1 / 32

The North American Free Trade Agreement

The North American Free Trade Agreement. A net beneficial free trade area from the perspective of Mexico. David Loveland Scott Swisher May 29 th , 2007 – Latin American Economics. Thesis Statement and Outline. Thesis Statement:

rcruise
Download Presentation

The North American Free Trade Agreement

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The North American Free Trade Agreement A net beneficial free trade area from the perspective of Mexico David Loveland Scott Swisher May 29th, 2007 – Latin American Economics

  2. Thesis Statement and Outline Thesis Statement: “For Mexico, NAFTA has had a positive net effect; the gains in manufacturing, trade, and macroeconomic stability have outweighed the losses in agriculture and economic independence” Outline: • History of NAFTA • Agreement structure • Macroeconomic stability • International trade flows • Gains/losses by sector • Political consequences • Net effect of NAFTA • Conclusion

  3. The North American Free Trade Agreement • Free trade area: Mexico, US, Canada • Trade liberalization with caveats • Retention of PEMEX • US-Mexico agricultural tariff phase-outs • US-Canada agricultural exclusions • Side agreements • NAAEC, CEC • NAALC, CLC • NADBank

  4. Historical Context / Timeline • Jan. 1965: Canada-US Auto Pact • 1965: Mexican maquiladora program • 1986: Mexico accession to GATT • 1989: Canada-US FTA (CUSFTA) • June 1990: US-Mexico FTA initiative • 1991: Canada joins NAFTA negotiations • 17 Dec. 1992: signing of NAFTA • Jan. 1994: NAFTA enacted

  5. Mexico: Need for the Agreement • Continuation of apertura reforms • Raise political cost of reversing reforms • Provide new export opportunities • Increase domestic competition • Attract greater FDI inflows • Use NAFTA to build confidence • Engage Canada in trade

  6. NAFTA Structure Article 102: goals of NAFTA Free Trade Commission (FTC) Lowering of tariff barriers Rules of origin Co-operative “commissions” Ineffectual development bank No supranational institutions

  7. NAFTA’s Macroeconomic Effects • Increased reliance on trade flows • Improved GDP growth, two downturns • US-Mexico convergence • Transition to service economy continues • Additional FDI inflows achieved • Macroeconomic stability • Unemployment, inflation • Public deficit/debt

  8. Mexico: GDP Growth GDP Growth (annual % change) Time (years)

  9. NAFTA Members: GDP Growth GDP Growth (annual % change) Time (years)

  10. Mexico: GDP Composition Sector’s Share (% of GDP) Time (years)

  11. Mexico: FDI Net Inflows FDI Net Inflows (% of GDP) Time (years)

  12. Mexico: FDI Net Inflows by Country FDI Net Inflows (billions of USD) Time (years)

  13. NAFTA Members: Inflation (CPI) Inflation (annual % change in CPI) Time (years)

  14. NAFTA Members: Unemployment Unemployment (% of labor force) Time (years)

  15. NAFTA Members: Government Debt Public Debt (% of GDP) Time (years)

  16. NAFTA’s Impact on Trade Flows • Increased reliance on international trade • Expansion of regional trade • US-Mexico merchandise trade up 227% • Trade in autos/parts, agriculture, energy • Gains from NAFTA: estimates range from 5-50% • Rules of origin: trade diversion/creation • Current account deficits persist • Synchronization of imports and exports

  17. NAFTA Members: Trade Trade (% of GDP) Time (years)

  18. Mexico: Imports, Exports Imports, Exports (% of GDP) Time (years)

  19. Mexico: Current Account Balance Current Account (billions of USD) Time (years)

  20. Mexico: Import/Export Growth Import/Export Growth (% of GDP) Time (years)

  21. NAFTA: Manufacturing • 81.1% of total exports • Employs 24% of the workforce • Increasing importance of maquiladoras • 44.8% of total exports from Mexican markets in 2006 • Low wages and gender disparity • Geographical disparity • Automotive Industry

  22. Maquiladora Employment

  23. Maquiladora Employment, Con’t

  24. NAFTA: Energy • NAFTA left PEMEX and CFE intact Inefficiency and Instability • NAFTA liberalized trade, not investment • Lack of domestic investment in exploitation of new reserves and underinvestment in electricity capacity growth • SOEs in generation/transmission/distribution • Oil accounts for 15.6% of total Mexican exports • PEMEX profits used as source of government revenue • Dependence on world oil prices • Slight Liberalization: natural gas, electricity

  25. NAFTA: Agriculture • 2.8% of total exports • Employs 18% of the labor force • US/Mexican agricultural commodities have become largely complementary • Trade volumes have grown in both imports and exports • Mexican grain farmers were seriously hurt by several US products flooding Mexican markets • Income Supports: Procampo, Alianza, Produce Capitaliza • Points of contention • Corn • Sugar, high fructose corn syrup

  26. Agricultural Trade Levels

  27. NAFTA: Services • Largest sector of the economy • Trade accounts for a nearly negligible percentage of GDP • Most service production consumed domestically • Majority of service exchange is tourism • Trade in services liberalized by NAFTA • Expansion of inter-NAFTA trade concentrated in transport • Financial sector changes are important as well

  28. NAFTA: Political Implications • US as core of NAFTA system • Contraction in economic independence • NAFTA legally enforces trade reforms Trade stability • Pressure to liberalize energy sector • Business cycle liberated from political cycle

  29. The Net Effect of NAFTA • Gains: • Political legitimacy, lock-in of reforms • Macroeconomic stability • Increased competitiveness, maquiladora growth • Losses: • Increased reliance on external trade flows • Dependent on the US as central player • Agricultural issues persistent • Net Effect: positive, NAFTA is beneficial

  30. Conclusion • “For Mexico, NAFTA has had a positive net effect; the gains in manufacturing, trade, and macroeconomic stability have outweighed the losses in agriculture and political independence” • Mexico is better off as a result of NAFTA • Continue trade liberalization process • Agricultural problems need to be addressed • Social/cultural adjustment costs?

  31. The Future of NAFTA for Mexico • Current challenges • End of PRI dominance • American anti-NAFTA sentiment • Post-9/11 security concerns • Future expansion • Security and Prosperity Partnership of North America • North American Union?

  32. References • Clement, Norris C. et al. (1999). North american economic integration : Theory and practice. Cheltenham, UK: Edward Elgar. • Cypher, J. M. (1993). In Bognanno M. F., Ready K. J. (Eds.), The north american free trade agreement : Labor, industry, and government perspectives. Westport, Conn.: Quorum Books. • Davis, C. L. (1998). Mass support for regional economic integration: The case of NAFTA and the mexican public. [Electronic version]. Mexican Studies / Estudios Mexicanos, 14(1), 105. Retrieved May 23, 2007, from JSTOR database. • Encyclopedia Britannica. (2007). North American Free Trade Agreement.Retrieved May 27, 2007, from http://search.eb.com/eb/article-9002251 • Hufbauer, G. C. (2005). NAFTA revisited : Achievements and challenges. Washington, DC: Institute for International Economics. • Leamer, E. E. (1993). In Garber P. M. (Ed.), The mexico-U.S. free trade agreement. Cambridge, Mass.: MIT Press. • Lederman, D. (2005). Lessons from NAFTA for latin america and the caribbean. Washington, D.C: World Bank. • MacArthur, J. R. (2000). The selling of "free trade" : NAFTA, washington, and the subversion of american democracy. New York: Hill and Wang. • Mayer, F. (1998). Interpreting NAFTA : The science and art of political analysis. New York: Columbia University Press. • McKinney, J. A. (2000). Created from NAFTA : The structure, function, and significance of the treaty’s related institutions. Armonk, N.Y.: M.E. Sharpe. • Morris, S. D., & Passé-Smith, J. (2001). What a difference a crisis makes: NAFTA, mexico, and the united states. [Electronic version]. Latin American Perspectives, 28(3), 124. Retrieved May 23, 2007, from JSTOR database. • Orme, W. A. (1996). Understanding NAFTA : Mexico, free trade, and the new north america. Austin: University of Texas Press. • Ostry, S. (1992). In Randall S. J., Konrad H. and Silverman S. (Eds.), North america without borders? : Integrating canada, the united states, and mexico. Calgary: University of Calgary Press. • Pastor, M., & Wise, C. The origins and sustainability of mexico's free trade policy. [Electronic version]. International Organization, 48(3), 459. Retrieved May 23, 2007, from JSTOR database. • Patricia Fernández-Kelly and Jon Shefner. (2007). NAFTA and beyond : Alternative perspectives in the study of global trade and development. The Annals of the American Academy of Political and Social Science, 610, 120-202. • Ruiz-Napoles, P., & Ortiz, E. (1996). In Christos C. Paraskevopoulos, Ricardo Grinspun, George E. Eaton (Ed.), Economic integration in the americas. Cheltenham, UK: E. Elgar. • The World Bank. (2007). World development indicators online. Retrieved May 26, 2007, from http://devdata.worldbank.org/dataonline/ • Zárate Ruiz, A. (2000). A rhetorical analysis of the NAFTA debate. Lanham, Md.: University Press of America.

More Related