Close WindowPrint Article

Beyond Virginia
 
Get to Know Your Neighbor

Export markets are not always “overseas” in distant lands. Indeed, the strongest markets for American exports continue to be our closest neighbors, Mexico and Canada. Mexico – the second largest buyer of U.S. products after Canada – is a key market for U.S. and Virginia exporters! Mexico purchased $126 billion worth of U.S. goods from January to November, 2007, up nearly $2 billon from the same time period in 2006. And, Mexico remains a consistent buyer of U.S. goods and services. For the last three years, U.S. exports to Mexico have reached well over $100 billion annually.

Our vibrant commercial relationship with these two countries has been bolstered by the North American Free Trade Agreement (NAFTA), which went in to effect in 1994. In just over a decade since the ratification of NAFTA, US exports to Mexico have increased 136% and in 2006 reached a record value of $134 billion. Mexico is second only to Canada in terms of buying American goods and services, although trade with Mexico is growing at a faster rate than Canada. NAFTA provides special tariff treatment for products that meet one of the four qualifying NAFTA Rules of Origin and allows most U.S. goods to be shipped by truck or rail for near seamless entry into Mexico.

Our Neighbor to the South
Not surprisingly, Mexico’s economy is intricately intertwined with the US economy, which consumes approximately 80% of Mexico’s exports. The engine of Mexico’s exports are the maquiladoras along the US border. Maquiladoras are factories that tend to be owned by U.S., Japanese, and European companies, and primarily produce electronic equipment, clothing, plastics, furniture, appliances, and auto parts. Maquiladoras are primarily located along the US border (specifically Texas) because 80-90% of the goods produced by these factories are shipped to the United States.

In the early to mid 1990s, there were approximately 2,000 maquiladoras with 500,000 workers. In just under a decade, the number of plants has almost doubled and the number of workers has more than doubled. Today, there are over one million Mexicans working in over 3,000 maquiladoras in northern Mexico. The main advantage of the maquiladora is that there are no tariffs paid on raw materials, equipment, and components which are temporarily imported into Mexico for manufacture, assembly, and/or processing. Duties are paid on the value added to the original components unless they are sourced from the NAFTA countries (Canada, U.S., and Mexico), in which case they are duty free. While the maquiladoras have been a magnet for manufacturers looking for a cheaper place to do business, in recent years the emergence of China as the world’s factory has had negative implications for Mexico’s manufacturing base. Illegal “knock-off” products from China are further damaging Mexican industries, and have prompted Mexico to lodge a complaint against China with the World Trade Organization (WTO).

Best Sector Prospects
The strongest export sectors for U.S. businesses selling to Mexico continue to be electrical and industrial machinery, vehicles and parts, plastics, chemicals, coal, and medical equipment. Electrical machinery has held the number one spot for over a decade, and includes generators, electric ignition equipment, discharge lamps, transformers, and insulated wire and cable. Sectors that showed impressive annual growth in 2007 included organic chemicals, cereals, and toys and sports equipment.

Virginia’s top exports to Mexico in 2007 included electrical and industrial machinery, paper and paperboard, plastics, pharmaceutical products, man-made fabrics and dyes, paints and putties. Those industries recognizing growth in 2007 were industrial machinery, paper and paperboard, and aircraft/spacecraft and parts thereof.

How to Meet Your Neighbors
So how can your business be a part of the strong commercial ties with our southern neighbor? In order to help Virginia exporters expand their sales in Mexico, the VEDP Division of International Trade has an office in Mexico City, staffed by Margo Galvan (MGalvan@YesVirginia.org). Margo is available to assist Virginia companies with preparation and execution of business in Mexico. She has helped conduct over 10 trade missions to Mexico since joining the VEDP.

These trade missions are a great way to open the door and generate sales and the VEDP has a strong track record of successful trade missions to Mexico. This year, the VEDP will be leading a delegation on May 12-16, 2008. The itinerary will include visits to Mexico City and Monterrey, where trade mission participants will enjoy one-on-one meetings with targeted, pre-screened companies that match their unique company and market objectives. Participants will travel with Joe Adams, International Trade Manager, and will benefit from his connections and expertise. The VEDP will provide pre-arranged meeting rooms, in-country transportation, translation assistance, market briefings and networking functions.

If you would like more information on the Mexico market and/or our 2008 Trade Mission to Mexico click here to view our Mexico Fast Fact , or contact Joe Adams at JAdams@yesvirginia.org.

 

DISCLAIMER – The contents of this article are intended to provide pertinent inform-ation for Beyond Virginia subscribers interested or already involved in international trade. While every effort is made to convey accurate and timely information, the contents of this article are not intended as specific advice to its readers. Our intent is solely to convey information.