Mexico's land area totals almost 2 million sq. km, of which 19% is cultivable, 48% is suitable for livestock while the remaining 29% is forested. The three largest cities are Mexico City, with 16.4 million residents; Guadalajara, with 3.3 million; and Monterrey, with 2.9 million.

The foreign policy of Mexico is influenced to a great extent by its historical ties with the United States. Mexico lost almost half of its original territory to the U.S. during the middle of the 19th century, and strong anti-U.S. feelings still exist. In spite of all the border problems, drugs, and illegal immigration, the Salinas government brought Mexico into NAFTA Jan. 1, 1994. The Clinton administration offered a $20 billion aid package to help when Mexico had serious financial problems at the end of 1994.

The Mexican government strengthened its ties with free trade agreements such as GATT and now the WTO or the World Trade Organization. It has set up free trade agreements with Costa Rica, Bolivia, Venezuela, Colombia, Nicaragua, and Chile.

Mexico is also a full member in Asia-Pacific Economic Cooperation forum (APEC) since 1993 and the OECD since 1994. Negotiations are under way with several other Latin American countries to establish free trade agreements. Mexico signed an agreement with the European Union (EC) in 1998, making it the first transatlantic free-trade area to be established.

Mexico's per capita income is $4180. The inflation index has dropped to 16.06% and is forecast to decline to 6.2% by 2001. The market condition for Mexico is estimated to be around 4.5% of GDP for the remainder of 1998 after a growth rate of 7% in 1997. The World Bank classifies Mexico as an upper-middle-income developing country.

The GDP of Mexico was $387 billion in 1997 and is expected to come in at about $407 billion for 1998 and $499 billion by 2001. The 1998 currency exchange rate of Mexico averages about 8.832 pesos to $1.00. Interest rates in early 1999 were about 24%, and there has been a strong call for Mexico to switch to the dollar instead of the peso.

The cost of operating in a country like Mexico will depend on the exchange rate of the country's currency. Appreciation against other currencies will negatively impact exports. On the other-hand, if Mexico's currency depreciates this will make the country's products less expensive and competitive.

The Mexican peso will become much weaker in 1999 due to the capital inflows and a widening current-account deficit. The growth rate is expected to slow in 1999, and inflation rise slightly. Imports will increase, widening the trade deficit to $21 billion and the current account deficit to $13 billion. The 1999 Index of Economic Freedom from the Heritage Foundation lists Mexico 85th out of 161 countries.

Mexico's light commercial vehicle output is expected to top 1 million units in 1999. The automobile industry will continue to be an attraction for foreign investment, along with the electronic industry. Firms in Asia want to increase their supplier base before implementation in 2001 of an in-bond assembly regulation requires tariffs on inputs outside the NAFTA region.

Mexico finds itself in a dilemma due to a NAFTA clause that becomes effective Jan. 1, 2001. It will eliminate the 33-year-old maquiladora program that allows components to be imported duty-free and assembled for export. The rules of origin within NAFTA state that machinery and components from sources outside of Mexico, Canada, and the United States will lose their duty-free status. The rules of origin clause has been a contributing factor to the increase in Mexico's manufacturing sector as companies set up there in order to qualify as a North American operation. The total value of production of the maquiladora sector rose 30% to approximately $55 billion. However, not all manufacturers can buy all of their components in North America. Microprocessors and relays are purchased from companies in Asia. Many of the supplier companies have certain electronic components manufactured in Asia.

Toyota is evaluating whether to build a plant in Mexico with a capacity of 200,000 small vehicles per year. BMW and DaimlerChrysler have small CKD plants in Mexico.

Ford Motor Co. has two main plants in Mexico in the area of Cuautitlan, a suburb of Mexico City, and Hermosillo. They produce passenger cars and light trucks. Another small plant for Ford is located at Immsa, where the F7 pickup truck is assembled. The Chihuahua plant is targeted for a $500 million investment to build new engines, which is part of a $1 billion commitment to the year 2000.

General Motors de Mexico has two platforms based on the Chevrolet and Chevrolet Monza and on the Corsa platform. The Cavalier and Pontiac Sunfire is based on the J platform. GM plans to double production in the next four years.

Honda de Mexico began production in 1996 at a plant in Jaslisco, with an intended Accord production of 200,000 units a year. The product is targeted for the United States and Latin America.

Nissan Mexicana produces passenger cars and light trucks at two plants: Cuernavaca near Mexico City, with a production capacity of 150,000 units a year, and the Aguascalientes, with a production capacity of 166,000. Nissan plans to move all the production of the Sentra model from its plant in Tennessee to the Aguascalientes plant, and is investing $800 million to produce 330,000 units.

Volkswagen de Mexico has a plant in Puebla, 130 km from Mexico City, with a production capacity of 250,000 Golfs and Jettas and 95,000 Beetles. The market leader in Mexico, Nissan has lost some position to General Motors.

DaimlerChrysler is investing $175 million for a stamping plant at its pickup complex in Saltillo; Coahuila is part of a $1.5 billion commitment over the next five years.

Navistar has invested $167 million in a truck plant in Nuevo Leon.

Passenger Car and Light Truck Production,
by Manufacturer (units)

Company 1998 2000 Ford 258,200 279,800 General Motors 320,000 332,000 Honda 5,000 15,000 Nissan 216,000 286,000 Volkswagen 243,090 260,000

Mexico, the region's second biggest producer and economy after Brazil, has become a global purchaser and supplier of passenger cars and commercial vehicles. Vehicle production increased from 512,000 units in 1988 to 1.1 million in 1992, and domestic sales climbed from 342,000 to 707,000 in the same time frame. Passenger cars accounted for 70% of the increase. Vehicles sales in 1997 reached 300,000 units, with a forecast to reach 400,000 by 2000.

There are 320,000 km of roads in Mexico, 100,000 km of which are paved. Under the last government of the Salinas administration, private enterprises were sought to build and operate toll roads. However, this program has come to a halt. President Ernesto Zedillo Ponce de Leon is expected to re-implement the program.

Ford, GM, and DaimlerChysler dominate the light commercial vehicle market in Mexico. Nissan and Volkswagen have limited production in the light truck segment. The leading producer of medium and heavy trucks is DaimlerChrysler. The irony is they don't produce this weight class in the United States.

In 1994, Ford and GM started local assembly of medium-size trucks.

The total ban on LCVs being imported into Mexico other than by domestic vehicle manufacturers still remains in place. To qualify as a North American vehicle, it must have 50% regional content from 1994, 56% from 1998, and 62.5% from 2003.

Country profiles were provided by Raymond Champagne