By Samuel Peña Guzman
Foreign Investment Coordinator
State of Nuevo Leon

When NAFTA was signed President Salinas De Gortari´s government tried to force Mexican companies to modernize, export and become more competitive. It did not take long for this to happen - at least in the exports area - exports grew at an accelerated rate, together with the financial crisis that Mexico suffered in December 1994.

However, as exports grew, so did imports, unfortunately surpassing exports, causing a trade deficit with the USA, our main commercial partner, with which we share more than 80% of our foreign trade. This now customary deficit has caused for our payments balance to be larger, making us more dependent on foreign investment coming to Mexico. This is, foreign investment is compensating the deficit in the payments balance, and therefore Mexico´s economic issues depend, to a certain extent, on the behavior of foreign markets, mainly the US and its huge transnational companies.

Even if it is true that the manufacturing sector in Mexico is the main exporting market, it is also responsible for the trade deficit, because its imports are larger than its exports. Manufacturing companies usually import equipment and machinery required for production and to improve competitiveness; manufacturing companies also import most of the components used in their products because they are unable to find in Mexico suppliers that will meet their demands. In the manufacturing sector, imports of goods related to supplies line are larger than primary supplies, such as capital goods, namely equipment and machinery.

Also, exports from the above-mentioned sector are also supply goods - mainly components. This means that manufacturing companies in Mexico make the components required by large corporations or transnational companies addressed abroad. Therefore, foreign trade, per se, takes place inside these companies and not in the general market, which reduces the benefits for the communities, because commerce is made only among companies.

The trade balance could be negative if analyzed from a different perspective. Goods considered intermediate, such as supply lines, are used to produced goods with a lower value added than those imported and it is precisely there where the problem lays versus exporting goods with more value added. This problem makes for foreign trade in Mexico to have an overall deficit, because of the import of goods considered intermediate with a larger value added than those exported.

Mexican foreign trade is seen in a context of strong dependence on international corporations, because price, quality and quantity of what Mexico can export is decided abroad, due to the fact that customers of manufacturing companies are addressed abroad. Therefore Mexican manufacturing companies have no control at all on the international markets for their products. We can only reach to the conclusion that, even if we have the advantage of our geographical location so close to the largest market in the world, incentives are required for exports with a larger value added, by granting credits to companies to purchase state-of-the-art technology and improve workers training. Mexico can not be "sold" any more as the ideal place due to its low labor costs, we must be more competitive and not being deceived by non-petroleum export figures, and the increase in said figures. Competitiveness must be our goal if we really want to reduce our dependence upon foreign countries.