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History of the commercial opening of Mexico: the beginning

Within the history of the contemporary commercial opening of Mexico, there was a turning point in the administration of President Miguel de la Madrid, from December 1, 1982 to November 30, 1988.

The context, facts, and opinions below are based on a CIA report published in January 1988.

Mexico was then the fourth largest trading partner of the United States.

Total trade between the two countries in 1987 was approximately $35 billion.

Also at that time, Mexico was the third largest supplier of crude oil to the US market and increased its manufacturing exports between 35 and 40% in 1986 and 1987.

Mexican trade policy had undergone an important evolution during the de la Madrid administration.

To move Mexico away from economic development based on import substitution and oil export revenues, the De la Madrid Administration had stimulated the structural adjustment process through a reduction in internal subsidies and an opening of the internal market to the import competition.

With regard to trade, there had been substantial liberalization in the level of tariffs and in the use of import licenses and official reference prices: the three tools used by Mexico in the post-World War II period to control imports.

Commercial opening

At the end of 1983, all of Mexico’s more than 8,300 tariff categories were subject to import license requirements; but in the de la Madrid period only 329 categories were covered (mainly comprising the automotive and pharmaceutical sectors, some agricultural products, medicines, firearms, and some luxury goods).

Official reference prices, which covered more than 1,500 tariff categories in 1986, had been completely eliminated by the end of 1987.

Tariffs reached 100% in April 1986, but had been reduced to a maximum applied rate of 20% as of December 15, 1987. The general import tax of 5%, applied in addition to the normal duty, was eliminated on December 15, 1987.

GATT

The average weighted Mexican tariff was 5.6% in 1988.

Mexico had complemented these measures by joining the GATT on August 24, 1986, and by signing a bilateral framework agreement for trade and investment with the United States on November 6, 1987.

The significant reduction of Mexico’s license requirements and the elimination of official reference prices had fulfilled the commitments assumed by Mexico during its negotiation for accession to the GATT.

However, the tariff reductions implemented by Mexico went far beyond Mexico’s commitments in the GATT.

The framework agreement was an important psychological advance for Mexico.

Its main result was the establishment of a consultative mechanism that either party can invoke at any time to clarify their respective trade policies, resolve specific disputes, or negotiate the removal or reduction of trade and investment barriers.

In fact, the two governments formalized an agreement under the framework agreement in late December that provided Mexico with a 12.4% increase in 1988 US export steel quotas in exchange for adding three wire products to the quota restrictions, the elimination of Mexican quotas for beer, wine and distilled spirits, and elimination of the import license requirement in 38 tariff categories.

The US market was, with some important exceptions, open to imports from Mexico.

More than 80% of Mexican exports to the United States entered with a tariff rate of between 0 and 5 percent.

Restrictions

There were no section 301 measures against Mexico, while quotas on stainless steel imports were the only section 201 measures affecting Mexico. (These quotas, in practice, had not proven to be particularly restrictive for Mexico.)

Mexico was then the fourth largest beneficiary of the US GSP program, bringing in more than $1.5 billion in duty-free products from the United States under the program’s provisions.

Steel and textile quotas had recently been increased, and the meat embargo was under technical review.

The embargo on fresh avocados appeared to be technically justified due to the seed weevil infestation in Mexico.

In turn, the sugar quota had had little impact since Mexico consumes almost all of its sugar production domestically.

In general, the United States and Mexico enjoyed good cooperative trade relations.

 

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