NAFTA and Problems for Mexico
Published in Proceso
(Mexico) on 10 July 2017
by Olqa Pellicer (link to original)
Uncertainty is the distinguishing feature of international relations in the Trump era. Modernizing, renegotiating or updating the North American Free Trade Agreement (NAFTA) fits right in with that uncertainty. In principle, the date for the beginning of talks has already been set for August 16, but in reality, it is understood that one of Trump’s tweets could derail the process.
That the president of the most powerful country in the world could act this way forces us to be cautious. Having such an unreliable partner as a counterpart makes it a high-risk game. However, this is the way relations between the Mexican and U.S. governments will inevitably be for the near future. It’s better to get used to the idea that this is how it’s going to be, at least until 2020.
The reasons for concern are not restricted to that. Domestically, there is another set of circumstances that leads us to be skeptical about the talks that will take place. There is very little information about what the U.S. wants. It is known from press releases that, as required by law, Congress has solicited opinions from interested parties; the number of responses has been unexpectedly large. There are tens of thousands of opinions that will have to be addressed in one form or another by the legislature.
In Mexico, that has been interpreted in official circles as an indication of the high level of interest in NAFTA in the United States, and, by extension, of support for its preservation. That’s one way of looking at it. It is also worth noting that the special interests in favor of modifying, retaining or eliminating certain clauses of the agreement are numerous and diverse. These special interests make themselves felt through pressure groups that work with Congress. Advancing their points of view is important in keeping their local clientele happy. As the experts on the U.S. political system say, all politics is local.
The contrast with Mexico could not be greater. Here, the issue of the renegotiation of NAFTA is of interest to a limited group of technocrats who have for years specialized in the negotiation of free trade agreements. Most of these agreements have not been very useful if they were intended to counteract the concentration of exports in the United States.
The space available for nongovernmental interests with a direct stake in the agreement to express their viewpoints is very small and pretty obscure. The big companies that benefit from NAFTA have always had a presence there. Who they are and who they represent is not clear. The agreement and its benefits have always been seen from the top down, not in the other direction. From that perspective, we can see it has dubious legitimacy, little or no participation by the legislature, and scant interest on the part of the citizenry. As the time for the renegotiation approaches, we have to ask if there are new proposals coming from today’s stronger Mexican civil society.
It is hard to know if there is a political cost for the negotiators in not putting enough emphasis on the requirements of small- and medium-sized businesses, the ones which count when it comes to creating jobs but which don’t enjoy the benefits of NAFTA to the extent that they should. This is shown by the fact that the domestic component of manufactured goods exported to the United States is very small, compared with that of other countries, such as China.
Mexico is entering a new stage of NAFTA without having clarified what the specific national interests were that guided its creation more than 20 years ago, and which are encouraging its redefinition today. It would have been desirable to take advantage of this moment of global paradigm change to have an in-depth discussion about whether having the export of manufactured goods to the United States, or joint production with some of its large automotive manufacturers, as the principal focus for the country’s economic development was the best option for meeting the country’s most urgent needs.
A country so divided geographically and socially, so unequal in opportunities, with such high indexes of poverty and such low standing in education, science and technology, should view its foreign relations — of which trade is one of the most important components — in terms of the contribution it makes to the solution of such problems.
This clearly hasn’t been the case. This may be because those who are invested in this issue care about increasing the value of free trade, independently of who it favors and who gets left by the wayside. Because it wasn’t accompanied by an economic policy that made it an instrument for the creation of jobs, productive integration and regional development, NAFTA indirectly favored greater inequality.
Recently, several think tanks have published analyses centered on the advantages of a shared North American destiny. Such interpretations leave out a key point: namely, the asymmetry between Mexico and the other two countries that make up the region. If we lose sight of the enormous differences in GDP per capita in the three countries, differences which have deepened with the existence of NAFTA, it is possible to reach erroneous conclusions. Increasing the competitiveness of labor can mean something quite different in Mexico. In reality, the region’s competitiveness is supported in large measure by cheap Mexican labor.
It is possible that the renegotiation of NAFTA may be quick; it is possible that it may go on for months or years. It is possible that Trump may decide to pull out of the agreement with the stroke of a pen. It is possible that we will end up with a resolution in accordance with the rules of the World Trade Organization. The challenge to overcome is something different: It is to formulate an economic policy that, among other objectives, utilizes foreign trade as an instrument to tackle inequality and low productivity across the country. So long as this isn’t happening, the discussion about NAFTA is a screen behind which the problems that are afflicting the country today persist and deepen.
That the president of the most powerful country in the world could act this way forces us to be cautious. Having such an unreliable partner as a counterpart makes it a high-risk game. However, this is the way relations between the Mexican and U.S. governments will inevitably be for the near future. It’s better to get used to the idea that this is how it’s going to be, at least until 2020.
The reasons for concern are not restricted to that. Domestically, there is another set of circumstances that leads us to be skeptical about the talks that will take place. There is very little information about what the U.S. wants. It is known from press releases that, as required by law, Congress has solicited opinions from interested parties; the number of responses has been unexpectedly large. There are tens of thousands of opinions that will have to be addressed in one form or another by the legislature.
In Mexico, that has been interpreted in official circles as an indication of the high level of interest in NAFTA in the United States, and, by extension, of support for its preservation. That’s one way of looking at it. It is also worth noting that the special interests in favor of modifying, retaining or eliminating certain clauses of the agreement are numerous and diverse. These special interests make themselves felt through pressure groups that work with Congress. Advancing their points of view is important in keeping their local clientele happy. As the experts on the U.S. political system say, all politics is local.
The contrast with Mexico could not be greater. Here, the issue of the renegotiation of NAFTA is of interest to a limited group of technocrats who have for years specialized in the negotiation of free trade agreements. Most of these agreements have not been very useful if they were intended to counteract the concentration of exports in the United States.
The space available for nongovernmental interests with a direct stake in the agreement to express their viewpoints is very small and pretty obscure. The big companies that benefit from NAFTA have always had a presence there. Who they are and who they represent is not clear. The agreement and its benefits have always been seen from the top down, not in the other direction. From that perspective, we can see it has dubious legitimacy, little or no participation by the legislature, and scant interest on the part of the citizenry. As the time for the renegotiation approaches, we have to ask if there are new proposals coming from today’s stronger Mexican civil society.
It is hard to know if there is a political cost for the negotiators in not putting enough emphasis on the requirements of small- and medium-sized businesses, the ones which count when it comes to creating jobs but which don’t enjoy the benefits of NAFTA to the extent that they should. This is shown by the fact that the domestic component of manufactured goods exported to the United States is very small, compared with that of other countries, such as China.
Mexico is entering a new stage of NAFTA without having clarified what the specific national interests were that guided its creation more than 20 years ago, and which are encouraging its redefinition today. It would have been desirable to take advantage of this moment of global paradigm change to have an in-depth discussion about whether having the export of manufactured goods to the United States, or joint production with some of its large automotive manufacturers, as the principal focus for the country’s economic development was the best option for meeting the country’s most urgent needs.
A country so divided geographically and socially, so unequal in opportunities, with such high indexes of poverty and such low standing in education, science and technology, should view its foreign relations — of which trade is one of the most important components — in terms of the contribution it makes to the solution of such problems.
This clearly hasn’t been the case. This may be because those who are invested in this issue care about increasing the value of free trade, independently of who it favors and who gets left by the wayside. Because it wasn’t accompanied by an economic policy that made it an instrument for the creation of jobs, productive integration and regional development, NAFTA indirectly favored greater inequality.
Recently, several think tanks have published analyses centered on the advantages of a shared North American destiny. Such interpretations leave out a key point: namely, the asymmetry between Mexico and the other two countries that make up the region. If we lose sight of the enormous differences in GDP per capita in the three countries, differences which have deepened with the existence of NAFTA, it is possible to reach erroneous conclusions. Increasing the competitiveness of labor can mean something quite different in Mexico. In reality, the region’s competitiveness is supported in large measure by cheap Mexican labor.
It is possible that the renegotiation of NAFTA may be quick; it is possible that it may go on for months or years. It is possible that Trump may decide to pull out of the agreement with the stroke of a pen. It is possible that we will end up with a resolution in accordance with the rules of the World Trade Organization. The challenge to overcome is something different: It is to formulate an economic policy that, among other objectives, utilizes foreign trade as an instrument to tackle inequality and low productivity across the country. So long as this isn’t happening, the discussion about NAFTA is a screen behind which the problems that are afflicting the country today persist and deepen.
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