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

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

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)

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)

Economic Performance: Expansion of Trade

General effects:• More efficiency (in production and consumption)• Greater market size (thus higher returns)• Tougher competition

Questions:

1. Who takes part in the trade? (55 % large firms, 40% maquiladoras, > 5% small firms (~ 2.1 million firms)

2. What about trade diversion?

Mexican Exports, 1985-2005(billions USD $$)

1985 = 27 bn, 1994 = 61 bn, 2005 = 214 bn

Expansion of Trade, 1993-2005 (millions USD $$)

U.S. Trade with Mexico and Latin America, 1993-2005 (millions USD $$)

U.S. Imports: Key Trading Partners, 1993-2005 (millions USD $$)

U.S. EXPORTS TO MEXICO

Quoting from Carla Hills, former USTR:

“Last year [2013], roughly 14 percent of U.S. exports went to Mexico—more 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.”

Foreign Direct Investment in Mexico, 1980-2004

GDP Growth in Mexico1945-1980 ~ 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.

Unforeseen Shocks:

Mexican peso crisis of 1994-95September 11, 2001Drug-related violence, 2008-presentGlobal financial crisis, 2008-present (?)

Current Challenges:

Expansion of the development gapInfrastructure (including roads)MigrationEnergySecurity problems

Key Points of Disputation:

•Environmental protection

•Labor rights

•Overall development strategy

•Dependence on United States

•Development gap

•Consolidation of U.S. hegemony

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

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

Hemispheric Integration? Or Division?

1. Expansion of NAFTA (through new memberships)

2. FTAA negotiating process (RIP)

3. 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?)