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55 2 Introduction Mexico has reached a critical juncture in its economic and security relations with the United States. As a result of the North American Free Trade Agreement (NAFTA), the two countries saw their trade and investment relations undergo exponential growth.1 In 2000, trade flows reached US $263 billion, making Mexico the second most important US trading partner and ranking it among the most important recipients of US foreign direct investment. NAFTA also made important contributions to Mexico’s financial recovery and economic growth after the infamous financial crisis of the second half of the 1990s. In light of this commercial and investment success, it is not surprising that within the two countries, and especially within Mexico, many people were calling by early 2001 for new measures to reduce border congestion and transaction costs. Along with President Vicente Fox, some observers advocated permanent open borders and the creation of a North American community (Pastor 2001). This attitude, however, changed with the attacks of 11 September 2001. US authorities imposed security measures along both of its north and south borders. Since the early post-attack weeks, the US Customs Service has beefed up staffing along the southern border, tripling the number of agents. The amount of crossborder retail shopping and tourism has plunged. Discussions about a migration agreement were placed on the back burner. These new policies, together with increased competition from China and other countries that have signed free trade agreements with the United States, have provoked a gradual deterioration of Mexican imports in the US market. As a result, the NAFTA countries have negotiated new agreements on “smart borders,” the aim of which is to secure the borders while keeping them open to legitimate commerce. The Security and Prosperity Partnership of North America seeks to address policies that stand in the way of more beneficial trade Towards a North American Economic and Security Space gustavoVega-cànovas 56 Gustavo Vega-Cànovas and investment flows, such as cumbersome rules of origin, complex anti-dumping procedures, burdensome regulatory requirements, and other restrictive measures.2 This chapter evaluates the role of NAFTA since its inception in 1994 in the achievement of economic development in Mexico. It is argued that trade liberalization in general, and NAFTA in particular, has helped Mexico to become a successful exporter of manufacturing products and an attractive location for foreign direct investment, which, in turn, made important contributions to Mexico’s financial recovery and economic growth in the 1980s and 1990s and helped to maintain economic stability in the first six years of the twentyfirst century. The chapter will explore not only Mexico’s economic performance since trade liberalization and NAFTA went into effect but will also consider the domestic and global environment that Mexico confronted in the mid-1980s and final half of the 1990s. NAFTA’s limitations will also be discussed. Despite its commercial and investment success, NAFTA has not meant that everyone in North America has prospered. Mexicans, in particular, were devastated by the peso crisis of 1994–95, and many Mexicans have seen no increase in their real wages in over a decade. To make matter worse, political elites in Mexico have been unable to agree on important reforms that are desperately needed in order to address the structural problems in the Mexican economy. Canadians have, on average, done much better, but Canadian prosperity in the 1990s lagged behind the “new economy” boom that swept the United States. This situation did change, however, once the dot.com bubble burst and especially following 9/11 and the advent of the Iraq war. Trade agreements, however, cannot be held responsible for all of the financial and structural shortcomings that slow down (or even reverse) economic progress. Within a narrow commercial sphere, NAFTA has succeeded beyond the expectations of its advocates. The chapter also addresses the policy opportunities and dilemmas faced by Mexico in its relations with the United States as a result of the 11 September attacks . The events of 9/11 have forced Mexico to look for a closer economic and security relationship with the United States in order to ensure that closure of the Mexico-US border does not occur again, as it did after 9/11. This closer relationship , which so far covers only border matters, should be expanded to include a new commercial policy to eliminate the external trade barriers that are still present in the region as well as a program for Mexican migrant workers and the legalization...

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