[Rushtalk] At 20 years, NAFTA didn't close Mexico wage gap

Carl Spitzer cwsiv at keepandbeararms.com
Fri Feb 14 17:55:24 MST 2014


Associated Press

MEXICO CITY — Looking around a Mexico dotted by Starbucks, Wal-Mart and
Krispy Kreme outlets, it's hard to remember the country before the North
American Free Trade Agreement, which has dramatically expanded consumer
choice and trade since it took effect 20 years ago on Jan. 1.

While it changed the country in some fundamental ways, the treaty never
met many of its sweeping promises to close Mexico's wage gap with the
United States, boost job growth, fight poverty and protect the
environment. Mexico's weak unions and competition from Asia and Central
America kept wages down; the tightening of security along the U.S.
border closed off Mexico's immigration "escape valve," and environmental
provisions in the agreement proved less powerful than those protecting
Mexico took advantage of the accord with the United States and Canada in
some areas. The auto, electronics and agriculture sectors grew, and
foreign banks moved in, increasing access to credit, but a majority of
Mexicans saw little benefit in income. While there is undoubtedly a
larger middle class today, Mexico is the only major Latin American
country where poverty also has grown in recent years.

According the Economic Commission for Latin America, poverty fell from
48.4 percent in 1990 to 27.9 percent in 2013 for all of Latin America.
In Mexico, where it stood at 52.4 percent in 1994, the poverty rate
dropped to as low as 42.7 percent in 2006; but by 2012, it had risen
again to 51.3 percent.

"About 30 or 40 percent of what they promised (in the trade pact) never
came through," said Rodolfo Hurtado Corona, 65, a chauffeur waiting for
his boss on a Mexico City street. Still, motioning to the gleaming sport
utility vehicle he drives for his boss, he noted that "before, there
were only a couple of brands, now you can choose among many."

Economist Alfredo Coutino, director for Latin America at Moody's
Analytics, says "the benefits arrived, but perhaps not of the magnitude
that had been hoped for." He notes that "if this agreement had not been
signed, Mexico would have been in a much worse situation than it has
been over the last 20 years."

Before NAFTA, Mexico was a closed, state-dominated economy reeling from
debt and the underlying problems of Mexican farms — low productivity on
small plots. That had set up a perfect storm of mass unemployment.

The trade accord, globalization and foreign investment did help create
jobs, albeit low-paid ones.

At supermarkets, shoppers are now familiar with everything from
cranberries to chai and lemons (as opposed to the Mexican lime) that few
had tasted before the treaty tore down trade barriers and tariffs
between Mexico, Canada and the United States.

Consumer goods and clothing that were trendy among Mexico's wealthy are
now available to everyone, with more products and choice, especially
among electronics appliances and cars.

Coutino recalls that "before, in Mexico, it was a question of social
status to have a pair of imported sneakers, they were very expensive ...
now the majority of Mexicans can have these things that were once
considered luxuries."

Mexicans remain ambivalent: A recent Universal newspaper/Buendia-Laredo
poll showed that while about half would approve the trade pact if it was
proposed again today, about 34 percent would reject it. The rest had no
opinion. The margin of error was 3.5 percent.

There is no turning back. The three North American countries are pushing
to become even more economically integrated. With Mexico's newly passed
energy reform allowing private investment in the county's oil sector,
they aim to make the continent energy independent as well.

NAFTA is almost forgotten in the latest controversial free-trade effort,
the Trans-Pacific Partnership, a negotiation among 12 countries,
including NAFTA's three, to open trade between Asia and the Americas.

Opposition to the TPP is reminiscent of the dire predictions when NAFTA
was being negotiated in the early 1990s.

At the time, NAFTA opponents predicted millions of U.S. jobs would move
south, and labor and farm groups forecast a mass exodus from the Mexican
countryside. But as a 2010 Congressional Research Service report said,
"Most studies after NAFTA have found that the effects on the Mexican
economy tended to be modest at most."

On the plus side, trade between the three countries vastly increased, to
about 3.5 times the 1994 levels, though US. trade with China and other
Asian nations has grown even faster in the last two decades. More
foreign automakers have set up plants in Mexico, which now produces
about 3 million vehicles per year. Mexico has increased auto-sector jobs
by around 50 percent since 1994.

But Mexico's auto jobs are notoriously low-paying, and little progress
has been made in closing the wage gap with the U.S. Average
manufacturing industry wages in Mexico were about 15 percent of U.S.
wages in 1997. By 2012 that figure had risen only to 18 percent. In some
sectors, China's wages have actually outstripped Mexico's.

Nor has NAFTA kept all promises made on environmental front.

The North American Development Bank, part of the side agreements to the
accord, has spent over $1.33 billion to finance border projects for
drinking water, waste water and sewage treatment. But untreated sewage
continues to flow and air quality remains low in many border

U.S. exports of spent lead-acid car batteries to Mexico spiked 500
percent between 2004 and 2011. Authorities are only now beginning to
consider certification requirements for companies that export batteries
for processing to recover the lead

NAFTA has done a very good job of protecting foreign investors, however.
The trade pact set up binding arbitration panels, where investors can
bypass the courts with complaints that government regulation unfairly
affects their businesses.

The complaints are often against natural resource management or
environmental rules.

Mexico and Canada have paid out about $350 million in damages to foreign
investors, while the United States hasn't paid any.

"The (arbitration) process is not like the domestic court system, it's
not fair and open," said Scott Sinclair of the Canadian Centre for
Policy Alternatives.

The U.S. government is pushing to include the same system in the TPP.
And agricultural openings, as in NAFTA, are proving controversial; in
developing countries, farms are culturally sensitive, big employers and
often are the first to suffer in trade pacts.

"They have left us at a disadvantage," said Josefina Rosas, a corn
farmer who is trying to introduce better farming techniques to lower the
use of costly fertilizers and store-bought hybrid seeds in the Pacific
coast town of Azoyu, Guerrero. Still, with all her efforts small farmers
often don't make back the costs of planting. "We don't have the
conditions to compete," Rosas says. 


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