NAFTA/CAFTA and China's Favored Nation Status

We presented our topic of NAFTA/CAFTA and China's Favored Nation Status and whether they are good or bad for Mexico and/or the U.S. We were asked to inform the class on the results of NAFTA, both the good and the bad. NAFTA is a trilateral trade agreement between the Canada, the U.S., and Mexico that enables free movement, shipment, and trade between the three countries in order to combine the strength of the three economies. We showed a YouTube video called "Why Do Mexicans Head North" (http://www.youtube.com/watch?v=ANrs1i6-1OM). This video enlightened the class about the controversy surrounding NAFTA. Some critics blame NAFTA for the destruction of the Mexican farm industry. This is not entirely true. For instance, production increased in pork, beef, chicken, fruit, and vegetables due to NAFTA. The video talks about how Mexican corn farmers have struggled to sell their corn due to the U.S.'s cheaper corn. The problem with this is that the U.S. imports yellow corn and Mexicans mainly produce white corn. What is the difference? Yellow corn is feed for livestock, whereas white corn is for human consumption.

Now, was NAFTA good to the U.S.? Similar to Mexico, NAFTA generated higher wages, greater trade, better jobs, and greater productivity. Prior to NAFTA's inception critics claimed that there would be a "giant sucking sound" of manufacturing jobs fleeing the U.S. to Mexico. Again the critics' fears were unwarranted. Research showed that U.S. employment grew, U.S. manufacturing increased, and manufacturing wages increased as well.

There is one thing in NAFTA that is hurting Mexico, and it is freight transportation. Mexican truckers are not allowed to travel on U.S. soil, except to docking stations in border towns such as El Paso, Brownsville, and San Diego. Why is this a problem? Well, the extra labor cost of transferring loads from Mexican to U.S. trucks is added to the Mexican product. Mexican truckers are denied access to U.S. roads because they are believed not to be subject to the same standards in licensing, insurance, and safety as U.S. truck drivers. This is not true. As part of a study in 2007-2008, reputable Mexican trucking companies were allowed to travel from Mexico to their U.S. destination. Some researchers believed that Mexican truck drivers were safer than U.S. truck drivers. Since the study ended, legislation has been passed that prevents Mexican truck drivers from operating in the U.S. The irony of the whole thing is that Canadian (other member of NAFTA) truck companies have no restrictions from operating in the U.S.!!!

We then discussed CAFTA-DR. This agreement is very similar to NAFTA, except it includes Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua, where the U.S. is the main trading partner with these countries. The key elements are market access, tariff elimination (to be phased out over 20 years), and the agreement to use export subsidies only to compete with third party export subsidies. The purpose of this agreement was to level the playing field between the U.S. and the six CAFTA-DR trade countries. However, statistics show that about half of the total exported goods were from the U.S. In addition, the U.S. received about half of the total imported goods from those countries. So did this agreement really achieve what it intended to achieve?

In wrapping up our presentation, we began talking about China's Favored Nation Status, and why it is important. Favored Nation Status, in Lehman's terms, is a group of countries that receive beneficial deals regarding trade, and when one country receives a certain deal, it extends to all countries that have Favored Nation Status. In essence, NAFTA extends to China as it does to Mexico. Does this hurt Mexico? Yes. China's Favored Nation Status entices foreign investment to choose China over Mexico, as many companies did during the economic slowdown in 2003. The problem with denying China Favored Nation Status are as follows: China inhabits ¼ of the world's population (potential consumers), China borders numerous countries, recent economic achievements, and China's growing military power. Dealing with China is vital to U.S. interests across the board.

So our question to the reader is...IS MEXICO GETTING THE SHAFT?

--Tyler and Amanda--