TRADE: World Bank Lauds North American Deal’s Impact on Mexico

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, Dec 17 2003 (IPS) - Contradicting a number of recent studies and findings by independent think tanks and activists, the World Bank says the controversial North American Free Trade Agreement (NAFTA) has spurred economic development in Mexico.

In a report released Wednesday in advance of the 10-year anniversary Jan. 1 of the implementation of the agreement between Mexico, the United States and Canada, the bank, the world’s largest development agency, said that Mexico experienced productivity growth, better jobs and more efficient agriculture.

The findings sharply contradict studies from several trade unions, farmers’ organisations and manufacturing lobbies that have all said the deal helps big businesses in the United States at the expense of workers, the poor and ordinary people in all three countries but especially in Mexico, the only developing nation involved.

Similar research work by the bank has previously come under fire from independent economists and many civil society groups, which accuse the Washington-based institution of skewing its studies to fit the economic agenda of its political masters from the group of seven (G7) most industrialised nations, including the United States, Britain and Japan.

According to the 346-page report, ‘Lessons from NAFTA’, the deal had no adverse impacts on workers or the agricultural sector.

It says the Mexican labour market recovered relatively quickly after the tragic adjustments of the 1994-95 so-called Tequila crisis, which caused a wave of bankruptcies and forced many banks to shut down.

Pushing its customary economic argument that foreign investment naturally results in improved local economies, the bank found that in Mexico, “wages and employment tend to be higher in states with higher foreign direct investment and trade, and out-migration from those states is lower”.

“Wages are also higher in sectors with more exposure to imports or exports,” said the report.

“More generally, free trade has increased the demand for a more skilled Mexican workforce, a challenge the educational system must be prepared to meet,” said William F. Maloney, a lead economist at the bank and one of the report co-authors, in a statement..

The bank also said that NAFTA spurred productivity growth in Mexico, as the country needed only about one-half of the time to adopt foreign technology during the span of the deal than it did previously.

“In addition, the national innovation effort also rose modestly after NAFTA, possibly due to the strengthening of intellectual property rights,” it added.

On the controversial issue of agriculture, the report says that Mexican farmers, including those at the subsistence level, were not harmed by the deal, as is widely claimed.

“NAFTA has been quite positive for export agriculture, but it has probably had little impact on small farmers in the southern states, who have suffered a long history of social, political and economic neglect,” said Daniel Lederman, co-author and World Bank senior economist.

The report went on to blame “Mexico’s deficiencies” in education and research and development for restricting what the bank said was “the power of NAFTA” to enable the country to reach the level of technological progress of the United States or countries such as South Korea.

The report findings contradict sharply those by other research groups, which found the decade-old deal did not help Mexico boost its economy, create jobs or rejuvenate its agricultural sector, as promised.

“NAFTA has not helped the Mexican economy keep pace with the growing demand for jobs,” said a recent report by the Carnegie Endowment for International Peace, a Washington-based think-tank.

While foreign direct investment in Mexico led to the creation of 500,000 manufacturing jobs from 1994 to 2002, the country lost at least 1.3 million jobs in the agricultural sector alone, where one-fifth of Mexicans still work, added Carnegie.

Further contradicting the World Bank report, the Carnegie study says the real wages of most Mexicans today are lower than they were when NAFTA took effect.

On Tuesday, the U.S. consumer interest group Public Citizen released another report arguing the deal “has had devastating effects on millions of people in Mexico, Canada and the U.S.”

Public Citizen says NAFTA has eliminated 99 percent of Mexico’s agricultural tariffs, meaning, for example, that since 1994 the amount of U.S. corn dumped – sold at subsidised prices – on the Mexican market has increased 15-fold.

Similarly, the amount of U.S. beef going into Mexico has doubled, poultry has tripled and pork imports have quintupled.

The sentiment that the NAFTA did a lot more damage than good to Mexico is also echoed by activists and economists in that country.

“A large number of Mexicans feel that the sacrifices they made for NAFTA over the last 10 years have exceeded … the benefits that have been concentrated in a handful of people, who were naturally the promoters of NAFTA – that’s to say, multinationals, government technocrats,” said Carlos Heredia, an economist and former deputy director in Mexico’s Ministry of Finance.

Heredia, who is also the director of ‘Equipo Pueblo’, a Mexico City-based non governmental organisation (NGO), said in a teleconference Tuesday that when research groups refer to the benefits of NAFTA in Mexico they are alluding to the gains for U.S. multinationals established in the country yet registered in the national accounts as Mexican.

“In fact, it’s intra-firm trade,” he said. “It’s trade between a multinational established in Mexico and its headquarters in Detroit or elsewhere in the United States … working people and poor people have paid a high price for trade liberalisation while benefits have been extremely concentrated.”