Mexico has long been a strategic hub for international business, offering a dynamic mix of opportunities for both local and foreign companies. With its skilled workforce, competitive labor costs, and proximity to key global markets, the country continues to attract significant investment across various sectors, from manufacturing and technology to agriculture and energy. Navigating Mexico’s business landscape, however, requires a deep understanding of its regulatory framework, workforce dynamics, and evolving trade environment.
Free trade agreements play a pivotal role in shaping Mexico's business environment, significantly enhancing its appeal as a global trade hub. These agreements provide businesses with numerous advantages when operating in Mexico, making it a strategic location for companies looking to access global markets.
Free trade agreements also promote foreign investment by providing legal frameworks that offer protections for investors, ensuring stability and reducing risks. This makes Mexico an attractive destination for companies looking to establish manufacturing plants or distribution hubs, particularly for those aiming to tap into the North American market while benefiting from lower production costs.
Mexico has strategically positioned itself as a global trade hub through a robust network of free trade agreements (FTAs). Mexico's strategic geographic location and robust trade agreements have made it a prime destination for businesses seeking to expand their market reach and optimize supply chains.
According to the Secretary of Economy, Mexico has 14 Free Trade Agreements covering 50 countries, allowing Mexico to have preferential access to major markets around the world by eliminating trade barriers and facilitating the exchange of goods and services.
Additionally, the country has Agreements for the Promotion and Reciprocal Protection of Investments with 31 countries or administrative regions. These agreements provide a solid legal framework to protect and promote foreign investments, and offer a resource for resolving disputes and protecting investors against unfair or discriminatory actions.
These agreements have been instrumental in driving economic growth, attracting foreign investment, and diversifying exports.
The North American Free Trade Agreement (NAFTA), now superseded by the United States-Mexico-Canada Agreement (USMCA), has been instrumental in fostering economic integration and facilitating trade among the three nations.
The USMCA offers a comprehensive framework for trade in goods and services, investment, intellectual property, labor, and environmental standards. By understanding the key provisions of the agreement, businesses can position themselves to take full advantage of the opportunities it presents.
Beyond North America, Mexico has inked FTAs with the European Union, the Pacific Alliance, and various countries in Asia, Africa, and the Middle East. These agreements have opened up new markets for Mexican goods and services, enhancing the country's competitiveness on the global stage.
Some of the most important ones include:
Mexico-European Free Trade Association (EFTA) Free Trade Agreement Signed in 2001 with four European countries: Iceland, Liechtenstein, Norway and Switzerland. Its goal was to strengthen political and economic ties between the parties involved.
Free Trade Agreement with Central America was signed in 2013 between Mexico and Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua. The signing led to a pact with improved terms and a balance between commercial commitments, the expansion of global trade, and international cooperation.
The Pacific Alliance is an agreement signed in 2016 between Mexico, Peru, Colombia and Chile and has 32 observing countries around the world. The four signing countries represent 38% of the LatAm & Caribbean GDP.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) was signed in 2018 by eleven Pacific Rim nations: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. This group collectively accounts for about 15% of global trade and 13% of global GDP.
Mexico's trade agreements are beneficial for both the economy, businesses, and consumers. Some of the most important benefits include:
Leveraging the free trade agreements of Mexico, especially the USMCA, can open up a world of opportunities for businesses operating in or considering doing business in Mexico.
To maximize the benefits of the free trade agreements for doing business in Mexico, companies should consider the following strategies:
PRODENSA is a Mexican consulting and project management firm, supporting foreign clients to achieve successful operations in Mexico. We offer clients an initial USMCA review to understand if their business plan supports an operation in Mexico.