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International eco project mexico - section b - group 7 final

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Mexico Economy - Analysis

Mexico Economy - Analysis

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  • 1. Economy of Mexico Economy of Mexico Project ReportBy-MBA (IB) - 2010-13Group 7, Section B 1
  • 2. Economy of Mexico EXECUTIVE SUMMARYThe economy of Mexico is the 13th largest in the world in nominal terms and the 11th bypurchasing power parity, according to the World Bank. Mexico has a free market economy witha strong export sector, but this has not always been the case. The transformation of Mexicointo an export-based economy began in the late 1980s when the government started toliberalize its trade policy and adopt economic reform measures.One of the more distinctive aspects of the Mexican economy is its strong ties to the economiccycle of the United States, making it very sensitive to economic developments in the UnitedStates. Mexico’s economy is part of the North American Free Trade Agreement (NAFTA), atrilateral trade bloc in the region comprising of the US, Canada and Mexico. Furthermore, over90% of their trade falls under twelve free trade agreements spanning more than 40 countriesworldwideFollowing a deep recession associated with a strong global downturn, Mexico is experiencing arobust recovery, with GDP growth of 5½ per cent in 2010 and 4½ per cent in 2011. Exportgrowth is expected to slow after the exceptional rebound of 2010, but stronger domesticdemand should keep the recovery on track. Several labor market indicators have improved,although unemployment is decreasing only slowly.We talk about key economic Indicators, Trade Trends and economic Policies which makesMexico’s economy a potential Economy. 2
  • 3. Economy of MexicoContents 1) Introduction………………………………………………………………………………….4-5 2) Key Economic Indicators…………………………………………………………………..6 3) Trade Review and Highlights……………………………………………………………..7 4) Economy Policy Review…………………………………………………………………..8-9 5) Comparative Advantage in Trade…………………………………………………10-13 6) NAFTA –A Boon for Mexico……………………………………………………………13-16 7) Mexico Merchandise Trade……………………………………………………………….16 8) Trade Policy Review…………………………………………………………………………17-18 3
  • 4. Economy of MexicoIntroductionMexico has a population of slightly over 100 million people making it the most Populous Spanish-speaking country in the world and the third most populous country in the Western Hemisphere. Basedon a gross domestic product (GDP) of $1.167 trillion in 2010 (about six percent of U.S. GDP), Economicconditions in Mexico are important to the United States because of the close trade and investmentinteractions, and because of other social and political issues that could be affected by economicconditions, such as immigration.The economy contains rapidly developing modern industrial and service sectors, with increasing privateownership. Recent administrations have expanded competition in ports, railroads, telecommunications,electricity generation, natural gas distribution and airports, with the aim of upgrading infrastructure. Asan export-oriented economy, more than 90% of Mexican trade is under free trade agreements (FTAs)with more than 40 countries, including the European Union, Japan, Israel, and much of Central andSouth America. The most influential FTA is the North American Free Trade Agreement (NAFTA), whichcame into effect in 1994, and was signed in 1992 by the governments of the United States, Canada andMexico. In 2006, trade with Mexicos two northern partners accounted for almost 90% of its exports and55% of its imports. Recently, the Congress of the Union approved important tax, pension and judicialreforms, and reform to the oil industry is currently being debated. According to the Forbes Global 2000list of the worlds largest companies in 2008, Mexico had 16 companies in the list.The Mexican economy is both complex and very much in transition. There are at least 3 transitions thatare worth noting. The first is the economys transition from an agricultural economy to an industrial one.In 1940, agriculture accounted for 19 percent of GDP and employed 65 percent of the labor force.However, in 1999 agriculture accounted for 5 percent of GDP and employed 23 percent of the laborforce. In contrast, manufacturing and services accounted for 88 percent of GDP in 1999 and employedapproximately 70 percent of the labor force. The most important catalyst for such a dramatic change isMexicos involvement in World War II in the early 1940s. As a member of the Allies, Mexico begansupplying its fellow Allies with war equipment and supplies and, because of the decreased availability ofconsumer goods from other nations, supplied its own population with consumer goods as well. Sincethen, both government and private citizens have furthered Mexicos industrial development.The second transition that characterizes the Mexican economy is a shift from a closed to an openeconomy. Although after World War II the government pursued a successful policy of industrializing theeconomy, that policy was buttressed by efforts to keep the Mexican economy closed. For example, the 4
  • 5. Economy of Mexico government pursued a policy of encouraging Mexican manufacturers to engage in import substitution. Part of that policy required that the government set up barriers (such as tariffs) to the importation of those same items. All of this changed in 1985 when the government decided to pursue a policy of promoting Mexican exports and decreasing barriers to imports into Mexico. This commitment to an open economy was crystallized when Mexico signed the North American Free Trade Agreement (NAFTA) in 1992. Under that agreement, Mexico has committed itself to eliminating the trade barriers that exist between it and the United States and Canada by the year 2009. At the time Mexico signed NAFTA, its economy was dominated by small to mediumsized companies. NAFTA opened the door for large U.S. and Canadian companies to open branches or offices in Mexico, which would bring more jobs to the country. The third transition that characterizes the Mexican economy is a change from an economy that pursues public ownership to one that pursues private ownership. In the 1970s and 1980s the government assumed a large amount of foreign debt and much of that money was used to purchase businesses—many of which were run inefficiently—by the government. The vast majority of these businesses were sold by the government in the 1990s. Although Mexico continues to wrestle with its foreign debt, which as of 1999 was US$161 billion, its debt is now a reasonable amount of debt when compared to that of other Latin American countries. For instance, Mexicos economy is 5 times as large as Venezuelas, but Mexico has only 4 times the amount of debt that Venezuela has. Currently, the Mexican economy is vibrant, with fully functioning agricultural, services, industry, and banking sectors. Mexico has demonstrated to the world that it can sustain itself. But Mexico continues to be plagued by persistent problems of the poverty and underemployment of a large segment of its population. These problems pose the greatest challenges to the countrys economic future. Key Economic IndicatorsCentral bank Bank of MexicoInternational Reserves US$ 113.725 billion (Source: IMF; Data updated: November 2010)Gross Domestic Product – US$ 1.167 trillion (2010 estimate)GDPGDP (Purchasing Power 1.658 trillion of International dollars (2010 estimate)Parity) Real GDP growth 2000 2001 2002 2003 2004 2005 2006 6.60% -0.20% 0.80% 1.70% 4% 3.20% 4.90% GDP (PPP) - share of world total 1980 1990 2000 2010 2015** 2.94% 2.59% 2.48% 2.09% 2% GDP - composition by sector 5
  • 6. Economy of Mexicoagriculture: 4.30%Industry: 32.90%services: 62.80% Inflation 2008 2009 2010 2011* 5.10% 5.30% 4.20% 3.60% Unemployment Rate 2008 2009 2010 2011* 4% 5.50% 5.40% 4.50% Public debt (General government gross debt as a % of GDP) 2007 2008 2009 2010 2011* 38.20% 43.30% 44.60% 42.70% 42.30% 6
  • 7. Economy of MexicoTrade preview and HighlightsMexico was the 16th largest exporter of goods in the world, and the 38th largest exporter of servicesproducts. Of the very diverse mix of products exported by Mexico, top exports in 2008 includedmanufactured goods of the maquila industry (cars, televisions and telecom equipment), oil and oilproducts, silver, fruits, vegetables, coffee, and cotton. Major imports included telecom equipment,car parts (for assembly and repair), metalworking machines, steel mill products, agriculturalmachinery, electrical equipment, aircraft, and aircraft parts.Mexico is the United States’ second-largest export market and third-largest trading partner. TopU.S. exports to Mexico include electronic equipment, motor vehicle parts, and chemicals. Tradematters are generally settled through direct negotiations between the two countries or addressedvia World Trade Organization (WTO) or North American Free Trade Agreement (NAFTA) formaldispute settlement procedures. The most significant areas of friction involve agricultural productsas well as cross-border trucking. Mexico is an active and constructive member of the World TradeOrganization, the G-20, and the Organization for Economic Cooperation and Development. TheMexican Government and many businesses support a Free Trade Area of the Americas.Current account balance US$ 10.5 billion (2009 estimate)(After 2008)Current account balance by percentage of 0.9% of GDP (2009 estimate)GDPExports as percent of GDP (Exports of goods 26.6% (2009)and services)Shares in world total merchandising export 1.84%Shares in world total commercial services 0.46%exportTotal exports US$305.9 billion f.o.b. (2008 estimate)Export commodities manufactured goods, oil and oil products, silver, fruits, vegetables, coffee, cotton US$305.9 billion f.o.b. (2008 estimate)Total importsImport commodities metalworking machines, steel mill products, agricultural machinery, electrical equipment, car parts for assembly, repair parts for motor vehicles, aircraft, and aircraft partsExports major partners US 82.2%, Canada 2.4%, Germany 1.5% (2007)Imports major partners US 49.6%, China 10.5%, Japan 7
  • 8. Economy of Mexico 5.8%, South Korea 4.5% (2007)Economic Policy ReviewIn the late 1980s and early into the 1990s, the Mexican government implemented a series ofmeasures to restructure the economy that included steps toward trade liberalization. For manyyears, Mexico had protectionist trade policies to encourage industrial growth in the domesticeconomy. The 1980s were marked by inflation and a declining standard of living. Repercussionsof the 1982 debt crisis in which the Mexican government was unable to meet its foreign debtobligations were a primary cause of the economic challenges the country faced in the early tomid-1980’s. Much of the government’s effort in addressing the challenges was placed onprivatizing state industries and moving toward trade liberalization. Efforts included privatizationof sea ports, railroad, telecommunications, electricity, natural gas distribution and airports. Thenegotiation and implementation of NAFTA played a major role in Mexico’s changing economicpolicy in the early 1990s.Mexico’s economic reforms initially attracted a large amount of private foreign investment, butby 1993 the inflow of foreign capital began to slow down. The combination of macroeconomicpolicies at the time, which led to an overvalued exchange rate, and domestic politicaluncertainty helped drive down the flow of capital into the country. The decrease in capitalinflows and the low levels of international reserves held by the Mexican government led to apeso devaluation inMarch 1994. Later that year, foreign exchange reserves continued to fall, domestic governmentdebt increased, and the Mexican central bank had limited dollar reserves to support the currentpeso rateBy the end of 1994, Mexico faced a currency crisis, putting pressure on the government toabandon its previous fixed exchange rate policy and adopt a floating exchange rate regime. As aresult, Mexico’s currency plunged by around 50% within six months, sending the country into adeep recession.32 Several factors influenced the decision to float the peso: overspending in theeconomy had generated a significant current account deficit; the Mexican government hadaccumulated large levels of debt with insufficient reserves; and the banking system was facing acrisis due to overexposure.33 Mexico’s finance minister at the time, Guillermo Ortiz, statedlater that Mexico had “no choice” but to float the peso because the government had run out ofreserves.In the aftermath of the 1994 devaluation, Mexican President Ernesto Zedillo took several stepsto restructure the economy and lessen the impact of the currency crisis among the moredisadvantaged sectors of the economy. The goal was to create conditions for economic activityso that the economy could adjust in the shortest time possible. The United States and the IMF 8
  • 9. Economy of Mexicoassisted the Mexican government by putting together an emergency financial support packageof up to $50 billion, with most of the money coming from the U.S. Treasury. The ZedilloAdministration wanted to demonstrate its commitment to fulfill all its financial obligationswithout a default on its debt by adopting tight monetary and fiscal policies to reduce inflationand absorb some of the costs of the banking sector crisis. The austerity plan included anincrease in the value-added tax, budget cuts, increases in electricity and gasoline prices todecrease demand and government subsidies, and tighter monetary policy.The peso steadily depreciated through the end of the 1990s, which led to greater Exports andhelped the country’s exporting industries. However, the peso devaluation also resulted in adecline in real income, hurting the poorest segments of the population and also the newlyemerging middle class. NAFTA and the change in the Mexican economy to an export-basedeconomy helped to soften the impact of the currency devaluation. While Mexico’s economy asa whole has since recovered, the country has experienced little economic expansion on a percapita basis. Real wages and per capita GDP fell considerably after the crisis and have only justrecovered to their old level by 2004.After a real decline in GDP of 6.22% in 1995, the Mexican economy managed to grow 5-6% ineach of the three years to 1998. The combination of a stronger peso and the slowdown in theU.S. economy in 2001, which worsened after the September 11 terrorist attacks, hit Mexico’seconomy hard. Real GDP growth dropped from 6.2% in 2000 to -0.16% in 2001. Improvingeconomic conditions in the United States helped Mexico’s economy improve as well.The financial crisis of 2008 began on the trading floors of Manhattan, but the biggest tremorswere felt in the desert south of the Rio Grande. Mexico suffered the steepest recession of anycountry in the Americas, bar a couple of Caribbean tiddlers. Its economy shrank by 6.1% in 2009The state’s output fell by 12.3% in 2009 as orders dried up.To cope up with the recession ,Bank of Mexico, which happens to be an independent centralbank, has dropped its interest rate very low. Mexico is more focused on making its nationaleconomy stable. Fiscal measures, which have been taken, include decrease in energy prices,extra investment in roads, railways and oil wells. It also extends medical cover, welfareassistance and provisional jobs to those who are unemployed. It is expected that this Mexicoeconomic policy will help in prevention of recession.Government guarantees credit lines and offers loans to small business houses. Stabilization ofvalue of peso has been ensured. This was done after central bank made an expenditure of $15billion of its reserves.To reduce social impact of recession, government forwarded some fiscal measures that wouldsave jobs of more than 150,000 people. Steps will be taken to deal with unemploymentproblems. It has been estimated that public debt is about 30 percent of GDP 9
  • 10. Economy of MexicoFiscal consolidation is already underway. After conducting a fiscal stimulus in 2009, thegovernment is in the process of tightening its fiscal policy stance, raising taxes and containingexpenditure growth. This reduced the public sector net borrowing requirement, a measure ofthe combined deficit of the federal government and its public enterprises, from around 5% of GDPin 2009 to 4½ per cent of GDP in 2010. The government intends to limit spending growth andreduce its public sector borrowing requirement to around 3 per cent of GDP in 2011 and 2½ percent in 2012.Revealed Comparative Advantage in ExportMexico exports were worth 31487 Million USD in August of 2011. Mexico is the biggest exporter inLatin America. Mexico’s major exports are: manufactured goods, oil and oil products, silver, fruits,vegetables, coffee and cotton. Mexican trade is fully integrated with that of its North Americanpartners: 82% of Mexican exports are with the United States. http://www.tradingeconomics.com/mexico/exportsMexican Exports to U.S.As an export orientated country, Mexico is the 15th largest exporter in the world. They are also theUnited States second largest export market, making about 12.21 percent of U.S. total exports in2009. With the signing of the North American Free Trade Agreement (NAFTA) in 1994 with theUnited States, Mexicos trade economy is heavily linked to the United States, with as high as 80.5percent for Mexicos exports going to the U.S. 10
  • 11. Economy of MexicoTin, gold & sugar are fast-growing Mexican exports to the U.S. while tobacco, coins & nuclear fuelsare the fast-growing imports into Mexico from America. Mexico exported US$198.3 billion worth ofmerchandise to the United States in 2006, up 16.5% from 2005 and up 47.3% in just 4 years.Mexican imports from the U.S. rose 11.5% to $134.2 billion in 2006, up 37.6% since 2002.http://daniel-workman.suite101.com/mexicos-top-exports-imports-a25194In terms of the merchandise flow between the two countries, America’s trade deficit with Mexicowas $64.1 billion in 2006, up 72.5% from 2002. The U.S. trade deficit with Mexico increased 28.8%in 2006 from 2005 – up from the 10.4% deficit increase in 2005 from the year earlier. Of the $198.3 billion in American imports from Mexico in 2006, the following product categories had the highest values. Crude oil …US$30.3 billion (15.3% of Mexico to U.S. exports, up 31.8% from 2005)  Car parts & accessories … $21.8 billion (11%, up 5.7%)  Video equipment (e.gDVD players) … $14.6 billion (7.4%, up 38.3%) .  Passenger cars … $14.2 billion (7.2%, up 31.2%)  other complete & assembled vehicles … $9.6 billion (4.8%, up 20.2%)  Electrical apparatus & parts … $8.5 billion (4.3%, up 15.1%)  Telecommunications equi pment … $7.0 billion (3.5%, up 41.2%)  Engines & parts … $5.0 billion (2.5%, up 5.6%)  Computers … $4.3 billion (2.2%, up 3.7%)  Miscellaneous household goods (e.g. clocks) … $4.2 billion (2.1%, down 6%) 11
  • 12. Economy of MexicoMexico’s Opinion about NAFTA in a glimpseMexico Balance of Trade 12
  • 13. Economy of MexicoMexico reported a trade deficit equivalent to 806 Million USD in August of 2011. Mexico is thebiggest exporter and importer in Latin America. Mexican trade is fully integrated with that of itsNorth American partners: close to 86% of Mexican exports and 50% of its imports are traded withThe United States and Canada.http://www.tradingeconomics.com/mexico/balance-of-tradeRevealed NAFTA –A Boon for Mexico http://worldsavvy.org/monitorDiscussions concerning a proposed North American Free Trade Agreement (NAFTA) began in theearly 1990s among the United States, Canada, and Mexico. The proposal called for phasing outtrade tariffs among the three countries in order to open up their borders to regional free trade.Currently, NAFTA encompasses about 440 million people and is one of the world’s largest free tradezones.In a free trade scenario, the market determines who the producers of certain goods and servicesare, and who the buyers are. Theoretically, each country benefits from “comparative advantage” –countries produce they can produce most efficiently and at the lowest costs, and buy from othercountries what those countries can produce better or cheaper. 13
  • 14. Economy of MexicoThe concept free trade is premised on the unimpeded flow of imports and exports. For most ofmodern economic history, empires and countries protected their own domestic producers andmarkets from imports by erecting trade barriers. Trade barriers can be in the form of: Tariffs, which are taxes on goods imported from other countries that artificially raise the price of those goods and therefore make domestically produced goods more competitive. Subsidies, which are government grants paid to domestic producers so that those producers can charge less for their products, and therefore be more competitive. Tax breaks for domestic producers that lower their taxes and thereby decrease their costs. Labeling and packaging requirements and standards for imported goods those are expensive for foreign producers to implement, and add a cost not borne by domestic producers. Import quotas which place limits on the amount of imports of certain goods allowed into a country.In the absence of protectionist policies like those described above, truly free trade would result in aworld where developed countries (such as the US and Canada) would buy their agricultural andbasic manufactured goods from those countries that can produce them more cheaply (developingcountries such as Mexico where land and labor are less expensive). Developed countries wouldthen turn their attention to producing more technologically sophisticated goods and services thatthey can produce more efficiently with their educated workers, advanced infrastructure, and accessto innovation.NAFTA 15 Years Later: The Balance SheetNAFTA was supported in Mexico because intra-continental free trade, in theory, would allow thecountry to take better advantage of its greatest economic asset: its geographical proximity to thelargest economy in the world, the United States, as well as to another economic power, Canada.Facilitating unfettered access to these countries was seen as critical to bringing the benefits ofglobalization to Mexico. Goods that could be produced more cheaply in Mexico could be exportedto US and Canadian consumers; American and Canadian technology and investment would flow toMexico. 14
  • 15. Economy of MexicoAccomplishments: Trade among the three countries did, in fact, increase dramatically, 227% between 1993 and 2008, according to the World Bank. Trilateral trade currently accounts for $15.3 trillion in goods and services annually. Mexico’s share of this trade, which had previously been dominated by US-Canadian trade, also increased dramatically. Mexico’s imports from Canada rose 704%; its exports to Canada rose by 482%. Mexico’s imports from the US rose by 236%; its exports to the US rose by 440%. Since the implementation of NAFTA, all three countries have experienced GDP growth. The US and Canadian economies each grew by 53%; the Mexican economy grew by 51%. (Remembering that percentage growth of larger economies like the US and Canada yields much greater absolute gains than percentage growth in an economy like Mexico – they started at dramatically different levels, pre-NAFTA).Disappointments: The Mexican economy did not grow as much as expected. Inequality and poverty have persisted. Slow wage growth for workers continues to harm domestic consumption and overall domestic growth. Many had hoped that NAFTA would decrease immigration from Mexico to the United States by creating Mexican jobs. This has not been the case, with over 500,000 Mexican immigrants entering the US every year. Technological advances have come slowly to Mexico. Most industry is still in the low-value added sector, which means sophisticated parts are manufactured elsewhere and shipped to Mexico for assembly only. This results in only a small part of the profit from these goods remaining in Mexico. Mexican workers remain under-educated and under-trained, relegating Mexican industry to a less lucrative place in the global supply chain. Mexican agricultural exports have grown more slowly than anticipated, largely due to competition from large agricultural enterprises located inside the United States and protected by US government subsidies. Mexican farmers retain an advantage in crops that are hand-picked, such as avocados and strawberries, but many farmers, especially those producing corn, have been hurt by the dismantling of tariffs that protected them from cheap subsidized US imports. 15
  • 16. Economy of Mexico Some would say that the intensification of the drug war is to some extent linked to NAFTA – opening borders to legitimate trade have also facilitated trafficking in illegal substances and guns.Problems with the Pact: Free trade can be painful, as competition eliminates some kinds of jobs. NAFTA lacks many of the cushioning measures for populations which would not benefit from globalization. These include social safety nets for the displaced and unemployed, as well as labor standards for workers. There are few provisions within NAFTA for the mediation of trade disagreements. NAFTA’s focus is on eliminating tariff barriers; it neglects other protectionist measures. For example, US agricultural subsidies have gone unaddressed and continue to affect the competitiveness of Mexican exports. Implementation has been uneven. For example, a provision designed to allow Mexican trucks to deliver products in the US was rejected by the US Congress in early 2009. Both labor and environmental standards are largely missing from NAFTA, leading to unsafe working conditions in factories on both sides of the US-Mexico border and to environmental degradation in border towns where large populations have settled.Mexico Merchandise Tradehttp://stat.wto.org/CountryProfile/MERCHANDISE TRADE Value Annual percentage change 2009 2000-2009 2008 2009Merchandise exports, f.o.b. (million US$) 229 712 4 7 -21Merchandise imports, c.i.f. (million US$) 241 515 3 10 -24 2009 2009Share in world total exports 1.83 Share in world total imports 1.90 16
  • 17. Economy of MexicoBreakdown in economys total exports Breakdown in economys total imports By main commodity group (ITS) By main commodity group (ITS) Agricultural products 6.8 Agricultural products 8.6 Fuels and mining products 15.8 Fuels and mining products 9.0 Manufactures 75.1 Manufactures 80.4 By main destination By main origin1. United States 80.7 1. United States 48.12. European Union (27) 5.1 2. China 13.93. Canada 3.6 3. European Union (27) 11.64. Colombia 1.1 4. Japan 4.95. Brazil 1.1 5. Korea, Republic of 4.7Trade Policy Review by World Bankhttp://info.worldbank.org/etools/wti/docs/Mexico_brief.pdfAccording to the latest Trade (MFN) Tariff Restrictiveness Index (TTRI),1 Mexico scored 13.1 percentand was ranked 111th out of 125 countries (where 1stis least restrictive) With respect toagricultural imports, its TTRI of 27.7 percent is more than double that of the average Latin Americaand Caribbean (LAC) country and upper-middle-income country. The 2008 simple average MFNtariff is a high 12.7 percent, down from an average of around 18 percent in 2000–04, but still higherthan its regional and income comparators (9.3 and 9 percent, respectively). It’s simple average MFNtariff on agricultural products is high at 23.5 percent, while its tariff on non-agricultural products is11.5 percent. Mexico’s 2008 maximum applied tariff (including ad valorem equivalents of specificduties) is 306 percent, and applied to some agricultural products. The trade policy space, asmeasured by the gap between bound and applied tariff levels (the overhang), is 23.4 percent. Whileit was the 12thlargest initiator of anti-dumping investigations over the period of 1995–2008, Mexicohas restrained their use lately, initiating only one antidumping measure in 2008 and one in 2009.The financial sector is fully open to banks from countries with which Mexico has free tradeagreements, and recent administrations have expanded competition and openness in seaports,railroads, telecommunications, electricity generation, natural gas distribution, and airports, thoughlimits on foreign participation still exist. It ranks 52nd among 148 countries in its commitment toservices liberalization, as measured by the GATS commitment index. 17
  • 18. Economy of MexicoAs a result of the food price crisis, Mexico adopted various trade measures in 2008. It reducedimport tariffs on powdered milk by half; removed tariffs on wheat, rice, maize, sorghum, beans, andfertilizers; and, in agreement with the private sector, set price controls on 150 food items until theend of 2008. To address the global recession, it took unilateral measures to stimulatecompetitiveness, including the reduction of tariffs on 8,357 tariff line items, which represent 69percent of Mexico’s import tariffs. The reduction covers 22 sectors in 70 chapters that excludeagriculture. By 2013, tariffs on these products will go down to an average of 4.3 percent whencompared to 10.4 percent in December 2008, and 63 percent of its national tariff lines will be dutyfree.2 By April 2009, it had already eliminated tariffs on imports of used parts, but it imposedrestrictions on imports of diesel trucks. In response to the United States’ suspension of a pilotprogram to implement NAFTA’s provision to liberalize land transportation services, Mexico tooklegal retaliatory measures and suspended preferential treatment on 89 tariff line products comingfrom the United States. In May 2009, Mexico put out a stimulus package of US$21 billion thatincluded tourism sector support.Trade OutcomesGiven the recessionary environment in the United States, to which Mexico exports almost threequarters of all exports, exports have suffered. In 2008, Mexico’s real growth (in constant 2000 U.S.dollars) in total trade of goods and services decelerated to 2.6 percent, compared to 6.6 percent in2007, and is expected to shrink by 13.1 percent in 2009. Export growth slowed to 1 percent in 2008,compared to a 6.2 percent growth in the previous year, while imports grew at 4.1 percent in 2008compared to 7 percent in 2007. Both exports and imports are expected to shrink by 13 percent inreal terms in 2009.Nominal dollar export growth was 7.2 percent for goods and 5.8 percent forservices in 2008, while nominal import growth was 9.4 and 5.2 percent, respectively. The impact ofthe recession can be traced to the fourth quarter of 2008, when year-on-year exports actuallydeclined by 14 percent compared to a 15 percent positive growth in Q4 2007 and an average 15percent positive growth over Q1–Q3 2008.5 The situation worsened in Q1 2009, with exportsdeclining by 29 percent. A similar trajectory was followed by imports, though this would also reflecta smaller oil import bill. Mexico’s trade share in GDP is around 59.3 percent, lower than its regionaland income group comparators. Remittances are important, and brought in US$27.1 billion to theeconomy. However, due to the lower employment opportunities in the United States, remittancesdropped by US$800 million, falling to 2.4 percent of GDP in 2008 from 2.7 percent in 2007. FDIinflows accounted for 2 percent of GDP in 2008. 18