August 15, 2018

NAFTA Twenty Years On

From: by Sergio Munoz BataSergio Munoz Bata is a syndicated Latin American columnist whose articles appear in 18 papers in 11 countries. He has been Executive Editor of La Opinion, the largest Spanish language newspaper, as well as a member of the Los Angeles Times editorial board.

Barack Obama’s position on free trade agreements is anything but clear. As a senator, he was one of the most outspoken opponents of the pact with Mexico and Canada but voted in favor of a free-trade agreement with Peru, which was modeled after NAFTA. He then voted against CAFTA, a free trade agreement with five tiny Central American countries and the Dominican Republic. Now, he’s asking Congress for fast track trade approval for two trade agreements, one with Pacific Rim countries and another with the European Union. The fact that Sen. Harry Reid of Nevada, the majority leader, immediately came out against the idea makes you wonder if Obama really wants the two trade agreements.

Obama’s hesitations remind me of the doubts Carlos Salinas de Gortari had about free trade when he was running for the Mexican presidency. I asked him if he agreed with Ronald Reagan’s vision of a common market and would enter into negotiations with the U.S. His answer said it all: “Do you want them to eat us alive?” I had raised the question at a campaign stop in Guadalajara in 1987, at a time when Salinas feared the asymmetry between the two countries was an insurmountable problem.

Three years later when I met again with Salinas in Washington, the doubts had disappeared. He had quickly learned that the fastest way to get people to invest in Mexico was to lure them with business in the United States via Mexico, and he was deeply engaged in negotiations with the George H. W. Bush Administration. Twenty years after the treaty with the United States and Canada was signed, we know that the bigger fish did not swallow the smaller, that trade between the three countries has tripled to more than $1 trillion a year and their integration has created a $19 trillion regional market with some 470 million consumers.

Thomas “Mack” McLarty, the former White House Chief of Staff for President Bill Clinton thinks the political climate in the U.S. is ripe for a new trade agreement: “I believe the odds are good. I say that because, despite ongoing partisan debates in Washington, American citizens already recognize the benefits and importance of economic engagement abroad.” He noted a recent Pew Research Center-CFR poll found that 77 percent of respondents feel increasing trade and business ties with the rest of the world benefit the United States. There is a solid reason for that, says Dr. Luis de la Calle, a member of the Mexican team that negotiated NAFTA and other trade agreements with Latin American countries, Europe, Israel and Japan.

“NAFTA has had a positive impact on the three countries,” said de la Calle. “Trade and investment volumes are higher than originally expected and the agreement has been fully implemented with few exceptions, such as trucking where the U.S. has not complied one hundred percent.”

“Canada and Mexico have become much more stable economies, in part thanks to the NAFTA,” he added. “Consumers have benefited in the three countries, but more in Mexico, which had a more protectionist economy before NAFTA.”

Furthermore, the elimination of tariffs and other trade barriers has allowed Mexico’s export industry to soar from about $60 billion in 1994 to nearly $400 billion annually in 2013. Mexico, considered a leading emerging market in the world, is now exporting an array of manufactured goods ranging from automobiles and refrigerators to cellular telephones. In 2009, Mexico was the largest exporter of flatscreen TVs in the world.

Of course, NAFTA has not been the panacea that its proponents promised. Throughout these years, it has not been a fundamental factor in the activation of the Mexican economy, neither has it been an important source of job creation. And while export jobs pay better wages, NAFTA has not uplifted the wages of other workers.

Above all, it has failed to stop illegal immigration to the U.S. But neither did it create the “giant sucking sound” of jobs that the ineffable Ross Perot and the unions and their spokesperson predicted to scare Americans. Indeed, the creation or reduction of employment in the three countries has had little to do with NAFTA. Contrary to the predictions of a sector of the Mexican left, America has not abused its power to impose conditions. In fact, it is amazing that in his twenty years of operation, there have been so few disputes and those that have arisen have been resolved in a civilized manner using the very mechanisms produced by the treaty. Among the benefits of the treaty there is one that stands out: the Mexicans lost their fear to negotiate with the neighbor to the North and the rest of the world. After NAFTA, Mexico has signed 12 free trade agreements with 44 countries and has now been invited by President Obama to enter into partnership with eight countries in the Pacific Basin through the Trans-Pacific Partnership, or TPP.

In November 1990, President Salinas told me the negotiations were at a very difficult stage because President Bush insisted that oil should be included in the negotiations while Salinas advocated that the free movement of persons was included. Finally, in Monterrey, Mexico they agreed that neither of the two topics was to be included in the draft. Both were nonstarters with their respective congresses.

Today, things have changed and it would be wise to include the countries of the Pacific Rim in the negotiations of the transatlantic alliance. Given the recent passage of the energy reform that will allow foreign private investment in the hitherto monopolistic oil industry, Mexico would be a very attractive partner of the U.S., the countries of the Pacific Rim and of the Transatlantic Alliance. It would be extraordinary if the taboo topic of the free movement of people in the Northern Hemisphere could be addressed with the same ease with which they can talk about energy exchanges.

Neither McLarty nor de la Calle believe the oil and migration mix would work.

“Forging or deepening these trade pacts do not need to specifically include a focus on energy and immigration, as these could weigh down potential agreements or even block their successful ratification,” says McLarty.

“Mexico should proceed with its energy reform only if it makes sense to do it unilaterally. Conditioning the reforms to other issues, such as migration, sends the message that it is worth doing only as a concession,” says de la Calle.

Still, Mexico should use every lever it has in its power to pursue a separate agreement to make the life of its people living in the United States less unpredictable and more secure. A little more than twenty years ago, NAFTA was just a daring idea that came true because a small group of people believed in it. We should keep on dreaming on the immigration front.


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