Cato Foreign Policy Briefing No. 9 May 21, 1991

Foreign Policy Briefing

A Mexican View of North American Free Trade

by Roberto Salinas-Leon

Roberto Salinas-Leon is academic director of the Center for Free Enterprise Research, Mexico City.


Executive Summary

The primary purpose of free trade is to increase social and economic prosperity. That is the rationale behind the trilateral initiative to craft a North American Free Trade Agreement (NAFTA) among the United States, Mexico, and Canada. A NAFTA would bring multiple and mutual benefits to the three nations, forging a huge open market with a population of 360 million and a total output of $6 trillion--a priceless commercial opportunity that no nation can afford to pass up.

Free trade and prosperity are goals that Mexicans are now yearning for. The reasons are clear. Few nations with such explosive economic potential and privileged geographical position have suffered so much under a regime of protectionism, import substitution, and overwhelming state intervention in economic life. In Mexico the 1980s are characterized as a "lost decade." A NAFTA promises prosperity based on sustained and stable economic growth. It is regarded as a fundamental key to a new and better decade.

The economic and institutional conditions necessary for creation of a NAFTA already exist. Three-way trade among the three countries last year topped $225 billion. The United States signed a free-trade agreement with Canada in 1989 and has its first- and third-largest trading partners north and south of its borders. And as a result of trade liberalization in Mexico, trade has tripled between Mexico and the United States since 1986, and U.S. exports to Mexico doubled in the same period.

Furthermore, the United States is, by far, Mexico's most important trading partner. More than 70 percent of Mexican imports come from the United States, and more than 60 percent of Mexican exports flow into the United States. Also, 65 percent of total foreign investment in Mexico derives from the United States. The recent wave of significant market-oriented reform has prepared Mexico to seek integration with the U.S. economy.

Such an unquestionably beneficial opportunity for a brighter commercial and economic future should meet with no rational opposition. Nonetheless, prominent spokesmen for organized labor and environmental organizations have conducted a vocal campaign against a NAFTA, in general, and free trade with Mexico, in particular--making highly emotive claims that a NAFTA would bring massive job losses in the United States and increased child labor atrocities and ecological disasters in Mexico.

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1991 The Cato Institute
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