NAFTA ushers decade of changes

For 22 years, Pasteleria Jesther, a small bakery located in the heart of downtown Monterrey, was the place where locals snatched up batches of freshly-made Mexican pasteries, like empenadas , and bought cakes to celebrate traditional quinceañeras .

For the last 10 years, owner and operator, Horacio Montemayor says business has slowly been dwindling due to the passage of the North American Free Trade Agreement, which has allowed free trade across Canadian, U.S. and Mexican borders.   Many of his customers have turned instead to Wal-Mart for pre-made Sara Lee products because of convenience and price. But Montemayor insists he, as a small business owner, can give his customers something Wal-Mart can't: personal attention.

Prior to its implementation in January of 1994, opponents such as Ross Perot criticized the agreement saying U.S. jobs would be sent over the borders to Canada and Mexico, creating "a huge sucking sound." They claimed the agreement would only help the other countries, not the U.S. Proponents argued free trade would better the quality of life for all involved and improve economic ties and relations with Canada and Mexico.

Ten years later, the NAFTA debate continues.

According to data provided by the International Trade Administration in the U.S. Department of Commerce, U.S. exports have increased 88 percent since 1993 from $142 billion to $267 billion at the end of 2003.  

Arizona has also been a big winner, according to the data, bolstering an increase of 80 percent in exports from $2.4 billion to $4.3 billion in the same ten-year period. Within Arizona, industries such as machinery and semi conductors are the top exporters, while aircraft and aerospace industries remain in the top three, says Gilbert Jimenez, director of the Arizona Department of Commerce. "Mexico still holds the top position for Arizona exports," said Jimenez.

Arizona is the fourth largest trading partner in total trade (exports and imports) with Mexico, following Texas, California and Michigan, Jimenez said.    

Another benefit for both the U.S. and Mexico is the influx of Mexican products into the U.S. and vice versa, says Tom Fullerton, an economist and professor who specializes in international trade and Mexico and Latin American economies at the University of Texas at El Paso.

"Prior to 1994, grocery stores in El Paso didn't carry many Mexican products. Now, pick any aisle and there are lots available," Fullerton said. On the flip side, Mexican consumers have easier access to U.S. products that were once only available to the wealthiest, said Fullerton.

"The winners have been the consumers because there is a greater variety of products at lower prices. It helps standards of living to improve," Fullerton said.

But some of the biggest benefits of NAFTA for the U.S. are more intangible, said Jose Mendez, international economics professor at Arizona State University. "[NAFTA] has caused individuals to work together. Our relationship [with Mexico] is more positive and mutually beneficial," Mendez said.

But Mendez is quick to add that Mexico has benefited more from the agreement than has the U.S., citing locked-in trade reforms for the country and greater access to the U.S. market than ever before.

According to Mendez, Mexico's economy had already begun changing in 1980, when it jointed with the World Trade Organization in an effort to go from a closed market to an open one. Mexico revised its foreign investment laws, privatized its banking system and paid off external debt.

"These are the things they did that had a far greater impact than NAFTA. NAFTA was the culmination of a series of steps to open the economy," said Mendez.

"For the U.S. there has been virtually no impact, just as economists predicted beforehand," said Mendez.

There was no giant "sucking sound" of U.S. jobs going over the border, according to Mendez.

But the claim is still debatable, according to Fullerton.

"It's difficult to provide an accurate estimate due to several factors," said Fullerton.

"At the beginning of NAFTA's implementation, the U.S. unemployment rate was at 6.1 percent. It eventually went down to 4.0 in [the year] 2000 and has since gone back up to 5.4 percent, but that's mostly due to cyclical factors in the economy," Fullerton said.

Fullerton said only about 120,000 workers have lost their jobs due to job displacement, but it's not clear if it has been due to companies relocating to Mexico specifically or to other global markets.

Within the Mexican economy, in 1995, the unemployment rate in Mexico was about 11.2 percent. Today it's at 15 percent, but Fullerton attributes the increase to "structural factors in the Mexican economy."

Fullerton says it's clear that neither the U.S. nor the Mexican labor markets have been severely impacted by the trade agreement.

    Policy institute disagrees

Since its implementation in 1994, NAFTA has been the source of the destruction of more than 800,000 jobs, according to an EPI analysis of Bureau of Labor Statistics and Census Bureau data.

Of that, Arizona has suffered a loss of about 12,000 jobs, the data states. The institute attributes the failure of NAFTA to the U.S.'s increased trade deficit since the agreement took effect.

But Fullerton argues that the trade deficit has been present even before NAFTA and it's because the U.S. economy is consuming more than it is producing.

Economist Mendez said he's only seen one study focusing on the changes in jobs and it may have been a 15,000-job loss.

"But we're talking about an economy with about 100 million workers. When our economy hiccups we lose that in a month," said Mendez.

Another drawback to the agreement, according to Dawn McLaren, a research economist, is how companies moved following its implementation.

"A lot of businesses moved to the northern border [of Mexico]. Then the workers moved north to the maquiladoras and when it slowed down, there were a lot of people on the border who were unemployed and separated from their families," said McLaren.

"We've now attracted all these people to the northern border and now what? We've created a problem," McLaren said.

International economists such as Mendez say they don't see NAFTA going anywhere anytime soon. However, Mendez and McLaren say an improvement to the agreement would be having a "free flow of workers."

"We could go in the direction of the European Union and have workers be able to move between labor markets like a Mexican worker can come to Wal-Mart if he wants to," said Mendez.

"It promotes efficiency, reduces costs, raises standards of living, though some workers do suffer," Mendez said.

But even if that were to happen, Mexico isn't faring well with recent competition from China, says McLaren.

"It's much harder for Mexico to attract business down there. When NAFTA came it was like 'oh boy, let's go down there,'" said McLaren. "Now it's China and soon it will be India."

City officials in Monterrey have taken notice.

NAFTA paved the way for companies such as Wal-Mart to move into the Mexican state of Nuevo León, however, the city has seen its trade surplus taper off in the last few years.

"The time has come to start the second stage of the free trade agreement," said Romeo Flores Caballero, executive coordinator of the program for integration of northeast regional development.

Flores Caballero said officials want to transform the area into a "city of knowledge," focusing on higher education, development of transportation, housing and the urbanization of the center of the city.

The stagnation of the surplus has moved city economists to look regionally rather than globally.

"We're convinced globalization is not working [because] it is concentrated on a few and affecting many," said Flores Caballero while seated at a conference table at his downtown Monterrey office.

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