NAFTA AND THE GOSPEL OF FREE TRADE

1
NAFTA AND THE GOSPEL OF FREE TRADE

• The Lost Decade (1980s) and Its Legacies
• Dynamics of the debt crisis
• The Washington Consensus
• The Role of the State
• Liberalization of Trade
• Privatization, the private sector, and foreign
  investment

2
North American Free Trade (NAFTA)? Why? Why
Then?

• Global Scenario
• Economic multipolarity and rivalry (Japan, EU)
• Geopolitical uncertainty
• Emphasis on geoeconomics
• U.S. Perspectives
• Supplement to FTA with Canada
• Support for neoliberal reforms in Mexico
• Growing Mexican-American population within U.S.
• Mexican Perspectives
• Exhaustion of alternatives
• Need to stimulate growth
• Perpetuation of Salinista policies

3
NAFTA What Is It?

• A free trade area
• Not a customs union
• Nor a common market
• Characteristics
• Uneven levels of development
• Cultural and political variation
• Hub-and-spoke arrangements (with U.S. at center)
• Absence of supranational authority (preservation
  of sovereignty)

4
Assessing Results The Problem of Cause-and-Effect

• NAFTA in comparison with
• Initial expectations (and political rhetoric)
• Liberalization (mid-1980s)
• Global and/or U.S. economic conditions
• Long-term economic and social trends
• Short-term shocks (e.g., Mexican peso crisis of
  1994-95)

5
Economic Performance Expansion of Trade

• General effects
• More efficiency (in production and consumption)
• Greater market size (thus higher returns)
• Tougher competition
• Questions
• Who takes part in the trade? (55 large firms,
  40 maquiladoras, gt 5 small firms ( 2.1
  million firms)
• What about trade diversion?

6
Mexican Exports, 1985-2005(billions USD )
1985 27 bn, 1994 61 bn, 2005 214 bn
7
Expansion of Trade, 1993-2005 (millions USD )
8
U.S. Trade with Mexico and Latin America,
1993-2005 (millions USD )
9
U.S. Imports Key Trading Partners, 1993-2005
(millions USD )
10
U.S. EXPORTS TO MEXICO

• Quoting from Carla Hills, former USTR
• Last year 2013, roughly 14 percent of U.S.
  exports went to Mexicomore than went to Brazil,
  Russia, India, and China combined. Indeed,
  Mexico buys more U.S. goods than the rest of
  Latin America combined, and more than France,
  Germany, the Netherlands, and the United Kingdom
  combined.

11
Foreign Direct Investment in Mexico, 1980-2004
12
GDP Growth in Mexico 1945-1980 6.5 1995
-7.0 1996 5.1 1997 6.8 1998 4.9
1999 3.8 2000 6.6 2001 -0.2 2002
0.7 2003 1.5 2004 4.6 2005 2.8
2006 5.0 2007 3.2 2008 1.3 2009
-6.8 2010 5.5 Note Growth does not
necessarily reduce poverty, and often increases
inequality.
13
Unforeseen Shocks Mexican peso crisis of
1994-95 September 11, 2001 Drug-related violence,
2008-present Global financial crisis,
2008-present (?) Current Challenges Expansion
of the development gap Infrastructure (including
roads) Migration Energy Security problems
14

• Key Points of Disputation
• Environmental protection
• Labor rights
• Overall development strategy
• Dependence on United States
• Development gap
• Consolidation of U.S. hegemony

15
Recent Research

• NAFTA has basically failed to fulfill the
  promise of closing the Mexico-U.S. development
  gap
• Zero economic convergence (GDP per capita), no
  reduction in incentives for Mexicans to migrate
  except for U.S. unemployment rate
• Modest impact on employment (500,000 in both
  countries)
• Lag 2000-08
• Emergence of China
• Increased value of peso
• Reasons for lack of convergence
• Badly implemented reforms
• Reform paralysis
• Lack of a domestic engine
• Future prospects
• U.S.-Mexico trade a two-way street
• Convergence could reduce migration
• Health and elder care

16
POLITICAL EFFECTS

• The Public Assertion Free Trade Democracy
• The Silent Bargain International Dimensions
• Political stability and social peace
• Access to petroleum
• Leverage vis-à-vis economic rivals
• Compliance on foreign policy

17
Hemispheric Integration? Or Division?

• Expansion of NAFTA (through new memberships)
• FTAA negotiating process (RIP)
• Bilaterals and minilaterals
• U.S.-Chile
• U.S.-Central America ( Dominican Republic)
• U.S.-Peru
• U.S.-Colombia
• U.S.-Panama
• Alianza del Pacífico (Chile, Colombia, Mexico,
  Peru others?)