Mexico's president, Felipe Calderon, has launched a new initiative, Border Economic Zone, in an attempt to increase the competitiveness of the country’s northern border states by lifting tariff import duties on 200 products and looking for new trade partnerships beyond the US.
Since the implementation of the North American Free Trade Agreement (Nafta) in 1994, exports to Mexico’s northern neighbour have risen by 440%. The increasing volume of trade was especially beneficial for the Mexican border states – Sonora, Chihuahua, Coahualla and Tamaulipas – which saw economic growth at much higher rates than other parts of the country. However, the fortunes of these states shifted in the aftermath of the recession in the US.
Rodolfo Andrade, CEO of Mexicali-based economic development consultancy AP Consulting, said: "Bordering states, dependent on trade with the US, have been hit very hard by the crisis." According to Mr Andrade, the new executive order that lifts tariffs on 113 products and decreases the tax paid for a further 87 to 5% in the Border Economic Zone is a move in the right direction.
Mexico is also looking to develop closer economic ties with countries beyond the US. “We have kept our eggs in one basket for too long. The US was and still is our most important trade partner, but we see clearly that depending too heavily on one country can be harmful,” said Mr Andrade.
To that end, an executive order providing tax incentives to assembly plants in the border areas (so-called maquiladoras) has been extended. The new order simplifies the tariff system and decreases the level of paperwork needed to run day-to-day operations of maquiladoras, while the unified business tax rate is going to be calculated using the same taxable base as the income tax.
While maquiladoras were created mainly to boost exports to Mexico’s Nafta partners – Canada and the US – their production is increasingly shifting south. “We have a trade agreement in the automotives sector with Brazil, thanks to which Mexican cars gain access to its rapidly growing market,” said Carlos Guzman, CEO of ProMexico, the trade and investment agency within the Mexican Ministry of Economy.
“Now we are exploring the possibility of establishing a much broader free-trade agreement with Brazil,” added Mr Guzman, while stressing that closer integration with the economies of Chile, Colombia and Peru is also a priority for Mexico.