Mexico sees modest gains from Nafta

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Financial Times   Mexico sees modest gains from Nafta By Guy de Jonquières in London Published: December 17 2003 21:20 | Last Updated: December 17 2003 21:20     Mexico has increased exports and inflows of foreign direct investment since it joined the North American Free Trade Agreement but many of the gains were due to reforms the country made before joining Nafta, according to a World Bank report.   The report, published shortly before Nafta's 10th anniversary, said Mexico's ability to benefit had been limited by domestic policy shortcomings, particularly weak economic institutions, a poor education system and rigid labour laws.   Similar institutional weaknesses are common throughout the rest of Latin America and the Caribbean, raising questions about how much those countries would gain from the Free Trade Area of the Americas, due to be completed in early 2005.   Although the World Bank found little conclusive evidence that freer trade with the US and Canada had raised Mexican wage levels, it said it had not reduced the number or quality of jobs nor devastated the country's agriculture, as Nafta critics claim.   The report will be widely seen as a rebuttal of complaints by anti-globalisation activists in the US and elsewhere in the western hemisphere that the agreement has damaged Mexico's prosperity, agriculture and environment. It coincides with increased interest in the western hemisphere and Asia in preferential trade agreements, after the failure of the World Trade Organisation's Cancùn meeting in September.   While offering a broadly positive assessment of the agreement's economic impact on Mexico, the World Bank found that in many cases it appeared to be modest. "The performance of the economy in terms of growth of GDP per capita and real wages was not that remarkable after Nafta," it said, noting that they were depressed by the economic and financial crisis triggered by the peso devaluation in 1994.   The report estimated that Mexico's exports and inward investment would have been 25 per cent and 40 per cent lower, respectively, without Nafta. However exports were already growing strongly before the agreement, while inward investment had not greatly outperformed the Latin American average.   "Much of the gain in export market share achieved by Mexico in recent years reflects its unilateral trade liberalisation since the late 1980s," the report said.   It said Nafta's restrictive rules of origin for trade with the US and Canada, and the maintenance of anti-dumping and countervailing duty measures within the grouping, had limited Mexico's gains from Nafta.