I have done business in Mexico for two decades, both before and after NAFTA. Mexico provided us a wonderful opportunity back in the 1980’s even though we had to pay a 30% duty on products we imported from the United States. Good news! Today, things are much easier and your opportunity to earn money is vastly enhanced.
To kick things off, let’s clarify what NAFTA is all about. You have heard about NAFTA since it was hotly debated in the United States Congress in the early days of the Clinton Administration. You may remember the famous debate between Al Gore and Ross Perot. Gore demolished Perot in the debate and NAFTA was passed by a razor thin margin. Many people still doubt its usefulness. Let me give you the inside scoop on what NAFTA really means, and how it can benefit you and your business.
NAFTA, the North American Free Trade Agreement, has swung the doors wide open to all four business options. You can export your products to Mexico or you can import from Mexico. You can set up strategic alliances. Investment barriers have crumbled. Tariff barriers are almost gone. If you want to set up a business in Mexico, the Mexicans will roll out the red carpet for you.
NAFTA took effect on January 1, 1994. It is an agreement among Canada, Mexico and the United States. The objective is to eliminate all tariffs and trade barriers among the three nations. Over the years since 1994, most tariffs have been abolished. There was a 10-year transition period during which all tariffs were to be phased out. There are still some products protected by restrictions, but each year sees an easing of obstructions. Chances are good that your product will be free and clear. If there is still a tariff, it will probably be quite low and manageable.
Let me be realistic. It is not always easy.
I tried to send some pipe tobacco to my good friend, Tomás Fortson, in Mexico, who wanted a specific brand he could not get in Mexico. Tomás is a tobacco connoisseur and knew precisely what he wanted:
“Steve, could you please get me a can of Lionel Melendi’s Formula Marbella pipe tobacco produced by De La Concha Tobacconist in New York City?”
“Sure, Tomás. No problem.”
I sent the tobacco by FedEx. Most things get through customs within 24 hours. However, the tobacco languished in the customs office for a week. Finally, Tomás called to see what was happening.
The customs agent declared dryly, “Sr. Fortson, you can’t import pipe tobacco.”
“But I though NAFTA meant we could import anything.”
“Pipe tobacco is not on my list.”
“Well, how much do I need to pay?”
“No amount will do it. You can’t import it.”
“Surely there must be a way.”
“Hire a customs broker.”
Tomás checked. The cost of a broker was $350. The pipe tobacco was worth $35. Yes, it was premium tobacco, but Tomás was not about to pay $350. At last he told them acidly, “Take the tobacco and smoke it!”
I tell you this story for two reasons. First, you need to be mentally prepared to deal with some idiotic bureaucratic rules and regulations. Second, I want to assure you that there is almost always a way around them. Throughout this presentation, I hope to instill within you a huge sense of humor and a great deal of patience. A Savage strategist always finds a way, not an excuse.
Many people feared that NAFTA would cause great harm to United States workers as companies moved south. Many Mexicans were also worried, fearing the United States companies would gobble up smaller Mexican enterprises. Yes, people have been hurt in both countries. But the overall impact has been hugely positive. Both countries have gained jobs and trade has increased dramatically. Trade among the three NAFTA partners grew 128% from $289 billion in 1993 to $659 billion in 2000.
Do you think that it was only the Border States such as California and Texas benefited from NAFTA? Well, think about this statistic: 44 out of the 50 U. S. States registered export growth to Mexico last year. NAFTA promotes higher income and lower unemployment. Exports to Mexico tend to be positively correlated with higher levels of state income and lower levels of state unemployment. NAFTA is good news for almost every person in every state. And it is definitely good news for you as a businessperson!
Let’s compare a few numbers. Mexico still lags way behind the United States, but it is growing fast. Mexico’s Gross Domestic Product (GDP) last year was $915 billion. The United States’ GDP was nearly $10 trillion, about 11 times larger than Mexico’s. Mexico’s per capita income was $9,000 compared with the United States with $36,000.
OK, put on your skeptic’s hat for a minute. I can hear you doubting, “If their GDP is only one eleventh of the United States and if their per capita income is only a fourth, then why should I go to Mexico?”
First, a trillion dollars is nothing to sneeze at! Second, a per capita income of $9,000 is one of the best in the world. It is low compared to the United States but it is high compared to most third-world countries. Japan’s per capita income is $25,000 and Mexico is gaining on them. This is the time to go to Mexico, while growth is accelerating.
NAFTA is still a young agreement. It is not yet fully implemented. There are more benefits on the way. It is a great model for expanding trade and prosperity on a wide scale. If you jump into the Mexican opportunity, you will find broad cooperation along with possibilities that will extend your outreach to the world.
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