The evolution of the environmental industry in the post-NAFTA era in Mexico

The market for environmental goods and services in Mexico almost doubled in size between 1995 and 2005, amounting to $4.7 billion in 2005. But just how large a role did the North American Free Trade Agreement (NAFTA) play directly in this cycle? According to environmental industry participants in Mexico, while not meaningless, the NAFTA law and its implementation were not a major factor in directly driving environmental market growth. First, the environmental market grew only marginally higher than the gross domestic product (GDP) during 1995–2005. Second, it was largely two factors that paced the environmental market growth: an increase in certain domestic environmental programs that largely separate from NAFTA and an influx of foreign manufacturers into Mexico, some of which brought a higher standard of environmental operations with them. Drivers of environmental markets are both economic and regulatory, and in both instances, they are multifaceted, so that no one policy instrument or economic trend is solely responsible for major trends within the environmental industry. However, it is apparent that NAFTA has had some role in accelerating the evolution of environmental markets in Mexico, but arguably a lesser influence than it could have been. Notably, NAFTA had little impact on stimulating growth on the domestic environmental industry in Mexico as trade deficits increased during 1995–2005. The lesson for policymakers may be that trade agreements need some more active entity in assuring not just some uniformity in environmental standards and in the compliance with same, but also in the environmental industry capacity to meet those compliance objectives.