WHAT HAPPENS (TO MEXICO)WITHOUT NAFTA?

U.S.‐MEXICO BAR ASSOCIATION (USMBA)

JUAN CARLOS PARTIDA POBLADORSEPTEMBER 2017

NAFTA NUMBERS

• NAFTA was negotiated 25 years ago and without question, has been  a key instrument for economic growth in the region, and particularly for Mexico.

• The overall results of NAFTA are evident:

NAFTA created one of the largest and most important free trade regions in the world with over 450 million people (7% of the global population), conducting 16% of the global trade.

NAFTA NUMBERS

• The overall results of NAFTA are evident:

Trade among the three member countries grew 6.5 times between 1993 and 2016.  From 117 billion dollars (1993) to more that 760 billion dollars in 2016, thanks to elimination of tariffs. 

NAFTA has created Jobs in the three countries, and lowered prices for consumers.

Average annual foreign investment grew from approximately 2.5 billion dollars before 1994 to almost 20 billion dollars after NAFTA came into effect.  

MEXICO NUMBERS

• Exports from Mexico to the U.S. and Canada grew from $40 Billion dollars before NAFTA to over $300 Billion in 2016.

• Imports grew from $46 Billion dollars before NAFTA to more tan $190 Billion dollars in 2016.

• 60% of Mexico’s global trade is conducted with its NAFTA partners; 83% of total exports and 49% of total imports.

MEXICO NUMBERS

• The U.S. is Mexico’s principal trade partner; first export market and most important supplier.  Canada is Mexico’s fourth main trade partner; second export market and sixth most important supplier of goods.

• More than 50% of the foreign investment received in Mexico since 1994 comes is of U.S. and Canadian origin. 

WHAT HAPPENS WITHOUT NAFTA?

• Trade among the three member countries would be regulated solely by therules of the World Trade Organization (“WTO”), which containcommitments by each party regarding import tariffs.

• Import tariffs to be charged by each country would be pursuant to theMost Favored Nation (MFN) duties, which is the most favorable rate ofduty applied to imports from any WTO Member (except members ofbilateral or regional FTAs).

WHAT HAPPENS WITHOUT NAFTA?• The U.S. would be the most affected if MFN WTO commitments apply:

Type of Product

Mexico Avrg. MFN WTO Commitment

U.S. Avrg. MFN WTO Commitment

Canada Avrg. MFN WTO Commitment

Agricultural 14.6% 5.2% 15.6%

Non-Agricultural

5.7% 3.2% 2.2%

All Products (simple average)

7.0% 3.5% 4.1%

WHAT HAPPENS TO MEXICO WITHOUT NAFTA?

• Automatic implementation of Most Favored Nation (MFN) duties wouldapply to bilateral trade (Mexico‐U.S. / Mexico–Canada), pursuant to theWTO commitments.

• Under such regime, only 35% of Mexican exports to the U.S., and 36% ofMexican exports to Canada, are duty free. Thus, more tan 60 percent ofthe Mexican products would pay duties upon importation into U.S. andCanada.

WHAT HAPPENS TO MEXICO WITHOUT NAFTA?

• Most affected sector is the Agricultural sector. Import tariff into the U.S.would be between 5% and 29% (broccoli, asparagus, coleslaw, watermelon,melon, orange juice, etc.).

• Manufacturing products would pay in average 2.5% import duties (TVs Upto 5%).

• Pick‐up trucks could pay 25% (Not 35%, and not all vehicles. All others8.3%). Still very high duties and would hurt competitivity.

• Most affected States, would be Sonora, Guanajuato, Michoacán, BajaCalifornia, Veracruz, Nuevo Leon, and Chihuahua.

WHAT HAPPENS TO MEXICO WITHOUT NAFTA?

• Mexico needs to be prepared to live and survive without NAFTA.How?

• Trade Diversification. Mexico has trade agreements with at least 45countries, and more than 30 agreements for the promotion andprotection of foreign investment. Needs to take advantage of it.

• Needs to end dependency with U.S. in trade. Not easy.

WHAT HAPPENS TO MEXICO WITHOUT NAFTA?

• Continue discussions with TPP‐11. Strengthen trade relationshipswith Latin American countries (ALADI), and continue modernizing andconsolidating other trade agreements (Brazil ACE 53; Argentina ACE 6;European Union; Pacific Alliance).

• Legal certainty to investment; reduce costs to companies; upgradeinfrastructure for better trade.