Back in the 1980s, Mexico proposed the idea of forming a free trade agreement (FTA) with the United States and Canada. The country’s main goal was to promote economic development through foreign direct investment, more jobs, and more diverse exports.
After its signing in 1994, the North American Free Trade Agreement (NAFTA) began to accomplish what Mexico hoped it would: it boosted exports, created high-skilled jobs, and increased wages. Since then, manufacturing in Mexico has exploded and the country has become a hub of industry, and the success of many of its sectors can be attributed to NAFTA.
Though there is a long history of automotive manufacturing in Mexico, the industry did not really take off until NAFTA’s inception. The automotive industry is now one of the top manufacturing sectors in the country, and it more than tripled its light vehicle production output as large corporations such as Ford and GM moved to Mexico following NAFTA.
This growth and large amount of foreign direct investment are largely due in part to the changed tariff structure. After the signing of NAFTA, which greatly reduced tariffs across the North American continent, many automobile manufacturers relocated their manufacturing operations to Mexico. Reduced tariffs, low labor costs, and a strategic location let them reduce spending, better compete in the North American market, and also open opportunities for global expansion.
Despite being a smaller industry, Mexico’s aerospace sector is no less successful. From 2009 to 2016, the aerospace sector grew by more than 150%, and it nearly tripled its exports, going from $2.5 billion to $7 billion. NAFTA was a key contributor to this growth because of its tariff structure and the certainty it provided manufacturers within domestic and global marketplaces.
Because of NAFTA’s advantages, the biggest names in the aerospace industry, including Boeing and Lockheed Martin, all source parts from Mexico. Despite some initial worries over NAFTA’s successor, the United States Mexico Canada Agreement (USMCA), Mexico’s aerospace manufacturing sector continues to thrive as the industry becomes more globally competitive.
The world’s top exporter of flatscreen TVs, Mexico has become a major center of electronics manufacturing. At the turn of the century, after NAFTA was passed, the industry saw a major boom, growing by 73% between 2002 and 2012. Without NAFTA, this growth likely would not have happened.
Tariff-free goods and inexpensive labor allowed companies to reduce costs, which ultimately contributed to the huge influx of foreign businesses. As these businesses formed joint ventures with Mexican companies, they helped drive technological advancements, and they made Mexico one of the world’s biggest, most advanced electronics manufacturers.
NAFTA impacted retailers across all three countries by establishing a steady flow of goods on which retailers rely. Apparel manufacturing in Mexico, in particular, have benefited greatly from the elimination of trade barriers. One company that experienced significant growth after NAFTA took effect is Walmart. The biggest company in its sector in Mexico, Walmart has nearly 2,400 stores across the country and its sales exceeded $400 million in 2016.
The ability to manufacture quality products at a lower cost has also contributed to decreased consumer costs, both domestically and abroad, which could be considered a positive outcome of the rise of huge retailers across Mexico and the rest of North America.
NAFTA was, in many ways, a groundbreaking agreement that contributed to the economic growth of all of its member countries. But the USMCA, which took effect in June 2020, was created to expand on the regulations set out in NAFTA and account for digital transformations.
The USMCA does many things that NAFTA did not or could not do, such as defining regulations for newly developed industries, like e-commerce. It also notably improves on numerous Mexican labor laws. In other words, despite some fears over what a renegotiation of NAFTA would look like, the manufacturing industry in Mexico continues to thrive and is perhaps better off than it ever was before.
How You Can Benefit from Mexico’s Free Trade Agreements
Under the USMCA, manufacturers experience significant benefits from the free flow of goods and materials, especially if they take advantage of Mexico’s IMMEX program.
Under the IMMEX program, formerly known as the maquiladora program, manufacturers can import goods duty-free. They also have the opportunity to work with a Mexican shelter company, which allows them to quickly ramp up operations in Mexico while handing off legal risks and liabilities.
By choosing NAPS, businesses looking to relocate or expand to Mexico get all the benefits of the USMCA and IMMEX. Utilizing our decades of experience, we effectively handle all administrative and compliance responsibilities so you can focus on production and executive management.
Contact NAPS us today to learn even more about how we can support you and your business.