Some analysts believe that the importance of these direct and indirect effects is often overlooked. They suggest that these linkages offer important trade and welfare gains from free trade agreements and that ignoring these input-output linkages could underestimate potential trade gains. A significant portion of merchandise trade between the United States and Mexico occurs in the context of production sharing as manufacturers in each country work together to create goods.
Trade expansion has resulted in the creation of vertical supply relationships, especially along the U. In the auto sector, for example, trade expansion has resulted in the creation of vertical supply relationships throughout North America. The flow of auto merchandise trade between the United States and Mexico greatly increased the importance of North America as a production site for automobiles.
According to industry experts, the North American auto industry has "multilayered connections" between U. A Wall Street Journal article describes how an automobile produced in the United States has tens of thousands of parts that come from multiple producers in different countries and travel back and forth across borders several times.
These products are then sold to major car makers. The integration of the North American auto industry is reflected in the percentage of U. Mexico's export-oriented assembly plants, a majority of which have U. Foreign-owned assembly plants, which originated under Mexico's maquiladora program in the s, 11 account for a substantial share of Mexico's trade with the United States.
These export processing plants use extensive amounts of imported content to produce final goods and export the majority of their production to the U. NAFTA, along with a combination of other factors, contributed to a significant increase in Mexican export-oriented assembly plants, such as maquiladoras, after its entry into force.
Other factors that contributed to manufacturing growth and integration include trade liberalization, wages, and economic conditions, both in the United States and Mexico. Although some provisions in NAFTA may have encouraged growth in certain sectors, manufacturing activity likely has been more influenced by the strength of the U. Private industry groups state that these operations help U. In addition, the proximity of Mexico to the United States allows production to have a higher degree of U.
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.
NAFTA rules for the maquiladora industry were implemented in two phases, with the first phase covering the period , and the second phase starting in 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 Mexican 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. In , the North American rules of origin determined the duty-free status for a given import and replaced the previous special tariff provisions that applied only to maquiladora operations.
The initial maquiladora program ceased to exist and the same trade rules applied to all assembly operations in Mexico. 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. Remittances are one of the three highest sources of foreign currency for Mexico, along with foreign direct investment and tourism.
Most remittances to Mexico come from workers in the United States who send money back to their relatives. Mexico receives the largest amount of remittances in Latin America. Remittances are often a stable financial flow for some regions as workers in the United States make efforts to send money to family members. Most go to southern states where poverty levels are high. In , annual remittances to Mexico increased by 8. Since the late s, remittances have been an important source of income for many Mexicans.
The growth rate in remittances has been related to the frequency of sending, exchange rate fluctuations, migration, and employment in the United States.
Electronic transfers and money orders are the most popular methods to send money to Mexico. Worker remittance flows to Mexico have an important impact on the Mexican economy, in some regions more than others. A significant portion of the money received by households goes for food, clothing, health care, and other household expenses. Money also may be used for capital invested in microenterprises throughout urban Mexico.
The economic impact of remittance flows is concentrated in the poorer states of Mexico. Figure 3. Remittances to Mexico. The United States has engaged in bilateral efforts with Mexico, and also with Canada, to address issues related to border security, trade facilitation, economic competitiveness, regulatory cooperation, and energy integration.
The initiative is led at the Cabinet level and is co-chaired by the U. Major goals of the HLED are meant to build on, but not duplicate, a range of existing bilateral dialogues and working groups. The United States and Mexico aim to promote competitiveness in specific sectors such as transportation, telecommunications, and energy, as well as to promote greater two-way investment.
The HLED is also meant to explore ways to promote entrepreneurship, stimulate innovation, and encourage the development of human capital to meet the needs of the 21 st century economy, as well as examine initiatives to strengthen economic development along the U.
Another bilateral effort is the U. The official work plan was released by the two governments on February 28, , and focuses on regulatory cooperation in numerous sectoral issues including food safety, e-certification for plants and plant products, commercial motor vehicle safety standards and procedures, nanotechnology, e-health, and offshore oil and gas development standards.
The United States and Mexico are engaged in a bilateral border management initiative under the Declaration Concerning 21 st Century Border Management that was announced in This initiative is a bilateral effort to manage the 2,mile U. Since , the United States, Canada, and Mexico have made efforts to increase cooperation on economic and security issues through various endeavors. President George W. President Obama participated in the last summit on June 29, , in Ottawa, Canada, with an agenda focused on economic competitiveness, climate change, clean energy, the environment, regional and global cooperation, security, and defense.
The United States has pursued other efforts with Canada and Mexico, many of which have built upon the accomplishments of the working groups formed under the NALS. Proponents of North American competitiveness and security cooperation view the initiatives as constructive to addressing issues of mutual interest and benefit for all three countries, especially in the areas of North American regionalism; inclusive and shared prosperity; innovation and education; energy and climate change; citizen security; and regional, global, and stakeholder outreach to Central America and other countries in the Western Hemisphere.
Some critics believe that the summits and other trilateral efforts are not substantive enough and that North American leaders should make their meetings more consequential with follow-up mechanisms that are more action oriented.
Others contend that the efforts do not go far enough in including human rights issues or discussions on drug-related violence in Mexico. Mexico's economy is closely linked to the U. Economic growth has been slow in recent years. Over the past 30 years, Mexico has had a low economic growth record with an average growth rate of 2. Mexico's GDP grew by 2. The country benefitted from important structural reforms initiated in the early s, but events such as the U. Figure 4. The OECD outlook for Mexico for states that there are some encouraging signs for potential economic growth, including improvements in fiscal performance, responsible and reliable monetary policy to curb inflation, growth in manufacturing exports and inflows of foreign direct investment, and positive developments due to government reforms in telecommunications, energy, labor, education, and other structural reforms.
The country's outlook will likely remain closely tied to that of the United States, despite Mexico's efforts to diversify trade. Part of the government's reform efforts are aimed at making economic growth more inclusive, reducing income inequality, improving the quality of education, and reducing informality and poverty.
Mexico has a large informal sector that is estimated to account for a considerable portion of total employment. Estimates on the size of the informal labor sector vary widely, with some sources estimating that the informal sector accounts for about one-third of total employment and others estimating it to be as high as two-thirds of the workforce.
Under Mexico's legal framework, workers in the formal sector are defined as salaried workers employed by a firm that registers them with the government and are covered by Mexico's social security programs.
Informal sector workers are defined as nonsalaried workers who are usually self-employed. These workers have various degrees of entitlement to other social protection programs. Salaried workers can be employed by industry, such as construction, agriculture, or services. Nonsalaried employees are defined by social marginalization or exclusion and can be defined by various categories. These workers may include agricultural producers; seamstresses and tailors; artisans; street vendors; individuals who wash cars on the street; and other professions.
Many workers in the informal sector suffer from poverty, which has been one of Mexico's more serious and pressing economic problems for many years. Although the government has made progress in poverty reduction efforts, poverty continues to be a basic challenge for the country's development. The Mexican government's efforts to alleviate poverty have focused on conditional cash transfer programs. The Prospera previously called Oportunidades 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.
Prospera has provided cash transfers to the poorest 6. It has been replicated in about two dozen countries throughout the world. The government also provides educational cash transfers to participating families. Programs also provide nutrition support to pregnant and nursing women and malnourished children. Some economists cite the informal sector as a hindrance to the country's economic development. Other experts contend that Mexico's social programs benefitting the informal sector have led to increases in informal employment.
For years, numerous political analysts and economists have agreed that Mexico needs significant political and economic structural reforms to improve its potential for long-term economic growth.
The OECD stated that the main challenge for the government is to ensure full implementation of the reforms and that it needed to progress further in other key areas. According to the OECD, Mexico must improve administrative capacity at all levels of government and reform its judicial institutions.
Such actions would have a strong potential to boost living standards substantially, stimulate economic growth, and reduce income inequality. The OECD stated that issues regarding human rights conditions, rule of law, and corruption were also challenges that needed to be addressed by the government, as they too affect economic conditions and living standards.
According to a study by the McKinsey Global Institute, Mexico had successfully created globally competitive industries in some sectors, but not in others. In contrast, the other part of Mexico, consisting of smaller, more traditional firms, was technologically backward, unproductive, and operated outside the formal economy.
Government measures to privatize industries, liberalize trade, and welcome foreign investment created a side to the economy that was highly productive in which numerous industries had flourished, but the reforms had not yet been successful in touching other sectors of the economy where traditional enterprises had not modernized, informality was rising, and productivity was plunging.
Mexico's long-term economic outlook depends largely on the energy sector. The country is one of the largest oil producers in the world, but its oil production has steadily decreased since as a result of natural production declines.
According to industry experts, Mexico has the potential resources to support a long-term recovery in total production, primarily in the Gulf of Mexico. However, the country does not have the technical capability or financial means to develop potential deepwater projects or shale oil deposits in the north. The reforms opened Mexico's energy sector to production-sharing contracts with private and foreign investors while keeping the ownership of Mexico's hydrocarbons under state control.
They will likely expand U. Under NAFTA's energy chapter, parties confirmed respect for their constitutions, which was of particular importance for Mexico and its Constitution establishing Mexican national ownership of all hydrocarbons resources and restrictions of private or foreign participation in its energy sector.
In addition, the negotiating objectives stated that the United States supports North American energy security and independence, and promotes the continuation of energy market-opening reforms. Some observers contend that much is at stake for the North American oil and gas industry in the bilateral economic relationship, especially in regard to Mexico as an energy market for the United States. The growth in U. They argue that the dispute settlement provisions and the investment chapter of the agreement will help protect U.
Mexico has had a growing commitment to trade integration and liberalization through the formation of FTAs since the s, and its trade policy is among the most open in the world. Mexico's pursuit of FTAs with other countries not only provides domestic economic benefits, but could also potentially reduce its economic dependence on the United States. It requires ratification by 6 of the 11 signatories to become effective.
Upon entry into force, it will reduce and eliminate tariff and nontariff barriers on goods, services, and agriculture. Mexico has a total of 11 free trade agreements involving 46 countries. Given the perception of a rising protectionist sentiment in the United States, some regional experts have suggested that Mexico is seeking to negotiate new FTAs more aggressively and deepen existing ones.
Discussions included government procurement, energy trade, IPR protection, rules of origin, and small- and medium-sized businesses. The new agreement is expected to replace a previous agreement between Mexico and the EU from Mexico is also a party to the Pacific Alliance, a regional integration initiative formed by Chile, Colombia, Mexico, and Peru in Its main purpose is to form a regional trading bloc and stronger ties with the Asia-Pacific region. The Alliance has a larger scope than free trade agreements, including the free movement of people and measures to integrate the stock markets of member countries.
The restrictive trade regime began after Mexico's revolutionary period, and remained until the early to mids, when it began to shift to a more open, export-oriented economy.
For Mexico, an FTA with the United States represented a way to lock in trade liberalization reforms, attract greater flows of foreign investment, and spur economic growth. For the United States, NAFTA represented an opportunity to expand the growing export market to the south, but it also represented a political opportunity to improve the relationship with Mexico.
Pursuant to trade promotion authority TPA , the preliminary agreement with Mexico was notified to Congress on August 31, , in part to allow for the signing of the agreement prior to Mexico's president-elect Andreas Manuel Lopez Obrador taking office on December 1, TPA contains certain notification and reporting requirements that likely will push any consideration of implementing legislation into the th Congress.
USMCA, comprised of 34 chapters and 12 side letters, retains most of NAFTA's chapters, making notable changes to market access provisions for autos and agriculture products, and to rules such as investment, government procurement, and intellectual property rights IPR. New issues, such as digital trade, state-owned enterprises, anticorruption, and currency misalignment, are also addressed.
NAFTA renegotiation provided opportunities to modernize the agreement by addressing issues not covered in the original text and updating others. Many U. Contentious issues in the negotiations reportedly included auto rules of origin, a "sunset clause" related to the trade deficit, dispute settlement provisions, and agriculture provisions on seasonal produce.
Numerous think tanks and economists have written about the possible economic consequences of U. A study by the Economic Policy Institute estimates that, as of , U. FTAs have no deadlines or criteria for pursuing sanctions against a trade partner that is not enforcing its FTA commitments. The United States and Mexico have had a number of trade disputes over the years, many of which have been resolved.
These issues have involved trade in sugar, country of origin labeling, tomato imports from Mexico, dolphin-safe tuna labeling, and NAFTA trucking provisions. The United States and Mexico are currently in a trade dispute over U. The United States claims its actions are due to national security concerns; however, Mexico contends that U. On March 8, , President Trump issued two proclamations imposing tariffs on U. On March 22, the President issued proclamations temporarily excluding Mexico, Canada, and numerous other countries, giving a deadline of May 1, by which time each trading partner had to negotiate an alternative means to remove the "threatened impairment to the national security by import" for steel and aluminum in order to maintain the exemption.
The three parties continue to discuss the tariffs, which some analysts believe could result in quotas on imports of Mexican and Canadian steel and aluminum. In response to the U. Mexico announced it would impose retaliatory tariffs on 71 U.
In , Mexico ranked second, after Canada, among U. Table 4. Mexico's Retaliation. Source: U. Notes: One commodity code listed on the Mexican notice is newly established and does not have any reported data for ; to estimate the amount of trade, CRS used the higher-level, 6-digit version of the code Table 5.
Notes: Steel and aluminum are defined according to the commodity codes detailed in the U. Commerce Department's Section Investigation Reports. Mexico has long argued that U. The United States contends that Mexico's use of nets and chasing dolphins to find large schools of tuna is harmful to dolphins. The arbitrator made the decision based on a U. The issue relates to U. Mexico asserts that U. The government of Mexico requested the United States to broaden its dolphin-safe rules to include Mexico's long-standing tuna fishing technique.
It cites statistics showing that modern equipment has greatly reduced dolphin mortality from its height in the s and that its ships carry independent observers who can verify dolphin safety. In other cases, they argue, young dolphin calves may not be able to keep pace and are separated from their mothers and later die.
These groups contend that if the United States changes its labeling requirements, cans of Mexican tuna could be labeled as "dolphin-safe" when it is not. However, an industry spokesperson representing three major tuna processors in the United States, including StarKist, Bumblebee, and Chicken of the Sea, contends that U. The tuna labeling dispute began over 10 years ago. In April , the Clinton Administration lifted an embargo on Mexican tuna under relaxed standards for a dolphin-safe label.
This was in accordance with internationally agreed procedures and U. 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 Under the Bush Administration, the Commerce Department ruled on December 31, , that the dolphin-safe label may be applied if qualified observers certify that no dolphins were killed or seriously injured in the netting process.
Environmental groups, however, filed a suit to block the modification. On April 10, , the U. District Court for the Northern District of California enjoined the Commerce Department from modifying the standards for the dolphin-safe label. On August 9, , the federal district court ruled against the Bush Administration's modification of the dolphin-safe standards and reinstated the original standards in the Dolphin Protection Consumer Information Act.
That decision was appealed to the U. Ninth Circuit Court of Appeals, which ruled against the Administration in April , finding that the Department of Commerce did not base its determination on scientific studies of the effects of Mexican tuna fishing on dolphins. However, the panel also found U. The Appellate Body found that U. The Appellate Body also rejected Mexico's claim that U.
In July , the United States issued a final rule amending certain dolphin-safe labelling requirements to bring it into compliance with the WTO labeling requirements. On April 16, , the chair of the compliance panel announced that it expected to issue its final report to the parties by December The United States expressed concerns with this ruling and stated that the panel exceeded its authority by ruling on acts and measures that Mexico did not dispute or were never applied.
On March 22, , the United States announced that it would revise its dolphin-safe label requirements on tuna products to comply with the WTO decision. The revised regulations sought to increase labeling rules for tuna caught by fishing vessels in all regions of the world, and not just those operating in the region where Mexican vessels operate.
The new rules did not modify existing requirements that establish the method by which tuna is caught in order for it to be labeled "dolphin-safe.
On December 19, , the U. The DOC signed a second agreement with Mexican sugar producers and exporters suspending an antidumping AD duty investigation on imports of Mexican sugar.
The agreements suspending the investigations alter the nature of trade in sugar between Mexico and the United States by 1 imposing volume limits on U. After the suspension agreement was announced, two U. The two companies filed separate submissions on January 16, , claiming "interested party" status. The companies claimed they met the statutory standards to seek continuation of the probes. The submissions to the DOC followed requests to the ITC, by the same two companies, to review the two December suspension agreements.
The dispute began on March 28, , when the American Sugar Coalition and its members filed a petition requesting that the U. The petitioners claimed that dumped and subsidized sugar exports from Mexico were harming U. In August , the DOC announced in its preliminary ruling that Mexican sugar exported to the United States was being unfairly subsidized.
Following the preliminary subsidy determination, the DOC stated that it would direct the U. Customs and Border Protection to collect cash deposits on imports of Mexican sugar. Based on the preliminary findings, the DOC imposed cumulative duties on U. Additional duties of between The Sweetener Users Association SUA , which represents beverage makers, confectioners, and other food companies, argues that the case is "a diversionary tactic to distract from the real cause of distortion in the U.
According to the sugar users association, this resulted in a surplus of sugar and a return to lower sugar prices. In , the United States and Mexico resolved a trade dispute involving sugar and high fructose corn syrup. Mexico argued that the side letter 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. In July , the United States and Mexico agreed that Mexico would eliminate its tax on soft drinks made with corn sweeteners no later than January 31, The tax was repealed, effective January 1, The United States and Mexico reached a sweetener agreement in August Under the agreement, Mexico can export , metric tons of sugar duty-free to the United States from October 1, , to December 31, 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.
They contended that the labeling requirements created an incentive for U. They argued that the COOL requirement was an unfair barrier to trade. The United States appealed the decision.
Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile.
Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. Reached in , the agreement established a trilateral trade bloc among Canada, Mexico, and the United States. Among these are changes to intellectual property protections, regulations for the trade of automobiles and parts, and protections regarding labor laws.
Below, we explore how much the United States trades with Mexico. Thus, the U. In , Mexico fell to the second-largest trading partner with the U. Mexico was the second-largest goods export market of the United States in There are several important areas of export.
The New York Times. Office of the United States Trade Representative. Trade Decline. Congressional Research Service. Emerging Markets. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.
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