Mexico’s view of NAFTA moving forward

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Cronkite Borderlands Initiative | Andrea Jaramillo.

Mexico is facing something it never thought would happen: the possibility that North American Free Trade Agreement that shaped the country’s economic policies over the last two decades, might disappear.

But just as some Mexican officials try to convince U.S. President Donald Trump that NAFTA has been beneficial for both countries, Mexican critics of the treaty think it’s time for their government to take a hard look at its shortcomings.

“NAFTA has generated employment, has provided a lot of goods, trade and investment, that’s fine,” said Mexican economist Gerardo Esquivel. “But in terms of the final purpose of NAFTA, I think it has been very short to what it was supposed to be the goal of NAFTA, which was to promote convergence in the North American region.”

Moreover, Esquivel thinks NAFTA hasn’t met one of its key aims, which was to reduce the wage gap between Mexico and the United StatesWhen NAFTA passed in 1994, per capita income in the U.S. was 2.85 times larger than Mexico’s. Since then, the gap has gotten worse, with 2015 per capita income in the U.S. 3.19 times that of Mexico, according to the World Bank. More than half the country’s 127 million residents still live in poverty.

But NAFTA supporters in Mexico point to clear benefits in the form of booming foreign investment and trade. Foreign investment grew from $4.4 billion in 1993 to $32.9 billion in 2015, according to the World Bank. U.S.-Mexican trade increased more than sixfold, from $81 billion in 1993 to $525 billion in 2016, according to the U.S. Census data.

A key issue spurring Mexico’s internal debate over NAFTA is that relatively few regions and business sectors have benefited from that growth.

As NAFTA developed, states that were closer and more historically connected to the U.S. market took advantage of the trade agreement, especially the manufacturing industry, which received nearly half the foreign investment from 1999 to 2016, according to data from the Mexico’s Secretariat of Economy.

“All the benefits of NAFTA have been concentrated along the border, certain central states, and somehow Mexico City,” said Esquivel.

Foreign investment grew at record rates in central states deemed safe and accessible like Queretaro, which received more than $13 billion in foreign investment from 1999 to 2016, according to data from the Secretariat of Economy.

Through NAFTA, these states attracted foreign investment not only from U.S. and Canadian firms, but from countries in Europe and Asia that wanted to produce goods in Mexico and export them to the U.S. with no tariffs.

“Big international companies arrived not only from North America but also from other parts of the world who see Mexico … as the ideal way to export to the United States,” said Jose Luis de la Cruz, director of the Institute for Industrial Development and Economic Growth in Mexico City.

In Queretaro, 40 percent of the foreign investment from 1999 to 2016 came from the U.S., while 37 percent came from Spain, Canada and the Netherlands and 22 percent came from 17 other countries, according to the Secretariat of Economy. Keep reading […]

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