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NAFTA at Ten: Unfulfilled Promises in Mexico


Code : ITW0034B

Year :

Industry : International trade

Region : :Mexico

Teaching Note:Not Available

Structured Assignment : Available

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Introduction: On Jan 1st 2004, U.S.A, Canada and Mexico celebrated the 10th anniversary of an important milestone of the trade agreement, the North American Free Trade Agreement (NAFTA). According to the International Monetary Fund3 (IMF), the total trade among the three NAFTA countries had doubled from $306 billion in 1993 to nearly $621 billion by 2002. The three NAFTA countries accounted for 19% of the global exports and 25% of imports.

NAFTA was a trade treaty which aimed at eliminating customs duties on transactions between Canada, Mexico and the U.S. It also had parallel agreements on issues pertaining to environment and labor. The supporters of free trade believed that NAFTA would be instrumental in improving trade in all the three countries, especially in Mexico. Mexico had made remarkable progress, from being a highly protected economy in the 1980s to an open, regionalized and market-based economy in 2004. After Mexico’s entry into NAFTA, its average annual growth in GDP was 5.4% from 1996 to 2000 which was above the average 3.9% from 1990 to 19945. Analysts attributed this tremendous growth to exports. During the period from 1993 to 2002, Mexico’s exports to the U.S. grew by 234% reaching $136.1 billion, while exports to Canada increased by 203% to reach $8.8 billion.

While there was growth in exports, the average wage paid to the Mexican workers in the manufacturing sector reduced from $5 to $4 per day7. Analysts felt that NAFTA had raised poverty levels, increased economic inequality and caused environmental damage in Mexico. It was alleged that ten years of NAFTA had resulted in over 1.5 million8 Mexican farm livelihoods being destroyed because of cheap corn imports from the U.S. It was felt that increased industrialization on the U.S.-Mexico border had resulted in toxic wastes being dumped and water getting contaminated there. NAFTA had made provisions for controlling environmental damage, but the promised improvements were not forthcoming.

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