Transcript Mexico Before and After NAFTA

Free Trade and the Environment:
Mexico, NAFTA, and the WTO
Kevin P. Gallagher
International Relations, Boston University
Global Development and Environment Institute, Tufts University
Overview of Presentation
• To what extent has economic integration
affected levels of environmental degradation in
Mexico?
– Is there an Environmental Kuznets Curve for Mexico?
– Is Mexico a Pollution Haven?
• Implications for the WTO negotiations
Composition of Mexican Exports, 1981 to 2000
0.9
NAFTA
0.8
Manufactures
Apertura
Fraction of total Exports
0.7
El Pacto
0.6
0.5
`
0.4
0.3
0.2
Oil
0.1
0
Agriculture
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Environmental Kuznets Curve
250 -
Pollution per capita
200 150 100 50 00
5000
10000
15000
GDP per Capita
20000
25000
Problems with the EKC
• Empirical evidence is relatively weak
– Limited to criteria air pollutants in developed countries
– Turning points much higher than original estimates
– Doesn’t hold for single country trajectories
• Damage leading to turning point could be
irreversible or too costly to clean up
• Drawing single-country development lessons
from cross-sectional evidence is questionable
Environmental Kuznets Curve for Mexico?
200
175
Pollution: 1985=100
Soil Erosion (tons)
Solid Waste (tons)
150
Water Pollution (mi
M3)
125
Air Pollution (tons)
100
75
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
EKC for SOx?
2,900,000
2,700,000
R2 = 0.6653
Pollution
2,500,000
2,300,000
2,100,000
1,900,000
1,700,000
1,500,000
4700
4800
4900
5000
5100
5200
Income
5300
5400
5500
5600
5700
Is Mexico a Pollution Haven?
Share of Dirty Industry in National Manufacturing
Mexico
production
employment
1988
1994
1998
30.1%
7.9%
23.1%
6.3%
26.5%
5.9%
17.0%
11.3%
15.1%
11.2%
14.7%
11.2%
US
production
employment
Mexican environmental policy
has been inadequate
• Established key environmental laws and
institutions
• Spending on environmental policy shrinking
• Plant-level environmental inspections declining
• “Side-agreement” institutions extremely limited
Real Spending on Environmental Protection in
Mexico
250.00
200.00
1985=100
150.00
100.00
50.00
0.00
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Plant-Level Environmental Inspections in Mexico
18000
16000
Number of Inspections
14000
12000
10000
8000
6000
4000
2000
0
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
Side Agreement Limited
• $3 million budgeted for Mexico dwarfed by economic
costs of environmental degradation
• Serves as interesting “pilot project” for serious effort
–
–
–
–
Citizen submissions
Research
Technical cooperation (PRTR)
Funds for clean development (FIPREV, NAFEC)
• Environmental components of trade agreements postNAFTA are weaker than NAFTA’s
Potential Economic Costs of Waiting
for Kuznets in Mexico
Economic Costs of Future Environmental Damage due to increases in
Criteria Air Pollution in Mexico
GDP per capita
Turning Point Year
Damage Costs to Turning Point
($US billions)
$7,500
$10,000
$15,000
2028
2057
2097
(r=.06)
(r=.03)
79
105
119
114
194
279
Summary of Findings
• No EKC-like relationship in Mexico
(at least for now)
• Mexico is not a pollution haven for
pollution-intensive US manufacturing firms
• Mexican government is not adequately
addressing the market failures resulting
from economic transformation
• International institutions not filling gap
made by integration process
Implications for Policy
• Without the proper environmental institutions and
policies in place, liberalization may worsen
environmental conditions
• Strong environmental policy is justified on economic
grounds
• Strong environmental policy will not deter foreign
investment flows to developing countries
• Substantial international financing can supplement
developing country environmental goals
Implications for the WTO
• Developing nations need the policy space to
develop and innovate environmental policy
• Key aspects of WTO negotiations
– Environmental Goods and Services Negotiations
– “Implementation Issues” Article 8 of the SCM
agreement
• Developing nations need assistance with
capacity building and financing environmental
policy
Global Market for Environmental Technologies
Country/Region
1999
2008
2024
($US billion)
US
Western Europe
Japan
Rest Asia
Mexico
Latin America
Canada
Australia and New Zealand
EE/FSU
Middle East
Africa
189.1
149.3
89.3
21.8
2.2
8.6
13.2
8.2
8.7
6.1
3.1
200.1
160.7
92.1
41.3
3.8
15.2
16
10.8
26.7
11.9
7.4
221.3
183.2
97.3
128.6
10.0
41.8
22.5
17.6
196.0
39.0
34.8
Total
499.6
586
778.1
50.5
106.3
399.2
10
19
51
Total Developing Country
Developing Country Share (%)
Mexico: Mixed Record
• Inflation and Current Account stabilized
• Increases in Exports and FDI (until 2001)
• Slow growth in real income
– 2.6 percent in GDP
– 1.2 percent in GDP per capita
• Low annual net job creation:
– 79,000 per year in manufacturing
– Annual new entrants into workforce: 730,000
• Increase in informal work and out-migration:
– Informal sector now 30 to 60 percent of workforce
– 380,000 migrants to US per year (up from 200,000
pre-NAFTA)
Yit=β1+β2Pit+…
• Y variables (84-99 and post-NAFTA)
– Growth in Mexican exports
– Growth in Mexican production
– Growth in Mexican export share of US
consumption
• P variables
– Marginal abatements costs in the US
– Gap in Mexico/US pollution intensity