NAFTA does not fulfil Mexican expectations
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AP | 1-1-2014
Freely translated by Anoosha Boralessa in March 2015; not reviewed or revised by bilaterals.org or any other organization or person.
NAFTA does not fulfil Mexican expectations
Coming to Mexico, packed with Starbucks, Wal-Mart and Krispy Kremes, it is difficult to imagine what the country was like prior to the approval of the North American Free Trade Agreement (NAFTA). NAFTA entered into force exactly 20 years ago.
Although NAFTA fundamentally changed the country in some ways, this treaty that covers Mexico, the United States and Canada – did not meet expectations of putting Mexican wages on the same level as US wages; it failed to boost employment, to reduce poverty and to protect the environment.
Owing to weak Mexican trade unions and due to competition from Asia and Central America, salaries continue to be flattened; the closest monitoring of the US border closed the human “escape valve”; and treaty provisions on environmental protection failed to withstand the influence of powerful investors.
Some sectors of the Mexican economy benefitted from the treaty. The motor industry, the electronic industry and the agricultural industry expanded. So too did the presence of foreign banks and this increased access to credit. But for most Mexicans, there were no tangible economic benefits. While there is no doubt that the Mexican middle class grew, Mexico is the only important Latin American country where poverty has increased in recent years.
According to the Economic Commission for Latin America and the Caribbean, in Latin America as a whole, poverty has decreased from 48.4% in 1990 to 27.9% in 2013. In Mexico, poverty was recorded at 52.4% in 1994, dropped to 42.7% in 2006 but in 2012, rose again to 51.3%.
“It remained drifting, short of 30 or 40% of what they were promising”, commented a 65 years old chauffeur, Rodolfo Hurtado Corona, while waiting for his boss in a street in Mexico City.
He added that “there are more products, especially electrical household appliances, televisions and especially cars. Whereas before there were only two or three brands, now you can choose from many”.
The economist Alfredo Coutino, director of Moody’s Analytics for Latin America, said that “the benefit, if there is one, may not have been on the scale we had forecast. That said, if Mexico had not signed this agreement, it would be in a worse situation that it has been in for the last 20 years.”
Prior to the agreement, Mexico had a closed economy, dominated by the state sector. It was heavily indebted with low productivity in its agricultural sector. This led to a situation of massive unemployment.
NAFTA, combined with globalization and foreign investment, has helped to generate jobs but only those that are poorly paid.
In supermarkets, there is a greater range than before. For example, imported blueberries and lemons that had been in short supply are now in abundance. This is the result of eliminating trade barriers between Mexico, Canada and the United States.
Clothes and other goods previously only accessible to the richest are now within everyone’s range. There is a greater selection especially in vehicles and electrical household appliances.
Coutino recalls that “previously in Mexico it was about social status: a Mexican who was able to sport a pair of very expensive imported sneakers — only those who had money could buy them… now a greater number of Mexicans can possess these articles previously considered super-luxury”.
However ambivalence persists among Mexicans: a recent opinion poll carried out by the newspaper Universal/Buendia-Laredo showed that if NAFTA were proposed today, 50% of Mexicans would approve it while 34% would reject it. The remainder did not take a position on this matter. The margin of error was 3.5%.
In any event, there is no turning back. The three signatory countries are economically integrated and are making efforts to further integrate. The recent Mexican energy reform allows private investment in the sector and the thinking is to enable the continent to become independent regarding its energy source.
The treaty known as FTA or NAFTA, has almost been forgotten in light of the most recent controversy: the Trans Pacific Association, a negotiating process to create a free trade zone between Asia and the Americas.
The opposition to this association brings to mind the harsh warnings expressed when NAFTA was being negotiated.
At that time (the start of the 90s), those who opposed the agreement forecast that millions of US jobs would be lost and replaced with workers in Mexico. Also, trade union associations and farmers predicted that there would be a massive exodus from the rural areas to urban areas in Mexico. However a study of the Research Service of the Congress in 2010 found that “most of the research on NAFTA has found that the effects on the Mexican economy has tended to be modest, if that”.
On the positive side, trade between the three countries has dramatically increased. It is nearly 3.5. times its 1994 volume. That said, US – China trade and US trade with other Asian states has increased even more sharply during these last two decades. Assembly plants have been built in Mexico that produce around three million vehicles per year. The quantity of jobs in the Mexican automotive sector has increased by approximately 50% since 1994.
However, jobs in this sector in Mexico are very poorly paid and there has been little progress in standardizing the salaries in this country with its Northern neighbour. On average, salaries in the manufacturing sector in Mexico were the equivalent of 15% of salary in the same sector in the United States in 1997. For 2012, the percentage increased, but only to 18%. There are some sectors where Mexican wages are even lower than those in China.
And the treaty has neither fulfilled the promises it made on environmental protection.
The North American Development Bank which is a part of the agreement [See Translator’s Note 1], has invested more than 1,330 million dollars to finance projects on the border to provide drinking water and to create drainage systems and to treat dirty water, However, contaminated waters continue to flow and the quality of air continues to be poor in many communities on the border.
The US exports of lead car batteries to Mexico has shot up by 500% between 2004 and 2011. Only now are the authorities beginning to consider the requirements for certification so that the companies that export batteries may extract lead.
Of course the agreement has benefitted foreign investors. The agreement has created arbitral commissions where investors can avoid national courts and before which they can make claims that government regulation is harming business.
The claims invariably relate to laws on the conservation of natural resources or environmental regulations. Mexico and Canada have paid approximately 350 million dollars in damages to foreign investors while the US has not paid a cent.
“The process (of arbitration) is not similar to the national judicial system; it is not fair and transparent” declared Scott Sinclair of the Canadian Centre for Political Studies.
The US government is negotiating for the same system to be adopted by the Trans Pacific Alliance. And the agricultural sector is controversial. In developing countries, farms are important employers, are culturally influential and are accustomed to being the first to feel the effects of the free trade treaties.
“We are disadvantaged, we do not have the conditions to compete”, said Josefina Rosas, a corn farmer trying to introduce new growth techniques in Azoyu, in the state of Guerrero, on the Pacific coast. Despite all their efforts, many small farmers have not successfully offset the costs of sowing.
Translator’s note 1: See http://www.nadbank.org/about/origins.asp (last visited 24 March 2015) noting that the North American Development Bank was created under the auspice of NAFTA)
