Free trade agreements (FTAs) are a powerful tool for connecting manufacturers with global markets. These agreements between nations reduce barriers to trade, including tariffs and import quotas, to build strong cooperation with other countries through the exchange of goods and services.
With more FTAs than any other country, Mexico provides manufacturers with a strong trade and export platform to the U.S. and the world. Mexico is a trading partner with more than 50 countries, with agreements reaching into Europe, South America, and Africa.
Each agreement lays out unique terms to bring specific benefits to the countries involved. Below, we provide an overview of Mexico's 15 FTAs, detail the countries involved, and what regulations to expect in trading under these international trade agreements:
- United States-Mexico-Canada Agreement (USMCA)
-
Comprehensive and Progressive Trans-Pacific Partnership (CPTPP)
-
EU-Mexico Trade Agreement
-
UK-Mexico Trade Continuity Agreement (TCA)
-
Mexico-EFTA States Free Trade Agreement
-
Central America-Mexico Free Trade Agreement
-
The Pacific Alliance
-
Chile-Mexico Free Trade Agreement
-
Mexico-Colombia Free Trade Agreement
-
Mexico-Peru Free Trade Agreement
-
Mexico-Panama Free Trade Agreement
-
Mexico-Uruguay Free Trade Agreement
-
Japan-Mexico Economic Partnership Agreement
-
The Mexico-Israel Free Trade Agreement
-
Mexico-Bolivia Economic Complementation Agreement
1. United States-Mexico-Canada Agreement (USMCA)
The United States, Mexico, and Canada Agreement (USMCA) replaced the former North American Free Trade Agreement (NAFTA) in 2020. The agreement included terms to modernize and strengthen trade practices across North America. Among other things, this free trade agreement also lays out regulations to protect workers in all three countries. It also establishes rules for the increase in digital trade.
Since the implementation of USMCA, Mexico and Canada have become the United States’ top trading partners, accounting for more than twice as much U.S. trade as with China. This is due in part to USMCA’s Rule of Origin for the automotive industry, which requires 75% of an automotive product’s content be made in North America in order to qualify for tariff-free treatment.
2. Comprehensive and Progressive Trans-Pacific Partnership
The Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) established an international trade agreement between Mexico and Australia, Brunei, Canada, Chile, Japan, New Zealand, Malaysia, Peru, Singapore and Vietnam. Mexico ratified the CPTPP in 2018. Upon ratification by Brunei, Malaysia, and Chile, the agreement will establish a free trade area that represent 13.5% of global GDP and 500 million consumers. A number of other countries have also expressed interest in joining this massive Pacific area free trade agreement.
Members of the CPTPP agree to eliminate virtually all tariffs and import charges on other members’ products. This includes duty-free imports for more than 89% of tariff lines among CPTPP participants. Members also accept common obligations on food regulations, environmental protections, the digital economy, labor, and financial services, among other areas.
3. EU-Mexico Trade Agreement
In 2018, Mexico and the European Union reached an "agreement in principle" to update their trade agreement, replacing the EU-Mexico Economic Partnership that dated to 2000. This bilateral trade agreement will allow EU firms to sell more services to Mexico and makes commitments to protect workers' rights and the environment.
Under the agreement, 99% of products eventually will be traded between the two sides duty-free. For that remaining 1%, which includes dairy and meat exports on both sides, customs duties may be eliminated over time. The agreement also renegotiates automotive industry rules of origin to a 45% maximum for non-originating material.
The agreement also makes it easier for EU firms to do business in Mexico by simplifying customs procedures to streamline industrial trade, and laying out a clause on the free flow of data and protection of investments.
A Commission Impact Assessment indicates that the updated agreement could generate an increase in EU GDP of 0.01 percent annually by 2028. That is pending final ratification by all EU member states.
4. UK-Mexico Trade Continuity Agreement (TCA)
The UK-Mexico Trade Continuity Agreement (TCA) came into force in 2021 to support streamlined trade between Mexico and the United Kingdom following the UK’s exit from the European Union. The continuity agreement sets provisions for preferential rates for imports, protections for intellectual property, and rules for trade in services. In 2021, this supported the export of $3 billion worth of exported goods from Mexico into the UK. The two countries continue to negotiate a permanent free trade agreement.
5. Mexico-EFTA States Free Trade Agreement
The European Free Trade Association (EFTA) States, made up of Iceland, Liechtenstein, Norway, and Switzerland, signed a Free Trade Agreement with Mexico in November 2000. The agreement became enforceable in July 2001.
This free trade agreement covers trade in industrial goods as well as fish and marine products. Among the goals set by the agreement is the progressive removal of tariffs. In addition to covering trade in goods, it also includes within its scope trade in services, investment, and public procurement.
6. Central America-Mexico Free Trade Agreement
The Central America-Mexico FTA brought together earlier separate agreements between Mexico, Costa Rica, and Nicaragua and the Northern Triangle made up of El Salvador, Guatemala, and Honduras. The result was a multilateral agreement made official in November 2011 and ratified in 2013. The FTA expanded trade and investment flows between the parties and laid the groundwork for improving customs procedures and trade.
This partnership recognizes an “extended economic zone” that works to reduce tariffs and provides preferential treatment to local markets in the production of goods and services for export to Mexico. In 2017, two agreements were added to update rules of origin and customs procedures, requiring producers and exporters to issue certificates of origin for goods to be exported.
7. The Pacific Alliance
This trade bloc was formed by Mexico, Chile, Colombia, and Peru in 2011, and includes 61 Observer States, which have the opportunity to become members under certain conditions. The alliance covers a combined population of 225 million and, together, represents the eighth largest export force in the world.
With its ratification, alliance members commit to promoting a better quality of life for their citizens and fostering integration, with a vision of inclusive development. In action, that amounts to an end to more than nine-tenths of tariffs on goods and services traded between its members and work toward standard harmonization.
The alliance also integrates the four national stock markets, removes restrictions on inter-alliance visas, and opens joint international trade missions. The alliance prioritizes private sector cooperation as it promotes free trade that contributes to generating greater competitiveness and development.
8. Chile-Mexico Free Trade Agreement
Mexico’s first FTA was signed in 1998 in Santiago, Chile, and came into effect in 1999. The agreement removed virtually all tariffs on merchandise trade between the two countries and set terms for tariff reduction of those remaining products. For automotive products specifically, the agreement lays out rules of origin terms and sets quotas on duty-free imports.
The Mexico-Chile FTA also includes provisions on national treatment and market access for goods and services; safeguards; standards; agriculture; sanitary and phytosanitary measures; investment; air transportation; telecommunications; temporary entry for business people; intellectual property rights; and dispute resolution, among other provisions.
9. Mexico-Colombia Free Trade Agreement
Mexico and Columbia’s FTA dates to 1994, although the agreement has been adapted and expanded in the years since. Its most recent version includes provisions related to market access and rules of origin.
The full FTA includes measures related to market access, tariff-rate quotas, anti-dumping and countervailing duties, rules of origin, customs procedures, dispute resolution, government procurement, intellectual property rights protection, investment, safeguard measures, sanitary and phytosanitary provisions, technical regulations, and technical barriers to trade.
10. Mexico-Peru Trade Integration Agreement
The Mexico-Peru Trade Integration Agreement was formally signed in April 2011 and became effective the following February. The FTA expands a 1987 agreement to cover 12,017 products around which most tariffs would be phased out over the next 10 years.
The agreement includes provisions around the trade of goods and services, as well as investment, dispute resolution procedures, rules of origin, antidumping and countervailing duties, and temporary entry of business people, among other industry areas.
11. Mexico-Panama Free Trade Agreement
Mexico and Panama entered into an FTA in July 2015 to strengthen bilateral relations, diversify exports, encourage mutual trade, and ultimately support the economic growth and the prosperity of both nations. The agreement also sets the stage for Panama to eventually join the Pacific Alliance.
In addition to market access measures, the FTA lays out provisions around rules of origin, intellectual property rights, dispute resolution, sanitary and phytosanitary measures, e-commerce, financial services, travel rules, and investment. The FTA covers approximately 4,000 tariffs and lays the foundation for a major commercial corridor in the continent.
12. Mexico-Uruguay Free Trade Agreement
Mexico and Uruguay began enforcing their FTA in July 2004, deepening a pre-existing agreement. In addition to opening the markets for trade, the FTA includes provisions around services, investment, intellectual property rights, dispute resolution procedures, government procurement, rules of origin, and customs procedures, among other areas.
Upon ratification, the FTA eliminated nearly all tariffs on manufactured goods, with a few industry exceptions. Wool products, for example, remain subject to tariff-rate quotas while certain agricultural items receive lowered limits on tariffs. Automotive goods are covered by a separate economic complementation agreement.
The two countries an amendment to the agreement in November 2019 that updated tariff and rules of origin provisions to certain food products. An additional protocol signed in November 2020 agreed on reservations and exceptions to cross-border trade in services and investments.
13. Japan-Mexico Economic Partnership Agreement
In September 2004, Japan and Mexico formalized their economic partnership. The agreement lays out terms for opening trade and investment between the two nations, as well as freer flow of people for business purposes. Through the agreement, Japan gained expanded access to the Mexican market and entry into the North and South American markets via Mexico and its extensive network of free trade agreements.
The agreement also aims to promote a comprehensive economic partnership, which includes competition policy, improvement of the business environment and cooperation in areas such as vocational education and training, and greater support for small and medium enterprises. The agreement comprehensively eliminates or reduces custom duties. It also prohibits performance requirements, such as any requirement for local content as a condition for investment.
14. The Mexico-Israel Free Trade Agreement
In March 2000, Mexico and Israel signed an FTA to increase bilateral trade by tens of millions of dollars. The agreement helps Israeli exporters compete with American products in Mexico and advance joint projects in communications, agriculture, infrastructure, and planning services. The FTA covers trade in goods, government purchases, safeguards and dispute resolution, and strengthened cooperation between the two countries.
From the agreement’s entry into force in 2000 through 2021, total bilateral trade between Mexico and Israel increased by 304%. Today, Israel is Mexico’s leading trading partner among countries in the Middle East. In 2021, both parties agreed on to redouble efforts to maximize the FTA’s advantages for a stronger economic relationship and improved market access conditions.
15. Mexico-Bolivia Economic Complementation Agreement
In June 2010, Mexico and Bolivia replaced their existing FTA with a new Economic Complementation Agreement. The agreement allowed for continued free trade in goods without modifying the preferential tariff treatment agreed upon in the previous FTA.
The ECA promotes fair competition in trade between the two countries without touching on terms related to investment, services trade, intellectual property rights, or government procurement.
Mexico's Free Trade Agreements Simplify Global Trade
Mexico’s numerous negotiated international trade agreements are one of the many ways in which the government seeks to simplify trade for global businesses. By reducing complexity and bureaucratic costs around the exchange of goods and services, Mexico makes it cost-effective to export to a multinational audience.
To better understand all of the advantages of locating your manufacturing operation in Mexico, contact Tetakawi today.
Thinking about manufacturing in Mexico? Download this ebook and start moving your due diligence forward.
