Mexico and the North Free Trade
Agreement in 2018
By the end of January 2018
the sixth round of conversations for the renegotiation of the North Free Trade
Agreement will be held. And even if the parties have agreed to maintain the negotiations
confident, there is a lot of speculation regarding the attitude of the new U.S.
administration and how flexible would they be while negotiating. The
protectionist and isolationist posture from the current U.S. president makes
many Mexicans and policymakers think deeply about the value of Mexico to the
U.S.
As a Mexican, I dare to
give a voice to my people. I believe that Mexico has always played as a
significant strategic and geopolitical ally to the United States. And the ‘Good-Neighbor’
Policy should not be forgotten.
Moreover, I consider many Mexicans would like
to say out loud the U.S. must always remember that they have a shared history
with Mexico that make them intrinsically bounded in many aspects, such as
social, cultural, academic, scientific economic, political and most
importantly, geographical, therefore, common respect should be always present.
Regarding the North Free Trade Agreement, signed by
Canada, the United States and Mexico that entered into force on January 1st
1994[1], it
reshaped the North American economic
relations, driving an unprecedented integration between Canada and the United
States’ developed economies and Mexico, a developing country.
These three North American countries were extremely
beneficiated from this negotiation as it more than tripled regional trade and cross-border
investment between them. Regional trade increased
sharply over the treaty’s first two decades, from roughly $290
billion in 1993 to more than $1.1 trillion in 2016. All things considered, it
has been a successful trade agreement[2].
Furthermore,
U.S. trade with its North American neighbors has more than tripled, growing
more rapidly than U.S. trade with the rest of the world. Canada and Mexico have
become the two largest destinations for U.S. exports, accounting for more than
a third of the total. Around fourteen million U.S. jobs rely on trade with Canada and Mexico, while the nearly two
hundred thousand export-related jobs created annually by the pact
pay 15 to 20 percent more on average than the jobs that were lost[3].
Moreover, the benefits of a deal like NAFTA are distributed widely across
society.
However,
I think many Mexicans find it difficult to understand why the current U.S.
president has turned NAFTA renegotiations into a political issue,
claiming that NAFTA has only benefited Mexico and that the deal has shifted U.S.
manufacturing production and jobs to Mexico, causing job losses in the U.S. and
trade deficits; if the numbers say the contrary?
The
answer is simple, many critics of NAFTA rely on job losses and wage stagnation
in the U.S. and a deficit trade balance from a $1.7 billion U.S. surplus in
1993 to a $54 billion deficit by 2014[4].
Nonetheless, I believe, despite the fact that some jobs are lost due to
imports, others are created, and consumers have benefited significantly from
the falling prices and often improved quality of goods created by import
competition. In addition, renowned economists emphasize that increased trade produces
gains for the overall U.S. economy[5].
Vis-à-vis, back in 1994, Mexican policy makers believed that NAFTA would
lead Mexico into the path of ‘modernization’ and would create the opportunity to
accelerate the economy.
In fact, it gave
a major boost to the Mexican economy, farm exports to the United States tripled since NAFTA’s implementation; hundreds of thousands of
auto manufacturing jobs have also been created in the country, current 80
percent of Mexican exports are sent to the U.S.; foreign investments have
increased considerably and many maquiladoras have been placed in Mexico
creating jobs for the population[6]. Undeniably, the
pact had a positive impact on Mexican productivity, leaving the net gains to a
few.
Moreover,
Mexico’s NAFTA experience has shown a lack of consistence between the promises
of some of its supporters —that the pact would deliver rapid growth, raise
wages and reduce emigration—and the deal’s more mixed outcomes, which also has been deeply felt in the still
existing massive poverty. The question that every Mexican poses to the
macroeconomists: Why did this happen?
Well, the answer is not difficult. Going back in history, from the 60’s to 80’s Mexico's GDP per capita
nearly doubled. This amounted to huge increases in living standards for the
vast majority of Mexicans. If the country had continued to grow at this rate,
it would have European living standards today. Unfortunately, Mexico began a long
period where neoliberal policy changes were implemented
and gave importance to
de-regulated international trade and investments, and prioritized tighter
fiscal and monetary policies[7]. These
policies put an end to the prior period of growth and development and led the
rich become richer.
It is sad to see economic reports stating that between 1993 and 2013,
Mexico’s economy grew at an average rate of just 1.3 percent a year during a
period when Latin America was undergoing a
major expansion[8].
Nowadays, poverty remains at the same levels
as in 1994[9].
And the expected “wage convergence” between U.S. and Mexican wages didn’t happen, with
Mexico’s per capita income rising at an annual average of
just 1.2 percent in that period—far slower than Latin American countries such
as Brazil, Chile, and Peru[10].
What is more, NAFTA helped to consolidate the neo-liberal,
anti-development economic policies that had already been implemented in the
prior decade in Mexico; enshrining them in an international treaty. Also, Mexico
became even more tied to the US economy,
which was especially unlucky in the two decades that followed: the Fed's
interest rate increases in 1994, the US stock market bust (2000-2002) and recession
(2001), and especially, the housing bubble collapse and Great Recession of
2008-9 had a bigger impact on Mexico than almost anywhere else in the region[11].
Many
Mexicans would like to tell the Americans that unemployment in Mexico also rose.
Some economists have blamed NAFTA for exposing Mexican farmers, especially corn
producers, almost 2 million small-scale Mexican farmers, to competition from
heavily subsidized U.S. agriculture and put out of work[12].
This caused the displacement of farmers, young Mexicans willing to work and
produce without jobs, through legal and illegal migration to the United States,
which also doubled after 1994, peaking in 2007.
Similarly, since the beginning of NAFTA, maquiladoras and assembly plants flourished in
Mexico. Currently, there are one million
Mexicans working in over 3,000 maquiladora manufacturing or export assembly
plants, mostly in northern Mexico; these produce parts and products for the
United States and other nations. In addition, Mexican labor is low-cost and
because of NAFTA, taxes and customs fees are almost nonexistent[13]. In these maquiladoras, Mexican workers
cheaply assemble products for export back into the United States. The program
grew to employ 30 percent of Mexico's labor force[14]. Currently,
many maquiladoras do not offer any type of labor rights or health protections
with workdays of 12 hours of more[15]. Not
to mention the environmental damages that these maquiladoras have produced in
Mexican soil.
Besides, there
has been a deep deterioration of the Mexican environment. Mexico, among its
other two partners, has been the party mostly environmentally damaged. As in
response to NAFTA competitive pressure, Mexico agribusiness used more
fertilizers and other chemicals, costing $36 billion per year in pollution.
Rural farmers expanded into marginal land, resulting in deforestation at a rate
of 630,000 hectares per year. The boom in mining came at the expense of local
owners, with subsequent industrial pollution[16].
All things considered, by the end of January, a significant decision must
be made.
On one side, I
believe that Mexican policy makers are exploring other paths in case the U.S.
decides to withdraw from NAFTA. But they must consider two main factors.
The first one is
that the U.S. government must not forget that thanks to NAFTA, the U.S. became one of the most competitive
economies in the world, the U.S. has been able to experience stronger economic
growth and job creation than other major economies, and currently, the country
enjoys significant power to shape the rules and compete on global markets. If
NAFTA is terminated or renegotiated to reduce market opportunities, the U.S.
position as having the most competitive and thriving economy in the world will
be jeopardized[17].
The second one is
the actual consideration from the Mexican elite to depend less from the U.S.
trade market and starting to expand to other horizons, maybe following a free
trade path. Nonetheless, it is also important to learn from NAFTA lessons.
There should be more concern for the Mexican society and the struggles they
have suffered after 24 years of free trade with the neighbor from the North. A
deep examination of failures must be done and focus on rehabilitating local
farms and reestablishing local agriculture; also, the government must consider
better environmental and employment regulations while signing new free trade
agreements.
Most importantly, Mexicans must not forget their value as people, as
workers, as thinkers, as intellectuals and as a whole nation in order to regain
their human value, which is a core issue to stand against populist and xenophobe
discourses.
[1]
(2018, January)North American Free Trade Agreement. In Office of the United
States Trade Representative: Free Trade Agreements. Retrieved from: https://ustr.gov/trade-agreements/free-trade-agreements/north-american-free-trade-agreement-nafta
[2]
McBride, James; Aly Sergie, Mohammed. (2017, October 4th). “NAFTA’s
Economic Impact”. In Council of Foreign Relations. Retrieved from: https://www.cfr.org/backgrounder/naftas-economic-impact
[3]
Mayela, Andrew; Wingrove, Josh; Eric Martin. (2017, December 16th). “Nafta
May Be on Track for an Unhappy New Year”. In Bloomber Politics. Retrieved from:
https://www.bloomberg.com/news/articles/2017-12-15/nafta-may-be-on-track-for-an-unhappy-new-year-as-talks-languish
[4]
McBride, Aly Sergie; op. cit.
[5]
Íbidem
[6]
Íbidem
[7]
Weisbrot, Mark. (2014, January 4th). “NAFTA: 20 Years of Regret for
Mexico”. In The Guardian. Retrieved from: https://www.theguardian.com/commentisfree/2014/jan/04/nafta-20-years-mexico-regret
[8]
Íbidem
[9]
Íbidem
[10]
Bride, Aly Sergie; op. cit.
[11]
Weisbrot, op. cit.
[12]
Amadeo, Kimberly. (2017, July 7th). “6 Problems with NAFTA”. In The
Balance. Retrieved from: https://www.thebalance.com/disadvantages-of-nafta-3306273
[13]
Rosenberg, Matt. (2017, June 30th). “Maquiladoras: Mexican Factory
Assembly Plants for the U.S. Market”. In ThoughCo. Retrieved from: https://www.thoughtco.com/maquiladoras-in-mexico-1435789
[14]
Íbidem
[15]
Amadeo, op. cit.
[16]
McAuliff, Michael. (2014, November 3rd). “Nafta Report Warns on
Trade Deal Environmental Disasters”.Politics. Retreived from: https://www.huffingtonpost.com/2014/03/11/nafta-environment_n_4938556.html
[17]
Rooney, Matthey. (2017, December 14th). In Foreign Policy. Retreived
from: http://foreignpolicy.com/2017/12/14/america-needs-nafta-to-win/
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