World Trade - November 2008 - (Page 17)

O n December 8, 1993, President Bill Clinton stood in Washington’s Mellon Auditorium—the same hall where Harry Truman signed NATO into being—to celebrate the creation of the North American Free Trade Agreement (NAFTA). Like NATO, Clinton said, NAFTA would help establish a new world order, one that would lead to “more growth, more equality, better preservation of the environment and the greater possibility of world peace.” Critical to that order, he said before signing the NAFTA legislation, was the nurturing of new markets for U.S. companies. “Over the long run, our ability to have our internal economic policies work for the beneﬁt of our people requires us to have external economic policies that permit productivity to ﬁnd expression not simply in higher incomes for our businesses, but in more jobs and higher incomes for our people. That means more customers.” With the fall of Soviet communism, new markets were emerging worldwide. But nowhere was there a market with more potential than Mexico. Here was a country of almost 100 million people, coming off several decades of rapid economic growth and experiencing an explosion in its middle class. As the Mexican, U.S., and Canadian economies integrated and as Mexico continued to implement political and legal reforms, the trade deal’s supporters predicted that the country would become a haven for U.S. business eager for new markets and investment opportunities. But as NAFTA reaches its 15th birthday, the record has proven decidedly cloudier. Foreign direct investment (FDI), primarily from the United States, did increase initially, but it did so mostly along the border, in the so-called maquiladora plants that produce goods for immediate shipment back to the United States. That growth, however, has been choked off in recent years, largely because manufacturers found even cheaper labor in China. Meanwhile, much of the rest of the country remains in a pre-NAFTA state, largely cut off from international economic contact. And that means less growth in Mexico: While other advanced developing countries like Brazil, China, and India have experienced near-double digit growth rates for the last decade, Mexico’s has hovered between 3 and 5 percent. And, a deal that was supposed to bring Mexico and the United States into economic and social synchrony has instead driven up the income disparity between the two nations by 10 percent. Nor has the country made the improvements to its regulatory and physical infrastructure necessary for the sort of economic integration NAFTA boosters predicted. “It’s changed very little,” said Herb Schmidt, president of Con-way Truckload. “Basically, it’s the same business model as twenty years ago.” Citing driver security issues, a predominantly cash economy, a poor regulatory infrastructure, and a host of other factors, Con-way has forgone opportunities to move directly into the Mexican market, and instead takes deliveries from Mexican afﬁliates at the border—and that means lower efﬁciency, longer delivery times, and less proﬁt. Take Con-way’s experience, multiply it across industries, and you have a chastened view of NAFTA’s achievements 15 years later. Fifteen years ago, no one predicted quite how fast China would grow as a global exporter, and how much of an impact it would have on Mexico. And yet, after several years of export-led growth in the 1990s, Mexico suffered greatly as factory owners closed up shop along its northern border and moved across the Paciﬁc—in 1999, Mexico made 70 percent of imported U.S. televisions; by 2004, as production shifted to China, that number had plummeted to 45 percent. Investment rates reﬂect similar shifts. In 1994, FDI to Mexico was $10.6 billion, and in reached $27 billion in 2001. But the next year the number dropped to $18.1 billion, thanks in part to the U.S. recession, and in 2004 to $13.7 billion. By 2006, it was still at $14.1 billion. The maquiladora plants along the border lost 200,000 jobs between 2000 and 2002, and they still employ fewer workers than they did in 2000. Indeed, even as Mexican FDI growth increased between 2000 and 2001, FDI in manufacturing actually fell, from $9.8 billion to $5.4 billion. The difference was made up for in the phenomenal but short-lived boom in the near-shore outsourcing of services, which soon migrated overseas as well—between 2001 and 2002 service-sector FDI fell by more than half, from $21.4 billion WWW.WORLDTRADEMAG.COM 17 http://WWW.WORLDTRADEMAG.COM

Table of Contents Feed for the Digital Edition of World Trade - November 2008

World Trade - November 2008 Contents Unexpected Responses to Unanticipated Change Reading the States of Risk in Today’s Global Economy Supply Chain Watch Tradewinds Failed Promise: Mexico and NAFTA, 15 Years Later The Short Tale Marrying Trade Finance and Transportation into a Single Transaction Trucking Gets a Double Whammy Are We Safe Yet? Logistics Resurrects the Rust Belt Keep on Compressing

World Trade - November 2008

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