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The North American Free Trade Agreement has had an overall positive effect on Mexico. One proof is that for the first time we have achieved an agricultural trade surplus for three consecutive years. And this surplus is for the first time bigger than the money Mexican families are getting as dollar remittances from relatives in the United States.
Another proof is that the threat of renegotiation has kept our political and industrial elites in a very nervous state during the last several months and our news media can’t stop talking about it.
Greater free trade and free enterprise under NAFTA have lifted millions of Mexicans out of poverty. NAFTA has provided opportunities to keep many people in the formal economy and out of black markets or illegal industries. It has also reduced the emigration pressure the country faced for far too many decades.
NAFTA has pushed vast segments of the population to become more educated, pursue technical and college degrees, learn foreign languages, work for international companies, as well as to study and travel abroad. In the last 24 years the country has adopted world-class quality standards in areas of research, education, manufacturing and overall work ethic.
But there are problems that can’t be fixed by trade or foreign investment alone. Political culture and attitudes will uplift or undermine any country’s chance of wealth and success. Mexico is no different. Our culture is a very mixed bag and some of the outcomes of greater economic freedoms have fed the skeptics’ qualms about a North American market. The isolationists and protectionists have had a feast.
In the mid 1990s NAFTA forced millions of Mexicans without a job and without skills to find one. Many traditional farmers could not keep up with the pace of innovation and lower costs of food production. Years prior to the deal there were some insiders that tried to warn the farming sector. They foresaw the upcoming challenges and changes, but too few cared to listen.
When 1994 came, millions of farmers became victims of the country’s own scientific, technical and technological underdevelopment. A lack of investment capital, expensive bank loans and currency devaluation rapidly led to a disaster. In some parts of the south you can still see basic agricultural work that relies on farm animals and hand labor. In a bit of ironic marketing genius, we now call these areas Pueblos Mágicos, or “Magic Towns.”
Another immediate downside of NAFTA was the increase in drug trafficking, drug consumption and political corruption, leading to a failed drug war that cost too many lives and too many billions of poorly spent dollars. We could have invested in those segments of the population that needed a lift up to the new economy of competition, harder work and tougher labor conditions.
The American media’s coverage of these developments in Mexico has been poor at best. I hope we can begin to change that, even if it is by baby steps. This is why I’m trying to provide answers to those who want to understand the NAFTA negotiations. How can we use a new NAFTA to improve our trilateral relations? How can you help your southern partner to develop or beat corruption? What could help reduce illegal immigration?
First, let’s clear up some misconceptions about our country. Those high school Spanish lessons are nice and now salsa outsells ketchup in American supermarkets. But let’s be honest; not many Americans know the first thing about Mexico.
This country comprises different nations under one state. There is a multiplicity of ethnicities and languages, further enriched by centuries-long migration streams from Europe, Asia, Africa and the rest of America. In short, there are many Mexicos and Mexicans are very, very diverse.
As a result, our political system required a strong state and a weak civil society to keep the country together. For a long time, parts of the country wanted to secede (and did at times). Our state is too strong in comparison to its citizenry and its hands are too deep in the economic system as well as in people’s lives.
Taxes are too high. Businesses are tied to expensive regulation. A handful of crony corporations take advantage of corruption. Our government has for too long been vested in choosing winners and losers.
Furthermore, many politicians have wrongly used the opportunities brought by NAFTA to their undue advantage. As U.S. and Canadian companies came to invest, they faced public land speculation, overblown private land prices, fraud schemes, “white union” protection contracts and other examples of corruption.
My view is that a renewed North American partnership can once again drive Mexico forward. Mexicans have the will to make their country a developed-world player, but the elites have been too comfortable and oppose change in the current state of affairs. We could use American diplomatic clout to reach an agreement that keeps us moving in the right direction.
Mexico’s fundamentals are wrong when 24 years have passed and autoworkers here can’t make nearly as much as their peers in either Canada or the United States. Mexico has been wrong in marketing itself as a cheap labor destination for so many years without a plan for an eventual transformation.
Nowadays many argue that raising wages is nearly impossible. In my opinion, in order to protect itself the Mexican state has worked to keep wages low. This has controlled inflation and kept large voter bases content with public handouts. Low wages have also made large corporations and elites happy while they are rewarded with tax holidays, public contracts and tax evasion loopholes. Meanwhile the middle class is exploited with never ending taxes and poor public services. Current incentives to keep salaries low are too strong.
These low-wage wage practices punish most small- and medium-sized companies. Their profits take a hit while real production costs keep rising. But with a weak consumer base to buy their products or services, they can’t raise wages. Ceiling prices, currency controls, regressive subsidies and the overarching reality that people have so little money in their pockets force businesses to make hard choices to keep prices down.
Cutting corners and lowering quality follows. So fewer people are attracted to buy from these companies. In turn less competitive goods and services can’t compete in international markets. In order to stay open and not fire employees, many Mexican business owners forgo profits. At the end of the day revenue at many ventures is not enough to reward labor. One company or industry can’t raise wages by itself expecting everyone to follow.
As it happens, when such companies ultimately close, or not enough jobs can be created, more people end up migrating north to the United States. Both legally, for those that overstay their visas and find a job, and illegally.
All this is why Mexico desperately needs an improved NAFTA. There are measures that must be taken at American official levels, but the American public, academia and media can help. Here are six key changes:
Help us end this insane Drug War. The American government’s schizophrenic drug policies hurt Mexico and the world. Let’s finally learn the painful lessons of Prohibition and act upon it. We need American voters and American leaders to end the black markets and deter corruption. We need legal cannabis. And we need it now.
Help us by asking your trade representatives not to compromise too low on wages. The labor objectives sought by U.S. Trade Representative Robert Lighthizer are crucial. Wage increases are badly needed and it is a bad precedent to reward unfair corporate competition while hurting both the Mexican consumer base and American jobs.
Keep corruption in check when American investors decide to open up shop in Mexico. Paying bribes, buying fast-track solutions and other illegal practices are wrong. Let’s have companies hire labor without signing contracts with white unions. Such practices should be ruled out even if Mexican legislation needs to be updated. In a country where corruption amounts to 10 percent of the GDP, establishing the right incentives for fair competition and development will be hard. We sure can use the help of our most important trading partner.
NAFTA companies investing in Mexico should guarantee freedom of association and demand their Mexican counterparts do so as well. The effective recognition of the right to collective bargaining should not be compromised. This is of upmost importance to modernize labor relations and grow the consumer base to the benefit of all three countries.
Be tough on Chinese dumping. Cheap Chinese steel is real, and Mexico has an industrial base to protect as well as the United States. International trade surveillance should be optimized and more transparent. The influx of illegal goods, people and drugs hurt Mexico too. Just a couple of examples are the inflow of led-poisoned kids toys and illicit imports of chemicals used to manufacture synthetic drugs that ultimately reach the United States. This is bad news for all.
Be strong on the environment. The United States could help bring the environment provisions into the core of NAFTA rather than a side agreement. Mexico has had over 24 years to catch up with the world economy. Underdevelopment cannot now be an excuse to keep on abusing our natural resources. We can do better as do foreign companies.
Quoting the late Peter Drucker, “The best thing to predict your future is to create it.” Let´s craft the free trade agreement North America needs.
Rodrigo Hernández Mijares is a Mexicali native with a graduate degree in public policy from the Monterrey Institute of Technology and Higher Education. He is a craft beer entrepreneur and news radio executive in Baja California.
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