NAFTA Is Running Out Of Options For Mexico

A decade after its implementation, the North America Free Trade Agreement (NAFTA) is running out of fuel to drive the Latin American nation home.

Mexico, a partner in the agreement together with Canada and the United States, is now facing up to competition from other countries like China that have gained momentum in the U.S. market and could even put some of Mexico’s sectors behind the competitive eight ball.

NAFTA was one of the key elements that helped bail out the Mexican economy, after a steep peso devaluation in late 1994, by creating new jobs for Mexican nationals in U.S.-owned sweatshops or assembly plants that had immediately set up shop along the common border.

But experts say Mexico put almost all of its eggs in the NAFTA basket and neglected internal reforms that would have made the nation a more competitive partner with greater chances of making the most of the agreement.

”NAFTA went into effect during an extraordinary period of time in which the U.S. economy was at its very best since after World War II, and our volume of exports wasn’t that high then. There was plenty of wiggle room to grow,” researcher Antonio Ortiz pointed out.

”Now we’ll have to turn around and look at ourselves to find out what reforms we need to rekindle the economy. NAFTA has worked and hasn’t worked that good, but we can’t ask for more,” added Mr. Ortiz of the CIDE, a well-known research center based in Mexico.

The administration of President Fox has failed for a second year in a row –Mr. Fox took office in the year 2000- to win passage for a fiscal reform that would raise taxes for Mexicans and is supposed to reenergize the national economy.

Dealing with an opposition-led Congress, the picture can’t be any blurrier for other pending reforms the government wants to pass through, such as the ones on power and the job market.

For some Mexicans, NAFTA has given them wider access to some products that were hard to come by before its implementation.

”I’ve seen no concrete benefit out of that agreement. Yes, you see more American-made products in Mexico, more cars, more home appliances; but I don’t think more jobs have been created or more benefits have spilled over to the population as a whole,” said Roberto Hernandez, a businessman from Mexico City’s South Zone.

As soon as NAFTA went into force, the United States buttressed its stance as Mexico’s number-one trade partner and recipient of nearly 90 percent of its exports.

Thus, Mexican exports to the United States jumped from $43 billion in 1993 to $143 billion in 2002.

Experts point to a wider economic integration as the next step for the region. The three original partners are weighing the chances of levying a common outer tariff in an effort to slash costs and jack up three-sided trade operations.

However, the development gap between Mexico on the one hand, and the U.S. and Canada on the other, is no doubt a big snag for further integration.