Mexico's economy is undergoing a stunning transformation. Seven years after the launch of the North American Free Trade Agreement, it is fast becoming an industrial power. Free trade with the U. S. and Canada is turning the country from a mere assembler of cheap, low-quality goods into a reliable exporter of sophisticated products from auto breaks to laptops computers.
Although Mexico has seen economic growth lately, it still faces tremendous problems in the aftermath of the 1995 recession and the revolution that took place in the Chiapas which still wages on today. The purpose of this paper is to explore the effects that NAFTA has had on the economy and it's people during the implementation of NAFTA and in what NAFTA will bring in the future. The North American Free Trade Agreement was designed to open borders and promote free trade between three countries: Canada, the United States and Mexico. Signed in 1992, ratified by the U. S. Congress in November 1993 and implemented January 1, 1994, NAFTA reduced some tariffs immediately while others are scheduled to fall to zero over a 15-year period.
NAFTA follows the prescription of liberalization- including the deregulation of government restrictions to allow increased trade, direct foreign investment, and foreign ownership of businesses. On January 1, 1994, a Mexico still sleepy from New Year's celebrations awoke to discover a passionate new revolution sweeping across the state of Chiapas. The Zapatistas, a small, yet powerfully forceful group of indigenous people, exhausted from centuries of oppression, poverty and corruption, rose up to end this societal injustice, and most specifically, to battle the new tyrant that would be born that very day: The North American Free Trade Agreement. This revolt was viewed by the indigenous population of Chiapas as an essential act to stop the debilitating cycle of injustice and to prevent future harm to the Mexican people by opposing NAFTA. "The Zapatistas have pulled back the curtain that covered up the other Mexico. It is not the Mexico of eager entrepreneurs lined up to open Pizza Hut franchises or consumers eager to shop at Wal-Mart, but rather the Mexico of malnourished children, illiteracy, landless ness, poor roads, lack of health clinics, and life as a permanent struggle." (Quoted in Russell, p.
1) NAFTA was essentially the last straw for the indigenous people of Chiapas, and their revolt was inspired by five centuries of oppression and injustice. What they were asking for, effectively, was nothing more than the basic necessities of life - both materialistic and abstract - so that their people could live without shame, fear, and humiliation. One of their principal grievances was the status of the indigenous populations who, in spite of making up 30% of the state's population, continue to be treated as sub-humans and is constantly victims of discrimination and state repression. Accompanying these factors were some of Mexico's most abhorrent social standards. In percentages of illiteracy, lack of educational facilities, overcrowding, miserably low wages and lack of electricity, running water and sewage, the state of Chiapas ranks almost exclusively at the top of the list. Other concerns included horrifying human rights violations.
In June of 1993 Amnesty International reported that in that year alone, over 1, 000 members of the state security forces raided the villages of Chal an del Carmen, Rio Florida, Nuevo Sacrifi cio, Eden del Carmen, and El Car rizal, and proceeded to threaten, injure, torture, rape, arrest, and murder their fellow citizens (Quoted in Russell p. 12). Furthermore the Zapatistas, were concerned with the outright lack of education, health care, and lack of employment opportunities, without which the cycle of poverty has no end. Finally, a major concern involved their eidos, or communal lands, which, since the revolution have been the main source of their livelihood. These lands not only provide the nourishment they need to survive, but also symbolically tie them to their cultural history, their ancestors and their traditions that are the backbone of their society. When President Salinas amended Article 27 of the Mexican constitution, permitting the sale of lands, the security of these plots fell victim to wealthy landowners and corrupt state officials.
Such losses caused massive rural-urban migrations, putting even more stress on overpopulated cities. It was feared that these already debilitating problems would be worsened by the implementation of the North American Free Trade Agreement. Most of the Zapatistas' concerns centered around the importance of their communal lands as the center of their livelihood and connection to ancestral heritage. They knew the treaty would affect them personally, as President Salinas' decision to allow the sale of eidos was a direct result of an ultimatum given by George Bush, implying that either the government clear these lands for use by multinational corporations, or the treaty would be broken. Furthermore rural farmers feared that cheap agricultural goods flowing into Mexico would undermine their limited livelihood as farmers, thus forcing them to abandon their land and people to find new lives in the cities. Tumultuous times in Mexico seemed to ride in on the coattails of NAFTA's implementation.
The country began 1994, and election year, with a violent rebellion in Chiapas, economic uncertainty and a political assassination. On March 23, 1994, presidential candidate Luis Donal do Colosio was shot and killed while campaigning in Tijuana. Colosio had been chosen to succeed President Carlos Salinas de Gort ari for the Institutional Revolutionary Party (PRI), Mexico's ruling party. There were investigations into the assassination, but whether or not it was part of a broader conspiracy has never been resolved. Salinas chose Ernesto Zedillo Ponce de Leon to substitute for Colosio and he ultimately won the election in August with 50% of the vote. There have been charges that the PRI had employed fraud to control the election, but the election of 1994 was distinctive both because it was largely considered to be free from fraud, and because there was considerable uncertainty about the outcome.
Though election fraud may have faded, since Zedillo's election, more members of the Party of the Democratic Revolution (PRD), the opposition party, have been assassinated than in the previous six years of Salinas administration (Marinez). Zedillo's first three weeks in office were economically and politically volatile. After the rebellion in Chiapas, investors began to pull billions of dollars out of Mexico. The peso crashed, losing more than half its value in a matter of months. In December of 1994 the Zedillo government was forced to devalue the peso by 50%, which ultimately led to the collapse of the Mexican stock market. The government devalued the peso in an attempt to stop the flow of investment capital leaving the country, blaming the Zapatistas and claiming that their threats "fueled pressure on the peso and on the stock market" (Economist).
United States and the International Monetary Fund offered Mexico a $20 million bailout in hopes of keeping their friend to the south afloat, though this "gift" didn't come without consequences. In order to receive payment, Mexico agreed to more cutbacks on social, educational and infrastructure spending. The act furthered Mexico's dependence on the United States and foreign interests, an indication of the country's disappearing sovereignty, according to many. Despite promises about the benefits of NAFTA, the average Mexican did not experience these benefits after the implementation of the agreement. During the first two months of 1995, interest rates rose from 35% to 59%, reportedly causing more than $2. 5 billion in investments to flee the country.
The stock market dropped 24%, hundreds of companies closed down, and more than 250, 000 Mexicans lost their jobs. Since the devaluation, the peso has continued to decline, moving from 3. 1 pesos to the dollar in January 1994 to 8. 2 pesos currently. Workers in the United States did not see the benefits of the trade agreement either. The first year and a half of NAFTA saw the U.
S. trade deficit with Mexico grow by $4 billion and nearly 80, 000 U. S. workers lost their jobs. Workers to the south were no better off: wages in Mexico declined by 40%-50%. While the cost of living rose by 80%, salaries increased by only 30%.
The inflation rate in 1996 rose to over 51% and 20, 000 small and medium sized business went bankrupt due to increased competition from multinational corporations. As of 1996, more than 2. 3 million Mexican people had lost their jobs since the implementation of NAFTA. Prices of basic necessities such as gasoline, electricity and tortillas rose at an unprecedented rate. One year after the crash of the peso, three-quarters of Mexican families could no longer afford the basic foods and services required to keep them above the poverty line (Marinez). The term "informal sector" refers to small companies or individuals who carry out industrial work in their homes.
This type of activity eludes government restrictions, including tax, health and safety, and minimum wage regulations. The informal sector grew substantially during the debt crisis in the 1980's, due to import-reduction policies and the resulting need to replace imports with domestic production, and continues to be a large part of the Mexican economy with the implementation of NAFTA (Beneria, source 2). Though activities in the informal sector are often illegal, its growth allows the urban economy to absorb increasing numbers of rural workers migrating to cities. Larger corporations benefit by subcontracting their work out to a largely female workforce that cannot find other employment.
Low wages and flexibility attract a growing number of multinational and foreign firms to the Mexican informal sector. According to a 1981 study of women involved with industrial homework in Mexico City, women who participated in the informal sector were paid on the average less than one third of the minimum wage. In the same study, Beneria notes, "[t] o the extent that wages more than compensate for lower productivity, labor costs are reduced and the rate of exploitation is higher" (180). Beneria goes on the state: From labor's perspective, decentralized production under the circumstances described by our study implies a decomposition of the industrial working class (or a new composition) to include more marginal workers and, especially, more women. This process takes place in such a way that in intensifies labor's weaknesses rather than its strengths, a situation fostered by low wages, poor working conditions, and a low degree of job stability. The invisibility to which workers are subject makes them politically, if not economically, marginal.
In fact, this sector is built precisely on labor's general vulnerability. This is particularly the case for women, heavily represented at the lower echelons of subcontracting and typified by the low earnings and precarious working conditions prevalent in domestic m aquila (185). Any time a nation experiences a tremendous amount of economic growth from industrial and agricultural development, the environment is bound to suffer. The economic expansion in Mexico that accompanied the North American Free Trade Agreement was no exception. Environmentalists have already been greatly alarmed by the impact it has had on the Mexico's environment after just a few years of existence. Among the three nations involved in NAFTA, the environmental effects on Mexico are perhaps the most alarming as realities of poverty, national debt and sparse and poorly trained officials make it virtually impossible to remedy or even fully evaluate the situation.
Thus, in spite of the establishment of some environment agreements reached by the three participating nations, it is becoming increasing obvious that Mexico will have severe difficulties complying with these goals. For a number of reasons, Mexico entered into NAFTA with a variety of environmental disabilities. These were further complicated by the treaty, as large multinational corporations moved in, focusing almost exclusively on profit over environment well being. Being a relatively impoverished nation, Mexico's infrastructure had always lagged behind substantially in comparison to Canada and the United States.
This general lack of infrastructure led to elevated levels of pollution, and would require a tremendous amount of investment to raise it to U. S. or Canadian levels. One of the main reasons why it is so difficult for Mexico to invest a sufficient amount of funds into these environmental projects is the tremendously high national debt that Mexico was running.
That debt was due to the international bailouts by the World Bank, the IMF, and private U. S. banks, whose standards for loans often require cutting social and environmental spending in order to balance the budget and pay back the borrowed sum. In spite of all these restrictions, NAFTA's effect on Mexico's environment is becoming painfully obvious.
The border region between the U. S. and Mexico has been hit particularly, due to intense industrialization associated with free trade zones. This area is known for its poor drinking water, inadequate sewage treatment, and mass squatter settlements with deplorable living conditions, exploding population rates, and rapid industrial expansion by industries whose air and water emissions are insufficiently monitored. Until very recently, Mexico has spent virtually nothing on environmental law enforcement, and thus powerful multinational corporations were able to get away with almost anything.
Now, with the increasing industrialization as a result of NAFTA, the Mexican government struggles to even assess the environmental impact these corporations are having (Chakravarthi). The environmental problems indirectly caused by NAFTA are ever changing, as environmental groups and multinational corporations continue both to solve and create new problems. In today's global economy, businesses worldwide are seeking innovative strategies to enhance their productivity, profitability and competitive positions. For a growing number of companies, the solution is to establish strategic alliances and investment partnership in Mexico. New investment opportunities continue to grow in Mexico. An open and modern economy and its central location in the expanding North and South American marketplace are some of Mexico's clearest advantages.
More firms, both foreign and domestic, are engaging in business venture and production sharing arrangements in Mexico in order to be more competitive and prosper globally. With Mexico's economic recovery from the 1995 crises, firms are moving quickly to take advantage of the new market and production efficiencies offered by continuing trade liberalization and free-market reforms that are taking place in Mexico and thought out the region. The shift back from Asia is just part of a boom of foreign investment in Mexico. Not only American and Canadian companies but also European and Asian multinationals have been pouring billions into Mexico's economy. As companies from Samsung to Daimler Benz to DuPont open factories or expanded existing operations, foreign direct investment has soared from $4 billion in 1993 to an average of $10 billion per year (World Bank). Moreover, the foreign units are no longer mainly maquiladoras; assembly plants huddled along the U.
S. -Mexico border. Now, many are more sophisticated factories scattered throughout the country. Textiles are another Mexican industry bringing factories and jobs back from Asia.
NAFTA rescued Mexico's outmoded, declining textile makers by eliminating U. S. tariffs and quotas on fabric and garments made with yarn produced anywhere in the three member countries. In 1996, Mexico overtook China as the largest supplier of textiles and garments to the U.
S. Now, Mexico is going a step further by producing not only garments by also high-quality textiles -and U. S. mills are rushing to invest. (Wise) Far from being crushed by the invasion of foreign investors, many Mexican textile makers are staying competitive by investing in technology. But for many small Mexican companies, high borrowing costs are a barrier to upgrading technology.
Big corporations with access to cheaper foreign financing have reaped the lion's share of the benefits of Mexico's industrial surge. For the coming decade, labor-intensive assembly tasks will have to provide employment for many of Mexico's millions of job seekers. For Mexico to prosper, it's not enough to be a manufacturing country, there's no better way to be viable than by designing your our products using your own technology. As President George W. Bush continues Clinton's efforts to extend NAFTA to include all of Latin America- starting with Chile- I reflect particularly on how it has affected Mexico in the seven years since its implementation. I think that in order to help remedy the multitude of serious environmental, cultural, economic and social problems that came as a consequence of NAFTA, a drastic amending of the agreement is imperative.
In order to fully understand the implications of NAFTA, the entire process of expansions needs to be slowed down. One way of accomplishing this would be to lengthen the tariff reduction schedule, allowing for a more complete assessment of each stage of NAFTA's progression. Most importantly, funds need to be allocated to form multinational committees. These committees would consist of representatives from not only the United States, Canada and Mexico, but also all Latin American countries, as they too have experience the effects of NAFTA. They would then be divided into subcommittees to investigate environmental standards, agricultural issues, human and labor rights, and economic consequences.
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