Is There a NAFTA Plus?
By Dr. María de Lourdes Dieck-Assad
Undersecretary for International Economic Relations and International Cooperation
Ministry of Foreign Relations of Mexico
I. Opening remarks
Good afternoon. On behalf of the Federal Government of Mexico and the Ministry of Foreign Relations, I want to thank David McGowan, Adam Ostry, and the rest of the organizing committee of this 72nd Annual Summer Conference of the Couchiching Institute on Public Affairs for their warm hospitality in this unique setting, which lead us all to engage in the lively and intense debate we started last night.
It is an honour for me to have a chance to share these thoughts with all of you in a panel with such distinguished speakers as the Honourable Michael Wilson, whose long and illustrious career at the highest levels in the government of Canada may be overshadowed only by his commitment to so many worthy social causes in this country. And Stephen Kelly, whose dedication to promote and advance the interests of US foreign policy has been the subject of numerous awards.
When some newspapers on February 6th, 1991, printed a small story on the possibility of a major trade agreement between Mexico, Canada, and the United States, very few people took that news seriously. On January 1st, 2004, the North American Free Trade Agreement, NAFTA, ALENA or TLCAN, as it is known in the region and throughout the world, will reach its tenth anniversary, and that will be a time for celebration. Let me give you a few reasons:
- According to Statistics Canada, in the nine years since NAFTA entered into force, total bilateral trade in goods and services between Canada and Mexico has tripled, from $3.2 billion dollars by the end of 1993, to $9.5 billion dollars in 2002;
- Over the same period, bilateral trade between Mexico and the United States grew 183%, from $81.5 billion dollars, to $231 billion dollars in 2002, according to the US Department of Commerce;
- In 2002, out of every dollar Mexico paid for foreign goods and services, 66 cents were spent on Canadian and US products and services;
- Of all Canadian imports, 66% come from Mexico and the US, but only 3.6% from Mexico;
- In the case of the United States, 30% of all imports come North America, 11.6% from Mexico;
- Canada has invested $3.9 billion dollars in Mexico from January 1994 through December 2002, which represents 3.5% of the total foreign direct investment Mexico got in the period;
- NAFTA has played a key role in the transformation of Mexicos exporting sector. In 1993, 14.3% of total exports were oil-related, while in 2002 this figure was 9%;
- Companies and consumers have benefited from having access to the latest technologies at reasonable prices, as tariffs have been practically eliminated in the region;
- NAFTA has helped Mexico stabilize its macroeconomic variables. Interest and inflation rates are starting to converge among the three countries of the region; and
- Consumers have benefited greatly from having access to a wider selection of high-quality goods and services at lower prices, benefiting even those with smaller incomes. The relative prices of cars have come down, as well as those of domestic appliances, garments, shoes, and food, while it is now easier and cheaper to have access to a PC or laptop.
III. The impact of NAFTA
When we try to assess the impact of NAFTA we can no longer rely only on trade and investment statistics, as the ones I have just mentioned.
- Blueprint for international trade negotiations. Since NAFTA was signed on October 7th, 1992, by then-Minister Wilson, USTR Carla Hills, and Secretary Jaime Serra, it has been a source of influence on countless other agreements, providing new chapters on trade of services, intellectual property rights, investment, competition policy, government procurement, environmental protection, and labour rights; improving dispute settlement mechanisms and customs procedures; dealing in-depth with non-trade barriers; and providing new ways to approach other well-known problems in agriculture, textiles, and other difficult areas.
- Participation of society. Second, the agreement opened spaces for the participation of the business sector, technical experts, and scholars in its many committees and working groups and developed clauses that make proceedings much more transparent to society in general.
- Growth with respect for the sovereignty of each Party. Because of NAFTA, North America has developed institutions that allow for managing billions of dollars in trade and investment every day, while respecting the independence and sovereignty of each one of our three countries. Canada, Mexico, and the United States are learning to grow closer together while respecting key areas, like the Canadian cultural industries.
- Effects for Mexico. In Mexico, NAFTA has been responsible for the private sector and the government to collaborate and to trust each other. NAFTA opened spaces for the business sector that were used first to organize the negotiating position of the industry and then translated into a working relationship that brings together the expertise and resources of both government and industry. Since NAFTA was negotiated, the private sector has been an active participant in each one of the negotiations Mexico has entered.
- Industry integration. Finally, NAFTA has served as the bridge to integrate several industry sectors that have learnt to develop regional economies of scale. In Mexico, we no longer talk about the national steel, auto, or auto-part sectors, since they have become highly integrated with their Canadian and US counterparts.
IV. The first NAFTA decade
When NAFTA was launched in January 1, 1994, it was necessary for all three countries to work long and hard to develop institutions and procedures, quite from scratch, which made possible the daily trade of more than two billion dollars among the three North American parties during the first half of 2003.
NAFTA remains alive. When the text was finalized in 1992, the Parties understood it was necessary to leave a door open to account down the road for new products and services, technologies, methods and procedures without having to reopen the text and breaking the delicate balance that was then achieved. We update regularly its rules and regulations. And many of its benefits are yet to be seen.
NAFTA at ten is far from the one we first knew back in 1994. If NAFTA is going to remain a key element in the relationship among Mexico, Canada, and the United States, we need to update the conditions that are necessary for its day-to-day operation. The region needs of new commitments from its partners to stay in tune with the environment, and it is the environment that has changed mostly over the last decade.
The events of September 11th, 2001, redefined the ways the whole world does business, while markets continue to integrate. The European Union is a reality and is ready to expand with some of the former Eastern European countries. Several other regional trading blocks have emerged since. We have seen the rise to prominence of the WTO, the United Nations, and other international organizations. And we face the challenge of a new China as a key player in the international arena.
Summing up, what we need now is to fine tune the state of North American relations to keep NAFTA an effective instrument which will serve the economic, social, and strategic purposes of the region as a whole. Canada, Mexico, and the United States are active participants in many international forums. It is time for all three to take stock and reflect on how we can strengthen our region, now that we need it the most.
V. Moving together into the second decade of NAFTA
As we prepare to celebrate NAFTA´s first decade, we are already asking what is necessary to be done over the next 10 to 20 years, what issues need to be addressed, and what measures must be undertaken. While the region faces new international challenges, each country needs to tackle its own domestic issues.
- Mexico is working in finding new ways to increase and sustain economic growth, while keeping inflation under control and boost its competitiveness;
- Mexico remains committed to be known worldwide as a reliable and solid destination for foreign investors;
- Mexico needs to develop new ideas to produce more well-paid permanent jobs;
- Mexico wants to avoid major currency fluctuations that work against industries and consumers;
- And we are engaged in these many tasks while the government is becoming more open every day.
Mexico also needs a steady growth of exports, which is a key element of both the Canadian and Mexican economies. The regional market is the logical solution, and Mexico is willing to work with Canada and the United States in finding ways that will make cross-border trading both efficient for the producer, and safe for the consumer in the post 9/11 era.
Mexico and Canada share such large borders with the United States, and the benefits from regional trading have proven to be so many, that it should make all three countries work harder to find several acceptable solutions for everyone. The Smart Borders and the Border Partnership Action Plans are two good starting moves.
The challenge of North America is to work on defining ways to become better and much more integrated, take advantage of each other complementarities and put them to work much more efficiently.
Mexico, Canada, and the United States are now much more than trade partners. Our bilateral and regional relationship has become much more complex and we have learnt to become quite smarter to deal with one another. We must take advantage of these conditions to forge a tighter North American Partnership, involving the federal and state governments, our legislative bodies, NGOs, the business sector, and the many experts and scholars of the region. We all have so much to gain from the expertise and insights of one another.
VI. Agenda for the North American Partnership
A partnership among Mexico, Canada, and the United States, based on shared interest and goals, where the private and public sectors of the three countries work together, should make the region safer and grow faster and prosper. While previous economic achievements because of NAFTA have been tremendous, the region faces three major immediate challenges:
- Help those have benefited the least. First of all, we need to get those companies, producers and entrepreneurs, those people in general who have not been able to share the benefits of NAFTA, to become part of the group who already has. It is our duty to help first and foremost those who have benefited the least and find the means to generate jobs and opportunities in those sectors where benefits have been the least;
- Small- and medium-sized companies. We need to pay special attention to small and medium-sized companies. They represent a particular challenge that needs our most immediate attention. These companies face stiff competition, particularly from other companies from the Far East and the Pacific Ream; and
- Higher economic growth. We all need to develop new ways to sustain economic growth in the region, especially in those states and provinces where there has been very little recently. This in turn should provide for the stability of the region in the long run.
In order to meet these challenges, while promoting better market access, reducing costs, and enhancing competitiveness in the region, we should work on an agenda that includes the following issues:
- Infrastructure. All three countries will gain much from improving the infrastructure of the region according to the highest standards. Safer airports, better roads, and modern harbours, should make cross-border operations faster and much more cost-effective, providing another reason to make North America a prime destination of foreign direct investment in the post 9/11 era;
- Funding. We need to come up with innovative ideas to finance many profitable projects that never get to see the light of day. We should be able to channel enough resources for small and medium-sized enterprises. And we could learn to benefit much more from such schemes as the public-private partnership;
- Human capital. Canada, Mexico, and the United States should be able to find new ways to develop one of our greatest assets, our people. All three countries need to work together and invest to get the best out of our young, skilled, entrepreneurial, and talented work force. We ought to find ways to provide for the best technical and specialized training available;
- e-trade. We all need to work on the many options opened by e-commerce, including the growing industry of electronic transactions. We need to achieve common platforms and protocols which will reduce transaction costs and ease the exchange of information;
- Full implementation of NAFTA. Mexico, Canada, and the United States must work in the full implementation of NAFTA. We should also be able to harmonize standard-related measures at a regional level, promoting mutual-recognition agreements, which would help the competitiveness of the industry of the region;
- Customs procedures. NAFTA offers the opportunity to develop better and safer customs procedures. This is the time to update those, and develop new business opportunities, rather than new obstacles to trade, and higher transaction costs;
- Information. Our governments need to improve the production and exchange of information, especially when security is a top concern and when there are so many electronic means available. This is a key element to detect new opportunities and prepare to face challenges and threats;
- Security. After 9/11, the region as a whole has much to gain from closer cooperation among the three countries. As security issues are at the very top of the agenda for the United States, Mexico, Canada, and the United States may enjoy a new era of cooperation as we look out for each other. We all understand the benefits of larger versus smaller markets, and the benefits that three countries may produce together rather than each one working on its own. We can all work to make our borders safer, while helping each other to grow and prosper;
- Tourists. Mexico would like to incorporate some of the cross-border procedures for tourists that Canada and the United States already have, specially in an era of heightened security, specially when one million Canadians visit Mexico each year; and
- Sector customs unions. NAFTA has made possible the regional integration of some industrial sectors to the point where they are considering the possibility of setting a common tariff for third parties outside the region. There is nothing in NAFTA that prevents such idea and shows that there are many unexplored means of cooperation that will foster a closer and tighter integration of the region.
The partnership that I am talking about runs under two premises:
- Contributions according to resources and capabilities. Contributions for this and other enterprises need to reflect the resources and possibilities of each one of the partners. By no means I am talking about gifts or donations, but rather, the level of commitment and responsibility. Among the three NAFTA countries we should be able to realize economies of scale hard to imagine at this time; and
- Integration is not renegotiation. Mexico is not advocating the renegotiation of any NAFTA chapter or section. All three governments worked very hard to achieve a most delicate balance that has been able to provide benefits. Integration does not imply going back to the drawing board and starting all over again, but getting NAFTA to be the source for benefits for many more businesses, which will translate into higher standards of living for all.
VII. Improving relations between Mexico and Canada
Before I finish, it is important to address briefly the relationship between Mexico and Canada. Both countries should work together as a team in order to benefit from their many complementarities. We need to develop alternative ways to communicate and integrate our industries. There is an open sea waiting for Mexican and Canadian ships to travel more often with each other cargo.
I have been fortunate to find a very positive attitude of Canadian entrepreneurs towards Mexico, but we have to translate that into more investment and more trade. There are still many options to explore that will benefit producers, consumers, and the general public in both countries. In 2004 we will celebrate the 60th anniversary of formal diplomatic relations between our countries. This is a splendid opportunity to bring this relationship to a new level. One million Canadians visit Mexico every year. We want to do business with you.
Back in 1991, at the end of the NAFTA negotiation round in Zacatecas, the head of the Canadian delegation said, before USTR Hills and Secretary Serra, that Canada and Mexico could do so much if they could only get around the Hills and the Bushes. Twelve years later, 1,259 companies with Canadian capital are doing business in Mexico, mostly in manufacturing, financial services, and mining. This is a good start, but this number could be much, much higher.
VIII. Final remarks
Ladies and gentlemen. You all know that a chain is as strong as its weakest link. Mexico may be the weakest link among the North American countries. But it is in the interest of both Canada and the US to promote the economic growth and stability of Mexico, which will translate into more exports for Canadian and US producers, new business opportunities for both, to increase the competitiveness of the region, and will bring a new era of cooperation among all three countries.
Mexico may be the one who gains the most from a North American Partnership, but this is true only in the short run. Because of Mexicos strong tendencies to spend in US and Canadian goods, helping the Mexican market to grow will translate into the growth of the US and Canadian markets.
We are all responsible for the fate not only of our country, but of our region, as we decide to embark on a new era of shared prosperity. We need the committed efforts of the federal, state and provincial governments, of the legislative bodies, the business sector, NGOs, and society in general. All of us have the right to protest loud when something is wrong, but we are all part of the solution to make our region a safer, fairer, and the place where we would like those who are important for us to grow and live in peace and have a place to call home.