some
time, until NAFTA and WTO dispute resolution panels upheld U.S. claims that the Mexican
government colluded with the Mexican sugar and sweetener industries to restrict HFCS imports
from the United States.
In late 2001, the Mexican Congress imposed a 20% tax on soft drinks made with corn syrup
sweeteners to aid the ailing domestic cane sugar industry, and subsequently extended the tax
annually despite U.S. objections. In 2004, the United States Trade Representative (USTR)
initiated WTO dispute settlement proceedings against Mexico’s HFCS tax, and following interim
decisions, the WTO panel issued a final decision on October 7, 2005, essentially supporting the
U.S. position. Mexico appealed this decision, and in March 2006, the WTO Appellate Body
upheld its October 2005 ruling. In July 2006, the United States and Mexico agreed that Mexico
would eliminate its tax on soft drinks made with corn sweeteners no later than January 31, 2007.
The tax was repealed, effective January 1, 2007.
The United States and Mexico reached a sweetener agreement in August 2006. Under the
agreement, Mexico can export 500,000 metric tons of sugar duty-free to the United States from
October 1, 2006, to December 31, 2007. The United States can export the same amount of HFCS
duty-free to Mexico during that time. NAFTA provides for the free trade of sweeteners beginning
January 1, 2008. The House and Senate sugar caucuses expressed objections to the agreement,
questioning the Bush Administration’s determination that Mexico is a net-surplus sugar producer
to allow Mexican sugar duty-free access to the U.S. market.68
Country-of-Origin Labeling (COOL)
The United States has been involved in a country-of-origin labeling (COOL) trade dispute with
Canada and Mexico for several years. On December 1, 2008, Canada requested World Trade
Organization (WTO) consultations with the United States concerning certain mandatory labeling
provisions required by the 2002 farm bill (P.L. 107-171) as amended by the 2008 farm bill (P.L.
110-246). Labeling provisions include the obligation to inform consumers at the retail level of the
66
Ibid.
"Commerce Finds Countervailable Subsidies in Mexican Sugar Trade Case," World Trade Online, August 25, 2014.
68
See “Bush Administration Defends Sugar Deal to Congress,” Inside U.S. Trade, November 3, 2006; “Grassley, U.S.
Industry Welcome Agreement with Mexico on Sugar, HFCS,” International Trade Reporter, August 3, 2006; and,
“U.S., Mexico Reach Agreement on WTO Soft Drink Dispute Compliance Deadline,” International Trade Reporter,
July 13, 2006.
67
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country of origin in certain commodities, including beef and pork. On December 12, 2008,
Mexico requested to join the consultations.69
The U.S. Department of Agriculture (USDA) labeling rules for meat and meat products have been
controversial. A number of livestock and food industry groups oppose COOL as costly and
unnecessary. Canada and Mexico, the main livestock exporters to the United States, argue that
COOL has a trade-distorting impact by reducing the value and number of cattle and hogs shipped
to the U.S. market, thus violating WTO trade commitments. Others, including some cattle and
consumer groups, maintain that Americans want and deserve to know the origin of their foods. 70
In November 2011, the WTO dispute settlement panel found that 1) COOL treats imported
livestock less favorably than U.S. livestock and 2) that it does not meet its objective to provide
complete information to consumers on the origin of meat products. In March 2012, the United
States appealed the WTO ruling. In June 2012, the WTO’s Appellate Body upheld the finding that
COOL treats imported livestock less favorably than domestic livestock and reversed the finding
that it does not meet its objective to provide complete information to consumers. It could not
determine if COOL was more trade restrictive than necessary.
In order to meet a compliance deadline by the WTO, USDA issued a revised COOL rule on May
23, 2013, that required meat producers to specify on retail packaging where each animal was
born, raised, and slaughtered; and that prohibited the mixing of muscle cuts from different
countries. Canada and Mexico challenged the 2013 labeling rules before a WTO compliance
panel. The compliance panel sided with Canada and Mexico; the United States is appealing the
decision. A hearing with the WTO Appellate Body is scheduled for mid-February. 71 If the
Appellate Body upholds the compliance panel findings, and the United States does not alter the
COOL law to bring it into compliance with WTO obligations, Mexico is expected to request
WTO authorization to retaliate against the United States with increased tariffs on imports of
various U.S. products.
Mexican Trucking Issue
The implementation of NAFTA trucking provisions has been a major trade issue between the
United States and Mexico. The United States has delayed its commitments for many years. Under
NAFTA, the United States was to have given Mexican commercial trucks full access to four U.S.
border states in 1995 and full access throughout the United States in 2000. Citing safety concerns,
however, the United States did not implement NAFTA’s trucking provisions.72 The Mexican
government objected and claimed that U.S. actions were a violation of U.S. commitments under
NAFTA. A dispute resolution panel supported Mexico’s position in February 2001. President
Bush indicated a willingness to implement the provision, but the U.S. Congress required
additional safety provisions in the FY2002 Department of Transportation Appropriations Act (P.L.
69
World Trade Organization, United States-Certain Country of Origin Labelling Requirements, Dispute Settlement:
Dispute DS384, http://www.wto.org.
70
For more information, see CRS Report RS22955, Country-of-Origin Labeling for Foods and the WTO Trade Dispute
on Meat Labeling, by Joel L. Greene.
71
Rosella Brevetti, "Labeling Dispute Casts Shadow of Possible Retaliation on U.S. Exports in 2015," Bloomberg
BNA, January 7, 2015.
72
See CRS Report R41821, Status of Mexican Trucks in the United States: Frequently Asked Questions, by John
Frittelli.
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107-87). The United States and Mexico have cooperated to resolve the issue over the years and
engaged in numerous talks regarding safety and operational issues. The United States has had two
pilot programs on cross-border trucking to help resolve the issue: the Bush Administration’s pilot
program of 2007 and the Obama Administration’s program of 2011.
The Obama Administration’s 2011 program expired in October 2014. On January 9, 2015, the
Department of Transportation’s Federal Motor Carrier Safety Administration (FMCSA)
announced that Mexican motor carriers would soon be able to apply for authority to conduct
long-haul, cross-border trucking services in the United States, marking a significant milestone in
implementation of the North American Free Trade Agreement.73Transportation Secretary Anthony
Foxx stated that “opening the door to a safe cross-border trucking system with Mexico” would
strengthen relations and meet U.S. obligations under NAFTA.74 The FMCSA submitted a report
to Congress in which it states that the Obama Administration pilot program successfully
demonstrated that Mexican motor carriers operate throughout the United States at a safety level
equivalent to U.S. and Canada-domiciled motor carriers.75 The DOT is expected to begin taking
applications after the publication of a Federal Register notice. The International Brotherhood of
Teamsters has repeatedly characterized the pilot program as a failure.76
Bush Administration’s Pilot Program of 2007
On November 27, 2002, with safety inspectors and procedures in place, the Bush Administration
announced that it would begin the process that would open U.S. highways to Mexican truckers
and buses. However, environmental and labor groups went to court in early December to block
the action. On January 16, 2003, the U.S. Court of Appeals for the Ninth Circuit ruled that full
environmental impact statements were required for Mexican trucks to be allowed to operate on
U.S. highways. The U.S. Supreme Court reversed that decision on June 7, 2004.
In February 2007, the Bush Administration announced a pilot project to grant Mexican trucks
from 100 transportation companies full access to U.S. highways. In September 2007, the
Department of Transportation (DOT) launched a one-year pilot program to allow approved
Mexican carriers beyond the 25-mile commercial zone in the border region, with a similar
program allowing U.S. trucks to travel beyond Mexico’s border and commercial zone. Over the
18 months that the program existed, 29 motor carriers from Mexico were granted operating
authority in the United States. Two of these carriers dropped out of the program shortly after
being accepted, while two others never sent trucks across the border. In total, 103 Mexican trucks
were used by the carriers as part of the program.9077
In the FY2008 Consolidated Appropriations Act (P.L. 110-161), signed into law in December
2007, Congress included a provision prohibiting the use of FY2008 funding for the establishment
73
Federal Motor Carrier Safety Administration (FMCSA), United States to Expand Trade Opportunities with Mexico
through Safe Cross-Border Trucking, January 9, 2015, available at http://www.fmcsa.dot.gov.
74
Rosella Brevetti, "Transportation Department Clears Way of Roadlblocks for Mexican Motor Carriers," January 9,
2015.
75
FMCSA, The Cross-Border Trucking Pilot Program Report to Congress, available at:
http://www.fmcsa.dot.gov/mission/policy/cross-border-trucking-pilot-program-report-congress.
76
Rosella Brevetti, "Transportation Department Clears Way of Roadlblocks for Mexican Motor Carriers," January 9,
2015.
77
Ibid.
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of the pilot program. However, the DOT determined that it could continue with the pilot program
because it had already been established. In March 2008, the DOT issued an interim report on the
cross-border trucking demonstration project to the Senate Committee on Commerce, Science, and
Transportation. The report made three key observations: (1) the Federal Motor Carrier Safety
Administration (FMCSA) planned to check every participating truck each time it crossed the
border to ensure that it met safety standards; (2) there was less participation in the project than
90
Ibid.
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was expected; and (3) the FMCSA implemented methods to assess possible adverse safety
impacts of the project and to enforce and monitor safety guidelines.9178
In early August 2008, DOT announced that it would be extending the pilot program for an
additional two years. In opposition to this action, the House approved on September 9, 2008 (by a
vote of 396 to 128), H.R. 6630, a bill that would have prohibited DOT from granting Mexican
trucks access to U.S. highways beyond the border and commercial zone. The bill also would have
prohibited DOT from renewing such a program unless expressly authorized by Congress. No
action was taken by the Senate on the measure.
On March 11, 2009, the FY2009 Omnibus Appropriations Act (P.L. 111-8) terminated the pilot
program. The FY2010 Consolidated Appropriations Act, passed in December 2009 (P.L. 111117), did not preclude funds from being spent on a long-haul Mexican truck pilot program,
provided that certain terms and conditions were satisfied. Numerous Members of Congress urged
President Obama to find a resolution to the dispute in light of the effects that Mexico’s retaliatory
tariffs were having on U.S. producers (see section below).
A truck safety statistic on “out-of-service” rates indicates that Mexican trucks operating in the
United States are now safer than they were a decade ago. The data indicate that Mexican trucks
and drivers have a comparable safety record to U.S. truckers. Another study indicates that the
truck driver is usually the more critical factor in causing accidents than a safety defect with the
truck itself. Service characteristics of long-haul trucking suggest that substandard carriers would
likely not succeed in this market.92 on President Obama’s program).
Mexico’s Retaliatory Tariffs of 2009 and 2010
In response to the abrupt end of the pilot program, the Mexican government announced in March
2009 that it would retaliate by retaliated in 2009 by
increasing duties on 90 U.S. products with a value of $2.4 billion
in exports to Mexico. Mexico
began imposing tariffs in March 2009 and, after reaching an
understanding with the United
States, eliminated them in two stages in 2011. The retaliatory
tariffs, which went into effect on March 19, 2009, tariffs ranged from 10% to 45% and
covered a range
of products that included fruit, vegetables, home appliances, consumer products,
and paper.93
79 Subsequently, a group of 56 Members of the House of Representatives wrote to
United States
Trade Representative Ron Kirk and DOT Secretary Ray LaHood requesting the
Administration to
resolve the trucking issue.9480 The bipartisan group of Members stated that they
wanted the issue to
be resolved soon because the higher Mexican tariffs were having a
“devastating” impact on local
industries, especially in agriculture, and area economies in some
states. One reported estimate
stated that U.S. potato exports to Mexico had fallen 50% by value
since the tariffs were imposed
and that U.S. exporters were losing market share to Canada.95
91
Department of Transportation, “Cross-Border Trucking Demonstration Project,” March 11, 2008.
See CRS Report RL31738, North American Free Trade Agreement (NAFTA) Implementation: The Future of
Commercial Trucking Across the Mexican Border, by John Frittelli.
9381
On August 16, 2010, the Mexican government announced a revised list of retaliatory tariffs on
imports from the United States. The revised list added 26 products to and removed 16 products
from the original list of 89, bringing the new total to 99 products from 43 states with a total
export value of $2.6 billion. Products that were added to the list included several types of pork
78
Department of Transportation, “Cross-Border Trucking Demonstration Project,” March 11, 2008.
Rosella Brevetti, “Key GOP House Members Urge Obama to Develop New Mexico Truck Program,” International
Trade Reporter, March 26, 2009.
9480
Amy Tsui, “Plan to Resolve Mexican Trucking Dispute ‘Very Near,’ DOT’s LaHood Tells Lawmakers,”
International Trade Reporter, March 11, 2010.
9581
Ibid.
9279
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On August 16, 2010, the Mexican government announced a revised list of retaliatory tariffs on
imports from the United States. The revised list added 26 products to and removed 16 products
from the original list of 89, bringing the new total to 99 products from 43 states with a total
export value of $2.6 billion. Products that were added to the list included several types of pork
products, several types of cheeses, sweet corn, pistachios, oranges, grapefruits, apples, oats and
grains, chewing gum, ketchup, and other products. The largest in terms of value were two
categories of pork products, which had an estimated export value of $438 million in 2009.
Products that were removed from the list included peanuts, dental floss, locks, and other
products.9682 The revised retaliatory tariffs were lower than the original tariffs and ranged from 5%
to 25%. Mexico reportedly rotated the list of products to put more pressure on the United States
to seek a settlement for the trucking dispute.9783 U.S. producers of fruits, pork, cheese, and other
products that were bearing the cost of the retaliatory tariffs reacted strongly at the lack of progress
in resolving the trucking issue and argued, both to the Obama Administration and to numerous
Members of Congress, that they were potentially losing millions of dollars in sales as a result of
this dispute.
The Mexican government indicated it was willing to resolve the ongoing dispute with the Obama
Administration. In March 2011, President Obama and Mexican President Calderón announced
that they had
agreed on a way to move forward to resolving the dispute. Mexico stated that once a
final final
agreement was reached, it would suspend retaliatory tariffs in stages, beginning with
reducing reducing
tariffs by 50% at the signing of an agreement and suspending the remaining 50% when
the first
Mexican carrier was granted operating authority under the program.9884 By October 2011,
Mexico Mexico
had suspended all retaliatory tariffs on U.S. exports to Mexico.
The Obama Administration’s ProposalTrucking Program of 2011
In January 2011, the Obama Administration presented an “initial concept document” to Congress
and the Mexican government for a new long-haul trucking pilot program with numerous safety
inspection requirements for Mexican carriers. The concept document would put in place a new
inspection and monitoring regime in which Mexican carriers would have to apply for long-haul
operating authority. The proposed project would include several thousand trucks and eventually
bring as
many vehicles as are needed into the United States.9985 A DOT press release from January
6, 2011,
stated that a formal proposal on which the public would have the opportunity to
comment would
be released in the comingfollowing months.10086 The Mexican government responded
positively to the
initiative, stating that it would not continue rotating the list of retaliatory tariffs,
but that it would
keep the current tariffs in place until a final accord was reached.101
9687
The concept document outlined three sets of elements. The first set of elements, pre-operations
elements, included an application process for Mexican carriers interested in applying for longhaul operations in the United States; a vetting process by the U.S. Department of Homeland
Security and the Department of Justice; a safety audit of Mexican carriers applying for the
program; documentation of Mexican commercial driver’s license process to demonstrate
comparability to the U.S. process; and evidence of financial responsibility (insurance) of the
82
Inside U.S. Trade’s World Trade Online, “Pork, Cheeses, Fruits to Face new Tariffs Due to Mexico Trucks Dispute,”
August 17, 2010.
9783
Inside U.S. Trade’s World Trade Online, “New Mexican Retaliatory Tariffs in Trucks Dispute Designed to Spur
U.S.,” September 3, 2010.
9884
Washington Trade Daily, “A Trucking Breakthrough,” Volume 20, No. 45, March 4, 2011.
9985
Rosella Brevetti and Nacha Cattan, “DOT’s LaHood Presents ‘Concept’ Paper on Resolving NAFTA Mexico Truck
Dispute,” January 13, 2011.
10086
U.S. Department of Transportation, “U.S. Cross-Border Trucking Effort Emphasizes Safety and Efficiency,” Press
Release, January 6, 2011.
10187
Josh Mitchell, “U.S. Jump-Starts Bid to End Truck Dispute with Mexico,” Wall Street Journal, January 7, 2011.
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U.S.-Mexico Economic Relations: Trends, Issues, and Implications
The U.S. concept document outlined a proposed program with three sets of elements. The first set
of elements, pre-operations elements, included an application process for Mexican carriers
interested in applying for long-haul operations in the United States; a vetting process by the U.S.
Department of Homeland Security and the Department of Justice; a safety audit of Mexican
carriers applying for the program; documentation of Mexican commercial driver’s license process
to demonstrate comparability to the U.S. process; and evidence of financial responsibility
(insurance) of the applicant. The second set of elements, operations elements, included the
following: monitoring
procedures that included regular inspections and electronic monitoring of
long-haul vehicles and
drivers; a follow-up review (first review) to ensure continued safe
operation; a compliance review
(second review) upon which a participating carrier would be
eligible for full operation authority; and a Federal Motor Carrier Safety Administration (FMCSA)
and a FMCSA review that included insurance monitoring and drug and alcohol collection and
testing facilities.
The third set of elements, transparency elements, would require Federal Register
notices by the
FMCSA; a publically accessible website that provides information on participating
carriers; the
establishment of a Federal Advisory Committee with representation from a diverse
group of
stakeholders; periodic reports to Congress; and requirements for DOT Office of the Inspector
Inspector General reports to Congress.10288
2011 Memorandum of Understanding to Resolve the Dispute
On July 6, 2011, the two countries signed a Memorandum of Understanding (MOU) to resolve
the dispute over long-haul cross-border trucking.10389 Within 10 days after signing of the MOU,
Mexico suspended 50% of the retaliatory tariffs. Mexico agreed to suspend the remainder of the
tariffs within five days of the first Mexican trucking company receiving its U.S. operating
authority.10490 On October 21, 2011, Mexico suspended the remaining retaliatory tariffs.
The newpilot program, which will endended in October 2014, was announced by the DOT Federal Motor
Carrier Safety Administration (FMCSA). DOT Secretary LaHoodFMCSA in July 2011.
DOT stressed that roadway safety
would be a priority in the program.105 The program.91 It came as a result of numerous meetings
between the Secretary LaHoodof DOT, other Obama Administration officials, lawmakers, safety
advocates,
industry representatives, and others to address concerns. According to the FMCSA, the
final text
of the program addressesaddressed recommendations of over 2,000 commenters to the proposal
issued in
April 2011.106 Under the program, trucks will be required April 2011.92 The program required trucks to comply with all Federal Motor
Vehicle Vehicle
Safety Standards and mustto have electronic monitoring systems to track hours-of-service
compliance.
In addition, DOT is to reviewreviewed the complete driving record of each driver in addition
to having drug
testing requirements for all drivers. Other requirements includeincluded an assessment of
abilities to
understand the English language and U.S. traffic signs.107 Under the new agreement,
10293 Mexico provided reciprocal authority for
U.S. carriers to engage in cross-border long-haul operations in Mexico.
On October 14, 2011, the FMCSA granted the first permit to provide international long-haul
cargo services to Monterrey-based trucking firm Transportes Olympic. The company successfully
completed a pre-authorization safety audit and had been a participant in the Bush
Administration’s 2007 pilot program.94 By 2014, fifteen trucking companies from Mexico
88
U.S. Department of Transportation, Concept Document: Phased U.S.-Mexico Cross-Border Long Haul Trucking
Proposal, January 6, 2011, at http://www.fmcsa.dot.gov.
10389
Federal Motor Carrier Safety Administration (FMCSA), “United States and Mexico Announce Safe, Secure CrossBorder Trucking Program: U.S.-Mexico Agreements Will Lift Tariffs and Put Safety First,” News Release, July 6,
2011.
10490
NAFTA Works, “The United States and Mexico Sign a Memorandum of Understanding on Long-Hayl Cross-Border
Trucking,” Volume 3, Alert 18, July 2011.
10591
FMCSA, “United States and Mexico Announce Safe, Secure Cross-Border Trucking Program: U.S.-Mexico
Agreements Will Lift Tariffs and Put Safety First,” July 6, 2011.
10692
Ibid.
107
Ibid.
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U.S.-Mexico Economic Relations: Trends, Issues, and Implications
Mexico will provide reciprocal authority for U.S. carriers to engage in cross-border long-haul
operations in Mexico.
On October 14, 2011, the FMCSA granted the first permit to provide international long-haul
cargo services to Monterrey-based trucking firm Transportes Olympic. The company successfully
completed a pre-authorization safety audit and had been a participant in the Bush
Administration’s 2007 pilot program.108
Policy Issues
U.S. policymakers are likely to closely follow trade issues regarding the TPP negotiations and
regulatory cooperation with Mexico. They are also likely to follow ongoing economic reforms
and policies implemented by the Peña Nieto government, particularly in the energy sector.
TPP Negotiations
Policy makers may consider how a TPP would affect NAFTA and U.S.-Mexico trade relations.
Although nearly all U.S. trade with Mexico is now conducted duty and barrier free through
NAFTA, the TPP negotiations may provide a venue for addressing issues that are not covered by
NAFTA. The TPP may have implications for NAFTA in several areas, including IPR, investment,
services, government procurement, as well as labor and environmental provisions. The provisions
in more recent agreements that the United States has negotiated, such as the FTAs with Colombia
and Peru, include commitments that go beyond NAFTA. If an agreement is reached on a TPP,
Mexico may have to adhere to stronger and more enforceable labor and environmental provisions,
stronger IPR provisions, as well as new rules on state-owned enterprises.109
Potential questions that Congress might consider include the following: If a TPP agreement is
concluded, how would it affect U.S. economic relations with Mexico? How would it affect
bilateral trade? Would a TPP address concerns of policymakers who believe that NAFTA’s
environmental and labor provisions do not go far enough to protect worker rights and the
environment? Would there be an improvement in the enforcement mechanism? How would
stronger IPR provisions affect U.S. industries? How would a TPP affect jobs in the United States
and Mexico?
Regulatory Cooperation
Policymakers may consider issues on how the United States can improve cooperation with
Mexico in the areas of trade, transportation, competitiveness, economic growth, and security
enhancement. U.S.-Mexico regulatory cooperation efforts include the following: the 2010
Declaration Concerning Twenty-first Century Border Management; the 2012 High-Level
Regulatory Cooperation Council (HLRCC); and the 2013 U.S.-Mexico High Level Economic
Dialogue (HLED). Some policy experts emphasize the importance of U.S.-Mexico trade in
108
Rosella Brevetti, “Mexico Suspends Tariffs as Trucking Program is Launched,” International Trade Reporter,
October 27, 2011.
109
See CRS Report R42344, Trans-Pacific Partnership (TPP) Countries: Comparative Trade and Economic Analysis,
by Brock R. Williams.
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intermediate goods and supply chains and argue that the two governments can improve
cooperation in cross-border trade and can invest more in improving border infrastructure. The
increased security measures along the U.S.-Mexico-border, they argue, have resulted in a costly
disruption in production chains due to extended and unpredictable wait times along the border.
Potential questions that Congress might consider include the following: How effectively has the
United States pursued border initiatives with Mexico? What other steps can be taken by the two
countries to improve competitiveness of industries located along the U.S.-Mexico border and
elsewhere within the two countries? How successful have the United States and Mexico been in
improving the flow of goods and services, while improving safety and security along the border?
What have been the actual results of the initiatives that have been launched? To what extent has
the emphasis on border security caused delays in border crossings or transportation of
merchandise? How have recent efforts to facilitate trade affected the trade relationship?
Mexico’s Economic Reforms
As Mexico moves forward with reform measures to modernize the energy sector and other parts
of the economy, the overarching questions are how the reform agenda will be implemented;
whether it will be implemented fully; and whether it will be enough to drive economic growth
among all sectors of the economy, increase employment in the formal sector, and bring more
people out of poverty.
Potential oversight questions that Congress might consider include the following: How
effectively are the Peña Nieto government and the Mexican Congress implementing economic
reforms? To what extent will the energy reforms provide opportunities for U.S. oil companies?
What is the expected timeline for the energy reforms? How effective will these reforms be in
bringing in more competition? Will the reforms improve Mexican economic performance? Are
the secondary laws that are required to implement the constitutional reforms being carried out
effectively?
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Appendix. Map of Mexico
Figure A-1. Map of Mexico
Author Contact Information
M. Angeles Villarreal
Specialist in International Trade and Finance
avillarreal@crs.loc.gov, 7-0321
Congressional Research Service
3093
Ibid.
94
Rosella Brevetti, “Mexico Suspends Tariffs as Trucking Program is Launched,” International Trade Reporter,
October 27, 2011.
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participated in the pilot program, crossing the border more than 28,000 times, traveled more than
1.5 million miles in the United States, and were subjected to 5,500 safety inspections by U.S.
officials. The FMCSA stated that data collected on the pilot carriers from Mexico met the level of
safety shown by American and Canadian-domiciled motor carriers.95
Mexican Tomatoes
In February 2013, the United States and Mexico reached a tentative agreement on cross-border
trade in tomatoes, averting a potential trade war between the two countries.96 On March 4, 2013,
the Department of Commerce (DOC) and the government of Mexico officially signed the
agreement suspending the antidumping investigation on fresh tomatoes from Mexico.97 The
dispute began on June 22, 2012, when a group of Florida tomato growers, who were backed by
growers in other states, asked the DOC and the U.S. International Trade Commission to terminate
an antidumping duty suspension pact on tomatoes from Mexico. The termination of the pact,
which sets a minimum reference price for Mexican tomatoes in the United States, would have
effectively led to an antidumping investigation on Mexican tomatoes. Mexico’s Ambassador to
the United States at the time, Arturo Sarukhan, warned that such an action would damage the
U.S.-Mexico trade agenda and bilateral trade relationship as a whole. He also stated that Mexico
would use all resources at its disposal, including the possibility of retaliatory tariffs, to defend the
interests of the Mexican tomato industry.98 The Florida Tomato Exchange, a coalition of Florida
tomato growers, is challenging the suspension agreement and has a pending lawsuit filed with the
U.S. Court of International Trade.99
The suspension pact dates back to 1996, when the DOC, under pressure from Florida tomato
growers, filed an anti-dumping petition against Mexican tomato growers and began an
investigation into whether they were dumping Mexican tomatoes on the U.S. market at belowmarket prices. NAFTA, which entered into force in January 1994, had eliminated U.S. tariffs on
Mexican tomatoes, causing an inflow of fresh tomatoes from Mexico. Florida tomato growers
complained that Mexican tomato growers were selling tomatoes at below-market prices. After the
1996 filing of the petition, the DOC and Mexican producers and exporters of tomatoes reached an
agreement under which Mexican tomato growers agreed to revise their prices by setting a
minimum reference price in order to eliminate the injurious effects of fresh tomato exports to the
United States.100 The so-called “suspension agreement” remained in place for years and was
renewed in 2002 and 2008.101
95
Federal Motor Carrier Safety Administration (FMCSA), United States to Expand Trade Opportunities with Mexico
through Safe Cross-Border Trucking, January 9, 2015, available at http://www.fmcsa.dot.gov.
96
Stephanie Strom, “United States and Mexico Reach Tomato Deal, Averting a Trade War,” New York Times,
February 4, 2013.
97
U.S. Department of Commerce, Import Administration, Fresh Tomatoes from Mexico 1996 Suspension Agreement,
available at http://ia.ita.doc.gov/tomato/index.html.
98
Rosella Brevetti, “Mexico Ambassador Warns Against ending U.S. Suspension Agreement on Tomatoes,”
International Trade Reporter, September 20, 2012.
99
Brian Flood, "Florida Tomato Trade Group Loses Bid to Block Evidence in Mexico Dispute," Bloomberg BNA, April
15, 2014.
100
U.S. Department of Commerce, Import Administration, Fresh Tomatoes from Mexico 1996 Suspension Agreement,
available at http://ia.ita.doc.gov/tomato/index.html.
101
Ibid.
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The 2013 suspension agreement covers all fresh and chilled tomatoes, excluding those intended
for use in processing. It increases the number of tomato categories with established reference
prices from one to four. It also raises reference prices at which tomatoes can be sold in the U.S.
market to better reflect the changes in the marketplace since the last agreement had been signed.
It continues to account for winter and summer seasons.102
When they filed the 2012 petition asking for the termination of the suspension agreement, U.S.
tomato producers argued that the pacts had not worked. The petitioners stated that it was
necessary to end the agreement with Mexico in order to “restore fair competition to the market
and eliminate the predatory actions of producers in Mexico.”103 However, business groups urged
the DOC to proceed cautiously in the tomato dispute since termination could result in higher
tomato prices in the United States and lead Mexico to implement retaliatory measures. Some
businesses urged a continuation of the agreement, arguing that it helped stabilize the market and
provide U.S. consumers with consistent and predictable pricing. According to a New York Times
article, the Mexican tomato producers enlisted roughly 370 U.S. businesses, including Wal-Mart
Stores and meat and vegetable producers, to argue their cause.104
Dolphin-Safe Tuna Labeling Dispute
The United States and Mexico are involved in a trade dispute regarding U.S. dolphin-safe
labeling provisions and tuna imports from Mexico. U.S. labeling provisions establish conditions
under which tuna products may voluntarily be labeled as “dolphin-safe.” These products may not
be labeled as dolphin-safe if the tuna is caught by intentionally encircling dolphins with nets.
According to the Office of the United States Trade Representative (USTR), some Mexican fishing
vessels use this method when fishing for tuna. Mexico asserts that U.S. tuna labeling provisions
deny Mexican tuna effective access to the U.S. market.105
In October 2008, Mexico filed a request for World Trade Organization (WTO) dispute settlement
consultations with the United States regarding U.S. provisions on voluntary dolphin-safe labeling
on tuna products. The United States requested that Mexico refrain from proceeding in the WTO
and that the case be moved to the NAFTA dispute resolution mechanism. According to the USTR,
however, Mexico “blocked that process for settling this dispute.”106 In September 2011, a WTO
panel determined that the objectives of U.S. voluntary tuna labeling provisions were legitimate
and that any adverse effects felt by Mexican tuna producers were the result of choices made by
Mexico’s own fishing fleet and canners. However, the panel also found U.S. labeling provisions
to be “more restrictive than necessary to achieve the objectives of the measures.”107 The Obama
Administration appealed the WTO ruling.
102
Len Bracken, “Commerce, Mexican Tomato Growers Agree on Final Version of Antidumping Agreement,”
International Trade Daily, March 5, 2013.
103
Inside U.S. Trade’s World Trade Online, “U.S. Growers Seek to End Suspension Agreement on Mexican Tomato
Imports,” June 28, 2012.
104
Stephanie Strom, New York Times, February 4, 2013.
105
Office of the United States Trade Representative (USTR), “U.S. Appeal in WTO Dolphin-Safe Tuna Labeling
Dispute with Mexico,” January 23, 2012.
106
Ibid.
107
Ibid. For more information, see the USTR website at http://www.ustr.gov.
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On May 16, 2012, the WTO’s Appellate Body overturned two key findings from the September
2011 WTO dispute panel. The Appellate Body found that U.S. tuna labeling requirements violate
global trade rules because they treat imported tuna from Mexico less favorably than U.S. tuna.
The Appellate Body also rejected Mexico’s claim that U.S. tuna labeling requirements were more
trade-restrictive than necessary to meet the U.S. objective of minimizing dolphin deaths.108 The
United States had a deadline of July 13, 2013, to comply with the WTO dispute ruling. In July
2013, the United States issued a final rule amending certain dolphin-safe labelling requirements
to bring it into compliance with the WTO labeling requirements. On November 14, 2013, Mexico
requested the establishment of a WTO compliance panel. On April 16, 2014, the Chair of the
compliance panel announced that it expected to issue its final report to the parties by December
2014.109 The case remains open.
The government of Mexico had requested the United States to broaden its dolphin-safe rules to
include Mexico’s long-standing tuna fishing technique. It cited statistics showing that modern
equipment has greatly reduced dolphin mortality from its height in the 1960s and that its ships
carry independent observers who can verify dolphin safety.110 However, some environmental
groups that monitor the tuna industry disputed claims by the Mexican government, stating that
even if no dolphins are killed during the chasing and netting, some are wounded and later die. In
other cases, they argued, young dolphin calves may not be able to keep pace and are separated
from their mothers and later die. These groups contended that if the United States changed its
labeling requirements, cans of Mexican tuna could be labeled as “dolphin-safe” when it was not.
However, an industry spokesperson representing three major tuna processors in the United States,
including StarKist, Bumblebee, and Chicken of the Sea, contended that U.S. companies would
probably not buy Mexican tuna even if it is labeled as dolphin-safe because these companies
“would not be in the market for tuna that is not caught in the dolphin-safe manner.”111
The tuna labeling dispute began over 10 years ago. In April 2000, the Clinton Administration
lifted an embargo on Mexican tuna under relaxed standards for a dolphin-safe label. This was in
accordance with internationally agreed procedures and U.S. legislation passed in 1997 that
encouraged the unharmed release of dolphins from nets. However, a federal judge in San
Francisco ruled that the standards of the law had not been met, and the Federal Appeals Court in
San Francisco sustained the ruling in July 2001. Under the Bush Administration, the Commerce
Department ruled on December 31, 2002, that the dolphin-safe label may be applied if qualified
observers certify that no dolphins were killed or seriously injured in the netting process.
Environmental groups, however, filed a suit to block the modification. On April 10, 2003, the
U.S. District Court for the Northern District of California enjoined the Commerce Department
from modifying the standards for the dolphin-safe label. On August 9, 2004, the federal district
court ruled against the Bush Administration’s modification of the dolphin-safe standards and
reinstated the original standards in the 1990 Dolphin Protection Consumer Information Act. That
decision was appealed to the U.S. Ninth Circuit Court of Appeals, which ruled against the
Administration in April 2007, finding that the Department of Commerce did not base its
determination on scientific studies of the effects of Mexican tuna fishing on dolphins. In late
108
Daniel Pruzin, “Appellate Body Overturns Key Panel Findings on U.S. Tuna-Dolphin Labeling Requirements,”
International Trade Reporter, May 24, 2012.
109
For more information, see World Trade Organization, United States—Measures Concerning the Importation,
Marketing, and Sale of Tuna and Tuna Products, available at http://www.wto.org.
110
Tim Carman, “Tuna, meat labeling disputes highlight WTO control,” Washington Post, January 10, 2012.
111
Ibid.
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October 2008, Mexico initiated World Trade Organization dispute proceedings against the United
States, maintaining that U.S. requirements for Mexican tuna exporters prevents them from using
the U.S. “dolphin-safe” label for its products.112
Policy Issues
U.S. policy makers are likely to closely follow trade issues regarding the TPP negotiations and
regulatory cooperation with Mexico. They are also likely to follow ongoing economic reforms
and policies implemented by the Peña Nieto government.
TPP Negotiations
Policy makers may consider how a TPP would affect NAFTA and U.S.-Mexico trade relations.
Although nearly all U.S. trade with Mexico is now conducted duty and barrier free through
NAFTA, the TPP negotiations may provide a venue for addressing issues that are not covered by
NAFTA. The TPP may have implications for NAFTA in several areas, including IPR, investment,
services trade, government procurement, as well as labor and environmental provisions. The
provisions in more recent agreements that the United States has negotiated, such as the FTAs with
Colombia and Peru, include commitments that go beyond NAFTA. If an agreement is reached on
a TPP, Mexico may have to adhere to stronger and more enforceable labor and environmental
provisions, stronger IPR provisions, as well as new rules on state-owned enterprises.113
Potential questions that Congress might consider include the following: If a TPP agreement is
concluded, how would it affect U.S. economic relations with Mexico? Would NAFTA remain
relevant? How would it affect bilateral trade? Would a TPP address concerns of policy makers
related to the environment and worker rights? Would there be a difference in the enforcement
mechanism? How would stronger IPR provisions affect U.S.-Mexico trade? How would a TPP
affect jobs in the United States and Mexico?
Bilateral Economic Cooperation
Policy makers may consider issues on how the United States can improve cooperation with
Mexico in the areas of border trade, transportation, competitiveness, economic growth, and
security enhancement through the HLED, HLRCC, and the 21st Century Border Management
programs mentioned earlier in this report. Some policy experts emphasize the importance of U.S.Mexico trade in intermediate goods and supply chains and argue that the two governments can
improve cooperation in cross-border trade and can invest more in improving border
infrastructure. The increased security measures along the U.S.-Mexico-border, they argue, have
resulted in a costly disruption in production chains due to extended and unpredictable wait times
along the border.
112
Daniel Pruzin, “Mexico Initiates WTO Dispute Proceeding Against U.S. ‘Dolphin-Safe’ Label for Tuna,”
International Trade Reporter, October 30, 2008.
113
See CRS Report R42344, Trans-Pacific Partnership (TPP) Countries: Comparative Trade and Economic Analysis,
by Brock R. Williams.
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Potential questions that Congress might consider include the following: How effectively has the
United States pursued border initiatives with Mexico? What are the challenges facing U.S.Mexico trade flows along the border? What steps can be taken by the two countries to improve
competitiveness of industries located along the U.S.-Mexico border and elsewhere within the two
countries? How successful have the United States and Mexico been in improving the flow of
goods and services, while improving safety and security along the border? What have been the
actual results of the initiatives that have been launched? To what extent has the emphasis on
border security caused delays in border crossings or transportation of merchandise? How have
recent efforts to facilitate trade affected the trade relationship?
Mexico’s Economic Reforms
As Mexico moves forward with reform measures to modernize the energy sector and other parts
of the economy, the overarching questions are how the reform agenda will be implemented;
whether it will be implemented fully; how will it affect the U.S.-Mexico trade relationship; and
whether it will be enough to drive economic growth among all sectors of the economy, increase
employment in the formal sector, and bring more people out of poverty.
Potential oversight questions that Congress might consider include the following: How
effectively are the Peña Nieto government and the Mexican Congress implementing economic
reforms? What efforts are the United States and Mexico making on energy cooperation? To what
extent will the energy reforms provide opportunities for U.S. oil companies? Will the reforms
improve Mexican economic performance? What complementary measures could the Mexican
government take to stimulate economic growth?
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Appendix. Map of Mexico
Figure A-1. Map of Mexico
Author Contact Information
M. Angeles Villarreal
Specialist in International Trade and Finance
avillarreal@crs.loc.gov, 7-0321
Congressional Research Service
33