At the age of 41, Mexican President Carlos Salinas de Gortari was desperately searching for a way out of the traumatic economic crisis of the 1980s when he landed in Davos, Switzerland, in January 1990 for the World Economic Forum. Salinas, a Harvard-educated economist, pursued an ambitious development program but found it difficult to attract the attention of big business. A few months earlier, the Berlin Wall had fallen and all eyes were on formerly communist Eastern Europe.
Salinas knew that the new force that would move the world during his reign would be liberalization and that Mexico could ride that wave too. Like the countries of Eastern Europe, his country was young and low-income and had the enormous advantage of being the neighbor of the world power. He met with George Bush and in June 1991 they began negotiations with the United States and Canada. After the three countries signed it, the North American Free Trade Agreement (NAFTA) was the largest trade agreement in the world when it came into force on the first day of 1994.
Thirty years later, the impact of the trade deal, with a new name and some new rules, is undeniable. According to official data, Mexican exports abroad have increased by 950% since 1993 to date. Nearly 6 million jobs in Mexico are directly or indirectly linked to North American trade and the country is the 13th largest exporter in the world. Without the boost the agreement has given to the manufacturing sector, it would hardly be the Latin American country with the highest number of engineering graduates.
Some critics argue that it would also be difficult for Mexico's drug trafficking fortunes to grow as they have. They complain that opening borders to trade does not go hand in hand with efforts to curb drug or arms trafficking. The same logic applies to the flow of undocumented people seeking to immigrate to the United States, in many cases hanging on trains carrying goods to the other side. In addition, there is the most obvious criticism: it has led to enormous income differences between the north and south of Mexico.
Presidents Mulroney, Bush and Salinas de Gortari stand with their respective representatives at the signing of the free trade agreement. Dirck Halstead (Getty Images)
Perhaps the contract was never designed to avoid these problems. Depending on who you ask, the purpose of NAFTA, now USMCA, changes. Businessmen on both sides of the border say these are a set of rules you have to follow if you want to make big money. The think tanks argue that it is an agreement to equalize the living conditions of citizens, while those in power promise that it is a powerful lever for development.
In reality, the treaty is a supranational legal framework that regulates business activities. Its appeal lies in the fact that it offers certain guarantees, protections and mechanisms to resolve disputes and mitigate risks. If a government wants to use this to promote development, it would have to invest its income in its population and the same thing happens with civil society: if it wants to use this to improve the living conditions of a population, it must take on the task of holding it accountable. .
After digesting the failures and successes of NAFTA, Mexico is now at a turning point due to the arrival of companies looking to leave China. It remains to be seen whether the country will take the bull by the horns or repeat the mistakes of the past.
inadequate development
Although the trade figures are spectacular, the contract has not promoted the promised development, says Clemente Ruiz, doctor of economics and professor at the National Autonomous University of Mexico (UNAM). “We were expecting annual growth of over 5%,” he says, “but we had one crisis after another and we didn't grow.” The current government is making a big show of us growing at 3%, isn't it? But if you take demographic trends into account, it is very low growth.”
This is particularly true in the south and southeast of the country, where worrying levels of poverty still exist in states such as Chiapas, Oaxaca and Guerrero. Social mobility between geographical extremes in the country is astonishing: according to the Espinosa Yglesias Studies Center (CEEY), the probability of emerging from poverty is 14% in the south and 46% in the north. Due to the proximity to the border and the educational level of the population, most North American maquiladoras and companies are located in the north, and although the government of Andrés Manuel López Obrador has attempted to attract investment to the south, this has not materialized.
When the agreement came into force in 1994, not only Eastern Europe was competing with Mexico, but also China. The Asian giant has been liberalizing part of its economy for a decade to open the door to trade, and American businessmen have increasingly looked east in search of cheap labor. While Mexico grew only inadequately, China developed into the world's second largest economy.
“Even the Americans themselves did not think that this integration with China could be achieved,” says Ruiz, “and Mexico did not know how to take advantage of these 30 years to develop high-tech industries.” What is happening ? China sold us the components that we could have manufactured in Mexico to incorporate into the items we sell to the United States. Together with China, we have become a super deficit country.”
In 2012, US President Barack Obama launched various programs and efforts to bring back manufacturing jobs that had been relocated to China. His successor Donald Trump intensified the rhetoric against the Asian country and finally Joe Biden undertook the most aggressive campaign to withdraw North American companies from China, in a tense geopolitical context and in view of the military threat that the country poses. This has generated enthusiasm in Mexico, which is experiencing a similar moment to 1994 with the narrative of nearshoring, the tendency of these companies to move to countries “allied” with the United States.
The “Mexican moment”
In 2013, the government of Enrique Peña Nieto (2012-2018) heavily promoted the “Mexican moment”, a slogan that promised to elevate the country due to the economic strength that reforms in various sectors, including energy, would bring to bring to the world stage. In his first year-end message, Peña declared that 2013 would be remembered as “the year Mexico broke through,” and a few months later Time magazine legitimized his ambition by giving him a controversial cover with the headline “Mexico “save” gave .” “.
The reforms were passed, but the secondary legislation and its implementation disappointed foreign companies. The disappearance of 43 students and the corruption scandals that plagued his party took up all the space in Peña's legacy and the “Mexican moment” was forgotten…until today.
Over the past three years, trade in the North American region has grown by 30%. The announced commitments of foreign direct investment (FDI) have broken records, which is why the Ministry of Economy has used the slogan of the Peñista party in its communications, making it clear that Mexico is currently experiencing its best times.
Diego Marroquín, a political analyst specializing in the issue, says he is openly optimistic about the moment. Born in 1993, the only Mexico Marroquín knows is now considered “modern”: a country where there is a change of parties, free and democratic elections and the exchange of goods and services with neighbors to the north.
“One of the things that had a big impact on me was a book that Luis Rubio wrote,” says Marroquín, referring to A Mexican Utopia, The Rule of Law is Possible (2015). “Rubio argues that once Mexico has made commitments to economic liberalization and deregulation with other countries, it is much harder to back down. It is a kind of rule of law because it is much more difficult to change the rules of the game,” explains Marroquín.
The fact that it is difficult has not stopped President López Obrador. The president allowed the final phase of renegotiation to be forced by Trump, who won the presidency by criticizing NAFTA as “the worst treaty in history.” As president-elect, López Obrador called on official and diplomat Jesús Seade in mid-2018 to remove the energy sector from the treaty. Sources who were in the negotiating room assure that Seade received a resounding refusal, which is why he asked instead to include in Chapter 8 a mention of what is already established in the Mexican Constitution: that the hydrocarbons in the subsoil are the property of Mexico. However, the constitution also allows foreigners to extract hydrocarbons under a tax regime to share revenue, so mentioning Seade was not the clear solution López Obrador was looking for.
Since coming to power, López Obrador has done everything he can to curb foreign activity in the sector, including ordering autonomous regulators to stop issuing licenses. He proposed a reform of the Electrical Industry Act that would penalize private companies (which is pending due to a court decision). All of this has brought him a confrontation with the White House, which is one step away from taking the dispute to a dispute resolution panel under the USMCA. Mexico also imposed a ban on human consumption of genetically modified corn, impacting American farmers who sell $3 billion to Mexican businessmen each year. Joe Biden's administration has lost patience on this issue and has already convened a committee.
Unforeseen consequences
“It is a catastrophe that we did not expect that in these 30 years Mexico would become the gateway for migration from all of Latin America, in some cases even from Africa,” says Ruiz. “We have one without knowing it Pandora opens “box.” The uninterrupted movement of goods has also created the opportunity for people to cross the border, some of their own free will and in search of economic opportunities. Some are kidnapped against their will as part of human trafficking.
“This is key to a broader discussion because the United States should be our partner, but they have done nothing to stop the arms trade, they have done nothing to restrict Americans from buying drugs,” the organization said The scientist complains that crime in Mexico has enriched and strengthened.
The ideal would have been for the free trade agreement to develop into an idea like the one that developed with the European Union, suggests Ruiz, where a common labor market with comparable guarantees and mechanisms would gradually be created. “Or to have created a fund for the development of North America in which the most backward regions were taken care of. But no, because in Mexico we limited ourselves to making the contract commercial in a very financial sense, without taking the next step…Mexico did not have the capacity to ask Canada and the United States to develop together.”
The current moment offers opportunities, but the risks are greater today than they were 30 years ago, Marroquín and Ruiz agree. On the one hand, says Marroquín, “the biggest risk is that investment will leave China elsewhere.” FDI data collected by the OECD shows that in the first six months of 2023, the US benefited the most, followed by Brazil and Mexico third place.
“The other risk is that the dynamic of NAFTA is not broken,” says Marroquín, “in which the states that continue to grow are those with formal, highly productive sectors and the rest of the country stays the same.”
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