JAISAL NOOR, TRNN PRODUCER: Welcome to The Real News Network. I'm Jaisal Noor in Baltimore.
On January 1, 1994, the North American Free Trade Agreement went into effect. Removing barriers for trade between Mexico, Canada, and the United States, NAFTA created the world's largest free trade area, now linking 450 million people producing $17 trillion worth of goods and services.
Now joining us to discuss this is Timothy A. Wise. He directs the Policy Research Program at the Global Development and Environment Institute at Tufts University. He's the author of the recent article "How Beer Explains 20 Years of NAFTA's Devastating Effects on Mexico".
Thank you so much for joining us, Tim.
TIMOTHY A. WISE, DIRECTOR, RESEARCH AND POLICY PROGRAM, GLOBAL DEVELOPMENT AND ENVIRONMENT INSTITUTE: It's a pleasure to be here.
NOOR: So, Tim, much of the media is celebrating 20 years of NAFTA. I was reading a piece in The Economist which talks about the benefits that NAFTA has brought the U.S., Canada, and Mexico. It singles out Mexico for having received the greatest amount of benefits from NAFTA. And the article says the only problem is that we're not expanding free trade quick enough. What's your response? What's been the real story of NAFTA, especially on Mexico, in the last 20 years?
WISE: Well, I think it's--that kind of interpretation really misses the--it ignores the underlying and very clear economic evidence that Mexico has performed far more poorly than other middle-income countries who have not been part of agreements like that. And that's all the more remarkable given that, as one of my coauthors on the piece--I think it was our retrospective on NAFTA at 15--Eduardo Zepeda, then of the Carnegie Endowment, said no country will ever have the benefits, the advantages that Mexico had entering NAFTA, and if Mexico can't make it work, we really have to rethink these agreements. Mexico had a 200 mile border with the United States, the largest--the United States being the largest consumer market in the world to consume Mexico's products. It had the longest economic expansion in the United States' history going on right after NAFTA was signed. And it had a surge--it got the surge it wanted in foreign investment, which tripled. It got a surge in trade, which increased dramatically. It kind of got everything it wanted and yet still showed remarkably slow levels of economic growth, incredibly poor job creation, and a real lack of strategic development over the course now of 20 years. It's anything but a poster child for development. In fact, I think out in the world it's seen as more of a warning sign to other developing countries about signing such agreements.
NOOR: Talk about the impact NAFTA's had on Mexican farmers.
WISE: Well, it's been particularly devastating for the agricultural sector. You read or hear about the success stories, like, you know, sort of winter fruits and vegetables for the U.S. markets, strawberries, tomatoes. And these certainly grew in value as exports for Mexico. They generated some jobs, although they tend to be sort of industrialized agricultural production, so they don't generate many jobs. But Mexico, for its part, chose to liberalize basic grains, including corn. And so U.S. exports to Mexico after NAFTA increased dramatically. I mean, you can't--it's hard to picture it, but you're talking about 400 percent, 500 percent, 600 percent increases in U.S. exports of corn, soybeans, wheat, cotton, and meats, all basic dietary items for Mexico. And all of that was going on when we were running these surpluses in these and exporting it below the costs of production, something that's called dumping. I call that first ten years, 12 years after NAFTA the age of dumping. Producer prices in Mexico for corn went down 66 percent, adjusted for inflation, from before NAFTA to recent years, 66 percent. And so producers took that hit.
The result for Mexico has been a dramatic increase in input dependency for a lot of these basic goods. It increased from--Mexico imported only 8 percent of its corn before NAFTA, and now it imports about a third of its corn. Even more dramatic, for wheat, cotton, rice, soy, it's more than 70 percent of those products are imported, and overwhelmingly from the United States. And it made Mexico into a very dependent--very dependent on the United States for food, now importing 42 percent of its food from the United States.
NOOR: And that made it particularly vulnerable to spikes in international food markets. Talk about what happened after 2007 and 2008, the spike in global food prices.
WISE: Well, the strategy Mexico was following there was arguably a cheap-food strategy. If all that food was cheap on the international market, why produce it yourself? Import it cheaply and concentrate on transforming your economy and producing other things. When the food price spikes hit in 2007 and '08--and remember, those were doubling and tripling of basic commodity prices--corn, soy, wheat, rice, major staples--that created a real sucker punch for countries that had fallen for this cheap-food strategy, because suddenly the cheap food wasn't cheap anymore. Mexico saw its food import bills climb dramatically to over $20 billion in recent years, and corn imports topped $4 billion with the price spikes. That was as much driven--those price spikes were driven by U.S. policy too, with ethanol production consuming 40 percent of U.S. corn, so driving prices for those commodities up. The deregulation of U.S. financial markets had an effect, too, as with the popping of the housing bubble and the stock market going into the tank with the financial crisis. All of that money--or a lot of that money flowed into commodities markets that were deregulated, completely distorting those and contributing to these price spikes. So U.S. policy contributed to the dumping and then to the high cost of those policies that had fallen for the cheap-food illusion.
NOOR: And, Tim, so, in a recent piece you wrote, you talk about attending a lush cocktail reception, and you were talking to a U.S. embassy attache, and he argued that Mexico is now exporting more food to the U.S. And beer factors into that. Talk about why you argue that kind of demonstrates everything that's wrong with NAFTA and its effects on Mexico.
WISE: Well, it's a little bit of a sleight of hand to say that--you know, if you ask, how has trade, how has agricultural trade between the two countries fared, and you look at the trade deficit for Mexico, it's grown significantly. The trade deficit was over $4 billion in recent years with the price spikes. He said to me, well, they're going to run an agricultural surplus with the United States this year. And I--in 2013. And I said, well, you mean the agri-food trade balance. And that's a technical category that's a meaningful category, but it includes everything produced in the food sector. So, notably--and I said to him, so you're including beer and tequila, two of Mexico's great NAFTA success stories, as exports. And he said, well, of course, and they are agricultural exports. And I said, well, why? And he said, well, because, you know, it's great for--this is a case of NAFTA's success, because not only is Mexico increasing its beer exports to the United States, it's actually importing all of the barley malt to make them, to make all that beer, from the United States. And I said, well, where is the agricultural benefit for Mexico, then? There's nothing agricultural in Mexico coming from Mexico for that beer. The barley's from the U.S, the malt-making's from the U.S, and effectively Mexico's contributing water and bottling. And Mexico doesn't have water. It's short of water.
So this is--what's classic about it for the kind of problems it represents for the ways that countries like Mexico have approached an agreement like NAFTA is that even where Mexico has a comparative advantage, making a very good, competitive beer--you know, you're talking about Corona and Modelo and a lot of the--Dos Equis and a lot of the brands that have really been success stories--if they can't export, they give away the value that's gained from that. They don't grow the barley to make it. They don't even import the barley and grow the malt and produce the malt to make it. And now the two main Mexican companies have been bought up with controlling shares by foreign beer-makers, so even the profits don't really stay in Mexico.
So where is the development impact from the North American Free Trade Agreement if you've given away all the valuable parts of the production process? And that's what I think I was pointing out in this GlobalPost piece.
NOOR: Timothy Wise, thank you so much for joining us.
WISE: My pleasure. Thanks for having me.
NOOR: You can follow us on Twitter @therealnews, Tweet me questions and comments @jaisalnoor.
Thank you so much for joining us.