NAFTA: An Introduction Eliminates restrictions on the flow of goods, services and investments between Mexico, Canada, and the United States Went into effect January 1994 All tariffs will be phased out by 2008

Classical Liberalism’s Perspective The country should benefit from lowering trade barriers –Better prices to consumers –Better goods (increased quality) –Markets for exporters –Economic Growth

Classical Liberalism’s Perspective However, freer trade has not come without serious social costs –Asymmetric benefits –Rural Mexicans have lost jobs –Worker rights issues –Environmental Degradation - Social Unrest (Zapatista protests)

Maquiladores Mexican gov. did not invest in improved infrastructure Border factories Export platforms Wages, benefits, and workers’ rights are deliberately suppressed Isolated from the rest of the Mexican economy

“Dumping” Corn? Yes? 2000 – U.S. subsidies to U.S. corn sector = $10.1 billion No? Incomes of poor corn farmers had been declining for 10 years prior to NAFTA Increase in maize production after NAFTA

Article 27 Mexican constitution Indian communal landholdings were protected from sale or privatization Cancelled under NAFTA

Zapatistas 1994 – revolutionary leftist group in southern Mexico Support from indigenous Mayans Anti-neoliberal social movement Seeking indigenous control over local resources, especially land

Subcomandante Marcos

Neoliberal Institutionalist Perspective Economic integration has allowed Mexico to reap absolute gains –Increased international trading power and influence –US Assistance –Monetary stabilization –GDP growth

A Macroeconomic Analysis NAFTA has been very politically controversial –Only 29% of Mexicans think the treaty is helping them How should we evaluate the success of a trade agreement?

A Macroeconomic Analysis * Population (millions)91105 Nominal GDP ($US billions) GDP, PPP** Basis ($US billions) 6711,017 Per Capita GDP ($US)4,6176,450 Per Capita GDP in $PPPs7,3519,680 Total Merchandise Exports (US$ billions) Exports as % of GDP17%32% Total Merchandise Imports (US$billions) Imports as % of GDP22%32% Public Debt/GDP32%23% Key Economic Indicators for Mexico Source: Economist Intelligence Unit. (Congressional Research Service)

A Macroeconomic Analysis U.S.-Mexican Foreign Direct Investment Positions, Mexican FDI in the U.S , , , , , , , , , ,680 Source: U.S. Department of Commerce, Bureau of Economic Analysis. (Congressional Research Service)

Problems? Market flooded with less expensive, higher quality merchandise Competition with China/Asia for cheap labor Already depressed wages fell further >Illegal immigration

Problems? Assumed that farmers would switch from corn to another crop, strawberries & vegetables, to export to the U.S. (“Comparative Advantage”) Instead, farmers exported themselves >Illegal immigration

Today Largest trading bloc in the world Central American Free Trade Agreement (2005) Three more agreements pending: –Panama –Colombia –Peru