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NAFTA: U.S. and Mexico Relations

Patricia Foster

Empire State College

U.S./Mexican relations have had their difficulties over the years. The most significant issue was the approval of the North America Free Trade Agreement (NAFTA) with Canada. Mexico knew it needed to step up its foreign investment but needed some help. Many Americans were hesitant and believed that after NAFTA was passed, their jobs would disappear and the manufacturing plants would move to Mexico. Some plants moved, however, the U.S. still reaped benefits from lower produce prices. Mexico benefited with the improved wages and working conditions as some manufacturing plants moved there. The down side of NAFTA is the price many Mexicans have had to pay for these slightly improved working conditions and wages. In addition, businesses the Mexican government had to privatize or basically put up for grabs were not part of the original intent when Mexico asked the U.S. for help.

We begin by looking at how the negotiations for NAFTA began and why. In the 1970’s, Mexico had a huge oil boom from new resources. The country, as a whole, was doing quite well during this time. The problem was that Mexico’s economy largely depended on oil exports alone. When there was a collapse of production, many countries sought other means of importing oil. The collapse almost ruined Mexico’s economy because of the amount of foreign debt already owed. In 1978, Mexico applied for membership to the General Agreement on Tariffs and Trade (GATT). The Mexican government also wrote a protocol of accession, or waiver, which allowed Mexico to trade without having to join the GATT. The final decision was not to join the GATT and go with the protocol of accession. When oil prices dropped and inflation rose, Mexico found it hard to generate non-oil revenue. As a result, in 1986, Mexico resubmitted for membership to the GATT and began trade negotiations with the U.S.

From 1987 to 1989, the framework was set up for trade negotiations on steel, intellectual property and textiles. This step of trade negotiations was a way to enter into sectoral Free Trade Agreements (FTA). Canada had just completed its negotiations with the U.S. over sectoral FTA’s as a way to gain access to its major market. “Although American trade officials are generally not enthusiastic about sectoral arrangements, they were prepared to sit down with the Mexicans on the issue and were careful not to suggest that it would necessarily lead to any more comprehensive arrangement.” (Cameron and Tomlin, 2000, p. 60) With the sectoral FTA’s secured with the U.S., Mexican President, Carlos Salinas de Gortari, and Mexico’s Commerce Secretary, Jaime Serra, traveled to Europe in 1990. They had a nine-day tour planned after the Bank of Mexico reported foreign investments were drastically below the governments expectations. Salinas spoke with several European leaders and tried to entice them to invest in Mexico. Salinas and Serra realized that many European leaders were looking into the new eastern European countries instead of Latin America. If Mexico could not raise foreign investment, the domestic interest rate would have to be raised to attract capital; however, this would in turn increase the nation’s debt. At the end of the European tour, Salinas knew he would have to look to the U.S. for help. He spoke with President George Bush Sr. about negotiating a free-trade pact. Bush readily accepted the proposal and prepared for the next set of negotiations.

Canada just signed their own FTA with the U.S. and was not happy to hear Mexico now wanted to do the same. Canada and Mexico had a history of weak trade between the two countries. Canadian Prime Minister, Brian Mulroney, realized that the FTA with the U.S. would have to include Mexico and the three countries would create a new agreement. The Canadian government studied trade with Mexico and how the exports from both...
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