The Lessons of NAFTA

by Marcela Valente

Inter Press Service (international news agency), Rome,Italy, April 20,2001

World Press Review, July 2001


As countries negotiate the Free Trade Area of the Americas (FTAA), analysts are looking to Mexico's ~ experience in the North American Free Trade Agreement (NAFTA) as a litmus test of how a hemisphere-wide agreement could function among economies with wide variations in size and wealth.

The model on which NAFTA was created is not like the one that prevailed in the European Union, which favored the free movement of workers and transferred funds from the wealthier countries to the least-advanced nations to reduce the disparities between members. There is an enormous development gap between Mexico and the United States and Canada, its two NAFTA partners, and any assessment of the impact of the trade bloc in that Latin American nation of 100 million will depend on the lens through which it is observed.

Since NAFTA went into effect in 1994, employment, foreign investment, economic activity, and exports-especially to the United States, the leading market for Mexican products-have all grown in Mexico. According to statistics of the Economic Commission for Latin America and the Caribbean, open unemployment in Mexico currently stands at just 2 percent of the economically active population, while Mexico's gross domestic product (GDP) grew 7 percent in 1997,4.9 percent in 1998,3.7 percent in 1999, and 7 percent last year.

Mexico's indicators on GDP growth and investment flows are enviable to Argentina, for example, whose government has failed to pull the economy out of its slump and to reduce unemployment, which has been characterized by two-digit figures for more than 10 years. The investment-grade status that credit-rating agencies assigned Mexico's debt bonds, meanwhile, remains a distant dream for Argentina and many Latin American countries that are heavily dependent on foreign capital.

However, other statistics paint the dark side of Mexico's recent development. Annual reports by United Nations agencies indicate that the number of Mexicans living in poverty climbed from 32 million to 43 million between 1990 and 1998, while the number of malnourished Mexicans- half of them under 5-rose from 4.4 million to 5.1 million.

On the employment front, not everyone who has a job is grateful to NAFTA. The informal economy, in which workers enjoy no health or pension benefits, accounts for 29 percent of employment, while 30 percent of jobs are found in the controversial maquila or export assembly sector.

"In the maquilas, there are no labor rights or health protections, workdays stretch out 12 hours or more, and if you are a woman, you could be forced to take a pregnancy test when applying for a job," Hector de la Cueva, executive secretary of the Continental Social Alliance, a Mexico-based nongovernmental organization, told Inter Press Service. The alliance is comprised of civil society groups from throughout the Americas that advocate a model of economic development alternative to the one adopted by Mexico.

"If what the FTAA wants is a NAFTA extended to the entire continent, we say 'be careful' and warn the people of the Americas against believing that this was beneficial for Mexico," De la Cueva said on a visit to Buenos Aires. "On the contrary, it was a social disaster, and we don't want any more of those precarious jobs."

Environmentalists also are on the alert. Activists point out that various rulings by NAFTA trade-dispute panels have demonstrated that the interests of business are set above the damages that investment can cause to the environment. In several cases, member governments were ordered to pay compensation to private companies whose business endeavors faced obstacles-even in cases involving exports of toxic waste-because NAFTA rules protect investment from sanctions or claims by states. Those who complain about the heavy emphasis put on business at the expense of the environment also note that the companies investing in the maquila sector are merely seeking cheap labor and low taxes, benefits that transnational corporations cannot obtain in the countries where their head offices are located.

However, political analysts like Mexican economist Luis Rubio, director of the Research Center for Development, say that blaming NAFTA for the problems facing Mexico's economy does not reflect reality. "It is a fad to accuse NAFTA of all the ills of the Mexican economy: the rise in poverty among a large part of the population, the unemployment plaguing millions of Mexicans, and the profound decline of industry in the central region of the country. But the reality is precisely the opposite," Rubio maintained.

The maquiladora factories, which import materials or parts to assemble goods for re-export, constitute a highly developed model of production that offers broad job opportunities, said Rubio, who criticized the Mexican business community for demanding subsidies that would enable it to compete. "The only thing that really works in the Mexican economy is the sector linked to NAFTA, which is the modernized, dynamic area that draws investment. Without the trade agreement, poverty, unemployment, and the crisis would be even worse," Rubio stated in Voces, a magazine published by the Autonomous University of Mexico.

But in the view of Mexican parliamentary Deputy Carlos Heredia Zubieta of the center-left opposition Party of the Democratic Revolution, it is precisely the idea of a "dual" economy characterized by growth in some areas and backwardness in so many others that provides a complete picture of the impact of NAFTA. "There are many people in Latin America who say, 'the Mexican economy is doing great, it grew 7 percent over the past year.' But I always clarify that the real question here is, 'good for whom?' " the lawmaker stated at a conference held in Washington, D.C., in February, organized by the Economic Policy Institute and The Development GAP.

"If you look at the macroeconomic figures, it's true: Inflation is under control, the deficit is manageable, there is fiscal and monetary discipline, and exports are growing," Heredia Zubieta said. "But the beneficiaries are only a small circle of corporations with ties to the international economy, to the detriment of the majority of small and medium-sized local companies and workers and citizens in general," he argued. Domestic firms have registered zero growth or worse, while only the export sector, represented by local subsidiaries of transnational corporations, has expanded. "The domestic market is not growing. On the contrary, the buying power of Mexicans has fallen steadily over the years.

"Here we have a dual economy," the legislator added, "which is growing on one side and slipping behind on the other: Exports to the United States are rising, thanks to the output of the maquilas-which account for 53 percent of Mexico's exports-while grain imports have driven Mexican farmers into a deep crisis."

Heredia Zubieta stressed that the crisis facing farmers was of such magnitude that the Mexican parliament voted unanimously this year in favor of a resolution that slapped a 30 percent tariff on imports of grains from the United States that exceeded the agreed-on quota. "NAFTA aggravated the imbalances between the export sector and the rest of the Mexican economy, as signaled by an unprecedented report released in December by the trade committee of our Congress, which for the first time criticized the executive branch's initiative," he added.

The lawmaker's warnings are particularly relevant at a time when Mexico finds itself negotiating free trade agreements with other regions-the European Union and Southeast Asia-and when the talks for the creation of an FTAA, modeled largely on NAFTA, are moving full steam ahead. Heredia Zubieta clarified that he was not calling for the hemispheric trade agreement to be abandoned, but urging that it be reformulated in such a way that it would benefit the entire economy. He proposed, for instance, incorporating the highly charged issues of migration and environmental protection standards into the FTAA talks. "Labor power is our main export product," the congressman pointed out. "Every year, hundreds of thousands of Mexicans emigrate to the United States in search of work-a factor that the trade agreement fails to contemplate."

With respect to the belief that the countries of Latin America could gain new markets for their farm products, the legislator said that may be merely an illusion, stressing that while sales of agricultural products rose substantially within NAFTA, the increase was not from Mexico to the United States, but the other way around.

Economist Uziel Nogueira of the Inter-American Development Bank commented in Buenos Aires, meanwhile, that any assessment of NAFTA's performance would depend on the school of thought to which whoever was carrying out the evaluation subscribed. But in any case, he said, there was one reality that could not be denied. "For the first time, an underdeveloped country accepted an integration agreement with more advanced economies, without receiving differentiated treatment." NAFTA "was the first time the model of economic integration and free trade proposed these days for the entire hemisphere, through an FTAA, was accepted," Nogueira observed.

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