Since the advent of NAFTA in 1994, the United States, Mexico, and Canada have enjoyed a special relationship with reduced barriers to trade. Now, more and more U.S. businesses are nearshoring their manufacturing to their southern neighbor, Mexico. 

But America isn’t the only country with whom Mexico has a trade deal– companies with operations in Mexico can also benefit from the nation’s numerous additional free tree agreements (FTAs) by exporting directly to its other trading partners. 

How many free trade agreements does Mexico have? 13, which is more than any other nation.

In this short guide, we’ll review the various Mexican trade agreements and what to expect when trading under their provisions.

#1 USMCA

While the North American Free Trade Agreement (NAFTA) laid the groundwork for free trade between the U.S., Mexico, and Canada, the more recent U.S.-Mexico-Canada Agreement (USMCA) updated its terms for the 21st century.

Under USMCA, many products are free from tariffs when traveling between the three countries. Specific provisions include:

• County of origin rules – Vehicles with 75% of their parts manufactured in North America qualify for zero tariffs.
• Labor protections – By 2023, manufacturers will need to pay a certain percentage of their workers wages of $16/hr or more for their goods to remain tariff-free.
• Intellectual property protections – There can no longer be duties on electronic transmissions. Countries have fewer rights to request the source code for programs.

These new provisions incentivize North American manufacturing jobs and economic stimulus within the free trade area while also providing extended protection for companies, workers, and the environment. For more information about taxes and tariffs, including Mexico’s border tax, check out our blog. 

#2 The Comprehensive and Progressive Agreement for Trans-Pacific Partnership

The CPTPP is an agreement between the following nations:

• Mexico
• Canada
• Australia
• New Zealand
• Brunei
• Chile
• Peru
• Japan
• Malaysia
• Singapore
• Vietnam

This FTA was formed after the U.S. failed to ratify the Trans-Pacific Partnership (TPP). It eliminates tariffs across all sectors between the 11 participating countries (as they ratify the agreement), removing trade barriers and promoting economic growth.

Treaties With Europe

Mexico has two trade agreements with groups of European nations. They contain slightly different provisions. 

#3 EU-Mexico Association Agreement

Newly updated in 2020, the EU-Mexico FTA makes 99% of trade between Mexico and EU nations duty-free. The 1% of products not included comprises:

• Dairy
• Meat
• Automobiles manufactured less than 55% in the originating nation

Additional rules include the implementation of provisions to fulfill the terms of the Paris Climate Agreement.

#4 The European Free Trade Association

This agreement is between Mexico and the four nations which make up the European Free Trade Association (EFTA) states:

• Iceland
• Norway
• Switzerland
• Lichtenstein

The agreement seeks to progressively remove tariffs between Mexico and the EFTA states.

Treaties With South and Central America

In addition to its transcontinental trade partnerships, Mexico has numerous bilateral and multilateral trade agreements with nations in South and Central America.

These include the following:

• #5 Mexico-Central American FTA – This Mexico FTA creates an economic zone and reduces tariffs between Mexico, Costa Rica, Nicaragua, El Salvador, Guatemala, and Honduras.
• #6 Pacific Alliance FTA – This agreement between Chile, Peru, Columbia, and Mexico eliminates 90% of tariffs and promotes cooperation between member states. Each member nation must also have individual treaties with the others. Agreements #7-9 lay out more specific provisions with each trading partner.
• #7 Mexico-Colombia – This FTA provides provisions for rules of origin and intellectual property while extending agricultural trade between the two nations.
• #8 Mexico-Chile – This 1998 agreement removed most tariffs between the two participating countries.
• #9 Mexico-Peru – Beginning in 2011, this FTA has gradually phased out previous tariffs to promote partnership and market access between the two countries.
• #10 Mexico-Panama – Ratified in 2015, this FTA provides rules for trade and methodologies for resolving disputes. It is seen as a precursor to Panama eventually joining the Pacific Alliance.
• #11 Mexico-Bolivia – Building on a previous FTA, this agreement seeks to promote free trade and fair competition between the two nations.

Other Bilateral Agreements

In addition to the agreements we’ve already reviewed, Mexico has two other bilateral trade agreements:

• #12 Japan-Mexico – Although Japan and Mexico are both CPTPP signatories, this additional FTA forms an additional economic partnership between the two nations, reducing many trade barriers including duties and tariffs. (There is, however, a quota for Japanese vehicles exported to Mexico.)
• #13 Mexico-Israel – In 2000, Mexico and Israel formed an agreement to give Israel access to the Mexico market and facilitate its investment in sectors including technology and water treatment.

NAPS: Understanding the World of FTAs

Are you considering nearshoring opportunities in Mexico? In addition to affordable labor, geographic proximity, and preferential trading with the United States, the numerous Mexico free trade agreements can also open the doorways to increased international business.

Mexico’s thirteen treaties reduce and eliminate tariffs with more than 50 other countries. Therefore, establishing your manufacturing in Mexico via a “shelter” can facilitate the import of raw materials from partner countries. It can also ease exporting to countries across the world.

To learn more about Shelter Manufacturing in Mexico, reach out to NAPS today. Our experience in Mexico can streamline the process of moving your manufacturing or diversifying your supply chains.

 

Sources: 

1. Government of Canada. CPTPP. https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/cptpp-ptpgp/index.aspx?lang=eng
2. European Commission. EU and Mexico conclude negotiations for new trade agreement. https://ec.europa.eu/commission/presscorner/detail/en/ip_20_756
3. Reuters. South America’s Pacific Alliance signs deal to scrap tariffs. https://www.reuters.com/article/instant-article/idINL2N0LF1SL20140211
4. Latin American Post. Panama is one step away from the Pacific Alliance. https://latinamericanpost.com/16979-panama-is-one-step-away-from-the-pacific-alliance