The Trans-Atlantic Trade and Investment Partnership: Mexico Wants In—Why Not?

On Wednesday, July 24, the CSIS Americas Program hosted Mexico’s ambassador to the United States, Eduardo Medina Mora, to discuss North America’s competitiveness in the global economy.

Under this broad umbrella, there has been one question increasingly posed by policymakers in the Western Hemisphere and the private sector alike: why isn’t Mexico part of the Trans-Atlantic Trade and Investment Partnership (TTIP) negotiations?—and the ambassador affirmed Mexico’s firm support for the country’s inclusion.

The negotiations for the TTIP, the long awaited free trade agreement (FTA) between the United States and the European Union (EU), launched two weeks ago. Though the start of the talks were initially marred by intense political tensions caused by the recent revelations of U.S. global espionage operations, both parties decided to move forward, given how much both stand to benefit from the agreement.

The agreement aims to remove existing trade barriers on a variety of economic sectors between the EU and the United States in order to promote investment flows, facilitate commerce, and boost economic growth and job creation on both sides of the Atlantic. If the negotiations are successful, the TTIP will be the biggest trade agreement in history, encompassing 40 percent of global output.

Yet, while Mexico is a member of the North American Free Trade Agreement (NAFTA), remains among the United States' top three trade partners, and already has an FTA with the European Union to build upon, it remains on the negotiating sidelines. And in recent talks at CSIS, including by the National Security Council’s Latin America head as well as the EU’s manager for the Americas, there does not appear to be much interest in including Mexico in talks that are, admittedly, already complex.

But if both the United States and the EU are looking to foster economic growth and employment through trade liberalization, why not transform these EU-U.S. talks into an EU-U.S.-Mexico agreement?

Q1: What does the Mexican economy look like today? What free trade agreements does the country already belong to?

A1: While much of the focus on Mexico from the United States remains on security and immigration, it is the country's increasing competitiveness and economic liberalization that merit attention.

Mexico, Latin America's second largest economy, is currently a member of 12 different FTAs involving 44 other nations, making it among the most open of the world's leading economies. In 2011, a full third of Mexico's gross domestic product (GDP) was comprised of exports and imports. In contrast, just 15 percent of U.S. GDP was derived from the same.

Mexico's extensive network of FTAs includes most of the Western Hemisphere, Israel, and Japan. It also belongs to an economic partnership with the European Union (enacted in 2000) and to NAFTA—the world's largest FTA to date, with a combined GDP of $17 trillion linking 450 million people.

Last year, Mexico joined the Trans-Pacific Partnership (TPP) negotiations, a high-standard FTA among a number of Pacific Rim countries that remains in the works. It is also a member of the World Trade Organization (WTO), the Asia Pacific Economic Cooperation (APEC), the Organization for Economic Cooperation and Development (OECD), the Latin American Integration Association (ALADI), and the emerging Pacific Alliance, a free trade and integration effort that hopes to become the commercial bridge between the Americas and the Asia Pacific region.

Mexico alone is a bigger market for the United States than all the BRIC economies combined, and growing opportunities for trade and investment in the economy solidify this status moving forward.

Q2: Why has Mexico been excluded from TTIP negotiations to date?

A2: While Mexico's recent economic growth has proven impressive, entering the TTIP would provide a meaningful surge for the Mexican economy, potentially propelling it into the proverbial big leagues. Mexico's interest in being included in the agreement is no secret, but both the United States and the European Union have ignored the petition, claiming inopportune political circumstances. The reasoning here is twofold.

First, given the years of encouragement that preceded the formal start of EU-U.S. negotiations, neither party wishes to jeopardize what could be the biggest FTA in history by bringing more participants on board--regardless of the value their inclusion adds. Leaders from both the United States and the EU think this would bring a long and burdensome political process that could prove detrimental for the negotiations. And though both have shied away from anything that might complicate the process of reaching an initial agreement, neither has rejected the idea of accepting more members down the road, once the agreement is consolidated.

The second argument is more of a corollary to the first. At his talk with the Americas Program last week, Christian Leffler, the EU’s managing director for the Americas, explained that because Mexico already shares FTAs with the United States and the EU, including Mexico in the TTIP can be seen as superfluous—at least for now. Particularly given the drag additional parties could put on negotiations, the benefits of including Mexico, so the argument goes, fail to outweigh the potential costs.

Q3: Why should Mexico be included in the ongoing TTIP negotiations?

A3: In simplest terms, all three parties stand to gain from including Mexico in the TTIP negotiations.
While Mexico does have standing trade agreements with the United States and the European Union, both are seen as outdated. EU Trade Commissioner Karel De Gucht called for the modernization of the current Mexico-EU agreement last November, and NAFTA modernization including the energy and telecommunications sectors, both of which were excluded when the agreement entered into force nearly 20 years ago, would greatly advance the political and economic interests of the United States.

Mexico's stake in being included the agreement is straightforward. The sheer size of the proposed market, coupled with the added competitiveness Mexico would lose out on should it remain excluded, together provide a compelling rationale for why TTIP membership is in Mexico's interests.

It is important for the United States and the EU to remember that Mexico brings a lot to the negotiating table.
First, Europe, in dire need of economic reinvigoration and expanded employment, has much to gain from Mexico's liberalized trade with the rest of the world--and its need for foreign direct investment. 
Second, the U.S.-Mexican economic interdependence implies that indirectly, the more Mexico enhances its global trade relationships, the better off the United States is as well.

Finally, because Mexican supply chains are already closely linked to the rest of Latin America and the Asia Pacific region, both the United States and the European Union stand to gain from increased access to those markets as well, and that access could come by means of Mexico's inclusion in the TTIP, given its membership in both the TPP and the Pacific Alliance.

Just as NAFTA transformed the relationship between the United States and Mexico, a TTIP that brought our southern neighbor on board could do the same for transatlantic relations. Given its global commercial links, and growing economy and productivity, it makes more sense than ever to bring in one of our biggest economic partners to the TTIP. 

Conclusion: Mexico is reemerging as a leading destination for foreign investment given the country's low production costs, proximity to the U.S. market, recent sweeping reforms in key economic sectors (and more expected to come), and emerging economies of scale in high-skilled industries. Engaging in the dynamic free trade opportunities the TTIP offers will spur North American and transatlantic economic cooperation alike--and strengthen all parties' competitiveness globally.

True, including Mexico will likely make negotiations more difficult. But if the United States and European Union think a little more boldly, the economic results would speak for themselves.

Carl Meacham is the director of the Americas Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Tania Miranda, intern scholar with the CSIS Americas Program, provided research assistance.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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