NAFTA In A Land Of Uncertainty: Is Mexico Still An Alternative For Foreign Investment? - Government - Mondaq Mexico - Mondaq Business Briefing - Books and Journals - VLEX 679269317

NAFTA In A Land Of Uncertainty: Is Mexico Still An Alternative For Foreign Investment?

Author:Mr Andres Alvarez, Marcos Carrasco-Menchaca, Arcie I. Jordan, Elsa Manzanares, Michelle Schulz and Alejandro N. Gómez-Strozzi
Profession:Gardere Wynne Sewell LLP

NAFTA countries are starting to show their cards. The U.S. wants a one-sided renegotiation - wherein it receives benefits that were denied to it during the original negotiation, but Mexico does not also improve its position. Mexico's suggested hypothetical win-win outcome is no less than what it already has, though the country admits that withdrawing from the agreement remains an undesirable option. Meanwhile, Canada remains neutral to the discussion.

Mexico has relied heavily on the U.S. market for more than 20 years. Eighty percent of Mexican exports are bound for this market. In turn, Mexico has become the second largest purchaser of U.S. goods, just short of Canada. The Mexican and U.S. economies are currently integrated to such an extent that changing the trade rules will have a significant impact on both economies. The North American sourcing and manufacturing region would have to readjust to these new rules at a substantial cost to all involved.

Without considering the U.S. threat of imposing a 20 percent "border tax," which requires its own analysis, terminating NAFTA would most likely send the U.S.-Mexico trade back to WTO's Most Favored Nation (MFN) rules. Under those rules, U.S. exports to Mexico would be subject to a 6 to 30 percent duty, depending on the product, and Mexican exports to the U.S. would be subject approximately to a 2 to 5 percent duty. In light of these MFN rules, the competitive manufacturing advantages of Mexico (i.e., location, labor, access, etc.) vis a vis those of the U.S. may persuade a number of companies to continue exporting from Mexico into the U.S. market. Even companies that would not remain competitive when exporting to the U.S. could still look into Mexico as a viable option for their international trade transactions and supply chains.

Mexico has a history of welcoming foreign investment and has consistently encouraged exports as a public policy for growth. This has...

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