Mexico’s Free-Trade Agreements
Economic motivations are generally the major driving force for the formation of free trade agreements (FTAs) among countries, but there are other reasons countries enter into FTAs, including political and security factors Mexico’s primary motivation for the unilateral trade liberalization efforts of the late 1980s and early 1990s was to improve economic conditions in the country, which policymakers hoped would lead to greater investor confidence and attract more foreign investment. This motivation was a major factor in negotiating NAFTA with the United States and Canada. The permanent lowering of trade and investment barriers and predictable trade rules provided by FTAs can improve investor confidence in a country, which helps attract foreign direct investment (FDI). Multinational firms invest in countries to gain access to markets, but they also do it to lower production costs. Mexico has other motivations for continuing trade liberalization with other countries, such as expanding market access for its exports and decreasing its reliance on the United States as an export market. By entering into trade agreements with other countries, Mexico is seeking to achieve economies of scale in certain sectors of the economy and to expand its export market. Free trade agreements provide partners with broader market access for their goods and services. Countries can benefit from trade agreements because producers are able to lower their unit costs by producing larger volumes for regional markets in addition to their own domestic markets. When more units of a good or a service can be produced on a larger scale, companies are able to decrease cost of production. The slow progress in multilateral negotiations in the World Trade Organization (WTO) is another likely factor in Mexico’s motivations to enter into FTAs. Some countries see smaller trade arrangements as “building blocks” for multilateral agreements. Other motivations could be political....
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