The purpose of this paper is to estimate for Mexico an aggregate transcendental logarithmic cost function which includes imports as a factor of production. The nature of Mexico's demand for imports will be given particular attention, since this relationship has implications for the outcomes of many government policies, including changing tariff rates and subsidies. Moreover, it may take on even greater importance as a result of the proposed North American Free Trade Agreement (NAFTA). In the past, Mexico has tried to limit imports through a number of policies, including tariffs, tax penalties and/or incentives, import quotas, licenses, restrictions on access to foreign exchange, and policies to encourage domestic production to substitute for imports. Recently, however, President Carlos Salinas de Gortari has acted to reduce Mexico's barriers to imports, particularly by unilaterally lowering tariff barriers. In addition, President Salinas has actively supported the proposed North American Free Trade Agreement among Canada, the United States, and Mexico.