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Mexico in the New Century

January 22, 2009. 00:00

Mexico in recent years has played an important role in the international trade. Being a very young country in this field, it is considered that the opening up of the economy started when Mexico joined the GATT -General Agreement on Trade and Tariffs- in 1986 (22 years ago); since that time the international trade, exports & imports and attracting foreign investment into Mexico have become a priority for the economic development of the country.

Since then, the Mexican government started to implement new policies to achieve the international market economy; additionally, a process of deregulation began with the objective to improve the export performance of Mexico. The challenge was to become more competitive worldwide.

NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)

From 1986 up to now, Mexico has signed several free trade agreements with more than 42 countries; it has become the country with the more free trade agreements worldwide. As a result, many companies have taken advantage of these agreements and used Mexico as a hub or springboard to invest and export to other countries.

From all the free trade agreements signed by Mexico, the most significant is the North American Free Trade Agreement (NAFTA) between Mexico, US and Canada (1994).

The main objectives of this agreement are:
• Take advantage of the competitive strengths of the 3 countries
• Utilize the spare production capability that exist in Mexico, where industrial inputs were less expensive
• Incorporate small and medium size enterprises (SME’s) in the international trade chain
• Consolidate the production chain of North America
• Improve the quality of life in the three countries
• Consolidate the biggest and most powerful trade region of the world

Somehow most of these issues have been achieved in the first 15 years and in certain way have benefitiated the three parts. In the case of Mexico, the NAFTA has brought production efficiency, economic growth, inward investment and imports of goods and raw materials of better quality.

Talking about export achievements as result of the NAFTA are:
• United States of America: Exports to Mexico and Canada increased from $147.7 billion to $260.2 billion (176%)
• Mexico: Exports to US and Canada increased from $61.06 billion to $144.9 billion (237%)
• Canada: Exports to US and Mexico increased from $113.6 billion to $215.5 billion (52%)

NAFTA region can be translated as the most active trading region in the world. The three countries account for 19% of global exports and 25% of imports, also they receive 24% of the international inward foreign direct investment and they invest 25% outside the NAFTA region.

With NAFTA not only the trade relation has been enhanced, but also the three countries have moved forward in other areas such as education, employment, environmental and cultural issues.

MEXICO NOW

Mexico’s business environment offers many competitive advantages as a possible international partner. These advantages are reflected in the following data:
• Mexico ranks 9th economy in the world as GNP and 1st in Latin America
• It is the 8th export country worldwide with a total trade larger than Brazil, Argentina and Chile combined.
• It is the 1st exporter of Latin America
• 34% of its GNP come from exports
• Around 85% of its exports are manufacturing goods. Crude oil only represents 11.3% of total exports.

Main Industries.
The 3 main export industries in Mexico, which represent 60% of the total exports, are composed by electric & electronic, automotive & auto parts, machinery and equipment. In addition to this, there are 10 other important export industries with a wide variety of business opportunities.

Export Companies.
It is important to highlight that 5% of Mexican export companies are responsible for 75% of the non-oil exports, and that the remaining 95% of the companies are responsible for the 25%. This is translated to the idea that most of the Mexican export platform is basically integrated by small and medium size enterprises.

Trading partners.
The main trading partner of Mexico is the USA, which signifies for 84% of the total exports; in second place is Canada with a 4%. It is important to highlight that there are a lot of Mexican and Canadian products that are traded by American brokers, so the figures might not be completely accurate. Other important trading partners are Central and South America with 5%, Europe with 4% and Asia with 2%.

Hispanic market.
In the USA, the Hispanic market has been involved in the international trade for more than 20 years; with a popultation of approximately 48 millions and more than 1.5 million of Hispanic companies in the USA, they have a purchasing power of 650 billion US Dollars.

Export supply.
In the past 20 years Mexico has made possible to: divesify its export supply, adapt several companies to the international standards with high quality products, develope competitive prices, and create a serious commitment for on time delivery. It is interesting to see how many Mexican products can be found worldwide ranging from fresh products, organics, process food, garments, leather goods, furniture and electric&electronic hardware.

But there are some areas that Mexico needs to develop more in order to enhance its export performance and where international companies could have the opportunity to find a niche. For example: infrastructure, financing, suppliers, business know how and technology transfer.

Foreign investment.
Mexico has become the 3rd emerging market recipient of direct foreign investment (DFI), with the USA as its main partner. Mexico offers a wide variety of schemes for investors. For example: export-import businesses, representative offices, strategic alliances, joint ventures or foreign direct investment. With these options companies have found, that combining different strengths and production factors could improve their competitiveness, and most of all them use Mexico as a springboard to take advantage of the different international treaties that Mexico has signed, like achieving great success in their exports to Central and South America and Europe through Mexico.

DoingBusinessInMexico Staff
Published: January 22, 2009. 00:00 | Last updated: March 04, 2009. 12:50
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