How successful is NAFTA?

According to government websites and speakers, the story of NAFTA in its first 20 years is a “great success.”

Maybe so, once everything is taken to account; but the statistics that are brought out to support this conclusion are suspect and unreliable as a measure of the benefits conferred to Mexico or the US from the workings of NAFTA. The basic problems are 1) double counting and 2) market valuation (as distinct from “customs valuation”).

Double counting. Components cross the border into Mexico and are counted as “US Exports” and “Mexican Imports.” The same components, once assembled, cross the border back into the US and are counted as “Mexican exports” and “US imports.” Most of these transactions are instances of intrafirm trading: General Motors selling to General Motors de México and back again.

What are true Mexican exports to the U.S.? The data don’t say. What are net US exports to Mexico? The data don’t say.

Market valuation. The assembled product crosses the border at a “customs valuation,” but this value will be only a small fraction of the eventual wholesale and retail prices. The value of Mexican exports to the United States are therefore under-reported on the basis of market valuation.

Beyond statistical issues, there are other matters where the initial expectations of the NAFTA era have not yet been fulfilled.

To illustrate: NAFTA provides arbitration protocols for “virtual expropriation,” but such protocols did not prevent the expropriation in San Luis Potosi in 1997 of Metalclad’s toxic waste plant or Marathon Oil’s LNG site in Baja California in 2004.

Table 1 gives an itemization of the shortcomings of, and disappointments with, NAFTA, as seen first from the Mexican perspective and then from the US perspective.

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Written by

Mexico Energy Intelligence

Baker & Associates offers niche-market business and policy intelligence related to Mexico's oil and gas, power and chemical industries. Over 1,000 reports have been issued in the last 20 years. Subject matter expert and publisher George Baker, who directs the firm, has carried out consulting assignments starting in the late 1970s at the height of the Oil Boom in Mexico. He brings bilingual and bicultural skill-sets to understanding and responding to challenges of business and public policy, coupled with a deep familiarity with the history and idiosyncrasies of the Mexican operating environment.