Assessing NAFTA chapter 14: The financial climate of Mexico, NAFTA provisions and implications

This thesis is an assessment of the North American Free Trade Agreement. It focuses specifically on Chapter 14 of the Agreement which deals with the financial services sector. The emphasis of the project will be on Mexico - the financial climate in Mexico prior to the implementation of the NAFTA the provisions within the NAFTA regarding the financial services sector in Mexico and lastly, the implications of the NAFTA. Section one examines the financial environment existing in Mexico prior to the passage of the trade agreement. A history of the Mexican banking system is given, presenting the cycle of nationalization and privatization that the industry has experienced. The nature of Mexican banks and other financial institutions is then examined. An explanation of the universal banking system that Mexico has adopted will be discussed as well as other methods undertaken by Mexico to prepare itself to compete against foreign rivals. Included in this section are the inefficiencies existing in the present structure of the system in the financial services sector as a result of the nationalization of Mexico's banks. Lastly, the role of foreign financial institutions in Mexico is discussed including the activities allowed and the limits on ownership and establishment of these institutions before the NAFTA. Section two deals specifically with the NAFTA provisions for the financial services sector as outlined in Chapter 14 of the Agreement. The general principles of NAFTA are discussed, followed by an analysis of the two separate parts to Chapter 14 which are: 1) The general framework agreed upon by the parties involved and 2) the reservations held by the parties for specific industries within the financial services sector. Section three discusses the implications of the NAFTA beginning with the challenges inherent to free trade in financial services that arise from different financial structures and regulation at different levels of government within each individual country. Finally, the benefits the NAFTA will provide Mexico are analyzed as well as the tremendous opportunities the Agreement will afford to US companies positioned to expand into Mexico are discussed.