American Academy of Political and Social Science

American Academy of Political and Social Science
The Mexican Crisis and the Weakness of the NAFTA Consensus
Author(s): Isidro Morales
Source: Annals of the American Academy of Political and Social Science, Vol. 550, NAFTA
Revisited: Expectations and Realities (Mar., 1997), pp. 130-152
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ANNALS, AAPSS, 550, March 1997
The Mexican Crisis and the
Weakness of the NAFTA Consensus
By ISIDROMORALES
Mexico's financial crisis placed in jeopardy one of the
ABSTRACT:
fundamentals
of the North American Free Trade Agreement
major
(NAFTA): the liberalization of financial markets. In the United
States, the Mexican crisis threatens to destroy the legitimacy of a
so-called Washington consensus, whereby economic liberalization,
privatization, and free trade became a panacea to Latin American
economies, especially those like Mexico's. In spite of this major crisis,
a new consensus seems to be emerging between Washington and the
Mexican government, namely, that the Mexican crisis has no connection with NAFTA and that NAFTAis operating according to the major
purpose for which it was created: the opening of markets. This article
reviews the weakness of this new NAFTA consensus that seems to be
shared by Mexico and Washington, and comments on the major
institutional challenges that NAFTAhas provoked in Mexican society.
Isidro Morales is a full-time professor at the Universidad de las Ame'ricas-Puebla,
Mexico. Combining teaching and research, he has pursued mainly an academic career
at national and international institutions. He has coauthored two books and published
several articles, dealing mainly with energy- and trade-related topics.
130
131
THEMEXICAN
CRISIS
NAFTAworks. The free market works
and the proof of that has been forged
in the fierce fires of a serious economic
crisis.
Ernesto Zedillo,
Mexican president1
The recent Mexican financial crisis eroded the growing expectations
that Mexican and foreign investors
had about the positive impact of the
North American Free Trade Agreement (NAFTA) on the Mexican economy. This crisis placed in jeopardy
one of the major fundamentals of
NAFTA: the liberalization of financial markets. The crisis also provoked
a terrible recession, the end of which
is still not in sight. Consequently, the
premise (namely, economic liberalization) and the promise (long-term
economic growth) under which the
Mexican government sold NAFTA to
the Mexican society is facing a serious predicament.
In the United States, the Mexican
crisis threatens to destroy the legitimacy of what Paul Krugman has
called the "Washington consensus,"
whereby economic liberalization, privatization, and free trade became a
panacea to Latin American economies, especially those like Mexico's,
which had witnessed a severe crisis
at the beginning of the 1980s due to
structural inefficiencies fanned by
pervasive protectionist policies.
In spite of this major crisis, a new
consensus seems to be emerging between Washington and the Mexican
government:
nection with NAFTA. Within Washington circles, the crisis is thought to
be due to a series of cumulative errors
related to the implementation of economic policy. Within Mexico, it is considered to be the consequence of past
structural imbalances.
2. NAFTAis operating according to
the major purpose for which it was
created: the opening of markets. All
this demonstrates that NAFTA is
working: it continues to deregulate
investment and trade flows in what
was one of the most protectionist
economies within Latin America. In
other words, NAFTA is promoting
what the United States understands
by "free trade": the opening of investments and market access within developing economies.
The major core of this emerging
consensus seeks to maintain the
credibility of NAFTA. This happens
at a crucial moment, when Bill Clinton is engaged in increasing the number of parties involved and wants
Chile to join the agreement. In this
article, I shall review the weakness of
this new NAFTA consensus that
seems to be shared by Mexico and
Washington, and I will comment on
the major institutional challenges
that NAFTA has provoked within
Mexican society.
IS NAFTATHE FAST
TRACKFORREGAINING
GROWTH?
NAFTAlegitimized and reinforced
two
major theses of Carlos Salinas's
1. The Mexican crisis has no contechnocratic agenda: (1) that free
1. Address to the U.S. Chamberof Com- trade and the related deregulation
move constituted the fast track to
merce, Oct. 1995.
132
regain economic growth in Mexico,
and (2) that the reduction of transaction costs,2 by deregulating investments flows and making more transparent the enforcement of property
rights, was the major key for constructing a new environment of rising expectations that would attract
new investments.
During NAFTA negotiations, computable general equilibrium (CGE)
models became a la mode in order to
assess, and sometimes to legitimize,
the correctness of this deal. A major
consensus was built around those
models: trade liberalization within
North America would yield economic
gains, the amount of which became
precisely the point of discussion in all
estimations. The other consensus
was that Mexico would benefit the
most from this agreement. Longterm gains for Mexico, measured in
terms of gross domestic product,
ranged from less than 0.5 percent to
as high as 8 percent. Gains in terms
of employment levels ranged from 1
to 7 percent. The large ranges estimated by these CGE models arose
from differences in the assumptions
regarding the scope of trade liberalization, the industrial sectors considered and the nature of returns to
scale, and the amount of foreign direct investment (FDI) inflows. Static
models-that is, those measuring the
THE ANNALSOF THE AMERICANACADEMY
mere impact of trade liberalization
and capital mobility-were
on the
whole those that anticipated more
conservative
outcomes. Dynamic
models-those estimating the impact
of capital mobility in terms of technological and know-how transferswere those yielding the most encouraging estimates.3
There were also other nontechniand consecal, nonmathematical,
quently less sophisticated scenarios
that nonetheless portrayed a similar
optimism, the most important one being that created by Hufbauer and
Schott. The importance of their study
is that they took into account what in
CGE was missing, namely, the institutional and normative setting established by NAFTA. In a rather qualitative analysis, which took into
account the historical performance
and constraints of the Mexican economy, they concluded that over the
next 25 years, Mexico would grow at
a rate of 4-5 percent per year.4
It is evident that all this optimism
built around technical studies, and
highly exploited by the Mexican government when engaged in the negotiation process, must be reviewed in
light of the Mexican financial debacle
that took place at the end of 1994, less
than one year after the NAFTA
3. OrganizationforEconomicCooperation
and Development, Mexico, OECD Economic
Surveys (Paris: OECD, 1992), p. 223; Sidney
Weintraub,"Modelingthe Industrial Effects of
2. We adhere to Douglass North's definition of transaction costs, in the sense that "the
costliness of informationis the key to the costs NAFTA," in North American Free Trade: Asof transacting, which consist of the costs of sessing the Impact, ed. Nora Lustig et al.
measuring the valuable attributes of what is (Washington, DC: Brookings Institution,
being exchanged and the costs of protecting 1992).
4. Gary Clyde Hufbauer and Jeffrey J.
rights and policingand enforcingagreements."
Douglass C. North, Institutions, Institutional
Change and Economic Performance (New York:
CambridgeUniversityPress, 1993),p. 27.
Schott, NAFTA: An Assessment, rev. ed. (Wash-
ington, DC: Institute for International Economics, 1993), p. 15.
THE MEXICANCRISIS
agreement came into force.
It was certainly during the Salinas
administration that the Mexican
economy started to grow for the first
time since the explosion of the debt
problem. From 1989 to 1991, growth
in gross domestic product averaged 4
percent, sharply contrasting with the
0.6 percent growth witnessed during
1982-89. However, in 1992 the economy grew just 0.7 percent, in spite of
the huge amounts of foreign investment inflows, and in 1994, duringthe
first year of NAFTA, economic
growth was 3.5 percent, far from the
6 percent expected by the government's Development Program,which
had been launched beforethe NAFTA
negotiations started. The financial
crisis that began at the end of 1994
drastically altered the previous pattern of growth.
In 1995 economic growth declined
nearly 7 percent compared to 1994.
Concerning the future of Mexico's
economic performance, some optimistic forecasts anticipate a slight
but progressive recovery as of 1996,
which could yield a growth rate ranging from 2 to 4 percent.5
In fact, the Mexican quandary is
not only economic but also institutional and hence a political one,
which makes it much more difficult
to forecast economic performance
even in the short term. It is true that
most of the CGE models and other
kinds of forecasts made before
NAFTA came into force anticipated
small gains in the short term once the
agreement was implemented. Most of
the positive gains would be harvested, accordingto some of the previously mentioned forecasts, in the
5. El financiero, 18 Sept. 1995, p. 28.
133
long run. Nonetheless, new attempts
to estimate the welfare gains of economic integration within NAFTA
must take into account other factors,
which up to now have been neglected.
There are two major theses currently prevailing in Mexico and
abroad that try to explain the Mexican financial collapse and its tequila
hangover. One of them stresses the
economic imbalances that prevailed
during the Salinas administration,
namely, the weakness of domestic
savings that spurred the importance
of foreign money inflows in order to
finance catch-up private investment;
at the same time, foreign inflows
overvaluedthe peso, adding pressure
to the trade deficit. The other thesis
stresses political factors and errorsin
the way the peso devaluation was
decided and timed. Mexican politicians split by stressing just one of
them; President Zedillo has strongly
supported the first one, while Mr.
Salinas has favored the latter.
Nonetheless, the Mexican quandary should also be perceived as a
crisis provoked by institutional
change in both economic policymaking and political institutions. Mexico
is in the midst of a majorinstitutional
change, provoked by the inefficiencies accumulated by the old inwardlooking economic model, the end of
which was accelerated by NAFTA. It
is very important to understand the
nature and scope of this institutional
change in order to assess whether
NAFTAwill create the stable and efficient economic environment that
was so much longed for and anticipated when the agreement was under negotiation. In the rest of this
section, I review the major factors
134
THE ANNALSOF THE AMERICANACADEMY
explaining the recent crisis, stressing
neither structural economic problems nor political errors, but rather
major institutional changes in Mexican society and the way those are
affecting policies concerninggrowth.
The NAFTA effect and
the breakdown of the
political consensus
I believe that Mexico's so-called
economicrecoveryduring the past six
years was mainly due to two major
contradictory trends. The first one
can be explained as an institutional
change affecting Mexico's economic
policymakingthat modifiedthe scope
and nature of economic strategies.
This change started sometime in the
1980s and became evident in 1986,
when oil prices collapsed and Mexico
joined the GeneralAgreement on Tariffs and Trade (GATT).The nature of
this institutional change came as a
kind of external shock, to which the
Mexican economy and the economic
strategies coming from both the government and the business sector had
to adapt. The whole story of adjustment and debt restructuring negotiated during the past decade with and
overseen by the International Monetary Fund, the WorldBank, and even
the U.S. Federal Reserve under the
Brady Plan bears witness to these
new institutional arrangements.
Grosso modo, I suggest that institutional change affecting Mexican economic policies has induced,until now,
a rather adaptive economic behavior
from the government and not a reactive one. NAFTAis the most recent,
complete, and sophisticated mechanism of several previous institutional
changes in the same direction.
The second trend explaining the
Mexican recovery of past years, and
at the same time its recent demise,
also has an institutional nature, although a different one from the preceding trend. It is a remnant of the
old economicmodel and is embedded
in the way political order and legitimacy are being obtained in Mexican
society.It is the cluster of formal and
informal institutions-the so-called
nonwrittenrules of Mexicanpoliticsthat conformto what sociologistscall a
"corporatist-authoritarian"political
organization. During the past decade, corporatismand authoritarianism seemed to be compatiblewith the
new economic reforms induced from
abroad.Whatseems to explainthe current crisis is that economic change
and political institutions of the old
regime have now become incompatible with each other. I shall outline
some tentative ideas that help explain how these two levels of Mexican
reality colluded during the Salinas
administration.
A major trait of NAFTA is that,
ironically,free trade is not the major
device around which member countries have become integrated. In fact,
the core of NAFTAhas to do with the
deregulation of investments flows. In
this regard, NAFTA is closer to the
European Single Act than to a traditional free trade area. The key principle governing, inter alia, investments is national treatment.6 As
President Clinton pointed out,
6. "National treatment" is understood
here to mean that investments and investors
coming from North America will receive the
same treatment as that enjoyed by national
investors in similar conditions, or at least not
less favorabletreatment.
THE MEXICANCRISIS
NAFTAwas the first free trade area
in which a developing country has
granted to investors of the industrialized world the optimal status of
national treatment.7 This principle
lies at the foundation of the new environment that NAFTAinvestorswill
enjoy in Mexico. This environment
will be the result of complicated
regulations ensuring basic rights to
foreign investors and reducing to a
minimum the risks of unilateral government intervention.
Elsewhere I have analyzed the implications for Mexico of what has
been called the "corporate bill of
rights" entailed by NAFTA.8What I
want to stress here is that the deregulation of capital flows within the
NAFTA region in combination with
the phasing out of remaining tariffs
will accelerate the creation of economies of scale and the vertical integration of some industries at a regional
level. This has already happened in
key sectors such as the electronics
and car industries. But a spillover
effect is anticipated in other important sectors, such as pharmaceuticals and chemical and petrochemical
products. This has had and will continue to have a major impact on
Mexico-U.S.trade relations.As is well
known, most of the vertical integration between Mexican and American
135
industries has been carried out by
transnational corporations (TNCs),
most of them U.S. based. Those companies not only controlkey export-led
industries in Mexico but access U.S.
markets outside the normal market
mechanisms, as I shall explain later
in this article.
My point here is to stress that
NAFTA regulatory measures go beyond the mere consolidation of an
open-oriented economy in a developing country that in past decades still
was the very example, for better or
worse, of a closed economy. NAFTA
sets the framework for the founding
of a radically new business environment in which the major goal is to
attract foreign direct investment by
guaranteeing foreign investors their
property rights and the reduction of
transaction costs.9
Chapter XI of NAFTA, concerning
investments coming from NAFTA
partners; chapter XVII, ensuring the
enforcementof propertyrights; chapter X, deregulating government pro-
9. As Alan Rugman has pointed out,
"NAFTAcan be viewed as an institutional device resulting from political exchange. It is
designed primarilyto reduce both the production costs and transaction costs associated
with economicexchange amongthe three partner countries.... It also limits the possibilities
of using discretionary regulatory processes
against foreign firms. However, each of the
partner nations has retained a substantial
7. Scott Burlingame,Lars Jorgensen, and number of exemptions . .. that are related to
Michael Lund, North American Integration both the value of benefits and controlof assets
and the Lessons from Europe (Copenhagen: by foreign [multinationalenterprises]. Nevertheless, from a transaction cost perspective,
DJOF, 1994), p. 108.
8. Isidro Morales, "NAFTAand U.S. For- these exemptions may have facilitated the poeign TradePolicy:Regionalismas an Optionto litical exchange process leading to NAFTA."
Foster U.S. Leveragein WorldTradeMatters," Alan Rugman and Alaine Verbeke, "Foreign
in Growth, Trade and Integration in Latin Direct Investment and NAFTA:A Conceptual
America,ed. WeineKarlssonandAkhil Malaki Framework," in Foreign Investment and
(Stockholm:StockholmUniversity,Institute of NAFTA,ed. Alan Rugman(Columbia:UniverLatin AmericanStudies, 1996).
sity of South CarolinaPress, 1994), pp. 88, 99.
136
THE ANNALSOF THE AMERICANACADEMY
curement; chapter XII, ensuring the
deregulation of services; and especially chapters XIX and XX, instituting an enforcementmechanism in order to reduce the risks of government
unilateral interpretation of the
agreement, all bear witness to how
the Mexican government was interested in the empowerment of foreign
investors as major actors for Mexico's
economic recovery.
The negotiation of all these new
principles and rules targeting the interest and expectations of foreign investors, and which eventually culminated in the signature and passing of
NAFTAbythe U.S. Congress,created
what might be called the NAFTAeffect. The major promoters, and perhaps beneficiaries, of this induced effect were the Salinas administration
and speculators. The Salinas administration capitalized very well on the
NAFTA negotiations and their successful culmination by increasing
President Salinas's political capital
for dealing with the social and political costs provoked by economic
change. Speculators exploited the
NAFTAeffect by taking advantage of
the growing positive expectations
that NAFTAwas promising.
As Figure 1 shows, duringthe Salinas years (1988-94), portfolioinvestments and money markets became
more important than FDI inflows.
This provoked a speculative bubble,
fanned by the NAFTAeffect, that was
highly exploited by the government,
as has been recently explained by
Paul Krugman.10 It was certainly not
10. Paul Krugman, "Emerging Market
Blues," Foreign Affairs, pp. 28-44 (July-Aug.
1995).
domestic savings that the Salinas administration wanted to encourage;1l
the way NAFTAwas negotiated and
the exploitation of the NAFTAeffect
were instead aimed at attracting foreign savings. Furthermore, the
speculative bubble was reinforcedby
the government's strong commitment to reducing domestic inflation
by pegging the peso to the dollar.The
rigidity of the exchange rate, combined with the entrance of capital
inflows, overvalued the peso, accelerating the growth of the trade deficit
and consequently,due to the aversion
the governmenthad to any floating of
the exchange rate, the need for more
foreign capital. Sooner or later, the
government ended up attracting further portfolio investments by inflating the financial bubble: increasing
interest rates and attracting shortterm capital.
Hence it was not the new businessoriented environment largely established by NAFTAthat provoked the
attraction of foreign capital; it was
rather the political exploitation of rising expectations provoked by the
NAFTA effect. Sooner or later, as
stated by Krugman, the financial
bubble should have leveled off, either
in a sudden (as it happened) or a
progressive way. But what happened
to the Mexicans was something
worse: the sudden collapse of the
NAFTAeffect.
On 1 January 1994, the very day
when NAFTAcame into force, Mexi11. It was, rather, public savings that the
Salinas governmentaimed to increase, by the
reduction of the fiscal deficit and the privatization of public enterprises. But this was also
a major condition imposed by the International MonetaryFund, in orderthat the country could continue to serve its foreign debt.
137
THE MEXICANCRISIS
FIGURE1
INFLOWS
MEXICO'SNETFOREIGNINVESTMENT
35,000
30,000
25,000
-
! 20,000
-
15,000
-
1
.e
E 10,000
5,000
--
[]
Money markets
*
Stock market
:
Direct investment
-
0
a)
LO
a0)
Oo
0
0c
T
0
7}
(
00
co)
)
0X
0
a
a)
Co
cO
0)
05
(5,000)
o
0)
0)
0v
0)
0)
-
m
O
N
0)
0)
--
0)
)
-
t
a)
a0)
-
SOURCE:Banco de Mexico.
cans woke up from a dream. They
thought they were closer to the First
World,but the indigenous revolt that
started in Chiapas soon convinced
them of the structural handicaps
standing in the way of that goal.
NAFTA was definitely not enough.
What happened from 1 January 1994
to the end of that year, that is to say,
to the change of a presidential administration and the sudden collapse of
the financial situation, can be explained, in my opinion, as a chain of
events linked by a common trend. In
1994 Mexico witnessed not only the
collapse of the NAFTA dream but
something more serious: the breakdown of the traditional political machinery by which Mexican ruling
elites had maintained the stability
and governability of the country and
that had enabled them to launch the
economic transition during the past
decade.
The Mexican political system has
traditionally been describedas corporatist, authoritarian, and populist. It
is a corporatistsystem because political representation and the channeling of social demands are not articulated by political parties, but by
institutional bodies (including the
hegemonic party, the Institutional
Revolutionary Party) recognized formally and informally by the government. It is authoritarian because political organization is strictly
hierarchical, with all the discretionary faculties of the president being
concentrated at the top. It is populist
because the government has the
authority,and even the discretionary
138
THE ANNALSOF THE AMERICANACADEMY
faculties, to launch distributive policies in order to stimulate social demand. It is also well known that this
old-regime political machinery created an economicenvironment under
which it was possible for Mexico to
fuel growth-although certainly not
in the most efficient way-during
various decades. It was precisely the
old-regime political institutions that
permitted the Salinas administration to accelerate the pace of economic change and to construct the
NAFTAeffect.
It was, in fact, the so-called Solidarity Pact, afterward renamed the
"Reconstruction and Development
Pact,"that became a major pillar for
the feasibility of market-oriented
policies. This pact was between the
corporatepresidency,corporatebusinessmen, and corporate labor, the
main goal being to institutionalize
the control of wages and the reduction of salaries as a major condition
for the lowering of inflation. The
technocratically oriented government made the abatement of inflation both the barometerof its success
and the ground upon which the new
business-oriented environment was
constructed. By doing so, the ruling
elite intertwined, as in the old days,
the yields of economic policies with
assets in the realm of political power
and legitimation.
The pact was in fact at the crossroads of two major economicpolicies:
the abatement of wages and inflation, reinforced by the decision to
avoid sharp devaluations, and the
support of great business organizations in orderto maintain the consensus of all business sectors vis-a-vis
the market-orientedpolicies that cul-
minated in the signature of NAFTA.
It worked, therefore, in two ways:
from the presidency toward both labor and business. However, in spite
of the lack of transparency of most
political institutions in Mexico, the
one related to business sectors and
the presidency became more complex
and opaque under the mask of the
pact. Complex trade-offs were made
between the unconditional support to
economic reforms and the potential
beneficiaries of the privatization of
state-owned enterprises; between
the unconditional support to the
euphoria of NAFTAnegotiations and
the discretionary tolerance of the
government to let financial agents
exploit the speculative environment
that was created. In short, the pact
became the locus of the negotiation
and distribution of the gains and
costs provoked by economic change
and the growing market of expectations that the latter encouraged. It
was this institutional locus, anchored
by old-regime political institutions,
that suddenly collapsed in 1994, tearing down the financial bubble of the
NAFTAeffect.
This collapse originated from the
periphery of the pact, that is, from
peasants and ethnic groups formally
belonging to the corporate structure
of Mexican society but long denied as
social actors. The fact that the Chiapas uprising placed in jeopardy the
legitimacy of Carlos Salinas at the
head of the presidency, and denounced NAFTA as playing against
indigenous traditions, unmasked
and challenged the mechanism of the
pact, under which the government
tried to implement new economic
policies. Chiapas in fact unchained
THE MEXICANCRISIS
antisystemic forces that progressively escalated until they reached
the inner core of the ruling class. We
now know that the bloody months
between Marchand September 1994,
during which former presidential
candidate Luis Donaldo Colosio was
murdered and former PRI secretary
general Jose Francisco Ruiz Massieu
was shot, witnessed a major decomposition of the old rules by which
political struggle was channeled and
political power was gained. We now
realize that the financial collapse of
December 1994 was not merely due
to technical errorsbut also responded
to a breakdownbetween Mexicancorporate business and the hitherto almighty presidency.12
The Mexican political machinery,
previously so effective in ensuring
the continuity of economic policies
and economic growth, is now seriously at risk. Nevertheless,the NAFTA
consensus shared by the White
House and the Mexican presidency
insists on administering the same
medicine; according to this consensus, economic growth can be fueled
only by more privatization, more economic austerity, and less state interventionism. But in contrast with the
NAFTA effect, this time the NAFTA
consensus lacks, at least in Mexico,
the old machinery that permitted the
president to distribute the costs and
gains of economicadjustments. More
than further liberalization and privatization, what Mexicans urgently
12. Accordingto a recent study elaborated
by the International Monetary Fund, it was
Mexican investors and not foreign investors
that started the speculative attack against the
peso during the three weeks before the peso
devaluation of 19 Dec. 1994. Economist, 26
Aug. 1995, p. 65.
139
need to do is to build a new institutional framework for making more
transparent and accountable political exchanges and transactions between social actors, whether or not
this plays against the good image of
the NAFTApromise.
NAFTA,THE OPENINGOF
MARKETS,AND THE FUTURE
OF MANUFACTURING
EXPORT-LEDPOLICIES
The second pillar of the NAFTA
consensus holds that preferential access to the U.S. market has been
guaranteed to Mexico.In this section,
I will review how the new considerations featured in NAFTA regarding
cross-countrytransactions, as well as
the different type of firms involved in
Mexico'sforeign trade to the United
States, make it difficult to talk about
guaranteed access to the latter's
market.
The NAFTA enforcement
mechanism and the
opening of markets
Increasing entry barriers to the
U.S. market, both tariff and nontariff, has been and will continue to
be a major issue of conflict in U.S.Mexico trade relations. Before
NAFTA, tariffs were still relatively
high on some sensitive products and
nontariff barriers affected 34.2 percent of Mexican exports to the United
States. Furthermore, a more severe
implementation by the U.S. government of antidumping and countervailing measures became a major
threat to Mexican exports. Key Mexican export products such as cement,
tuna fish, avocados,and textiles have
140
traditionally been subject to protectionist barriers in the U.S. market.
One of the major reasons for Mexico
to join NAFTAwas to "guarantee," as
Mexican functionaries repeatedly
said, Mexican access to the U.S. market. Even if we know that no agreement will be strong enough to guarantee access to the United States, the
United States conceded to Mexico the
opening of highly protected areas,
such as the textile and steel industries, in which Mexico could exploit
its competitive advantages. In exchange, NAFTA established new
rules and principles by which preferential access to the U.S. market has
become much more regulated.
NAFTA is clear about the time
schedule for tariff reduction: the
United States is to suppress 92 percent of remaining tariffs in the first
five years of the agreement, while
Mexico is to suppress only 61 percent.
However, what is actually at stake in
relation to market access to the
United States is a whole body of past
and new regulations and standard
requirements that could serve as entry barriers to trade. Apart from the
classical nontariff barriers involving
the use of countervailing duties and
antidumping measures, NAFTA has
introduced another set of rules and
principles that might function as a
new stock of barriers, such as standardization rules, sanitary requirements, emergency mechanisms, and
even labor and environmental regulations.13 In NAFTA, for example, the
parties remain sovereign in order to
implement countervailing measures
according to their respective laws
13. See Morales,"NAFTAand U.S. Foreign
Trade Policy."
THE ANNALSOF THE AMERICANACADEMY
and their own interpretation. As
some authors have already highlighted, there was no major advance
in the NAFTA chapter on subsidies
and dumping, other than what had
already been obtained in past GATT
negotiations. This means that there
is no clear code (at least no clearer
than what has been agreed on these
issues in the Uruguay Round) for
helping governments to determine
which kind of government intervention and programs could be exempted
from countervailing or other trade
sanctions. Furthermore, all the retaliatory stock that the United States
has embodied in its Trade Law of
1988, including the so-called Super
301, has remained intact.14This means
that, regarding market access, NAFTA
only guarantees the phaseout of remaining tariffs through a 15-year period. Furthermore, NAFTA has, in a
sense, legitimized and made clearer
the uses of entry barriers and retaliatory measures. This explains why a
more predictable
enforcement
mechanism was necessary.
When Mexico joined GATT and began its economic restructuring, it became evident that protectionism and
related policies were not part of
Mexico's industrial policies anymore.
The opening of markets became a
major goal in the new emerging industrial strategy of the technocratic
agenda. In parallel with this, the
Mexican government updated its
trade laws and reinforced its antidumping strategies in order to combat unfair trade practices. From 1987
to the end of 1994, the Mexican Min14. Fred Lazar, "Investing in the NAFTA:
Just Cause for Walking Away,"Journal of
WorldTrade,27(5):23 (Oct. 1993).
THE MEXICANCRISIS
istry of Industry and Trade (Secofi)
assessed and accepted 117 claims of
unfair trade practices: 16 of those
claims derived from countervailing
measures and the rest from antidumping duties. The United States
was the major target of these trade
measures, with 29.3 percent of all
claims covering different branches
of manufacturing.15
In the pre-NAFTA environment,
this was business as usual. What was
lacking was an enforcement mechanism in order to refrain U.S. firms
from engaging in unfair practices.
The dispute settlement mechanism
under GATT was too weak to put
pressure on the U.S. government;16
consequently, the Mexican government was highly interested in instituting a more reliable dispute settlement mechanism under NAFTA.17
Chapter XIX of NAFTA, concerning countervailing duties and antidumping, and chapter XX, concerning general disputes related to the
agreement, instituted the arbitration
mechanism for the settlement of disputes. Arbitration panels are entitled
15. Lourdes P. Gonzalez, "Masde 170 denuncia antidumping en seis afnos;resueltas
109,"El financiero, 7 Nov. 1994, p. 29.
16. The embargoon Mexicantuna and the
establishment of antidumping measures
against Mexican cement were consideredunfair by panels undertaken under GATT,but in
both cases the U.S. governmentdid not revoke
those punitive measures, even after the passing of NAFTA.
17. This was, in fact, a major issue on the
Mexican agenda even beforethe NAFTAnegotiations. See Miguel Angel Olea Sisniega,
"M6xicoen el sistema de comercio internacional: Analisis de las negociaciones comerciales internacionalesdurante el deceniode los
ochenta," in La politica internacional de
Mexico en el decenio de los ochenta, ed. Bernardo Sepulveda (Mexico:FCE, 1994).
141
to review and eventually remand
trade-remedy measures enacted by
government agencies. Due to the fact
that market access has become a
high-density issue area, we would expect that NAFTA's new dispute settlement mechanism is targeting the
reduction of transaction costs related
to trade exchange between the parties. And indeed, once NAFTA came
into force, some trade disputes were
submitted to these ad hoc panels. Up
to the end of 1995, however, only two
of them had been concluded. One of
them was established under the
claim of American steel firms, suffering from antidumping duties that Secofi imposed in 1993 for sheet plate
(up to 78.46 percent) and for galvanized laminated steel (38.21 percent). The other one was on duties
suffered by Mexican leather exporters. The first one ruled against Secofi, the second one in favor of Mexican exporters. Hence we are tempted
to conclude that the enforcement
mechanisms are fulfilling the goal for
which they were created: to accelerate the lowering of entry barriers
within the region.
In the case of Mexico, these mechanisms could in fact contribute to
eliminating the discretionary faculties the government apparently still
has in order to raise or eliminate entry barriers to trade. The way Secofi
lost the steel dispute is very revealing. Panelists found both procedural
and technical irregularities behind
Secofi's decision to impose antidumping measures against American steel
exporters. Regarding procedural irregularities, panelists argued that
Secofi's different agencies were not
legally entitled, in the moment they
142
THE ANNALS OF THE AMERICAN ACADEMY
did it, to proceed with a dumping
investigation. Regarding technical
errors, the most important one was
that Secofi assessed the damage provoked by dumped steel by using data
from unknown sources.18
We should remember that steel
used by automakers was exempted
from antidumping duties. The exemption benefited Chrysler, Ford, and
General Motors manufacturing operations in Mexico, all of which rely
on U.S. steel. Furthermore, antidumping tariffs were imposed by Secofi in responding to the request
made by Altos Hornos de Mexico
(AHMSA), a Mexican steel firm that
was privatized during the Salinas administration and that obtained 22
percent of its income from the production of sheet plate. In 1994, AHMSA
had a 47 percent share of the Mexican
market for this product;once antidumping tariffs were increased by Secofi, its
share reached 66.3 percent in 1995.19
We could therefore conclude that
the NAFTA panel punished Mexico
for using antidumping tariffs in order
to mask protectionist moves. The fact
that Secofi accepted, with no protest,
the panel decision seems to support
this thesis. However, Mexican steelmakers have complained to Secofi
that U.S. steelmakers enjoy subsidized prices, due to incentives offered
by federal and state buy-American
statutes, state and local economic development programs, and incentives
18. Jos6 Luis Gaona, "Zona libre," El financiero, 31 Aug. 1995, p. 20.
19. Claudia Villegas, "Favoreci6 a EU que
Secofi actuara fuera de sus facultades," El
financiero, 4 Sept. 1995, p. 34; Kevin G. Hall,
"Dumping Disputes Fail to Quash Mexico's
Hopes for US Trade," Journal of Commerce, 8
Nov. 1994.
from the federal Pension Benefits
Guaranty Corporation.20 Furthermore, they argue that it will be impossible to survive the "steel war"
with foreign competitors by merely
using the Mexican antidumping law.
They have requested a more aggressive and transparent strategy for
combating "unfair" practices without
falling to protectionist temptations.21
Consequently, we could also argue
in favor of another hypothesis,
namely, that Secofi lost the panel because it still has to learn how to play
with NAFTA rules when defending
Mexican firms. The fact that there
were mainly legal reasons (the
nonentitlement of their agencies) for
disqualifying Secofi's antidumping
tariffs shows part of the problem.
Disputes before at least four other
panels could be lost by Secofi for the
same reasons.
This highlights a major problem
that could eventually rise in future
U.S.-Mexico trade disputes. Because
NAFTA did not establish any harmonization of commercial laws between countries, especially those referring to unfair practices, Mexican
firms could eventually lose their
claims due to their ignorance of the
way commercial regulations work
in the United States. Conversely,
American firms could eventually reinforce protectionist interests by
playing and manipulating the complexities of their commercial regulatory system.
Another point that is worth highlighting is that not all firms are able
20. Hall, "Dumping Disputes."
21. Jose Luis Gaona, "Imposible detener las
importaciones acereras con cuotas compensatorias," El financiero, 24 Apr. 1995, p. 24.
THE MEXICANCRISIS
to survive and finance a panel dispute. It takes at least one year for the
whole revision process to take place;
small businesses cannot afford the
attendant costs. This leads me to an
analysis of the differences and asymmetries prevailing between exporting firms already operating in Mexico.
Who exports what in
the Mexican economy?
Mexico's foreign trade is, first of
all, highly concentrated in a few
firms. In 1994, only 573 firms out of
a total of 20,846, or 2.7 percent, controlled 80 percent of all non-oil exports. In other words, 97.3 percent of
exporting firms are credited with 20
percent of all non-oil Mexican exports.22 Furthermore, most firms participating in foreign trade are rather
small, reflecting the high concentration of capital within Mexican industry. Small businesses (those with 15
to 100 employees) still make up most
of Mexican industry: 74 percent in
1994, while medium-size and large
firms represented 15 and 11 percent,
respectively.23
Big industries, most of them foreign owned or with foreign capital
participation, are those that dominate not only industrial output in
Mexico but also the core of foreign
trade. By "core"I mean not only most
of Mexican manufacturing exports
but also those that have become more
competitive since the middle of the
past decade.
The transport, chemical, and metals sectors (see Figure 2) witnessed
143
higher rates of growth than the total
average growth rate of Mexican
manufacturing exports to the United
States during past years. From 1989
to 1995, the transport and chemical
sectors became the most dynamic
ones (both with an average annual
growth of 24 percent, compared to an
average of 18 percent in total manufacturing between 1989 and 1995)
exports.
among high-technology
The metals sector grew at an annual
average of 19 percent. Among lowtechnology manufacturing exports
(Figure 3), textiles and footwear (including wood and paper) were the
most dynamic branches, with 32 percent and 21 percent average annual
growth, respectively, for 1989-95.
It is worth noting that intra-industry
trade has become a major trait of
Mexico's transactions with the United
States. This greatly contrasts with
the early 1980s, when oil exports
dominated Mexican sales. The niche
of specialization has become what
some authors have called "high-tech,
low-wage"24 exports as against hightech, high-wage imports. Sixty-five
percent of Mexican manufacturing
exports are concentrated within the
transport and electrical and nonelectrical machinery sectors, while 50 percent of imports come from the same
sectors.
Figure 4 portrays the trends in
Mexican high-tech imports from the
United States. From 1989 to 1994,
the transportation sector was the industry with the fastest growth in
24. James M. Cypher,"RenascentRivalry:
Global Low-Wage Manufacturing, U.S. De22. Enrique R. Vilatela, "Oportunidades cline, and Emergent Regionalism,"in Perspecpara exportar"(Proceedings,Banco Nacional tives and Issues in International Political
Economy,ed. ChronisPolychroniou(Westport,
de ComercioExterior,Mexico,Sept. 1995).
CT.Praeger, 1992).
23. Ibid.
144
THE ANNALSOF THE AMERICANACADEMY
FIGURE2
EXPORTSTOTHEUNITEDSTATES
MEXICO'SHIGH-TECHNOLOGY
40,000,000
35,000,000
30,000,000
* Transportand transportequipment
.
25,000,000
E Nonelectrical and electrical machinery
0
IU Primary and fabricated metals
20,000,000
1
] Plastics
o 15,000,000
S Chemicaland pharmaceutical
products
10,000,000
5,000,000
0
1989
1990
1991
1992
1993
1994
1995
SOURCE:U.S., Departmentof Commerce.
FIGURE3
EXPORTSTOTHEUNITEDSTATES
MEXICO'SLOW-TECHNOLOGY
7,000,000
-
6,000,000
-
5,000,000
I[ Footwear, glass and other products
4,000,000
E Textile and apparel
" 3,000,000
E Leather,wood and printedproducts
0
2,000,000
1,000,000
0
1989
1990
1991
1992
SOURCE:Departmentof Commerce.
1993
1994
1995
145
THE MEXICANCRISIS
FIGURE4
IMPORTSFROMTHEUNITEDSTATES
MEXICO'SHIGH-TECHNOLOGY
-
30,000,000
25,000,000
E 20,000,000
B Transport and transport equipment
0
f
Non electrical and electrical machinery
E Plastics
I] Chemical and pharmaceutical products
10,000,000
0
5,000,000
0
1989
1990
1991
1992
1993
1994
1995
SOURCE:Departmentof Commerce.
high-tech manufacturing. Other sectors maintained their rate of growth
at the same pace as total imports.
However, as was expected, the impact of the devaluation in 1994 reversed part of these trends. Imports
of vehicles and transport equipment
declined by 31.0 percent in 1995,
while imports of chemical products
increased 45.5 percent. Figure 5
shows that imports of textiles and
apparel were the most dynamic
among low-tech imports coming from
the United States. From 1989 to
1995, they grew at an annual average
rate of 23.0 percent, while leather
and footwear, which were hardly hit
by the devaluation, grew at 10.6 and
8.6 percent, respectively. Due to the
fact that the textile sector is not organized under the hierarchical struc-
ture of a corporatestrategy,the surge
in imports during these years does
not necessarily reflect the development of economies of scale as seems
to be the case in other industries
dominated by TNCs; rather, it depicts the acute competition coming
from the U.S. textile and apparel
industry.
Comparedto past decades, Mexico
has moved from a natural-resources
export-led economy to a high-tech
manufacturing export one. The success of this majorchange is explained
in part by the changing priorities of
both big firms and foreign firms operating in Mexico and by the deregulation of the Mexican economy once
Mexicojoined GATT.However, most
intra-industrytrade specialization in
Mexicohas been accomplishedby big
146
THE ANNALSOF THE AMERICANACADEMY
FIGURE5
IMPORTSFROMTHEUNITEDSTATES
MEXICO'SLOW-TECHNOLOGY
6,000,000
5,000,000
4,000,000
0
* Footwear, glass and other products
.5
?
Textile and apparel
[I] Leather and by-products
2,000,000
1,000,000
0
1989
1990
1991
1992
1993
1994
1995
SOURCE:Departmentof Commerce.
firms, most of them foreign owned or
with participation of foreign capital.
The importance of foreign capital for
Mexican exports is, consequently,
crucial.
Thestructureofmarketorganization:
Hierarchical and non-hierarchical
markets in Mexican manufacturing.
Table 1 shows how U.S. affiliates
have increased their share of total
Mexico-U.S. trade. In 1982, 7 percent
of Mexican exports to the United
States were shipped by American affiliates; in 1992, they shipped almost
40 percent of all exports. Imports by
American affiliates constituted 36
percent of total Mexican imports
coming from the United States in
1992, a slight decrease from the 1989
figure. Consequently, we could say
that almost 40 percent of all MexicoU.S. trade is conductedby U.S. affiliates. This figure could reach 48
percent of total exports if we exclude
crude oil, which still represents the
major source of revenues for Mexico
(as a single commodity)and in which
foreign investment is still forbidden.
Most important of all is the fact that
almost 100 percent of exports
shipped by American affiliates consists of intra-firm transactions, that
is to say, exports shipped to the U.S.
parent. Table 1 also shows that 85
percent of affiliates' imports are also
dominated by intra-firm trade.
Table 2 shows that most affiliateconducted Mexico-U.S. trade is clustered in the manufacturing sector.
U.S. affiliates dominate 100 percent
of trade in transportation equipment
147
THE MEXICANCRISIS
TABLE1
INMEXICO,
1982-92 (Millionsof dollars)
MEXICO-U.S.
TRADE,BY U.S. AFFILIATES
Mexicanexportsto the UnitedStates*
of which:
Exportsby U.S. affiliates
(Percentageof totalMexicanexportsto the U.S.)
of which:
Intra-firm
exportsto the U.S. parent
(Percentageof totalaffiliateexportsto the U.S.)
Mexicanimportsfromthe UnitedStates*
of which:
Importsby U.S. affiliatesin Mexico
(Percentageof totalimportsfromthe U.S.)
of which:
Intra-firm
importsfromthe U.S. parent
(Percentageof totalaffiliateimportsfromthe U.S.)
1982
1989
1992
11,315
15,776
27,296
774
(7%)
4,268
(27%)
10,281
(40%)
727
(94%)
8,959
4,198
(98%)
15,775
10,741
(99%)
32,574
2,328
(26%)
6,640
(42%)
11,840
(36%)
2,095
(90%)
5,996
(90%)
10,069
(85%)
SOURCES:United Nations Center on TransnationalCorporations,WorldInvestmentReport
as Enginesof Growth(NewYork:UnitedNations,1992), p. 41. For
1992: Transnational
Corporations
1992 data: Banco Nacionalde ComercioExterior,ComercioExterior,Mexico, Feb. 1994; U.S.,
Departmentof Commerce,NationalTradeData Bank,Operationsof U.S. ParentCompaniesand
TheirForeignAffiliates,1992.
*Excludestrade relatingto maquiladoras.
and are significant in items such as
electronic equipment (40.8 percent of
exports and 34.5 percent of imports)
and foods and kindred products (20.6
percent of exports and 36.5 percent of
imports). Table 2 also shows that
shares for U.S. affiliates in total Mexico-U.S. trade are lower than those
appearing in Table 1. The reason is
that Table 2 includes trade performed by maquiladoras, or establishments in the Mexican in-bound
industry. Although most of Mexican
maquiladoras are foreign owned,
they are not U.S. affiliates or totally
dominated by U.S. capital. So the
share of foreign firms in Mexico-U.S.
trade should be higher than that appearing in Table 1, if we take into
consideration other foreign firms
in trade exchanges
participating
with the United States as well as
maquiladora trade. In 1992, for instance, 40.4 percent of exports and
22.4 percent of imports were achieved
by the in-bound industry. Other studies show that, in 1987, 42 percent of
total Mexican manufacturing exports
were made by major foreign companies established in Mexico.25 Although we still do not have data to
update this figure, we presume that
the involvement of foreign firms in
trade has increased, in both absolute
and relative terms, reflecting the increase ofintra-firm trade led by U.S.based firms depicted in Table 1.
If we take into consideration the
export performance of non-U.S.25. United Nations Center on Transnational Corporations, Foreign Direct Investment
in Mexico,
and Industrial Restructuring
ST/CTC/SER.A/18(New York:UNCTC, 1992),
p. 48.
THE ANNALSOF THE AMERICANACADEMY
148
TABLE2
INMEXICO,
BY
MEXICO-U.S.
TRADE, U.S. AFFILIATES
OF AFFILIATE,
1992 (Millionsof dollars)
BY INDUSTRY
Total Affiliates'
Exports Exports Percentage
Allindustries
34,592
Selected industries
Foods and similarproducts 506
Chemicalsand allied
1,223
products
Primaryand fabricated
materials
1,256
Machinery,except electrical 2,795
Electricaland electronic
8,635
equipment
equipment 5,663
Transportation
Total Affiliates'
Imports Imports Percentage
10,821
31.3
39,605
11,840
29.9
104
20.6
619
226
36.5
87
7.1
4,519
353
7.8
51
316
4.1
11.3
1,257
5,849
80
378
6.4
6.5
3,526
5,535
40.8
97.7
7,285
5,345
2,514
5,222
34.5
97.7
SOURCE:U.S., Departmentof Commerce,NationalTradeDataBank,U.S. Exportsand Imports
by Country,1992; idem,Operationsof U.S. ParentCompaniesand TheirForeignAffiliates.
based TNCs operating in Mexico,we
note that key export sectors such as
chemicals, pharmaceuticals,plastics,
and cement are also dominated by
foreign capital. Table 2 does not show
major participation by U.S.-based
companies in these branches, in part
because these industries were highly
regulated by the Mexican government before the enforcement of
NAFTAand in part because they are
still dominated by European-based
firms.26It is also probablethat a major share of the exchanges led by
these firms is dominated by intrafirm transactions.
The fact that most trade by U.S.
affiliates is intra-firm trade has major consequences for Mexico. First of
all, the affiliates' export performance
does not necessarily reflect Mexico's
comparative advantage, say, in the
manufacturing sector. These exports
tend to respond to the specific needs
26. Ibid.
and standards of the parent company,
and they do not react as rapidly to
price shifts as open-market exports
do. They occur as a consequence of
corporatestrategy in which Mexico's
locational advantages are exploited
for international sourcing.27
This said, we can say that a significant share of Mexico-U.S. trade is
already organizedunder the strategy
and interests of corporate behavior.
Most authors that study corporate
strategies agree that intra-firm trade
or inter-firm trade promoted by
TNCs responds to a hierarchical organization of markets.28As opposed
to arms-length markets, hierarchical
markets respond to a functional division of production between homebased firms and their affiliates, the
most commonone being the hub-andspokes relationship between the par27. Ibid., p. 46.
28. John H. Dunning, The Globalizationof
Business (London:Routledge,1993),pp. 315-29.
THE MEXICANCRISIS
ent companyand the affiliate. Within
this scheme, most strategic issues
and consequently most value-added
activities remain clustered in the
parent company.Less strategic and,
consequently, less value-added activities are relocated to affiliates in
host countries. Cypher and Morici
have depicted this trend in MexicoU.S. economic relations and agree
that NAFTAwill reinforce this hierarchical organization under which
U.S.-based transnationals will relocate low-tech low-wage activitiesand even high-tech low-wage activities-to Mexico and other Latin
American countries.29
The empowerment of the transnational track in Mexico-U.S. trade relations explains in part the Mexican
success in boosting non-oil exports
since the mid-1980s (depictedin Figures 2 and 3). With the exception of
textiles and apparel, the growth of
Mexican non-oil exports to the
United States has been led by those
industries in which U.S.-based firms,
and foreign capital in general, maintain a significant stake. In the case of
the automotive sector-the most dynamic one among high-tech exchanges-Mexican trade is actually
monopolizedby TNCs. In the case of
the chemical and related sectors, in
which the U.S. presence maintains a
lower profile, we have already mentioned that European-based firms
control a major part of exports coming from these sectors.
The only arms-length aggregate
market that witnessed significant
29. Cypher, "Renascent Rivalry"; Peter
Morici, "Free Trade in the Americas: A U.S.
Perspective,"in The Premise and the Promise:
Free Tradein the Americas, ed. Silvia Saborio
(New Brunswick, NJ: Transaction,1992).
149
growth during the past five years (including the first year of NAFTA)was
that of textiles and apparel. However,
a more detailed analysis is needed in
order to depict the segmentation of
this aggregated market and so be
able to assess the role played by
TNCs in boosting high-tech exports
in synthetic yarns and fabrics. Since
the devaluation, other traditional
sectors have been able to increase
their share in exportmarkets:mainly
leather, furniture, and toys. However,
this jump in traditional exports is
due to the drastic contraction of the
domestic market and the change of
relative prices owing to the devaluation of the peso. Once domestic demand recovers and the peso undervaluation erodes with the pace of
inflation, these exports could eventually decline.
This said, we should conclude by
adding that the institutional framework entailed by NAFTA,both at the
investment level and at the marketaccess level, will function for the
benefit of the hierarchical markets
that are clustered around a corporate
agenda and that encompass most of
Mexican high-tech manufacturing
exports. If NAFTA institutional
mechanisms aim to reduce transaction costs within cross-countrytrade,
we suggest that big firms, either
Mexican-based or TNCs, which represent just 2.7 percent of all trading
firms in Mexico, are in the best position to exploit the opportunities created by the organizational structure
of NAFTA.In other words, due to the
way they function and are organized,
firms clustered around hierarchical
productive and exchange markets
are the most suitable to be able to
150
THE ANNALSOF THE AMERICANACADEMY
exploit the reduction of transaction
costs entailed by NAFTA. What
about the 97.2 percent of small and
medium-sized businesses still participating in foreign trade? The
NAFTAmechanism was, in fact, not
created for them and could eventually increase transaction costs for
these firms. According to the orthodoxy underlying all the discussion
and legitimacy of NAFTA, if these
industries remain inefficient and
noncompetitive, sooner or later they
should exit. As some authors have
suggested, within this integration
mechanism, economies of scale do
matter: "as a result of trade liberalization, a [smaller] number of firms
will end up serving a larger market
and using factors of productionmore
efficiently."30
If NAFTA is betting in favor of a
further concentration of Mexican industrial organization and the stimulation of cross-country exchanges
through a hierarchical organization
of markets, does this mean that the
competitiveness of traditional exports will eventually be enhanced by
a director indirectintegrationof small
businesses with major firms?This is,
in fact, what is at stake in the current
discussion between industrial and exportorganizationsrepresentingthe interests of small and medium-sized
firms vis-a-vis the government.
CONCLUSION
President Zedillo's last visit to
Washington, during the second week
30. Horacio Sobarzo, "A General Equilibrium Analysis of the Gains from Tradefor the
Mexican Economy of a North American Free
TradeAgreement"(WorkingPaperno. II-91,El
Colegiode M6xico,1991), p. 38.
of October1995, confirmedthe promise he made to President Bill Clinton
to maintain the "NAFTAconsensus."
Both presidents highlighted the
benefits and positive externalities
the two countries have obtained from
NAFTA. They reinforced their commitment to further market liberalization and privatization in order to
accelerate the recovery of the Mexican economy. They both said, although with different words, that
Mexico has overcome the most difficult moments of the financial crisis.
Without NAFTA, they stated, the
Mexican bailout would have been
more difficult. Furthermore, Zedillo
came back to Mexico with the promise of $12 billion of money inflows
from U.S. investors.
Outside the top levels of the White
House, the Mexican presidency, and
perhaps selected branches of corporate America, however, the "NAFTA
consensus" is losing more and more
support. The U.S. Congress has become the major locus of criticism of
both NAFTAand the Mexican financial and political situation. Narcotics,
corruption,the division of the Mexican inner circle, and the Chiapas uprising have become major topics of
concern among American politicians
and academics. Instead of trade or
NAFTA-relatedissues, the uncertain
future of Mexico's political stability
and financialsituationis becomingthe
major concern within U.S.-Mexico
relations.
What, then, is the point of defending and maintaining the "NAFTA
consensus"? We should remember
that NAFTA is more than a simple
free trade area; it is a new institutional device by which property
THE MEXICAN CRISIS
rights are enforced and transactions
costs reduced for both investments
and trade coming from one of the
parties. This institutional machinery, implemented in a North-South
context, means that financial inflows
as well as competitive products and
services coming from the United
States or Canada will benefit from a
more predictable environment
within a developing country,in which
protectionist policies and discretionary capabilities of the state have been
widespread, property rights are
badly enforced (working, consequently, as an entry barrier), and entry barriers to both investments and
trade are structurally embedded in
the way that the state regulates the
economy.
The selling, promotion, and marketing of the so-called corporatebill
of rights entailed by NAFTA,as well
as its enforcement mechanism guaranteeing property rights for U.S. investors and fair trade policies for
American exporters, is what, in my
opinion, is behind Washington'snew
tradediplomacytowardLatinAmerica.
Mexico became the first country in
which this new institutional environment, favorable to big firms and/or
TNCs producing and exchanging
through hierarchical markets, was
established. However,a financial crisis and political turmoil have eroded
the opportunities and positive expectations that this new environment
created.
That is why it is so important for
Washington to highlight the policy
errors that led Mexico to this crisis
and the policy choices it must follow
in order to overcome this situation.
Washington attempts to isolate the
151
Mexican crisis from NAFTA-related
issues; what is at stake is the whole
credibility of this new institutional
device. In Miami, within the context
of the Summit of the Americas, President Clinton openly stated his desire
to open markets, ensure property
rights, and defend fair trade in all of
the Western Hemisphere under the
rules and principles of the NAFTA
model. Chile and certain small countries organized under the Caribbean
Basin Initiative have becomethe new
target countries. It seems to be that
the expansionand creationof NAFTAlike environments all around Latin
America has become a major strategic goal for both Washington and corporate America in order to improve
the positioning of the U.S. economy
vis-a-vis other competitive economic
poles within the triad formed by the
United States, Japan, and the European Union. If this is the case, the
promotion and implementation of
NAFTA throughout the Western
Hemisphere has become a major
long-term strategic device for U.S.
foreign policy,regardless of who is in
charge of the White House. Clinton's
White House is merely giving the
presidential blessing to the defense of
America's historical interests. He
aims to reduce any attack coming
from home or host countries, that is
to say, from those nations already
seduced by the NAFTA promise, in
order to maintain the credibility of
this device and the feasibility of its
implementation.
Nonetheless, to maintain the
"NAFTAconsensus" with countries
suffering from economic recession
and highly skeptical about the benefits of economicintegration is not fea-
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THE ANNALSOF THE AMERICANACADEMY
sible in the long term. In one way or
another, NAFTA gains-however
measured and defined-should be
obtained or at least perceived by
weak parties to the agreement. It is
possible that Mexican president
Ernesto Zedillo is not fully convinced
about the benefits of NAFTA obtained by his country,but he will be
ready to maintain his optimism as
regards this major enterprise if this
means that Washington will keep
supporting him, both politically and
in financial terms, in order to enable
him to cope with a major political
crisis that NAFTA itself helped to
accelerate.