Beyond NAFTA: evaluating FTAs in Mexico and Colombia

Daniel Rey

The North American Free Trade Agreement. Courtesy of TheMexicanGentlemen, via Wikimedia Commons

The North American Free Trade Agreement. Photo source: TheMexicanGentlemen via Wikimedia Commons.

The distinguished Harvard political scientist Samuel Huntington described Mexico as a ‘torn country’. Torn because of its cultural and linguistic attachment to Latin America on the one hand, and on the other, its geographic and economic alignment to the United States. NAFTA, the trilateral North American Free Trade Agreement signed in December 1993 has played a significant role in changing the landscape. Fast-forward twenty years and Mexico’s sluggish, inward-looking economy is far more prosperous and forecasts are strong.

However, despite professional services firms such as Goldman Sachs and PricewaterhouseCoopers predicting that by 2050, the Mexican economy will be the seventh largest in the world, the country’s economic growth is slowing.

While Mexico competes with China to be the workshop of the USA, it is too reliant on economic ties with the power to the north. Since the birth of NAFTA, US-Mexican trade has risen by 506%. However, given the two countries’ proximity, mutual economic compatibility, and recent political cooperation on the war on drugs, it is questionable how much this rise is due solely to the free trade agreement. Much of it could have taken place without it.

Although Mexico’s economy is waning somewhat, President Enrique Peña Nieto has prudent long-term policies in mind. Long overdue educational reform aims to be the foundation for the future of the country, whilst his pragmatic approach to the war on drugs will prove more fruitful than the over-militarisation of security promoted by his predecessor, Vicente Calderón. Indeed, emblematic of this is the recent capture of the ‘Most Wanted’ drug lord, Sinaloa Cartel leader, ‘El Chapo’ Guzmán through intelligence channels aided by the US.

Mexico’s economic future growth depends almost ineluctably on the success of public policies in this area. Taming the cartels would allow the State to invest in further development programmes and apply subsidies to make Mexican exports competitive in markets outside of the Americas, where it needs to feature more strongly if it is to become the economic powerhouse many predict.

Improvements in the war on drugs would also reaffirm Mexico as a major tourist destination. Despite the country’s negative press, tourism has remained strong, but Mexico has so much to offer international visitors that the country really could take off in this sector should the cartels be pacified.

Aside from that, Mexico continues to rely too much on exporting commodities and foreign investment. There is only so long that these can atone for a notable lack of domestic technological innovation. Corruption is also an issue, impacting upon investor confidence as well as the implementation of public policies.

Mexico is also a key player in another, emergent free trade bloc. The leading Latin American economies in the region with a Pacific coastline, Mexico, Colombia, Peru and Chile have combined to form the Pacific Alliance, an agreement looking to reduce tariffs and increase free trade and movement of persons.

The presidents of Mexico, Colombia, Chile and Peru at a Pacific Alliance Summit in Santiago de Chile. Courtesy of PresidenciaMX 2012-2018, via Wikimedia Commons

The presidents of Mexico, Colombia, Chile and Peru at a Pacific Alliance Summit in Santiago de Chile. Photo source: PresidenciaMX 2012-2018 via Wikimedia Commons.

However, the potential difficulty of the Pacific Alliance is that these nations all compete to export similar commodities to similar markets, and also compete for foreign investment.

Taking Colombia as a case study, President Juan Manuel Santos is asserting the idea to international businesses that ‘Colombia is open for investors’. However, despite Colombia continuing to push for further free trade agreements (FTAs), the jury is out as to how much they benefit the country, particularly in agricultural production.

August last year saw farmers leave the provinces to protest in the capital, Bogotá. One of the key contributors was the impact that removing tariffs on imported goods from the US, as a result of the FTA is having on local producers. Granted, Colombia’s difficult and diverse geography makes infrastructural development difficult and expensive, but when producers in a much weaker economy cannot compete on price in the domestic market with products from the world’s most prosperous country, questions need to be asked and answered as to why there are no effective public policies to combat this trend.

This also highlights the chronic inability of Colombia to realise its agricultural potential. Colombia has the land and the climate to generate a wide-range of food produce for both a domestic and an overseas market, but its debilitating lack of infrastructure precludes development. To use just one example, whilst the Andes provide a significant challenge, the country does not have a road system that adequately links Bogotá with two major cities to the west; Medellín and Cali.

Like Mexico, Colombia is showing strong macro-economic growth, but is beginning to slow. The peso is weaker than it has been for several years, reflecting a decline in investor confidence. Much of this stems from the uncertainty surrounding the government’s peace talks with the FARC guerrilla rebels. Should they fail, confidence may keep diminishing. Even if they succeed, the post-conflict political picture is murky and perilously difficult to predict.

Both Mexico and Colombia’s potential is stymied by internal conflict and corruption. To continue to develop, both need to rely less on commodities exports and foreign investment, and turn instead to trying to generate their own technological innovation as the engines of economic growth.

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