Is North America Coming of Age as NAFTA Turns 21? A Mexican Perspective
This analysis delves into the economic evolution of North America with a focus on NAFTA at its 21-year mark. Examining factors like openness, integration, competitiveness, and future prospects, the study provides insights into Mexico's trade liberalization trends, economic integration within NAFTA, and the impact of key events such as China's WTO entry and the Lehman Brothers Crisis. The data visualizations included depict trade openness, integration, and competitiveness indices, offering a comprehensive view of North America's economic landscape.
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Is North America Coming of Age as NAFTA Turns 21? A Mexican Perspective Pedro Noyola April, 2015
Index A. Openness B. Integration and Competitiveness C. Competition and Transparency D. The Future: A Dual Agenda 2
Trade liberalization in Mexico Degree of trade openness (X+M/GDP, 1981 - 2012) 80% 70% 60% 50% Closed Economy FTA PERU -- FTA CENTRAL AMERICA 40% FTA COSTA RICA --FTA, FTA G3 30% EUFTA -- FTA ISRAEL 20% FTA URUGUAY FTA BOLIVIA FTA JAPAN FTA CHILE FTA AELC 10% NAFTA OECD GATT PSE 0% 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Dependent variable: Annual variation of trade openness Variable Dummy 1986-1987*GATT/PSE Dummy 1994-1995**NAFTA Dummy 2000-2001EUFTA AR(1) MA(1) MA(4) Coefficient 0.04734 0.11561 -0.01480 0.83738 -1.08588 0.37436 Std. Error 0.02707 0.01980 0.01558 0.14219 0.02497 0.01526 t-Statistic 1.74853 5.83892 -0.95014 5.88911 -43.48797 24.52906 P value 0.09260 0.00000 0.35110 0.00000 0.00000 0.00000 Yt= 1 DGATT/PSE + 2 DNAFTA + 3 DEUFTA + AR(1) + MA(1)+MA(4) + ut 4 Source: SAI Law & Economics with data from INEGI.
North Americas economic integration Trade subindex1 (NAFTA, 1988=100) NAFTA 3200 China's entry to WTO 9/11 Terrorist attack Lehman Brothers Crisis 2800 2400 Trade & investment integration index (NAFTA, 1988=100) 2000 1600 1800 Lehman Brothers Crisis 1200 1600 China's entry to WTO 9/11 Terrorist attack NAFTA 800 1400 400 1200 0 1000 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 800 FDI subindex2 (NAFTA, 1988=100) 600 400 550 Lehman Brothers Crisis 500 200 China's entry to WTO 9/11 Terrorist attack NAFTA 450 0 400 1992 1999 2006 1988 1989 1990 1991 1993 1994 1995 1996 1997 1998 2000 2001 2002 2003 2004 2005 2007 2008 2009 2010 2011 350 300 250 200 150 100 50 0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1/ Trade sub index: Weighted average of trade index (imports + exports) between Canada, Mexico and the United States. 2/ Investment sub index: Weighted average of foreign direct investment within NAFTA. Integration index: Investment and trade sub indexes average Source: SAI Law & Economics with data from INEGI, Bank of Mexico, Secretaria de Econom a, US Census Bureau, US BEA & Statistics of Canada. 6
Shared production U.S. Content in U.S. imports (percentage) 45% 40% 40% 35% 30% 32% 25% 25% 20% 15% 10% 5% 4% 0% Mexico Canada Weighted average (Mex-Can) China Production sharing (intra-industry trade: 40%) Pure outsourcing Source: Koopman et. al. (2011) Give credit where credit is due: tracing value added in global production chains , U.S. Department of Commerce andAlix Partners, Costs and Complexity - Will China Remain the Low-Cost Country of Choice? . 7
Macroeconomic convergence Short-term Interest Rates (percentage, 1993-2013) 80% Johansen cointegration since Jan-96 70% Mexico 60% US 50% Canada 40% 30% 20% 10% 0% Aug-93 Aug-95 Aug-97 Aug-99 Aug-01 Aug-03 Aug-05 Aug-07 Aug-09 Aug-11 Aug-13 Dec-94 Dec-98 Dec-00 Dec-04 Dec-08 Dec-10 Dec-12 Apr-94 Apr-98 Apr-02 Apr-04 Apr-08 Apr-12 Dec-96 Dec-02 Dec-06 Apr-96 Apr-00 Apr-06 Apr-10 Cointegration test (January 1996 December 2013) Series: Interest rates in Mexico, Canada & United States Likelihood ratio Critical value 5% Critical value 1% Cointegrating Equations Eigenvalue 35.45817 19.93711 6.634897 None ** At most 1 At most 2 0.117007 0.034787 0.011626 37.05229 10.17363 2.525861 29.79707 15.49471 3.841466 * denotes rejection of the null hypothesis at a significance level of 5% ** denota el rechazo de la hip tesis nula con un nivel de significancia del 1% 8 Source: SAI Law & Economics with data from INEGI.
Macroeconomic convergence Inflation (annual variation, August 1999 November 2013) 55% 50% 45% Mexico US Canada 40% 35% 30% 25% 20% 15% 10% 5% 0% -5% Aug-93 Sep-94 Sep-04 Aug-13 Aug-03 Dec-96 Apr-00 Oct-05 Dec-06 Apr-10 Oct-95 Feb-09 Feb-99 May-01 May-11 Jan-98 Jun-02 Jan-08 Jun-12 Cointegration test (January 2000 October 2013) Series: Inflation in Mexico, Canada & United States Likelihood ratio Critical value 5% Critical value 1% Cointegrating Equations Eigenvalue 35.45817 19.93711 6.634897 None ** At most 1 At most 2 0.120606 0.080837 0.073482 46.55095 25.85882 12.28778 29.79707 15.49471 3.841466 *denotes rejection of the null hypothesis at a significance level of 5% ** denotes rejection of the null hypothesis at a significance level of 1% 9 Source: SAI Law & Economics with data from INEGI.
Cycle coordination Manufacturing production from Mexico and the Unites States (annual growth,1981:T1-2013:T1) Corr: 0.76 Corr: 0.21 Johansen cointegration since Jan-94 15% 10% 5% 0% -5% -10% -15% US Mexico -20% 1981/01 1983/01 1984/01 1985/01 1986/01 1988/01 1989/01 1990/01 1991/01 1994/01 1995/01 1996/01 1997/01 1999/01 2000/01 2001/01 2002/01 2004/01 2005/01 2006/01 2007/01 2010/01 2011/01 2012/01 1982/01 1987/01 1992/01 1993/01 1998/01 2003/01 2008/01 2009/01 2013/01 Johansen Cointegration test1 1994:T1 2012:T2 1980:T1 1993:T4 Series: LOG(Man.Prod.MEX) LOG(Ind.ProdUSA) Likelihood ratio Series: LOG(Man.Prod.MEX) LOG(Ind.ProdUSA) Likelihood ratio Critical Value Critical Value 5% 15.41 3.76 Critical Value Critical Value 5% 15.41 3.76 Cointegrating Equations Cointegrating Equations Eigenvalue 1% 20.04 6.65 Eigenvalue 1% 20.04 6.65 0.174543 0.031910 16.594320 2.399811 None * At most 1 0.115693 0.034156 8.516043 1.876684 None At most 1 * Rejects the null hypothesis with a confidence level of 95%. **Rejects the null hypothesis with a confidence level of 99%. 1/ The test supposes a deterministic lineal trend in the data. Source: Analysis by SAI Law & Economics with data from INEGI and the US Federal Reserve. 10
Demographic competitiveness NAFTA population (2012) China population (2012) 100+ 100+ 95 - 99 95-99 90 - 94 90-94 85 - 89 85-89 80 - 84 75 - 79 80-84 70 - 74 75-79 65 - 69 70-74 60 - 64 65-69 55 - 59 60-64 50 - 54 55-59 45 - 49 50-54 40 - 44 45-49 35 - 39 40-44 30 - 34 35-39 25 - 29 30-34 20 - 24 25-29 15 - 19 20-24 10-14 15-19 5-9 10-14 0-4 5-9 20 10 0 10 20 0-4 Millones 60 40 20 0 20 40 Millions 60 Labor force, from 15 to 64 years (accumulated annual change) 30% 25% 20% 15% 10% 5% 0% -5% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2001 2002 2015 2020 2030 2040 NAFTA China 11 Source: SAI Law & Economics with data from U.S. Census Bureau and National Bureau of Statistics of China.
Cost competitiveness Price of gas (USD/MMBTU) 18 Russia - Henry Hub - Japan Price Evolution (USD/ MMBTU) 16 14 12 10 8 6 4 2 Henry Hub Russia Indonesia-Japan 0 May-1996 May-2000 Sep-2001 May-2004 May-2008 May-2012 Sep-1997 Sep-2005 Sep-2009 Sep-2013 Ene-2015 Jan-1999 Jan-2003 Jan-2007 Jan-2011 Jan-2015 12 Source: SAI Law & Economics with data from FMI.
Cost competitiveness Cost of transporting a 40 container to the U.S. east coast (U.S. dollars) 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 WTI @ $40 WTI @ $70 From China WTI @ $100 From Mexico WTI @ $150 WTI @ $200 Equivalent tariff (percentage) 20 18 16 14 12 10 8 6 4 2 0 WTI @ $40 WTI @ $70 WTI @ $100 WTI @ $150 WTI @ $200 Equivalent rate Equivalent rate + U.S. MFN tariff 13 Source: SAI Law & Economics with data from Rubin, Jeff and Benjamin Tal, Will Soaring Transport Costs Reverse Globalization? .
Green competitiveness Additional investment to reach 450 Scenario (% of GDP) 2.4% 2.0% 2.0% NORTH AMERICA CHINA 1.6% 1.5% 1.2% 1.2% 0.8% 0.8% 0.8% 0.4% 0.5% 0.3% 0.4% 0.0% 2015 2020 2025 2030 The 450 Scenario analyzes different measures to bring energy related CO2 emissions down to a trajectory that would be consistent with ultimately stabilizing the concentration of all greenhouse gases in the atmosphere at 450 particles per million. 14 Source: SAI Law & Economics with data from The International Energy Agency.
Concentration Sectoral Herfindahl Index 10,000 Oil 2,347 8,032 Electric 753 7,998 Telecom 3,189 5,559 Media 1,623 4,152 Transportation 1,659 Mexico 2,172 United Sates Airline 1,157 1,983 Construction 1,502 1,666 Banking 1,641 - 2,000 4,000 6,000 8,000 10,000 16
Concentration Aggregate Herfindahl Index 8,000 7,000 7,130 6,000 5,000 4,000 3,000 2,000 2,060 1,000 - Mexico United States 17
Auction theory at work Reverse English Dutch Partial Lots Vickrey Ranking 18
Auction theory at work Reverse English Dutch Partial Lots Vickrey Ranking 19
Auction theory at work Reverse English Dutch Partial Lots Vickrey Ranking 20
Auction theory at work Reverse English Dutch Partial Lots Vickrey Ranking 21
Auction theory at work Reverse English Dutch Ranking: Ranking: 1 2 Partial Lots Vickrey Ranking 22
Government procurement auctions Through February 2015 Total CFE IMSS PEMEX SEP Processes 64 6 49 6 3 Line Items 673 25 523 110 15 Auctions 995 25 876* 79 15 Spend (Million USD) 8,412 4,306 3,515 339 252 Benefits (Million USD) 879 453 271 155 76 Average Savings (%) 10% 11% 7% 46% 23% Adjudication Rate (%) 94% 96% 91% 99% 100% Average Number of Bidders 5 7 3 7 8 ROI 271 453 54 298 139 23
Government procurement auctions 30,000 Benefits (Millions of Pesos) 25,000 IMSS - 3,546 Transactional Value (Millions of Pesos) CFE - 5,918 20,000 PEMEX - 2,610 SEP - 743 15,000 10,000 5,000 0 1 2 3 4 5 6 7 8 9 10 Competition Index -5,000 24
Intra-regional affairs Intra-regional Market access Dumping + ITEC1vs. common competition policy (Chapter 15) Seamless borders and transportation North America Logistics Program Energy synergies North American Energy Program 2030e/ Dependency ratio 2012 Dependency ratio Ratio2 Ratio2 Country Country Labor mobility vs. migration North American Labor Agreement Mexico 17.45 Mexico 10.06 US 32.10 US 19.76 Canada 41.40 Canada 23.17 NAFTA 28.85 NAFTA 17.66 Dependency ratios 2012: NAFTA 11% smaller than that of the United States 2030e: NAFTA 10% smaller than that of the United States 1/ Interagency Trade Enforcement Center. 2/ 64+ age population/ labor force population (15-64 age). e/ Estimated. Source: SAI Law & Economics with data from U.S. Census Bureau and National Bureau of Statistics of China.. 26
Extra-regional affairs Extra-regional TPP Preservation of NAFTA for trade and investment flows from North America TTIP Regional negotiation v.s. convergence 27
