The Intangible Value of NAFTA

Originally Published in the Fall 2017  WIIT Communique.

By Karen N. Antebi, Economic Counselor for the Trade and NAFTA Office, Embassy of Mexico, Washington, D.C

A little more than three decades ago, after years of recurrent crises under a closed import-substitution model, Mexico changed its paradigm for growth and development. In 1986 Mexico jointed the GATT, but it was the North American Free Trade Agreement (NAFTA) that truly marked the turning point. Since then, the agreement has anchored Mexico’s commitment to sound macroeconomic policies and free trade.

The Mexico of three decades ago was very different from the Mexico of today. Today, we are focused on actively engaging the global trading system, deepening our economic integration and strengthening the multiple industries that have flourished in global value chains fostered by the agreement.

The importance of NAFTA should not be minimized. It fully liberalized trade in all goods — including all agricultural products. It also liberalized trade in services and investment across the region, and established ground breaking disciplines in government procurement, competition policy, and intellectual property rights. Additionally, it recognized the need for labor and environmental protections. NAFTA became the model for trade negotiations to follow, and ushered in an unprecedented era of economic expansion across the globe.

NAFTA contributed to Mexico’s transformation on at least 3 fronts:

  • First, the agreement expanded trade and investment in ways that far exceeded expectations. It helped modernize Mexico’s productive plant: demonstrating that we can compete and compete successfully in world markets. Mexico went from being completely oil dependent (80%), to a manufacturing powerhouse.
  • Second, NAFTA transformed the U.S.-Mexico relationship from that of a ‘distant neighbor,’ to strategic partners for production and prosperity.
  • Third, and perhaps the most significant intangible contribution of NAFTA is the building transparent and accountable institutions which are key to strengthening the rule of law, empowering civil society, and facilitating an era of democratic reform.

Today, trade represents 63% of Mexico’s GDP. Mexico is the 9th largest importer in the world. And, with total exports reaching $374 billion, it is the 10th largest exporter worldwide and first in Latin America. World-class enterprises benefit from Mexico’s network of free trade agreements that provide preferential access to 46 markets, and view Mexico as a strategic partner in their operations for North America and worldwide. Additionally, Mexico’s ambitious structural reform agenda has undoubtedly set up prospects for higher growth, an expanding middle class, and a better-educated and more productive workforce.

Today, North America is one of the largest free trade area in the world; with a combined GDP of over $20 trillion (28% of world GDP) and almost half a billion people, our economies are profoundly intertwined. Since NAFTA, trade among the three partners quadrupled to reach $1.14 trillion (USD); and fifty percent is intraregional. North America accounts for 18% of worldwide exports, and 17% of the globe’s services trade.

However, the world economy and international trade have changed since NAFTA entered into force 23 years ago. Global competition has increased among regions, with a growing share of emerging markets participating in international trade. Likewise, digital flows, innovation, and knowledge, are driving the new world economy. Hence there is an opportunity to update the agreement.

Mexico is open to building on NAFTA’s success and updating it. Such improvements should rely on further liberalization, deepen economic integration and enhancing North American competitiveness. NAFTA 2.0 negotiations kicked off in Washington, D.C on August 16, and the second round was celebrated in Mexico early September.

Mexico has staked out four pillars to promote a more prosperous partnership in North America. NAFTA 2.0 should:

  • First, strengthen North American competitiveness by promoting greater transparency and regional cooperation in the trade of goods by enhancing customs procedures.
  • Second, foster a more inclusive regional trade and create a level playing field for small-and-medium sized enterprises through increased cooperation among NAFTA countries, anti-corruption measures, improving border infrastructure, harmonizing customs procedures, and incorporating a gender perspective.
  • Third, it should leverage the 21st century economy by capitalizing on synergies in the North American energy market, boosting the digital economy, and promoting the protection of intellectual property as well as access and integration for the financial services and telecommunications sectors.
  • Fourth, provide certainty for North American investment through the modernization of dispute settlement mechanisms, and enhancing the exchange of information between NAFTA countries.

Stakeholders across North America likely agree with these principles, since the sum of the North American partnership is greater than its parts. Only a strong and integrated North America can successfully compete with Asia, and produce benefits in our three countries. As the Wilson Center estimates 40 cents out of every dollar of goods imported from Mexico to the U.S. is actually “Made in USA”, 25 cents out of every dollar of goods that are imported from Canada are USA content, while only four cents out of every dollar from Chinese imports have “Made in USA” content.

Mexico and Canada purchase more manufactured goods from the U.S. than the next 10 countries combined. Together NAFTA partners are each other’s main suppliers. These integrated supply chains create jobs and stimulate economic growth. Mexico has become the United States’ second largest export market and second largest supplier. On average, Mexicans buy from the US twice the amount that Americans buy from Mexico. Given the pace of our growth, Mexico is slated to become the United States’ largest trading partner in the next five years.

An estimated 14 million American jobs depend on trade with NAFTA countries, including more than 5 million directly linked to trade with Mexico. There are nearly 200,000 export-related jobs created annually by NAFTA and export-related jobs pay an average salary of 7% to 15% more than the jobs that do not rely on trade, according to a study by the Peterson Institute for International Economics.

Encouragingly, most Americans know the truth behind trade: trade supports jobs, promotes innovation, and provides additional tools to face the challenges of the 21st century. According to the Chicago Council on Global Affairs’ recent report on pro-trade public opinion, a majority of Americans (53%) believe that NAFTA is good for the U.S. economy. This is up from 42% in 2008. For the first time since 2004, a majority (57%) also believe that trade is good for creating U.S. jobs.

Mexico is committed to negotiate constructively to build upon NAFTA success. Working together, we can ensure that North America remains the most competitive and innovative economic region in the world whereby all three North American countries win.

About the Author: Karen Antebi serves as Economic Counselor for the Trade and NAFTA Office at the Embassy of Mexico in Washington, D.C. where she leads Mexico’s trade advocacy and communication strategies with the US Congress, Administration, and private sector.

Before rejoining the Trade and NAFTA Office at the Embassy of Mexico in 2016, she spent the past three years at BSA |The Software Alliance leading the global license compliance advocacy program to encourage greater awareness of the importance of software compliance and digital risk among the C-Suite, governments and publicly listed companies. She also advocated on international trade and data issues, fair market access in government procurement, IP protection policies, and immigration reform.

As Economic Counselor at the Embassy and, previously, as Chief of Staff to Mexico’s Deputy Secretary of Commerce, Ms. Antebi has coordinated the interests of numerous departments and agencies at the highest levels of government in Mexico, the United States, the European Union, and abroad. She has a deep understanding of government decision-making processes and vast experience in setting a common agenda and securing support for specific policies from government agencies, trade associations, non-profit organizations, private sector leaders and members of the diplomatic community.

Ms. Antebi co-authored with Jaime Zabludovsky, “The Window to Europe: The Mexico–EU Free Trade Agreement” El Nuevo Milenio Mexicano. México: Universidad Autónoma Metropolitana (2004). She is multicultural and bilingual. Karen holds a BA from Brandeis University and an MA in International Policy Studies from Stanford University.

 

The views expressed by the author(s) of article(s) published in this newsletter are their personal views and should not be interpreted as the views of The Association of Women in International Trade (WIIT) or its individual members. See full disclaimer here.