Autor: Lucie Pelikánová
The North American Free Trade Agreement came into force on January 1, 1994. At the time the signature of such a treaty was a key success for Mexican president Carlos Salinas because he thought the free trade zone could help to revitalize Mexico’s economy. The expectations of Mexican people were huge.
In my poster I would like to stress some important effects this treaty had on Mexican people, trade, industry, agriculture and society. On one hand we can describe NAFTA as a great success but on the other one there are many negative influences. As a result the image of NAFTA in Mexico has worsened during the last several years.
The Goal of NAFTA
How was NAFTA established? During the 1990s Mexican politicians came up with an idea of forming some kind of free trade zone withthe United States. It was a logical reaction – during 1990s the PRI started to reorient Mexican economy from the “home self-sufficiency” towards closer cooperation with the United States. The Mexicans longed for economic stability and better living conditions. They saw the great challenge of American capital, job opportunities, of new market for their goods and so on.
Mexico’s main motivation in pursuing the agreement with the USA was to stabilize the Mexican economy and promote economic development by attracting foreign investors, increasing exports and creating new jobs.
During the 1980s Mexico had serious problems with deepening poverty and economic instability and Carlos Salinas hoped that NAFTA could improve the confidence of investors in his country. It was also expected that NAFTA could narrow income differences between Mexico and the USA and Canada.
There are many reasons that have affected Mexico’s current situation but almost all of them can be somehow connected with NAFTA. Many people today are disappoint
ed, the benefits are not distributed throughout the country and the expectations are not fulfilled.
Agriculture has been the most controversial topic since the beginning of the agreement. It is the only section that was not negotiated trilaterally but each two states have special conditions between themselves.
Mexican farmers expected from NAFTA that it opens for them the American and Canadian market. On the contrary what is happening today is the negative influence of cheap American products on Mexican agriculture, because it cannot compete with US companies supported a lot by the US government.
What could Mexico improve? It is true that in Mexico they did not invest enough money to the infrastructure vital for the competition. Mexico misses important highways, railroads and so on. And what criticizes Mexico? In the United States the government subsidies to the agricultural sector are so high that Mexican production cannot compete with American companies. In this sector the impact on Mexico is opposite than was expected. As an example we can mention corn – the governmental subsidies led to dumping prices of corn and Mexican production is decreasing very quickly. Unfortunately it has direct impact on the poorest farmers.
In this cartoon we can see criticism of the decrease of cranes production – Mexico without cranes is as powerless as the calaquita without teeth. Another sector deeply affected by introducing of NAFTA is the meat industry. In this case the influence was generally positive. Before 1994 Mexico had an unimportant meat market. Today Mexico is the second largest importer of American agricultural products. It is one of the prooves of better living conditions in Mexican society.
What could Mexico do? One of the logical results of lower commodity prices could be production of high
er-margin added-value products. But it is a theory. In reality Mexico faces another cruel problem – young and educated people move to the United States and Mexico has not enough power to achieve this kind of revival.
The impact on Mexican industry has been much more optimistic than on the agriculture but we can also see many controversial aspects. Since the introduction of free trade zone Mexico has become key supplier of cars, electronics and industrial parts to the United States. The market has been opened and companies have free access to the US and Canadian customers.
But of course there are also negative impacts. Very similar problem as we can see in the agricultural sector is the free competition – free trade is a great opportunity for strong factories, but the small and local businesses had to go out from the market because they could not compete with the concurrence. During the era of PRI’s protectionism local businesses were supported by the state, high tariffs protected them from cheap imports. But on the other hand this lack of competition led to the underdevelopment and the ability to rival is lower.
The opening of markets brought a wave of foreign investments into Mexican economy. American and Canadian actors built many companies and factories in Mexico and now they invest to secure their interests. But however the number of foreign investments is growing the domestic investments are decreasing.
Another problematic aspect is the unemployment. Before 1994 the expectations were that free trade could bring a lot of new factories and businesses with job opportunities for all Mexicans. The reality is a little bit different. Many enterprises were founded and there are really many new jobs. But also many jobs were lost: in agriculture people cannot work because the production decreases and is substituted by cheap imports from the United States. In industry a lot of local factories have been closed and most affected are the poorest people in the country. In the end the number of new jobs is smaller than the number of lost jobs.
People awaited better working conditions and it is also controversial – a phenomenon of maquiladoras became a typical landmark of Me
xican industry. They are Mexican factories that import raw materials from the USA and Canada and produce goods for export. Their goal is to provide the cheapest way how to transform raw material to some kind of goods. We can find plenty of them along the border with the United States and in the North of Mexico. Their typical features are very bad working conditions and very low wages. Maquiladoras existed before 1994, but since NAFTA their importance has increased.
If we focus on one of the main goals of NAFTA – to lower the gap between incomes in Mexico and USA the effect is unfortunately opposite, this number has increased.
One of a very interesting part of the Free Trade Agreement is the part about protection. Its goal is to avoid the situation when for example a US investor would finance a huge project in Mexico and a local municipality would threaten his investments. The most controversial one is Chapter 11 of the agreement. It allows both individuals and governments to sue the state (Mexico, the United States or Canada) for compensation when actions, bills or laws token by local municipalities, provinces or governments adversely affected their investments. This chapter seems to be very pragmatic but on the other hand it is dangerous – what exactly means to adversely affect someone’s investment? In history there have been many cases or such disputes. Probably the most known one is the case of Metalclad. This corporation from the United States successfully sued the state of Mexico for a compensation of 15.6 million USD. Local municipality refused a construction permit for a hazardous waste landfill that Metalclad intended to build in Potosi.
At the end of this poster it is very hard to answer the question, has NAFTA been a burden or a relief for Mexico?
- Villareal, M.A.: NAFTA and the Mexican Economy, Congressional Research Service, 2010.
- Malkin, E.: Did NAFTA Actually Help Mexico? The New York Times, December 10, 2009.
- North American Free Trade Agreement
- La Jornada cartoons
Titulní foto: http://commons.wikimedia.org/wiki/File:Bill_Clinton_signing_Nafta.gif