Global Policy Forum

By David Morris

The debate about illegal immigration rarely mentions NAFTA. That's regrettable, since the flood of undocumented Mexicans in 2006 empirically challenges the economic philosophy that guided NAFTA's design. The slogan of those who championed a North American Free Trade Agreement was, "Trade, not aid." NAFTA would solve our problems, they insisted, with little or no transfer of funds from richer Canadians and Americans to poorer Mexicans. By raising Mexican living standards and wage levels, Attorney General Janet Reno predicted NAFTA would reduce illegal immigration by up to two-thirds in six years. "NAFTA is our best hope for reducing illegal migration in the long haul," Reno declared in 1994. "If it fails, effective immigration control will become impossible."

Well, NAFTA succeeded, at least on its own terms. As Jaime Serra Puche, Mexico's former trade minister and chief NAFTA negotiator maintained in 2004, "When you look at NAFTA in terms of what NAFTA was made for, which were trade flows, investment flows, and in general technological transfer and so on, you can say that NAFTA has been a successful enterprise." Trade volume has soared, from about 30 percent of Mexico's Gross Domestic Product in 1990, to about 55 percent in 2005. Foreign investment has increased by over 225 percent. Yes. When you look at NAFTA in terms of what NAFTA was intended to do, based on what those who wrote it said it was intended to do, it has been a smashing success.

At this point bringing up an old medical adage might be appropriate: "The surgery was successful, but the patient died." NAFTA achieved its intended goals. But the flood of illegal immigration is up, and the standard of living of the average Mexican is down. Real wages for most Mexicans are lower than when NAFTA took effect. And Mexican wages are diverging from, rather than converging with U.S. wages, despite the fact that Mexican worker productivity has increased dramatically. From 1993 to 2003, worker productivity rose by 60 percent. In the same period, real wages declined by 5 percent.

As NAFTA intended, Mexico has become an export-dependent economy. But this has not benefited most Mexicans. Sandra Polaski of the Carnegie Endowment for International Peace points out that Mexican manufacturing is increasingly based on a production model in which component parts are imported, then processed or assembled and then reexported. In the maquiladora sector, which accounts for most exports, 97 percent of components are imported; only 3 percent are produced in Mexico. The spillover effect of such operations on the broader economy is very limited.

Ironically, one could argue that illegal migration is the only thing saving Mexico from the ravages of NAFTA and preventing it from collapsing into economic and social chaos. Illegal migration serves as an important safety valve. In the past 10 years, Mexico's working age population increased by a little over 1 million per year, but the number of jobs expanded by only half as much. The annual exodus of 500,000 to 1 million Mexicans keeps unemployment to at least manageable levels. Migration serves another even more important salutary function: national financial safety net. In 2005, Mexicans in the United States remitted some $20 billion home, about 3 percent of Mexico's national income. Remittances now exceed tourism, oil and the maquiladoras as the country's top single source of foreign exchange.

NAFTA boasted that trade, not aid, would boost the lot of Mexico and Mexicans. But the only thing that has kept the wolf from Mexico's door is aid from Mexicans living in the United States, not trade. It didn't have to be this way. The European Union approached economic integration from a very different philosophical orientation and has produced dramatically different results. "The EU realized from the beginning that you can't have a community unless you lift the poorest up," notes Robert Pastor, director of the Center for North American Studies at American University in Washington and President Jimmy Carter's former national security advisor.

Europeans realized that the flow of migrants increases when the income gap between countries widens. As it moved toward a common market, the European Union invested hundred of billions of dollars in its poorer countries to improve their economies, reduce intra-European tensions between farmers and workers, and decrease internal migration. This massive investment enabled the EU's four poorest members -- Greece, Ireland, Portugal and Spain -- to boost their per capita GDP from 65 percent of the overall EU average in l986 to 78 percent in l999 and even higher today.

Raul Hinojosa, director of the North American Immigration and Development Center at the University of California, Los Angeles, instructively notes that 40 years ago Mexico and Spain were at the same economic level. He estimates the EU's special funds added 2 percent to Spain's annual GDP growth. Unlike Americans, Europeans knew that both trade and aid are needed to make economic integration work. I would add only one further ingredient to this recipe for success: internally generated development. Sustainable economic development comes from within, from expanding internal markets and internal production that can satisfy those markets. Sustainable economic development comes from strengthening, not weakening, local and regional trade networks. And this in turn depends on strengthening and not weakening, local and regional social networks. People don't leave their communities, their friends, their families and their cultures because they want to. They leave when they have to.

NAFTA's designers promised it would keep Mexicans at home. Yet its very objectives undermined that possibility. Now leaders in all three countries are trying to pick up the pieces. One hopes they will use this opportunity to revisit their original premise and model as well.