The Mexican peso crisis was a currency crisis sparked by the Mexican government's sudden devaluation of the peso against the U.S. dollar in December 1994, which became one of the first international financial crises ignited by capital flight .
112-404: During the 1994 presidential election , the incumbent administration embarked on an expansionary fiscal and monetary policy. The Mexican treasury began issuing short-term debt instruments denominated in domestic currency with a guaranteed repayment in U.S. dollars, attracting foreign investors. Mexico enjoyed investor confidence and new access to international capital following its signing of
224-583: A default . Two days later, the bank allowed the peso to float freely , after which it continued to depreciate. The Mexican economy experienced inflation of around 52% and mutual funds began liquidating Mexican assets as well as emerging market assets in general. The effects spread to economies in Asia and the rest of Latin America. The United States organized a $ 50 billion bailout for Mexico in January 1995, administered by
336-482: A 2018 report by Gordon Laxter published by the Council of Canadians , NAFTA's Article 605, energy proportionality rule ensures that Americans had "virtually unlimited first access to most of Canada's oil and natural gas" and Canada could not reduce oil, natural gas and electricity exports (74% its oil and 52% its natural gas) to the U.S., even if Canada was experiencing shortages. These provisions that seemed logical when NAFTA
448-455: A 7% hike in mortality rates among infants and children in 1996 (from 5% in 1995). Infant mortality increased until 1997, most dramatically in regions where women had to work as a result of economic need. Critical scholars contend that the 1994 Mexican peso crisis exposed the problems of Mexico’s neoliberal turn to the Washington consensus approach to development. Notably, the crisis revealed
560-607: A North American free trade zone began with U.S. president Ronald Reagan , who made the idea part of his campaign when he announced his candidacy for the presidency in November 1979. Canada and the United States signed the Canada–United States Free Trade Agreement (FTA) in 1988, and shortly afterward Mexican President Carlos Salinas de Gortari decided to approach U.S. president George H. W. Bush to propose
672-767: A US$ 250 million claim against Canada, accusing it of "arbitrary, capricious and illegal" behaviour, because Quebec intends to prevent fracking exploration under the St. Lawrence Seaway . Lone Pine Resources is incorporated in Delaware but headquartered in Calgary, and had an initial public offering on the NYSE May 25, 2011, of 15 million shares each for $ 13, which raised US$ 195 million. Barutciski acknowledged "that NAFTA and other investor-protection treaties create an anomaly in that Canadian companies that have also seen their permits rescinded by
784-416: A body of evidence with respect to the initial hypotheses about NAFTA and the environment, such as the concern that NAFTA would create a " race to the bottom " in environmental regulation among the three countries, or that NAFTA would pressure governments to increase their environmental protections . The CEC has held four symposia to evaluate the environmental impacts of NAFTA and commissioned 47 papers on
896-518: A decade; overall, unemployment in Canada has fallen since the passage of the act. Commenting on this trade-off , Trefler said that the critical question in trade policy is to understand "how freer trade can be implemented in an industrialized economy in a way that recognizes both the long-run gains and the short-term adjustment costs borne by workers and others". A study in 2007 found that NAFTA had "a substantial impact on international trade volumes , but
1008-443: A decline in real average annual wages, with this decline mainly affecting those who earned the least - the real average wage of minimum wage workers decreased by 14 percent. GTW concluded that "inflation-adjusted wages for virtually every category of Mexican worker decreased over NAFTA’s first six years, even as hundreds of thousands of manufacturing jobs were being shifted from the United States to Mexico". Similar effects were found in
1120-488: A decrease of 0.06%. According to a 2017 report by the New York City based public policy think tank report, Council on Foreign Relations (CFR), bilateral trade in agricultural products tripled in size from 1994 to 2017 and is considered to be one of the largest economic effects of NAFTA on U.S.-Canada trade with Canada becoming the U.S. agricultural sectors' leading importer. Canadian fears of losing manufacturing jobs to
1232-518: A guaranteed repayment denominated in U.S. dollars, called " tesobonos ". These bills offered a lower yield than Mexico's traditional peso-denominated treasury bills, called " cetes ", but their dollar-denominated returns were more attractive to foreign investors. Investor confidence rose after the North American Free Trade Agreement (NAFTA) was signed. Upon NAFTA's entry into force on January 1, 1994, Mexican businesses as well as
SECTION 10
#17328512464331344-416: A modest effect on prices and welfare". According to a 2012 study, with reduced NAFTA trade tariffs, trade with the United States and Mexico only increased by a modest 11% in Canada compared to an increase of 41% for the U.S. and 118% for Mexico. Moreover, the U.S. and Mexico benefited more from the tariff reductions component, with welfare increases of 0.08% and 1.31%, respectively, with Canada experiencing
1456-471: A non-discriminatory regulation for a public purpose , which is enacted in accordance with due process and, which affects, inter alios , a foreign investor or investment is not deemed expropriatory and compensable unless specific commitments had been given by the regulating government to the then putative foreign investor contemplating investment that the government would refrain from such regulation." In another case, Metalclad , an American corporation,
1568-596: A profound impact on Mexican public opinion, already tumultuous by the conflict in Chiapas. Many conspiracy theories about the assassination persist, including that it was orchestrated by drug traffickers. However, the most accepted theory among the Mexican people is that he was betrayed by his party and that the murder was orchestrated by high members of PRI, including President Salinas , as Colosio had begun to reject Salinas's political agenda. The shooter, Mario Aburto Martínez ,
1680-592: A severe recession and the peso's value deteriorated substantially despite the bailout's success in preventing a worse collapse . Growth did not resume until the late 1990s. The conditionality of the bailout required the Mexican government to institute new monetary and fiscal policy controls, although the country refrained from balance of payments reforms such as trade protectionism and strict capital controls to avoid violating its commitments under NAFTA . The loan guarantees allowed Mexico to restructure its short-term public debt and improve market liquidity . Of
1792-725: A severe recession as a result of the peso's devaluation and the flight to safer investments. The country's GDP declined by 6.2% over the course of 1995. Mexico's financial sector bore the brunt of the crisis as banks collapsed, revealing low-quality assets and fraudulent lending practices. Thousands of mortgages went into default as Mexican citizens struggled to keep pace with rising interest rates, resulting in widespread repossession of houses. In addition to declining GDP growth, Mexico experienced severe inflation and extreme poverty skyrocketed as real wages plummeted and unemployment nearly doubled. Prices increased by 35% in 1995. Nominal wages were sustained, but real wages fell by 25-35% over
1904-619: A significant and material error that threatens the integrity of the NAFTA dispute settlement system. Since January 2006, no NAFTA party had successfully challenged a Chapter 19 panel's decision before an extraordinary challenge committee. The roster of NAFTA adjudicators included many retired judges, such as Alice Desjardins, John Maxwell Evans , Constance Hunt , John Richard , Arlin Adams , Susan Getzendanner , George C. Pratt , Charles B. Renfrew and Sandra Day O'Connor . In 2008, Canadian exports to
2016-663: A similar agreement in an effort to bring in foreign investment following the Latin American debt crisis . As the two leaders began negotiating, the Canadian government under Prime Minister Brian Mulroney feared that the advantages Canada had gained through the Canada–US FTA would be undermined by a US–Mexican bilateral agreement, and asked to become a party to the US–Mexican talks. Following diplomatic negotiations dating back to 1990,
2128-538: A study published in the International Journal of Economic Sciences, which found that NAFTA had a direct impact on wage inequality in Mexico; from 1994 onwards, the wage gap between the poorest and the richest workers noticeably increased. Production of corn in Mexico increased since NAFTA. However, internal demand for corn had increased beyond Mexico's supply to the point where imports became necessary, far beyond
2240-460: A trilateral trade bloc in North America . The agreement came into force on January 1, 1994, and superseded the 1988 Canada–United States Free Trade Agreement between the United States and Canada. The NAFTA trade bloc formed one of the largest trade blocs in the world by gross domestic product . The impetus for a North American free trade zone began with U.S. president Ronald Reagan , who made
2352-430: A way that reestablished trade barriers would have adversely affected the U.S. economy and cost jobs. However, Mexico would have been much more severely affected by job loss and reduction of economic growth in both the short term and long term. After U.S. President Donald Trump took office in January 2017, he sought to replace NAFTA with a new agreement, beginning negotiations with Canada and Mexico. In September 2018,
SECTION 20
#17328512464332464-625: The Council of Economic Advisers Laura Tyson , Director of the National Economic Council Robert Rubin , and Republican Congressman David Dreier . Clinton also stated that "NAFTA means jobs. American jobs, and good-paying American jobs. If I didn't believe that, I wouldn't support this agreement." NAFTA replaced the previous Canada-US FTA. NAFTA (TLCAN in Spanish) was approved by the Mexican Senate on November 22, 1993, and
2576-487: The Federal Deposit Insurance Corporation , L. William Seidman , that Mexico should just negotiate with creditors without involving the United States, especially in the interest of deterring moral hazard . On the other hand, supporters of U.S. involvement such as Fed Chair Alan Greenspan argued that the fallout from a Mexican sovereign default would be so devastating that it would far exceed
2688-662: The Institutional Revolutionary Party (PRI), whilst the PRI won 300 of the 500 seats in the Chamber of Deputies and 95 of the 128 seats in the Senate. Voter turnout ranged from 77.4% in the proportional representation section of the Chamber elections to 75.9% in the constituency section. The presidential elections were the first in Mexico to be monitored by international observers. Turnout was just over 77% of those eligible. To date,
2800-510: The Institutional Revolutionary Party 's (PRI) presidential candidate for Mexico's 1994 general election . In accordance with party tradition during election years, Salinas de Gortari began an unrecorded spending spree. Mexico's current account deficit grew to roughly 7% of GDP that same year, and Salinas de Gortari allowed the Secretariat of Finance and Public Credit , Mexico's treasury , to issue short-term peso-denominated treasury bills with
2912-615: The International Monetary Fund (IMF) with the support of the G7 and Bank for International Settlements . In the aftermath of the crisis, several of Mexico's banks collapsed amidst widespread mortgage defaults. The Mexican economy experienced a severe recession and poverty and unemployment increased. With 1994 being the final year of his administration's sexenio (the country's six-year executive term limit), then- President Carlos Salinas de Gortari endorsed Luis Donaldo Colosio as
3024-516: The New Democrats ), but the split of the votes between the two parties meant that the pro-free trade Progressive Conservatives (PCs) came out of the election with the most seats and so took power. Mulroney and the PCs had a parliamentary majority and easily passed the 1987 Canada–US FTA and NAFTA bills. However, Mulroney was replaced as Conservative leader and prime minister by Kim Campbell . Campbell led
3136-422: The North American Free Trade Agreement (NAFTA). However, a violent uprising in the state of Chiapas , as well as the assassination of the presidential candidate Luis Donaldo Colosio , resulted in political instability, causing investors to place an increased risk premium on Mexican assets. In response, the Mexican central bank intervened in the foreign exchange markets to maintain the Mexican peso's peg to
3248-594: The Reagan administration , played a leading role in mobilizing support for the agreement among Republicans in Congress and across the country. Chicago Congressman Luis Gutiérrez in particular was a vocal opponent of NAFTA, ultimately voting against the measure because of what he considered its failure to sufficiently provide for displaced worker retraining, protections against American job loss, and protections of collective bargaining rights for Mexican workers. He criticized
3360-525: The U.S. Congress as well as scrutiny from the news media . The administration's position centered on three principal concerns: potential unemployment in the United States in the event Mexico would have to reduce its imports of U.S. goods (at the time, Mexico was the third-largest consumer of U.S. exports); political instability and violence in a neighboring country; and a potential surge in illegal immigration from Mexico. Some congressional representatives agreed with American economist and former chairman of
3472-509: The U.S. House of Representatives passed the North American Free Trade Agreement Implementation Act on November 17, 1993, 234–200. The agreement's supporters included 132 Republicans and 102 Democrats . The bill passed the Senate on November 20, 1993, 61–38. Senate supporters were 34 Republicans and 27 Democrats. Republican Representative David Dreier of California , a strong proponent of NAFTA since
Mexican peso crisis - Misplaced Pages Continue
3584-536: The copyright law of the United States , foreshadowing the Uruguay Round Agreements Act of 1994 by restoring copyright (within the NAFTA nations) on certain motion pictures which had entered the public domain . The Clinton administration negotiated a side agreement on the environment with Canada and Mexico, the North American Agreement on Environmental Cooperation (NAAEC), which led to
3696-449: The financial sector and 35% in the construction and commerce industries. Average household consumption declined by 15% from 1995 to 1996 with a shift in composition toward essential goods. Households saved less and spent less on healthcare. Expatriates living abroad increased remittances to Mexico, evidenced by average net unilateral transfers doubling between 1994 and 1996. Households' lower demand for primary healthcare led to
3808-487: The intellectual property rights on traded products . Chapter 20 provided a procedure for the international resolution of disputes over the application and interpretation of NAFTA. It was modeled after Chapter 69 of the Canada–United States Free Trade Agreement . NAFTA is, in part, implemented by Technical Working Groups composed of government officials from each of the three partner nations. The North American Free Trade Agreement Implementation Act made some changes to
3920-452: The 1994 elections mark the last time a presidential candidate won in all 31 states and Mexico City . Although tension did not reach the level it did around the 1988 election , most political analysts agree that voters (in the aftermath of the Zapatista uprising that began in January and the assassination of the original PRI candidate Luis Donaldo Colosio ), opted for continuity by allowing
4032-546: The Exchange Stabilization Fund in support of the Mexican bailout was scrutinized by the United States House Committee on Financial Services , which expressed concern about a potential conflict of interest because Rubin had formerly served as co-chair of the board of directors of Goldman Sachs , which had a substantial share in distributing Mexican stocks and bonds. Mexico's economy experienced
4144-444: The Mexican central bank's devaluation of the peso between 13% and 15%. Devaluing the peso after previous promises not to do so led investors to be skeptical of policymakers and fearful of additional devaluations. Investors flocked to foreign investments and placed even higher risk premia on domestic assets. This increase in risk premia placed additional upward market pressure on Mexican interest rates as well as downward market pressure on
4256-664: The Mexican government enjoyed access to new foreign capital thanks to foreign investors eager to lend more money. That year Chase Manhattan Bank alone held an estimated $ 1.5 billion in Mexican securities. International perceptions of the country's political risk began to shift, however, when the Zapatista Army of National Liberation declared war on the Mexican government and began a violent insurrection in Chiapas . Investors further questioned Mexico's political uncertainties and stability when PRI presidential candidate Luis Donaldo Colosio
4368-478: The Mexican peso. Foreign investors anticipating further currency devaluations began rapidly withdrawing capital from Mexican investments and selling off shares of stock as the Mexican Stock Exchange plummeted. To discourage such capital flight, particularly from debt instruments, the Mexican central bank raised interest rates, but higher borrowing costs ultimately hindered economic growth prospects. When
4480-460: The Mexico–U.S. agricultural agreement is disputed. Mexico did not invest in the infrastructure necessary for competition, such as efficient railroads and highways. This resulted in more difficult living conditions for the country's poor. Mexico's agricultural exports increased 9.4 percent annually between 1994 and 2001, while imports increased by only 6.9 percent a year during the same period. One of
4592-545: The Mexico–U.S. pact allowed for a wider liberalization within a framework of phase-out periods (it was the first North–South FTA on agriculture to be signed). NAFTA established the CANAMEX Corridor for road transport between Canada and Mexico, also proposed for use by rail, pipeline, and fiber optic telecommunications infrastructure. This became a High Priority Corridor under the U.S. Intermodal Surface Transportation Efficiency Act of 1991. Another contentious issue
Mexican peso crisis - Misplaced Pages Continue
4704-575: The PC party into the 1993 election where they were decimated by the Liberal Party under Jean Chrétien , who campaigned on a promise to renegotiate or abrogate NAFTA. Chrétien subsequently negotiated two supplemental agreements with Bush, who had subverted the LAC advisory process and worked to "fast track" the signing prior to the end of his term, ran out of time and had to pass the required ratification and signing of
4816-475: The PRI presidential candidate. Salinas' choice sparked a brief internal conflict in the government, as Manuel Camacho Solís , who was then Mayor of Mexico City, had expected himself to be the PRI candidate, and quit his position in protest. President Salinas immediately appointed Camacho as Minister of Foreign Relations to hide the conflict, and tried to appease him. In the aftermath of the Zapatista uprising, Camacho
4928-435: The PRI to remain in power, fearing that the country might otherwise be destabilized. While the election itself was generally considered clean, with no major irregularities, there was much criticism directed at the inequity of the campaigns, with the ruling PRI having a disproportionate advantage in regards to campaign financing and mass media exposure. The 1994 elections took place in an atmosphere of political instability after
5040-799: The PRI: the PRI alone was responsible for 78.3% of the reported campaign expenses in 1994, while the PAN was responsible for 10.4% and the PRD for 1.52% of said expenses. Zedillo himself stated, during an international tour in 1995, that the election which had brought him into the Presidency had been "legal, but unequal". PAN candidate Diego Fernández de Cevallos would later say that he hadn't been defeated by Zedillo, but "by [President] Salinas and Televisa ". Subsequent political and electoral reforms sought to provide clear rules for campaign financing, as well as less unequal access to
5152-606: The Treasury Larry Summers to discuss an American response. According to Summers' recollection of the meeting: Secretary Rubin set the stage for it briefly. Then, as was his way, he turned to someone else, namely me, to explain the situation in more detail and our proposal. And I said that I felt that $ 25 billion was required, and one of the President’s political advisers said, “Larry, you mean $ 25 million .” And I said, “No, I mean $ 25 billion .” ... There
5264-475: The U.S. dollar by issuing dollar-denominated public debt to buy pesos. The peso's strength caused demand for imports to increase in Mexico, resulting in a trade deficit . Speculators recognized an overvalued peso and capital began flowing out of Mexico to the United States, increasing downward market pressure on the peso. Under election pressures, Mexico purchased its own treasury securities to maintain its money supply and avert rising interest rates, drawing down
5376-478: The U.S. meat industry. A coinciding noticeable increase in the Mexican per capita GDP greatly changed meat consumption patterns as per capita meat consumption grew. One of concerns raised by the implementation of NAFTA in Mexico was wealth inequality. National Bureau of Economic Research found that NAFTA increased the wage gap between the lowest and highest earners, directly affecting wealth inequality. According to Global Trade Watch , under NAFTA Mexico observed
5488-591: The United States , hence the debate over the loss of American jobs. Income in the maquiladora sector had increased 15.5% since the implementation of NAFTA in 1994. Other sectors also benefited from the free trade agreement, and the share of exports to the U.S. from non-border states increased in the last five years while the share of exports from border states decreased. This allowed for rapid growth in non-border metropolitan areas such as Toluca , León , and Puebla , which were all larger in population than Tijuana , Ciudad Juárez , and Reynosa . The overall effect of
5600-471: The United States and Canada. All three countries ratified NAFTA in 1993 after the addition of two side agreements, the North American Agreement on Labor Cooperation (NAALC) and the North American Agreement on Environmental Cooperation (NAAEC). Passage of NAFTA resulted in the elimination or reduction of barriers to trade and investment between the United States, Canada, and Mexico. The effects of
5712-496: The United States and Mexico were at $ 381.3 billion, with imports at $ 245.1 billion. According to a 2004 article by University of Toronto economist Daniel Trefler , NAFTA produced a significant net benefit to Canada in 2003, with long-term productivity increasing by up to 15 percent in industries that experienced the deepest tariff cuts. While the contraction of low-productivity plants reduced employment (up to 12 percent of existing positions), these job losses lasted less than
SECTION 50
#17328512464335824-498: The United States did not materialize with manufacturing employment holding "steady". However, with Canada's labour productivity levels at 72% of U.S. levels, the hopes of closing the "productivity gap" between the two countries were also not realized. According to a 2018 Sierra Club report, Canada's commitments under NAFTA and the Paris agreement conflicted. The Paris commitments were voluntary, and NAFTA's were compulsory. According to
5936-415: The United States is attempting to pressure it out of, specifically focusing on the dairy industry. However, this has not yet taken place, as Quebec, which holds approximately half the country's dairy farms, still supports supply management. Maquiladoras (Mexican assembly plants that take in imported components and produce goods for export) became the landmark of trade in Mexico. They moved to Mexico from
6048-413: The United States, Mexico, and Canada for a variety of reasons, including not taking into account important social and environmental considerations. In Canada, several groups, including the Council of Canadians , challenged the constitutionality of Chapter 11. They lost at the trial level and the subsequent appeal. Methanex Corporation , a Canadian corporation, filed a US$ 970 million suit against
6160-497: The United States, Mexico, and Canada reached an agreement to replace NAFTA with the United States–Mexico–Canada Agreement (USMCA), and all three countries had ratified it by March 2020. NAFTA remained in force until USMCA was implemented. In April 2020, Canada and Mexico notified the U.S. that they were ready to implement the agreement. The USMCA took effect on July 1, 2020, replacing NAFTA. The impetus for
6272-403: The United States. Methanex claimed that a California ban on methyl tert -butyl ether (MTBE), a substance that had found its way into many wells in the state, was hurtful to the corporation's sales of methanol . The claim was rejected, and the company was ordered to pay US$ 3 million to the U.S. government in costs, based on the following reasoning: "But as a matter of general international law,
6384-463: The agreement regarding issues such as employment, the environment, and economic growth have been the subject of political disputes. Most economic analyses indicated that NAFTA was beneficial to the North American economies and the average citizen, but harmed a small minority of workers in industries exposed to trade competition. Economists held that withdrawing from NAFTA or renegotiating NAFTA in
6496-552: The approximately $ 50 billion assembled in the bailout, $ 20 billion was contributed by the United States, $ 17.8 billion by the IMF, $ 10 billion by the BIS, $ 1 billion by a consortium of Latin American nations, and CAD $ 1 billion by Canada. The Clinton administration 's efforts to organize a bailout for Mexico were met with difficulty. It drew criticism from members of
6608-430: The authority to ban construction on the basis of its environmental concerns. In Eli Lilly and Company v. Government of Canada the plaintiff presented a US$ 500 million claim for the way Canada requires usefulness in its drug patent legislation. Apotex sued the U.S. for US$ 520 million because of opportunity it says it lost in an FDA generic drug decision. Lone Pine Resources Inc. v. Government of Canada filed
6720-552: The bank's dollar reserves. Supporting the money supply by buying more dollar-denominated debt while simultaneously honoring such debt depleted the bank's reserves by the end of 1994. The central bank devalued the peso on December 20, 1994, and foreign investors' fear led to an even higher risk premium . To discourage the resulting capital flight, the bank raised interest rates, but higher costs of borrowing merely hurt economic growth. Unable to sell new issues of public debt or efficiently purchase dollars with devalued pesos, Mexico faced
6832-416: The campaign of Colosio. Zedillo had never held elective office, sharing that trait with many previous presidents, but Zedillo was not otherwise politically experienced. He was perceived as a weak candidate. It was speculated that Salinas wished to perpetuate his power as Plutarco Elías Calles had in the wake of the 1928 assassination of president-elect Alvaro Obregón , controlling successor presidents. For
SECTION 60
#17328512464336944-643: The central bank's foreign exchange reserves. Consistent with the macroeconomic trilemma in which a country with a fixed exchange rate and free flow of financial capital sacrifices monetary policy autonomy, the central bank's interventions to revalue the peso caused Mexico's money supply to contract (without an exchange rate peg, the currency would have been allowed to depreciate). The central bank's foreign exchange reserves began to dwindle and it completely ran out of U.S. dollars in December 1994. On December 20, 1994, newly inaugurated President Ernesto Zedillo announced
7056-574: The creation of common social and employment policies. The regulation of the labor market and or the workplace remained the exclusive preserve of the national governments. A "side agreement" on enforcement of existing domestic labor law, concluded in August 1993, the North American Agreement on Labour Cooperation (NAALC), was highly circumscribed. Focused on health and safety standards and on child labor law, it excluded issues of collective bargaining, and its "so-called [enforcement] teeth" were accessible only at
7168-516: The creation of the Commission for Environmental Cooperation (CEC) in 1994. To alleviate concerns that NAFTA, the first regional trade agreement between a developing country and two developed countries, would have negative environmental impacts , the commission was mandated to conduct ongoing ex post environmental assessment , It created one of the first ex post frameworks for environmental assessment of trade liberalization , designed to produce
7280-645: The crisis led to financial contagion throughout other financial markets in Asia and the Americas . US investors in Mexican securities risked losses of $ 8 to 10 billion. The impact of Mexico's crisis in Chile and Brazil became known as the "Tequila effect" ( Spanish : efecto tequila ). In January 1995, U.S. President Bill Clinton held a meeting with newly confirmed U.S. Treasury Secretary Robert Rubin , U.S. Federal Reserve Chairman Alan Greenspan and then-Under Secretary for
7392-402: The debate, Fernández de Cevallos seemed to decrease his media presence, and Zedillo continued in the first place at the polls; on the other hand, the polls also indicated that Zedillo might win with less than 50% of the popular vote, something unprecedented for a PRI candidate (notwithstanding previous controversial elections in which the PRI was accused of fraud). After the 12 May debate between
7504-412: The dollar within a narrow band. To accomplish this, the central bank would frequently intervene in the open markets and buy or sell pesos to maintain the peg. The central bank's intervention strategy partly involved issuing new short-term public debt instruments denominated in U.S. dollars. They then used the borrowed dollar capital to purchase pesos in the foreign exchange market , which, in turn, caused
7616-553: The end of "a long and tortuous" disputes process". Commitments to enforce existing labor law also raised issues of democratic practice. The Canadian anti-NAFTA coalition, Pro-Canada Network, suggested that guarantees of minimum standards would be "meaningless" without "broad democratic reforms in the [Mexican] courts, the unions, and the government". Later assessment, however, did suggest that NAALC's principles and complaint mechanisms did "create new space for advocates to build coalitions and take concrete action to articulate challenges to
7728-463: The existing literature found that NAFTA was a net benefit to Mexico. By 2003, 80% of the commerce in Mexico was executed only with the U.S. The commercial sales surplus, combined with the deficit with the rest of the world, created a dependency in Mexico's exports. These effects were evident in the 2001 recession , which resulted in either a low rate or a negative rate in Mexico's exports. A 2015 study found that Mexico's welfare increased by 1.31% as
7840-474: The first time in Mexican history, the 1994 campaign featured televised debates between the Presidential candidates. On 12 May, the three main contenders Zedillo, Fernández de Cevallos, and Cárdenas participated in the first Presidential debate in Mexican history. An estimated audience of 34 million watched the debate. Polls after the debate indicated that the PAN candidate, Diego Fernández de Cevallos, had defeated
7952-540: The idea part of his 1980 presidential campaign . After the signing of the Canada–United States Free Trade Agreement in 1988, the administrations of U.S. president George H. W. Bush , Mexican president Carlos Salinas de Gortari , and Canadian prime minister Brian Mulroney agreed to negotiate what became NAFTA. Each submitted the agreement for ratification in their respective capitals in December 1992, but NAFTA faced significant opposition in both
8064-455: The immediate elimination of tariffs on more than one-half of Mexico's exports to the U.S. and more than one-third of U.S. exports to Mexico. Within 10 years of the implementation of the agreement, all U.S.–Mexico tariffs were to be eliminated except for some U.S. agricultural exports to Mexico, to be phased out within 15 years. Most U.S.–Canada trade was already duty-free. NAFTA also sought to eliminate non- tariff trade barriers and to protect
8176-590: The implementation law to incoming president Bill Clinton . Before sending it to the United States Senate , Clinton added two side agreements, the North American Agreement on Labor Cooperation (NAALC) and the North American Agreement on Environmental Cooperation (NAAEC), to protect workers and the environment, and to also allay the concerns of many House members. The U.S. required its partners to adhere to environmental practices and regulations similar to its own. After much consideration and emotional discussion,
8288-509: The leaders of the three nations signed the agreement in their respective capitals on December 17, 1992. The signed agreement then needed to be ratified by each nation's legislative or parliamentary branch. The earlier Canada–United States Free Trade Agreement had been controversial and divisive in Canada, and featured as an issue in the 1988 Canadian election . In that election, more Canadians voted for anti-free trade parties (the Liberals and
8400-557: The main three contenders, there was also a debate between the Presidential candidates of smaller parties. Based on the official results of the Federal Electoral Institute . Neither the opposition nor international observers denounced major irregularities in the election, and Zedillo's victory was mostly accepted as definitive. However, there was considerable criticism towards the inequity regarding campaign financing and media exposure, both of which disproportionately favoured
8512-459: The mass media for the opposition parties. North American Free Trade Agreement The North American Free Trade Agreement ( NAFTA / ˈ n æ f t ə / NAF -tə ; Spanish : Tratado de Libre Comercio de América del Norte , TLCAN ; French : Accord de libre-échange nord-américain , ALÉNA ) was an agreement signed by Canada , Mexico , and the United States that created
8624-435: The most affected agricultural sectors was the meat industry . Mexico went from a small player in the pre-1994 U.S. export market to the second largest importer of U.S. agricultural products in 2004, and NAFTA may have been a major catalyst for this change. Free trade removed the hurdles that impeded business between the two countries, so Mexico provided a growing market for meat for the U.S., and increased sales and profits for
8736-419: The most controversial trade disputes in recent years, such as the U.S.–Canada softwood lumber dispute , have been litigated before Chapter 19 panels. Decisions by Chapter 19 panels could be challenged before a NAFTA extraordinary challenge committee. However, an extraordinary challenge committee did not function as an ordinary appeal. Under NAFTA, it only vacated or remanded a decision if the decision involveed
8848-406: The opposition candidates lamented the assassination and called for an end to political violence. In the aftermath, many PRI members sought to replace the dead candidate. In the end, President Salinas chose Ernesto Zedillo , who had been Colosio's campaign manager, as the new PRI presidential candidate. Zedillo had been Secretary of Education, a relatively unimportant ministry; he had resigned to run
8960-417: The option of appealing the decisions to binational panels composed of five citizens from the two relevant NAFTA countries. The panelists were generally lawyers experienced in international trade law. Since NAFTA did not include substantive provisions concerning AD/CVD, the panel was charged with determining whether final agency determinations involving AD/CVD conformed with the country's domestic law. Chapter 19
9072-451: The other two candidates, and had become capable of defeating the PRI candidate in the elections. A phone survey carried out by the Oficina de la Presidencia de la República Mexicana after the debate shows the widespread perception of Cevallos' victory in the debate, as well as Zedillo's lackluster performance and the appalling reception of Cárdenas' performance: However, in the aftermath of
9184-537: The people's independence from government. The speech was controversial, as it echoed many of the beliefs of the EZLN platform. On 22 March, Camacho himself stated that he was not interested in being the PRI candidate, instead focusing on the Chiapas conflict. The day after Camacho's statement, Colosio was killed. At 5:05 PM PST on 23 March, at a campaign rally in Lomas Taurinas , a poor neighborhood of Tijuana , Colosio
9296-541: The peso depreciated another 15%. The value of the Mexican peso depreciated roughly 50% from 3.4 MXN /USD to 7.2, recovering only to 5.8 MXN/USD four months later. Prices in Mexico rose by 24% over the same four months, and total inflation in 1995 was 52%. Mutual funds , which had invested in over $ 45 billion worth of Mexican assets in the several years leading up to the crisis, began liquidating their positions in Mexico and other developing countries . Foreign investors not only fled Mexico but emerging markets in general, and
9408-518: The peso to appreciate. The bank's purpose in mitigating the peso's depreciation was to protect against inflationary risks of having a markedly weaker domestic currency, but with the peso stronger than it ought to have been, domestic businesses and consumers began purchasing increasingly more imports, and Mexico began running a large trade deficit . Speculators began recognizing that the peso was artificially overvalued and led to speculative capital flight that further reinforced downward market pressure on
9520-451: The peso. Mexico's central bank deviated from standard central banking policy when it fixed the peso to the dollar in 1988. Instead of allowing its monetary base to contract and its interest rates to rise, the central bank purchased treasury bills to prop up its monetary base and prevent rising interest rates—especially given that 1994 was an election year . Additionally, servicing the tesobonos with U.S. dollar repayments further drew down
9632-621: The presidential candidate. At one point, President Salinas had to state to the media "Don't get confused, Colosio is the candidate". Due to his campaign's underperformance, Colosio tried to distance himself from the outgoing President. On 6 March 1994, the anniversary of the PRI's founding, Colosio broke with Salinas in a controversial-but-popular speech in front of the Monumento a la Revolución in Mexico City. In his speech, Colosio spoke against government abuse, and in support of indigenous peoples and
9744-452: The problems of a privatized banking sector within a liberalized yet internationally subordinate economy that is dependent on foreign flows of finance capital. 1994 Mexican general election Carlos Salinas de Gortari PRI Ernesto Zedillo PRI General elections were held in Mexico on 21 August 1994. The presidential elections resulted in a victory for Ernesto Zedillo of
9856-463: The quotas Mexico originally negotiated. Zahniser & Coyle pointed out that corn prices in Mexico, adjusted for international prices, have drastically decreased, but through a program of subsidies expanded by former president Vicente Fox , production remained stable since 2000. Reducing agricultural subsidies, especially corn subsidies, was suggested as a way to reduce harm to Mexican farmers. A 2001 Journal of Economic Perspectives review of
9968-534: The rise of the Zapatista Army of National Liberation (EZLN) on 1 January that year. The insurgency was a serious hit on the image that the Government wanted to portray of a developed, advanced country, and it highlighted the negative effects of the neoliberal reforms enacted by the Salinas administration. In the previous six years, the right-wing opposition Partido Acción Nacional (PAN) had won many state elections, and
10080-584: The risks of moral hazard. Following the U.S. Congress 's failure to pass the Mexican Stabilization Act, the Clinton administration reluctantly approved an initially dismissed proposal to designate funds from the U.S. Treasury 's Exchange Stabilization Fund as loan guarantees for Mexico. These loans returned a handsome profit of $ 600 million and were even repaid ahead of maturity. Then- U.S. Treasury Secretary Robert Rubin 's appropriation of funds from
10192-436: The role of Rahm Emanuel in particular for the deficiencies. The U.S. required its partners to adhere to environmental practices and regulations similar to its own. Clinton signed it into law on December 8, 1993; the agreement went into effect on January 1, 1994. At the signing ceremony , Clinton recognized four individuals for their efforts in accomplishing the historic trade deal: Vice President Al Gore , Chairwoman of
10304-597: The same year. Unemployment climbed to 7.4% in 1995 from its pre-crisis level of 3.9% in 1994. In the formal sector alone, over one million people lost their jobs and average real wages decreased by 13.5% throughout 1995. Overall household incomes plummeted by 30% in the same year. Mexico's extreme poverty grew to 37% in 1996 from 21% in 1994, undoing the previous ten years of successful poverty reduction initiatives. The nation's poverty levels would not begin returning to normal until 2001. Mexico's growing poverty affected urban areas more intensely than rural areas , in part due to
10416-514: The spread of investors' lack of confidence in Mexico to other developing countries, the United States coordinated a $ 50 billion bailout package in January 1995, to be administered by the IMF with support from the G7 and the Bank for International Settlements (BIS). The package established loan guarantees for Mexican public debt aimed at alleviating its growing risk premia and boosting investor confidence in its economy. The Mexican economy experienced
10528-577: The status quo and advance workers’ interests". From the earliest negotiation, agriculture was a controversial topic within NAFTA, as it has been with almost all free trade agreements signed within the WTO framework. Agriculture was the only section that was not negotiated trilaterally; instead, three separate agreements were signed between each pair of parties. The Canada–U.S. agreement contained significant restrictions and tariff quotas on agricultural products (mainly sugar, dairy, and poultry products), whereas
10640-411: The subject from leading independent experts. Proponents of NAFTA in the United States emphasized that the pact was a free-trade, not an economic-community, agreement. The freedom of movement it establishes for goods, services and capital did not extend to labor. In proposing what no other comparable agreement had attempted—to open industrialized countries to "a major Third World country" —NAFTA eschewed
10752-415: The time came for Mexico to roll over its maturing debt obligations, few investors were interested in purchasing new debt. To repay tesobonos, the central bank had little choice but to purchase dollars with its severely weakened pesos, which proved extremely expensive. The Mexican government faced an imminent sovereign default . On December 22, the Mexican government allowed the peso to float , after which
10864-457: The urban population's sensitivity to labor market volatility and macroeconomic conditions. Urban citizens relied on a healthy labor market, access to credit , and consumer goods. Consumer price inflation and a tightening credit market during the crisis proved challenging for urban workers, while rural households shifted to subsistence agriculture . Mexico's gross income per capita decreased by only 17% in agriculture , contrasted with 48% in
10976-482: The very same Quebec legislation, which expressly forbids the paying of compensation, do not have the right (to) pursue a NAFTA claim", and that winning "compensation in Canadian courts for domestic companies in this case would be more difficult since the Constitution puts property rights in provincial hands". A treaty with China would extend similar rights to Chinese investors, including SOEs . NAFTA's Chapter 19
11088-507: Was assassinated while campaigning in Tijuana in March 1994, and began setting higher risk premiums on Mexican financial assets. Higher premiums initially had no effect on the peso's value because Mexico had a fixed exchange rate . Banco de México , the central bank, maintained the peso's value through an exchange rate peg to the U.S. dollar, allowing the peso to appreciate or depreciate against
11200-439: Was a certain pall over the room, and one of his [Clinton's] other political advisers said, “Mr. President, if you send that money to Mexico and it doesn’t come back before 1996, you won’t be coming back after 1996.” Clinton decided nevertheless to seek Congressional approval for a bailout and began working with Summers to secure commitments from Congress. Motivated to deter a potential surge in illegal immigration and to mitigate
11312-425: Was a trade dispute mechanism which subjects antidumping and countervailing duty (AD/CVD) determinations to binational panel review instead of, or in addition to, conventional judicial review. For example, in the United States, review of agency decisions imposing antidumping and countervailing duties are normally heard before the U.S. Court of International Trade , an Article III court . NAFTA parties, however, had
11424-416: Was an anomaly in international dispute settlement since it did not apply international law, but required a panel composed of individuals from many countries to re-examine the application of one country's domestic law. A Chapter 19 panel was expected to examine whether the agency's determination was supported by "substantial evidence". This standard assumed significant deference to the domestic agency. Some of
11536-412: Was arrested at the site and never wavered from his story that he had acted alone. Nonetheless, many theories still surround the assassination. The authorities were criticized for their handling of Aburto, unusual for a detained suspect, having been shaved, bathed, and given a prison haircut before showing him to the media, which started rumors about whether a man who looked so different from the one arrested
11648-467: Was awarded US$ 15.6 million from Mexico after a Mexican municipality refused a construction permit for the hazardous waste landfill it intended to construct in Guadalcázar , San Luis Potosí . The construction had already been approved by the federal government with various environmental requirements imposed (see paragraph 48 of the tribunal decision). The NAFTA panel found that the municipality did not have
11760-476: Was designated Peace Commissioner in Chiapas. The PAN chose Diego Fernández de Cevallos as their candidate through an internal convention. Cuauhtémoc Cárdenas ran for the presidency once again, this time as the candidate of the PRD, the party he founded in 1989. Six other parties presented their candidates. In the initial months of the campaign, PRI candidate Colosio expressed dissatisfaction with his campaign management, as polls indicated his popular support
11872-439: Was far lower than earlier PRI candidates. Colosio's campaign lacked funding and had problems getting media coverage in the wake of the Zapatista uprising in Chiapas . Due to this poor performance, the PRI leadership considered replacing Colosio as the presidential candidate. At the same time, Camacho 's popularity was rising due to his role as mediator in the Zapatista conflict, and it was rumoured that he might replace Colosio as
11984-586: Was published in the Official Gazette of the Federation on December 8, 1993. The decree implementing NAFTA and the various changes to accommodate NAFTA in Mexican law was promulgated on December 14, 1993, with entry into force on January 1, 1994. The goal of NAFTA was to eliminate barriers to trade and investment between the United States, Canada and Mexico. The implementation of NAFTA on January 1, 1994, brought
12096-559: Was really the murderer. Colosio received three bullet wounds, and it was never clear if they could have been done by a single person or not. The case was officially closed after many prosecutors investigated it, but after the many mishandlings of the investigation and contradictory versions, the controversy continues. Aburto remains imprisoned at the high-security La Palma facility in Almoloya de Juárez . President Salinas declared three days of national mourning after Colosio's death, while all
12208-485: Was seen as a serious contender for the presidency in 1994. On the other hand, the left-wing Partido de la Revolucion Democratica (PRD), while building a wide social base, had failed to win any state governorship, which its leaders blamed on repression and electoral fraud by the PRI -controlled federal government. Outgoing President Carlos Salinas de Gortari chose his Secretary of Social Development, Luis Donaldo Colosio , to be
12320-452: Was shot in the head with a .38 Special by Mario Aburto Martínez at a distance of a few centimeters. Colosio collapsed and was rushed to the city's main hospital after plans to fly him to an American hospital were cancelled. His death was announced a few hours later amid inconsistent eyewitness reports. The assassination of Colosio was the first magnicide to occur in Mexico since the murder of Álvaro Obregón in 1928. The assassination had
12432-400: Was signed in 1993 are no longer appropriate. The Council of Canadians promoted environmental protection and was against NAFTA's role in encouraging development of the tar sands and fracking . US President Donald Trump, angered by Canada's dairy tax of "almost 300%", threatened to leave Canada out of the NAFTA. Since 1972, Canada has been operating on a " supply management " system, which
12544-486: Was the investor-state dispute settlement obligations contained in Chapter 11 of NAFTA. Chapter 11 allowed corporations or individuals to sue Mexico, Canada or the United States for compensation when actions taken by those governments (or by those for whom they are responsible at international law , such as provincial, state, or municipal governments) violated international law. This chapter has been criticized by groups in
#432567