What are the implications of the North American Free Trade Agreement (NAFTA) nearly two decades after the trade pact’s implementation? While opponents of the agreement press for its end, others defend its necessity and success for all parties. After 17 years of being in effect, relations between the US, Mexico and Canada have become deeper and wider, and have resulted in an exponential growth of trade between the three nations. Karen Antebi, Counselor for Economic Affairs at the Mexican Embassy in the US, and an expert in free trade agreements, said yesterday that NAFTA continues to the most comprehensive pact of its kind for the United States. (Comments where made during a webinar sponsored by Softtek and the Sourcing Interests Group).
In 2010, Antebi said, the Mexican GDP increased 5.5% and it is forecasted to increase another 4% in 2011. The country saw $300 billion in exports, and $301 billion in imports for 2010. “The World Bank,” said Antebi, “determined that Mexico was the ‘most straightforward’ Latin American country to do business in, and a UN report listed Mexico as the 6th most attractive place to invest.” This declaration is illustrated by the fact that Foreign Direct Investment (FDI) to Mexico between 1999 to March 2011 was $265 billion, half of that amount coming from the US alone. $18 billion of this total was invested during 2010, with an expectation that $20 billion will be invested during 2011.
These figures belie the doom and gloom scenarios painted by reports of widespread violence and unrest in the country. Antebi stated that, “since NAFTA, US-Mexican trade has reached $400 billion. The US is Mexico’s second largest export market, and third trading partner.” NAFTA also enabled Canada and Mexico to establish trade ties that were difficult before due to geography and the fact that the US separates them. Now, Mexico is Canada’s third trading partner, a market currently valued at $30 billion.
Not only did NAFTA solidify trade ties, it also fostered joint ventures, partnerships and co-investments between companies in the participating countries. Post 9/11, “security trumped trade,” Antebi observed, and the annual growth rate dropped 50% to 5% between 2002 and 2010. Paraphrasing Louis Carroll’s Alice in Wonderland, Antebi declared, “It takes all the running you can do just to stay in the same place.” This is a good metaphor for how the NAFTA partners had to keep going even though their relationships became strained due to increased border security, and efforts by both Canada and Mexico to enter into bilateral agreements with the US. Antebi claimed that according to the US Department of Commerce, 6,000,000 US jobs depend on trade with Mexico. The US Chamber of Commerce report “Opening Markets, Creating Jobs: Estimated U.S. Employment Effects of Trade with FTA Partners” found that “NAFTA trade represents 92 percent of the net employment gains associated with the 14 FTAs (the US has with other countries) in 2008; 92 percent of the output gain, and 80 percent of the total US goods and services export increases.” These conclusions suggest that an end to NAFTA could be devastating to an already fragile employment situation in the US.
“There is a strong commitment by this administration to enforce the rule of law”
Due to the changes in their trilateral relationships, and market dynamics, the partner nations have adopted a new three-pillar approach that focuses on regional cooperation, innovation and protection of intellectual property. A fourth pillar, added Antebi, would be the 21st Century border, which involves investment into new screening technologies, regulatory cooperation and a harmonizing of requirements. There has been some movement to realize this, such as the usage of gamma rays and cameras to track license plates. “There needs to be more integrated sourcing from within North America,” she said. To overcome some of the existing hurdles to smooth trade, Antebi suggested the adaptation of a single-entry document for imports and exports and the development of pre-clearance measures.
“NAFTA envisioned that since we are neighbors who share borders, we should have effective transportation systems and adequate infrastructure,” Antebi explained, “In 1995 the US did not meet its obligations due to pressure from the unions that would have opened borders for the transport of goods between countries.” A new program has been negotiated with the Obama administration which envisions “door-to-door” delivery of cargo that meets all statutory requirements. A condition of the program is that the DOT will have to present a report to the US Congress showing that Mexican carriers are no different than US operators. The current system requires that the Mexican carrier transfer its cargo to another carrier at the border, who will deliver it to the destination. Each transfer costs $150 dollars, which adds up to a significant amount with 4.7 million crossings per year.
Drug War Implications
When asked about how drug trafficking affects trade, Antebi clarified that the issues doesn’t fall to NAFTA to consider. She stressed that all Mexican carriers are thoroughly vetted, undergo border checks every time they cross and all drivers are required to have US visas. “Companies that are engaged in legal activity do not want to risk their cargo being subjected to illicit activity,” she said. “It is undisputed that there is a heightened awareness about violence, but Mexico is still a thriving country and businesses are doing very well. There is a strong commitment by this administration to enforce the rule of law.”
“When you look at what happens in Monterrey, which has gotten a lot of negative attention, we have been able to grow steadily. Of course there are some considerations, but the business climate is one of a global economy that is growing fast. Business is growing, especially in the Northern states,” said. Federico Ferres, Marketing Director, Softtek, USA. A sign of this is the $7 billion of FDI into Chihuahua alone during 2006 to 2010. “Security is an issue, but the amount of trade puts the emphasis on opportunities that overshadow illegal activities,” he said.
To assist with productivity and efficiency, NAFTA TN Visas are issued for professionals for a term of three to five years, and can be renewed in perpetuity, as long as employment is maintained. “One of the things that has happened during the past ten years,” explained Ferres, “is that the visas have made it easier to take a flight to the US and have more face-to-face interaction.” This allows Project Managers to travel back and forth with ease, and created the ability for team members to work together in real time. “This has had a tremendous effect on our clients, and how we deliver from Mexico,” Ferres said.
Due to the nature of such agreement, lower-skilled jobs eventually migrate, and higher-value industries evolve, as happened with the textiles industry where the latest technologies were used to create new fabrics that benefitted all sectors, including the military and athletics. “Positive advancement has also been seen across the automotive, aerospace and electronics industries,” Antebi concluded.