F.A.Z. English Edition, December 1, 2000
NAFTA Needs Closer Ties
EU Can Give Some Lessons
Proposals by President-elect Vicente Fox of Mexico for a European Union-style partnership - with a common external tariff, the free movement of workers and a common currency - to be introduced into the North American Free Trade Agreement (NAFTA) may appear unrealistic, given the stark economic and social contrasts between Mexico and its northern partners.
To many, the free flow of people seems unthinkable as long as a Mexican worker can earn $60 a day in California and only $5 at home. But Mr. Fox's vision has to be considered from a long-term perspective. It took Europe more than three decades to achieve a truly integrated market.
However, two concrete proposals - for the creation of a NAFTA structural development fund, and a broader mandate for the North American Development Bank - should get immediate attention. They could be implemented comparatively quickly, and NAFTA could borrow from European experience: Inside the EU, the so-called structural and cohesion funds are a major instrument for reducing economic disparities between countries and regions. They provide financial assistance for, among other things, improving infrastructure and vocational training.
The money comes from the common EU budget, and for the 2000-06 period
it will amount to some
The EU's four poorest countries (Greece, Ireland, Spain, and Portugal) have grown much stronger economically, especially Ireland, which has seen its per capita GDP increase from 64 percent of the then-European Community average in 1983 to nearly 90 percent in 1995.
In addition, the European Investment Bank supports investment that helps improve infrastructure, again with an emphasis on less-favored regions. It also gives loans to assist small and medium-sized enterprises.
A NAFTA fund for structural development and a North American Development Bank with a wider mandate could contribute to alleviating some of the most severe structural weaknesses plaguing Mexico. Today, even more than a decade ago, Mexico has large social and regional disparities. Recent official figures show that the richest tenth of all households increased their share of national income from 36.6 to 38 percent between 1996 and 1998, while the poorest 60 percent saw their share fall from 26.9 to 25.5 percent. Only about 15 percent of Mexico's GDP of roughly $500 billion is produced in the country's southern half.
To highlight just two aspects of these internal contrasts: The country is still failing to educate its poor children. In the poorer states, 20 percent of children drop out of school before their sixth year, compared to fewer than 10 percent in the richer states. Also, small and medium- sized businesses are finding it difficult to participate in the export boom triggered by NAFTA. Unlike bigger companies, which often have access to foreign credit, smaller Mexican enterprises have to relay on weak domestic banks, which have been reluctant to lend ever since the peso crisis in 1994-95.
A North American Fund for Structural Development and a North American Development Bank could help the country to catch up with its northern neighbors. Designed along the lines of the European model, the fund should be financed through contributions from all three NAFTA members.
Nor should it only assist worthy goals like building roads or teaching the children of the poor in Mexico: Money should also be available for, say, the retraining of American and Canadian workers laid off as a result of their industries moving to Mexico. Nor should the North American Development Bank restrict its activities to environmental projects in the U.S.-Mexican border region. It should also focus on loans for all kinds of small and medium-sized enterprises.
The European structural and cohesion policy is based on the belief that reducing economic and development disparities inside its member countries and across the Union is conducive to economic growth and political stability. Furthermore, it reflects the experience from Spain, Portugal and Greece in the 1970s and 1980s - namely that transforming societies are more likely to build a viable economic and democratic order if there is some minimum level of prosperity for all, or at least a reasonable expectation thereof. The emerging new Mexican democratic and economic order would certainly benefit from such an expectation.
Besides, the idea of promoting development and democracy through financial assistance is not genuinely European. After World War II, the Marshall Plan saw the United States grant financial aid to assist the economic recovery of Western Europe. The promotion of development and democracy clearly worked in Europe. Why shouldn't it make a difference in Mexico, where 40 million out of the almost 100 million inhabitants still live in poverty?