Economy, Foreign Trade
ALADI, favorable balance of trade, Asociacion Latinoamericana, maquiladoras, global free trade
Foreign trade is a crucial element in Mexico’s economic growth. By signing the North American Free Trade Agreement (NAFTA) with the United States and Canada in 1992, Mexico’s leaders decided that the nation’s economic future lay with trade and with developing a competitive, export-oriented economy. The treaty led to a lowering of tariff barriers in all three countries. Despite the fact that Mexican labor costs are far lower than those in the United States, many Mexican businesses producing products for the Mexican market could not compete with their U.S. counterparts and were forced out of business. Most of these were medium and small companies, but their closings have contributed significantly to unemployment rates since 1994.
As a consequence of Mexico’s major economic crisis in 1994, and the subsequent decrease in the relative cost of goods produced in Mexico, the country’s export sector played an essential role in its economic recovery. The depressed economy produced a favorable balance of trade with Mexico’s largest trading partner—the United States. This meant that the value of goods exported from Mexico to the United States exceeded the value of goods exported from the United States to Mexico. In 1994, the first year that NAFTA was in effect, trade between the United States and Mexico totaled more than $100 billion, reflecting an increase of 23 percent over the previous year. Mexico’s prolonged economic crisis resulted in a drop in trade between the two countries in 1995. Nonetheless, the value of U.S. exports to Mexico in 1995 was still 11 percent higher than it was in 1993, the last pre-NAFTA year.
The economic effects of NAFTA have been hotly debated in Canada, Mexico, and the United States. The Mexican government and NAFTA supporters in the United States claim that the growth of export industries slowed Mexico’s economic slide in 1996, and that exports actually helped to launch an economic recovery by the end of that year. The output of Mexico’s border assembly factories, or maquiladoras, from January to August 1996 was 17 percent higher than the output for the same period in 1995. Similarly, multinational auto manufacturers operating in Mexico saw a sharp increase in export activity—the production of passenger cars for export rose by 23 percent in 1995 and the production of trucks for export leapt 132 percent during the year.
Critics of the trade pact claim that NAFTA has primarily benefited multinational companies operating in Mexico, while doing little to benefit the vast majority of Mexico’s citizens. While Mexico’s overall economic indicators showed an increase in foreign trade after the institution of NAFTA, real wages continued to fall throughout the country and poverty rates remained constant. Living conditions for many Mexicans worsened after NAFTA was put into place. NAFTA opponents say this is possible because export-oriented companies can take advantage of cheap Mexican labor without relying on the purchasing power of Mexican families. Since the products are being sold abroad, the success of the export industries does not hinge on Mexican citizens being paid enough to be able to buy their products.
Mexico’s chief trading partners, in terms of the value of Mexico’s exported goods, are the United States, Canada, Japan, Spain, Chile, and Brazil. Most of the goods imported into Mexico come from the United States, Japan, Germany, Canada, South Korea, Italy, and France. Mexico is also the third largest trading partner of the United States (behind only Canada and Japan), even though the Mexican economy is much smaller than that of either of those two countries.
In addition to NAFTA, Mexico is a member of a number of other trade organizations or agreements. Mexico belongs to the Latin American Economic System (known in Spanish as the Sistema Economico Latinoamericano, or SELA), an organization founded in 1975 to promote cooperation between the 27 member countries in Latin America and to accelerate economic and social development within these countries. In 1980 Mexico became a party to the General Agreement on Tariffs and Trade (GATT), a treaty and trade organization that worked to reduce tariffs, quotas, and other trade barriers between nations. Mexico is also a member of the Latin American Integration Association (known in Spanish as the Asociacion Latinoamericana de Integracion, or ALADI), an organization founded in 1981 to foster balanced economic development in Latin America. In 1993 Mexico became the first Latin American member of the Asia-Pacific Economic Cooperation (APEC) forum, an organization dedicated to promoting global free trade. In 1994 Mexico joined the Organization for Economic Cooperation and Development (OECD), which seeks to promote economic growth through global cooperation and trade. The next year, Mexico became a founding member of the World Trade Organization (WTO). The WTO replaced GATT and aims to promote and enforce global trade laws and regulations.
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