Mexico attracted investment across a range of business activities, much of it drawn to a huge pool of low-cost labor in the proximity of the US market. As the previous three chapters have shown, not only US firms but also their competitors from non-NAFTA countries invested massively in Mexico. The competitive disadvantages created by NAFTA affected a broad coalition of firms in Europe and Japan, creating a powerful constituency in favor of defensive agreements. But was Mexico an outlier, given its high MFN barriers and proximity to the United States? Do smaller markets also trigger a competitive dynamic?

This chapter offers evidence that Mexico was by no means exceptional. Within few years it became evident that NAFTA was only the first in a wave of PTAs between developed and developing countries. Once policymakers recognized this fact, they became increasingly concerned about the competitive effects of PTAs. The previous chapters have argued that bureaucrats in the EU and Japan explicitly considered these effects as relayed to them by firms and lobbyists. This chapter shows that when competitors began pursuing PTAs with developing countries, US policymakers in turn reconsidered bilateral options. Even though the investment interests were limited to services industries in a small country, and despite a number of political obstacles that had prevented Chile's accession to NAFTA itself, the competition over access to invest in services in Chile generated business support for an FTA in both the United States and the EU.

In the services sector, imperfectly competitive market structures help to drive bilateral agreements, even if a host country has comparatively low multilateral barriers to trade and investment.