Mexico’s Free Trade Agreements
M. Angeles Villarreal
Specialist in International Trade and Finance
July 12, 2010
Congressional Research Service
7-5700
www.crs.gov
R40784
CRS Report for Congress
P
repared for Members and Committees of Congress
Mexico’s Free Trade Agreements
Summary
Mexico has had a growing commitment to trade integration through the formation of free trade
agreements (FTAs) since the 1990s and its trade policy is among the most open in the world.
Mexico’s pursuit of FTAs with other countries not only provides economic benefits, but could
also potentially reduce its economic dependence on the United States. The United States is, by
far, Mexico’s most significant trading partner. About 80% of Mexico’s exports go to the United
States and 49% of Mexico’s imports come from the United States. Mexico’s second largest
trading partner is China, accounting for approximately 6% of Mexico’s exports and imports. In an
effort to increase trade with other countries, Mexico has a total of 11 trade agreements involving
41 countries. These include agreements with most countries in the Western Hemisphere including
the United States and Canada, Chile, Costa Rica, Nicaragua, Guatemala, El Salvador, and
Honduras. In addition, Mexico has negotiated FTAs outside of the Western Hemisphere and
entered into agreements with Israel and the European Union in July 2000. Mexico also has an
FTA with Japan.
Economic motivations are generally the major driving force for the formation of free trade
agreements among countries, but there are other reasons countries enter into FTAs, including
political and security factors. One of Mexico’s primary motivations for the unilateral trade
liberalization efforts of the late 1980s and early 1990s was to improve economic conditions in the
country, which policymakers hoped would lead to greater investor confidence and attract more
foreign investment. Trade agreements are also expected to improve investor confidence, attract
foreign investment, and create jobs. Mexico may have other reasons for entering into FTAs, such
as expanding market access and decreasing its reliance on the United States as an export market.
The slow progress in multilateral negotiations may also contribute to the increasing interest
throughout the world in regional trade blocs. Some countries may see smaller trade arrangements
as “building blocks” for multilateral agreements.
Since Mexico began trade liberalization in the early 1990s, its trade with the world has risen
rapidly, with exports increasing more rapidly than imports. Mexico’s trade balance with all
countries went from a deficit of $13.5 billion in 1993 to surpluses of $7.1 billion in 1995 and $6.5
billion in 1996. Since 1998, Mexico’s trade balance has remained in deficit, reaching $17.5
billion in 2008 and then declining to $4.8 billion in 2009. The trade balance with the United
States went from a deficit of $2.4 billion in 1993 to a surplus of $72.5 billion in 2009. Exports to
the United States increased from $42.9 billion in 1993 to $234.6 billion in 2008, and then
declined to $184.9 billion in 2009. Mexico’s imports from the United States increased from $45.3
billion in 1993 to $152.6 billion in 2008, and then declined to $112.4 billion in 2009 due to the
economic downturn.
In the 111th Congress, issues of concern related to the trade and economic relationship with
Mexico involve mostly economic conditions in Mexico, issues related to the North American Free
Trade Agreement (NAFTA), the effect of NAFTA, economic conditions in Mexico and Mexican
migrant workers in the United States. This report provides an overview of Mexico’s free trade
agreements, its motivations for trade liberalization and entering into free trade agreements, and
some of the issues Mexico faces in addressing its economic challenges.
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Mexico’s Free Trade Agreements
Contents
Introduction ................................................................................................................................ 1
Motivations for Trade Integration................................................................................................ 1
Mexican Trade Liberalization...................................................................................................... 2
Mexico’s Trade Agreements ........................................................................................................ 3
NAFTA................................................................................................................................. 5
Mexico-Costa Rica................................................................................................................ 5
Mexico-Nicaragua ................................................................................................................ 6
Mexico-Chile ........................................................................................................................ 6
Mexico-European Union ....................................................................................................... 6
Mexico-Israel........................................................................................................................ 7
Mexico-El Salvador, Guatemala, and Honduras..................................................................... 8
Mexico-European Free Trade Association ............................................................................. 8
Mexico-Japan ....................................................................................................................... 9
Partial Scope Agreements.................................................................................................... 10
Mexico’s Merchandise Trade..................................................................................................... 11
Trade with the United States................................................................................................ 13
Trade Trends Since Liberalization ....................................................................................... 13
Economic Policy Challenges for Mexico ................................................................................... 16
Implications for U.S. Interests ................................................................................................... 18
Figures
Figure 1. Mexico’s Merchandise Trade with All Countries......................................................... 12
Figure 2. Mexico’s Merchandise Trade with the United States ................................................... 13
Tables
Table 1. Mexico’s Free Trade Agreements ................................................................................... 4
Table 2. Mexico’s Partial Scope Agreements ............................................................................. 11
Table 3. Composition of Trade: 2009......................................................................................... 12
Table 4. Mexico’s Exports by FTA Partners ............................................................................... 14
Table 5. Mexico’s Imports from FTA Partners .......................................................................... 15
Table 6. Market Share of Exports and Imports by FTA Partner.................................................. 16
Contacts
Author Contact Information ...................................................................................................... 19
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Mexico’s Free Trade Agreements
Introduction
The number of regional trade agreements (RTAs) throughout the world has grown steadily since
the early 1990s. One of the reasons for the increasing interest in bilateral or regional trade
agreements is the impasse of the Doha Development Agenda (DDA). Many members of the
World Trade Organization (WTO) are focusing on regional or bilateral free trade agreements as a
key component of their foreign and commercial policy.1 This interest is evident among
industrialized and developing countries, and throughout various world regions, including
numerous countries in the Americas, Europe, and Asia. Mexico is a member of the WTO, which
permits members to enter into regional trade integration arrangements under certain conditions
that are defined within specific WTO rules.2
Since the early 1990s, Mexico has had a growing commitment to trade liberalizations and has a
trade policy that is among the most open in the world. Mexico has actively pursued free trade
agreements with other countries to help promote economic growth, but also to reduce its
economic dependence on the United States. The United States is, by far, Mexico’s most
significant trading partner. Over 80% of Mexico’s exports are destined for the United States. In an
effort to increase trade with other countries, Mexico has entered into eleven free trade agreements
with 41 countries.3 The government has used trade liberalization as one of a number of policy
tools to improve economic growth and has other programs to promote economic development and
to reduce poverty.
In the 111th Congress, issues of concern related to the trade and economic relationship with
Mexico involve mostly issues related to the North American Free Trade Agreement (NAFTA), the
effects of NAFTA, economic conditions in Mexico, and Mexican migrant workers in the United
States. This report provides an overview of Mexico’s free trade agreements, its motivations for
trade liberalization and entering into free trade agreements, and some of the issues Mexico faces
in addressing its economic challenges. This report will be updated as events warrant.
Motivations for Trade Integration
Economic motivations are generally the major driving force for the formation of free trade
agreements (FTAs) among countries, but there are other reasons countries enter into FTAs,
including political and security factors. One of Mexico’s primary motivations for the unilateral
trade liberalization efforts of the late 1980s and early 1990s was to improve economic conditions
in the country, which policymakers hoped would lead to greater investor confidence and attract
more foreign investment. This motivation was a major factor in negotiating NAFTA with the
United States and Canada. The permanent lowering of trade and investment barriers and
predictable trade rules provided by FTAs can improve investor confidence in a country, which
helps attract foreign direct investment (FDI). Multinational firms invest in countries to gain
access to markets, but they also do it to lower production costs.
1 See CRS Report RL32060, World Trade Organization Negotiations: The Doha Development Agenda, by Ian F.
Fergusson.
2 For more information on the specific sets of rules governing regional trade agreements among WTO members, see
Regional Trade Agreements: Rules on the WTO website, see http://www.wto.org.
3 World Trade Organization (WTO), Regional Trade Agreement Database, see http://www.wto.org.
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Mexico has other motivations for continuing trade liberalization with other countries, such as
expanding market access for its exports and decreasing its reliance on the United States as an
export market. By entering into trade agreements with other countries, Mexico is seeking to
achieve economies of scale in certain sectors of the economy and to expand its export market.
Free trade agreements provide partners with broader market access for their goods and services.
Countries can benefit from trade agreements because producers are able to lower their unit costs
by producing larger volumes for regional markets in addition to their own domestic markets.4
When more units of a good or a service can be produced on a larger scale, companies are able to
decrease cost of production.
The slow progress in multilateral negotiations in the World Trade Organization (WTO) is another
likely factor in Mexico’s motivations to enter into FTAs. Some countries see smaller trade
arrangements as “building blocks” for multilateral agreements. Other motivations are political.
Mexico may be seeking to demonstrate good governance by locking in political and economic
reforms through trading partnerships. Trade agreements could forge geopolitical alliances and
strengthen diplomatic ties. Some analysts believe that the choice of RTA partners is increasingly
based on political and security concerns and not so much on economic rationale.5
Mexican Trade Liberalization
From the 1930s through part of the 1980s, Mexico maintained a strong protectionist trade policy
in an effort to be independent of any foreign power and as a means to promote domestic-led
industrialization. Mexico established a policy of import substitution in the 1930s, consisting of a
broad, general protection of the entire industrial sector. Mexico placed tight restrictions on
foreign investment and controlled the exchange rate to encourage domestic industrial growth.
Mexico also nationalized the oil industry during this time. These protectionist economic policies
remained in effect until the country began to experience a series of economic challenges in the
1980s.
In the mid-1980s, Mexico’s economy was on the verge of collapse as a result of the 1982 debt
crisis in which the Mexican government was unable to meet its foreign debt obligations. Much of
the government’s efforts in addressing these economic challenges were placed on privatizing state
industries and moving toward trade liberalization. Mexico had few options but to open its
economy through trade liberalization. In the late 1980s and early into the 1990s, Mexico
implemented a series of measures to restructure the economy that included unilateral trade
liberalization, replacing import substitution policies with others aimed at attracting foreign
investment, lowering trade barriers and making the country competitive in non-oil exports. In
1986, Mexico acceded to the General Agreement on Tariffs and Trade (GATT), assuring further
trade liberalization measures that led to closer ties with the United States.
In 1990, Mexico approached the United States with the idea of forming a free trade agreement. In
1992, however, before NAFTA came into force, Mexico entered into its first agreement for free
trade in goods, the Mexico-Chile FTA. Two years later, NAFTA, entered into force with much
4 For more information on the costs and benefits of regional trade agreements, see Cohen, Stephen D., Robert A.
Blecker, and Peter D. Whitney, Fundamentals of U.S. Foreign Policy, Westview Press, 2003, pp. 49-79.
5 Crawford, Jo-Ann and Roberto V. Fiorentino, The Changing Landscape of Regional Trade Agreements, World Trade
Organization Discussion Paper No. 8, 2005, p. 16.
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broader provisions than the Chile FTA such as trade in services, government procurement, dispute
settlement procedures, and intellectual property rights protection. In 1999, the original text of the
Mexico-Chile FTA was later complemented with broader provisions, similar to those under
NAFTA. Mexico’s initial motivations in pursuing FTAs with the United States and other countries
was to stabilize the Mexican economy, which had experienced many difficulties throughout most
of the 1980s with a significant deepening of poverty, by attracting foreign direct investment. The
expectation in Mexico was that FTAs would increase export diversification, attract FDI and help
create jobs, increase wage rates, and reduce poverty.
Mexico’s Trade Agreements
Mexico’s pursuit of free trade agreements with other countries is a way to bring benefits to the
economy, but also to reduce its economic dependence on the United States. The United States is,
by far, Mexico’s most 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.6 In an effort to increase trade with other countries, Mexico has a total of 11 trade
agreements involving 41 countries (see Table 1). These include agreements with many countries
in the Western Hemisphere including the United States and Canada, Chile, Bolivia, Costa Rica,
Nicaragua, Uruguay, Guatemala, El Salvador, and Honduras.
Mexico has also negotiated free trade agreements outside of the Western Hemisphere 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 completed a trade
agreement with the European Free Trade Association of Iceland, Liechtenstein, Norway, and
Switzerland. The Mexican government expanded its outreach to Asia in 2000 by entering into
negotiations with Singapore, Korea, and Japan. In 2004, Japan and Mexico signed the Economic
Partnership Agreement, the first comprehensive trade agreement that Japan signed with any
country.7 However, the large number of trade agreements has not yet been successful in
decreasing Mexico’s dependence on trade with the United States.
6 Data compiled by CRS using Global Trade Atlas database.
7 The Asahi Shimbun, “Japan: Free Trade with Mexico,” March 12, 2004.
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Table 1. Mexico’s Free Trade Agreements
Agreement
Date of
Entry into
WTO Legal
Agreement
Type
Coverage
Signature
Force
Cover
North
FTA and EIAa Goods
and December 17,
January 1, 1994
GATT Art. XXIV
American Free
Services
1992
and GATS V
Trade
Agreement
Costa Rica –
FTA and EIA
Goods and
April 5, 1994
January 1, 1995
GATT Art. XXIV
Mexico
Services
and GATS V
Nicaragua –
FTA and EIA
Goods and
December 18,
July 1, 1998
GATT Art. XXIV
Mexico
Services
1997
and GATS V
Chile – Mexico FTA and EIA
Goods and
April 17, 1998
August 1, 1999
GATTS Art. XXIV
Services
and GATS V
European
FTA and EIA
Goods and
December 8,
July 1, 2000
GATT Art. XXIV
Unionb –
Services
1997
(goods)
and GATS V
Mexico
October 1,
2000 (services)
Israel – Mexico FTA
Goods
April 10, 2000
July 1, 2000
GATT Art. XXIV
El Salvador –
FTA and EIA
Goods and
June 29, 2000
March 15, 2001
GATT Art. XXIV
Mexico
Services
and GATSV
Guatemala –
FTA and EIA
Goods and
June 29, 2000
March 15, 2001
GATT Art. XXIV
Mexico
Services
and GATS V
Honduras –
FTA and EIA
Goods and
June 29, 2000
June 1, 2001
GATT Art. XXIV
Mexico
Services
and GATS V
EFTAc –
FTA and EIA
Goods and
November 27,
July 1, 2001
GATT Art. XXIV
Mexico
Services
2000
and GATS V
Japan – Mexico FTA and EIA
Goods and
September 17,
April 1, 2005
GATT Art. XXIV
Services
2004
and GATS V
Source: World Trade Organization, Regional Trade Agreement Database, see http://www.wto.org/.
Notes: The WTO definition of a free-trade area is a group of two or more customs territories in which the
duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles
XI, XII, XIII, XIV, XV, and XX of the GATT) are eliminated on substantially all the trade between the constituent
territories in products originating in such territories.
a. Economic Integration Agreement (EIA) as defined by the World Trade Organization.
b. Includes Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany,
Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal,
Romania, Slovak Republic, Slovenia, Spain, Sweden, and United Kingdom.
c. Includes Iceland, Liechtenstein, Norway, and Switzerland.
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NAFTA
In 1990, Mexico approached the United States with the idea of forming a free trade agreement.
Mexico’s main motivation in pursuing an FTA with the United States was to help stabilize the
Mexican economy and attract foreign direct investment.8 The Mexican economy had experienced
many difficulties throughout most of the 1980s with a significant deepening of poverty. NAFTA
is a free trade agreement that eliminated trade and investment barriers among Canada, Mexico,
and the United States. Mexico’s intention in entering NAFTA was to increase export
diversification by attracting FDI, which would help create jobs, increase wage rates, and reduce
poverty.
Upon implementation, almost 70% of U.S. imports from Mexico and 50% of U.S. exports to
Mexico received duty-free treatment. The remainder of duties were eliminated over a period of 15
years after the agreement was in effect. The agreement also contains provisions for market access
to U.S. firms in most service sectors; protection of U.S. foreign direct investment in Mexico; and
intellectual property rights protection for U.S. companies. NAFTA is the first U.S. agreement that
addressed environmental and labor concerns by including related provision in separate side
agreements to NAFTA. At the time the agreement went into effect, a number of economic studies
predicted that the trade agreement would have a positive overall effect on the Mexican economy,
narrowing the U.S.-Mexico gap in prices of goods and services and the differential in real wages.
Mexico-Costa Rica
The Mexico-Costa Rica FTA was signed on April 5, 1994, in Mexico City and entered into force
on January 1, 1995. It was the first in a series of FTAs negotiated by Mexico loosely based on the
NAFTA model of trade agreements. This agreement had been preceded by a partial scope
agreement signed by the two countries on July 22, 1982 in which Mexico accorded preferential
access to some Costa Rican products. The FTA with Costa Rica phased out tariffs in four stages
over a fifteen-year time period. Upon implementation of the agreement, approximately 70% of
Mexican goods entered Costa Rica and 80% of Costa Rican goods entered Mexico duty free. By
January 1, 2004, almost 97% of trade between the two countries was duty free and by 2009,
virtually all tariffs had been eliminated.9
In addition to the provisions on national treatment and market access for goods, the agreement
contains provisions on agriculture, sanitary and phytosanitary measures, rules of origin, customs
procedures, safeguards, standards, cross-border trade in services, investment, government
procurement, intellectual property rights protection (IPR), and dispute resolution. Items that are
not included in the agreement include energy and basic petrochemicals, telecommunications,
financial services, and competition policy. The IPR chapter does not cover patents, industrial
designs, and layout designs of integrated circuits.10
8 Hufbauer, Gary Clyde, and Jeffrey J. Schott, NAFTA Revisited, Institute for International Economics, October 2005,
p. 3.
9 Salazar-Xirinachs, José Manuel and Maryse Robert, editors, Toward Free Trade in the Americas, April 2001, p. 98.
10 Decreto de promulgación del Tratado de Libre Comercio entre los Estados Unidos Mexicanos y la República de
Costa Rica. See WTO Regional Trade Agreement Database, see http://www.wto.org.
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Mexico-Nicaragua
The FTA with Nicaragua was Mexico’s second treaty with a country in Central America, also
loosely based on the NAFTA model. It was signed on December 18, 1997, and entered into force
on July 1, 1998. Upon implementation, 76% of tariffs on Nicaraguan exports to Mexico and 45%
of tariffs on Mexican exports to Nicaragua were eliminated. The remaining tariffs are being
phased out in four stages over a fifteen-year period. The agreement is similar to NAFTA and
includes provisions on national treatment and market access for goods and services; rules of
origin; agriculture; sanitary and phytosanitary measures; telecommunications; financial services;
government procurement; investment; IPT; dispute resolution; customs procedures; safeguards;
unfair trade practices; standards; and other provisions. It does not include a chapter on
competition policy, energy, environment, labor, or transportation.11 The IPR provisions do not
cover patents, industrial designs, and layout designs of integrated circuits.12
Mexico-Chile
The Mexico-Chile FTA, completed in 1998, was enacted in Chile on July 7, 1999, and in Mexico
on August 1, 1999. Mexico and Chile signed the expanded FTA at the 1998 Summit of the
Americas in Santiago, Chile on April 17, 1998. The FTA was expected to deepen the growing
trade relationship between the two countries and improve bilateral investment opportunities in
both countries. The 1998 agreement replaced an earlier FTA that was reached between the two
countries in 1991. It removed tariffs on almost all merchandise trade between the two countries.
The Mexico-Chile FTA includes provisions on national treatment and market access for goods
and services; rules of origin; customs procedures; safeguards; standards; agriculture; sanitary and
phytosanitary measures; investment; air transportation; telecommunications; temporary entry for
business persons; IPR; dispute resolution; and other provisions. It does not include a chapter on
energy, environment, or labor.13 A separate agreement, which was signed simultaneously, includes
provisions to avoid double taxation for companies doing business in both countries. The FTA
provisions are similar to those under NAFTA, but with no labor and environmental provisions in
separate side agreements. Other areas that were not included in the 1998 FTA were financial
services, patents, or government procurement.14
Mexico-European Union
Negotiations for a free trade agreement between Mexico and the European Union (EU) began in
October 1996. The agreement, formally called the Economic Partnership Political Co-ordination
and Co-operation Agreement (also known as the Global Agreement), was signed in March 2000
and came into force on July 1, 2000. It was the first transatlantic FTA for the EU. The motivations
for the agreement were to expand market access for exports from the EU to Mexico and attract
11 Tratado de Libre Comercio Chile. See WTO Regional Trade Agreement Database, see http://www.wto.org.
12 Salazar-Xirinachs, José Manuel and Maryse Robert, editors, Toward Free Trade in the Americas, April 2001, p. 99.
13 Decreto Promulgatorio del Tratado de Libre Comercio entre el Gobierno de los Estados Unidos Mexicanos y el
Gobierno de la República de Nicaragua. See WTO Regional Trade Agreement Database, http://www.wto.org.
14 Bureau of National Affairs (BNA), International Trade Reporter, “Mexico and Chile Sign Off on Expanded Trade
Agreement,” April 22, 1998.
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more FDI from the EU to Mexico.15 On May 17, 2008, Mexico and the European Union agreed
on a “strategic association” to further advance trade liberalization and to address climate change
issues.16
The agreement includes provisions on national treatment and market access for goods and
services; government procurement; IPR; investment; financial services; standards;
telecommunications and information services; agriculture; dispute settlement; and other
provisions. The agreement also includes chapters in which the parties agree to increase
cooperation in a number of areas, including mining, energy, transportation, tourism, statistics,
science and technology, environment, and other areas.17 On industrial goods, the EU agreed to
eliminate tariffs on 82% of imports by value coming from Mexico on the date of entry into the
agreement and to phase out remaining tariffs by January 1, 2003. Mexico agreed to eliminate
tariffs on 47% of imports by value from the EU upon implementation of the agreement and to
phase out the remaining tariffs by January 1, 2007. In agricultural products and fisheries,
signatories agreed to phase out tariffs on 62% of trade within ten years.18 Tariff negotiations were
deferred on certain sensitive products, including meat, dairy products, cereals, and bananas. Most
non-tariff barriers, such as quotas and import/export licenses, were removed upon implementation
of the agreement. Mexico agreed to phase out import restrictions of new automobiles from the EU
by 2007. In government procurement, Mexico agreed to follow provisions similar to those under
NAFTA to allow the EU to enter the Mexican market while the EU agreed to follow WTO rules.19
In services trade, the agreement goes beyond the WTO General Agreement on Trade in Services
(GATS). It immediately provided European service operators “NAFTA-equivalent” access to
Mexico in a number of areas, including financial services, energy, telecommunications, and
tourism.20
Mexico-Israel
After two years of negotiations, Mexico and Israel signed a free trade agreement on April 10,
2000 and implemented it on July 1, 2000. The agreement immediately eliminated tariffs on most
products traded between Mexico and Israel at the time of the agreement with full tariff
elimination scheduled by 2005. Policymakers expected the agreement to provide Mexico with
more export access to the Israeli market, increased FDI from Israel to Mexico, and result in
increased technology transfer from Israel to Mexico.
The agreement includes provisions on national treatment and market access for goods, rules of
origin, customs procedures, emergency actions, competition policy, government procurement,
dispute resolution, dispute resolution, and WTO rights and obligations.21 The agreement covers
15 Reuters, “Cumbre-México y Unión Europea Acuerdan Acelerar Libre Comercio,” May 17, 2008.
16 Ibid.
17 Global Agreement, Economic Partnership, Political Coordination and Cooperation Agreement between the European
Community and its member States and the United Mexican States. See WTO Regional Trade Agreement Database, see
http://www.wto.org.
18 The Chinese University of Hong Kong, The Mexico-EU Free Trade Agreement, 2000, http://intl.econ.cuhk.edu.hk.
19 Transnational Institute, Mexican Action Network on Free Trade (RMALC), The EU-Mexico Free Trade Agreement
Seven Years On, June 2007.
20 U.S.-Mexico Chamber of Commerce, The Free Trade Agreement Between Mexico and the European Union, August
2000.
21 Free Trade Agreement Between the State of Israel and the United Mexican States. See WTO Regional Trade
(continued...)
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98.6% of agricultural goods and 100% of industrial goods. Mexico received immediate duty-free
access on 50% of its exports and tariff reductions on 12% of its exports to Israel. Tariff-rate
quotas were applied on 25% of Mexican exports to Israel. Most remaining tariff barriers on
Mexican exports had a five-year phase out schedule. Israel received immediate duty-free access
on about 72% of its exports to Mexico. Another 22.8% of tariffs on Israel exports to Mexico were
withdrawn in 2003 and another 4.4% were withdrawn in 2005.22
Mexico-El Salvador, Guatemala, and Honduras
Mexico and El Salvador, Guatemala, and Honduras (Northern Triangle) signed a free trade
agreement on June 29, 2000. The agreement is often referred to as the Mexico-Northern Triangle
FTA, but the WTO has it listed as three separate agreements between Mexico and El Salvador,
Guatemala, and Honduras. The agreements with El Salvador and Guatemala entered into force on
March 15, 2001, while the agreement with Honduras entered into force on June 1, 2001.
Negotiations for the FTA with all three countries began in 1992, stalled for four years, and
resumed at the second Tuxtla Summit in 1996. Negotiations ended on May 10, 2000. This
agreement was the final of Mexico’s NAFTA-type agreements with all Central American
countries. Prior to the conclusion of the Mexico-Northern Triangle FTA, Mexico had held
separate partial scope agreements with each of the three countries, granting some products
preferential access to the Mexican market.
The agreement includes provisions on national treatment and market access for goods and
services, the agreement has similar provisions to other Mexican FTAs on agriculture; sanitary and
phytosanitary measures; rules of origin; financial services; telecommunications services;
temporary entry of business persons; investment; IPR; standards; dispute resolution; safeguards;
and unfair trade practices.23 Upon entry into force of the FTA, approximately 57% of Mexico’s
exports to the three countries received duty-free treatment. Tariffs on an additional 15% of goods
were phased out over a period of three to five years. Mexico eliminated tariffs on 65% of imports
from the Northern Triangle countries upon implementation and phased out tariffs on 24% of
imports over a three to five year period. Thirty percent of Mexico’s agricultural exports received
duty-free treatment upon the entry into force of the agreement, another 12% were liberalized over
a five-year period, and 41% were liberalized over a period of five to eleven years.24
Mexico-European Free Trade Association
Mexico and the European Free Trade Association (EFTA), composed of Iceland, Lichtenstein,
Norway, and Switzerland, signed a free trade agreement on November 27, 2000. The agreement
entered into force on July 1, 2001. This was the first FTA that the EFTA had concluded with an
overseas partner country. Since the agreement entered into force, Mexico and the EFTA have met
at least four times to explore possibilities of further trade integration, including agricultural and
(...continued)
Agreement Database, see http://www.wto.org.
22 U.S.-Mexico Chamber of Commerce, “History of Mexico-Israel Trade Relations,” September 2000.
23 Tratado de Libre Comercio México-El Salvador, Guatemala y Honduras (Triángulo del Norte). See
http://www.sice.oas.org.
24 Salazar-Xirinachs, José Manuel and Maryse Robert, editors, Toward Free Trade in the Americas, April 2001,
pp. 99-100.
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services trade. In September 2008, the two parties agreed to adopt an amendment on
transportation to the agreement to help facilitate trade. They also discussed possibilities of further
amendments, such as banning export duties and extending the coverage of trade in processed
agricultural products.25
The agreement includes provisions on national treatment and market access for goods;
agriculture; rules of origin; safeguards; and other provisions.26 During the first six years, the FTA
reduced the average Mexican tariff on EFTA industrial goods from 8% to zero. Mexican
industrial exports to the EFTA have been free of duty since the entry into force of the FTA.27
Mexico-Japan
Mexico and Japan signed a free trade agreement, formally called an Economic Partnership
Agreement (EPA) in September 2004. The EPA was Japan’s second free trade agreement, but its
most comprehensive bilateral agreement at that time. It was Japan’s first agreement to include
agricultural products, a factor that resulted in initial opposition in Japan. In addition to the
removal of tariff barriers, it includes regulations in other areas, including labor mobility and
investment.28 One of the goals of the Mexico-Japan EPA was to restore the competitiveness of
Japanese companies in the Mexican market. Mexico already had free trade with the United States
and Canada under NAFTA and with the European Union through an FTA that went into force in
July 2000. These two agreements had placed Japanese companies at a disadvantage due to
differences in tariff rates and exclusion of Japanese companies from public-works projects in
Mexico. Mexico entered the agreement to increase Japanese investment in Mexico, and, thus,
create jobs, expand Mexican exports to Japan, expand technology transfer from Japan, and
strengthen Mexican industrial competitiveness.29
The agreement includes provisions on national treatment and market access for goods; sanitary
and phytosanitary measures; standards; rules of origin; customs procedures; safeguards; IPR;
dispute settlement; financial services; and government procurement. The agreement also includes
chapters in which the two countries agreed to increase cooperation in a number of areas,
including vocational education and training, agriculture, tourism, and the environment.30 The two
countries agreed to eliminate tariffs on almost all industrial products within ten years. Tariffs
were eliminated immediately in the following areas: electronics, household electric appliances,
capital goods, and automobiles. By the year 2015, tariffs will be eliminated on 90% of goods that
accounted for 96% in total trade value between the two countries. Prior to the EPA, only 16% of
Japanese exports to Mexico entered duty free into the Mexican market, while 70% of Mexican
exports to Japan entered duty free. In agriculture, Mexican officials initially called for trade
concessions in beef, oranges, pineapples, and leather products, but later agreed to an expansion of
Japanese import quotas over a five-year period for pork, beef, chicken, oranges, and orange juice.
25 The European Free Trade Association (EFTA) Secretariat, EFTA and Mexico to Amend Free Trade Agreement,
September 2008.
26 Free Trade Agreement between the EFTA States the United Mexican States. . See WTO Regional Trade Agreement
Database, see http://www.wto.org.
27 Mexico-EU Trade Links, “Mexico-EFTA Free Trade Agreement: After Six Years,” July 2007.
28 The Asahi Shumbun, “Japan, Mexico Ink Landmark Accord,” September 20, 2004.
29 Press Center Japan, “Japan and Mexico Agree on Conclusion of Free-Trade Agreement,” March 31, 2004.
30 Agreement Between Japan the United Mexican States for the Strengthening of the Economic Partnership. See WTO
Regional Trade Agreement Database, see http://www.wto.org.
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These are scheduled to be revised in 2010, the fifth year of the agreement. The value of Mexico’s
agricultural products exempt from import tariffs was reportedly expected to be less than 50% of
its total agricultural exports to Japan.31 The agreement also allowed for a duty-free quota for
motor vehicles and steel upon implementation, with a phase-out scheduled over time. Japan’s
auto and steel companies were expected to benefit the most from these provisions.32
Partial Scope Agreements
Mexico has a number of partial scope agreements, which are integration agreements with more
limited free trade coverage than a free trade agreement (see Table 2). Mexico is a party to the
Agreement on the Global System of Trade Preferences Among Developing Countries (GSTP).
The GSTP was established in 1988 as a framework for the exchange of trade preferences among
developing countries to promote trade among developing countries. The agreement provides tariff
preferences on merchandise trade among member countries. It is a treaty to which only Group of
77 member countries may enter.33 The text of the agreement was adopted after a round of
negotiations that was concluded in Belgrade in 1988. The agreement, which entered into force on
April 19, 1989, was envisaged as being a dynamic instrument which would be expanded in
successive stages in additional rounds of negotiations and reviewed periodically. 34 A second
round of negotiations was proposed in the early 1990s to expand trade preferences, but
negotiations faltered as members failed to ratify the agreement. In June 2004, GSTP participants
launched a third round of negotiations. Forty-four countries have acceded to the agreement.35
Mexico is a signatory to the Latin American Integration Association (ALADI), which was
established by the Treaty of Montevideo in August 1980 and entered into force on March 18,
1981. ALADI replaced the Latin American Free Trade Association established in1960 with the
goal of developing a common market in Latin America. ALADI members include Argentina,
Bolivia, Brazil, Chile, Colombia, Cuba, Ecuador, Mexico, Paraguay, Peru, Uruguay, and
Venezuela. Signatory countries have sought economic cooperation amongst each other but have
made little progress toward forming a common market. They maintain a flexible goal of
encouraging free trade without a timetable for instituting a common market. Members approved a
regional tariff preference arrangement in 1984 and expanded it in 1987 and 1990.36
In addition, Mexico is a member of the Protocol Relating to Trade Negotiations among
Developing Countries (PTN). The PTN is a preferential arrangement involving Bangladesh,
Brazil, Chile, Egypt, Israel, Mexico, Pakistan, Paraguay, Peru, Philippines, Republic of Korea,
Serbia, Tunisia, Turkey, and Uruguay. It was signed in December 1971 and became effective on
February 11, 1973.
31 Nikkei Weekly, “FTA with Mexico Paves Way for Talks with Asian Nations,” March 15, 2004.
32 The Asahi Shumbun, “Japan, Mexico Ink Landmark Accord,” September 20, 2004.
33 The Group of 77 (G-77) was established on June 15, 1964 by seventy-seven developing countries, signatories of the
“Joint Declaration of the Seventy-Seven Countries,” issued at the end of the first session of the United Nations
Conference on Trade and Development (UNCTAD) in Geneva.
34 United Nations Conference on Trade and Development, Press Release, “Global System of Trade Preferences,” June
16, 2004.
35 Ibid.
36 Latin American Integration Association (ALADI) website, see http://www.aladi.org.
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Table 2. Mexico’s Partial Scope Agreements
Date of
Entry into
WTO Legal
Agreement Coverage Signature
Force
Cover
Global System
Goods
April 13, 1988
April 19, 1989
Enabling Clause
of Trade
Preferences
Among
Developing
Countries
(GSTP)a
Latin American Goods August
12,
March 18, 1981
Enabling Clause
Integration
1980
Association
(ALADI)b
Protocol on
Goods December
8,
February 11,
Enabling Clause
Trade
1971
1973
Negotiations
(PTN)c
Source: World Trade Organization, Regional Trade Agreement Database, see http://www.wto.org/.
a. Includes Algeria, Argentina, Bangladesh, Benin, Venezuela, Bolivia, Brazil, Cameroon, Chile, Colombia, Cuba,
Ecuador, Egypt, Former Yugoslav Republic of Macedonia, Ghana, Guinea, Guyana, India, Indonesia, Islamic
Republic of Iran, Iraq, Republic of Korea, Democratic People’s Republic of Korea, Libyan Arab Jamahirlya,
Malaysia, Mexico, Morocco, Mozambique, Myanmar, Nicaragua, Nigeria, Pakistan, Peru, Philippines,
Singapore, Sri Lanka, Sudan, Tanzania, Thailand, Trinidad and Tobago, Tunisia, Vietnam, and Zimbabwe.
b. Includes Argentina, Venezuela, Bolivia, Brazil, Chile, Colombia, Cuba, Ecuador, Mexico, Paraguay, Peru, and
Uruguay.
c. Includes Bangladesh, Brazil, Chile, Egypt, Israel, Republic of Korea, Mexico, Pakistan, Paraguay, Peru,
Philippines, Serbia, Tunisia, Turkey, Uruguay.
Mexico’s Merchandise Trade
Since trade liberalization, Mexico’s trade with the world has risen rapidly, with exports increasing
faster than imports. Mexico’s exports to all countries increased 465% between 1993 and 2008,
from $51.8 billion to $292.6 billion. The 2009 economic downturn, however, resulted in a decline
in the value of exports to $229.6 billion (see Figure 1). Mexico’s imports from all countries
increased from $65.4 billion in 1993 to $310.1 billion in 2008, but then fell to $234.4 billion in
2009. Mexico’s trade balance went from a deficit of $13.5 billion in 1993 to surpluses of $7.1
billion in 1995 and $6.5 billion in 1996. Since 1998, Mexico’s trade balance has remained in
deficit, reaching $17.5 billion in 2008 and then declining to $4.8 in 2009. Mexico’s top five
exports in 2009 were crude petroleum oil, flat panel screen TV’s, automobiles, mobile telephones,
and gold products. Mexico’s top five imports were gasoline, TV parts, electronic parts, mobile
telephones, and automobiles (see Table 3).
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Figure 1. Mexico’s Merchandise Trade with All Countries
350.0
300.0
250.0
200.0
150.0
100.0
50.0
0.0
199
1
1
1
1
1
2
2
2
2
2
2
2
2
2
2
4
995
996
997
998
999
000
001
002
003
004
005
006
007
008
009
-50.0
Exports
Imports
Trade Balance
Source: Compiled by CRS using data from Mexico’s Ministry of Economy.
Table 3. Composition of Trade: 2009
Mexico’s Exports
Mexico’s Imports
Product
Value
Product
Value
(HTS 8-digit level)
(Billions US$)
(HTS 8-digit level)
(Billions US$)
Crude Petroleum
25.9 Gasoline
8.3
Oil
TV apparatus with
15.7 Parts
for
TV
6.6
flat panel screen
apparatus
Automobiles
11.3
Electronic parts
3.9
Mobile Telephones
9.4
Mobile telephones
3.3
Gold products
3.6
Automobiles
2.4
Total 229.6
Total 234.4
Source: Compiled by CRS using data from Mexico’s Subsecretaría de Negociaciones Comerciales Internacionales.
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Trade with the United States
Mexico’s trade with the United States also increased rapidly since trade liberalization, with
exports to the United States increasing more rapidly than imports. Exports to the United States
increased from $42.9 billion in 1993 to $234.6 billion in 2008, but then fell to $184.9 billion in
2009 (see Figure 2). Mexico’s imports from the United States increased from $45.3 billion in
1993 to $152.6 billion in 2008, and then decreased to $112.4 billion due to the global recession.
Mexico’s trade balance with the United States went from a deficit of $2.4 billion in 1993 to a
surplus of $72.5 billion in 2009.
Figure 2. Mexico’s Merchandise Trade with the United States
250.0
200.0
150.0
s
on
lli 100.0
Bi
$
US
50.0
0.0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
-50.0
Exports
Imports
Trade Balance
Source: Compiled by CRS using data from Mexico’s Ministry of Economy.
Trade Trends Since Liberalization
Mexico’s reliance on the United States as a trade partner appears to be diminishing, although
slightly. Between 2004 and 2009, the U.S. share of Mexico’s total imports decreased from 56% to
48%, while the share of total Mexican exports going to the United States decreased from 89% to
81%. Though it has decreased somewhat, the share of Mexico’s total exports that go to the United
States remains consistently high. Mexico’s share of the U.S. market has lost ground since 2002.
In 2003, China surpassed Mexico as a top supplier of U.S. imports, and Mexico now ranks third,
after China and Canada, as a source of U.S. imports.
Between 1996 and 2008, Mexico’s total exports doubled from $96.0 billion to $292.7 billion (see
Table 4). In 2009, Mexico’s total exports decreased 22% to $229.6 billion. While the United
States has the highest market share of Mexican exports, the value of exports to other FTA
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countries has increased considerably since trade liberalization, with exports to Israel experiencing
the highest percentage increase, though the value of trade with Israel remains relatively low.
Other key export markets for Mexico are the European Union, Japan, and Guatemala.
Table 4. Mexico’s Exports by FTA Partners
(Millions US$)
Partners 1996 1998 2000 2002 2004 2006 2008 2009
NAFTA
82,017 103,668 149,784 144,889 167,814 216,976 241,687 193,254
Costa
209 290 354 373 387 522 922 652
Rica
Nicaragua 61 65 123 93 151 522 371 221
Chile
781 736 549 323 443 905
1,589
1,053
European
3,555 3,988 5,799 5,626 6,818 10,967 17,080 11,353
Union
Israel
13 24 67 56 62 91 220 85
El
177 246 307 292 317 497 772 463
Salvador
Guatemala 375 623 574 548 673 935
1,388
1,195
Honduras 107 146 149 156 182 285 459 377
EFTA
200 132 131 172 119 154 643 478
Japan
1,251 552 1,115 1,194 1,191 1,594 2,068 1,615
Non-FTA
7,258 7,123 7,169 7,324 9,842 16,477 25,467 18,874
Countries
Total
96,004 117,593 166,121 161,046 187,999 249,925 292,666 229,620
Source: Mexico’s Ministry of Economy with data from Banco de México. Compiled by CRS.
Mexico’s total imports increased from $96.0 billion in 1996 to $292.7 billion in 2008, and then
declined to $229.6 billion in 2009. Imports from NAFTA trading partners increased from $82.1
billion in 1996 to $241.7 in 2008, decreasing to $193.2 billion in 2009 (see Table 5). Imports
from its other FTA trading partners, particularly from Honduras and Chile, have also increased
significantly since 1996. In 2009, NAFTA countries ranked first as sources of imports ($119.7
billion), followed by the European Union ($27.2 billion), and Japan ($11.4 billion). Mexico’s
imports from non-FTA countries also increased rapidly, however, from $7.3 billion in 1996 to
$70.8 billion, as shown in Table 5.
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Table 5. Mexico’s Imports from FTA Partners
(Millions US$)
FTA
Partners
1996 1998 2000 2002 2004 2006 2008 2009
NAFTA
69,280 95,549 131,551 111,037 116,154 137,687 162,066 119,737
Costa
58 87 180 416 852 789 777 923
Rica
Nicaragua 12 14 27 27 52 78 119 106
Chile
171 552 894 1,010 1,464 2,470 2,593 1,651
European
7,800 11,846 15,057 16,950 21,657 28,938 39,160 27,204
Union
Israel
79 137 297 250 402 429 524 416
El
19 25 20 36 50 59 71 71
Salvador
Guatemala 77 81 91 117 230 356 501 500
Honduras 5 12 13 25 66 123 255 177
EFTA
484 648 851 872 1,074 1,386 1,693 1,371
Japan
4,132 4,537 6,466 9,349 10,583 15,295 16,326 11,397
Non-FTA
7,352 11,885 19,011 28,590 44,226 68,442 86,047 70,832
Countries
Total
89,469 125,373 174,458 168,679 186,810 256,052 310,132 234,385
Source: Mexico’s Ministry of Economy with data from Banco de México. Compiled by CRS.
Ninety-five percent of Mexico’s exports are headed to countries with which it has FTAs, and 88%
of total exports go to its NAFTA trading partners (see Table 6). Exports to the European Union
accounted for 6% of Mexico’s total exports in 2009. The share of Mexico’s imports coming from
NAFTA trading partners declined from77% of its total imports in 1996 to 51% of total imports in
2009 (see Table 6). The share of Mexico’s imports from the European Union increased from 9%
in 1996 to 12% in 2009, while the share from non-FTA countries increased from 8% to 29%.
Imports from Japan accounted for 5% of Mexico’s imports in 2009, while imports from all other
FTA partners accounted for 3%. Although Mexico does not have an FTA with China, Mexico’s
imports from China increased considerably during this period. Imports from China increased
from $760 million in 1996 to $32.5 billion in 2009.
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Table 6. Market Share of Exports and Imports by FTA Partner
1996 1998 2000 2002 2004 2006 2008 2009
Export Market Sharea
NAFTA
85% 88% 90% 90% 89% 87% 83% 88%
EU
4% 3% 3% 3% 4% 4% 6% 5%
Japan
1% 0% 1% 1% 1% 1% 1% 1%
All Other
1% 1% 1% 1% 1% 1% 1% 1%
FTA
Partners
Non-FTA
8% 6% 4% 5% 5% 7% 9% 5%
Countries
Import Market Sharea
NAFTA
77% 76% 75% 66% 62% 54% 52% 51%
EU
9% 9% 9% 10% 12% 11% 13% 12%
Japan
5% 4% 4% 6% 6% 6% 5% 5%
All Other
1% 1% 0% 2% 2% 2% 2% 3%
FTA
Partners
Non-FTA
8% 9% 11% 17% 24% 27% 28% 29%
Countries
Source: Compiled by CRS using data from Mexico’s Ministry of Economy.
a. Totals may not add due to rounding.
Economic Policy Challenges for Mexico
Though Mexico’s total exports have increased substantially since it began trade liberalization, the
United States continues to be the dominant export market for Mexican goods. The reliance of
Mexico on the United States as an export market makes the country more susceptible to economic
conditions in the United States. The global financial crisis, which resulted in a downturn in the
U.S. economy, resulted in the deepest recession in the Mexican economy since the 1930s. The
economy contracted by 6.9% in 2009, while the peso fell 25% against the dollar in the first ninth
months of 2009.37 Mexico also experienced liquidity problems and a loss in investor confidence
as a result of large losses on corporate foreign exchange positions in 2008, in addition to the
uncertainty over the outbreak of the H1N1 virus in mid-2009.38 Estimates for 2010 project that
the economy will grow by about 3% to 4%, though much of this will be due to growth in the
export sector and not to domestic demand.
Mexico is facing increasing challenges in addressing issues related to productivity and the
competitiveness of its exports. Some economists believe that countries in Latin America need to
become more competitive in the global economy in order to promote economic growth and
37 International Monetary Fund (IMF), Public Information Notice, “IMF Executive Board Concludes 2010 Article IV
Consultation with Mexico,” March 16, 2010, p. 2.
38 Ibid.
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reduce poverty. They argue that if Latin American countries are going to prosper, they must
improve labor skills and technology to be more competitive in the global economy.39 Over the
past several years, Mexico has been facing increasing competition from China and other Asian
economies in the manufacturing sector. In 2003, China replaced Mexico as the second-highest
source of U.S. imports. This has presented challenges to Mexico’s manufacturing sector and some
economists argue that Mexico has fallen behind in its comparative advantage in exporting in
industries with intermediate wages and technological sophistication.40 They argue that Mexico
must invest more in education and telecommunications infrastructure to increase productivity and
remain competitive.
The emergence of China in the global marketplace has drawn comparisons between the industrial
policies of China and Mexico. Some analysts argue hat Mexico should make more progress in
scientific research to attract and create high-tech industries, such as China has done. They believe
that China’s policy to help attract foreign direct investment, which initially consisted of special
zones with preferential fiscal and customs policies and later modified to establish scientific and
technical research facilities, should serve as an example to Mexico’s industrial policy. They state
that Mexico’s approach has been a combination of fiscal and customs policies to enhance its
comparative advantage of sharing a 2000-mile border with the United States, but that Mexico did
little to promote scientific and technical research. They add that Mexican programs have not
fostered or encouraged research and development activities to facilitate the creation of
technological enterprises.41
A primary motivation for entering into free trade agreements is to improve economic conditions
and create jobs. In the case of Mexico, an additional key motivation has been to address the issue
of poverty by creating jobs for the poor. Mexico has made an effort to make trade agreements a
tool for promoting economic development and combating poverty, but it is only part of the overall
effort of the Mexican government to address these issues. Mexico has implemented a
compensatory policy to address poverty through its Oportunidades program (formerly known as
Progresa). 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.42 The
program has been successful in bringing more economic stability to the country and reducing
poverty but it has not helped the country’s productivity and may not be a long-term solution.
Some argue that such programs result in a dependence for cash transfers and do not help poor
workers obtain formal sector jobs with prospects for increasing productivity.43
39 Miami Herald, “The Left’s Favorite U.S. Nobel May Surprise his Fans,” by Andres Oppenheimer, August 16, 2009.
40 Latin America/Caribbean and Asia/Pacific Economics and Business Association, Economic Integration and
Manufacturing Performance in Mexico: Is Chinese Competition to Blame?, by Ernesto López-Córdova, Working Paper
No. 23, December 2004.
41 Mexico Now, “Mexico’s and China’s Programs to Attract Foreign Investment,” by Ramiro Villega and Migual A.
Díaz Marín, pp. 52-55.
42 Santiago Levy, Progress Against Poverty, Brookings Institution, 2006.
43 Levy, Santiago, Good Intensions, Bad Outcomes: Social Policy, Informality, and Economic Growth in Mexico,
Brookings Institution Press, 2008, pp. 1-6.
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Implications for U.S. Interests
Mexico’s numerous free trade agreements and its trade liberalization policy are of interest to U.S.
policymakers because of the implications for U.S.-Mexico trade, economic stability in Mexico,
and the overall relationship of the two countries. There is an interdependent relationship between
the two countries, as highlighted by the sharp downturn in the Mexican economy in 2009 that
resulted from the global financial crisis and the slowdown in the U.S. economy. 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.
Another implication for the United States is the effect of Mexico’s FTAs on U.S. exports to
Mexico. The liberalization of Mexico’s trade and investment barriers to other countries has
resulted in increasing competition for U.S. goods and services in the Mexican market. However,
trade flows are also affected by other factors such as exchange rates, economic growth, and
investor confidence, and it is difficult to isolate these effects.
A number of studies suggest that while Mexico’s trade liberalization policy, mainly NAFTA, may
have brought economic and social benefits to the Mexican economy as a whole, the benefits have
not been evenly distributed throughout the country. Wages and employment tend to be higher in
states experiencing higher levels of FDI and trade. In terms of regional effects, initial conditions
in Mexico determined which Mexican states experienced stronger economic growth as a result of
trade liberalization. States with higher levels of telecommunications and transportation
infrastructure gained more benefits than poorer states with lower levels of education,
infrastructure, and institutional capacity. This affects the United States because Mexican workers
who have lost their job due to trade liberalization may migrate to other areas in Mexico or to the
United States to seek jobs.44
To address issues affecting trade, U.S. policymakers may consider closer cooperation with
Mexico to develop complementary policies to ensure that all segments of the two countries
benefit from economic integration. The United States and Mexico, along with Canada, have
increased cooperation on economic and security issues, but there may be additional options that
could be considered by both countries. 45 One issue on which a number of economists and other
analysts have agreed upon is that Mexico needs to invest more in education, infrastructure, and
institutional strengthening to benefit more fully from freer trade. A possible option to address this
issue is to create a bilateral or trilateral fund for development that focuses on building
infrastructure, improving education and human capital, and creating more opportunities for
research and development. U.S. and Mexican policymakers have informally talked about
expanding the mandate of the North American Development Bank (NADBank).46 A number of
Members of the U.S. Congress and elected officials from Mexico have discussed the possibility
of expanding the mission of the NADBank to go beyond environmental and border issues and
consider creating an infrastructure fund that would be managed by NADBank to provide
investment in infrastructure, communications, or education.
44 For more information, see CRS Report RL34733, NAFTA and the Mexican Economy, by M. Angeles Villarreal.
45 See CRS Report RS22701, Security and Prosperity Partnership of North America: An Overview and Selected Issues,
by M. Angeles Villarreal and Jennifer E. Lake.
46 NADBank and its sister institution, the Border Environment Cooperation Commission (BECC), were created under a
bilateral side agreement to NAFTA called the Border Environmental Cooperation Agreement (BECC) to address
environmental infrastructure problems along the U.S.-Mexican border.
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Author Contact Information
M. Angeles Villarreal
Specialist in International Trade and Finance
avillarreal@crs.loc.gov, 7-0321
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