Requiem or Revival?: The Promise of North American Integration

Chapter 10. Mexico in the Multilateral Trading System: A Long and Winding Road

186 In the two decades since Mexico joined the General Agreement on Tariffs and Trade (GATT), it has become an important trader in Latin America, participates actively in multilateral trade negotiations, and has been one of the most dynamic participants in regional trade agreements. Currently, more than 70 percent of the country’s GDP derives from trade.1 The present situation stands in stark contrast to Mexico’s trade practices of relatively recent times. In 1982 it still had a closed economy and delayed joining GATT until 1986. Even in 1980, during the oil price boom, its exports amounted to only U.S.$33 billion, compared with U.S.$178 billion in 2003.2 When Mexico finally joined GATT in 1986, it was after a period of unilateral trade liberalization ushered in as part of a larger macroeconomic stabilization effort. Throughout the 1990s Mexico negotiated a series of free trade agreements (FTAs), chief among them the North American Free Trade Agreement (NAFTA). Thereafter, Mexico’s multilateral commitments were not as pressing in light of the importance that NAFTA came to play as a regional initiative. More recently, this has begun to change. In 2004 a panel set up under the World Trade Organization (WTO) Dispute Settlement Understanding issued a report stating that Mexico had breached several obligations regarding its Mexico in the Multilateral Trading System A Long and Winding Road antonio ortiz mena l. n. 10 10-8201-8 ch10.qxd 7/13/07 4:33 PM Page 186 Mexico in the Multilateral Trading System 187 commitment to liberalize trade in the telecommunications sector. This was the first WTO dispute settlement case involving trade in telecommunications services, and it reflected the increasing scope and depth of Mexico’s multilateral commitments. While the WTO is clearly having an impact on Mexico, current discussions are reminiscent of those that prevailed some sixty years ago: Do multilateral trade rules favor developed country interests? What does the multilateral trading system have to offer in terms of a developing country ’s need for job creation and employment? This chapter provides an overview of Mexico’s role in the multilateral arena and traces its transition from a closed economy to that of a leading actor in the world trading system. The chapter covers Mexico’s long-delayed decision to join GATT, deals with its participation in the various GATT/ WTO Rounds, critiques its trade policy formulation process, and highlights some of Mexico’s challenges regarding the multilateral trading system and development. Accession to GATT Mexico remained a highly protected economy from the post–World War II era up until the mid-1980s. It would take three economic shocks for trade policy to be altered in a significant way. The first was the macroeconomic instability of the early 1970s and a devaluation of the peso in 1976 (after twenty-two years of fixed parity to the U.S. dollar); the second a severe economic downturn in 1982–83 caused by a drop in the world price of oil and a rise in international interest rates (which pushed Mexico to the verge of defaulting on its foreign debt); the third shock was the 1986 stock market crash and a devaluation of the peso in 1987. From the late 1940s until the mid-1970s the basic thrust of trade policy was the use of high tariffs and import licensing requirements for a broad range of products, with the aim of fostering import substitution industrialization .3 The policy was quite successful, especially from the mid-1950s until the early 1970s. Mexico’s economy grew at an annual average rate of 6.8 percent during this period, surpassed only by Japan, Singapore, and South Korea. However, trade volumes were low compared to these Asian trading states, accounting for less than 15 percent of GDP, and about three-quarters of total exports were made up of agricultural goods and minerals.4 Under the Echeverria government (1970–76), annual inflation rates approached 16 percent, the public sector and current account deficits ballooned , and the public foreign debt grew from U.S.$4.5 billion to U.S.$19.1 10-8201-8 ch10.qxd 7/13/07 4:34 PM Page 187 188 Antonio Ortiz Mena L. N. billion.5 A balance of payments crisis in August 1976 forced the government to devalue the peso, which had remained at a fixed parity with the U.S. dollar since 1954. Stabilization measures...