At 41 years old, Mexican President Carlos Salinas de Gortari was desperately looking for a way out of the traumatic economic crisis of the 1980s, when in January 1990 he landed in Davos, Switzerland, for the World Economic Forum. An economist who graduated from Harvard, Salinas had an ambitious development program under his arm, but he found that it was difficult to attract the attention of big capital. A few months earlier, the Berlin Wall had fallen and all eyes were on former communist Eastern Europe.
Salinas understood that the new force that would move the world during his time in government would be liberalization and that Mexico could also ride the wave. His country, like those of Eastern Europe, 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 signing of the three countries, the North American Free Trade Agreement (NAFTA) was the largest trade agreement in the world when it entered into force on the first day of 1994.
Thirty years later, the impact of the trade agreement, with a new name and some new rules, is undeniable. From 1993 to date, Mexican exports abroad have grown 950%, according to official data. Almost 6 million jobs in Mexico are directly or indirectly linked to North American trade and the country is ranked 13th among the largest exporters in the world. Without the boost that the agreement has given to manufacturing, it would hardly be the Latin American country with the highest number of engineering graduates.
It would also be difficult for Mexico's drug trafficking fortunes to have grown as it has, some critics argue. The opening of borders to trade was not accompanied by an effort to limit drug or arms trafficking, they complain. The same logic applies to the flow of undocumented people seeking to migrate to the United States, in many cases hanging from trains that cross goods to the other side. Furthermore, there is the most obvious criticism: it generated enormous income inequalities between the north and south of Mexico.
Perhaps the treaty was never designed to avoid these problems. Depending on who you ask, the purpose of NAFTA, today the USMCA, changes. Businessmen on both sides of the border say this is a set of rules to follow if you want to make a lot of money. The think tanks They argue that it is an agreement to level the conditions in which citizens live, while the rulers promise that it is a powerful lever for development.
In reality, the treaty is a supranational legal framework under which business is governed. Its appeal lies in the fact that it provides certain guarantees, protections and mechanisms to resolve disputes, mitigating risk. If a government wants to use it to promote development, it would have to invest its revenues in its population and the same thing happens with civil society: if it wants to use it to improve the living conditions of a population, it must take on the task of holding it accountable. .
Having digested the failures and successes of NAFTA, Mexico today finds itself at a turning point due to the arrival of companies seeking 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.
insufficient development
Although the trade figures are spectacular, the treaty did not promote the development it promised, says Clemente Ruiz, doctor in economics and professor at the National Autonomous University of Mexico (UNAM). “We were expecting to grow above 5% annually,” he says, “but we had crisis after crisis and we have not been growing. The current government makes a big show of the fact that we are growing at 3%, right? But it is a very low growth if demographic expansion is taken into consideration.”
This is true, above all, in the south and southeast of the country, where states such as Chiapas, Oaxaca and Guerrero still have alarming levels of poverty. Social mobility between geographical extremes in the country is astonishing: according to data from the Espinosa Yglesias Studies Center (CEEY), the probability of overcoming poverty in the south is 14%, while in the north it is 46%. Due to its proximity to the border and the educational level of the populations, the majority of North American maquiladoras and companies are located in the north and although the Government of Andrés Manuel López Obrador has sought to attract investments to the south, this has not materialized.
In 1994, when the agreement came into force, it was not only Eastern Europe that competed with Mexico, but also China. The Asian giant had been liberalizing part of its economy for a decade to open the door to trade and American businessmen were increasingly looking to the east in search of cheap labor. While Mexico grew at insufficient rates, China took off to become the second largest economy in the world.
“Not even the Americans themselves thought that this integration with China could be achieved,” says Ruiz, “and Mexico did not know how to take advantage to develop high-tech industries in these 30 years. What is happening? China has been selling us the components that we could have manufactured in Mexico to integrate them into the items that we sell to the United States. We became a super deficit country with China.”
In 2012, US President Barack Obama launched various programs and efforts to bring back manufacturing jobs that had moved to China. His successor, Donald Trump, escalated the rhetoric against the Asian country and finally, Joe Biden, has undertaken the most aggressive campaign to remove North American companies from China, in a tense geopolitical context and in the face of the military threat that the country It represents. This has generated enthusiasm in Mexico, which is experiencing a moment similar to that of 1994 with the narrative of the nearshoringthe tendency of these companies to move to countries “allied” to the United States.
The 'Mexican moment'
In 2013, the Administration of Enrique Peña Nieto (2012-2018) strongly promoted the “Mexican moment”, a slogan that promised to place the country on the global stage due to the economic strength that the reforms would bring to different sectors, including the energy sector. In his first end-of-year message, Peña declared that 2013 would be remembered as “the year Mexico dared to take off” and a few months later, Time magazine legitimized his ambition, giving him a controversial cover with the headline “Saving Mexico.” ”.
The reforms passed, but the secondary laws and their implementation disappointed foreign companies. The disappearance of 43 students and the corruption scandals that plagued his party took up the entire space of Peña's legacy and the ““Mexican moment” It was forgotten in a drawer… until today.
In the last three years, trade in the North American region has grown 30%. The announced commitments of foreign direct investment (FDI) have broken record
s, which is why, in its communications, the Ministry of Economy has used the Peñista slogan, making it clear that Mexico is going through its best moment now.
Diego Marroquín, a public policy analyst who has specialized in the subject, says he is openly optimistic about the moment. Born in 1993, the only Mexico that Marroquín knows is the one that is considered “modern” today: one where there is alternation of parties, free and democratic elections and the exchange of goods and services with neighbors to the north.
“One of the things that marked me a lot 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 acquires commitments with other countries regarding economic liberalization and deregulation, it is much more difficult to back out. 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 had the final stage of the renegotiation forced by Trump, who won the presidency by criticizing NAFTA as “the worst treaty in history.” As president-elect, in mid-2018, López Obrador asked the official and diplomat Jesús Seade to remove the energy sector from the treaty. Sources who were in the negotiating room assure that Seade received a flat refusal, so he asked, instead, to include in Chapter 8 a mention of what the Mexican Constitution already establishes: that the hydrocarbons in the subsoil are the property of Mexico. The Constitution, however, also allows foreigners to extract hydrocarbons under a tax scheme to share the revenues, so the mention of Seade was not the clear solution that López Obrador was looking for.
Since taking power, López Obrador has done everything possible to curb foreign operations in the sector, including sending an order to autonomous regulators to stop issuing licenses. He proposed a reform to the Electrical Industry Law that leaves private companies at a disadvantage (which is in limbo due to a judicial decision). All of this has earned him a confrontation with the White House, which is one step away from taking the dispute to a dispute resolution panel within the framework of the USMCA. Mexico also imposed a ban on genetically modified corn for human consumption, affecting American farmers who sell $3 billion to Mexican businessmen each year. On this issue, Joe Biden's Government lost patience and has already convened a panel.
Unforeseen consequences
“It is a disaster that we did not expect that Mexico would become the gateway for migration from all of Latin America, in some cases even from Africa, during these 30 years,” says Ruiz, “we opened, without knowing it, a Pandora's box.” . The uninterrupted crossing of goods has created opportunities for people to also cross, some by choice and in search of economic opportunities. Some are taken against their will, as part of the trafficking business.
“This is the key to a broader discussion, because the United States was intended to be our partner, but it has done nothing to stop arms trafficking, it has done nothing to limit the purchase of narcotics for Americans” who have enriched and empowered organized crime in Mexico, laments the academic.
The ideal would have been for the Free Trade Agreement to evolve towards an idea like the European Union evolved, Ruiz offers, where a joint labor market would gradually be created, with comparable guarantees and mechanisms. “Or having created a fund for the development of North America, in which the most backward regions were attended to. But no, because in Mexico we limited ourselves to making the Treaty something commercial in very financial terms without taking the next step… Mexico did not have the capacity to ask Canada and the United States to evolve together.”
The current moment is one of opportunity, but the risks now are greater than 30 years ago, Marroquín and Ruiz agree. On the one hand, says Marroquín, “the biggest risk is that investment leaves China somewhere else.” FDI data collected by the OECD show that, in the first six months of 2023, the country that benefited the most was the US, followed by Brazil, with Mexico in third place.
“The other risk is that the dynamics of NAFTA are not broken,” says Marroquín, “in which the states that continue to grow are those with formal, highly productive sectors and that the rest of the country remains the same.”
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