ȱ
ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱ
œœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ǯȱ—Ž•Žœȱ’••Š››ŽŠ•ȱ
™ŽŒ’Š•’œȱ’—ȱ—Ž›—Š’˜—Š•ȱ›ŠŽȱŠ—ȱ’—Š—ŒŽȱ
™›’•ȱřǰȱŘŖŖşȱ
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŝȬśŝŖŖȱ
   ǯŒ›œǯ˜Ÿȱ
řŘşřŚȱ
ȱŽ™˜›ȱ˜›ȱ˜—›Žœœ
Pr
epared for Members and Committees of Congress

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ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
ž––Š›¢ȱ
Mexico has a population of about 110 million people making it the most populous Spanish-
speaking country in the world and the third most populous country in the Western Hemisphere.
Based on a gross domestic product (GDP) of $1.0 trillion in 2008 (about 7% of U.S. GDP),
Mexico has a free market economy with a strong export sector. Economic conditions in Mexico
are important to the United States because of the proximity of Mexico to the United States, the
close trade and investment interactions, and other social and political issues that are affected by
the economic relationship between the two countries.
The United States and Mexico have strong economic ties. An important feature of the relationship
is the North American Free Trade Agreement (NAFTA), which has been in effect since 1994. In
terms of total trade, Mexico is the United States’ third largest trading partner, while the United
States ranks first among Mexico’s trading partners. In U.S. imports, Mexico ranks third among
U.S. trading partners, after China and Canada, while in exports Mexico ranks second, after
Canada. The United States is the largest source of foreign direct investment (FDI) in Mexico.
These links are critical to many U.S. industries and border communities.
In 2008, about 11% of total U.S. merchandise exports were destined for Mexico and 10% of U.S.
merchandise imports came from Mexico. In the same year U.S. exports to Mexico increased
almost 10%, while imports from Mexico increased about 3%. For Mexico, the United States is a
much more significant trading partner. About 82% of Mexico’s exports go to the United States
and 50% of Mexico’s imports come from the United States. FDI forms another part of the
economic relationship between the United States and Mexico. The United States is the largest
source of FDI in Mexico. U.S. FDI in Mexico totaled $91.7 billion in 2007. The overall effect of
NAFTA on the U.S. economy has been relatively small, primarily because two-way trade with
Mexico amounts to less than three percent of U.S. GDP. Major trade issues between Mexico and
the United States have involved the access of Mexican trucks to the United States; the access of
Mexican sugar and tuna to the U.S. market; and the access of U.S. sweeteners to the Mexican
market.
Over the last decade, the economic relationship between the United States and Mexico has
strengthened significantly. The two countries continue to cooperate on issues of mutual concern.
On March 23, 2005, the leaders of the United States, Canada, and Mexico met to discuss issues
related to North American trade, immigration and defense. After the meeting, the three leaders
announced the Security and Prosperity Partnership of North America (SPP), an initiative that is
intended to increase cooperation and information sharing in an effort to increase and enhance
prosperity in the United States, Canada, and Mexico. In April 2008, the North American leaders
held a summit to discuss how they might further advance the goals of the SPP. The three leaders
decided that their respective ministers should continue to renew and focus their work in the five
SPP priority areas.

˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ

---

ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
˜—Ž—œȱ
Introduction ..................................................................................................................................... 1
U.S.-Mexico Economic Trends ....................................................................................................... 1
U.S.-Mexico Merchandise Trade .............................................................................................. 2
Mexico-U.S. Bilateral Foreign Direct Investment .................................................................... 6
Mexico’s Export-Oriented Assembly Plants ............................................................................. 7
Worker Remittances to Mexico................................................................................................. 9
Security and Prosperity Partnership of North America ........................................................... 10
The Mexican Economy...................................................................................................................11
Economic Reform and the 1995 Currency Crisis.....................................................................11
Current Economic Conditions................................................................................................. 13
Mexico’s Regional Free Trade Agreements ............................................................................ 15
NAFTA and the U.S.-Mexico Economic Relationship................................................................. 15
Effects on the U.S. Economy .................................................................................................. 16
Effects on the Mexican Economy ........................................................................................... 17
Major Issues in U.S.-Mexico Trade Relations............................................................................... 19
Trucking .................................................................................................................................. 19
Other Trade Issues................................................................................................................... 21
Policy Issues .................................................................................................................................. 22

’ž›Žœȱ
Figure 1. U.S. Merchandise Trade with Mexico.............................................................................. 4
Figure 2. GDP Growth Rates for the United States and Mexico ................................................... 13

Š‹•Žœȱ
Table 1. Key Economic Indicators for Mexico and the United States............................................. 3
Table 2. U.S. Imports from Mexico: 2002-2008 ............................................................................. 5
Table 3. U.S. Exports to Mexico: 2002-2008 .................................................................................. 5
Table 4. U.S.- Mexican Foreign Direct Investment Positions: 1994-2007 Historical Cost
Basis ............................................................................................................................................. 6

˜—ŠŒœȱ
Author Contact Information .......................................................................................................... 24

˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ

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ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
—›˜žŒ’˜—ȱ
Mexico has a population of approximately 110 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). The bilateral economic relationship with Mexico
is among the most important for the United States because of Mexico’s proximity and because of
the large amount of trade and investment interactions. The most significant feature of the
relationship is the North American Free Trade Agreement (NAFTA), through which the United
States, Mexico, and Canada form the world’s largest free trade area, with about one-third the
world’s total gross domestic product (GDP).
The United States and Mexico share common interests and are closely tied in areas not directly
related to trade and investment. The two countries share a 2,000 mile border and have extensive
interconnections through the Gulf of Mexico. There are links through migration and tourism,
environment and health concerns, and family and cultural relationships.1 The economic
relationship with Mexico is important to U.S. national interests and to the U.S. Congress for
many reasons. As the United States considers free trade initiatives with other Latin American
countries, the effects of NAFTA may provide policymakers some indication of how these
initiatives might affect conditions in the overall U.S. economy. The 111th Congress will likely
maintain an active interest in Mexico on issues related to counternarcotics, migration, trade, and
border issues. Comprehensive immigration reform was debated early in the 110th Congress, but
the issue was put aside following a failed cloture motion in the Senate on the Comprehensive
Immigration Reform Act of 2007 (S. 1348). Immigration reform efforts could be considered once
again in the 111th Congress.
This report provides an overview of U.S.-Mexico economic trends, background information on
the Mexican economy, the effects of NAFTA on the U.S.-Mexico economic relationship, and
major trade issues between the United States and Mexico. This report will be updated as events
warrant.
ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’Œȱ›Ž—œȱ
The United States and Mexico have strong economic ties. The United States is, by far, Mexico’s
most important partner in trade and investment, while Mexico is the United States third largest
trade partner after China and Canada. Many economists have focused much attention on the on-
going transformation of Mexico into a manufacturing-for-export nation since the late 1980s and
the importance of exports to its economy. Exports represent 31% of Mexico’s GDP, up from 10%
twenty years ago. After oil and gas, most of Mexico’s exports are manufactured goods. Over 80%
of Mexico’s exports are headed to the United States. Mexico’s reliance on the United States as a
trade partner appears to be diminishing, although slightly. Between 2004 and 2007, the U.S. share
of Mexico’s total imports decreased from 56% to 50%, while the share of total Mexican exports
going to the United States decreased from 89% to 82%. Although Mexican exports to the United
States are steadily increasing, Mexico’s share of the U.S. market has lost ground since 2002. In
2003, China surpassed Mexico as a supplier of U.S. imports, and Mexico now ranks third, after

1 See CRS Report RL32724, Mexico-U.S. Relations: Issues for Congress, by Mark P. Sullivan and June S. Beittel.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗȱ

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ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
China and Canada, as a source of U.S. imports. Because over 80% of Mexico’s exports are
destined for the United States, any change in U.S. demand can have strong economic
consequences in Mexican industrial sectors.
The immigration issue has received much attention by political leaders in recent years and it is
one that can be linked to the economic situation in Mexico, although it has social and political
aspects as well. In March 2008, there were approximately 12 million unauthorized immigrants
living in the United States, with 59% from Mexico.2 Economic conditions in Mexico and other
countries, such as poverty and unemployment, are a major factor related to the migration issue.
These workers often send money to their families in Mexico to help provide food and shelter.
Worker remittances to Mexico increased from $13.4 billion in 2003 to $24billion in 2007. While
Mexico receives the largest amount of remittances in Latin America, remittances comprise a
comparatively small share of Mexican national income, accounting for about 3% of Mexico’s
gross domestic product (GDP) in 2007. The rate of remittance growth slowed to just 1% in 2007,
far less than the average annual increase of 19% from 2003 through 2006.3
ǯǯȬŽ¡’Œ˜ȱŽ›Œ‘Š—’œŽȱ›ŠŽȱ
Mexico ranks second among U.S. export markets and is the United States’ third largest trading
partner in terms of total trade. In 2008, about 11% of total U.S. merchandise exports were
destined for Mexico and 10% of U.S. merchandise imports came from Mexico. In the same year
U.S. exports to Mexico increased 10.2% while imports from Mexico increased by 7.6%. For
Mexico, the United States is a much more significant trading partner. About 82% of Mexico’s
exports go to the United States and 50% of Mexico’s imports come from the United States.
Mexico’s second largest trading partner is China, accounting for approximately 6% of Mexico’s
exports and imports.4

2 Pew Hispanic Center, Trends in Unauthorized Immigration: Undocumented Inflow Now Trails Legal Inflow, October
2, 2008.
3CRS Report RL32724, Mexico-U.S. Relations: Issues for Congress, p. 7.
4 Data compiled by CRS using Global Trade Atlas database.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Řȱ

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ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ

Table 1. Key Economic Indicators for Mexico and the United States
Click here and type the subtitle, or delete this paragraph
Mexico
United
States
1998
2008a 1998 2008a
Population
(millions)
97 110 276 304
Nominal GDP ($US billions)b 456
1,035
8,747
14,265
GDP, PPPc Basis ($US billions)
917
1,530
8,747
14,265
Per Capita GDP ($US)
4,681
9,410
31,679
46,950
Per Capita GDP in $PPPs
9,426
13,920
31,679
46,950
Total Merchandise Exports (US$ billions)
118
292
682
1,300
Exports as % of GDPd
28% 31% 11% 13%
Total Merchandise Imports (US$ billions)
125
309
912
2,100
Imports as % of GDPd
30% 33% 13% 18%
Public Debt/GDP
35%
18%
n.a.
n.a.
Source: Compiled by CRS based on data from Economist Intelligence Unit (EIU) on-line database.
Notes: Click here and type the notes, or delete this paragraph
a. Some figures for 2008 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. merchandise trade with Mexico has grown considerably over the last ten years (see Figure
1). Although some of the increase in trade could be attributable to NAFTA, there are other
variables that affect trade, such as exchange rates and economic conditions. Mexico’s currency
crisis of 1995 limited the purchasing power of the Mexican people in the following years and also
made products from Mexico less expensive for the U.S. market. Economic factors such as these
played a role in the increasing U.S. trade deficit with Mexico which went from a $1.4 billion
surplus in 1994 to a $84.8 billion deficit in 2008. U.S. imports from Mexico increased from
$85.0 billion in 1997 to $216.3 billion in 2008, while U.S. exports to Mexico increased from
$68.4 billion in 1997 to $131.5 billion in 2007 (see Table 2).
Several studies between 2003 and 2004 on the effects of NAFTA found that trade deficits 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.5 Strong U.S. growth in the 1990s
combined with Mexico’s deep recession in 1995 were the main factors cited for the large deficits.

5See CRS Report RS21737, NAFTA at Ten: Lessons from Recent Studies, by J. F. Hornbeck.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
řȱ

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ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
None of the studies attributed the peso crisis to NAFTA, but to structural misalignments in the
Mexican economy combined with political events.6
Figure 1. U.S. Merchandise Trade with Mexico

250
200
150
100
U.S. Exports
50
U.S. Imports
Trade Balance
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
-50
-100
-150

Source: United States International Trade Commission, Interactive Tariff and Trade Data Web. Compiled by
CRS.

The leading U.S. import item from Mexico in 2007 was oil and gas, which amounted to $37.93
billion, or 17.5% of total U.S. imports from Mexico (see Table 2). The next leading import items
were motor vehicles ($22.02 billion or 10.1% of total); motor vehicle parts ($20.58 or 9.51% of
total); audio and video equipment ($17.84 billion or 8.2% of total); and communications
equipment ($12.99 billion or 6.0% of total). The leading U.S. export item to Mexico in 2008 was
motor vehicle parts, which amounted to $10.06 billion, or 7.6% of total exports to Mexico (see
Table 3). The next leading export items were petroleum and coal products ($9.63 billion or 7.3%
of total); basic chemicals ($7.16 billion or 5.4% of total); resin, synthetic rubber and products
($5.95 billion or 4.5% of total); and oilseeds and grains ($5.94 billion or 4.5% of total). The U.S.
industry with the highest volume of trade (imports and exports) with Mexico is the automotive
industry.

6 Ibid.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Śȱ

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ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
Table 2. U.S. Imports from Mexico: 2002-2008
(US$ in billions)
%
Change
Leading Items
2007 -
(NAIC
4-digit) 2002 2003 2004 2005 2006 2007 2008 2008
Oil
and
Gas
10.70 13.67 17.23 22.48 29.38 30.27 37.93 25.3%
Motor
Vehicles
20.74 19.03 18.77 18.36 23.24 23.08 22.02 -4.6%
Motor Vehicle
15.14 15.99 17.82 19.33 20.81 22.65 20.58 -9.2%
Parts
Audio/Video
7.45 6.91 8.18 9.87 13.89 17.06 17.84 4.5%
Equipment
Communications
5.70 5.98 7.45 7.34 8.73 13.06 12.99 -0.6%
Equipment
Other
74.39 75.62 85.51 91.84 101.01 104.04 104.97 3.9%
Total
134.12 137.20 154.96 169.22 197.06 210.16 216.33 2.9%
Source: Compiled by CRS using USITC Interactive Tariff and Trade DataWeb at http://dataweb.usitc.gov:
NAIC4-digit level.
Note: Nominal U.S. dollars.

Table 3. U.S. Exports to Mexico: 2002-2008
(U.S. $ in millions)
%
Change
Leading Items
2007 -
(NAIC 4-digit)
2002 2003 2004 2005 2006 2007 2008 2008
Motor Vehicle
8.14 7.11 7.55 7.39 8.60 9.40 10.06 7.0%
Parts
Petroleum and
2.36 2.31 2.78 4.73 4.98 5.66 9.63 70.1%
Coal Products
Basic
Chemicals 2.85 3.35 4.43 5.01 5.74 6.50 7.16 10.2%
Resin, Synthetic
2.62 2.94 3.57 4.51 5.37 5.43 5.95 9.6%
Rubber & Related
Products
Oilseeds and
2.46 2.61 2.58 2.52 3.05 3.97 5.94 49.6%
Grains
Other
67.65 64.79 72.11 77.51 86.82 88.42 92.77 4.9%
Total
86.08 83.11 93.02 101.67 114.56 119.38 131.51 10.2%
Source: Compiled by CRS using USITC Interactive Tariff and Trade DataWeb at http://dataweb.usitc.gov:
NAIC4-digit level
Note: Nominal U.S. dollars.

˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
śȱ

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ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
Ž¡’Œ˜Ȭǯǯȱ’•ŠŽ›Š•ȱ˜›Ž’—ȱ’›ŽŒȱ—ŸŽœ–Ž—ȱ
Foreign direct investment (FDI) forms another part of the economic relationship between the
United States and Mexico. FDI consists of investments in real estate, manufacturing plants, and
retail facilities, in which the foreign investor owns 10% or more of the entity. The United States is
the largest source of FDI in Mexico. U.S. FDI on a historical cost basis in Mexico increased from
$17 billion in 1994 to $91.7 billion in 2007, nearly a 400% increase (see Table 4).
Mexican FDI in the United States is much lower than U.S. investment in Mexico, with levels of
Mexican FDI fluctuating over the last ten years. In 2005, Mexican FDI in the United States
totaled $8.7 billion, representing an increase of 440% since 1994, as shown in Table 4.
Table 4. U.S.- Mexican Foreign Direct Investment Positions: 1994-2007 Historical
Cost Basis
(U.S. $ in millions)

Mexican FDI in
U.S. FDI in
Year
the U.S.
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 7,483 55,724
2003 6,680 61,526
2004 8,167 63,502
2005 8,653 71,423
2006 6,075 84,699
2007 5,954 91,663
Source: U.S. Department of Commerce, Bureau of Economic Analysis.
The sharp rise in U.S. investment in Mexico since NAFTA implementation 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 in Mexico 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
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Ŝȱ

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ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
because Mexico likely would have continued to liberalize its foreign investment laws with or
without NAFTA.
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.”)
Mexico’s maquiladora industry is important to the economic relationship of the United States and
Mexico in several ways. In Mexico, the industry has helped attract investment from countries
such as the United States that have a relatively large amount of capital. Therefore, Mexico is able
to attract some of the foreign direct investment it was seeking when it liberalized trade and
investment barriers. For the United States, the industry is 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. Many economists believe that maquiladoras are an important part of U.S.
corporate strategy in achieving competitively priced goods in the world marketplace.7 Other
analysts are concerned that the industry has caused U.S. companies to move their manufacturing
facilities to Mexico at the expense of U.S. workers.
Ž¡’Œ˜Ȃœȱ¡™˜›Ȭ›’Ž—ŽȱœœŽ–‹•¢ȱ•Š—œŞȱ
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 export-oriented 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, commonly called maquiladoras, account for a
substantial share of Mexico’s imports and about half of its exports. The largest maquiladora
operation, Delphi Automotive Systems, headquartered in the United States, had 51 plants with
66,000 employees in Mexico in 2006.9 Most maquiladora plants are located along the U.S.-
Mexico border. The Mexican metropolitan areas with the highest maquiladora activity as of
December 2006 (the latest year for which maquiladora statistics are available) were the Mexican
border cities of Tijuana, Baja California, 568 maquiladoras with 164,900 employees, and Cd.
Juárez, Chihuahua, 279 maquiladoras with 283,300 employees.10 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).


7 Federal Reserve Bank of Dallas, “The Binational Importance of the Maquiladora Industry,” Southwest Economy,
Issue 6, November/December 1999.
8 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
duty-free 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 Data from Mexico’s Instituto Nacional de Estadística Geografía e Informática (INEGI), provided by Global Insight,
Inc, at the LIX Maquiladora Industry Outlook Meeting on June 8, 2007 in El Paso, Texas.
10 Ibid.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŝȱ

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ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
Private industry groups have stated 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.
After NAFTA, Mexico’s regulations governing the maquiladora industry changed significantly.
Beginning in 2001, the North American rules of origin determined the duty-free status for a given
import and replace the previous special tariff provisions that applied only to maquiladora
operations. The initial program ceased to exist and the same trade rules applied to all assembly
operations in Mexico and not just those in the maquiladora program.11 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 duty-free 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. PITEX plants are usually in areas located in
central and southern Mexico while maquiladoras are more common in states along the U.S.-
Mexico border. In recent years, the differences in the customs status of maquiladoras and PITEX
plants diminished and the Mexican government decided to merge the two export-oriented
programs. In 2007, the Mexican government announced a new set of regulations on export-
oriented industries. These new rules merge the maquiladora industry and PITEX plants into the
Maquiladora Manufacturing Industry and Export Services, or IMMEX. In 2008, maquiladora
industry data will be included in Mexican manufacturing reports, without a distinction for
maquiladora plants.12 Prior to NAFTA, a maquiladora was limited to selling up to 50% of the
previous year’s export production to the domestic market. By 2000, maquiladoras were allowed
to sell up to 85% of the previous year’s export production to the Mexican market. Most
maquiladoras, however, continue to export the majority of their production to the U.S. market.
The maquiladora industry expanded rapidly in the 1990s. The number of plants grew from 1,920
at the end of 1990 to 3,590 in 2000. After 2000, the number of maquiladoras fell to 2,860 in 2003.
Since 2004, the number of plants has stayed at approximately the same levels, totaling 2,819 in
2007.13 Some observers believe that the correlation in maquiladora growth after 1993 is directly
due to NAFTA, but in reality it is a combination of factors that has contributed to growth in this
sector. Trade liberalization, wages, and economic conditions, both in the United States and

11 Vargas, Lucinda, “NAFTA, the U.S. Economy, and Maquiladoras,” El Paso Business Frontier, 2001.
12 Federal Reserve Bank of Dallas, Southwest Economy, Issue 3, “Spotlight: Maquiladora Data, Mexican Reform
Clouds View of Key Industry,” May/June 2007.
13 Based on data from INEGI.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Şȱ

---

ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
Mexico, have all contributed to the growth of Mexican export-oriented assembly plants. Although
some provisions in NAFTA may have encouraged maquiladora growth in certain sectors,
maquiladora activity is more influenced by the strength of the U.S. economy and relative wages
in Mexico. Maquiladora operations usually increase during periods of economic expansion in the
United States. A drop in Mexican wages may also be an incentive for U.S. companies to shift
production to Mexico.
Between 1993 and 1996, relative wages in Mexico fell considerably due to the peso devaluation.
Since 1997, however, Mexican labor costs have risen, and some manufacturers have closed their
Mexican plants and shifted production to other low-wage countries. In 2001, maquiladora
employment levels fell for the first time since 1982. Between 2000 and 2004, maquiladora
employment levels fell from 1.30 million workers to 1.12 million workers. Approximately
176,000 jobs were lost and 780 plants were shut down nationwide during this time. Employment
rose to about 1.23 million in 2006.14
˜›”Ž›ȱŽ–’Š—ŒŽœȱ˜ȱŽ¡’Œ˜ȱ
Remittances from workers abroad play a strong role in the Mexican economy and form an
important aspect of the U.S.-Mexico economic relationship.15 Worker remittances account for
about 3% of Mexico’s GDP and are the second-largest source of foreign currency inflows behind
oil exports. Mexico was one of the top three recipients of remittances worldwide in 2007. After
high levels of growth rates since 2002, the rate of growth of remittances to Mexico has dropped
markedly in the past two years. In 2004, Mexico received a record $16.6 billion in remittances,
representing a 24% increase over 2003.16 Remittances from the United States to Mexico reached a
peak of $6.2 billion in mid-2006 and have been decreasing since. In 2007, remittances grew by
only 1%, after years of high growth. In January 2008, remittances to Mexico were down nearly
6%, the biggest drop in 13 years.17 The decline in the level of remittances is due to a combination
of factors. The slowdown in the U.S. economy, the weakening job market in the construction
sector, tighter border controls, and increased anti-immigration sentiment in the United States may
all be factors in the reduced number of seasonal migrants in the United States and their ability to
send remittances to Mexico.18
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.
One study estimates that 80% of the money received by households goes for food, clothing,
health care, and other household expenses. Another study estimates that remittances in Mexico
are responsible for about 27%, and up to 40% in some cases, of the capital invested in
microenterprises throughout urban Mexico.19 The economic impact of remittance flows is

14
Ibid.
15 For information on remittances to Latin America see CRS Report RL31659, Foreign Remittances to Latin America,
by Walter W. Eubanks and Pauline Smale.
16 EIU ViewsWire, “Mexico Economy: Remittances Home Hit a Record US$16.6 Billion in 2004,” February 9, 2005.
17 The Dallas Morning News, “Remittances to Mexico See Biggest Drop in 13 Years,” March 7, 2008.
18 The World Bank, Remittance Trends 2007, by Dilip Ratha, Sanket Mohapatra, K.M. Vijayalakshmi, and Zhimei Xu,
November 29, 2007.
19 The Federal Reserve Bank of Dallas report “Workers’ Remittances to Mexico,” (2004) evaluated the economic
(continued...)
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
şȱ

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ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
concentrated in the poorer states of Mexico. The government has sponsored programs to channel
the funds directly to infrastructure and investment rather than consumption.20
ŽŒž›’¢ȱŠ—ȱ›˜œ™Ž›’¢ȱŠ›—Ž›œ‘’™ȱ˜ȱ˜›‘ȱ–Ž›’ŒŠȱ
The Security and Prosperity Partnership of North America (SPP) is a trilateral initiative, launched
in March 2005, that is intended to increase cooperation and information sharing in an effort to
increase and enhance prosperity in the United States, Canada, and Mexico. The SPP is a
government initiative that was endorsed by the leaders of the three countries, but it is not a signed
agreement or treaty and, therefore, contains no legally binding commitments or obligations. It
can, at best, be characterized as an endeavor by the three countries to facilitate communication
and cooperation across several key policy areas of mutual interest. Although the SPP builds upon
the existing trade and economic relationship of the three countries, it is not a free trade agreement
and is distinct from the existing North American Free Trade Agreement (NAFTA). Some key
issues for Congress regarding the SPP concern possible implications related to national
sovereignty, transportation corridors, cargo security, and border security. These issues are
discussed in various sections of the report.
Since 2005, the SPP working groups have made annual recommendations to the North American
leaders on how to accomplish the goals of the SPP. In 2008, the working groups agreed to
continue to advance the agenda of the SPP by identifying and focusing on a set of high priority
initiatives. They decided to: 1) increase the competitiveness of North American businesses and
economies through more compatible regulations; 2) make borders smarter and more secure by
coordinating long-term infrastructure plans, enhancing services, and reducing bottlenecks and
congestion at major border crossings; 3) strengthen energy security and protect the environment
by developing a framework for harmonization of energy efficiency standards and sharing
technical information; 4) improve access to safe food, and health and consumer products by
increasing cooperation and information sharing on the safety of food and products; and 5)
improve North American response to emergencies by updating bilateral agreements to enable
government authorities from the three countries help each other more quickly and efficiently
during times of crisis.21
Goals of the SPP in the area of prosperity are to increase cooperation and sharing of information
in order to improve productivity, reduce the costs of trade, and enhance the quality of life.
Leaders from the three countries have highlighted the need to enhance North American
competitiveness through compatible regulations and standards that would help the three countries
protect health, safety and the environment, as well as to facilitate trade in goods and services
across their borders. In the 2008 joint statement, the leaders highlighted the need for the three
countries to implement compatible fuel efficiency regimes and high safety standards to protect
human health and the environment, and to reduce the costs of producing cars and trucks for the
North American market. They also emphasized their efforts to advance intellectual property rights
protection in North America through the Intellectual Property Action Strategy.

(...continued)
impact of worker remittances to Mexico and cites a number of reports by the World Bank and the Mexican
government.
20 Ibid, p. 4.
21 Joint statement by President Bush, President Calderon, Prime Minister Harper, April 22, 2008.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŖȱ

---

ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
The SPP is not a form of economic integration, and goes only as far as leading to some measure
of regulatory harmonization among the United States, Canada, and Mexico. The SPP working
groups are not contemplating further market integration in North America. Such a move would
require a government approval process within each of the three countries. In the United States,
such an agreement would require the approval of the U.S. Congress.
Some observers state that the SPP is an important step forward in the relationship of the United
States with Mexico, and also Canada, in view of the distancing that occurred after the terrorist
attacks of September 11, 2001.22 However, other analysts believe that the SPP and any subsequent
trade-facilitating measures may fall short of any grander vision of further economic integration.23
Critics of the SPP contend that it may ultimately lead to a so-called “NAFTA Superhighway” that
would link the United States, Canada, and Mexico with a ‘super-corridor’.24 However, if the
United States were to potentially consider the formation of a customs union or common market
with its North American neighbors, it would require approval by the U.S. Congress.
‘ŽȱŽ¡’ŒŠ—ȱŒ˜—˜–¢ȱ
Mexico has a free market economy with a strong export sector, but this has not always been the
case. The transformation of Mexico into an export-based economy began in the late 1980s when
the government started to liberalize its trade policy and adopt economic reform measures. One of
the more distinctive aspects of the Mexican economy is its strong ties to the economic cycle of
the United States, making it very sensitive to economic developments in the United States. The
state of the Mexican economy is important to the United States because of the close trade and
investment ties between the two countries, and because of other social and political issues that
could be affected by economic conditions, particularly those related to immigration.
Œ˜—˜–’ŒȱŽ˜›–ȱŠ—ȱ‘Žȱŗşşśȱž››Ž—Œ¢ȱ›’œ’œȱ
In the late 1980s and early into the 1990s, the Mexican government implemented a series of
measures to restructure the economy that included steps toward trade liberalization. For many
years, Mexico had protectionist trade policies to encourage industrial growth in the domestic
economy. The 1980s were marked by inflation and a declining standard of living. Repercussions
of the 1982 debt crisis in which the Mexican government was unable to meet its foreign debt
obligations were a primary cause of the economic challenges the country faced in the early to
mid-1980’s. Much of the government’s effort in addressing the challenges was placed on
privatizing state industries and moving toward trade liberalization. Efforts included privatization
of sea ports, railroads, telecommunications, electricity, natural gas distribution and airports. The
negotiation and implementation of NAFTA played a major role in Mexico’s changing economic
policy in the early 1990s.

22 “U.S., Mexico, Canada Agree to Increase Cooperation,” The Washington Post, March 24, 2005, p. A4.
23 “Neighbors Who Are not Always Friends: Bush’s Summit with Mexican and Canadian Leaders Will Probably Take
Small Steps Toward Bolder Integration,” The Christian Science Monitor, March 23, 2005, p. 2.
24 See for example, Corsi, Jerome R., The Plan to Replace the Dollar with the ‘Amero’, May 22, 2006; Corsi, Jerome,
I-69: Yet Another NAFTA Superhighway, September 12, 2006; or Schlafly, Phyllis, The NAFTA Superhighway, August
23, 2006.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŗȱ

---

ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
Mexico’s economic reforms initially attracted a large amount of private foreign investment, but
by 1993 the inflow of foreign capital began to slow down. The combination of macroeconomic
policies at the time, which led to an overvalued exchange rate, and domestic political uncertainty
helped drive down the flow of capital into the country. The decrease in capital inflows and the
low levels of international reserves held by the Mexican government led to a peso devaluation in
March 1994. Later that year, foreign exchange reserves continued to fall, domestic government
debt increased, and the Mexican central bank had limited dollar reserves to support the current
peso rate.
By the end of 1994, Mexico faced a currency crisis, putting pressure on the government to
abandon its previous fixed exchange rate policy and adopt a floating exchange rate regime. As a
result, Mexico’s currency plunged by around 50% within six months, sending the country into a
deep recession.25 Several factors influenced the decision to float the peso: overspending in the
economy had generated a significant current account deficit; the Mexican government had
accumulated large levels of debt with insufficient reserves; and the banking system was facing a
crisis due to overexposure.26 Mexico’s finance minister at the time, Guillermo Ortiz, stated later
that Mexico had “no choice” but to float the peso because the government had run out of
reserves.27
In the aftermath of the 1994 devaluation, Mexican President Ernesto Zedillo took several steps to
restructure the economy and lessen the impact of the currency crisis among the more
disadvantaged sectors of the economy. The goal was to create conditions for economic activity so
that the economy could adjust in the shortest time possible. The United States and the IMF
assisted the Mexican government by putting together an emergency financial support package of
up to $50 billion, with most of the money coming from the U.S. Treasury. The Zedillo
Administration wanted to demonstrate its commitment to fulfill all its financial obligations
without a default on its debt by adopting tight monetary and fiscal policies to reduce inflation and
absorb some of the costs of the banking sector crisis. The austerity plan included an increase in
the value-added tax, budget cuts, increases in electricity and gasoline prices to decrease demand
and government subsidies, and tighter monetary policy.28
Following the lead of former President Ernesto Zedillo, former President Vicente Fox continued
efforts to liberalize trade, privatize government enterprises, and deregulate the economy. Through
tighter monetary and fiscal policies, the Fox Administration was able to decrease the fiscal deficit,
control inflation, and help economic growth.
The peso steadily depreciated through the end of the 1990s, which led to greater exports and
helped the country’s exporting industries. However, the peso devaluation also resulted in a
decline in real income, hurting the poorest segments of the population and also the newly
emerging middle class. NAFTA and the change in the Mexican economy to an export-based
economy helped to soften the impact of the currency devaluation.

25 EIU, “Mexico Finance: The Peso Crisis, Ten Years On,” January 3, 2005.
26 Banco de Mexico, “Mexico’s Monetary Policy Framework Under a Floating Exchange Rate Regime,” by Agustín G.
Carstens y Alejandro M. Werner, May 1999.
27 EIU, “Mexico Economy: Mexico Begins to See Benefits of Free-Floating Peso,” December 20, 2004.
28 Joachim Zietz, “Why Did the Peso Collapse? Implications for American Trade,” Global Commerce, by , Volume 1,
No. 1, Summer 1995.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŘȱ

---

ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
After a real decline in GDP of 6.22% in 1995, the Mexican economy managed to grow 5%-6% in
each of the three years to 1998. The combination of a stronger peso and the slowdown in the U.S.
economy in 2001, which worsened after the September 11 terrorist attacks, hit Mexico’s economy
hard. Real GDP growth dropped from 6.2% in 2000 to -0.16% in 2001. Improving economic
conditions in the United States helped Mexico’s economy improve as well. Real GDP growth in
2004 was 4.37%, up from 1.41% in 2003 and 0.81% in 2002 (see Figure 2). In 2006, real GDP
growth was 4.8%, decreasing to 3.3% in 2007 and 1.4% in 2008.
Figure 2. GDP Growth Rates for the United States and Mexico

8
6
4
2
ange
h
United States
C
0
Mexico
eal
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
R
%
-2
-4
-6
-8

Source: Economist Intelligence Unit.
ž››Ž—ȱŒ˜—˜–’Œȱ˜—’’˜—œȱ
The global economic crisis is having a significant effect on the Mexican economy. Real GDP
growth in Mexico in 2008 was 1.4%, down from 3.3% in 2007. The economy is forecast to
contract by 2.6% in 2009.29 The expected decline in the Mexican economy in 2009 may be the
sharpest decline since the 1995 currency crisis. The decline in U.S. demand for imports from
Mexico resulting from the U.S. economic slowdown will have an impact on the Mexican
economy because of its dependence on the United States as an export market. Job losses in
Mexico have increased in recent months, with a possibilities of further job losses in export-

29 EIU, Country Report: Mexico, March 2009.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗřȱ

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ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
oriented assembly plants as they cut capacity due to the downturn in demand.30 After weakening
by an estimated 5% in 2004 and 13% in 2003, the Mexican peso strengthened in 2005 and 2006.
The peso remained relatively stable in 2007, but weakened again in 2008. The peso is expected
to weaken further in 2009 due to low oil prices, the downturn in U.S. demand, and heightened
risk aversion.31 President Calderón of Mexico has taken a number of measures to attempt to
cushion the Mexican economy from the fallout of the global economic crisis and the onset of
recession in the United States. Mexico’s dependence on exports and on the economic cycle in the
United States is reflected in the economic cycles of the two countries depicted in Figure 2.
Poverty is one of the more serious and pressing economic problems facing Mexico. According to
a 2004 World Bank Study,32 the Mexican government had made progress in its poverty reduction
efforts, but poverty continues to be a basic challenge for the country’s development. The authors
of the study note that poverty is often associated with social exclusion, especially of indigenous
groups of people who comprise 20% of those who live in extreme poverty.33 In 2002, over half of
the population lived in poverty. According to World Bank estimates, the percentage of people
living in extreme poverty, or on less than $1 per day, fell from 24.2% of the population in 2000,
to 20.3% in 2002, and 18% in 2005. Those living in moderate poverty, or on about $10 a day, fell
from 53.7% in 2000 to 51.7% of the population in 2002 and 45% in 2005. Mexico’s continuing
problem of poverty is especially widespread in rural areas and remains at the Latin American
average.34
Former President Fox considered the problem of poverty one of Mexico’s principal challenges
and stated that the highest priority of his administration was to combat poverty.35 Mexico’s main
program to reduce the effects of poverty is the Oportunidades program (formerly known as
Progresa). The program began under former President Zedillo and expanded under former
President Fox to benefit five million families throughout Mexico. The program seeks to not 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 to families in poverty who
demonstrate that they regularly attend medical appointments and can certify that children are
attending school. The government provides educational cash transfers to participating families.
The program also provides nutrition support to pregnant and nursing woman and malnourished
children. Monthly benefits are a minimum of $15 with a cap of about $150. The majority of
households receiving Oportunidades benefits are in Mexico’s six poorest states: Chiapas, Mexico
State, Puebla, Veracruz, Oaxaca, and Guerrero.36

30 Ibid.
31 EIU, Country Report: Mexico, March 2009.
32 The World Bank Group, Mexico Makes Progress and Faces Challenges in Poverty Reduction Efforts, June 2004.
33 The World Bank Group Press Release, “Mexico Makes Progress and Faces Challenges in Poverty Reduction
Efforts,” July 2004.
34 Ibid.
35 Associated Press, “Poverty Level Down, But Still Big Challenge for Mexico,” July 28, 2004
36 Santiago Levy, Progress Against Poverty, Brookings Institution, 2006.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŚȱ

---

ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
Ž¡’Œ˜ȂœȱŽ’˜—Š•ȱ›ŽŽȱ›ŠŽȱ›ŽŽ–Ž—œȱ
Since the early 1990s, Mexico has had a growing commitment to trade liberalization and its trade
policy is among the most open in the world. Mexico has pursued free trade agreements (FTAs)
with other countries as a way to bring benefits to the economy and also to reduce its economic
dependence on the United States. By early 2006, Mexico had entered into a total of 12 FTAs
involving 42 countries. The Mexican government has negotiated bilateral or multilateral trade
agreements with most countries in the Western Hemisphere including the United States and
Canada, Chile, Bolivia, Costa Rica, Nicaragua, Uruguay, Colombia, Guatemala, El Salvador, and
Honduras.37
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.38 In
2004, Japan and Mexico signed an Economic Partnership Agreement. It was the first
comprehensive trade agreement that Japan signed with any country.39 Mexico’s 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,40 the Asia-Pacific Economic Cooperation forum, and the OECD.41 In September 2003,
Mexico hosted the WTO Ministerial Meeting in Cancun.
ȱŠ—ȱ‘ŽȱǯǯȬŽ¡’Œ˜ȱȱ
Œ˜—˜–’ŒȱŽ•Š’˜—œ‘’™ȱ
The North American Free Trade Agreement (NAFTA) has been in effect since January 1994.
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.

37 Organization of American States, Foreign Trade Information System (SICE), see http://www.sice.oas.org.
38 The Asahi Shimbun, “Mexico: Loving Free Trade Ever Since NAFTA,” March 2002. See
http://www.facilitycity.com.
39 The Asahi Shimbun, “Japan: Free Trade with Mexico,” The Asahi Shimbun, March 12, 2004.
40 The WTO allows member countries to form regional trade agreements, but under strict 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.
41 U.S. Commercial Service, Country Commercial Guide: Mexico, August 13, 2004, p. 6.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗśȱ

---

ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
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.
Not all changes in trade and investment patterns between the United States and Mexico since
1994 can be attributed to NAFTA because trade was also affected by other unrelated economic
factors such as economic growth in the United States and Mexico, and currency fluctuations.
Also, trade-related 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. Overall,
Mexico has experienced a slight shift in the composition of trade with the United States since the
late 1980s from oil to non-oil exports. In 1987, crude oil and natural gas comprised 17% of
Mexico’s exports to the United States. The percentage of oil and natural gas exports had declined
to 10.6% in 2004, but increased to 14.4% in 2007 due to higher oil prices.
ŽŒœȱ˜—ȱ‘ŽȱǯǯȱŒ˜—˜–¢ȱ
The overall effect of NAFTA on the U.S. economy has been relatively small, primarily because
two-way trade with Mexico amounts to less than three percent of U.S. GDP. Thus, any changes in
trade patterns with Mexico would not be expected to be significant in relation to the overall U.S.
economy. In some sectors, however, trade-related effects could be more significant, especially in
those industries that were more exposed to the removal of tariff and non-tariff trade barriers, such
as the textile and apparel, and automotive industries.
Since NAFTA, the automotive, textile, and apparel industries have experienced some of the more
noteworthy changes in trading patterns, which may also have affected U.S. employment in these
industries. U.S. trade with Mexico has increased considerably more than U.S. trade with other
countries, and Mexico has become a more significant trading partner with the United States since
NAFTA implementation.
In the automotive industry, the industry comprising the most U.S. trade with Mexico, NAFTA
provisions consisted of a phased elimination of tariffs, the gradual removal of many non-tariff
barriers to trade including rules of origin provisions, enhanced protection of intellectual property
rights, less restrictive government procurement practices, and the elimination of performance
requirements on investors from other NAFTA countries. These provisions may have accelerated
the on-going trade patterns between the United States and Mexico. Because the United States and
Canada were already highly integrated, most of the trade impacts on the U.S. automotive industry
relate to trade liberalization with Mexico. Prior to NAFTA Mexico had a series of government
decrees protecting the domestic auto sector by reserving the domestic automobile market for
domestically produced parts and vehicles. NAFTA established the removal of Mexico’s restrictive
trade and investment policies and the elimination of U.S. tariffs on autos and auto parts. By 2006,
the automotive industry has had the highest dollar increase ($41 billion) in total U.S. trade with
Mexico since NAFTA passage.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŜȱ

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ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
The main NAFTA provisions related to textiles and apparel consisted of eliminating tariffs and
quotas for goods coming from Mexico and eliminating Mexican tariffs on U.S. textile and apparel
products. To benefit from the free trade provision, goods were required to meet the rules of origin
provision which assured that apparel products that were traded among the three NAFTA partners
were made of yarn and fabric made within the free trade area. The strict rules of origin provisions
were meant to ensure that U.S. textiles producers would continue to supply U.S. apparel
companies that moved to Mexico. Without a rules of origin provision, apparel companies would
have been able to import low-cost fabrics from countries such as China and export the final
product to the United States under the free trade provision.42
While some U.S. industries may have benefitted from increased demand for U.S. products in
Mexico, creating new jobs, other industries have experienced job losses. Data on the effects of
trade liberalization with Mexico are limited and the effect on specific sectors of the U.S. economy
is difficult to quantify. Trade-related 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.43 Quantifying these effects is challenging because of the other economic factors that
influence trade and employment levels. The devaluation of the Mexican peso in 1995 resulted in
lower Mexican wages, which likely provided an incentive for U.S. companies to move to lower
their production costs. Trade-related employment effects following NAFTA could have also
resulted from the lowering of trade barriers, and from the economic conditions in Mexico and the
United States influencing investment decisions and the demand for goods.
ŽŒœȱ˜—ȱ‘ŽȱŽ¡’ŒŠ—ȱŒ˜—˜–¢ȱ
While a number of studies have found that NAFTA has brought economic and social benefits to
the Mexican economy as a whole, the benefits have not been evenly distributed throughout the
country. Most studies after NAFTA have found that the effects on the Mexican economy tended to
be modest at most.44 While there have been periods of positive growth and negative growth in
Mexico after the agreement was implemented, much of the increase in trade began in the late
1980s when the country began trade liberalization measures. Though its net economic effects may
have been positive, NAFTA itself has not been enough to lower income disparities within
Mexico, or between Mexico and the United States or Canada.
A 2005 World Bank study assessing some of the economic impacts from NAFTA on Mexico
concluded that NAFTA helped Mexico get closer to the levels of development in the United
States and Canada. The study states that NAFTA helped Mexican manufacturers to adopt to U.S.
technological innovations more quickly and likely had positive impacts on the number and
quality of jobs. Another finding was that since NAFTA went into effect, the overall
macroeconomic volatility, or wide variations in the GDP growth rate, has declined in Mexico.
Business cycles in Mexico, the United States, and Canada have had higher levels of synchronicity

42 For more information on textile and apparel trade, see CRS Report RL31723, Textile and Apparel Trade Issues, by
Bernard A. Gelb.
43 CRS Report 98-783, NAFTA: Estimates of Job Effects and Industry Trade Trends After 5 1/2 Years, by Mary Jane
Bolle.
44 For more information, see CRS Report RS21737, NAFTA at Ten: Lessons from Recent Studies, by J. F. Hornbeck.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŝȱ

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ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
since NAFTA, and NAFTA has reinforced the high sensitivity of Mexican economic sectors to
economic developments in the United States.45
Several economists have noted that it is likely that NAFTA contributed to Mexico’s economic
recovery directly and indirectly after the 1995 currency crisis. Mexico responded to the crisis by
implementing a strong economic adjustment program but also by fully adhering to its NAFTA
obligations to liberalize trade with the United States and Canada. NAFTA may have supported the
resolve of the Mexican government to continue with the course of market-based economic
reforms, resulting in increasing investor confidence in Mexico. The World Bank study estimates
that FDI in Mexico would have been approximately 40% lower without NAFTA.46
One of the main arguments in favor of NAFTA at the time it was being proposed by policymakers
was that the agreement would improve economic conditions in Mexico and narrow the income
gap between Mexico and the United States. Studies that have addressed the issue of economic
convergence47 have noted that economic convergence in North America might not materialize
under free trade as long as “fundamental differences” in initial conditions persist over time. One
study argues that NAFTA is not enough to help narrow the disparities in economic conditions
between Mexico and the United States and that Mexico needs to invest more in education;
innovation and infrastructure; and in the quality of national institutions. The study states that
income convergence between a Latin American country and the United States is limited by the
wide differences in the quality of domestic institutions, in the innovation dynamics of domestic
firms, and in the skills of the labor force.48 Another study also notes that the ability of Mexico to
improve economic conditions depends on its capacity to improve its national institutions, adding
that Mexican institutions did not improve significantly more than those of other Latin American
countries during the post-NAFTA period.49
Mexican wages rose steadily from the early 1980s until the mid-1990s, when the currency crisis
hit. After a drop in average real wages in 1996 of 15.5%, real wages increased steadily until 2000,
when the average rate of growth was 11.8%. Since then the average rate of growth has only
varied slightly (see Figure 2). Mexico’s trade liberalization measures may have affected the ratio
between skilled and non-skilled workers in Mexico. In 1988, the real average wage of skilled
workers in Mexico’s manufacturing industry was 2.25 times larger than that of non-skilled
workers. This ratio increased until 1996, when it was about 2.9, but then remained stable until
2000.50 The World Bank study found that NAFTA brought economic and social benefits to the
Mexican economy, but that the agreement in itself was not sufficient to ensure a narrowing of the
wage gap between Mexico and the United States. The study states that NAFTA had a positive

45 The World Bank, Lessons from NAFTA for Latin America and the Caribbean, by Daniel Lederman, William F.
Maloney, and Luis Servén, 2005. (Hereinafter Lessons from NAFTA, 2005).
46 Ibid.
47 Economic convergence can be broadly defined as a narrowing of the disparities in the economic levels and the
manufacturing performances of particular countries or their regions. The goal of the theory of economic convergence is
to research and analyze the factors influencing the rates of economic growth and real per capita income in countries.
48 Lessons from NAFTA, 2005.
49 Economia, “NAFTA and Convergence in North America: High Expectations, Big Events, Little Time,” by William
Easterly, Norbert Fiess, and Daniel Lederman, Fall 2003.
50 Esquivel, Gerardo, and José Antonio Rodríguez-López, “Technology, trade, and wage inequality in Mexico before
and after NAFTA,” Journal of Development Economics, 2003.
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ŗŞȱ

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ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
effect on wages and employment in some Mexican states, but that the wage differential within the
country increased as a result of trade liberalization.51
Š“˜›ȱœœžŽœȱ’—ȱǯǯȬŽ¡’Œ˜ȱ›ŠŽȱŽ•Š’˜—œȱ
Major trade disputes between Mexico and the United States involve the access of Mexican trucks
to the United States; the access of Mexican sugar and tuna to the U.S. market; and the access of
U.S. sweeteners to the Mexican market. 52
›žŒ”’—ȱ
A major U.S.-Mexico trade issue relates to the 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 implementation of NAFTA’s trucking provisions and the
Mexican government objected. 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). On November 27, 2002, with safety inspectors and procedures
in place, the Administration announced that it would begin the process that will open U.S.
highways to Mexican truckers and buses, but 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 before Mexican trucks
would be allowed to operate on U.S. highways, but the U.S. Supreme Court reversed that decision
on June 7, 2004.
Since the ruling, the U.S. and Mexican Administrations worked on resolving the trucking issues,
and the two countries engaged in talks regarding a number of safety and operational issues that
needed to be resolved before Mexican commercial trucks were granted authority to operate in the
United States. In February 2007, the Bush Administration announced a pilot project to grant
Mexican trucks from 100 transportation companies full access to U.S. highways. The
Administration announced a delay in the program in April 2007, likely in response to critics who
contended that Mexican trucks do not meet U.S. standards. The Iraq War Supplemental (P.L. 110-
28), enacted May 25, 2007, mandated that any pilot program to give Mexican trucks access
beyond the border region could not begin until U.S. trucks had similar access to Mexico. In
addition, the DOT needed to meet certain reporting and public notice requirements before any
pilot program could begin. The DOT’s Inspector General needed to prepare a report to Congress
to verify that the DOT had established mechanisms to ensure that Mexican truck comply with
U.S. federal motor carrier safety laws. The report also needed to verify that Mexican trucks meet
the safety provisions of P.L. 107-87, mentioned above.
By September 2007, the Department of Transportation launched the one-year pilot program to
allow approved Mexican carriers beyond the 25-mile commercial zone, with a similar program
allowing U.S. trucks to travel beyond Mexico’s commercial zone. As of early January 2008, 57

51 Lessons from NAFTA, 2005.
52 See CRS Report RL32724, Mexico-U.S. Relations: Issues for Congress, by Mark P. Sullivan and June S. Beittel.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗşȱ

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ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
trucks from 10 Mexican companies had received permission to operate in the United States and
41 trucks from 4 U.S. companies received permission to operate in Mexico. Department of
Transportation data reportedly shows that U.S. carriers have made twice as many trips to Mexico
as Mexican carriers have to the United States from the time the program was launched until early
January 2008.
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
of a pilot program. The Department of Transportation determined that it could continue with the
pilot program because it had already been established. In February 2008, a coalition of unions and
environmental groups filed suit in the 9th Circuit Court of Appeals to end the pilot program, but a
decision is still pending.53
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) plans to
check every participating truck each time it crosses the border to ensure that it meets safety
standards; 2) There is less participation in the project than was expected; and 3) The FMCSA has
implemented methods to assess possible adverse safety impacts of the project and to enforce and
monitor safety guidelines.54
In early August 2008, the Department of Transportation announced that it would be extending the
pilot program for an additional two years. On September 9, 2008, the House approved (by a vote
of 396 to 128) H.R. 6630, a bill that would prohibit the Department of Transportation from
granting Mexican trucks access to U.S. highways beyond the border and commercial zone. The
bill would also prohibit the Department of Transportation from renewing such a program unless
expressly authorized by Congress. No action was taken by the Senate on the measure.
In the recently enacted FY2009 Omnibus Appropriations Act (P.L. 111-8), the U.S. Congress
terminated a pilot program begun in September 2007 that allowed Mexican-registered trucks to
operate beyond the 25-mile border commercial zone inside the United States. In response to the
abrupt end of the pilot program, the Mexican government announced that it would retaliate by
increasing duties on 90 U.S. products with an import value of $2.4 billion. The tariffs, effective
as of March 19, 2009, range from 10% to 45% and cover a range of products that include fruit,
vegetables, home appliances, consumer products, and paper.55 During Secretary of State Hillary
Clinton’s recent trip to Mexico, she pledged to resolve the dispute over Mexican-registered
trucks. “We are working to resolve it,” she said and added that she anticipated Congress would
be responsive to the Administration’s plans.56


53 “9th Circuit Considers Injunction to Halt Mexican Truck Pilot Program,” International Trade Daily, February 13,
2008; Rosalind McLymont, “Long Haul Across the Border,” Shipping Digest, January 7, 2008; and “Hoffa Blasts Bush
Administration’s Indifference to NAFTA Harm,” PR Newswire, March 10, 2008.
54 Department of Transportation. “Cross-Border Trucking Demonstration Project,” March 11, 2008.
55 International Trade Reporter, “Key GOP House Members Urge obama to Develop New Mexico Truck Program,”
March 26, 2009.
56 Arshad Mohammed, "WRAPUP 2-U.S. to blame for much of Mexican drug violence," Reuters News,
March 25, 2009.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŘŖȱ

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ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
‘Ž›ȱ›ŠŽȱœœžŽœȱ
The United States and Mexico resolved a long-standing trade dispute in 2006 involving sugar and
high fructose corn syrup. Mexico argued that the sugar side letter negotiated under NAFTA
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. Mexico also
complained that imports of high fructose corn syrup (HFCS) sweeteners from the United States
constituted dumping, and 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.57
On tuna issues, the Clinton Administration lifted the embargo on Mexican tuna in April 2000
under relaxed standards for a dolphin-safe label 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, but Earth Island Institute and other environmental groups
filed 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

57 “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.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Řŗȱ

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ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
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.58
On other issues, in early October 2002, the U.S.-Mexico working group on agriculture dealt with
major agricultural issues, including Mexico’s anti-dumping decisions on apples, rice, swine, and
beef, and safeguard actions on potatoes. In January 2003, the countries agreed to permit Mexican
safeguard measures against U.S. imports of chicken legs and thighs, and in July 2003, these
safeguard measures were extended until 2008, with tariffs declining each year. In September
2006, Mexico revoked anti-dumping duties imposed on U.S. rice imports in 2002 following
rulings by the WTO and WTO Appellate Body in 2005, which found that the duties were contrary
to WTO rules. Mexico banned beef imports from the United States in December 2003 following
the discovery of one cow infected with mad cow disease in Washington State. Mexico resumed
importation of boneless beef in early March 2004, and bone-in beef in February 2006, in response
to improved beef cattle screening.
˜•’Œ¢ȱœœžŽœȱ
The United States economic relationship with Mexico has strengthened significantly over the last
decade and is of mutual importance. Up to this point, the discussion in the report has focused on
the background and surrounding issues of the economic relationship, which leads to the issue of
policy considerations. First, there is the question of whether to further economic integration with
Mexico in view of the increasing trends in regional trade agreements throughout the world. The
close economic relationship between the United States and Mexico that was strengthened by
NAFTA is likely to continue but there may be challenges in coming years as the influence of
China and other low-wage countries increases. According to a recent study on economic
integration in North America, a major shift is under way in trade patterns among NAFTA partners
with exports among NAFTA economies growing more slowly than their exports with the rest of
the world, reversing the previous 10-year trend. The report finds that lower-cost suppliers,
primarily China and India, are displacing North American imports and could weaken North
American integration. The report states that furthering continental integration would require
“renewed efforts at resolving long-standing trade disputes, new liberalization initiatives, or
greater policy harmonization in areas such as border security, labor mobility, or corporate
taxation.”59
If the United States continues to deepen economic integration with Mexico, one area that may
need more attention is the issue of the difference in income levels between the two countries. The
economic relationship with Mexico is unique because of Mexico’s proximity to the United States,
but also because of the wide differences in levels of economic development between the two
countries. Mexico is the first developing country with which the United States entered into a free
trade agreement. In Mexico, NAFTA has had an uneven effect in different parts of the country
and it has not been a solution to the problem of poverty and unemployment. Mexico’s problem

58 International Trade Reporter, “Mexico Initiates WTO Dispute Proceeding Against U.S. ‘Dolphin-Safe’ Label for
Tuna,” October 30, 2008.
59 ITR, “North American Integration Slipping Due to China’s Strong Growth, Report Says,” Volume 22, Number 8,
February 24, 2005.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŘŘȱ

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ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
with poverty cannot be attributed directly to NAFTA because it was in existence prior to the
agreement. At the time of NAFTA there was hope that Mexico’s economy would grow
sufficiently to create jobs in urban areas and help alleviate poverty in rural areas. However, the
economy did not expand as expected and the problem of poverty continues.
Another issue is whether trade agreements are enough, or are the appropriate policy instrument, to
resolve income disparities among trading partners or even within a developing country. The
World Bank study on the effects of NAFTA on Mexico concludes that NAFTA has helped to
improve economic conditions in Mexico but it has not been enough to narrow the economic
disparities with the United States. The authors of the study state, among other things, that Mexico
needs to invest more in education, infrastructure, and institutional strengthening to benefit more
fully from freer trade.60 A possible consideration for policymakers is whether to help Mexico
improve the quality of education and strengthen its national institutions through foreign aid
programs or other mechanisms.
The economic hardship in certain sectors and regions of Mexico has been a major reason behind
unauthorized Mexican migration to the United States. Mexican President Felipe Calderón made
his first official visit to the United States as President-elect in early November 2006, after first
visiting Canada and several Latin American countries. During his visit, Calderón criticized the
recent authorization of fencing along the U.S.-Mexico border and noted that it complicated U.S.-
Mexico relations. He asserted that job-creation and increased investment in Mexico would be
more effective in reducing illegal migration from Mexico than a border fence. Calderón signaled
a shift in Mexican foreign policy when he noted that while immigration is an important issue in
the bilateral relationship, it is not the only issue, as trade and economic development are also
important.
Under the Fox Administration, Mexico voiced concern about alleged abuses suffered by Mexican
workers in the United States and for the loss of life and hardships suffered by Mexican migrants
as they use increasingly dangerous methods to cross into the United States. The Fox
Administration held the view that the migrants are “undocumented workers” and that because the
U.S. market attracts and provides employment for the migrants, it bears some responsibility.
During his administration, former Mexican President Vicente Fox pressed proposals for legalizing
undocumented Mexican workers in the United States through amnesty or guest worker
arrangements as a way of protecting their human rights. In 2004, President Bush proposed an
overhaul of the U.S. immigration system to permit the matching of willing foreign workers with
willing U.S. employers when no U.S. documented workers could be found to fill the jobs.
The U.S. Senate began consideration of comprehensive immigration reform in May 2007. Mexico
had long lobbied for immigration reform in the United States and cautiously watched the debate
in 2007 on this measure. Legal immigration reform has stalled in the 110th Congress. A bipartisan
compromise proposal for comprehensive immigration reform negotiated with the Bush
Administration was introduced in the Senate on May 21, 2007, as S.Amdt. 1150 to S. 1348. A
modified version of that compromise (S. 1639) came to the Senate floor the week of June 26,
2007, but a key cloture vote did not pass.61 It is unclear whether the 110th Congress will again

60 The World Bank, Lessons from NAFTA for Latin America and the Caribbean, by Daniel Lederman, William F.
Maloney, and Luis Servén, 2005.
61 For more details, see CRS Report RL32235, U.S. Immigration Policy on Permanent Admissions, by Ruth Ellen
Wasem.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Řřȱ

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ǯǯȬŽ¡’Œ˜ȱŒ˜—˜–’ŒȱŽ•Š’˜—œDZȱ›Ž—œǰȱœœžŽœǰȱŠ—ȱ–™•’ŒŠ’˜—œȱ
ȱ
tackle comprehensive immigration reform. It may, however, consider legislation on selected
immigration reform issues, such as foreign workers. Additional border security measures may
also be considered.

ž‘˜›ȱ˜—ŠŒȱ—˜›–Š’˜—ȱ

M. Angeles Villarreal

Specialist in International Trade and Finance
avillarreal@crs.loc.gov, 7-0321




˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŘŚȱ

---