On January 1, 1994, Mexico, Canada, and the United States established the largest free
trade area under the North American Free Trade Agreement (NAFTA) after two and a half
years of negotiation. This agreement created a free trade area on the North American
subcontinent with approximately 431 million inhabitants and a GDP of about $15.3 trillion in
2006. NAFTA represented an important milestone in global trade policy, not just because of
the sheer size of the free trade area it has created, but also with regard to the
comprehensiveness of the agreement. It covered not just merchandise trade but also issues
related to investment, environmental policies, energy generation, and labor markets.
NAFTA’s primary goal was the creation of a free-trade area with free movement of
goods, service and capital, but no common market. In order to prevent the abuse of different
external import tariffs, NAFTA implemented strict rules of origin. NAFTA is focused on
economic cooperation and does not - in contrast to the European Union - intend a deeper
political integration or the transfer of national sovereignty to a supranational organization.
The creation of NAFTA is based on the fact that three countries, despite different size,
economic structure, and ethnical background pursued the same goal, the establishment of a
closer regional economic integration. Differences in economic terms between the member
countries can be clarified by the distribution of NAFTA’s GDP in 2006. More than 86.2
percent of NAFTA’s total GDP was generated by the United States whereas Mexico
contributed only 5.5 percent, which reflects the state of Mexico’s economic development.
Additionally, the Mexican GDP per capita amounted to only 18 respectively 20 percent of the
GDP per capita in the United States and Canada.4 This heterogeneity between the three
participating countries may be the most significant aspect of this agreement.
This paper discusses NAFTA’s accomplishments and failures after its first decade from
the Mexican perspective as the agreement has been confronted with skepticism from its
inception until today. While Mexican officials understood NAFTA as a measure to modernize
the country through free trade, critics feared the transformation of the Mexican economy to a huge maquiladora where investors are mainly focused on the exploitation of Mexico’s low
labor costs.5 Since the beginning of negotiations, Mexico’s former President Salinas has
raised high expectations on the Mexican side in economic and social terms with his statement:
“The whole point of NAFTA for Mexico is to be able to export goods and not people. That
means creating jobs in Mexico.” In order to highlight whether NAFTA resulted in economic
as well as social improvements, this paper focuses on a comparison of these two aspects.
Table of Contents
1. Introduction: NAFTA’s first decade – Accomplishments and failures from the Mexican perspective
2. Mexico – an emerging country in the shadow of the USA
2.1 Mexico – A flagging economy before NAFTA
2.2 Mexico’s motivation for joining NAFTA
3. NAFTA’s impact on Mexico’s economic development
3.1 Trade
3.2 Foreign direct investments
4. NAFTA’s impact on Mexico’s social issues
4.1 Employment and wages
4.2 Living conditions in rural areas
4.3 Environmental aspects
4.3.1 Political dimension of the environmental side agreement
4.3.2 Real dimension of the environmental side agreement
5. NAFTA – A first balance after one decade
6. Bibliography
Research Objectives and Core Themes
The study aims to evaluate the economic and social consequences of the North American Free Trade Agreement (NAFTA) for Mexico during its first decade. It investigates whether the agreement met initial expectations regarding modernization, job creation, and economic growth, or if it exacerbated existing structural challenges within the country.
- Analysis of Mexico's pre-NAFTA economic conditions and motivations for accession.
- Evaluation of trade growth and the impact of foreign direct investment (FDI).
- Investigation into social indicators, including employment trends, wages, and rural living standards.
- Assessment of the effectiveness of the environmental side agreement in addressing pollution.
- Synthesis of NAFTA's overall contribution to Mexico's economic integration and development.
Excerpt from the Book
3.2 Foreign direct investments
One of Mexico’s key objectives in NAFTA has been to attract foreign direct investments. Therefore, the agreement is not only a trade but also an investment pact. In order to achieve this goal, NAFTA includes various provisions covering investment flows, financial services, and the protection of intellectual property rights next to its key element, the duty-free trade of components and finished goods.
NAFTA triggered a boost in foreign direct investments in Mexico since it entered into force. Before NAFTA in the period between 1980 and 1993, the average level of FDI has been constant between $3 billion to $5 billion a year. After NAFTA’s inception, FDI have rocketed to an average amount of $13 billion between 1994 and 2004. Thus, Mexico’s stock of FDI has grown from $33 billion in 1994 to more than $166 billion by year-end 2003, despite the Peso-crisis in 1994/95. Although this growth is impressive, the growth of FDI in Mexico with 389 percent between 1994 and 2003 compared to 1984-1993 was fully in line with the worldwide increase in FDI. However, Mexico could attract the largest part of FDI which have flown in the Caribbean and Latin American region.
Investments from the U.S. have always been of particular importance for Mexico. Even before NAFTA came into force, the United States have provided the majority of Mexico’s foreign direct investments with a share of 62% in 1992. However, after a couple of years, FDI have been more diversified and the U.S. proportion declined to approximately 55 percent in 2003 and 42 percent in 2004. In 2004, FDI from the EU exceeded the first time those from the United States but remained still far behind the U.S. regarding total stock of FDI. The accumulated U.S investments have increased from $17 billion in 1994 to $61.5 billion in 2003. Investments from Canada to Mexico play a minor role. The accumulated Canadian FDI amounted only to $2.1 billion, in contrast to the United States which have invested $58.1 billion until 2002.
Summary of Chapters
1. Introduction: NAFTA’s first decade – Accomplishments and failures from the Mexican perspective: This chapter introduces the core research question and the context of NAFTA, highlighting the disparity between the member countries' economic development.
2. Mexico – an emerging country in the shadow of the USA: This section explores Mexico’s historical economic difficulties and explains the strategic rationale for joining the free trade agreement.
3. NAFTA’s impact on Mexico’s economic development: This chapter analyzes how NAFTA influenced trade volumes and foreign direct investment patterns in Mexico.
4. NAFTA’s impact on Mexico’s social issues: This chapter discusses the social ramifications of NAFTA, focusing on labor markets, agricultural challenges, and environmental policies.
5. NAFTA – A first balance after one decade: This chapter provides a final assessment, weighing the economic modernization gains against the persistent social inequality in Mexico.
6. Bibliography: This section lists the academic sources, reports, and data used throughout the research.
Keywords
NAFTA, Mexico, Foreign Direct Investment, International Trade, Economic Integration, Employment, Wages, Maquiladora, Environmental Policy, Structural Adjustment, North American Agreement on Environmental Cooperation, Rural Development, Economic Growth, Trade Liberalization, Globalization.
Frequently Asked Questions
What is the core focus of this research paper?
The paper examines the first decade of the North American Free Trade Agreement (NAFTA) specifically from the viewpoint of Mexico, analyzing both its economic achievements and social shortcomings.
What are the central themes discussed in the work?
Key themes include trade liberalization, the role of foreign direct investment, the evolution of the maquiladora industry, social welfare, employment conditions, and environmental protection.
What is the primary research goal?
The objective is to determine if NAFTA acted as a catalyst for economic modernization in Mexico or if it failed to improve the living conditions of the broader population.
Which methodology is employed in this study?
The study utilizes a qualitative analytical approach, reviewing existing economic data, historical policy shifts, and academic assessments of the post-NAFTA period in Mexico.
What aspects of the Mexican economy are covered in the main section?
The main section covers trade statistics, foreign investment flows, shifts in labor markets, the impact on rural agriculture, and the implementation of environmental regulations.
Which keywords best characterize this work?
The most important keywords include NAFTA, Mexico, Foreign Direct Investment, Economic Integration, Employment, and Trade Liberalization.
How did NAFTA influence regional disparities in Mexico?
The study notes that FDI was concentrated heavily in the capital and the Northern regions, which deepened the development gap between the relatively prosperous North and the underdeveloped South.
What is the author's conclusion regarding the environmental side agreement?
The author concludes that while the environmental side agreement brought more attention to the issue, it was often perceived by Mexico as a protectionist instrument, and its real-world impact was limited by insufficient funding for infrastructure projects like the NADBank.
How does the author evaluate the impact on agricultural workers?
The research highlights that the agricultural sector suffered significantly, leading to the loss of over a million jobs, as small-scale Mexican farmers struggled to compete with highly subsidized U.S. counterparts.
- Quote paper
- Christoph Blieffert (Author), 2007, NAFTA’s first decade – Accomplishments and failures from the Mexican perspective, Munich, GRIN Verlag, https://www.grin.com/document/90941
