During the 2016 US presidential campaign, as talk of tearing up the North American Free Trade Agreement (NAFTA) streamed south, François Ouellet never wavered in his investment decision. In 2014, Ouellet, the director of business development for Exo-s, Inc., his Sherbrooke, Quebec-based company, established operations in Mexico. By the time Donald Trump started disparaging Mexico and threatening to terminate the agreement, Exo-s had started a multi-million-dollar expansion at the plastics plant it had purchased next to an overgrown railway line in San Juan del Río, 170 kilometres north of Mexico on Highway 57 — also known as the NAFTA Highway — which runs through a booming belt of industrial cities all the way to the Texas border.
The company manufactures auto parts for many of the international automakers that have established operations in Mexico, producing everything from engine covers to overflow tanks to ducts for heating and air conditioning systems.
Ouellet, an affable Montrealer fluent in French, English and Spanish, professed satisfaction with his experience in Mexico. As Exo-s explored expansion in Mexico and after investing in Querétaro, a state situated to the north of Mexico City in a dry region of highlands known as “El Bajío,” Ouellet said he received support from local officials — ranging from help with navigating red tape to assistance from local schools in training potential employees. The company has prospered, evident by the expansion at the plant, which included a new building filled with state-of-the-art technology, staffed by employees wearing grey work shirts with Canadian and Mexican flags sewn on the sleeves.
“When we came here we knew we would have an investment plan and a growth plan,” said Ouellet. “I went to Canada with the state governor. We got good support from local authorities to get the building permit. We’ve had total support.”
NAFTA Success Stories
Exo-s is but one of the many NAFTA success stories in Mexico, which has attracted a multitude of manufacturers since the agreement came into effect in 1994. The agreement and subsequent opening of Mexico’s economy has not only led to the building of modern factories, such as the one operated by Exo-s, but also made its domestic firms more competitive and caused parts of the country to boom.
On balance, most Mexicans consider NAFTA a positive: 60 percent said so in a poll from Pew Research. But offering any assessment of NAFTA’s impact on Mexico is complicated. The agreement was sold to the population with the promise of bringing Mexico into the “first world” — still a distant aspiration, as more than 40 percent of the population is poor and wages and purchasing power have stagnated.
Still, no broad anti-NAFTA movement has formed in Mexico. The Zapatistas, the armed military group that rose up on the day NAFTA was implemented, have renounced violence and mostly stick to their communities in Chiapas, a place the trade agreement has hardly touched. Politicians barely have a bad word to say about NAFTA. American trends have taken hold — everything from shopping for US products in American retailer Walmart, to watching the National Football League (tickets for the upcoming November 19 game at the monstrous Azteca Stadium sold out in an hour), to eating brisket in BBQ joints.
Others point to consumer selection as the factor most responsible for Mexicans’ favourable view on NAFTA. Pre-agreement, imported candy bars were sold as contraband, along with other fayuca (improperly imported items) such as Levi’s jeans, stereo systems and Nintendo game consoles. Stores previously sold a limited selection of merchandise, often of questionable quality. “The variety and the prices that you find today [didn’t exist] in Mexico 25 years ago,” said Luis de la Calle, who participated in the original NAFTA negotiations as minister of trade issues at the Mexican embassy in Washington, DC. “Mexico has radically changed from the consumer perspective.”
When it arrived in 1991, Walmart started to bring inflation under control with its pricing policies by going into towns where no supermarkets had gone before and where competition was limited, says Gabriel Casillas, chief economist at Mexican bank Banorte-Ixe. Walmart’s expansion hurt mom-and-pop stores, Casillas explained, but the retailer’s rapid growth — conroversial for bribes allegedly paid to provide permits as it became Mexicans’ biggest employer — “tamed” inflation.
Controlling inflation was one of the trade deal’s main objectives, along with stabilizing what was then a turbulent Mexican economy, beset by a botched banking nationalization in 1982, deep foreign debts and plunging petroleum prices.
“The 1982 banking crisis levelled everything,” said Federico Estévez, a political science professor at the Autonomous Technological Institute of Mexico. “We were capital poor, the economy wasn’t giving us what was needed for growth and survival, [so we] went the open borders route, [which] was the only realistic viable strategy at the time.”
NAFTA diversified the Mexican economy, which depended heavily on oil exports. It also allowed the country to industrialize and build a manufacturing base, especially with the automotive sector arriving. “It made Mexico much stronger in terms of industry, with a much more robust economy, in terms of growth…and more diversified,” said Juan Pablo del Valle, president of Mexican chemical company Mexichem. “With a country like Venezuela, it’s practically all petroleum. We had something similar here, but now [petroleum] is less than seven percent of GDP,” said del Valle, adding that petroleum has been surpassed by value-added manufacturing, which, according to the World Bank, accounts for 19 percent of GDP.
The transition from a closed economy to a country with 45 free trade agreements wasn’t easy. Business leaders admit experiencing some early resistance, but say they find broad support now as companies have adapted to competition. “We have proven that we can compete,” said Juan Pablo Castañón, president of the Business Coordinating Council, which has worked closely with Mexico’s economy secretariat on NAFTA renegotiations. “Mexico now exports more than all of Latin America combined. There’s been a complete culture change in Mexican industry and business.”
What Mexico Wants
To be sure, there are critics of the trade agreement. The Mexican economy has expanded at an average annual rate of just 2.57 percent since 1994, according to the World Bank. “Mexico overestimates the positive effects of NAFTA. The growth due to the trade deal hasn’t been good,” said Fernando Turner Dávila, economic development secretary in Nuevo León state, an industrial hub. “An increase in well-being for the majority of the population has not yet arrived. There are 55 million poor people.”
But for its part, the Mexican government has never wavered in its support for NAFTA.
The economy secretariat officially outlined its plans for NAFTA renegotiations on August 1. The government wants to keep trade free, rather than enter a mercantilist arrangement. It wants to incorporate digital provisions and include energy. Mexico nationalized its petroleum sector in 1938, meaning energy was kept out of the original agreement, but with a reform approved in 2013, foreign firms are allowed to bid on expiration and production contracts. Mexico, like Canada, wants to save Chapter 19 — the agreement’s dispute-settlement mechanism — and aims to preserve investor protection provisions. Mexico says it will push for anti-graft provisions, even as bombshells broke during NAFTA talks in Mexico City that the federal government had funnelled CDN$232 million into shell companies in 2013 and 2014. Economy Secretary Ildefonso Guajardo told Reuters the country wants to take the focus off the trade deficit issue and avoid any inclusion of a sunset clause. Mexican officials, like their Canadian counterparts, also object to “buy American” regulations.
Not said publicly: Mexico also wants to save some face with a US president keen to humiliate the country and who has seldom missed an opportunity to offend Mexican sensibilities. “Realistically [the goal] is to lower the costs of concessions to Trump,” said Estévez, the political science professor.
Over the past 15 years, Mexico and the United States have cooperated on more than trade and work together closely on security. Mexico allows US agents to obtain information on passengers in Mexican airports and vet those flying to the United State, the US Drug Enforcement Administration posts agents to Mexico and Mexico has detained and deported thousands of Central Americans transiting its territory since 2014. The increased cooperation allows Mexico some leverage in its dealings with the United States, but it has preferred not to apply it on trade issues. “It’s a complex relationship,” said Brenda Estefan, a former security attaché at the Mexican embassy in Washington. “This doesn’t mean that we cannot impose our own conditions.”
Until recently, Mexico has acted as if it wants to save NAFTA, seemingly at any price. Some analysts such as Estefan see some hardening of the Mexican government’s position in recent weeks and a new willingness to put “the bilateral relationship on the table,” as opposed to just trade. Indeed, some senior officials have mused openly about the trade deal ending. “People are starting to understand that there could be life after NAFTA, if the US withdraws,” foreign minister Luis Videgaray said in a September visit to the Council on Foreign Relations. “If NAFTA goes away, obviously that would be something that we would strongly — we strongly want to avoid.…But it’s not the end of the world. And it certainly is not the end of trade between Mexico and the US.” He repeated those same words October 10 in the Mexican Senate — the same day Forbes magazine published Trump’s comment that: “NAFTA will have to be terminated if we’re going to make it good.”
Videgaray issued his own warning, telling the Senate that the Mexico-United States bilateral relationship could reach a breaking point if the deal were cancelled. He also said that Mexico might even withdraw from negotiations pre-emptively. “We want an agreement. And I believe we can reach an agreement,” Videgaray said. “But if the conditions are not there, we have to be ready to leave and get up from the table.”
The desire to stick with NAFTA is an explanation often offered by analysts to explain Mexican President Enrique Peña Nieto’s passivity in the face of Trump’s insults. It’s a possible explanation for why Mexico has suspended its old foreign policy of non-intervention in other country’s internal matters. Mexico has forcefully rebuked Venezuela’s descent into dictatorship and even expelled the North Korean ambassador — both actions cleaving to US policy.
There is a lot riding on the agreement and undoing it is unpalatable for many. “[Elites] have bet everything on NAFTA,” said Estévez, adding that it has “been the North Star of Mexican commerce and geopolitics” for the past quarter century.
After Trump’s win, some Mexicans spoke of South America as an alternative market. The agriculture ministry started looking to source corn and wheat from Brazil and Argentina. It was a shot at the corn belt, which voted for Trump and has supplied Mexico since NAFTA was enacted. Turning south, though, however romantic, is a non-starter; Mexican infrastructure is built for northbound movement, analysts say.
The rise of Trump has sparked some bitterness, especially in elite circles. Public intellectual Enrique Krauze has called Trump the biggest threat to Mexico since president James K. Polk, the US president who led his country into the Mexican-American War, which cost Mexico half its territory. Former Mexican president Vicente Fox has trolled Trump using coarse language. Estévez says that Fox has reasons for bitterness: he was governor of Guanajuato state when NAFTA was implemented and oversaw the arrival of automotive investments.
Business on the Ground
If NAFTA were to end, all wouldn’t be lost for Mexico: World Trade Organization rules would apply. Banorte-Ixe, the Mexican bank, calculates the United States could impose an average tariff of 5.2 percent for agricultural goods, while Mexico could impose an average tariff of 15.6 percent. With non-agricultural goods, the United States could charge a 3.2 percent average tariff, while Mexico could impose a 5.7 percent average tariff to US imports. “This would worsen the US terms of trade, instead of helping them,” said Casillas, the economist.
Mexican and foreign companies seem circumspect on NAFTA ending. Large firms “are very concerned,” according to one adviser, who helps foreign companies set up operations in Mexico. He voiced a disquiet many in Mexico seem loath to speak out loud. Publicly, though, executives express little preoccupation and say they enjoy living and working in Mexico — and don’t see how an end to NAFTA would radically change their plans. It would “maybe stop some companies from coming,” said Pieter de Korver, director in Mexico for Dooremalen Industries, a Dutch auto parts maker with operations in Querétaro. “We are satisfied with what we are doing here, the cultural thing is good. I could go to the US, but with more expensive prices. Without NAFTA, prices go up too.”
Even with renegotiations ongoing, one developer in San Juan del Río still sees strong interest from investors. At an office adjacent to the industrial park in San Juan del Río, Manuel Rivadeneyra, president of Dale Desarrollos, a commercial real estate developer, unrolled on a boardroom table the master development plan for the park he is developing. He pointed to properties purchased in the second of three phases of the industrial park and listed the investors’ countries of origin: Japan, Korea, Germany, Austria and Canada. Most are planning auto parts plants, and the list includes one of the biggest players in the industry. “The US isn’t investing here [so the company’s directors] saw it as a big opportunity,” said Rivadeneyra.
The firms investing in Rivadeneyra’s industrial park are also looking at longer time horizons than most American firms. “This international commerce trend is a trend that’s not going to change. There can be a time when the US president wants to stop it, but, long-term, it’s very difficult,” Rivadeneyra added. “They’re coming to Mexico because they know that in the future, manufacturing in Mexico will allow them to send autos to Asia, Europe or any part of the world, and that, one way or another, these autos will continue entering the United States.”
For his part, Exo-s’s Ouellet never experienced much nervousness with Trump’s unexpected triumph. In the local chapter of the Canadian Chamber of Commerce, he saw companies take a wait-and-see approach, while established companies like Exo-s proceeded with planned investments. “We have signed contracts” with automakers, he said. “We have to deliver.”
Ouellet, a 17-year resident of Mexico, cites Trump’s many policy failures up to this point as evidence that the repealing of NAFTA likely won’t happen. But he only needed to look at his own company for the clearest sign the agreement will stay in place. “We have a plant in Indiana. But in Indiana, we cannot find workers,” said Ouellet. “It’s a phenomenon in both the United States and Mexico.” Wages, he added, are climbing, and “workers have employment options.”
Exo-s arrived in Mexico by buying an existing plastics factory and modernizing it, investing in new machinery for injection moulding and blow moulding, building a laboratory for quality control and putting time into training staff. It’s an example of how companies since NAFTA have increased the complexity of manufacturing in Mexico. “The requirements are extremely high for automakers,” said Ouellet. “With the warranties they’re giving, they want perfect parts.”
The Exo-s story is similar to others. As automakers moved to Mexico, they “invited” suppliers to set up operations in the area. This allowed the suppliers to provide parts for their plants “just in time” and to have them nearby to fix any quality issues. “We wanted to become a global supplier — and they want global suppliers,” said Ouellet. “If you want to be global, you have to accept their invitation…It’s a question of being close or losing the client.” It’s a phenomenon some critics say they noticed starting a decade ago: auto plants moved deeper into Mexico and started issuing suppliers ultimatums. Many of those suppliers were based in states Trump would win, said one trade consultant.
Exo-s is but one of the many companies to come to Querétaro since NAFTA was signed. Querétaro has turned into one of the country’s model states, with annual economic growth running at roughly 5.5 percent over the past quarter century. Construction is commonly spotted in the state capital — also called Querétaro — now home to a population of 1.1 million and where an estimated 50 families arrive daily. With its highways, high-rises and shopping centres — including the second-largest mall in Latin America, complete with retailers such as Burberry, Louis Vuitton and Dolce & Gabbana — Querétaro increasingly resembles the hustle and bustle (and fast-money fortunes) of Monterrey or cities in Texas. Other factories set up shop in the El Bajío states of Guanajuato, Aguascalientes and San Luis Potosí, where government incentives are stronger — suppliers arrived and the economy boomed. In 2014, growth hit an eye-popping 11 percent in Aguascalientes, where Nissan has two plants.
Queretanos like to credit the local work ethic, prudent planning, good governance, the presence of nearly 50 universities and ideal geography for their success. Corruption is perceived to be less blatant, the police are considered more competent and crime is lower, too, with speculation swirling that drug cartel bosses live in the city and want to keep things quiet. The region tilts conservative and is considered heavily Catholic. “It’s like Quebec was 50 years ago,” said Yannick Perrault, plant director for EPMP, a supplier for Bombardier Recreational Products.
Bombardier’s aerospace division put Querétaro on the map, arriving in the early 2000s and establishing a plant by the Querétaro airport for building its business jets. The state government offered an attractive incentive: a local aeronautic university to train staff for the company and its suppliers. Bombardier chipped in by donating a Canadair 7002 test jet for students to train with, according to Canadian Business. Bombardier Recreations Products — spun off in 2003 — also built a plant in Querétaro, which produces personal watercraft (better known as Sea-Doos).
Suppliers say success is built on success. “You started to have a lot of expertise here,” Perrault, an automation engineer, said of the attractiveness of operating in the area. “It’s not all about wages,” he added. “You have to think about logistics. And if there’s a quality issue, we can check it right away.”
Wages are rising — fast. Perrault pays employees between 8,000 pesos (CDN$540) and 10,000 pesos (CDN$675) per month, but employees will jump to other jobs in the park for as little as 40 pesos ($3) per week. Others say employee churn has hit 10 percent in the businesses. Still, Perrault speaks well of his employees, although confesses some culture clashes: while Mexicans are often indirect, Perrault is “pretty direct with people.” His workers “don’t say ‘no,’”which leads to tasks not being completed, he added.
Mexicans are increasingly moving into management positions at foreign firms. And the country produces 100,000 engineers per year. Companies such as Intel that are arriving in the Guadalajara area — the Silicon Valley of Mexico —have hired engineers for research and software development. But it’s not the norm. A consultant in the region recalls a CEO saying, “We’re here because it’s cheap and if I need an engineer, I’ll bring one from back home.” The consultant, who has worked with some of the largest firms in El Bajío, added that “95 percent of the transnationals that have come here have made lots of money. It’s very profitable.” The low costs, ability to produce for more markets than just the NAFTA countries and local expertise in manufacturing make many in the area think NAFTA would be hard to undo. And it’s been especially attractive for the automotive sector.
A Thriving Auto Sector
If there’s a sector which has come to symbolize NAFTA’s success in Mexico, it’s the automotive sector. Mexico makes more than three million autos per year — many exported to the United States and Canada but also to South America and other markets. Volkswagen long produced the iconic Beetle from a plant in Puebla state, just to the southeast of Mexico City, and now makes most of its Jettas in the state. German automaker Audi opened a plant nearby. Trump targeted the sector with his American-first rhetoric and jawboned automakers into moving production north. Ford did, forgoing plans to build a plant in the state of San Luis Potosí (although it said its January decision was unrelated to Trump’s talk). Others stayed the course, including BMW, which will build its 3 Series sedan in the same municipality Ford abandoned. Mexico’s 45 free trade deals also make it attractive as a global manufacturing hub. The General Motors (GM) plant already operating in San Luis Potosí makes cars such as the Chevy Aveo that are exported to countries such as Canada, Brazil and Argentina — not the United States.
Critics point to other reasons for sticking with San Luis Potosí. The state, halfway between Mexico City and the Texas border, provided $CDN235 million in incentives for BMW, according to newsweekly Proceso. Pay in the Mexican automotive sector runs about CDN$2.54 per hour, according to studies by Alex Covarrubias of the Colegio de Sonora. Documents cited by Bloomberg report BMW plans to start workers at CDN$1.33 per hour.
Low wages made automakers wary about Mexico in the beginning, but their concerns were quickly allayed. “It wasn’t at all clear they could get high productivity and world-class quality,” said Harley Shaiken, a geography professor at the University of California, Berkeley, who has studied the Mexican auto industry. Productivity is high and wages are low, while workers “have limited rights to bargain on their own behalf.”
Opposition to NAFTA exists in some intellectual circles and some of the groups representing Indigenous communities and small farmers — campesinos — but it’s often weak. Mexicans unions, traditionally used to marshal votes for the Institutional Revolutionary Party (PRI) — which ruled Mexico for 71 years straight until 2000, and regained power in 2012 — are mostly mum on issues like wages, while business boosters in states such as Querétaro and San Luis Potosí speak of “labour peace.” Investors and plant managers acknowledge they signed agreements with unions. These agreements are often called “protection contracts,” with so-called “white unions,” in which the company pays a labour organization to represent its workers. The workers are seldom consulted in the process and the union doesn’t make demands. BMW signed an agreement with a union known as the CTM — whose leader was mocked in a January appearance with the Mexican president for wearing an expensive watch most of his members couldn’t afford — even before it hired any employees. “These unions are not looking out for the interests of workers,” said Guillermo Luevano Bustos, a professor at the Autonomous University of San Luis Potosí who studies local labour markets.
Attempts at organizing independent unions can prove futile. Workers earning CDN$45 per week in 2015 at a Lexmark factory in Ciudad Juárez say they were fired for demanding a pay rise amounting to 50 cents per day. “All attempts at independent unionizing have failed in Ciudad Juárez,” Susana Prieto Terrazas, a labour lawyer representing the fired Lexmark workers, said in 2016. (The company told the media the employees were fired for workplace disruptions.) Some of the reasons for the unionization bids being rejected can sound spurious, such as the Lexmark workers not submitting a plan on how to manage the proposed union’s property and assets, Prieto Terrazas said, citing one example. Salaries were so low that one of the fired employees said she was able to earn half her weekly wage by secretly selling tamales inside the plant — in violation of company rules.
The Thorny Issue of Labour Rights
Labour rights have emerged as an issue in NAFTA negotiations — somewhat to the chagrin of Mexican negotiators. During the recent round of negotiations in Mexico City, local media seized on the comments of Jerry Dias, national president of Unifor, the largest private-sector union in Canada, who appeared to be sticking up for Mexican workers ignored by their own labour leaders. “I don’t understand the Mexican government’s argument that in some way, ‘We have to oppress our citizens to be better.’ It’s a dismal argument,” he said in Mexico City, according to Mexican media. “If an autoworker in Canada and the United States can make $35 per hour, why can’t a Mexican worker make 525 pesos per hour?”
Wages in Mexico have climbed just 18 percent since 2000, according to the Wall Street Journal, to US$16.70. The minimum wage sits at 80 pesos per day (CDN$5.50), or about the price of a venti-sized drink from Starbucks. In a scandalous exposé, The Economist magazine in 2014 showed the president of the National Minimum Salary Commission earning an annual salary of CDN$192,000. During his 23 years in the position, the minimum wage had lost 43 percent of its purchasing power, according to the Economic Commission for Latin America and the Caribbean. Analysts say the Mexican government has used low wages to contain inflation. But other factors also keep wages low. Nearly 60 percent of the population works in the “informal” sector, meaning they do not pay taxes or receive social security benefits. “You have a huge segment of the population in the informal sector…and a huge amount of people in poverty. This will always be a point to keep wages down,” said Jonathan Heath, former chief Latin America economist at HSBC. Federal statistics show 43.6 percent of the population is considered poor. “They’re willing to accept any job at any wage, and as long as they’re out there you will have tremendous downward pressure on wages,” said Heath.
Workers seem desperate for a pay raise. Vadira Pineiro, 41, earns 1,020 pesos ($70) per week plus benefits at a supplier for an air conditioning manufacturer in the border city of Reynosa. She arrived in Reynosa in 1991 to work in the Zenith TV plant, leaving behind low-paid work in the state of Veracruz, where, Pinerio says, men worked in the fields and women cleaned homes. Wages then were nothing special, but she said she could make ends meet. “You could afford to buy chicken back then,” and even go “cross-border shopping,” she said. That’s no longer the case. “I’m living on my own, and money’s tight.”
Workers still stream into cities like Reynosa — even with cartel violence there regularly breaking out — from impoverished pockets of Mexico. The McAllen Economic Development Corporation (MEDC) recently reported 24,200 maquiladora (factory for export) jobs created in Reynosa so far this year, according to the Rio Grande Guardian newspaper. Nearly 90 percent of those jobs came from rapidly growing existing companies and represented “almost a record” for a single year, according to the MEDC. In interviews in Reynosa’s industrial parks, workers who preferred not to be named to ensure candour spoke of long hours and low pay, but also of opportunities for people trying to get ahead.
“NAFTA gave us hope because with my hard work and studies, I was able to climb the ranks,” said Carlos, a department manager, who moved to Reynosa 20 years ago after growing up poor among the orange groves of San Luis Potosí state. “You have to work hard. That’s something not everyone is willing to do.”
Others were less effusive and spoke of difficult plant conditions, such as a working environment with no climate control, despite temperatures topping 40 degrees Celsius. “There are many jobs, yes, but what is that if I can’t make ends meet? I work, my wife works and my oldest son works, and we still aren’t okay,” said Jaime, a maintenance supervisor. “Production [in the factory] comes at all costs. It doesn’t matter who gets sick or injured. Production is what matters.”
Still, some workers see advancement. Diana Cerda Puente, 50, inspects the leather about to be made into car seats at a factory in Saltillo, a city in northern Mexico booming with automotive manufacturing activity. Her position pays 188 pesos (CDN$13) per day plus benefits. In the hot local job market, she walked away from a position working with molten metal, which she didn’t like. The pay isn’t the best, she admits, but the factory jobs she and her husband (who works in the same plant) have held down help put her two sons through school, and both are now employed as engineers. One son earns 35,000 pesos (CDN$2,400) per month at Kia, which opened a plant recently near Monterrey.
Companies often train workers or strike deals with state governments to train employees for work in their plants. Marisol Galarza, 25, found work out of high school in the GM plant in San Luis Potosí. But she’s been studying engineering on weekends through a company program and moved off the assembly line, which paid her roughly 7,000 pesos (CDN$475) per month. “If you perform well, they will pay for studies,” she said. “They help you, they give you an opportunity to continue working there.”
Wages have proved thorny for NAFTA negotiators, with Mexicans preferring to leave the issue off the table. Some Mexican press reports from the last round of negotiations in Ottawa focused on frictions over Mexican berry exports — with US growers objecting to low wages paid to pickers in Mexico. Mexican agricultural producers rejected any restrictions on when it could send produce north — such as times when US harvests have finished — and consider salaries south of the border an internal matter. Some in Mexico see little interest in addressing the wage issues, or in taking up any of the more progressive issues promoted by Canada. “Peña Nieto only has as his constitutency [in NAFTA negotiations] high government functionaries and the big business elite,” said Carlos Heredia, professor at the Centre for Research and Teaching in Economics in Mexico City. “The Mexican government has no intention of putting on the table issues like poor labour conditions for Mexican workers.”
Hopes — and Challenges — for the Future
Mexican attitudes toward NAFTA have remained moderately positive in recent years, in spite of the low wages. Contrary to Trump’s view that Mexico is taking advantage of the United States, an August poll by Parametría found 54 percent of Mexicans think their northern neighbour has been the big winner. Still, no influential or well-organized movement to overturn NAFTA has surfaced. Few unions wield power and most labour leaders serve political rather than workers’ interests; political parties co-opt low-wage workers and those in the informal economy to prevent unrest; and Mexicans generally like the increased selection of goods brought by NAFTA. Mexico, unlike most other Latin American countries, depends heavily on foreign direct investment, making it politically risky to attack free trade, according to analysts.
Even Andrés Manuel López Obrador (known by his initials, AMLO), the country’s populist front-runner for the 2018 presidential race and whose proximity to power spooks investors and Mexican elites alike, speaks moderately on NAFTA. Although he promised to review energy investments if elected, he has only said he would object to a “bad” NAFTA renegotiation. Analysts say he’s trying to moderate his actions — an imperative, as his opponents constantly try to portray his rise to office as the second coming of Hugo Chávez. “If he wants to be a competitive candidate, he needs to put himself in a position where he can understand the needs of the [private] sector,” said Rogelio Ramírez de la O, economic adviser to AMLO in the 2006 election.
The consultant in El Bajío put it more bluntly as to why he thinks AMLO won’t win in 2018. “The private sector will do what it can to make sure he doesn’t get there,” he said. “They’ve done it before.”
There were Mexicans who lost with the arrival of NAFTA. The toy businesses went broke (to name one industry). Corn farmers working small plots of lands suddenly faced competition. Many were forced from their land. Some emigrated. Campesinos still march in Mexico City against NAFTA, but their numbers are small and their leadership is often tied to the PRI. Agriculture has actually emerged as a NAFTA success story for Mexico, which sends tons of tomatoes, berries and, of course, avocados to the United States. In fact, Mexico now earns more in foreign reserves from avocados than hydrocarbons, in net terms. “We’ve grown the market for everyone [including] the producers there,” said Ramón Paz, director of the Michoacán state avocado growers and exporters association.
The prosperity brought by avocados is easily visible in towns in the “avocado zone” of Michoacán state, which unfolds to the west of Mexico City. In Tancítaro, growers have built handsome US-style homes, while people who once went north in search of opportunities have prospered from planting avocado trees instead. It’s so lucrative that an armed autodefensa (self-defence group) formed — and still operates checkpoints — as a drug cartel moved in and started extorting the growers and evicting them from their properties. “There are many criminal groups,” said a spokesman for the autodefensa, himself a campesino, who was once a migrant in the United States and acknowledged his family was living better by swapping corn and bean crops for avocados. “If the government assumed its role as a government, then we wouldn’t have to be out here.”
Violence has flared in Mexico over the past decade as the government sent soldiers to stamp out drug cartel activities. The rule of law is as elusive as ever, policing remains problematic, and monthly homicide rates hit record-high levels in 2017. Equally concerning: Crime has surged into the tourist meccas of Cancún and Los Cabos and areas of El Bajío, such as Guanajuato state — where thefts of gasoline from Pemex pipelines and attacks on trains carrying cargo by increasingly powerful and violent criminal groups are commonplace. The consultant in El Bajío recalls a meeting between a senior state official and a foreign CEO, in which the CEO immediately asked why so much of his firm’s merchandise was disappearing. A story circulates in Querétaro of a prominent businessman’s child being kidnapped and the police telling him later to denounce the crime as robbery — something that would make the official crime statistics look less scandalous.
Equally vexing for Mexico: corruption, which has ironically worsened as the country moved away from one-party rule. Analysts attribute its spread to a devolution of power and spending authority to the local level, where oversights from courts and auditors are weak and opposition parties are bought off by the governors. Three former governors are currently in prison, accused of massive acts of graft or of cooperating with drug cartels. Many more are under suspicion. As one executive in the city of Monterrey — plagued by political corruption in recent years — put it: the people getting rich these days “are in politics.”
Mexico has lobbied for an anti-corruption clause in the NAFTA renegotiations, something business leaders say will make the country more competitive and promote investor confidence. Some see irony in the Mexican position. The country enacted an anti-corruption system in 2016, but Mexico’s governing PRI has stalled in appointing an anti-corruption prosecutor — necessary to make the system work. As one person in the system’s oversight committee said, “The system was born dead.” One Canadian manager in Mexico recalls being asked to pay a “commission” of 20 percent on a government contract. He declined. “Once you stick your finger in that gearbox,” the manager said, “there’s no pulling it out.”
Stories of corruption and the paying of lavish incentives when trying to attract automakers to Mexico have surfaced. Kia received tax holidays and land, some of which was allegedly given improperly to the company, according to press reports. Kia denies any wrongdoing and says it did a deal in good faith. In Guanajuato, anti-graft group Mexicans Against Corruption and Impunity found the state government paid more than double the market value for land given to Toyota for building a plant. (The government denies any wrongdoing.)
Francois Ouellet says he has never had any brushes with corruption while doing business in Querétaro. He also says the government didn’t offer incentives — which were unnecessary. “Having a pro-business government and not having to deal with difficult red tape was enough,” he said. Ouellet sees a bright future for Exo-s in Mexico — NAFTA or no NAFTA. It’s so bright that, as he contemplates an old building about to be demolished on the Exo-s site and the new building beside it buzzing with machines and workers producing auto parts, he quips: “We’re ready to invest more.”