The North American Common Market Is Here
When Washington and Ottawa signed a free trade agreement in 1989, Mexico's president, Carlos Salinas de Gortari, seized an opportunity: He proposed extending the U.S.-Canadian Free Trade Agreement to include Mexico. The North American FTA, awaiting ratification by the Canadian and U.S. legislatures, seeks to phase out tariffs and restrictions on the flow of goods and services in North America. If an agreement is codified--which seems likely despite judicial hurdles and the clamor for side agreements--it would create a $6 trillion mega-market with 362 million consumers. For North American companies, the agreement is a logical response to the formation of regional trade blocs in Europe and the Pacific Rim and the competitive advantages they entail.
In short, NAFTA will increase jobs and prosperity across the continent and help prepare North Americans to meet the economic challenges that lie ahead. But Mexico, the U.S.' third largest trading partner after Canada and Japan, stands to gain most from NAFTA's ratification. Mexico's GDP is roughly one-twentieth that of the U.S. and about half that of Canada. The U.S. accounts for two-thirds of Mexico's trade, with about 70 cents of every Mexican import dollar spent on U.S goods and services. Experts say NAFTA will draw to Mexico increased investment not only from the U.S. but also from the EC and Japan.
Mexico began to lower its trade barriers after it joined GATT in 1982. Driven by President Salinas and such liberal-minded cabinet ministers as Secretary of Trade and Industry Jaime Serra Puche, Mexico's economic opening has been rapid and its effects dramatic. The government's budget deficit, which comprised 16.9 percent of GDP in 1982, last year became a surplus of 0.4 Percent. Inflation plunged from 200 percent in 1987 to 12 percent last year. Smothered by a tight monetary policy, economic growth slipped from 3.6 percent in 1992 to 2.4 percent last year, and it is projected as low as 2 percent in 1993. But longer term, most analysts maintain, the economy's prospects remain strong. An ambitious privatization program has targeted 70 percent of government-owned businesses: Of some 1,155 state-owned companies thus far placed on the block, 972 already have been cut loose from the state's moorings, while the remainder have been authorized for divestiture.
The list of changes continues: Mexico has eliminated import licensing requirements on 98 percent of its categories, and it has pledged to press on toward 100 percent. In 1983, all imports were subject to government approval. Critically, the Mexican economy has diversified: Today, oil comprises 30 percent of exports, compared with 80 percent in the mid-1980s. But perhaps most important, Mexico has dismantled barriers to foreign investment. As a result, direct investment more than tripled to $50 billion last year from $15 billion in 1986.
On the U.S. side, several studies have attempted to gauge NAFTA's Potential impact. According to the International Trade Commission, real income of skilled and unskilled American workers will rise. Not without some cost: Gary Hufbauer of the Institute of International Economics--on whose study the ITC leaned heavily--projects a loss of about 345,000 jobs by 1995. But consider the flip side: Hufbauer expects a gain of 461,000 jobs for a net gain of 316,000 during the period. There's also somewhat of a rebate effect to any jobs or income lost" to Mexico: According to a study by MIT, Mexico spends 15 cents of every additional dollar of income on U.S. goods.
Some U.S. business sectors--including automotive--stand to profit more than others from NAFTA. Over the long haul, Detroit views Mexico as a high-growth market, and it believes the Mexican auto industry may become part of an integrated North American machine that would more than hold its own against Asia. But there are growth opportunities to be found in other areas, as well. Heavy equipment giant Caterpillar's …
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Publication information: Article title: The North American Common Market Is Here. Contributors: Not available. Magazine title: Chief Executive (U.S.). Issue: 88 Publication date: September 1993. Page number: 60+. © 1999 Chief Executive Publishing. Provided by ProQuest LLC. All Rights Reserved.
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