Like other major Latin American countries, Mexico has been on a journey of great economic and political transformations since the early 90s. The Peso crisis of 1994 and 1995 was a timely lesson for the country on the dangers of globalization and market integration. Since then, the country has been attempting to achieve economic diversification. Diversification in the Mexican context means pursuing political relations with regions other than North America, including Europe, South America and Pacific Asia. Nowadays, Mexico has a well-designed economic insertion policy that employs trade to provide the country with access to big commercial blocks, such as NAFTA and APEC. One such recent trade move is seen in Japan-Mexico’s Economic Partnership Agreement (EPA). While inflation and high interest rates might still impede Mexico’s economic development, growth through direct foreign investment and trade remain a bright spot for the country.
There has always been a need for a free trade agreement between Japan and Mexico. Japan could not gain sufficient access to Mexican markets due to U.S. and E.U political influences, while Mexico needed new markets for its agricultural product (OEC, n.d.). The enactment of the Japan-Mexico Economic Partnership Agreement (EPA) in 1995 provided a business-friendly environment for investment and direct trade between the two countries. In 2020, Japan exported nearly $10 billion in products to Mexico, mostly motor vehicles, accessories and electronic integrated circuits (OEC, n.d.). In 2009, Japan’s exports to Mexico stood at a dismal $1.19 billion. On the other hand, Mexico exported $4.73 billion to Japan, mostly avocados, meat (Bluefin tuna), transmission apparatus and sound and audio recording technologies (OEC, n.d.). When it comes to the industrial sector, Japan provides key inputs and cash flow, while Mexico provides human capital and production territories.
Trade between Mexico and Japan has influenced Asian countries’ perception of Latin American markets, whereas Mexico has become more receptive to Asian ideals. Increased bilateral trade with Japan has seen Mexico adopt lean production concepts, such as Six Sigma (Solis & Katada, 2007). In Japan, people are willing to pay high prices for products of the highest quality. In Mexico, consumers often look for the highest quality at the lowest possible price. Contemporary Mexicans have learned to respect the artisan’s work, meeting prices if they match its quality. Unfortunately, the exchange of ideas has mostly been one-sided, with Japan exerting more influence (Solis & Katada, 2007). The trend lies largely in the fact that more Mexicans migrate to Japan than the Japanese who migrate to Mexico. Nevertheless, Asians are more likely to invest in Mexico today than two decades ago.
Trade was the primary incentive behind Japan and Mexico adopting immigration policies for the free movement of skilled and educated workers. While market entry for unskilled Mexicans into Japan has been limited, entry for students and talented personnel is unlimited. More and more Mexicans are accessing Japanese educational and professional institutions for formal training, which improves the global competitiveness of Mexico’s labour market (Solis & Katada, 2007). There has been a surge of low-wage workers leaving Mexico for Japan. On the other hand, highly-skilled workers have been moving to Mexico to work in the manufacturing, assembly and mining sectors. The increase in Japanese workers in Mexico correlates with direct foreign investment from Japan into Mexico (Solis & Katada, 2007). In another scenario, Mexican companies are able to register more patents, meaning the Japanese emigrate to the country to benefit from research and development opportunities.
While shipping is rather expensive, it remains the most cost-effective way to move goods in global trade. Japan heavily relies on Mexican ports to distribute its goods in North America. Over 62% of all total payload of freight transported from Japan to Mexico was via cargo ships. Japan has over 120 ports, equally making shipping the most popular method for importing and exporting goods. Air transport is the second most popular distribution method for goods, especially high-level computer integrated circuits. There are direct flights between Mexico and Japan. Railway and road transport is applied for the internal movement of goods from port harbors to storage houses. Japan is heavily committed to improving Mexico’s public infrastructure with an aim to improve the volume of goods and services exchanged between the two countries annually. Mexico’s maritime ports, suburban trains and transport logistics are some of the sectors receiving Japanese foreign direct investment.
Japan and Mexico represent a modern success story in bilateral trade. Through the EPA, Japan increased its importation of agricultural products from Mexico while still promising to increase its acquisition of steel. On the other hand, Japan has benefited from the increased exportation of electric appliances, motor vehicles and other industrial products. The EPA is also associated with other social implications with more Mexicans emigrating to Japan for work and higher education. The Japanese are also immigrating to Japan to work in the mining and manufacturing sectors. Developing countries often get left out of global bilateral trade agreements, which is why Mexico needs to identify and establish other regional pacts, such as the EPA. Such a diversification strategy will allow Mexico to wade off the political and economic influences of the United States in its plight for international autonomy.
References
Observatory of Economic Complexity (OEC). (n.d.). Japan/Mexico. OEC Profiles, https://oec.world/en/profile/bilateral-country/jpn/partner/mex
Solis, M. & Katada, S. (2007). The Japan-Mexico FTA; A cross-regional step in the path towards Asian regionalism. Pacific Affairs, 80(2), 279-301.