Ten years ago, the North American Free Trade Agreement (NAFTA) created the world’s largest free trade area. Officials for German companies based in Mexico say their business has benefited as a result.
VW plans to invest billions in Mexico over the next five years.
Mexico was a relatively closed market until it joined the U.S. and Canada under the auspices of NAFTA a decade ago. But things have changed dramatically since then, with Mexican exports more than tripling to $160 billion (€127 billion).
The agreement also boosted foreign investments, which quadrupled since the 1980s. Many firms built new factories in Mexico to take advantage of low wages and to avoid tariffs when importing to the U.S.
Many German companies had operations in Mexico prior to NAFTA, but they had mainly produced for the Mexican market. After the agreement went into effect, some expanded their production for export.
NAFTA countries include Canada, the U.S. and Mexico. The U.S. government plans a pan-American free trade zone by 2005.
VW, Siemens and others expand Mexican operations
Volkswagen’s factory in Puebla, for example, now exports 80 percent of its Beetles and Jettas, with 65 percent going across the border to the north. The company, which already is the largest German employer in Mexico, plans to invest an additional $2 billion (€1.58 billion) over the next five years. “Thanks to the various free trade agreements, Mexico is an international production location today,” Reinhard Jung, head of VW’s Mexican operations, told dpa.
Siemens has also expanded its Mexican presence over the last decade, setting up new car technology factories in Aquascalientes, Guadalajara, Puebla, Ciudad Juarez and Monterrey.
Chemical giant BASF invested $450 million in a new production facility. “Without NAFTA, this sum surely would have been smaller,” Nicholas Jose Ivandic, head of BASF Mexico, told dpa. Bayer, the German pharmaceutical company, is another investor in Mexico.
Lack of skilled labor a problem for smaller investors
Lack of skilled labor has been a problem, but big companies deal with the issue by training employees themselves. It’s kept most smaller German companies out of the country, according to the German-Mexican Chamber of Commerce (CAMEXA). Mexico’s bureaucracy, crime levels and courts that usually side with the employee are other reasons to deter investors, chamber officials said.
Last November, German President Johannes Rau, right, here with his Mexican counterpart Vicente Fox, visited Mexico with a group of businessmen to promote ties between the two countries.
Despite all that, some have still set up shop in Mexico. Burgmann, a company based outside of Munich that makes mechanical seals, has opened production facilities in several Mexican cities and now employs 113 people there.
“We decided to come to Mexico to use NAFTA’s advantages,” Mario Ramirez, who heads a Burgmann plant in the Mexican state of Guerrero, told Deutsche Welle. “We’re able to ship products to the U.S. without paying tariffs and we have low costs. We can produce for about 25 percent less than in a European country.”
Ramirez added that as a Mexican, he hopes his country will invest more in education. “Cheap labor alone will eventually lead to a fiasco,” he said. Already, Mexican farmers are complaining that they cannot compete with their American counterparts, who receive subsidies from their government.
“Everything’s getting ruined in the Mexican countryside,” Pedro Miramontes, a farm worker, told Deutsche Welle. He added that two-thirds of the people in his village have already left for the U.S. because they could no longer survive in their own country.
There are also signs that other countries are beginning to trump Mexico as far as cheap labor is concerned: Some of the so-called maquiladoras, factories where Mexican laborers assemble products, have been closed and reopened in China, for example.