Southern Exposure

Desde as Entranhas dos Labirintos Latinos.

Thursday, December 11, 2003

Mexico And the China Factor: Save the Last Waltz for Me

This week Marcelo was once again on about the positive economic relations which are developing between China and Argentina. At the other end of the scale is Mexico. This article from the Providence Journal once more illustrates the problem. And it isn't that Mexico's wages have rocketed upwards, more to the point is that China's wage advantage is enormous. And Mexico has failed to really get the full advantage from the good times, the infrastrucure hasn't been built. The principal labour market problem still is demographic: the 1 million workers who enter the labour force every year. On the China front, if you want to know more about how the 'my job just went to China syndrome' is a little wide of the reality, you could check out my piece 'who stole my job', where you will find that manufacturing jobs are even disappearing in China at a rapid rate: the culprit - increased productivity and the transition to a services economy.

Blue-smocked, blue-jeaned and youthful, maquiladora assembly plant workers stream across busy Porfirio Diaz Boulevard, nine hours of labor -- the fruits of NAFTA dreams -- behind them and the destiny of Mexico in their future. The debate in Mexico and the United States over the North American Free Trade Agreement centered on this generation: Young people, given productive lives, would be able to raise their standard of living and buy American products -- spurring U.S. exports and jobs, suppressing illegal Mexican immigration and cementing a win-win-win scenario among Mexico, the United States and Canada.

"NAFTA for Mexico has been a success in terms of increasing trade and foreign investment until about 2000," said Kevin P. Gallagher, a research associate at Tufts University's Global Development and Environment Institute. But the benefits of trade -- the billions in foreign investment -- were to be used to finance development, according to stated goals in Mexico's National Development Plan. "They missed the opportunity to take their foreign investment and build domestic demand and the economy. Now that their investment has dried up, there are no legs for growth," Gallagher said.......

But real wages in Mexico are lower today than when NAFTA was approved and have not kept pace with productivity gains, a study by the Carnegie Endowment for International Peace found. The rural sector has lost some 1.3 million jobs, causing farm families to depend more heavily on the $12 billion in remittances sent annually from the United States. Neither poverty nor the flow of undocumented workers has abated.Mexico's weak economic growth can't absorb the 1 million young people who enter the work force every year, so the flow of undocumented workers to the United States has ballooned from an estimated 200,000 a year in 1994 to more than 300,000 a year today, according to Mexico's National Institute of Statistics. Government statistics show that while extreme poverty has fallen sharply, the number of people classified as poor or extremely poor has risen from 62 million to 69 million, out of a population of more than 100 million..................

Since 2000, factories in Chinese export zones have replaced towns like Reynosa as the favorite factory floor of U.S. multinationals. More than 300,000 Mexican maquiladora workers have lost their jobs since 2000, some because of the U.S. economic downturn, some because of an outflow to Central America but more because of the exodus to China. Mike Allen, president and chief executive of the McAllen Economic Development Corp. and Foreign Trade Zone, said Reynosa has competed well with China compared to other border towns that have lost scores of assembly plants.
Prospective companies arrive with a list of Chinese costs and tell Mexico, "You match this," he said.

For Mexico, the migration to China costs more than jobs. Of equal concern is the drop in foreign direct investment that was to finance economic advancement. "We are now witnessing the beginning of the end of the preferential agreement," said Mexico's former deputy trade minister, Luis de la Calle, who ran Mexico's NAFTA office in Washington. "We reached the end of the benefits of NAFTA in 2003." Mexico failed to use NAFTA's initial flood of capital to invest in education and urgently needed infrastructure projects such as power plants, roads and water treatment facilities, said Tufts' Gallagher. This lack of infrastructure is glaring along the border. While Reynosa's skies are relatively unpolluted compared to other border cities, and manicured new industrial parks house modern facilities, the city's water treatment plants have not kept pace with the growth in population. Snaking to the border near Reynosa's international bridge is a canal choked with lime-green slime. A recent report by the Fitch credit rating agency, "Boom Times at the Rio Grande: U.S.-Mexico Border Region Expands," warned that lagging infrastructure was causing Mexico to become uncompetitive. "The long delay or the postponement of investing in all the infrastructure is really putting Mexico at a huge disadvantage compared to China," said Gersan Zurita, managing director of international public finance at Fitch. "It is limiting the potential growth of the country."

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