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Albert
Fishlow spoke about the future prospects
for development in Mexico, given its recent history
under NAFTA, and the problems created by the weak
U.S. economy since 2001. He outlined two visions
of the future, contrasting the possibility of tighter
integration with the United States with a more
broadly based integration with other Latin American,
Asian and European markets.
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Mexican
Development in the Long-term: Is NAFTA Sufficient?
Ralph Espach, Department of Political Science
While
the U.S. economy was strong in the late 1990’s, NAFTA
boosted Mexico’s exports and generated tremendous
investment, as well as providing a welcome market for its
surplus labor. In the last two years, however, the negative
effects of Mexico’s increasing dependence on the
U.S. market have become more apparent, as sluggish growth
in the U.S. has hit Mexico hard. Looking forward, NAFTA’s
long-term effects may lead Mexico to reconsider regionalism
as its primary strategy for economic development. On March
13, 2003 Professor Albert Fishlow reviewed the effects
of NAFTA on Mexico’s economy and politics and outlined
two alternative paths toward more sustainable growth. The
objective of both paths is to boost exports in higher value,
industrial manufactures, a critical step toward improved
economic and social development. One involves a deeper,
more binding integration with the U.S., centered on monetary
coordination. The other demands a strategic retreat from
NAFTA as the core of Mexico’s foreign relations and
in its place a broader, more multilateral strategy toward
more diverse trade relations with partners in Latin America
and East Asia.
NAFTA
has had enormous beneficial effects on Mexico’s growth
and export profile. Since 1994, exports have grown at an
average rate of around 20 percent per year and have changed
in type from a concentration in petroleum-based products
to manufactures. Contrary to expectations, the economic
growth stimulated by NAFTA did not reduce the migration
of Mexican labor to the U.S. Instead, during the 1990’s,
this labor pool was a boon to U.S. production as well as
an important release for Mexico from the pressures generated
by a persistently high unemployment rate, the dislocation
of rural economies and a growing population. While the
U.S. economy was booming, this pattern helped to keep down
inflation and wages in the U.S. and boosted Mexico’s
economy with a massive inflow of dollars. Currently, for
the first time in over a century, Mexico enjoys Latin America’s
highest level of per capita income.
NAFTA’s
success contributed to the election of Vicente Fox in 2000,
which marked the end of the PRI’s monopoly of the
presidency. Emphasizing the prospects for further export-led
growth and closer institutional ties with the U.S., Fox
promised a 6 percent rate of growth. However, U.S. economic
malaise, aggravated by the terrorist attack in September
2001, stymied these optimistic forecasts. As a result of
NAFTA, Mexico’s economic cycle is now synchronized
with that of the U.S., and this turbulence has hit Mexico
hard. The actual growth rate of Mexican GDP in 2001–02
was near zero, and Mexico’s exports have diminished
significantly.
The
general truth of NAFTA is that as long as the U.S. prospers,
Mexico will benefit richly — much more than it would
without the accord. On the whole, NAFTA remains a more
productive economic strategy for Mexico than a reliance
on multilateralism alone. Especially considering the prolonged
stagnation in Japan and economic weakness in the European
Union, it is unrealistic that Mexico could seek significant
export growth by deepening these relations. However, Mexico
must consider more carefully than it has thus far the negative
effects of this linkage and a wider range of strategic
relations.
Mexico
currently faces a troubling situation. Because of the slump
in manufactures, its export income is again largely supported
by high oil prices, a circumstance it had worked hard to
overcome since the mid-1980’s. Although not threatened
with financial collapse (it has around US$50 billion in
foreign reserves), Mexico’s long-term growth and
development depend on a series of fundamental, politically
difficult reforms. Thus far, Fox has not fulfilled his
promises regarding revisions to the tax code and judiciary.
The inability of many agricultural industries to compete
has shifted resources dramatically to the north of the
country and from rural to urban areas. If it were not for
massive migration to the U.S., Mexico would likely face
overwhelming unemployment and burdens on various social
services.
Professor
Fishlow suggested that Mexico must carefully consider two
basic options in its future foreign economic policy. One
option entails a deeper, more proactive commitment to integration
with the United States. Three reforms in particular would
improve the benefits of NAFTA: monetary unification through
a fixed exchange rate, the liberalization of the energy
sector and decentralization of the national financial system.
Each of these would have profound implications for the
NAFTA partnership and would have to be carefully negotiated
with Mexico’s partners. Plans for the liberalization
of the oil industry, for example, could provide an attractive
basis for discussions about a more flexible U.S. migration
policy.
A
second option involves a strategic retreat from Mexico’s
commitment to NAFTA as its top foreign policy priority.
Instead, Mexico could direct its attention toward tightening
its trade and investment ties with the rest of Latin America
and with potentially powerful partners in East Asia. Liberalized
trade with the European Union has yielded important, albeit
limited, benefits. However, the addition of free trade
partnerships with fast growing markets in Asia and Latin
America would significantly contribute to these gains.
NAFTA would, in effect, return to its original role as
one element of a worldwide push by Mexico for increased
export markets, enhanced trade diversity, and deeper ties
with Europe, Asia and South America. Increased trade and
investment ties with China, in particular, offer Mexico
enormous potential gains that stretch far into the future.
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Professor
Fishlow takes questions from the audience
following his talk.
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