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SHF2016丨Rosario Marin: Lessons Learned from NAFTA between Canada, USA, and Mexico

Author:  |  Publication Date:0201-06-02

Good morning ladies and gentleman, it is indeed my great honor to address such an amazing group of young people and join such a distinguished group of remarkable and outstanding world leaders.

I am indebted to my good friend Charlie Zhang for asking me to participate in the Shanghai Forum. He is very fond of Fudan University and I am truly grateful for the opportunity to share a few words with you.

We have heard other speakers sharing their thoughts about "Building Community of Common Destiny in Asia". We have heard different perspectives and how other regions in the world have successfully found common ground.

I would like to talk about NAFTA – and the lessons we have learned from the North American Free Trade Agreement.

This treaty was made between the United States, Canada and Mexico. It went into effect on January 1, 1994. Although free trade existed between the US and Canada since 1989, this new treaty broadened the arrangement; making the three countries the largest free market on the planet.

NAFTA created the world’s largest free trade area of 450 million people. It is an economic powerhouse of more than $20 trillion, as measured by the Gross Domestic Product. That trade area is greater than the economic output of the 28 countries in the entire European Union. NAFTA was implemented under President Bill Clinton’s term although it was President George H. W. Bush who signed it together with Mexican President Salinas and Canadian Prime Minister Mulroney back in 1992.

At that time, President Bush wanted to use economic reform as a vehicle for peaceful resolution of the conflicts in Central America. But just as important, he wanted to achieve progress on Latin American development issues while solidifying closer ties with our neighbors Canada and Mexico.

Fourteen years after it was made into a law, on January 1, 2008, its full provisions as well as the elimination of all tariffs were implemented; including opening borders. It abolished licensing requirements and streamlined border processing.

Before NAFTA, some tariffs would be at minimum 30 percent on export goods to Mexico. And for Mexican products exported to the US, companies had to pay an average of 250 percent.

NAFTA addressed the imbalance in tariffs by completely phasing it out. In fact, 50 percent of the tariffs were immediately abolished as soon as the agreement was signed. The areas that NAFTA specifically focused on included accounting, construction, advertising, consulting, architecture, management, healthcare, tourism, engineering and education.

NAFTA stemmed from a vision to make North America more competitive in the global market and to reduce trading costs and strengthen business investment. It was also implemented for several purposes including: to protect intellectual property rights, to facilitate cross border movement of goods and services, to build a framework to encourage cooperation among the three nations and to expand trade agreement benefits.

On the 10th Anniversary of the signing of NAFTA, President Bush remarked that, “I was a firm believer that trade and investment was the only way to improve the collective economic prospects of the hemisphere. In short, it was the better road—the proven road—to the future we all wanted to see realized.

We believed that economic reform would contribute to increased political stability and democracy in the Western Hemisphere. We believed that not only would trade benefit our neighbors, it would open new markets—new opportunities—for tens of millions of businesses and investors. Perhaps that is why signing the NAFTA agreement was one of my proudest moments as president of the United States. I viewed the agreement as a palpable step forward to greater prosperity and stability across the region.”

So let me share with you some well-known advantages of NAFTA

1. It Quadrupled Trade between the US, Mexico and

Canada.

Between 1993 and 2015, trade between the three countries quadrupled, from $297 billion to $1.14 trillion. That boosted economic growth; by as much as 0.5% a year, increased profits, and created jobs for all three countries. The sectors that benefited the most were agriculture, automobiles, and services.

During that time, the United States increased its exports of goods from $142 billion to $517 billion.

One of the provisions in the treaty called for all products imported from the United States, Mexico and Canada to have “national goods” status, eliminating duties on those goods.

It also created agreements on international rights for business investors. This reduced the cost of trade, spurred investment and growth, especially for small business. Canada and Mexico were the top export markets of the United States in 2014, with $312 billion and $240 billion, respectively.

U.S. farm exports to Canada and Mexico grew 156%. That's compared to a 65% increase to the rest of the world. To put this into perspective, farm exports to Canada and Mexico alone were greater than exports to the next six largest markets combined. Total farm exports were $39.4 billion in 2015.

In addition, NAFTA increased foreign direct investment. Since NAFTA was enacted, U.S. foreign direct investment (FDI) in Canada and Mexico more than tripled to $452 billion in 2012. This helped boost profits of U.S. businesses by giving them more opportunities to develop, and markets to explore.

Canadian and Mexican FDI in the United States grew to $240 billion, up from $219 billion in 2007.

2. Lowered Prices

Lower tariffs also reduced import prices. That also lessened the risk of inflation and allowed the Fed to keep interest rates low.

That's especially important for oil prices, since America's largest import is oil. The U.S. imported $144 billion in oil from Mexico and Canada. Thanks to greater U.S. shale oil production, this figure was down from $158billion in 2007. NAFTA reduced U.S. reliance on oil imports from the Middle East and Venezuela. With lower oil importation costs and America’s own reserves, oil can be sold in the U.S. market at reduced prices.

NAFTA lowered food prices in much the same way. Food imports totaled $39 billion in 2013, up from $29 billion in 2009. It lowered the prices of fresh vegetables, chocolate, fresh fruit and beef the most.

3. It created Jobs. It had a positive effect on labor and wages.

According to the US Chamber of Commerce, the increased trade brought about by the agreement has created 5 million jobs in America alone.

Most of those jobs went to 17 states, but all states saw some increases.

Even imports from NAFTA partners created jobs. That's because nearly 40% of U.S. imports from Mexico originated with American companies. They designed the products domestically then outsourced some portion of the process in Mexico. Without NAFTA, they would have gone somewhere else or they may not have been created at all.

NAFTA created a parallel agreement on labor cooperation which is known as the North American Agreement on Labor Cooperation (NAALC). It was responsible for the improvement of working conditions as well as living standards in the three regions. It ensured that workers’ rights were not violated and also helped address certain labor issues such as discrimination, secret balloting and protection of migrant workers.

4. It allowed for the establishment of trade standards. The three countries agreed to improve the health, safety and industrial standards to the highest existing standard. National standards no longer applied as a barrier to free trade. Additionally, agreements were made to ensure that industrialization would not increase pollution, and included provisions to manage labor and environmental issues.

5. It ensured protection of intellectual property rights. Mexico needed to provide a very high level of protection for their people’s intellectual property rights. This was especially helpful in fields like chemical production and computer software.

Protecting these property rights increased profits for innovative businesses by discouraging pirating. It also promoted foreign direct investment, because companies know that their rights will be protected by international law. NAFTA reduced investors' risk by guaranteeing they would have the same legal rights as local investors. Through NAFTA, investors can make legal claims against the government if it nationalizes their industry or takes their property by eminent domain.

6. It opened up new opportunities.

Especially for small-mid-size businesses to establish a name for themselves, whether in the US or in Mexico. Smaller firms could finally build and maintain offices in Mexico. And with the abolishment of tariffs, it became less expensive for smaller entities to do business there.

So with open-market trading, companies from these three countries within its borders were given a fair chance to bid in government projects.

So, there were more bidders with lower bids and more choices for the government. As a result, governments were able to address some budget deficits.

But not everything was perfect. There is some agreement that NAFTA also brought some disadvantages.

1. It affected workers and their jobs.

Due to cheaper labor costs in Mexico, a number of manufacturing companies moved a large part of their production from the US. As a result, they were able to lower their costs and prices.

Those who were left though, had to reduce their prices as well to be competitive. This left them no choice but to cut the wages of workers who were forced to remain in the factories with lower pay and they gave those who organized unions a choice between joining such organized drives or lose their jobs. Of course workers, who had nowhere else to go, chose their jobs. But without union support they had little to no bargaining power when it came to wage increases.

2. It pushed some farmers to go out of business in Mexico. Another setback of NAFTA is the effect of exporting U.S. crops and beef to Mexico. With the influx of corns and grains that were exported to Mexico, the farmers were not able to compete with the low prices which led to the decline in sales of domestically grown crops and products. Also, this prompted the Mexican government to reduce its subsidy to farmers from 33 percent in 1990 to 13 percent in 2001. NAFTA pushed some Mexican farmers to lose their source of income.

3. It exploited maquiladora workers. NAFTA, also expanded the maquiladora program, which permits U.S. based manufacturing companies to hire Mexicans near its borders as workers in their assembly plants and factories usually at minimal wage.

However, these workers were not given labor rights or health benefits. On top of that, they were made to work for more than 12 hours a day. Critics say that most of these workers were not aware of labor unions, thus, they were not protected. Groups who are not happy with NAFTA talk about the poor working conditions and labor practices that have not been addressed by the agreement despite its promises. These include garment and automotive industries.

Opponents maintain that although jobs were generated for Mexicans, some American lost their jobs.

4. It has a negative impact on the environment.

Critics suggest that NAFTA is partly responsible for the deterioration of the environment, particularly in Mexico. They are concerned of the pressure NAFTA has given the Mexican farmers who had to make drastic measures to compete with American producers. They are using more chemicals and fertilizers to increase production. In effect, these chemicals pollute the environment.

And in the case of expanding agricultural lands, more forests are burned or destroyed so rural farmers can have enough space to grow their crops. The estimated deforestation is around 630,000 hectares per year. Continuous deforestation activities can have a long-term impact on the environment.

President 41 talked about how when he read a report that, in 1997, the United States lost some 385,000 manufacturing jobs; but at the same time, the US added more than three million jobs in advanced sectors such as computer programming and management consulting. There was a trade-off in some ways—a painful trade-off for many, but one he believed the US had to endure if we wanted America to compete for and win new business in this increasingly interconnected and competitive global economy.

So, in conclusion.

Although the North American Free Trade Agreement has immensely improved economies for the countries involved, it has caused other pressing problems, like environmental and employment issues. The key here is to balance out everything to minimize or eliminate any negative effects.

Despite the benefits NAFTA has to offer, it still earned criticism from different sides, some of which were and continue to be included during presidential campaigns.

When it comes to environmental issues, American labor, industries losses and the maquiladora program, the setbacks are there. However, this open-market agreement also made the U.S. a stronger competitor in the global market. It also reduced government deficits. So I believe that perhaps, with stricter implementation of the regulations and the improvement of its framework on protection, NAFTA’s pros will continue to outweigh its cons.

Clearly there are no easy solutions to the vast challenges countries and regions experience but as we have seen working together countries can develop a good framework to increase their global market. Should this region choose to expand its reach, they can take some of the lessons NAFTA has taught us to improve the economic prosperity of the region.

On another note, and to conclude my presentation I would like to address the students and share with them a bit of my background.

I want you all to know that as you prepare to fulfill your mission in life you will experience trials and tribulations; you will face failures but you will recover. Sometimes there will be fear but more often than not, you will experience courage and determination.

I say all of this as an immigrant who couldn’t speak English when she arrived at the United States of America. I would have never envisioned that one day I would be signing every dollar bill. Yes, I faced many challenges but they turned out to be incredible opportunities. I started working for a bank as assistant to the receptionist and just 6 years later I was going to be named Assistant Vice President for the bank. I had to give up my career because my first son Eric was born with Down Syndrome. He faced death 6 times in his first five years of life. A few months after Eric was born, I lost another pregnancy and soon after that I had to give up my MBA, had to give up my career to care for my son and had to sell our home since we couldn’t afford our house payment with just one salary.

There were many, many long dark nights, and yet, if someone would have told me that I would work for a governor to change the laws for people with disabilities, get elected and reelected to a city council and become the mayor of my city, be appointed by the President as the Treasurer of the United States and work for Governor Schwarzenegger in his cabinet as Secretary of the State and Consumer Agency and oversee 17,000 people-- I would have never believed it, but that has been my life.

I continue to believe in good government; our cities, our nations and the world need good people to protect us, guide us and make us grow and develop.

Right now, I am concerned by the rhetoric of some in my political party. I am concerned that appeals are made to our fears, angers and resentments, not to our hopes, our dreams or our aspirations. We need leaders that bring us together not pit us against one another.

So I will share one phrase from Oliver Wendell Holmes who was one of the Supreme Court Justices of the United States. He said “What lies behind us and what lies ahead of us is small in comparison with what lies within us.” I have made that phrase my own. It speaks to me like no other phrase. If you look around and throughout history, individually and collectively, we have faced incredible challenges but here we are. We are bigger than all of those challenges. We can only look back and see all that we have overcome. And so it gives me great confidence in knowing that no matter what lies ahead, we have everything within us to meet those challenges head on. Whether we are in the United States, or China, or Mexico, whether it is trade, health, education, security or any other issue, I am absolutely convinced that we will overcome those challenges. I am comforted in knowing that all of you will be prepared to meet your individual challenges and collectively we will succeed in making this a better world.

Thank you so very much!