Regional Paper

Regional Paper

North American Free Trade Agreement (NAFTA) began on January 1, 1994. This agreement will remove most barriers to trade and investment among the United States, Canada, and Mexico. Under the NAFTA, all non-tariff barriers to agricultural trade between the United States and Mexico were eliminated. In addition, many tariffs were eliminated immediately, with others being phased out over periods of 5 to 15 years. This allowed for an orderly adjustment to free trade with Mexico, with full implementation beginning January 1, 2008 (USDA 2008). Regional integration is expected to stimulate intra-regional trade and investment; in the longer run it hopes to combine larger markets, tougher competition, and more efficient resource distribution which create growth for the participating economies. Smaller economies tend to be export-based with only one or two primary products.

This paper discusses the impact of trade improvement and economic integration in Mexico since 1980. Mexico is a country that has undergone the deepest process of economic reform and regional integration in the world since the mid 1980s. It first shifted its economic policy from a closed economy to trade liberalization and since 1994 to economic integration with the United States and Canada. I will discuss Mexico and why a business should promote business in their country discussing advantages and disadvantages of regional integration with stages of the economic development.

Through trade, expanded economic growth, the countries of the region demonstrate commitment to creating economic opportunities that help to distribute wealth and raise the standard of living for all (USAID 2005). Encouraging development and regional integration opportunities improved. The elected leaders of the Mexican government share a common vision of the advantages of jointly addressing the problems that plague their societies, (USAID 2005). “They also realize that opportunities created by removal of trade restrictions among themselves and with the United States can only be fully exploited by acting together to remove other artificial national barriers to trade and development” (USAID 2005).

With the activation of the North American Free Trade Agreement (NAFTA) on January 1, 1994, Mexico's commitment to integrate into a regional economic bloc with the United States its main trading partner, and also with Canada, was institutionalized. The expected gains for Mexico concentrated on the attraction of new FDI, as the country would have guaranteed stable access to the large US market. This corporate strategy had in fact been around since the 1980s among Mexican subsidiaries in the automotive and computer industries, which led to significant increases in trade. NAFTA expected to improve the business in along with displaying a magnetism to attract international investment vis-Ð" -vis those of other newly industrialized countries. Furthermore, NAFTA was viewed as the only way to draw the volume of foreign capital needed to enable Mexico to handle a balance of payments.

Mexico’s GDP purchasing power is estimated at United States $1.353 trillion in 2007 and 741.5 billion in normal exchange rates. The standard of living per capita is US $12,500. The Mexican currency is the peso and fluctuates between 9.2 and 11.5.

The regional impact of the economic integration between Mexico and its northern neighbors remains virtually unexplored for Mexico. The southern states have been unable to share in Mexico's export-growth and attraction of foreign direct investment (FDI) of the 1990s. Neither the insignificant amount of Foreign Direct Investment received by these states nor the increase in their small export-value level can be attributed to opportunities created by NAFTA (Tamayo-Flores 2001).

Mexican states close to the North American market have profited from integration, increasing their production and incomes, although there is no clear economic indication yet of a change in the relevant market from Mexico City to the US. States farther away from the US have lost out in relative