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NAFTA: Two Sides of the Peso
The North American Free Trade Agreement (NAFTA) went into effect January 1, 1994. The North American Free Trade Agreement allows U.S. companies to sell their goods in Mexico tariff-free. It also allows Mexicans to set up low-wage factories to produce their goods to sell in the United States duty free. [Dowling, 1996]. This agreement removed most barriers to investment in between Canada, the United States and Mexico. Its intention was to boost the economies of all three countries by expanding their potential markets and allowing them to take advantage of what each of the other two countries had to offer. Since its adoption, its effects have been debatable, especially concerning safety and environmental issues in the United States and the effect on the Mexican Peso.
When we begin to read to wealth of opinions about NAFTA, one thing becomes clear. There is no set standard to measure its effects. When we talk about something being good for the economy, do we mean jobs lost or gained, changes in productivity, changes in the average wage of Americans, Gross Domestic Product, or change in consumer prices? There are too many factors to consider to make a general statement about whether NAFTA has been good or bad for the economy of any of the countries involved.
Many U.S. businesses see the North American Free Trade Agreement as both ways to expand into new markets and as a source of low-wage production workers. The first states to take advantage of this new opportunity were those who were physically close to Mexico; Texas, California, and Florida. Other states are now beginning to take advantage of this agreement. [Dowling, 1996]
Donald Dowling is a partner at Graydon, Head & Ritchey specializing in international law. According to Dowling, the key to success in Mexico is in structuring their business plans to take into account several key points. The first thing to consider is that the peso has suffered a severe devaluation since 1994. The devaluation of the peso has made goods and services in Mexico, including those from the U.S. cheaper for those paying with U.S. dollars. [Dowling, 1996]. NAFTA is a big winner, for American business, but many Mexicans blame the fall of the value of the peso on the agreement. The peso crisis has hurt Mexico's purchasing power and has threatened the stability of the relationship between the U.S. And Mexico. This has resulted in a less friendly attitude towards businesses operating in Mexico. [Dowling, 1996]
Many have a stereotype of Mexico as a poor country, but that is not necessarily so. Certain parts of Mexico are filled with a growing class of Mexican consumers hungry for U.S. goods. The Mexican president, Ernesto Zedillo has a low tolerance for corruption on all levels of government. Corruption among officials was once a problem for companies wanting to establish themselves in Mexico. [Dowling, 1996]
Mexicans are hungry for the pop culture of the United States and consider our goods to be of high quality. [Dowling, 1996]
In a speech to the National Foreign Trade Council, July 26, 2001, Ambassador Robert Zoellick makes the following statement about NAFTA.
"We can begin with what NAFTA and open trade have meant for the average U.S. family. And these are conservative estimates: NAFTA and the Uruguay Round together have resulted in higher incomes and lower prices for goods, with benefits amounting to $1,300 to $2,000 a year for a family of four. That is real money for farmers, nurses, teachers, police officers, and office workers. The real beneficiaries are lower-income Americans, who bear a disproportionate burden when prices for food, clothing, and appliances are kept artificially high because of trade barriers…. NAFTA has been pulling American goods and grains into Mexico, benefiting consumers and supporting quality U.S. jobs here at home. In the seven years since NAFTA's implementation, U.S. exports to Mexico and Canada now support 2.9 million American jobs -- 900,000 more than in 1993. Such jobs pay wages that are 13 to 18% higher than the average American wage." [Zoellick, 2001].
Ambassador Zoellick feels that NAFTA has been good for the American economy. It has provided more income, higher wages, and more jobs. He did not consider the effects of NAFTA on Mexico. In Mexico, it appears that the situation is exactly the opposite with a severe devaluation of the peso and jobs paying less in wages than before. This glowing picture also does not consider other concerns, which came about as a result opening the Mexican/U.S. border.
On behalf of the Owner Operated Independent Driver Association (OOIDA), an international trade association representing the interests of independent truckers and small business truckers, Senator Byrd made the following statement on the Senate floor, July 27, 2001.
"On February 6, 2001, a NAFTA dispute resolution panel concluded that the U.S. refusal to approve any applications from Mexican motor carriers who wanted to provide cross-border trucking services is a breach of NAFTA. Even though the panel determined that the Mexican regulatory system for trucks was inadequate, they decided that this was an insufficient legal basis for the United States to maintain its moratorium on approving cross-border trucking applications. In other words, the panel decided that, even though Mexican trucks barreling down American roads would endanger human health and safety, these trucks must be allowed to enter."[OOIDA, 2002]
Senator Gramm, in the same debate pointed out another side of this issue. He says, "The plain truth is, as the Chicago Tribune pointed out this morning, Teamster truckers don't want competition from their Mexican counterparts."
It is clear from these opposing positions, that opponents of NAFTA see some real safety concerns over transportation issues. Similar issues also are found relating to food safety, manufacturing practices and safety standards, and environmental issues such as hazardous waste. Supporters of NAFTA agree that these issues need to be addressed, but in general, are over emphasized in an attempt to exclude competition.
Under Chapter 11 of NAFTA, conflicts such as these are settled by an impartial tribunal panel consisting of members of both countries involved. The issue regarding the trucking issue was heard by The Subcommittee on Highways and Transit Hearing on NAFTA: Arbitration Panel Decision and Safety Issues With Regard to Opening the U.S./Mexican Border to Motor Carriers, July 18, 2001. The panel determined that the less rigorous truck inspection system was not enough reason to continue to deny Mexican trucks access to U.S. highways, solely on the basis that they were Mexican. It was determined that "the U.S. was in breach of its obligations under NAFTA Annex I to permit Mexican nationals to invest in enterprises in the U.S. that provide transportation of international cargo within the U.S. " [Subcommittee on Highway and Transit, 2001] In addition the panel recommended,
"that the U.S. take appropriate steps to bring its practices, with respect to cross-border trucking services and investment, into compliance with its obligations under NAFTA. In addition to the Panel finding the U.S. In breach of its motor carrier obligations under NAFTA, it also determined that Mexico's less rigorous truck safety inspection system did justify the U.S. requiring a more comprehensive application process for Mexican applicants, to ensure Mexican carriers comply with all U.S. laws, regulations and procedures." [Subcommittee on Highway and Transit, 2001]
This is an example of a typical arbitration procedure under NAFTA. This is also typical of the scenarios that arise over environmental issues, manufacturing practices and safety standards, which, general, are more rigorous in the United States. It is these issues that are at the heart of the NAFTA debate. When laws and regulations in the two countries conflict, a compromise must be reached. In the case of the trucking issue, American truckers were infuriated that the Mexican truckers had less rigorous standards and therefore less expense in operating in the United States. This created an unfair competition advantage for the Mexican truckers. Preventing unfair competition opportunities has been one of the key obstacles facing fair implementation of NAFTA.
In an article written in 1997 for CNN, Charles Zewe expresses the same mixed report for NAFTA.
"Three years after the North American Free Trade Agreement (NAFTA) took effect, customs brokers in El Paso say they are clearly reaping rewards. They arrange for 18-wheelers to pass into the United States from Mexico daily, carrying car parts and electronics, toys and socks across the border." [Zewe, 1997]
In the same article he reports conflicting reports on the effect the NAFTA has had on U.S. jobs. "The U.S. government estimates that since 1994, 120,000 American workers have lost their jobs to cheaper Mexican labor, but an equal number of skilled jobs have been created from increased exports to Mexico."[Zewe, 2002].
Mr. Zewe also reports, "On the other hand, NAFTA critics claim more than 400,000 jobs have been lost."[Zewe, 1997]. He supports this statement with the famous lines from the 1993 Presidential debate between Al Gore and Ross Perot when Mr. Perot said, " When you've got a seven-to-one wage…[continue]
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