While Mexico City tries to convince Washington that NAFTA has been good for both countries, critics south of the border think it’s time to take a hard look at the trade agreement’s shortcomings.
“NAFTA has generated employment, has provided a lot of goods, trade and investment, that’s fine,” said Mexican economist Gerardo Esquivel in the Business Journal newspaper. “But in terms of the final purpose of NAFTA, I think it has been very short to what was supposed to be the goal of NAFTA, which was to promote convergence in the North American region.”
And NAFTA hasn’t reduced the wage gap between Mexico and the United States, which was one of its main goals when it passed in 1994, Esquivel said.
In fact, that gap has gotten worse. U.S. wages went from 2.85 to 3.19 times larger than Mexico’s. More than half the country’s 127 million residents still live in poverty.
In NAFTA’s favor, foreign investment grew from $4.4 billion in 1993 to $32.9 billion in 2015, according to the World Bank. U.S.-Mexican trade increased more than sixfold, from $81 billion in 1993 to $525 billion in 2016, according to the U.S. Census data.
But relatively few regions and business sectors have benefited from that growth.
“All the benefits of NAFTA have been concentrated along the border, certain central states, and somehow Mexico City,” said Esquivel.
The manufacturing work that companies do in Mexico is very simple and is not adding real value to the products that are exported to the U.S, continued Esquivel.
“Most of what we do is just ‘maquila’ work, and that means getting the inputs, doing a minimal processing work in some cases, and just sending them back to the U.S. This can be imported from the U.S. or from other markets,” he said.
Poverty levels have barely budged since NAFTA. In 1992, 53.1 percent of Mexicans lived in poverty, while in 2014 the rate was 53.2 percent, according to the National Council for Evaluation of Social Development Policy.
“Indigenous communities have not benefited at all (from NAFTA) and perhaps have suffered,” said Mark Aspinwall, director of the Division of International Studies at the Center for Economic Research and Teaching in Mexico City. “They’ve definitely suffered in certain areas where infrastructure projects have been put in.”
Aspinwall thinks the Mexican government needs to “do better with its education, it needs better social welfare and social services, it needs better infrastructure, it needs better public services, less corruption.”
According to preliminary estimates by Mexico City economist Jose Luis de la Cruz, eliminating Mexico’s trade surplus with U.S., which has been one of U.S. President Trump’s main goals, would result in a catastrophic drop of 3 to 4 percentage points of gross domestic product growth in Mexico.
For Esquivel, Mexico has only one option, regardless of what happens with NAFTA.
“In any case, I think what we need to do is to do what we haven’t done for the past few decades, which is to look at our internal problems, to invest more in what we haven’t invested in the past few decades, like education and infrastructure,” he said.
Source: Business Journals