would be the number one supplier, however Mexico is very proud of what they
accomplished. They selected a niche in the American market and acted upon it.
They started supplying smaller refrigerators to offices, businesses and colleges
of dorms. By specializing in this one niche, a small Mexican firm can react
quickly and efficiently to changing tastes, technologies, and trends. Allowing
the firms to stay competitive in a ever growing market.
Surprisingly, with NAFTA in place a lot of niches like the one mentioned
above will open up around North America. The typical Mexican consumer is a lot
different than the Canadian consumer in a lot of respects. In Canada there are
numerous niches based on income levels, taste, and culture. NAFTA will give
firms in Mexico a greater margin of competitiveness than they are already
enjoying.
The fourth element, and arguably the most important one, is the ability
to have a wide choice of technologies. It is for this element that the lessons
learned from Japan come into effect. People often believe that the reason for
Japans great competitiveness is the quality of Japan’s work force, and the
attitude of Japanese management. Although this is all true, what is often
overlooked is that 35 per cent of Japan’s exports are made through production
sharing. In other words, Japan is taking advantage of a wide range of
technologies. The whole concept to this is very simple. If a job is labor-
intensive, a firm should have access to adequate labor. If, on the other hand,
a job is capital-intensive, a firm should have access to capital.
Finally, the fifth condition for competitiveness is to have available a
range of services at a reasonable cost. In a modern economy we have to
recognize the importance of services, like transportation, telecommunications,
and financial services. In a second world country like Mexico, these services
still carry a very high cost, which puts Mexico at a competitive disadvantage.
But NAFTA will have to play a dramatic role in lowering the cost of services
because it achieves the most comprehensive opening of the services market of any
trade agreement. One example of the availability of services as a result of
NAFTA is, that it opens land transportation throughout the entire region. Prior
to the deal if certain cargo had to go from Mexico to Canada, it would have to
travel to the border, then sit there while the cargo was re-loaded onto a
Canadian or American truck, then shipped to Canada. The Mexican merchant who
had to ship the cargo is thus placed at a competitive disadvantage. Now, under
new NAFTA rules, that truck is able to go directly from the Mexican plant,
straight to it’s final destination, thus saving both money and time.
A second example is in the area of telecommunications, such as phones,
faxes, and other information services. This is most definitely becoming more
and more important in the production process of modern society, and NAFTA opens
the North American market in this area as well. This will make industries more
competitive by providing reasonable priced and reliable communications.
A very important issue that is always featured in the NAFTA debate is
the environment. Developed countries like Canada often take for granted, that
environmental protection requires considerable economic resources. A Princeton
University study confirmed that, “When a country is very poor, there is no
pollution because there is no industry. As a country’s industry grows and it’s
per capita income begins to rise, environmental degradation comes into effect.”
True, this has been the recent history in Mexico, However, a country ultimately
reaches the turning point, where it has grown to the level where it has the
resources to devote to environmental protection. As well, the agreement itself
contains many environmental provisions. It is often called the “Greenest”
multilateral trade agreement ever negotiated. NAFTA specifically prohibits any
of the three countries involved from loosening environmental rules in order to
attract new investments.
*** Mexico’s Disadvantages:
“NAFTA will simply compound the ills created by the administrations
policy of monopolistic free trade.” In the short run the U.S. and Canada would
hardly feel any effect, while Mexico would face great disruptions as a result of
opening its borders. This is because of the small size of the Mexican economy
would barely create a crease in the economies of its northern neighbours. The
problem is that unemployment may soar in Mexico because of the large inflow of
manufacturers from its new trading partners. Indeed, Mexico’s economy could
collapse. In fact, in the last two years the number of unemployed in Mexico has
increased by more than 1.1 million, while salaries have lost more than 41.6% of
their dollar value. In 1993, 8.5% of the economically active population of
Mexico earned less than the minimum salary; today 11.9 percent find themselves
in the very same position.
Much like East Germany, Mexico suffers from “backward technology and
inefficient, bloated state monopolies. The trauma of exposure to giant northern
firms could be fatal to Mexican manufacturing.” NAFTA proposes to open Mexican
markets to Canada and the U.S. gradually, thus constraining the “foreign
onslaught,” however, the short run suffering that Mexico would endure would be
massive. Especially since Mexico which has been buried in a deep slump since
1982, will not, unlike East Germany, receive huge financial aid.
The biggest disadvantage incurred on Mexico as a direct result of the
deal is the amount of money and capitol needed to be spent on up grading their
telecommunications, equipment in the workplace, as well as their transportation
routes. This needs to be do done in order to become competitive in the North
American Market. This however, may not be viewed upon as a benefit, fore it is
going to increase it’s productivity in the global market. What ever short term
disadvantages are induce due to the deal, will eventually be nullified over the
long run.
***
Mexico’s role in the North American Free Trade Agreement, looks to be a
great step in their country’s potentially great future. For Mexico to stay with
NAFTA they have to continue the dramatic turnaround their country has
experienced in the past decade. The economy in Mexico is growing faster than
their population, and with NAFTA they could only expect better things to come
their way. Inflation is under control, foreign debt has been reduced, more than
1,000 state owned industries have been privatized. Mexico is finally showing a
fiscal surplus for the first time in a quarter of a century. With NAFTA it will
help Mexico consolidate these economic reforms, secure the confidence of the
world’s investors and allow Mexico’s economic turnaround to continue for many
more years.
Economic integration initiatives like NAFTA offer positive benefits to
Canada and to other trade partners. They promote efficiency of scale, eliminate
expensive and time consuming trade restrictions between nations, and discourage
government intervention. “NAFTA in particular is in tune with the twin
imperatives of globalization and global development. It embodies the historical
logic of earlier movements toward Canada/U.S. economic alliances.” True, the
deal is not perfect, but to retreat from it now would be a step backwards.
In conclusion, we feel that when all the pros and cons have been weighed,
and all has been said and done, NAFTA will eventually become a positive step in
North America’s future.