<html><head><meta http-equiv="Content-Type" content="text/html charset=utf-8"></head><body style="word-wrap: break-word; -webkit-nbsp-mode: space; -webkit-line-break: after-white-space;" class=""><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><a href="https://www.bloomberg.com/news/articles/2017-11-28/nafta-s-ugly-reality-u-s-mexico-wage-gap-is-actually-widening" style="color: rgb(149, 79, 114);" class="">https://www.bloomberg.com/news/articles/2017-11-28/nafta-s-ugly-reality-u-s-mexico-wage-gap-is-actually-widening</a><o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">BLOOMBERG<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><b class=""><span style="font-size: 22pt;" class="">The Nafta Years Have Been Terrible for Mexican Growth<o:p class=""></o:p></span></b></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">By Eric Martin and Nacha Cattan<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">November 28, 2017, 4:00 AM EST<o:p class=""></o:p></div><ul type="disc" style="margin-bottom: 0in; margin-top: 0in;" class=""><li class="MsoNormal" style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;">Trade was supposed to kickstart Mexico’s economy. It hasn’t<o:p class=""></o:p></li><li class="MsoNormal" style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;">Stagnation fuels Trump’s anger, leaves Mexicans eyeing change<o:p class=""></o:p></li></ul><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">What’s the opposite of a growth miracle? Whatever the term, it applies in spades to Mexico in the Nafta era.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">Poor countries are expected to grow faster than rich ones, and they need to. Trade agreements are supposed to help. Yet by almost any benchmark -- certainly the ones trumpeted by the deal’s architects a quarter-century ago -- the Mexican economy’s performance has been dismal.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">Growth of 2.5 percent a year since 1994 is less than half the developing-world average. It’s pretty much the same as the U.S. and Canada. But even that’s misleading. Because Mexico’s population <a href="https://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&met_y=sp_pop_grow&idim=country:MEX:CAN:USA&hl=en&dl=en" target="_blank" title="Population Growth (World Bank)" style="color: rgb(149, 79, 114);" class="">expands</a>much faster, the economic pie has to be divided among more and more people. So the average Mexican earns less today, relative to U.S. and Canadian peers, than before Nafta.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">“The main idea was to promote convergence in wages and standards of living,’’ said Gerardo Esquivel, an economics professor at the Colegio de Mexico. “That has not been achieved.’’ And what meager growth there’s been, says Esquivel, has mostly gone to “the upper part of the distribution.’’<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">For an emerging market, Mexico has an impressive collection of billionaires, including the world’s sixth-richest man. Its poverty rate, meanwhile, is still around early-1990s levels -- more than half the population, encompassing a permanent class of the underemployed. Crime and corruption are rampant.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><img apple-inline="yes" id="4E321270-D842-4D34-AE75-5DD9A01E8939" height="345" width="641" apple-width="yes" apple-height="yes" src="cid:image007.png@01D36837.DA9675E0" class=""><o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">All this poses a problem for the U.S., especially now that Donald Trump’s in charge. Mexico’s glacial economy means there’s still a lively incentive for the things Trump hates: the flow of underpaid Mexican labor northwards, and American factories the other way. No wonder, as his trade team trudges through round after round of <a href="https://www.bloomberg.com/politics/articles/2017-11-21/u-s-cites-progress-but-no-breakthroughs-in-latest-nafta-talks" target="_blank" title="Trump’s Hopes for Quick Nafta Deal Are Dimming as Talks Slow (1)" style="color: rgb(149, 79, 114);" class="">renegotiation</a>, that the U.S. president is still threatening to blow up the pact altogether.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">It’s a much more urgent matter for Mexicans. And they’ll have a chance to do something about it in presidential elections next year. The early frontrunner, leftist Andres Manuel Lopez Obrador, says he’ll usher in a new economic model. What role Nafta would play in that, if any, remains vague.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">In Mexico’s policy circles, there’s little inclination to blame Nafta. Some point out that, while the economy clearly hasn’t boomed, it’s at least avoided the busts that sunk several Latin neighbors in the last two decades. The trade pact couldn’t be expected to solve deep social problems, but it’s brought “multiple benefits in different industries, generating jobs and wealth,” Enrique Ochoa, political chief of the governing PRI party, said last week.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">Still, there’s broad consensus among economists that the promises made by Presidents <a href="http://tech.mit.edu/V113/N29/salinas.29n.html" target="_blank" title="Link to Salinas speech" style="color: rgb(149, 79, 114);" class="">Carlos Salinas</a> and <a href="http://www.presidency.ucsb.edu/ws/?pid=47070" target="_blank" title="Link to Website" style="color: rgb(149, 79, 114);" class="">Bill Clinton</a> at the dawn of Nafta haven’t been fulfilled. Rapidly expanding trade with the world’s biggest economy hasn’t been a panacea. Or even, some say, a paracetamol.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">“Mexico’s basic mistake was to assume that integrating into the world economy, and the U.S. market in particular, would suffice,’’ said Dani Rodrik, an economics professor at Harvard University. “Other aspects of development strategy were ignored.’’<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><b class="">‘Four Tires’<o:p class=""></o:p></b></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">Here, every analyst has a different list. Ruben Ojeda, an official at Mexico’s Finance Ministry in the 1980s, starts with the economy’s basic levers. He says policy makers, burned by a traumatic devaluation during the so-called Tequila Crisis at the end of Nafta’s first year, kept the monetary settings too tight long afterward -- fixated on inflation (the central bank’s sole mandate) instead of growth.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">Ojeda, now a director at investment firm View Capital Advisors in Dallas, also says that Mexico didn’t learn a key lesson from the most successful emerging economies: industries need to be nurtured and protected before they’re exposed to competition.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">Mexico’s car industry, for example, got plenty of government support pre-Nafta, so “it worked very well once it was liberalized,” he said. Other sectors didn’t enjoy that advantage, “and they essentially disappeared.”<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">What about the workers at those successful auto factories, though? Their stagnant wages are making waves at the Nafta talks. In Mexico City this month, Jerry Dias, head of the Canadian union Unifor, pointed out that employees at U.S. and Canadian car plants can buy the vehicles they produce with five months’ wages. “A Mexican worker in five months can only buy four tires and a steering wheel,” he said. “It’s an absolute disgrace.”<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><img apple-inline="yes" id="78E90384-011F-4B26-9560-71D0048EE2AC" height="322" width="658" apple-width="yes" apple-height="yes" src="cid:image008.png@01D36837.DA9675E0" class=""><o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">It’s not just labor making that case, north and south of the Rio Grande. Trump and his commerce secretary, Wilbur Ross, have complained about it too – channeling frustrations that helped the U.S. president to sweep the Rust Belt on his road to the White House.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">Getting Mexicans a pay rise has become an unlikely priority for his trade team – and for some Mexican business groups too. One of them, Coparmex, has been lobbying for a higher minimum wage, saying too many workers struggle to afford even basic goods. The rate will rise 10 percent to 88 pesos ($4.74) a day next month, but that’s only about half the increase <a href="https://www.bloomberg.com/news/terminal/OYA50ASYF01U" target="_blank" title="Mexico Business Chamber Calls for 19% Increase in Minimum Wage" style="color: rgb(149, 79, 114);" class="">called for</a> by Coparmex, let alone the much bigger jump that would be needed to regain pre-Nafta purchasing power.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">For the critics, low pay isn’t an accident. It’s a policy, and one that illustrates a wider point: Nafta’s Mexican cheerleaders thought that all the demand needed to achieve economic liftoff would come from abroad. They neglected drivers of growth on the home front. Esquivel lists them: “Higher labor income, higher investment by private firms which don’t get access to credit, and better spending by the government.”<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">“We don’t have any of those three elements,” he said. “It’s actually surprising that we grow even the little that we grow.”<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><b class="">‘Left in Suspense’<o:p class=""></o:p></b></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">And four-fifths of the external demand comes from a single country -- now governed by Trump. If evidence of economic failure in the Nafta years has accumulated slowly, awareness of the political risks exploded on U.S. election day last year. Economy Minister Ildefonso Guajardo acknowledges the point.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">“We slept on our laurels,” Guajardo, who heads Mexico’s Nafta negotiating team, said in July. “We need to diversify, so that next time there’s an election in Washington, the Mexican economy isn’t left in suspense.”<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">Revving up the domestic engine is a favorite theme of Lopez Obrador, known as Amlo. Another is sharing the pie more fairly. Mexico has the most unequal income distribution among the 35 OECD members. <a href="https://www.bloomberg.com/quote/1346741D:MM" title="Company Overview" style="color: rgb(149, 79, 114);" class="">Carlos Slim</a>, one of the winners from Mexico’s flagship privatization program, and three other billionaires hold wealth equal to about 8.5 percent of GDP, more than double the mid-1990s level, according to research by Esquivel, who’s worked as an external consultant for Lopez Obrador’s campaign.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">“This kind of inequality is a boon to Amlo,” said Nicholas Watson at risk-analyst Teneo Intelligence.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><b class="">Mexican Samsung?<o:p class=""></o:p></b></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">Fiscal policy is the classical tool for fixing such imbalances. Mexico barely uses it. Government revenue is the lowest in the OECD -- and because Mexico also runs one of the most balanced budgets, another cautious legacy of the Tequila Crisis, spending is constrained too.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">That’s helped win investment-grade credit ratings across the board. It’s also meant a failure to invest in skills, especially in science and engineering, that would help workers add value, says Manuel Molano, deputy director of the Mexican Competitiveness Institute.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">South Korea “invested heavily in the education sector, and the design parts of technology,” he said. “Where’s the next Mexican Samsung? There is none.”<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">Korea’s a tough benchmark, but less stellar economies have also outgrown Mexico in the Nafta years: Turkey, which has a similar trade setup with its own giant neighbor, the EU; Egypt, which has suffered regime-change twice this decade; even Iran, almost completely frozen out of global commerce.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><img apple-inline="yes" id="35BA771A-F98E-41C7-9DDD-F82EA986EC56" height="343" width="677" apple-width="yes" apple-height="yes" src="cid:image009.png@01D36837.DA9675E0" class=""><o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">And Mexico’s own performance in the quarter-century before Nafta was significantly better. On a per-capita basis, it grew almost twice as fast, though some slowdown is normal as countries reach the middle-income bracket.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">Some causes of the Mexican malaise aren’t strictly economic. Crime has surged, and is listed as a top concern of executives surveyed by the World Economic Forum. A brutal drug war has dragged on for more than a decade; even in its early years, policy makers estimated a hit to output of about 1 percentage point a year.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">Almost every analyst cites corruption, and a judicial system that’s failed to tackle it. In 2015 alone, state governments misappropriated about $1.4 billion of federal funds, according to auditors.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">That money could have been used to help develop Mexico’s poorer south, said Jonathan Heath, an economist at the Mexican Institute of Financial Executives. The region’s farmers haven’t benefited as factories sprang up along the U.S. border in the north. Under Nafta, “traditional agriculture was left to die,” said Ojeda.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">It was in southern Mexico that the most dramatic challenge to Nafta emerged -- on the day the trade pact took effect. In January 1994, Zapatista rebels and their masked leader, Subcomandante Marcos, launched a violent revolt.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">The utopian ideas of the guerrillas have failed elsewhere in Latin America. Their uprising was rapidly crushed. Their vision of a Nafta-era Mexico, with entrenched inequality, impoverished farmers and increased dependence on the U.S., has proved harder to dispel.<o:p class=""></o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class=""><o:p class=""> </o:p></div><div style="margin: 0in 0in 0.0001pt; font-size: 11pt; font-family: Calibri, sans-serif;" class="">— With assistance by Andrew Mayeda, Andrea Navarro, Chloe Whiteaker, and Catarina Saraiva</div></body></html>