Volume 4, Number 34, Page 5

From the Editor

Several reports from the U.S. Congress and the United We Stand Americagroup have cast a decidedly negative light on NAFTA. But an important considerationfor politicians and others involved in assessing the value of free tradeis a significant side effect generated by agreements such as NAFTA: acceleratedinvestment by non-signatory countries.

When NAFTA was passed in 1992, Mexico assumed that the bulk of directinvestment entering the country would be from the United States and Canada.Initially, that seemed to be the case. Between 1993 and 1994, the UnitedStates increased its direct investment in Mexico from $3.5 billion to $4.4billion, a rise of more than $800 million. In the same time period, Canada’sinvestments in Mexico grew tenfold, from $74.2 million to $740 million.

The United States has remained the biggest foreign investor in Mexico,but other countries have significantly increased their Mexican investments.In 1994, the year NAFTA went into effect, the United Kingdom invested morethan $1 billion in Mexico. That same year, Japan increased investmentsin Mexico by almost 1,000 percent, as did the Netherlands.

NAFTA has stimulated trade by U.S., Canadian and Mexican companies thatwere previously not part of the global market.

As an example, let’s look at Sony’s operations. Prior to NAFTA, Sonyassembled television sets primarily in Japan, purchasing picture tubesand other components from its subsidiaries in Japan and Korea. After NAFTAtook effect, Sony expanded production at its plant in Tijuana. But to complywith NAFTA, Sony has to purchase parts and components, includingpicture tubes, from companies in the United States, Canada and Mexico.The electronics giant now buys its picture tubes for television set productionin Mexico mainly from companies in California and some of its packagingfrom Weyerhauser Co. in Yuma, Arizona.

Without NAFTA, Sony may not have expanded its Tijuana facility and Californiapicture tube manufacturers may have never sold a single unit to Sony.

—José Felipe García