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Mexico – EU Free Trade Area opens doors to foreign trade for Latin America

The Mexico-European Union Free Trade Agreement, the first such accord between Europe and a country in the Americas, is celebrating its fourth anniversary and 27% growth in bilateral trade volume. (1)

However, long-term benefits are not easily measured. The reported effective growth rates - 19% for Mexican exports to the European Union, and 30% for EU exports to Mexico – is considered relatively low compared with Mexico’s 18% increase in exports worldwide.

Sérgio Gómez Lora, IDB Integration and Regional Programs consultant, explained that Mexico’s unsatisfactory growth in exports to the European Union had to do with the euro’s weakness in relation to the US dollar, and a relatively strong Mexican peso in the first years of the treaty. In addition, Mexican exporters are still getting to know the European market. Furthermore, the decisions of most multinational enterprises in Mexico are taken by their headquarters, which might be unaware of the comparative advantages offered by the locations of their subsidiaries, according to Mr. Lora.

He observed that the agreement represents a great advantage for European companies because although they could invest in Mexico through US and Canadian subsidiaries, “the absence of an EU agreement meant having a privileged commercial and economic relation with North American partners.”

Another advantage of the treaty is that it can increase the positive effects of the North America Free Trade Agreement (NAFTA) by strengthening economic openness and guaranteeing Mexico’s trade liberalization for the long run. These benefits are essential for reducing uncertainties about the treaty’s endurance. The Mexico–EU FTA and NAFTA account for 80% of Mexico’s foreign trade.

This pioneering initiative has opened new horizons for trade between Latin America and Europe. Soon after the treaty was established with Mexico, Chile concluded a similar treaty, and Mercosur (the Common Market of the South) began trade talks with the EU, explained Mr.Lora.

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(1) The free trade clause in the Mexico – European Union Free Trade Area, signed in July 2000, is part of the Agreement on Political Proximity, Economic Association and Cooperation, or “Global Agreement.”