Mexico And International Trade Essays - Economy, Business

Mexico And International Trade IV. International Trade IV.1 History During World War II Mexico had very good business relations with the United States. They provided a lot of raw materials, which were necessary to support American military needs. In that time the U.S. had an agreement with Mexico specifying that the country would export its resources only to the Allies. After WW II Mexico restricted imports in an attempt to promote domestic growth, while resisting foreign domination. In 1948 the government striving to reverse the unfavorable balance of trade, devalued the peso. Imports not essential for industrial development were sharply restricted. They did this to reach a stage of self-sufficiency. But still they obtained in 1950 an Export-Import Bank loan of $150 million for the financing of several projects to improve transportation, agriculture, and power facilities. This helped to improve the whole economic situation. This policy led to an average annual growth rate of about 6 % for the next two decades. By the late sixties it was realized, that the domestic industries have become lethargic and inefficient because of the shelter from international competition. 1965: The Maquiladoras Program To help its manufacturing sector, Mexico settled the Mexico's Border Industrialization Program. The BIP allows US and foreign companies to ship components and production equipment into Mexico, free of duty, for assembly or processing utilizing Mexican labor. These Mexican facilities are commonly referred to as Maquiladoras, or in-bond assembly plants. The BIP sought to attract foreign manufacturing facilities, technology and know-how. Over the past years, a large portion of US-Mexican trade has been attributed to rapid growth in the Mexican Maquiladora industry. In 1992, Maquiladora Plants numbered 2,113, employing 469,614 Mexican workers. The 1980's: the diversification In order to promote a merchandise trade surplus, which would help service the foreign debt, and offset shrinking oil revenues, Mexico adopted a policy of diversifying its economic base away from petroleum. The government's program of promoting non-traditional manufactured exports was highly successful. Whereas crude oil and oil products accounted for some 75% of Mexican export in 1983, their share dropped to a low 34 % by 1988. Thus, non-petroleum exports increased to 66% of exports. Automotive products, machinery and equipment, chemicals, iron and steel products, electrical and non-electronic goods, and textiles and clothing became major clothing items. Late 1980's: Liberalized Trade in Mexico In 1986, Mexico became a full member of the GATT, General Agreement on Tariffs and Trade, the international body then responsible for governing most international trade, now replaced by the WTO, the World Trade Organization. Since Mexico's accession to the organization, its tariff and non-tariff barriers have been substantially reduced. Mexico has eliminated many import license requirements, in many cases converting them to tariffs, allowing for their eventual reduction. Growth of Mexican-US Trade From 1986 to 1991, US exports to Mexico shot up by 167 %. During this same period, exports to Mexico increased at nearly twice the rate of overall growth in US exports. Manufactured goods have accounted for over three-quarters of US exports to Mexico. Mexican imports from the US accounted roughly 70% of total Mexican imports. From 1982 to 1990, the United States ran a merchandise trade deficit with Mexico. IT peaked to a high of $7.7billion in 1983. In 1991, The United States turned the bilateral deficit into a merchandise trade surplus. The most of this trade was effected with Texas, then California and Michigan. Foreign Investment environment The new openness of the Mexican economy in the late 1980's also showed through the fact that more than two-thirds of Mexico's total gross domestic product (GDP) was made accessible to 100 percent foreign ownership. This provided for unlimited opportunities to US investors. While US-based firms continue to rank as the largest source of foreign investment in Mexico (1990 total US direct foreign investment was $9. 4 billion), a growing list of companies from the United Kingdom, Germany, Japan, France, Switzerland, Spain and others are taking advantage of Mexico's new business opportunities. NAFTA; the opening of markets In December 1992, Presidents Salinas and Bush and Prime Minister Brian Mulroney of Canada signed the North American Free Trade Agreement -NAFTA-. The Mexican Legislature ratified NAFTA in 1993 and the treaty went into effect on January 1 1994, creating the largest free-trade zone in the world. All barriers to trade such as tariffs have