International Trade of Mexico - Essay Example

The of Mexico's International Trade Mexican trade policy supports free and open economy. The strategy of market liberalization and multilateral trade relations has led to remarkable economic development of the country over a short period of time. The switch from closed market to the one that encourages foreign investments has helped Mexican economy to be one of the strongest in Latin America. Mexico joined the General Agreement on Tariffs and Trade in 1986 as first step towards market liberalization. All the import permits were removed and tariffs reduced. Mexico entered into free trade agreements with several countries aimed at improving trade relations in the international scenario and attracting foreign investments. Some of these prominent FTA's are the North American Free Trade Agreement (NAFTA), with the United States and Canada (1994), Colombia and Venezuela (G-3, 1995), the European Union (2000), Iceland, Norway, Liechtenstein, and Switzerland (EFTA, 2001) and Guatemala, Honduras, and El Salvador (North Triangle, 2001). FTA's have helped Mexico increase its international trade with countries around the world. They have also aided in reducing the effects of the untimely and unpredictable economic crisis such as crashing prices of oil, recession in the global economies and so on. Today Mexico stands at the seventh position in the list of leading trading nations in the world owing to its free trade policies. Mexico contributes to 46 percent of the Latin America's exports and 47 percent of its imports. NAFTA proved to be a major step in attracting foreign direct investments in the country. Foreign capital has increased the employment rates and the output in the country. Earlier Mexico relied on oil for its exports while at present times the manufactured goods compose the major section of export. All these steps have lead to the significant overall economic development of all the parts of the country (Derbez ""Beyond NAFTA -- Mexico and the Free Trade Area of the Americas," by Luis Ernesto Derbez, Secretary of the Economy, Mexico -- "The Free Trade Area of the Americas" -- U.S. Department of State, October 2002"). The biggest trading partners of Mexico are USA and Canada. Table 1 (Davy and Meyers, "United States-Canada-Mexico Fact Sheet on Trade and Migration"). Table 1 shows the export and import statistics of different NAFTA partners in 2003. The major trade partners of Mexico are US and Canada. USA holds a major share in Mexican export sector. Mexico sends 88% of its exports to US. Chart 1 demonstrates the trade among the three countries: US, Mexico and Canada. Mexico-US trade accounted for $286 billion in 2004. Canada and US are the most important contributors to the Foreign Direct investment in Mexico. 40% of the total FDI to Mexico comes from USA. In 2004 this amount was around $7.3 billion from USA. Canada comes at fourth place in the major FDI contributors to Mexico listing. Canada accounted for $379.2 million FDI in 2004 (Davy and Meyers, "United States-Canada-Mexico Fact Sheet on Trade and Migration"). On the other hand Mexico serves as third largest source of oil imports to US as shown in Fig.1 ("Mexico Energy Data, Statistics and Analysis - Oil, Gas, Electricity, Coal"). Chart 1 (Davy and Meyers, "United States-Canada-Mexico Fact Sheet on Trade and Migration"). Fig.1 ("Mexico Energy Data, Statistics and Analysis - Oil, Gas, Electricity, Coal"). Mexico has a strong existence in the international agro-food market owing to its different products like agriculture, forestry, livestock, hunting, fishing, foods, beverages and tobacco. Mexico exported worth $11.8 billion in 2005 and imported worth $14.3 billion in the same year. 65% of Mexico's imports come from USA ("RS/USDA Briefing Room - Mexico: Trade"). Chart 2 ("RS/USDA Briefing Room - Mexico: Trade"). Mexico recorded an annual GDP growth rate of 4.8% in 2006. It increased from 0.8% to 2.8% in three years from 2002 from 2005. The total trade of Mexico showed a significant increase to 60.3 per cent of GDP from earlier 50.9 per cent from 2002 to 2006 and in the same time total exports rose from US$161 billion to US$250 billion. As the oil prices are soaring in the international market it proved to be a boost for the economy of Mexico. The oil exports showed an average annual growth of 27 per cent from 2002-2006. Other sectors have also shown great progress during this period such as the automotive sector (average annual growth of 15.6 per cent), steel and mineral-metallurgy industries (30.5 per cent) and the chemicals and plastics industries (14.7 per cent). "By contrast, exports in the textiles industry fell over the period from 11 billion dollars in 2002 to 9.3 billion dollars in 2006 (-4.2 per cent annual fall)." The sectors that showed remarkable export growth in 2006 were electrical and electronic equipment and devices (US$56.3 billion); the automotive industry (US$53.1 billion); exports of crude oil (US$34.7 billion); special equipment and machinery for various industries (US$27.8 billion); and the textile and footwear industry (US$89.3 billion). In the import sector the following products were noteworthy in 2006 electrical and electronic equipment and devices (US$55.9 billion), special equipment and machinery for various industries (US$36.2 billion), products for the chemicals and plastics industry (US$32.4 billion), and products for the automotive industry (US$31.3 billion) ("TRADE POLICY REVIEW Report byMexico"). There has been an up gradation in the living style of the people. As compared to the 39.4% of people living in poverty in 2002, the figure for 2006 was 31.7%. The population living below the "indigence" line also decreased from 12.6 per cent in 2002 to 8.7 per cent in 2006 ("TRADE POLICY REVIEW Report byMexico"). Inflation in Mexico was 3.33% in 2005. It was a considerable fall as compared to 5.7% inflation in December 2002. However 2006 experienced an increase in inflation to 4.05% due to rise in the cost of sugar and corn tortillas. The balance of international reserves held by the Bank of Mexico mounted to US$67.7 billion in 2006 from US$48 billion in 2002. Mexican exchange regime system is floating and the market ups and downs directly affect the exchange rate of the local currency. Between 2002 and 2006 the Mexican Pesos exchange rate swung between 9.0 and 11.6 Mexican pesos per US dollar ("TRADE POLICY REVIEW Report byMexico"). Current Account balance of a country ". . . records a country's net trade in goods and services, plus net earnings from rents, interest, profits, and dividends, and net transfer payments (such as pension funds and worker remittances) to and from the rest of the world during the period specified" ("CIA - The World Factbook - Notes and Definitions"). Current account balance is measured in terms of GDP. Current account balance in more GDP percentage implies a need to stabilize the economy. There arises a necessity to increase the export of the country or in other words there is a requirement to take steps that will increase the foreign investment in the country. As the chart 2 shows there is decreasing GDP percentage current account balance, the implications are an improving economy and increasing exports and decreasing imports in the country. Current Account Balance, 1995 - 2007 (Source: Banco de Mxico) Chart 2 ("Mexico - Balance of Payments (Current Account Balance as % of GDP") Annual Current Account, 1995 - 2007 (Source: Banco de Mxico) Chart 3 ("Mexico - Balance of Payments"). International Reserves, 1996 - 2007 Note: Total gross international reserves of the central bank reported in millions of U.S. dollars. The data include foreign exchange, gold, SDR's and the position of the Banco de Mexico in the Fund. The gold is valued daily according to the average price of gold in the London market. Source: Banco de Mxico. Chart 4 ("Mexico - International Reserves") Chart 4 shows the international reserves of Mexico in terms of foreign exchange, gold, SDR's and the position of the Banco de Mexico in the Fund. Chart 5 shows external debt of Mexico over a period of time. External Debt, 1995 - 2007 Source: Secretara de Hacienda y Crdito Pblico (SHCP). Chart 5 ("Mexico - External Debt"). Works Cited "CIA - The World Factbook - Notes and Definitions" cia.gov. 15 April 2008. Central Intelligence Agency. 04 May 2008 "Mexico - Balance of Payments (Current Account Balance as % of GDP)" latin-focus.com. 8 April 2008. LatinFocus S.L. 04 May 2008 < http://www.latin-focus.com/latinfocus/countries/mexico/mexbopgdp.htm> "Mexico - Balance of Payments" latin-focus.com. 8 April 2008. LatinFocus S.L. 04 May 2008 "Mexico - External Debt" latin-focus.com. 8 April 2008. LatinFocus S.L. 04 May 2008 < http://www.latin-focus.com/latinfocus/countries/mexico/mexdebt.htm> "Mexico - International Reserves" latin-focus.com. 8 April 2008. LatinFocus S.L. 04 May 2008 "Mexico Energy Data, Statistics and Analysis - Oil, Gas, Electricity, Coal" eia.doe.gov. December 2007. The Energy Information Administration. 04 May 2008 "RS/USDA Briefing Room - Mexico: Trade" ers.usda.gov. 6 November 2006. The Economic Research Service. 04 May 2008 "TRADE POLICY REVIEW Report byMexico" wto.org. 7 January 2008. Trade Policy Review Body. 04 May 2008 Davy, M. and Meyers, D. "United States-Canada-Mexico Fact Sheet on Trade and Migration" migrationpolicy.org. October 2005. Migration Policy Institute. 04 May 2008 Derbez, L. E. ""Beyond NAFTA -- Mexico and the Free Trade Area of the Americas," by Luis Ernesto Derbez, Secretary of the Economy, Mexico -- "The Free Trade Area of the Americas" -- U.S. Department of State, October 2002" Economic Perspectives. October 2002. State Department's Bureau of International Information Programs. 04 May 2008 < http://usinfo.state.gov/journals/ites/1002/ijee/ftaa-derbez.htm> Read More