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20 years of free trade

The NAFTA era has seen Mexico become a representative democracy with a functional middle class and a more liberal society

The North American Free Trade Agreement (NAFTA) between the United States and Mexico came into effect 20 years ago. To draw up a list of its results looks easier now than it used to. Mexico is currently, in many ways, a much better country than it was then: a representative democracy with a functional middle class and a more liberal society. But NAFTA has not been the only agent of change. Exports and imports alike have soared and, in Mexico, prices have fallen — the so-called Walmart effect. NAFTA also consolidated the economic policies that caused this transformation. Since 1995, the Mexican authorities have stuck to sound financial policies, with low inflation, a flexible exchange rate, open trade policies that fostered stability, low interest rates and increased access to credit. While good macroeconomic management was not written into the treaty, it did act as a sort of salutary corset for a land too accustomed to unhealthy, slovenly postures in this area.

Its political effects are harder to measure. At first many thought it would perpetuate the authoritarian regime of the Institutional Revolutionary Party (PRI), which was otherwise likely to succumb to a wave of democracy that was then sweeping Latin America; others thought that the historical change of government in 2000 was directly as a result of the treaty. Neither view is easy to prove. But by enforcing responsible economic behavior, it may have laid the groundwork for democratic alternation in power.

Other Latin American countries have grown more, without any such treaty, but thanks to free-trade policies

If the treaty's objective was to generate growth, its success has been merely relative. Mexican GDP has grown at an average of 2.6 percent annually, but other Latin American countries have done better. Real income has remained more or less constant, but the general fall in prices has been clearly beneficial. The average wage difference between Mexico and the United States remains the same, but the number of Mexican-born people who live in the United States has grown from 6.5 million in 1994 to almost 12 in 2014, in spite of Barack Obama's deportation of almost a million. The treaty's real purpose was the promotion of direct foreign investment, especially from the United States. By perpetuating orthodox economic policies and guaranteeing Mexican access to the US market, it gave foreign investors the certainty they wanted. This, it was reasoned, would produce a sharp rise of foreign investment. But the treaty's success in this area, too, has been only relative.

How would Mexico be faring now, without NAFTA? Some say worse, but this is far from clear. Other Latin American countries have grown more, without any such treaty, though they do stick to free-market policies. It is hard to see how, in the absence of NAFTA, Mexican productivity, foreign investment, wage levels and per capita growth of GDP could have been inferior. This would be so only if Mexico had returned to the populist policies of the 1970s. But these had already been junked by the 1980s.

Could a different treaty have produced better results? Some rather optimistic voices called for a treaty of the European Union type, particularly including labor mobility. If Mexico had opened up its closed oil industry at that time, perhaps the US might have contemplated some change in its migration laws.

And what lies in the future? Many think that Peña Nieto's present reforms will generate sustained annual growth of five percent, a goal that has long eluded us. Without seeking to imitate the European model, which is unattractive to the US voter and probably impracticable, the renegotiation of some matters left out in 1994 — energy, immigration, infrastructure, security and human rights — would be preferable to letting things stand as they are. The answer to the disappointing aspects of NAFTA can only be more treaties, rather than


Jorge Castañeda is a political analyst and a member of the American Academy of Arts and Sciences.

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