Relations between the United States and Mexico have not always been warm and cordial. For decades, there have been many disputes and frictions between the two countries over trade and investment issues.(1) From the U.S. perspective, Mexican economic policies were highly interventionist and protectionist prior to 1986.(2) These policies included import substitution, government subsidies, foreign exchange controls, foreign investment restrictions, and state ownership of key industries.(3) Equally important, the Mexican trade regime was. characterized by high tariffs and substantial non-tariff trade barriers on foreign imports.(4) The bilateral relationship between the United States and Mexico was further aggravated by foreign relations concerns such as illegal immigration and drug smuggling.(5)
While Mexico's protectionist economic policies contributed to three decades of rapid economic growth that became known as the "Mexican Miracle," they also resulted in inefficiency and inability to compete in many sectors of the Mexican economy.(6) With the rapid decline in oil prices in the 1980s and the debt crisis of 1982, the Mexican government finally realized that it had to move away from a policy of protectionism and government intervention to a policy of trade liberalization and openness to competition.(7)
In 1985, the Mexican government, under the direction of President Miguel de la Madrid, launched an ambitious economic reform program to restructure its economy.(8) The subsequent administration of President Carlos Salinas de Gortari further strengthened the reforms. Under the new economic policies, the Mexican government reduced the maximum tariff rate from 100% to an average 20%, removed restrictive import licenses on eighty percent of the imported items, embraced foreign investment, and privatized many state-owned enterprises.(9) The most important element of the reforms was Mexico's decision to join the General Agreement on Tariffs and Trade (GATT) in 1986.(10) As a result, U.S.-Mexican economic relations improved significantly because Mexican economic reforms reduced or eliminated some long-standing trade irritants.
Because the United States is Mexico's largest trading partner and the principal source of its foreign investment, the key to Mexican economic success depends largely on whether Mexico can continue to strengthen and improve its economic relationship with the United States. During the last few years, Mexico entered into a series of trade negotiations with the United States. The first step Mexico took to improve its trade relations with the United States was the signing of the 1985 U.S.-Mexican Subsidies Agreement, in which Mexico agreed to eliminate several export incentive programs that are considered as export subsidies by the United States.(11) However, the catalyst for improving U.S.-Mexican relations was the signing of an accord in 1987 known as the United States-Mexico Bilateral Framework Understanding, which provided a consultative forum for resolving bilateral trade disputes between the two countries.(12) Subsequently, Mexico and the United States signed two sectoral accords: the Steel and Alcoholic Beverages Agreement in December 1987, and the Textile Agreement in February 1988.(13) Both agreements were designed to reduce Mexican import trade barriers to U.S. exports of steel, alcoholic beverages, and textile products.(14) As part of its continuing efforts to expand economic relations with the United States, Mexico subsequently signed the Understanding Regarding Trade and Investment Facilitation Talks with the United States in 1989, thereby establishing a negotiating process for expanding trade and investment opportunities between the two countries."(15) In June 1990, the two countries agreed to negotiate a comprehensive bilateral free trade agreement (FTA).(16) In early February 1991, Canada, which already has an FTA with the United States,(17) requested to join the negotiations, thus expanding the talks into a trilateral affair. …