Nearly seven years after the North American Free Trade Agreement (NAFTA) was implemented, cross-border trade and investment have flourished. This has improved the level of U.S. competitiveness, generated high-wage jobs, and benefited companies from California to New York. Has your company seized opportunities provided by NAFTA?

Mexico: the Second Largest U.S. Market

Since NAFTA went into effect, Mexico has become the United States’ second largest export market. In fact, from 1997 through 1999, Mexico imported $56 billion more in U.S. goods than did Japan, the third largest U.S. export market. U.S. shipments to our southern neighbor reached almost $87 billion in 1999. And, since NAFTA began in 1994, exports to Mexico have increased twice as fast as U.S. exports to the world.

Not surprisingly, U.S. foreign direct investment (FDI) in Mexico also has increased faster than U.S. FDI worldwide. And, from 1994 through 1999, the U.S. FDI position in Mexico on a historical-cost basis more than doubled.

Top Export and Investment Opportunities

Due to NAFTA, Mexican trade barriers have been substantially reduced or eliminated, paving the way for greater opportunities. According to the U.S. Department of Commerce, the leading nonagricultural sectors for U.S. exports and investment now include:

• Auto parts and supplies
• Building products
• Franchising
• Telecom equipment & services
• Computers and peripherals
• Pollution control equipment
• Water resources equipment & services
• Food processing & packaging
• Security & safety equipment
• Electronic components.

“Trade flows clearly confirm that opportunities have increased for U.S. exporters and investors in all sectors,” said Francisco Zamores, Bank of America Vice President of Trade Services, Latin America. But, a major opportunity for U.S. exporters and importers, he points out, is in the Mexican energy sector, assuming the remaining barriers are lifted under the new administration.

The Mexican Economy Is Connected

NAFTA has partially insulated Mexico from the negative effects of the Asian financial crisis that began in 1997, the subsequent Russian debt default, and other economic problems that plagued Brazil and other Latin American countries.

By the same token, much of Mexico’s expansion is contingent on U.S. growth, since nearly 90% of its exports are sold to its northern neighbor. “Mexico’s strong lock with the U.S. economy has been a positive factor during the upswing of the U.S. economy,” said Zamores. However, Mexico’s growth is likely to slow during the soft landing of the U.S. economy over the next year or so, he said.

During the election debate, newly-elected President Vicente Fox promised an annual growth target of 7%. “This will be hard to achieve,” said Zamores. Bank of America projects Mexican gross domestic product to reach 6.3% and 4.1% in 2000 and 2001, respectively.

According to the Organisation for Economic Co-operation and Development (OECD), Mexican inflation is projected to gradually decline to 7.5% annually by December 2001. This is not bad, considering inflation was sky-high during the peso crisis that began in December 1994.

New Political Party Gains Presidency

For the first time since 1929, Mexico’s Institutional Revolutionary (PRI) party lost a presidential election. Newly-elected President Vicente Fox of the Alliance for Change party said he wishes to establish an even closer economic relationship with the U.S., building on efforts undertaken by his predecessor to further integrate the two economies.

“Former Mexican President Zedillo’s administration set a sound precedent for maintaining strong fiscal discipline by controlling expenditures during periods of low tax revenue due to lower oil prices (1998-1999), as well as during times of windfall tax revenues resulting from high oil prices (2000),” Zamores said. Like Mr. Zedillo, President Fox has pledged a commitment to financial discipline.

However, “Building a coalition and governing in a multi-party system may present a challenge for Mr. Fox,” noted Zamores. This could create an obstacle to continued deregulation of various industries, such as telecom, or structural reform involving banking and energy.

Texas Leads the Pack

In 1999, Texas again ranked as the largest state exporter to Mexico, with more than $23.3 billion in goods. Following were California, with $12.2 billion; Michigan, $9.2 ; Indiana, $3.2; Illinois, $2.9; Pennsylvania, $2.3; Ohio, $2.3; Arizona, $2.2; New York, $2; and North Carolina, $1.8. As U.S.-Mexican trade flourishes, U.S. companies will continue to benefit.

About The Author John Manzella [Full Bio]

John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.




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