H. E. Eduardo Medina Mora
Ambassador of Mexico to the United States
Economic Club of Minnesota Conference
The 20th Anniversary of NAFTA and the Future of Free Trade
Ronald Reagan International Trade Center Atrium, Washington, DC, January 28, 2014
Honorable Mark Kennedy, Chairman, Economic Club of Minnesota
Distinguished participants and guests,
It is an honor to be here at this event celebrating NAFTA’s 20th anniversary and reflecting on our shared future, particularly so given that several of its architects are here with us. I look forward to hearing their views which now benefit from the special hindsight that the passing of twenty years can offer.
An old African adage says that there are two ideal times to plant a tree: twenty years ago and right now. Well, a tree was planted twenty years ago: NAFTA represented a big leap forward in the strategic outlook and in the rules governing economic interaction in North America.
For those of you in the audience who may be too young to remember just how forward-looking NAFTA was, we need only recall the 1992 presidential debates in which a famous Texan and feisty independent candidate to the US Presidency, Ross Perot, said NAFTA would create a “giant sucking sound” as NAFTA sent US jobs to Mexico because of wage differentials between both countries. At the same time, some groups in Mexico also feared the sucking sound, but had the exact opposite worry and assumed NAFTA would translate into significant job losses in Mexico in favor of the US, given the large size of many US corporations and their easy access to capital and technology.
There were also fears about the negotiations themselves: in the US, some argued that NAFTA negotiations would be a “distraction”, and that the US should concentrate on the GATT’s Uruguay Round of multilateral trade negotiations. In Mexico, it was feared that our negotiators would not be able to secure effective access for our exports to the US market, ensure adequate transition times for the liberalization of sensitive sectors, or exclude foreign investment from the oil sector.
We were really treading upon new ground. There was no precedent for such a far-reaching trade agreement between a developing country and two developed countries. It liberalized tariffs on practically all goods, including agricultural products; it included trade in services, and provisions on investment, intellectual property and government procurement. By its scope and coverage NAFTA was, in fact, the most advanced free trade agreement in the world.
It is safe to say that twenty years after the Agreement entered into force, naysayers on both sides of the border have been proved wrong:
- Intra-NAFTA trade, USD $296 billion dollars in 1993, was$ 1.13 trillion dollars in 2012.
- Mexico-US trade, about 80 billion dollars in 1993, is now over 500 billion dollars, which translates into approximately 1 million dollars per minute.
- Mexico is the second largest market for US exports, and that “giant sucking sound” Mr. Perot thought we would hear is now the sound of Mexicans consuming US goods.
- The US Chamber of Commerce estimates that 6 million American jobs depend on trade with Mexico.
- The US exports more to Mexico than to the BRICS combined, to Japan and China combined, or to France, Germany, the Netherlands and the UK taken together.
- Mexico is one of the top three export destinations for 28 different US states
More importantly, we not only trade intensively with each other, we jointly produce goods through the deeply integrated production and supply chains that have developed as the result of the clear, stable and transparent rules established by NAFTA.
The percentage of US value-added in US imports from Japan is 2 %, from the European Union it is also 2%, it is 3% for imports from Brazil, and 4% for Chinese imports. It is 25% for imports from Canada and 40% for imports from Mexico. That is to say, US imports from Mexico have ten times more US value-added than US imports from China.
In short, the three of us have benefitted from NAFTA by selling goods to each other but, more significantly, by producing together for both buyers in North America and for third markets. Noteworthy are our effectively integrated North American value added chains in manufacturing, particularly with regard to automobiles, aerospace, and electronics. The new Lear Jet 85 is actually manufactured in Quebec, Kansas, and Queretaro. And it also goes without saying that there is no such thing as an “American”, “Canadian”, or “Mexican” car; they are all “North American”.
So, where are we now? Although NAFTA has clearly been a success, we cannot keep standing still. The world economy has changed radically in the last two decades: services loom much larger now, as does e-commerce. And advanced manufacturing (including 3-D printing) means that a highly skilled workforce, streamlined regulations and vastly improved infrastructure, particularly at the border, will be critically important to take full advantage of our economic complementarity.
The energy landscape has also changed radically. During the NAFTA negotiations Mexico did not open its hydrocarbons sector, but just a month ago President Peña Nieto signed into law far-reaching constitutional changes that will allow private investment in hydrocarbons. In addition, in its Energy Outlook to 2040 ExxonMobil estimated that by 2020 North America would become a net natural gas exporter, and a net exporter of oil around 2030. North America has all the necessary energy resources to fuel its economic growth for a long time, and reliable and affordable energy will be a key component in ensuring a very competitive North American manufacturing base.
A good friend and former US Assistant Secretary of Commerce said not long ago that Mexico and the United States have 21st Century trade, with a 20th Century legal framework, and a 19th Century border infrastructure. Perhaps the same could be said of the whole NAFTA region. Thus, while NAFTA has been a success, many challenges remain.
In three weeks’ time, Mexico will host President Obama and Prime Minster Harper at the North American Leaders’ Summit in Toluca. It will be an auspicious occasion to bring new momentum to a North American economic integration where we think and act regionally and not just nationally. It is a very good sign that our governments understand that we must continue to build on the foundation that we laid some twenty years ago. It is also an acknowledgment that our economies are not in a zero-sum game with each other, but rather are competing together as one unit in the global marketplace.
You have all seen products that say Made in Mexico, the U.S.A, or Canada, but those distinctions are often deceiving these days. More and more, those products are actually just Made in North America, and that is something we should embrace. Embracing it means streamlining customs procedures to reduce border wait times, investing in infrastructure and education, and recognizing that the unique ways in which our countries complement one another provide our trade bloc with competitive advantages that can pay dividends in the coming decades. If we make the right moves, the future will be Made in North America, and everyone will be buying.
Just as we planted a tree twenty years ago, we are planting another tree right now. Looking forward, the economic powerhouse of the world won't be Asia; it will be us in North America.