NAFTA: A Mexican Perspective

NAFTA: A MEXICAN PERSPECTIVE^ Nora Lustig O,nly a few years ago, a proponent of a free trade agreement (FTA) between Mexico and the United States would have faced harsh criticism in Mexico, and indifference in the U.S.1 In Mexico, for decades the idea of explicitly promoting increased commercial ties with the United States, and taking part in a bargaining process with the "imperial power" to the North, was blatantly rejected in most political and academic circles. The U.S. administrations, acknowledging Mexico's feelings of distrust, probably did not consider an FTA between the two countries to be possible. Nor did the United States consider one to be desirable. Multilateralism was the prevalent trade strategy in the United States during the post-World War II period. Bilateral initiatives tended to be viewed as a diversion of institutional energies, and as counterproductive to the overall strategy. 1. For an insightful explanation of both countries' past reaction to the prospects of an agreement on free trade, see two works by Sidney Weintraub: A Marriage of ConvenienceRelations Between Mexico and the United States (New York: Oxford University Press, 1990) and Free Trade Between Mexico and the United States? (Washington, D.C.: Brookings Institution, 1984). Nora Lustig is Senior Fellow in the Foreign Policy Studies Program at the Brookings Institution. This article is an updated version ofBordering on Partnership : The U.S.-Mexico Free Trade Agreement (Washington, D.C.: Brookings Institution, February 1991, discussion paper). The author is grateful to Daniel Turner for his assistantship, and to Peter Hakim, Antonio Martin del Campo, and John Steinbruner for helpful comments on an earlier draft. 57 58 SAISREVIEW Things have changed. In September 1990 President Salinas made a formal request to start talks on a FTA, and President Bush responded by notifying Congress that he was goingto pursue negotiations. In February 1991 President Bush announced that the negotiations will include Canada. In April 1991 Congress approved the extension of "fast-track procedures" to negotiate an FTA with Mexico.2 In June 1991 the three countries began negotiations; it is hoped that by the second half of 1992 an agreement will be submitted to Congress. This essay will address three questions. First, why did attitudes towards seeking a free trade agreement change? Second, what is the likely economic impact of the agreement on Mexico? Third, what is the present political configuration in support of, and in opposition to, the initiative? The Underlying Motivation Mexico's March 1990 decision to seek a free trade agreement understandably came as a surprise. However, it is apparent to the close observer that the Mexican government's attitude towards the United States became more cooperative and pragmatic as early as 1983, more decisively since 1989. Signing an FTA with the United States is, to some extent, the natural result of a process that began in Mexico after the eruption ofthe debt crisis in mid-1982. In particular, it is a way to build upon the success ofthe outward-oriented development strategy launched by the de la Madrid government in 1985. From 1985 to 1989 Mexico vastly reduced the use of import licenses and harmonized tariffs by reducing their average and maximum levels. Between 1982 and 1989, Mexico's maximum tariff went from 100% to 20%, the number of tariffs from 16 to 5, the value of imports subject to licensing shrunk to 20%, and the trade-weighted average tariffwent from 16.4% to 9.8%. At the end of 1987 the government also eliminated "import official reference prices," which were used in some sectors to bypass liberalization.3 Import restrictions in sectors such as automobiles, pharmaceuticals and computers have been, and will continue to be, eased. Export restrictions have been removed, foreign investment regulations 2.Under "fast-track procedures" Congress can only give a "yea or nay" vote on the final agreement, thus giving trade negotiators wider authority during the bargaining process. 3.Until then, import duties for about 15 percent of the tariff items in Mexico were calculated based on official import reference prices, rather than on the good's normal transaction value. In several cases the official price was set at a level higher than the product...