The Other Side of NAFTA

During the heated debate which has arisen over the North American Free Trade Agreement, the central issues have clearly been the potential loss of American jobs and decrease in American wages. The media has lavished attention on the miserably threatened Detroit blue-collar worker, the innocent U.S. orange and sugar producers who have suddenly been deprived of their prized home market shares. While everybody has taken into account the effects of an approved NAFTA on the United States, who has even considered the effects of a rejected NAFTA on Mexico?

On Tuesday November 9th, 1993, around 400 Harvard students gathered at the Forum of the John F. Kennedy School of Government to celebrate Professor John Kenneth Galbraith's 85th Birthday and watch the debate on NAFTA between Vice President Al Gore '69 and Ross Perot. After the debate, Galbraith commented on what has been the most widely seen event on cable TV's history. He criticized Perot's lack of coherence and the exaggeration of both debaters on the impact NAFTA would have in the U.S. economy.

I agree that Perot's discourse on NAFTA has been, in general terms, incoherent and full of inaccuracies. He said, for example, that 85 million Mexicans live in poverty, when according to the last census Mexico's population is only 83 million. I also agree that the positive and negative impact of NAFTA on the U.S. economy was disproportionately assessed by both Ross Perot and Al Gore. Mexico's economy is too small (Mexico's GDP is only 4 percent of U.S. GDP) to have as enormous an effect on the U.S. economy and labor market as the two speakers implied.

However, as Galbraith offered his concluding remarks, I found myself becoming more perplexed with the disturbing U.S. centrism that continues to limit and threaten Latin America's development: "It does not matter what the outcome on NAFTA is. In six months, no one will remember it." Sadly enough, that may be true of the United States. But is it true in Mexico as well? Clearly, the answer is no. In fact, NAFTA is conceivably the most important piece of foreign legislation that has marked Mexico's history as an independent nation.

History has shown that Americans have short term memories with regard to Latin American issues. What U.S. citizen remembers and can fully justify Operation "Just" Cause? Can anyone--except perhaps a federal agent--truly say that they know what happened in Nicaragua? The validity of Galbraith's statement is truly frightening. In six months, or maybe even less, NAFTA will just be another acronym in U.S. foreign policy history. But the truth is that if NAFTA does not get approved when voted in the U.S. Congress this week, not only Mexico, but much of Latin America, will remember the rejection of this treaty for several generations to come.

Latin America will understand a rejected NAFTA to be a deliberate effort to prevent closer ties with Latin American countries. NAFTA is much more than lowering tariffs to export more American goods into the growing Mexican market; it is much more than taking advantage of lower Mexican wages and providing cheaper products for the American consumer. For Mexico, the agreement is about raising the living standards of millions of its citizens; it is the affirmation, the final step, in a series of difficult reforms that have been undertaken in order to stabilize its economy enough to be a legitimate participant in a free trade zone with the U.S. and Canada.

Mexico, like most other Latin American countries, went through a deep economic crisis in the 1980s. Since 1986 and especially when President Carlos Salinas de Gortari took office at the end of 1988, Mexico has implemented drastic and sometimes painful economic reforms: Since 1988, Mexico has cut the maximum tariff rate from 100 percent to 20 percent. It has exceeded its GATT commitment on tariff reduction, cutting the average trade-weighted tariff from over 25 percent in the mid-1980s to 4 percent in 1992.

This unilateral tariff reduction has already brought benefits to the U.S. economy. Estimates show that between 1985 and 1989 the increase in U.S. exports to Mexico has generated nearly 400,000 new jobs in the American economy. The trade surplus Mexico enjoyed with the U.S. in the 1980s has been transformed into a trade deficit of over 20 billion dollars in 1992. This trade deficit is enormous for Mexican standards (6.5 percent of Mexico's GDP) and has produced considerable job losses.

But economic liberalization has not been Mexico's only costly strategy in preparing for NAFTA. Inflation in Mexico has been reduced from 160 percent in 1987 to nine percent in 1993. This impressive reduction in inflation has been made possible by restrictive fiscal and monetary policies that are presently causing an economic recession in Mexico and which have had considerable social costs.

The goal of bringing inflation down to a level similar to that in the U.S. has not once been abandoned by the Salinas administration. It was clear to the Salinas administration that these two economic reforms were prerequisites to a successful negotiation of NAFTA.

Can it be that Mexico has restructured its entire economic strategy on an empty hope? It is obvious that a rejected NAFTA will seriously damage Mexico's long term goals of progress and development. But is it only Mexico that will be so severely disappointed at a NAFTA failure?

Americans need to acknowledge that Mexico is not the only Latin American country which has undertaken difficult and unpopular reforms to follow the liberalization trends strongly advocated and promoted by the United States. NAFTA has a special access clause which allows other countries of the hemisphere to join the free trade area if they are willing to lower their tariffs and other barriers accordingly. Chile, Argentina, Venezuela and Colombia are potential candidates that could expand the North American Free Trade Area all the way down to the Southern Cone. President Salinas has said that the fate of the free trade accord has become a fundamental test of American relations not only with Mexico but throughout the hemisphere. Not many here seem to consider this.

A NAFTA failure in Congress would cause Mexico and Latin America to reassess the value of swallowing bitter economic reforms in the hope of gaining greater access to rich markets. It would also call into question the U.S. ability to deliver uncontroversial trade agreements and undermine U.S. efforts to spur economic growth through a new world-trade pact.

It is my hope that the U.S. takes a longer look before the fate of NAFTA is decided. NAFTA is not just the current event of the month affecting the U.S. domestic economy--it is a policy that will affect millions outside this country. And unlike Americans, Mexicans and Latin Americans have very good memories.