Trade liberalization
How important is trade liberalization in fostering development and growth?
Trade liberalization plays a great role in fostering an economy's development. For example, Mexico made many efforts to liberalize trade, recovering from a recession that hit 1981 when world oil prices collapsed. It undertook substantial reforms that targeted the creation of a more open economy and stimulate much-needed economic development. The country loosened restrictive regimes on imports, signed a bilateral trade agreement with the US and entered the GATT in 1986.
Upon joining APEC, Mexico signed several trade agreements with most Latin American countries and most significantly, with economic blocs such as North America and the European Union. They have gone on to sign other cooperation agreements in trade and investment with other countries, including Japan, with which it produced many service commitments. In the succeeding years, we saw Mexico unilaterally reducing its tariffs by more than half, including MFN tariffs, to reduce input costs, remove tariff discrepancies and reduce payment evasion. Non-tariff measures were also minimized on MFN basis and to FTA partners. This proved substantial progress on Mexico’s commitments derived from the WTO, among other treaties, and its initiative to improve competitiveness and cut red tape.
Mexico’s push for liberalization of its trade and investment regime ran alongside efforts to improve regulatory and competition policy in different sectors. It registered standards and regulations aligned with international standards, reaching 765 for technical regulations in 2009 (183 in 1996) and 4,291 for standards (58 in 1996). Even services have undergone progressive liberalization. FDI is welcome in several sectors of the economy. Telecommunications, broadcasting, tourism and travel-related services have been improved, and financial services have been subjected to comprehensive reform.
With liberalization in the manufacturing sector completed, exports and FDI gave rise to new jobs and wage increases. Efforts toward the liberalization of trade and investment are reflected in the numbers: total trade accounted for 62.2% of GDP in 2010, from 57.8% in 2006, with a total exports average growth rate of 3.5%-from US$266 billion to US$313 billion. The country’s deficit in the current account balance as of 2010 was at US$5.7 billion, only 0.5% of GDP. In the currency crisis of 1994, liberalization enabled the economy to recover within two years, as opposed to recovery after 1982, which took five years.
Mexico’s economic growth was attributed largely to external trade. The more open economy allowed lesser dependence on oil and encouraged exports through the manufacturing sector. In the 80’s when oil prices fell, 70% of exports were of oil and mining, leading to the debt crisis. By the end of the 90’s, only about 8% of total exports were attributed to oil and mining. The economy has not only diversified its exports but also gained international acclaim as a trade hub, and is now the biggest exporter in Latin America. An all-time high of US$32 billion worth of exports was posted in March 2012.
In this age, the more competitive global market requires trade policies to be reassessed, to reduce the costs of raw materials required by producers and exporters from economies with which others do not have established FTAs. From the example of Mexico's experience in trade liberalization, I believe that a non-discriminatory, transparent and multilateral trading system should be the approach to further facilitate a trade and investment regime that is more non-discriminatory, open and transparent so that there is fair engagement in economic activities for domestic and foreign participants.
(Note: I wrote this for APEC, back in June 2012.)
Trade liberalization plays a great role in fostering an economy's development. For example, Mexico made many efforts to liberalize trade, recovering from a recession that hit 1981 when world oil prices collapsed. It undertook substantial reforms that targeted the creation of a more open economy and stimulate much-needed economic development. The country loosened restrictive regimes on imports, signed a bilateral trade agreement with the US and entered the GATT in 1986.
Upon joining APEC, Mexico signed several trade agreements with most Latin American countries and most significantly, with economic blocs such as North America and the European Union. They have gone on to sign other cooperation agreements in trade and investment with other countries, including Japan, with which it produced many service commitments. In the succeeding years, we saw Mexico unilaterally reducing its tariffs by more than half, including MFN tariffs, to reduce input costs, remove tariff discrepancies and reduce payment evasion. Non-tariff measures were also minimized on MFN basis and to FTA partners. This proved substantial progress on Mexico’s commitments derived from the WTO, among other treaties, and its initiative to improve competitiveness and cut red tape.
Mexico’s push for liberalization of its trade and investment regime ran alongside efforts to improve regulatory and competition policy in different sectors. It registered standards and regulations aligned with international standards, reaching 765 for technical regulations in 2009 (183 in 1996) and 4,291 for standards (58 in 1996). Even services have undergone progressive liberalization. FDI is welcome in several sectors of the economy. Telecommunications, broadcasting, tourism and travel-related services have been improved, and financial services have been subjected to comprehensive reform.
With liberalization in the manufacturing sector completed, exports and FDI gave rise to new jobs and wage increases. Efforts toward the liberalization of trade and investment are reflected in the numbers: total trade accounted for 62.2% of GDP in 2010, from 57.8% in 2006, with a total exports average growth rate of 3.5%-from US$266 billion to US$313 billion. The country’s deficit in the current account balance as of 2010 was at US$5.7 billion, only 0.5% of GDP. In the currency crisis of 1994, liberalization enabled the economy to recover within two years, as opposed to recovery after 1982, which took five years.
Mexico’s economic growth was attributed largely to external trade. The more open economy allowed lesser dependence on oil and encouraged exports through the manufacturing sector. In the 80’s when oil prices fell, 70% of exports were of oil and mining, leading to the debt crisis. By the end of the 90’s, only about 8% of total exports were attributed to oil and mining. The economy has not only diversified its exports but also gained international acclaim as a trade hub, and is now the biggest exporter in Latin America. An all-time high of US$32 billion worth of exports was posted in March 2012.
In this age, the more competitive global market requires trade policies to be reassessed, to reduce the costs of raw materials required by producers and exporters from economies with which others do not have established FTAs. From the example of Mexico's experience in trade liberalization, I believe that a non-discriminatory, transparent and multilateral trading system should be the approach to further facilitate a trade and investment regime that is more non-discriminatory, open and transparent so that there is fair engagement in economic activities for domestic and foreign participants.
(Note: I wrote this for APEC, back in June 2012.)