Volume 45, Number 180, January - March 2015

Free Trade Zones: A Path to Development?

revista164Integration agreements signed between countries with economic asymmetries do not always enhance development for the weaker country. Macroeconomic agreements directly impact households, which do not benefit from the achievements of transnational conglomerates. In turn, members of society do not have the influence to reverse the impact of free trade agreements within their families.

The winners and losers of integration processes reveal the structural changes in accumulation between closed economic models, such as those established in the post-war era, and economic models inserted in processes of global integration, such as those we have today. Nations have changed from within, leading to a globalization process that dates back to the 1980s. Going from the General Agreement on Tariffs and Trade to a World Trade Organization (wto), in addition to the widespread free trade agreements, the insertion of globalized sectors has been deepened based on the transformation of labor markets, making traditional enterprises into global factories.

One example is nafta, which, over 20 years, has transformed the economies of its partner countries from within. Priority sectors in the economies of each country have undergone changes, as the region has become inserted in the internationalization of various financial and production circuits, which are in turn inserted in the era of globalization. In 1994, Mexico1 sent 84.7% of all of its exports to the United States, while it imported 69.11% of total imports from the United States. The year 2000 saw the greatest growth when the figure rose to 88.7%. In subsequent years, exports accounted for, in 2008, 80.2%, in 2010, 70.97% and in 2012, 77.64%. While non-oil imports from Mexico to the United States represented 6.7% at the beginning of the agreement, two decades later, this number rose to 13.2%. It has been said that the signing of nafta only deepened the cycle of Mexican economic dependence on the United States: in 2013 alone, it exported 79% of all exports and imported 49.1%.

The three nafta countries have turned into an economic zone whose production power will be decisive in the coming years for Asian Pacific economies. Looking at the last 20 years, imports in the United States from China went from 1.7% to 22.8% and for Mexico from 0.2 to 17.87%. China has become the top nafta partner.

In 2014, China hosted the Asia-Pacific Economic Cooperation ( apec) summit in Beijing, where, together with the United States, it debated the need to accelerate the Free Trade Area of the Asia-Pacific ( ftaap), a historical step to breaking down trade barriers in that geographic zone. The discourse of President Xi Jinping reinforces China’s leadership among Southeast Asian countries, in addition to the recent Trans-Pacific Partnership2 ( tpp), led by United States President Barack Obama. It will be important to develop infrastructure through private-public partnerships, welcoming the gradual privatization of state-owned monopolies, especially because they have been the backbone of development in Japan, the Asian tiger countries and China. Up until the Great Crisis, they experienced unprecedented growth, with strong growth rates over the past 35 years, in the case of China, over 10%. However, average gross domestic product (gdp) growth in the first three quarters of 2014 was 7.4%.3

Recent growth in the Asia-Pacific region has been driven by the gradual liberalization of international trade, bolstered by foreign direct investment and the emergence of global and regional production chains. Governments have supported these processes by investing in infrastructure and developing human capital. To take China as an example,4 the income from foreign trade flows grew six-fold between 1995 and 2009, and the number of jobs created by exporting this added value rose from 89 million in 1995 to 146 million in 2008.

The potential benefits of intra-regional connectivity are now widely acknowledged and at the beginning of the 1990s, trade barriers began to fall. There are currently 149 preferential trade agreements5 in effect in the Asia-Pacific region, and another 73 agreements in various stages of negotiation. In turn, the three countries that make up nafta have become an economic zone whose production power will be decisive for economies in the Asian region.

Undoubtedly, the words spoken nearly a century ago by the U.S. Secretary of State John Hay, are uncannily relevant today with regards to strategic economic zones: "The Mediterranean is the ocean of the past, the Atlantic, the ocean of the present, and the Pacific, the ocean of the future.”

I would also like to take this opportunity to mention that with the publication of this edition, the journal is now in its 45th year. Below are the articles published in this edition, number 180.

“The 'Great Transformation’ of the Mexican Miracle. 20 Years After nafta: From Adoption to Adaptation,” by Rolando Cordera, evaluates the past 20 years and how they have been extremely important for Mexico. In this time, the country has lived through a series of institutional, political and economic changes, such as the signing of the North American Free Trade Agreement (nafta). First, there has indeed been an increase in trade and export success, but this has been accompanied by the low integration of the productive structure at the national level and foreign direct investment (FDI). However, before nafta, economic growth in Mexico between 1933 and 1981 was on average 6.13%, while it has only been 2.24% on average in the time period 1994-2008. The growing youth and young adult population has been met with a lack of formal job creation, leading to the following consequences: emigration, a rise in informal employment and unemployment. All of this meant that a large number of young people have opted for organized crime. In this way, the changes that Mexico has experienced have transformed its economy, and its demographic population has not had the “chance for employment, education and health.” The outcome of Mexico’s social and economic performance illuminates the failure of an institutional change that simply did not produce the expected results. Nor did it create the technical and institutional structures needed so that the new round of reforms could bear positive social and economic fruit. The "Great Transformation" of Mexico in this time period led to stagnation rather than invigorating the economy as was planned.

The article by Clemente Ruíz, “Productive Restructuring and Integration: nafta, 20 Years Later,” describes how in 1994, nafta was one of the most ambitious agreements ever made between two developed economies and one that was still developing. Twenty years after it took effect, nafta has been decisive in modifying and developing the productive systems of the three countries. Some of the benefits expected with the signing of nafta include the idea that Mexico would become a bridge between the United States and Latin America, more Mexican products would enter the United States market and there would be greater chances to access technology and for low-cost and high-quality products to enter the national market, not to mention a rise in investment.

Moreover, nafta was meant to produce equitable economic growth for the three countries. Twenty years later, it is clear that this objective has not been achieved. nafta led to the integration of production value chains and the modernization of production plants, but this integration was not homogenous and rather varied depending on the industry in question, in such a way that some production chains became more complex and others regressed. The automobile industry is striking in that sense because in addition to modernizing the industry, trade grew significantly (exports by 587% and imports by 245%). There are also wage gaps that are preventing the inequality between the countries from being reduced. As a result, trade and productive integration continue to grow, as does inequality.

In “Corporate Concentration and Structural Changes: Food, Beverages and Tobacco in Mexico,” Raúl Vázquez reflects on the results of quantitative research on how major corporate groups have grown. The backbone of this work is the author's demonstration of the corporate concentration process in agri-food systems worldwide. This process has been marked by the intensive use of capital, controlled by centralized and consolidated oligopolies that extract natural resources and exploit the labor of less developed countries to sell the products in markets that yield higher profits.

The author concludes that corporate expansion in the Mexican food, beverage and tobacco industry, based on technology development and organizational improvements, has led to the increasingly inefficient use of the labor factor, shifting it to less productive sectors as part of the deindustrialization of the country, in contrast to what the theoretical pretexts that support the advantages of trade openness and economic liberalization expected. A second conclusion reveals that agri-food corporations are poorly linked to local producers, meaning there are no carry-over effects or positive externalities for other industries. The third conclusion is that widespread deindustrialization has taken off in the sector, as 75% of activities show stagnation and setbacks to labor productivity.

The article by Sergio Cabrera, “Mexican Reforms and nafta,” offers an account of the outcome of economic liberalization and the contraction of the substantial functions of the Mexican government. It insists that the reforms implemented since 2012 support the economic interests of transnational consortiums. The Mexican government has mistakenly concluded that more liberalization would invigorate the economy when it is precisely this form of liberalization that has led to stagnation. Paradoxically, one of nafta’s objectives was to produce economic convergence in industry, trade and finance for the three countries, but the results have been the opposite. The presence of China transformed the object of the agreement. Some consequences of nafta in Mexico include loss of food sovereignty, increase in extreme poverty (23 million people) and higher rates of job informality (60%). The past 20 years of nafta have aggravated social deterioration in Mexico and undermined the working conditions of the other two partners. A series of reforms were enacted starting in 2012: the Labor Reform, Tax Reform, Telecommunications Reform, Education Reform, Political-Electoral Reform and Financial Reform, but these reforms are just serving as additional support for nafta objectives.

In the article, "Energy Reform: 20 Years After nafta,” Rosío Vargas mentions that the energy sector and oil sector were originally kept off the table in negotiations. However, in recent years, aiming to achieve full openness, there has been pressure to amend the Constitution, previously the main obstacle to opening the energy sector. The 2013 Energy Reform was enacted to amend fundamental articles of the Constitution, rendering the Mexican State no longer the exclusive manager of the sector. All types of contracts, concessions and permits were made available to the private sector, allowing for the privatization of the entire energy sector production chain. Based on these constitutional amendments, liberalization, hand in hand with privatization, will apply to all activities in the oil sector. The Energy Reform was justified due to the need for modernization and to increase the competitiveness of these industries. Similarly, those who lobbied for the reform highlighted the lack of investment needed to improve technology. The idea that the investment should come from somewhere else and not from the State is closely linked to the "neoliberal paradigm in which everything related to the State is automatically inefficient and corrupt.”

In “The Relationship Between Income Inequality and Economic Growth in Brazil: 1994-2012,” Jair Andrade and Janaina Cabral review the literature on Kuznets, which says that inequality in income distribution increases during the early stages of economic growth followed by a subsequent long-term decrease. They analyze the correlation between these two variables for Brazil from 1995 to 2012. The empirical analysis used generalized method of moments (system gmm) estimators to determine the behavior of inequality in the 27 states of Brazil, relating that behavior with income, education and life expectancy, as well as a regression model to evaluate the relationship between income inequality and economic aspects using panel data. The estimated models revealed a short-term positive correlation between income inequality and Brazilian economic growth, with the Kuznets inverted U behavior in the long term.

The article by Mine Aysen Doyran, “Argentine Development After the Financial Crisis,” aimed to examine how Kirchnerism represented a new growth model that broke with neoliberalism, formalizing the debate on state-led growth in Argentina and the "new developmentalism." 1) In the case of export-dependent Argentina, the Keynesian model to promote domestic policies to increase demand and its variables, such as consumption and investment, leads to economic fragility. This model rejects protectionism (ISI), but the new developmentalism has both limitations and contradictions because there are barriers to the autonomy of the nation-State in globalized capitalism. 2) The article ponders whether this new developmentalism is the right model for post-crisis Argentina. Looking at the articulation of Argentine capitalism in the global economy, the 2008 crisis considerably and consistently reduced the prices of raw materials, and led to the depreciation of currencies in the region, which had negative repercussions on domestic demand, employment and the gdp. Kirchnerism is facing a series of tensions and contradictions regarding the role of State intervention in the economy and how to break free from a cycle of dependency in the cycle of reindustrialization. In Argentina, these contradictions are profoundly embedded in the economy and are preventing the model from becoming a long-term development alternative.

We are left to reflect on an energy policy that should be grounded in a comprehensive vision, energy security and national objectives. This policy must be multidimensional and structural and prioritize industrial, fiscal and technology development with less focus on exogenous conditions.

The reviews section recommends five books: The Financial Crisis in Mexico and the World 1971-1997. Anthology O. Sarahí Ángeles Cornejo, compiled by Josefina Morales, reviewed by Alma Chapoy; Indian Economy since Independence. Persisting Colonial Disruption, by Arun Kumar and reviewed by Fernando Rello; Technology Policy in Mexico: The Plastics Industry, by Delia Margarita Vergara and reviewed by Bernardo Ramírez; The Globalization of Underdevelopment in the World of Labor, coordinated by Genoveva Roldán and reviewed by Armando Negrete; and finally, The Crisis of Civilization and Overcoming Capitalism, coordinated by Raúl Ornelas and reviewed by Franco Acebey.

Alicia Girón
Journal Editor
unam, December 2014

1 Historical Statistics of Mexico, inegi, 2009 and the Secretary of the Economy, Statistical and Tariff Information:

2 Also known as the Trans-Pacific Strategic Economic Partnership.

3 National Bureau of Statistics of China:

4 Economic and Social Survey of Asia and the Pacific, United Nations (2014), p. 126.

5 Ibidem, p. 130.

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PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 194 July-September 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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