The economic experience of Mexico has changed tremendously since the acceptance of the North American Free-Trade Agreement (NAFTA) in 1994. Over the last 14 years, Mexico has experienced tremendous growth spurred on by the introduction of capital from foreign investment and gradually reduced tariffs on exports. To understand the changes Mexico has experienced over this time period, it is important to consider such issues as trade liberalization, national sovereignty, worker rights, international trade organizations, and general economic development.
Alan Deardorff (2001) defines trade liberalization as the “reduction of tariffs and removal or relaxation of nontariff barriers”. Nontariff barriers to trade include government policies other than tariffs that inhibit trade. The reduction of trade barriers is exactly why NAFTA was adopted. At the time of the agreement, Mexico still employed relatively high tariffs in its trade with the U.S. and Canada (Sawyer & Sprinkle, 2006). For example, the tariff on corn imported into Mexico in 1994 was over 200% (“The Americas”, 2008). Thanks to NAFTA, Mexico has lowered its high tariffs and gained access to increased trade with the U.S. and Canada (Sawyer & Sprinkle, 2006).
Although Mexico has maintained its national sovereignty, its trade policy with the U.S. and Canada has been dictated by NAFTA for the last 14 years. With NAFTA as a guiding principle, Mexico has developed 12 more free-trade agreements with 40 other nations. In fact, 90% of Mexico’s trade is conducted under a free-trade agreement (“Mexico”, 2008). Additionally, acceptance of the free-trade agreement has helped Mexico lock in economic reforms developed in the 1980s. These reforms have led to increased investment and stability (Engardio, Sasseen, Welch, Smith, & Kiley, 2008). Although Mexico obviously maintains its national sovereignty, as a player in the global marketplace, many policies that would normally be the mandate of the government are influenced, or even required, by existing agreements with foreign nations.
One area not addressed by NAFTA is tough labor standards and enforcement. Workers in Mexico do not have the right to form labor unions and bargain collectively. Labor organizers at a Sony plant in Nuevo Laredo were fired to prevent a union from forming. Although the AFL-CIO presented the case to a NAFTA panel, no action was taken. Incidents like this showcase the lack of rights for workers in Mexico. Mexico specializes in industries that benefit most from cheap labor (Engardio et al., 2008). It is quite possible, if not probable, that Mexico is able to maintain such an inexpensive work force because its workers are not guaranteed the same rights as U.S. workers.
The International Monetary Fund (IMF) was formed after World War II to “promote international monetary cooperation and aid countries in maintaining the value of their currencies” (Kunz, 2001, para. 1). In 1994, the IMF was instrumental in bailing Mexico out of a huge financial crisis (Kunz, 2001). The World Trade Organization (WTO) was formed shortly after as a successor to the General Agreement on Tariffs and Trade (GATT). Mexico has used GATT and the WTO in an attempt to circumvent the environmental policies of other nations. For example, in 1991 Mexico complained because a U.S. law banned the import of tuna caught in nets that also entangled dolphins. Although environmental policies like these are meant to protect the environment, they can be perceived as a trade barrier. This trade barrier aspect of the policy is what Mexico was arguing against in its complaint (Babai, 2001).
Since the acceptance of NAFTA, Mexico has experienced tremendous economic development on many fronts. In terms of exports, Mexico’s non-petroleum exports have quadrupled. Farm exports have tripled. Foreign investment from its NAFTA partners has risen 14 times over during this period (“The Americas”, 2008). Even with this staggering growth, Mexico still needs to address several key economic issues including infrastructure upgrades, modernized labor laws, and a privatized energy sector (“Mexico”, 2008).
Despite the opposition in the U.S. and Mexico to NAFTA, it has, in many ways, been a success for all parties. In particular, Mexico has benefited from the increased trade volume with its northern neighbors. In fact, thanks to the increased prices of corn in the U.S., small-scale maize farmers in Mexico are still able to turn a profit in an industry that is becoming increasingly mechanized (“The Americas”, 2008). By understanding the changes Mexico has undergone under this agreement, one can better understand what direction must be taken in the future.
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Babai, D. (2001). World Trade Organization. The Oxford companion to the politics of the world. Retrieved August 29, 2008.
Deardorff, A. (2001). Deardorff’s glossary of international economics. Retrieved August 29, 2008.
Kunz, D. B. (2001). International Monetary Fund. The Oxford companion to United States history. Retrieved August 29, 2008.
Engardio, P., Sasseen, J., Welch, D., Smith, G., Kiley, D. (2008, March). Refighting NAFTA: This election season, the free-trade deal is taking the blame for huge job losses. But its true effects on workers and competitiveness are far more complicated. Business Week,(4077), 56-59. Retrieved August 29, 2008, from ABI/INFORM Global database. (Document ID: 1452250431).
Mexico: Just the facts. (2008, March 17). Journal of Commerce, Retrieved August 29, 2008, from ABI/INFORM Global database. (Document ID: 1446923541).
Sawyer, W. C., & Sprinkle, R. L. (2006). International economics, 2nd ed. Upper Saddle River, New Jersey: Pearson Prentice Hall.
World Bank Group. (2001). Global development finance 2001. Retrieved August 29, 2008.