Rethinking NAFTA: All for one, or one for all?
Recently, many economists and journalists, prompted by the discussions held in the North American Free Trade Agreement “Three Amigos” summit in Toluca, ...
Mar 8, 2014
Recently, many economists and journalists, prompted by the discussions held in the North American Free Trade Agreement “Three Amigos” summit in Toluca, Mexico, have begun questioning the twenty-year-old project and where it has led its three constituent nations, Canada, the United States and Mexico. During the summit, the three executive representatives argued about various amendments to the NAFTA treaty, including the creation of a trusted-traveler program and the possible merger with the Trans-Pacific Partnership — a program that many critics have called “NAFTA on steroids.” The project, which would link the Mexican economy with countries like Chile, Malaysia and Singapore, contains environmental restrictions on the member states’ industries among other reforms. The main concern that has sprung from these talks is the perpetuation and augmentation of a treaty that has made the Mexican economy dangerously dependent on that of its neighbor to the north.
When it was first introduced in 1994, NAFTA was going to power Mexico’s seamless transition into the First World; two decades later, the net benefit has come to be quite uncertain. Supporters of the treaty argue that there has been undeniable growth and modernization in the Mexican economy, including a 235 percent increase in U.S. imports as of 2010. That year, approximately 229.7 billion USD worth of goods was imported from Mexico. What statistics like this do not take into consideration is how the growth in Mexico was achieved and at what cost.
Picture a country whose diet is immensely reliant on crops like corn and beans and whose agriculture continues to be largely in the hands of small companies and even families. As the U.S. market opened, these small retail farmers faced the great acquisitive power of companies like Monsanto, Cargill and Del Monte. These companies, able to sell the same crops at a much cheaper price, quickly displaced the small producers. As a result of this, Mexico became dependent on the agricultural market of the United States. For instance, in the past two decades Mexico’s corn imports from the United States had grown from 6 percent to 32 percent.
This is only one of the many examples of how NAFTA has not delivered on its promises to Mexico. Now consider Mexico's GDP per capita in 1994, only 20.6 percent of the United States', and its drop to 16.4 percent over the past 20 years. This shows how, even as the Mexican economy has grown, the disparity between the two nations has still increased.
The growth of Mexican industries, of which much was made possible only by NAFTA-driven U.S. investment, is a common source of arguments in favor of this treaty. This growth, however, is artificial: An important part of it was produced, not by Mexican companies, but by foreign transnational corporations that took advantage of Mexico's lower costs of production and its good logistics. Thus, foreign investment prevented revenues collected in Mexico from remaining in Mexico.
Most of these issues, however, could have been prevented if the Mexican government had realized the appropriate institutional reforms necessary to stimulate competition and growth. The agricultural problems date back to the Mexican Revolution. When the division of land became excessive, it became almost impossible to amass an important extension of land to enable the creation of a large company. Monopolies in energy, oil and telecommunications prevented the creation and evolution of companies that could have provided Mexico with the capital and infrastructure necessary to develop self-sufficient and sustainable industries and thus decrease its dependence on the United States, at least in these aspects. Nowadays, various reforms are starting to be implemented, signaling a brighter future for the Mexican economy.
The U.S. government and its failure to comply with some of the aspects of the agreement, nonetheless, have directly triggered other issues that have diminished the benefits NAFTA could have given Mexico. In 2009, in direct violation of the treaty, the United States closed the southern border to Mexican trucks, falsely claiming the trucks were unsafe. In 2012, the United States trade authorities decided to unjustly terminate an agreement that had allowed low-cost Mexican tomatoes to enter their country without additional tariffs, thus rendering Mexico’s comparative advantage useless.
Regardless of the shortcomings of the agreement, it is clear that the solution is not for Mexico to pull out of the NAFTA agreement. The country’s economy would be paralyzed by the loss of its biggest export consumer. However, it is also clear that, for the treaty to benefit all parties involved, both Mexico and the United States have to commit to it. On the one hand, Mexico needs to keep pushing for institutional reforms in order to strengthen its role in the “Three Amigos” and become more self-sufficient. On the other hand, it is just as important for the United States to maintain a strict observance of NAFTA to prevent any more injustices from occurring. Given the current power dynamic, it would be a mistake to strengthen the grip of the trade agreement over a nation that has yet to develop in order to be economically competitive with its northern neighbors.
Eduardo Campillo Betancourt is a contributing writer. Email him at opinion@thegazelle.org
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