05 June 2019

Canadian business opportunities with Mexico often overshadowed by larger U.S. economy: HSBC

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Business relationships between Canada and Mexico are often overshadowed by trade with the world’s largest economy, the U.S., situated between us. But trade between Canada and Mexico is growing and offers considerable opportunities to Canadian businesses for both export and investment.

The Council on Foreign Relations notes that, following the ratification of NAFTA in 1994, the value of goods traded between Canada and the U.S. has doubled. At the same time the value of goods traded with Mexico has increased eightfold.

“The overall numbers may look small beside the overwhelming size of U.S. trade totals, even more so for Mexico than Canada,” says Jeremy Bliss, HSBC’s head of international subsidiary banking, Mexico & Latin America. “But Canada is already the number two destination for Mexican exports and number six in the list of countries of origin for imports. On the flip side, Mexico is the number three country for imports to Canada and the number six market for Canadian exports.”

He states that Canada and Mexico have a lot in common as trading nations. Mexico currently has more free trade agreements (FTAs) in place than any other country in the world, just as Canada is looking to negotiate FTAs with a growing list of markets worldwide.

Both countries are also looking to diversify their trade. According to data compiled by HSBC and World Integrated Trade Solutions, the U.S. represented 63 per cent of Canada’s total goods traded (exports plus imports) in 2017. The Mexican economy depends even more on the U.S., which purchases about 80 per cent of Mexican exports.

Mexico is committed to ratifying Canada-United States-Mexico Agreement (CUSMA), known there as Tratado entre México, Estados Unidos y Canadá (T-MEC), although the agreement remains stalled in the U.S. House of Representatives. There’s still some uncertainty in the Mexican market because of that delay, but NAFTA remains in place to promote Canada-Mexico trade, as does the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, to which both Canada and Mexico are signatories.

“There’s much greater potential for Canadian and Mexican companies to do business than has already been realized,” says Bliss. “In part, that’s the result of an outdated perception of Mexico as a supplier of low-skilled labour. The manufacturing expertise that Mexico has developed in the automobile supply chain through working with American, German and Japanese firms has percolated throughout the economy and has created a highly skilled workforce with transferable skills that could see Mexico becoming a bigger player in the aerospace industry, for example, leveraging Canadian expertise in this field.”

He notes that Canadian companies that may have been outsourcing manufacturing or production of consumer electronics to China or southeast Asia are also now taking a second look at the advantages of manufacturing in Mexico. Canadian companies might also consider the options of establishing a maquiladora — a manufacturing facility located in Mexico that pays no duties or taxes on imported materials or machinery used to manufacture goods for re-export within a certain time frame.

“Although Mexico is well advanced in the penetration of mobile devices throughout the market, they are still behind the curve on e-commerce,” says Bliss. “As e-commerce begins to gain in popularity among Mexico’s population of 130 million consumers, there will be a tremendous opportunity for Canadian companies that may not yet be ready to commit to setting up shop in an emerging market but want to test the waters in the most stable large economy in Latin America.”

Canadian companies have also become increasingly involved in the Mexican tourism industry, establishing lower-cost destinations for snowbirds looking for alternatives to traditional destinations like Florida.

“The Mexican government and Mexican businesses are all committed to North American free trade, whatever form that ultimately takes,” says Bliss. “While Canadian trade deals are often overshadowed by their big brother to the south, Mexico likewise is often overshadowed by that same big brother to the north. Both Canada and Mexico have a lot of unexplored opportunities to pursue natural synergies and logistical advantages to do business with each other. Whether you call the new free trade agreement CUSMA or T-MEC, it won’t be a game changer for either country. The opportunities to do business are already here.”

This story was created by Content Works, Postmedia’s commercial content division, on behalf of HSBC Bank Canada.

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