Mexico’s Proposal to the WTO

Introduction

Before I start my proposal, let me begin with the short introduction on Mexico, and its free trade status.

Mexico has been committed to trade integration through the formation of Free Trade Agreements (FTAs) since the 1990s. In Mexico, we believe that free trade results in aggregate benefit for all, as proven by classical economist David Ricardo. Mexico is committed to free trade, as it will result in direct economic benefits. The 11 trade agreements with 41 countries all over the world were signed to boost investor confidence, ultimately resulting in more foreign investment. Mexico also hopes that its free trade agreements will create new jobs, and reduce poverty. Today, 90% of Mexico's imports and exports are traded under free trade agreements.

Both Mexico and our trading partners have benefited from free trade agreements. However, as our liberalization is mostly unilateral, we have encountered some problems, such as job losses. In order for us to sustain our status as a free trade country, these problems need to be solved.

Free Trade Theory

According to classical economic analysis, free trade will increase the total output, because free trade permits specialization. The principle of comparative advantage states that countries prosper first by taking advantage of their assets in order to concentrate on what they can produce best, and then by trading these products for products that other countries produce best.

However, in reality this is not always the case. Developed countries, which are high in capital, often subsidize their farmers to ensure that they can sell their goods in foreign markets. In fact, in the U.S, 165 billion dollars went on farm payments from 1995 to 2005. Agriculturalists in developed countries often dump their surplus products in developing countries such as Mexico. Mexican farmers, which amount to 22% of Mexico's population, are not able to compete with these heavily subsidized products, and are often kicked out of business. Agriculture products from the U.S cost Mexican farmers a loss income amounting to 12.8 billion dollars from 1997 to 2008.

Mexican farmers also face a losing battle against large transnational corporations, who enjoy economies of scale.

Trading Partners

Mexico has trade links with many countries, under the free trade agreements. Our largest trade partner is, by far, the United States. Around 80 % of Mexico's exports go to U.S, and 49% of our imports come from U.S. As it is so reliant on the U.S, whenever the U.S has a downturn, Mexico will be adversely affected too. The large number of trade agreements signed with other countries has not been effective in reducing our reliance on the U.S.

Our second largest trade partner is China, which contributes to 6% of our imports and exports.

NAFTA

The 'North American Free Trade Agreement' (NAFTA) is one of Mexico's largest free trade agreements. It was signed in 1994, and brought U.S, Canada, and Mexico under a common market. When it was first signed, 70% of U.S imports, and 50% of U.S exports were duty free. 15 years later, tax levied on the good traded between the 3 countries was reduced to zero. This led to exports and foreign investment to triple from the early 1990s, as Mexico became a leading supplier of cars, electronics and industrial parts to the United States. Productivity in Mexican manufacturing rose by 80% too.

However, this agreement is not without its disadvantages too. When this agreement was signed, the then President Carlos Salinas promised that with NAFTA, Mexico will export goods, not people. However, due to unfair competition from the U.S, many companies were put out of business, and many Mexicans lost their jobs. As a result, many Mexicans had to go to already over-congested cities to work. Even though foreign investment rose, domestic investment fell as the local companies went bankrupt.

Recommendations

With the above problems in mind, Mexico would like to propose these recommendations.

1) Developing countries should be allowed to increase tariffs on products that are heavily subsidized.

Farmers in developing countries cannot compete with the heavily-subsidized products from developed countries. Thus, we feel that the governments of developing countries should be allowed to raise their tariffs on imported products, so as to protect their local agriculturalists. The tariffs imposed will still allowed the imported products to compete on a level playing field with the local products. The money obtained from the tariffs can be used to fund welfare initiatives, or to train our local farmers to be more productive.

2) Developed countries should eliminate their subsidies.

Developing countries like Mexico cannot be expected to liberalise any further, if developing countries do not reduce their subsidies. While subsidies have not been reduced to a satisfactory level in developed countries, a policy should be crafted to penalize subsidized goods, should they displace local products in developing countries.

3) Larger market access on 'products of interest' for developing countries.

'Products of interest' should be defined as products that are not receiving enough preferential market access in foreign markets, products that have high potential in the world market, or products which contribute to a large part of the countries' GDP. The WTO can review which products are defined as a 'product of interest' on a country-to-country basis.

4) Developed countries cannot prohibit foreign investment in developing countries

Currently, the average hourly wage of Mexicans is only 13% that of their American counterparts. Many American auto companies have decided to set up manufacturing plants in Mexico, so as to take advantage of the low labor cost. Ford has announced a 3 billion investment creating a total of 30,000 jobs, and G.M spent 3.6 billion investing in Mexico in 2008. The new jobs created are not even enough to balance off the jobs lost in the agriculture sector from the unfair competition. If developed countries prohibit, or limit the amount of foreign investment, the unemployment rate in Mexico and other developing countries would increase greatly.

5) A Development Box should be set up in developing countries

The Development Box will be tasked with consolidating, strengthening and putting into practice the preferential treatment given to developing countries by developed countries. This will allow for greater flexibility in crafting policies that help developing countries to develop. Some issues facing developing countries are specific and complex, and we feel that a separate body would be better able to craft policies to help Mexico.

6) The Omnibus Appropriations Bill should be reviewed

Two-thirds of trade between Mexico and US goes by road. Two months after President Obama's inauguration, he inserted a provision into the 'Omnibus Appropriations Bill', which scrapped a pilot programme allowing a small number of trucking companies to carry their cargoes across the border. Now, Mexican trucks have to stop at the border, and unload their goods onto an American truck. Under NAFTA, transport companies from the 3 countries were supposed to be able to be able to operate freely in each other's roads by 2000.

The main justification for having this tax is that Mexican drivers are unsafe. However, this claim is spurious. To meet the 22 safety standards for Mexican trucks set by Congress, Mexican truck firms have invested in newer trucks and trained their drivers to meet the safety standards. In fact, Mexican trucks clocked up less safety violations than their American counterparts.

7) Developed countries should provide financial and technological aid to developing countries to help them mitigate environmental concerns.

Developed countries are already at a natural advantage, due to their lead in the area. If developing countries like Mexico are expected to meet environmental standards too, they would lose out. Developing countries also do not have the necessary equipment and know how to meet environmental standards.

Conclusion

Mexico is one of the most liberalised countries in the world, but we did not enjoy the reciprocal benefits of free trade from our trading partners. The average wage of Mexicans is relatively low, and the unemployment rate is quite high. Our farmers are not as productive as those in developed countries, as they are under-capitalised. We need the WTO and its member countries to consider our proposals for free trade so that free trade policies can be implemented for the betterment of everyone.