Transcript NAFTA: Good or Bad for Mexico?

NAFTA: An Introduction
• Eliminates restrictions on the
flow of goods, services and
investments between Mexico,
Canada, and the United States
• Went into effect January 1994
• All tariffs will be phased out by
2008
Classical Liberalism’s
Perspective
• The country should benefit
from lowering trade barriers
– Better prices to consumers
– Better goods (increased quality)
– Markets for exporters
– Economic Growth
Classical Liberalism’s
Perspective
• However, freer trade has not
come without serious social
costs
– Asymmetric benefits
– Rural Mexicans have lost jobs
– Worker rights issues
– Environmental Degradation
- Social Unrest (Zapatista protests)
Maquiladores
• Mexican gov. did not invest in
improved infrastructure
• Border factories
• Export platforms
• Wages, benefits, and workers’
rights are deliberately
suppressed
• Isolated from the rest of the
Mexican economy
“Dumping” Corn?
Yes?
•2000 – U.S. subsidies to U.S.
corn sector = $10.1 billion
No?
•Incomes of poor corn farmers
had been declining for 10 years
prior to NAFTA
•Increase in maize production
after NAFTA
Article 27
• Mexican constitution
• Indian communal landholdings
were protected from sale or
privatization
• Cancelled under NAFTA
Zapatistas
• 1994 – revolutionary leftist
group in southern Mexico
• Support from indigenous
Mayans
• Anti-neoliberal social
movement
• Seeking indigenous control
over local resources, especially
land
Subcomandante
Marcos
Neoliberal Institutionalist
Perspective
• Economic integration has
allowed Mexico to reap
absolute gains
– Increased international trading
power and influence
– US Assistance
– Monetary stabilization
– GDP growth
A Macroeconomic
Analysis
• NAFTA has been very
politically controversial
– Only 29% of Mexicans think the
treaty is helping them
• How should we evaluate the
success of a trade agreement?
A Macroeconomic
Analysis
Key Economic Indicators for Mexico
1994
Population (millions)
2004*
91
105
Nominal GDP ($US billions)
422
677
GDP, PPP** Basis
($US billions)
671
1,017
Per Capita GDP ($US)
4,617
6,450
Per Capita GDP in $PPPs
7,351
9,680
71
215
17%
32%
91
216
Imports as % of GDP
22%
32%
Public Debt/GDP
32%
23%
Total Merchandise Exports (US$
billions)
Exports as % of GDP
Total Merchandise Imports
(US$billions)
Source: Economist Intelligence Unit. (Congressional Research
Service)
A Macroeconomic
Analysis
U.S.-Mexican Foreign Direct Investment Positions,
1994-2003
Mexican FDI in the U.S.
1994
2,069
1995
1,850
1996
1,641
1997
3,100
1998
2,055
1999
1,999
2000
7,462
2001
6,645
2002
7,483
2003
6,680
Source: U.S. Department of Commerce, Bureau of
Economic Analysis. (Congressional Research
Service)
Problems?
• Market flooded with less
expensive, higher quality
merchandise
• Competition with China/Asia
for cheap labor
• Already depressed wages fell
further
• >Illegal immigration
Problems?
• Assumed that farmers would
switch from corn to another
crop, strawberries &
vegetables, to export to the
U.S. (“Comparative
Advantage”)
• Instead, farmers exported
themselves
• >Illegal immigration
Today
• Largest trading bloc in the
world
• Central American Free Trade
Agreement (2005)
• Three more agreements
pending:
– Panama
– Colombia
– Peru