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The US and Mexico debate free trade.

ON February 5, 1991, the US, Mexico, and Canada formerly proposed the creation of the North American Free Trade Agreement (NAFTA).

Negotiations began on June 12, 1991, and it took 18 months of intensive haggling over everything from auto parts to oil rigs until the three participating countries finally agreed on a free-trade agreement (FTA) on August 12, 1992. The FTA is going to take effect on January 1, 1994 provided all three governments authorise it through legislation. As planned, over the next 15 years, the FTA will eliminate all tariffs among Canada, Mexico, and the US and consequently reduce the cost of thousands of products. NAFTA in several areas is actually three bilateral deals. Still, in general, it would be a sound interpretation to view it more as an American-Mexican venture. For instance, whereas in 1990 the trade between Canada and Mexico hovered around US $2.3 billion, that of the US-Mexico had surpassed US $52 billion. In this article, the bilateral trade relationship of the US and Mexico within the general framework of NAFTA will be discussed.

The FTA has been the subject of many debates in the US and Mexico. The opposition to the Agreement in the US comes mostly from labour unions, pro-labour politicians, and environmentalist. They argue that the existing pollution along the border of the US and Mexico will only worsen once the FTA takes effect. It is commonly believed that due to less stringent (and thus less costly) regulations on the environment and worker safety in Mexico, the FTA will be a great advantage to businesses that shift their operations from the US to that country. Such a move certainly will not be liked by US workers left jobless. Mark Anderson (director of the AFL-CIO Task Force on Trade) says the FTA should be called "a free investment agreement instead of a free trade agreement.' Bob Filner, a Democrat representative from California, flatly labels the FTA as a scheme that would exploit US human and environmental resoruces. 'It is free trade for big business. We want fair trade for working Americans.' Another Congressman, Peter De Fazio--also a Democrat, from Oregon, calls the FTA an 'anti-worker, anti-consumer, anti-environment, anti-USA' plan. According to Senator Ernest Hollings -- a Democrat from South Carolina: 'NAFTA is the wrong idea, at the wrong time, for all the wrong reasons'.

The main Mexican opposition to free trade comes from intellectuals and small businessmen. Jose Angel Conchello, a political who supports the nationalist opposition leader Cuauhtemoc Cardenas, argues that Mexico is embracing the treaty too hastily. Professor Carlos Rico (at El Colegio de Mexico) philosophically explains that 'most of the concern is not about the FTA itself. In Mexico ... most people see this as almost unavoidable. It is the last moment in a process of silent integration of the Mexican economy to the US economy ... The concern ... stems out of... 'Jeretcia', the heritage of the ideology of the Mexican revolution and its influence on national autonomy ... what we are doing now is accepting the failure of a national project that started in 1910. We are accepting that a project that emphasized national autonomy and independence does not make any sense given the present circumstances. [People] are more concerned about the fact that the Mexican government seems to be so committed to [the FTA] that it might accept a less than perfect deal for the Mexican side'.

Officially, the FTA has been blessed by both sides. President Salinas of Mexico has made the FTA a linchpin of all his major programmes. If the FTA is not ratified by the US Congress, the Mexican ruling party will find itself without a very attractive platform for the next Mexican presidential elections, due to be held in 1994. A report released by the US International Trade Commission states that the FTA would 'enhance the US competitive advantage', improve US access to a growing Mexican market', give "certainty and predictability' to US investors, 'benefit US consumers with lower prices' for Mexican products, and 'decrease the flow of illegal immigration into the US'. The same report counts the following advantages for Mexico of an FTA: Providing 'secure access' to the US market, increasing Mexican employment, productivity and competitiveness, allowing Mexico to earn foreign currency to meet its foreign debt burden, and lowering inflation. According to Professor Morici, the US is going to gain more from free trade with Mexico than it did from its 1989 agreement with Canada.

Several important issues related to the FTA and its impact on the US and Mexico will be discussed in the following lines.

Political stability in Mexico

A politically stable system along the line of free marketer President Salinas has been endorsed by many Mexico watchers in the US. Professor James K. Galbraith (at the University of Texas) believes that the primary purpose of the free agreement is the 'stabilize Salinas and cement the structural changes going on in the Mexican economy'. Professor Almon (at the University of Maryland) express the same opinion: '... one of the real issues here is, do we want to help the liberal Salinas administration to "lock in" ... through an international treaty? Or do we in the misguided interest of trying to save a job or two here and there, slap them in the face and send them back into 1930 vintage protectionism?' Senator Max Baucus, a Democrat from Montana, adds that President Salinas ' banking his party's future, and his country's future, on the successful passage of the Agreement'.

One report indicates that president Salinas' support is only as solid as the Mexican peso. In turn, the peso is only as stable as the confidence of US investors, who now hold 20 per cent of Mexican equities and 50 per cent of its treasury bills (Cetes). The high-yielding Cetes carried a nominal rate of 15 per cent, way above a comprable US Government bill that stood at the end of May 1993. If free trade is derailed, capital would likely begin flowing of Mexico. That could trigger a devaluation of the peso, followed by a host of undesirable events and certainly political unheaval. Indeed sensitivity to this matterr is so high that the reports of a lack of consensus among NAFTA negotirators in Ottawa (May 21, 1993) caused the Mexican stock market to take a deep plunge.

There are some indications that the Mexican economy has started to cool. Economic growth fell from 3.6 per cent in 1991 to 2.7 per cent in 1992. For 1993, it is expected to fall even further, to 2.2 per cent. Vicente Gutierrez Camposeco, president of the National Manufacturing Industry (Canacintra) -- notes that about 50 per cent of the Mexican manufacturing industry had fallen into a recession by the end of 1992. The sectors in recession employ 53 per cent of Mexico's manufacturing workers. He partially attributes his sluggishness (where plants operate at only 40 per cent of their capacity) to the increasing tempo of imports. The economic slow-down, coupled with heightened political tensiuon might make it difficult for President Salinas to continue the fiscal austerity aimed at cutting the trade deficit and bringing down inflation. Sergio Aguayo, a Mexican political scientist believes that: 'The government is becoming vulnerable to criticism and pressure at home and abrad'. Professor Jorge G. Castaneda (at the National Autonomous University of Mexico) envisions a road map for the future. He describes that President Salinas 'began his term trying ... to provide an economif answer to a politifal problem. He will end his term with perhaps no choice but to find a politica solution to an economic quagmire'. That solution entails an overhaul of the political system, a clean presidential election in 1994, which may bring the nationalist leader, Cardenas to power.

Senator Daniel Moynihan, a Democrat from New York, hearing of the Agreement said: 'What they have now is the stability of one party'. In fact, the Institutional Revoluntionary Party (PRI) has won avery election since 1928, except for Baja California and Chihuahua won by the National Action Party -- PAN. The Mexican political system with its current structure lacks sufficient stability. Its instability is to such an extent that worried to lose a gubernatorial election (Yucatan Province), the PRI simply decided not to hold it, and instead appointed a new governor. Alluding to a possible suspension of the Constitution, Mexico's Democratic Revoluntionary Party (PRD) Senator Porifio Munoz Ledo -- a potential presidential candidate -- argues: 'I ask myself that if in Yucatan the term can be extended ... why couldn't it be extended on the Federal level?' In the same province, a peasant demonstration was brutallu suppressed. After the independent local newpaper, Diario de Yucatan criticized the event, its director, Carlos Menedez Navarrete became a target of an harassment campaign. Finance Secretary, Peddro Aspe, bluntly talks about a definite 'risk of social instability' if the economy does not improve soon. Regardless of all these developments, the authoritative business publication, Business International, discounts the notion that either PAN or PRD poses a serious threat to President Salinas. According to this source, a greater risk to political stability comes from rejection of NAFTA by the US Congress.

Employment and wages

The subject of employment and wages should be considered the most controversial aspects of the deal. In general, proponents of the FTA have proclaimed it to be a 'win-win' prospect. Conversely, opponents of the Agreement view it as a 'win-lose' proposition, with Mexico bound to gain jobs mostly at the expense of US workers. The bulk of the argument of the pro-FTA group in the US is that the number of jobs in the US and Canada that may be lost to Mexico is no greater than the number of jobs that may be lost to Mexico is no greater than the number of jobs that would have otherwise been lost to Asia. Professors Hufbauer and Schott (at the Institute for International Economics) estimate that the increased trade will create about 325,000 new jobs in the US by 1995, while eliminating about 150,000 unskilled factory jobs, some of which will be lost to cheaper Mexican competition.

The Agreement is going to affect the job market in various parts of Mexico unevenly. One may expect that due to the nature of maquiladoras (manufacturing firms set of the FTA. By design, maquiladoras are creatures of the current tariff structure, and little more than foreign enclaves on Mexican soil, segregated from the traditional industrial sector in that country. For instance, these US-owned plants buy 97 per cent of their parts from the US and sell almost nothing in Mexico. As such, the FTA should sweep them away. Paul Ramos Tercero, Director of Economic Studies of Secofi (Mexico's Commerce Secretariat) holds a different opinion. He maintains that: 'NAFTA contains many positive aspects for the maquiladoras'. In other words, current restrictions permitting no more than 50 per cent of maquiladora output to be sold in Mexico would be dropped within five years of the NAFTA signing. The change would mean maquiladora coul dhave unlimited access to markets on both sides of the border. But not all the maquiladoras are US-owned, and they will be hurt more by local content rules that will place restrictions on their access to the US markets. The local content is 35 per cent for Japanese producers in Mexico for entry into the US under GSP. It is bound to increase to a much higher level under NAFTA. The outcomes are not conclusive, but as one Mexican street vendor says: 'You can earn more money selling chewing-gun on the street than working for a maquiladora'. He had worked in a maquiladora factory earning about $5 for an eight hour day. By selling candy at stoplights, he now earns as much as $16.50 a day, which is far above the minimum daily wage in Mexico which is around $4.30.

In Mexico, despite what may be stated as the positive signs of the upcoming FTA, the job market is not experiencing any great boom except in a few industries. Hundreds of small and medium-sized companies are wrestling with financial problems. Up to 10 per cent of the country's bank employees are about to lose their jobs as 18 newly privatized banks struggle to modernize. The hardest hit industries are textiles and toys. Eighty of the 265 members of the Mexican Toy Industry Association went out of business in a single year. In preparation for free trade, high-paying manufacturing jobs have actually become scarcer as plants automate and increase their productivity. A recent report released by Mexico's National Statistics Institute (INEGI) indicates that one of the main reasons that has contributed to rising unemployment in that country is disappearance of manufacturing jobs. Indeed, as Grupo de Economistas y Asociados (GEA) -- a private consulting company -- calculates, despite lowering employment and cutting working hours, manufacturing companies have increased their output by 1.8 per cent in 1992. This gain in productivity was due to installation of modern equipment. For instance, it has been projected that personal computer sales in Mexico will post a 29 per cent increase, to nearly $1 billion, in 1993.

American organized labour expresses great discomfort toward the FTA. ALF-CIO Vice-President William H. Bywater believes that the FTA will turn industrial communities in the US into ghost towns by sending good-paying jobs to Mexico. He could be right. Professor Shaiken (at the University of California, San Diego) says Mexican workers, due to their higher productivity and increasing skill levels, are after high-value added jobs in the US. In other words, 'the jobs in the US that are vulnerable are not the $6-an-hour jobs, but the $18-an-hour ones... It goes to the core of theUS industrial base'. However, Professor Almon (at the University of Maryland) presents a different view and maintains that: '... practically the only losers are jobs in the low paid apparel assembly industry'. George Fisher (CEO of Motorola Inc) expresses the same opinion, and points out that 'the days of chasing low-cost labour are over'. In fact, automation, and new product design have helped many business to shrink the labour content fromthe total production cost. Obviously this had created a situation where demand for labour is soft, and that has made workers apprehensive. According to one recent study the pact will hurt low-skilled workers in the US, but high-skilled workers may gain. Professor Leamer (at UCLA) estimates that over several years, real annual wages for low-skilled workers in the US will reduce by about $1,000, while annual earnings for high-skilled work could rise as much as $6,000. The Mexican Embassy in Washington has downplayed the 'wage gap' and maintains that the European experience with the integration of Spain, Portugal and Greece into the EEC shows just how dramatically both groups of countries benefited from the integration. The wage discrepancy between Portugal and Germany is virtually identical to that between Mexico and the US. Although Professor Morici believes that such an analogy is illusive. When Spain and Portugal joined the EC, 'their average manufacturing wage was about half that prevailing in the Community and their population only about 13 per cent of the EC total. Mexican wages are about 14 per cent of the United States-Canadian levels, and Mexican population constitutes 24 per cent of North America's people'. In other words, the FTA will be a more disrupting factor for US workers. The final words belong to Koechlin and Larudee. Their research indicates that NAFTA is going to hurt workers in the US and Mexico. As they point out, by the year 2000 there will be a decline of about 500,000 jobs in the US. But Mexican workers will not be better off than before NAFTA.

There are about one million new job seekers every year, and unemployment stands at 13.5 per cent. This level of unemployment is so high that despite thousands of jobs created each year, millions still are left unabsorbed. With this huge surplus of labour, Mexico's low wages cannot rise dramatically and logically, under these conditions, one may not expect considerable improvement in living conditions. Although many companies must offer more than the minimum wage to retain labourers, that is not enough to keep workers in pace with inflation. Worse, in real terms, Mexican wages have declined by 60 per cent since 1982. According to Barkin's calculation, the real minimum wage (1960 -- 100), that peaked in 1977, fell again and in 1990 stood at the 1960 level. Sheldon Friedman, a labour economist affiliated with the AFL-CIO, presents a similar view. By his calculation, the index of real manufacturing wages in Mexico dropped from 100 in 1982 to 61.8 in 1991. Jose Luis Calva (at the Mexico City's National University) maintains that from 1982 to 1992, free trade led to increased unemployment and a 33 per cent drop in real minimum wages in Mexico.

Organized labour in Mexico is also anxious over the dawn of the new era. Abelardo Carriol, a leader of the Mexican Workers Congress, says: 'The private sector is using the conclusion of the trade negotiations as a pretext to carry out its intentions to take away some of the labour's conquests'. What does he mean by the labour's conquests? The answer lies rather generous social services that cover workers. In Mexico, while wages may be low, job security and benefits are relatively high. A dismissed worker must receive severance pay of three months, plus 20 days' pay for each year of service. Mexico's social security system provides extensive benefits to workers, including profit-sharing, two six-week fully paid maternity leave, as well as child care, pension, medical, and disability benefits. Christmas bonuses of 15 days' pay are mandatory. For these benefits and others, a worker contributes about 15 per cent of his salary. The employer pays about three times that amount. Victor Munoz, an AFL-CIO organizer in Los Angeles indicates that Mexicans worry that their labour laws will be degraded to equal those in the US, while his union worries that US wages will be degraded to Mexican levels. Nevertheless, Manuel Suarez-Mier, of the Mexican Embassy in Washington, in a seminar held in 1991 justified this situation and said '... we have paid a very high social cost in the process of adjustment. Yes that is true, but there was no alternative to not adjust and not pay high social cost. And the non-adjustment process is not only costlier but even less fair than the other process of adjustment. Normally any adjustment hits the poor far more than the rich, but a disorderly adjustment will convert itself into hyper-inflation and therefore, wipe out the poor'. However, Jose Ortiz, the World Union Federation's Director for Latin America and the Caribbean, claims that the workers' aspirations are simple: 'We want a world that is different than what we have -- where there is no hunger and no street children'.

Foreign Investment

Sergio Sarmiento, a political analyst, affirms that labour intensive businesses (automobiles, modernized textiles, small scale vegetables and fruit farms) are going to fare best in Mexico after the FTA is ratified. Jaime Serra Puche (Mexican Commerce Minister) veries that US businesses seeking cheaper labour costs are likely to be among those most interested in Mexican investment. As he remarks, 'You can think of industries doing more business in Mexico if they are labour intensive and going more into the US if they are capital intensive'. A KPMG Peat Marwick study maintains that the FTA would result in $25 billion total foreign investment in Mexico. Much of that total might be money repatriated by Mexicans, although some would be direct investment by US companies. This amount rougly concurs with the amount calculated by Koechlin and Larudee, an increase of $3 billion each year, or $26.6 billion between 1992 and 2000. By either of the two estimates, the foreign investment outlook is not very encouraging for Mexican firms.

Peter Hutchinson, financial director of the Mecixan conglomerate Grupo Alfa says 'Every one is talking very positively about the potential of Mexico, but what you don't see much of is dollars actually flowing here in long-term investments'. Mecixan officials have consistently predicted that assured access to the US market will bring a steady flow of foreign capital. However, economic problems in the US and other developed countries have showed down foreign investment in Mexico. In 1990, Mexico obtained $4.5 billion -- 11 per cent of total market capitalization -- in commitments, but the figure included sale of the state telephone monopoly -- Telmex -- to a group led by Southwestern Bell Corp. (It owns 12.5 per cent of the shares.) Portfolio investment, expecially in the money market, has maintained a very solid pace. For 1993, Direct Foreign Investment (DFI) is down 33.7 per cent compared to first quarter figures of 1992. Although the numbers are a bit disappointing for the Mexican government, but Macro Asesoria Economica is predicting DFI for 1993 to be around US$5.6 billion which is similar to government estimates.

What has made the impact of DFI less positive is that a great portion of the foreign capital has gone into non-productive activities. Retail sales are growing faster than the population. The largest shopping mall -- with 400 stores -- in the country opened in 1991. Texas and Mexican developers are busy building office towers, multi-level malls, and luxury hotels. In 1992 construction growth was twice as fast as the economy as a whole. On the other hand, the expansion of manufacturing, that is roughly 70 per cent of industrial activity, lags behind overall GDP growth. Mexico's attempts to lure Japanese, as well as Americans into the purchase of Mexican banks have not been successful. Eduro Camarena, of Abaco -- a big Mexican brokerage firm -- says: 'We found the Japanese are distracted by their own problems ... and the Americans also have big headaches'.

Economic growth and development

As the result of the Mexican opening to foreign competition, intensified after Mexico joined General Agreement on Tariffs and Trade (GATT), certain sectors of the economy in that country have been hit very hard. For instance, 75 per cent of the country's toy factories have closed, and employment in that industry has fallen by 50 per cent. The shoe industry now operates at 60 per cent of previous capacity. Massive imports of everything are building up a record trade deficit (to exceed $28 billion in 1993). Consequently, Mexico must maintain a steady stream of foreign investment to cover its huge trade deficit and service its $78 billion foreign debt, which is not much less than it was in 1982. Worse, if the US Congress does not ratify the Agreement, foreign capital might flee Mexico.

US business firms have been able to increase their exports to Mexico, and expect to see more of it if the FTA is implemented. For instance, in 1992, 2,400 lorries a day crossed the US-Mexico border in Laredo, Texas. They carried 38 per cent of $40.6 billion worth of the US exports to Mexico (against US$35.2 billion in imports). By applying the Commerce Department's rule of thumb -- each extra $1 billion in exports creates over 19,000 net new jobs in the US -- Mexicans have indeed helped create well over half a million new jobs for the US workers. By another estimate, every $10 billion trade surplus creates 350,000 new jobs in the US. The US now has a $5 billion trade surplus with Mexico. That implies a net gain of around 175,000 US jobs as the result of trade with Mexico. The city of Laredo forecasts that by the year 2000 'truck crossings' will rise to 10,000 a day without the FTA, and 16,000 with the FTA. It has been estimated that Mexico's imports from the US will approach US$47-48 billion for 1993.

Although it is true that nominal manufacturing wages have risen in Mexico, the big winners have been the wealthiest 10 per cent of society. These are the ones that can afford to buy imported goods or stocks in the hugely profitable privatized companies. There are significant gaps in the national income distribution. According to a Mexican government survey, the Mexican wealth remains concentrated in the hands of a very small group of people. As reported by the Mexican's central bank, Banco de Mexico, the heavy concentration of banking assets is evidence of the country's skewed income distribution. Only 18,649 people, who hold 0.07 per cent of all bank accounts in the country, own 53.2 per cent of the total commercial deposits. Each of these individual accounts have more than $US320,000.

Apparently any change in the living standards of Mexicans have mostly come from increased consumption of imported -- mainly American -- goods. On the average, each Mexican consumes $380 worth of US products a year -- $20 more than the average Korean, whose income is twice as high. By another estimate, Mexico imports over 10 per cent per person more than the European Community imports from the US annually. Jim Kolbe, a Republican Representative from the State of Arizona, in an article that he wrote in the Wall Street Journal in 1991 pointed out: 'America needs free trade with Mexico. To understand why, one needs to go to the parking lot at any shopping centre in the Southwest to see the hundreds of cars with Mexican license plates'. Rogelio Ramirez de la O -- president of the Mexican consulting firm Ecanal -- has warned that imports of consumer items are up 1,000 per cent from 1988, while capital-goods imports are growing more slowly. Although intermediate and capital goods accounted for 85 per cent of all Mexico's imports, import of consumer goods grew much faster. Rebecca Reynolds Bannister attests that presently production sharing comprises only 25 per cent of US exports to Mexico, and it is declining. This statement implies that Mexico is being used less than beforre as a processing centre. If this situation develops into a trend, then chances of Mexico becoming a viable industrial power will diminish.


A distributing fact about the FTA is the omission of any substantive reference to the environmental issues in the most recent draft text of the agreement. This was a politically motivated manoeuvre -- in fact to avoid a very controversial issue -- by all parties involved in the Agreement. The only reference to the environment is a letter that President Bush submitted to Congress in May 1991 where he outlined how environmental issues would be treated in the context of the FTA. Already the lower Rio Grande is the most polluted river in the US. Raw sewage from Nuevo Laredo is the prime source of this heavy contamination. The American Medical Association describes the region as a 'virtual cesspool'. The impact of Tijuana sewage on Southern Californian beaches is quite obvious. There is some evidence that indictt maquiladoras as the major cause of the vast environmental deterioration. For instance, a General Accounting Office (US) report found US-owned plants in Mexico often violate the nation's poorly enforced environmental laws. Dr. Santiago Onate Laborde, Mexican Attorney General for the Environment, delineates: "We do believe that certain mistakes were made in (the maquiladora programme's) implementation. There was no clear idea of how the industry could damage the triple Arizona's rate. Farther away from the border, and primarily in Mexico City, environmental quality has fallen to a very low level. Estimates point out that 20 per cent of atmospheric contaminants are caused by industry. Only 30 per cent of these industries are equipped with pollution control devices, which in many cases are inadequate or nonfunctioning.

Experts believe that environmental problems in Mexico are products of loose enforcement, as Mexico's 1988 environmental law is just as strict as the US regulations, but until recently nobody enforced it. Since 1989, the Mexican government has intensified its activities in regard to execution of the law. Between 1989 and 1991 it increased its environmental budget eight-fold, shut down 1,062 polluting plants -- 82 permanently, including a state-owned refinery -- Azcapotzaclo -- in Mexico City that employed 5,000 people. Ironically, President Salinas was not under public pressure to take such a step. One environmental activist believes that this action neutralized the efforts of the environmental movement and helped the state to consolidate its power. President Salinas himself has made it clear that Mexico will not accept new factories, even though they may provide jobs, if their technologies are harmul. Mexico's ecology minister has recently doubled the number of inspectors to 200 along the 2,000-mile Mexico-US border. Over the 1992-95 period Mexico is going to spend $460 million to clean the region and upgrade roads, bridges and sewage systems. David Robinson, director of marketing, Laboratorios ABC, a Mexico City-based company explains the situation: 'What's happening in Mexico is they're trying to do in three or four years what it took 20 or 25 years to do in the United States ... No one is expecting that industries are going to comply overnight, but they are going to have to lay out, step by step, what they are going to do.

To rectify this deliberate oversight, the US, Canada and Mexico entered into a series of talks, side agreements to NAFTA. They were intended to address overlooked issues related to the environment and labour conditions. In mid August 1993, representatives of the three countries concluded their many rounds of tough negotiations and gave enforcement 'teeth' to NAFTA. The side agreements will make the US and Mexico subject to trade sanctions, although Canada will have to be worried only about fines and court challenges.


President Salinas: 'The US is losing jobs not to countries with lower wages but ones with higher wages like Japan and Germany. Besides, if we do not create additional jobs in Mexico, Mexicans will merely walk across the border looking for jobs in the North. We want to export goods, not people. Our intention with NAFTA is to create additional jobs and make wages grow, not to steal jobs from the US'. Despite this reassurance, the government's slashing of subsidies to Mexico's inefficient farmlands has caused an upheaval among farmers and their families. Many of these farms lack irrigation, and depend on rainfall. Owners of these very small and patchwork of private lands -- ejidos -- and communal farmers now have to pay full price for electricity, water, fertilizer, and seeds. The policy of granting property rights to the farmers which began in 1992, has caused communal farmers to sell or rent their lands, and some head to the north. The hardest hit are credit-poor peasant farmers. It is estimated that reduction or elimination of farm subsidies have fuelled a 10 per cent jump in illegal immigration to the U.S. Many researchers maintain that, in the short run, migration could actually increase as Mexico restructures its economy. New jobs won't materialize quickly enough to absorb displaced Mexican farm workers. What exacerbates the situation is an eight to one US-Mexican wage gap. Professor Paul Hinojosa Ojeda (at UCLA) estimates that about 850,000 household heads will leave the Mexican farmlands if corn subsidies fall. Of them, more than 600,000 will head to the US. The US currently absorbs about 100,000 immigrants from Mexico a year.


With important Democratic leaders in the House of Representatives voicing their opposition, there is a growing possibility that the FTA -- at least in its present format -- will fail to get ratified by the Congress. What does this situation hold for Mexico? Alluding to the profound economic change Mexico has already undertaken, Carl Ross, an analyst at Bankers Trust International plc maintains that 'We believe the failure to pass the [agreement] would be a minor setback for Mexico ... The reform process seems far enough along now to sustain itself on its own momentum'. Mexico at this juncture needs to find other markets for its growing output of manufactured goods. Horrified of rejection of the FTA by the US Congress, Mexican officials have been searching for other potential markets. A report by Mexico's influential business publication El Financiera International reveals some 'contingency' plans devised by the Mexican government. They include a meeting between Jaime Serra Puche (Mexico's Commerce Minister) and a group of investors from the Far East, and revival of plans about a free trade agreement between Mexico and the EEC. Despite this, Mexican officials deny that such a contingency plan has been drawn up by them. On the contrary, they are actively pursuing the FTA. The government of Mexico in a massive lobbying campaign has been spending large amounts of money -- about US$15 million per year -- and has employed an impressive number of political luminaries to push the NAFTA through the US Congress. About 70 firms are registered with the US Justice Department as representing Mexican interests. Of this, 22 firms or individuals, work specifically on the trade pact for the Mexican government. Charles Lewis, executive director of the Centre for Public Integrity which observes lobbying says: 'with Mexico hiring a large number of former officials, it can look like they're trying to buy the treaty'.
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Title Annotation:North American Free Trade Agreement
Author:Poorsoltan, Keramat
Publication:Contemporary Review
Date:Oct 1, 1993
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