Professor Alejandro Diaz-Bautista Presentation Los Angeles October 2014

NAFTA at 20 Years: Towards Greater Economic NAFTA at 20 Years: Towards Greater Economic Integration at the BorderIntegration at the Border

Alejandro Díaz-Bautista, Alejandro Díaz-Bautista, Ph.D.Ph.D.

Professor of International Economics at Colefand Distinguished ResearcherNational Council of Science and Technology

[email protected]

Presentation for the 16 Annual Mexico Economic Review and Political Outlook 2013“, organized by the US-Mexico Chamber of Commerce, Los Angeles, CA, October 1, 2014.

NAFTA at 20 Years: Towards Greater Economic NAFTA at 20 Years: Towards Greater Economic Integration at the Border Integration at the Border

The North American Free Trade Agreement The North American Free Trade Agreement marked a fundamental change in the marked a fundamental change in the regional and global trade scheme.regional and global trade scheme.

NAFTA is an example in economic NAFTA is an example in economic integration, and it helped the North American integration, and it helped the North American region grow larger and together for 20 years. region grow larger and together for 20 years.

Trade within the three NAFTA countries has Trade within the three NAFTA countries has quadrupled, with a combined GDP of $18 quadrupled, with a combined GDP of $18 trillion dollars. trillion dollars.




United States - Mexico Border States

10 border states along the border.

• Nearly 2,000-mile (3,169 km or 1,969 miles) of international border.

•The four U.S. border states (California, Arizona, New Mexico, Texas) include 23 counties that touch the border

•The six Mexican border states (Baja California, Sonora, Chihuahua, Coahuila, Nuevo Leon, Tamaulipas) include 39 municipalities that touch the border.

United States - Mexico Border States

The U.S.-Mexico border region is one of

the most important trade corridors for

North American businesses, representing

a $461 billion economic relationship

between the two countries in 2012.

The border region, defined as the 10 U.S.

and Mexican border states, represents a

combined population of nearly 100 million

people and as the world’s fourth largest

economy.



During the NAFTA era, FDI in North America has During the NAFTA era, FDI in North America has risen from $110 billion per year in 1992 to $650 risen from $110 billion per year in 1992 to $650 billion per annum in 2010. billion per annum in 2010.

Strong macroeconomic policies have contributed Strong macroeconomic policies have contributed confidence to further investment in Mexico, as confidence to further investment in Mexico, as well as Mexican investments in the United States well as Mexican investments in the United States and Canada. and Canada.

Mexico attracted a record $35.2 billion in foreign Mexico attracted a record $35.2 billion in foreign direct investment (FDI) during 2013, according to direct investment (FDI) during 2013, according to the Secretariat of Economy, nearly double the the Secretariat of Economy, nearly double the level seen in 2012. level seen in 2012.


While NAFTA changed Mexico in some economic fundamental While NAFTA changed Mexico in some economic fundamental ways, the treaty never met many of its sweeping promises to ways, the treaty never met many of its sweeping promises to close Mexico's wage gap with the United States, boost job growth close Mexico's wage gap with the United States, boost job growth and fight poverty.and fight poverty.

Mexico took advantage of the NAFTA agreement with the United Mexico took advantage of the NAFTA agreement with the United States and Canada in some areas. The auto, electronics and States and Canada in some areas. The auto, electronics and agriculture sectors grew, and foreign banks moved in, increasing agriculture sectors grew, and foreign banks moved in, increasing access to credit, but a majority of Mexicans saw little benefit in access to credit, but a majority of Mexicans saw little benefit in income. income.

While there is undoubtedly a larger middle class today, Mexico is While there is undoubtedly a larger middle class today, Mexico is the only major Latin American country where poverty also has the only major Latin American country where poverty also has grown in recent years. According the Economic Commission for grown in recent years. According the Economic Commission for Latin America, poverty fell from 48.4 percent in 1990 to 27.9 Latin America, poverty fell from 48.4 percent in 1990 to 27.9 percent in 2013 for all of Latin America. percent in 2013 for all of Latin America.

In Mexico, the poverty rate was 52.4 percent in 1994, it dropped In Mexico, the poverty rate was 52.4 percent in 1994, it dropped to 42.7 percent in 2006; but by 2012, it had risen again to 51.3 to 42.7 percent in 2006; but by 2012, it had risen again to 51.3 percent.percent.


The three North American countries are pushing to become even The three North American countries are pushing to become even more economically integrated. With Mexico's newly passed more economically integrated. With Mexico's newly passed structural reforms allowing private investment in the energy structural reforms allowing private investment in the energy sector, they aim to make the continent energy independent as sector, they aim to make the continent energy independent as well.well.

The latest free-trade effort is the Trans-Pacific Partnership, a The latest free-trade effort is the Trans-Pacific Partnership, a negotiation among 12 countries, including NAFTA's three, to open negotiation among 12 countries, including NAFTA's three, to open trade between Asia and the Americas.trade between Asia and the Americas.

The Trans-Pacific Partnership (TPP) is an ambitious 21st century The Trans-Pacific Partnership (TPP) is an ambitious 21st century trade agreement that the United States is negotiating with 11 trade agreement that the United States is negotiating with 11 other countries throughout the Asia-Pacific region (Australia, other countries throughout the Asia-Pacific region (Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam). Zealand, Peru, Singapore, and Vietnam).


ConclusionsConclusions

Intraregional trade flows have increased significantly over the Intraregional trade flows have increased significantly over the treaty's first two decades, from roughly $290 billion in 1993 to treaty's first two decades, from roughly $290 billion in 1993 to more than $1.1 trillion in 2012. more than $1.1 trillion in 2012.

Cross-border investment surged with NAFTA. Cross-border investment surged with NAFTA. The United States trades more in goods and services with Mexico The United States trades more in goods and services with Mexico

and Canada than it does with Japan, South Korea, Brazil, Russia, and Canada than it does with Japan, South Korea, Brazil, Russia, India, and China combined. Much of this growth has been due to India, and China combined. Much of this growth has been due to increased trade between the United States and Mexico.increased trade between the United States and Mexico.

NAFTA was designed to promote economic growth by increasing NAFTA was designed to promote economic growth by increasing competition in domestic markets and promoting investment from competition in domestic markets and promoting investment from both domestic and foreign sources. both domestic and foreign sources.

NAFTA at 20 Years: Towards Greater Economic NAFTA at 20 Years: Towards Greater Economic Integration at the BorderIntegration at the Border

Alejandro Díaz-Bautista, Alejandro Díaz-Bautista, Ph.D.Ph.D.

Professor of International Economics at Colefand Distinguished ResearcherNational Council of Science and Technology

[email protected]

Presentation for the 16 Annual Mexico Economic Review and Political Outlook 2013“, organized by the US-Mexico Chamber of Commerce, Los Angeles, CA, October 1, 2014.

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Professor Alejandro Diaz-Bautista Presentation Los Angeles October 2014