Written by Mr. Armando Melgoza Rivera, Member Director of MFB
NAFTA is an important treaty to Mexico but not the only way out for Mexico.
Since the renegotiation of the North American Free Trade Agreement (NAFTA) started last year, people have been debating about whether the NAFTA is worthy of support and what should or should not be done in the renegotiation in order to get the agreement amended as desired. However, many has ignored that beyond the NAFTA, we must also consider other possibilities and not miss other opportunities that come our way. And the Mexican government clearly has to establish all the necessary mechanisms to support both domestic entrepreneurs and foreign investors, especially the latter.
Now many people are waiting for the amended NAFTA to be signed and ratified by the governments. They are hoping that the final result of the renegotiations can be the same as what they have anticipated. However, we should not forget that it is never easy to break away from the conventional pattern and the established rules. Whilst there might be some people against globalization and thinking to go back to the protectionist system, I believe the majority of people are still in favour of global integration and are in need of products and services offered by Mexico. NAFTA is an important treaty to Mexico but not the only way out for Mexico.
It is time for Mexicans to start seeking for other opportunities and analyzing what necessary actions they should take to benefit from those opportunities.
Mexico has signed Free Trade Agreements with many other countries, some of which offer even more preferential conditions than NAFTA. But they have not been properly exploited to benefit the economy of Mexico. Not to mention that Mexico has yet to conclude a Free Trade Agreement with many of its important trading partners, which could be of great value to the country.
Let’s take the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) newly signed this year as an example. Although it has not entered into force yet, the Mexican Government has already ratified it. It is an opportune moment to understand the provisions of CPTPP and to consider how Mexico can initiate commercial relations with the other member countries. So once the CPTPP becomes effective we will be able to make a significant advance in foreign trade and enjoy the benefits generated from it.
On the other hand, it is also important to note that the Mexican government has established mechanisms to support investments, especially foreign direct investment. For instance, a variety of incentives are granted to businesses operating in the Special Economic Zones, which includes 100% relief from income tax for the first 10 years. Therefore, it is a good time for Asian investors to increase their investment and expand their operation in Mexico, in virtue of the various incentive schemes and supports provided by the Mexican government.
Although up to this moment we cannot know how far the NAFTA will benefit Mexico, it is certain that it will bring benefits at the end, as the geographical advantage and the long-standing close link established with our neighbors will never change. But under the policy changes in foreign trade and especially the trade barriers imposed by the current US government, it is possible that China will take advantage of the tax benefits offered by Mexico and further increase the economic exchange between the two countries, taking into account that Mexico has long been one of the biggest consumers of Chinese products.