Global View: Unpopular Nafta at ten

QUERETARO, Mexico, Dec. 18 (UPI) -- The birthday of the North American Free Trade Agreement that opened the economies of the United States, Mexico and Canada to one another is near at hand. On January 1 the boy will be ten years old. Few people like him.

He is, to the Mexican florist I spoke to the other day, all part of "Tex-Mex," the fusion of Mexican and American cultures that will lead more and more to something non-Mexican in Mexico.

Meanwhile, for the estate agent who was another interlocutor on the same day, Mexico is going "terribly badly," in part because of the free trade plan which, he said, means Mexican farmers and companies lose out to the giants from the United States and Canada.

The Nafta is an unpopular ten year old in part because so much was expected of it. In Mexico the case for Nafta was made by promising that freer trade with the United States and Canada would lift Mexico out of poverty. That has certainly not happened. But has Nafta made poverty worse?

The charge that it has done so, especially in the Mexican countryside, is frequently repeated in Mexico and sometimes outside. According to Public Citizen, a Washington, D.C. based policy group, "Growing hunger and desperation about Nafta's rural devastation...sparked massive national protests that rocked the political landscape in 2002 and 2003." Public Citizen's analysis claims that "1.5 million rural livelihoods have been destroyed" by the Nafta, feeding the growth of the cities -- where unemployment is also very high.

"Massive national protests" is overdoing it but there is undoubtedly discontent throughout the Mexican countryside and President Vicente Fox is wary of it. Yet to blame it all -- or perhaps at all -- on the Nafta is wrong.

People have been migrating away from the Mexican countryside for decades. Mexico City's population trebled in the thirty-five years from 1960 to 1995. That explosive growth reflects the century-long crisis in the Mexican countryside. And that in turn reflects a rural economy that has not worked well for a century, and which Nafta and other early 1990s reforms sought to change.

A legacy of the Mexican revolution of 1917 is the communal ejidal system of land ownership. It has never been productive, providing most rural people with little more than subsistence living. Much ejidal land was or is abandoned yet, until the 1990s, its collective owners had no right to sell it to larger landowners who could use the land more productively. Ending that restriction was part of the early 1990s reforms that also saw Mexico enter the Nafta.

Since entering the Nafta, Mexico's export earnings have risen enormously, by 164 percent between 1994 and 2002. In December 1993, 541,000 people were employed by the maquiladora industry which assembles or processes goods for export. By April of this year the figure was twice that.

"Mexico was fortunate," says John Bowler, Regional Director for Latin America at the Economist Intelligence Unit in London, "in that Nafta coincided with an explosive period of U.S. demand. Export earnings surged and Mexico was exporting as much as the rest of Latin America together."

Employment in the maquiladora plants is often criticized as low-wage 'slave labor." But Mexicans will come from all over the country for the regular paid employment the maquiladoras offer -- which is not only along the border. In the centre and north of Mexico many towns have manufacturing for export, much of it the product of U.S. or Canadian invesment, which provides precious jobs. The regular wage offers the prospect of an improving standard-of-living. The wage might not be much but it beats poverty.

The Nafta has also made the Mexican economy more solid. It helped Mexico to grow its way out of the peso devaluation crisis of late 1994 and the rise of manufacturing exports "enabled Mexico to reduce its balance of payments dependence on oil," says Bowler.

It is Brazil and Argentina that have gone into crisis in recent years, not Mexico.

Yet, for all this, it is true that Nafta has disappointed. The Mexican economy, dependent on the U.S. one, has hardly grown in the past three years. No real dent has been made into Mexico's poverty. Why?

Mexico's biggest industry is energy. Foreign investment in Mexico has risen substantially because of the Nafta but might surely have risen much more had the Mexican energy sector been opened more widely to foreign capital. But Mexico, notwithstanding the Nafta, has remained nationalistic, defensive, suspicious.

According to George Baker, a Houston-based consultant who is an expert in Mexico's energy sector, "Upstream production companies, initially enthusiastic about Mexico, have waited ten years for an opportunity... there is no competition in natural gas markets, nor have there been investments in natural gas storage."

In an interview with Business Week this month, Carlos Salinas, who, as president, led Mexico into the Nafta, said that U.S. imports are rising but Mexico's exports to the United States are not. Mexico is losing competitiveness, Salinas said, "because we have a serious problem in the areas of energy, labor, fiscal policy, and education."

Salinas, an unpopular figure because of the allegations of corruption made against him, is surely right. As Salinas would know well, Mexico's state-run oil company Pemex and its main electricity company, the CFE, are thought to be rife with corruption. Telmex, the telephone compnay privatised by Salinas, now enjoys a private virtual monopoly. The state-run education system is disastrously poor. These huge obstacles to advancement are not being tackled.

The Nafta might be seen as an aberration, a major reform that went agaisnt Mexico's socialistic, statist, protectionist instincts, to link Mexico more closely to the capitalist northern neighbor of which it is so suspicious.

There is no need for that growing link to deprive Mexico of its identity, to turn it into Tex-Mex, the disagreeable American concoction that parodies Mexico's fine and varied cuisine. But Mexico desperately needs to address its realities: the corruption that has fed off its socialistic institutions and the barriers it puts in the way of its people -- so that the only way ahead for most of Mexico's population is across another barrier into the United States.

Nafta is wrongly unpopular. It has provided an opportunity for Mexico to move forward. But to some the status quo appeals. Powerful people have sought in recent years to keep corrupt, inefficient, poor Mexico just where it has long been.

Global View is a weekly column which reflects on issues of importance for the global economy.