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
A. Openness
3
Trade liberalization in Mexico
Degree of trade openness
(X+M/GDP, 1981 - 2012)
80%
70%
60%
FTA PERU -- FTA CENTRAL AMERICA
50%
FTA URUGUAY
FTA JAPAN
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
0%
GATT
PSE
10%
FTA AELC
20%
EUFTA -- FTA ISRAEL
30%
FTA CHILE
40%
NAFTA
OECD
FTA BOLIVIA
FTA COSTA RICA --FTA, FTA G3
Closed
Economy
Dependent variable: Annual variation of trade openness
Variable
Coefficient
Std.
Dummy 1986-1987*GATT/PSE
0.04734
Dummy 1994-1995**NAFTA
0.11561
Dummy 2000-2001EUFTA
-0.01480
AR(1)
0.83738
MA(1)
-1.08588
MA(4)
0.37436
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= α1 DGATT/PSE + α2 DNAFTA + α3 DEUFTA + AR(1) + MA(1)+MA(4) + ut
Source: SAI Law & Economics with data from INEGI.
4
B. Integration and Competitiveness
5
North America’s economic integration
NAFTA
2800
2400
China's entry
to WTO
9/11 Terrorist
attack
Lehman
Brothers
Crisis
Trade & investment integration index
(NAFTA, 1988=100)
2000
1600
1800
1200
1600
800
1400
400
1200
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
0
subindex2
NAFTA
China's entry to
WTO
9/11 Terrorist
attack
China's entry to
WTO
9/11 Terrorist
attack
Lehman
Brothers
Crisis
1000
800
600
400
Lehman
Brothers
Crisis
200
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
550
500
450
400
350
300
250
200
150
100
50
0
FDI
(NAFTA, 1988=100)
NAFTA
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
3200
Trade subindex1
(NAFTA, 1988=100)
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 Economía, US Census Bureau, US BEA & Statistics of
Canada.
6
Shared production
U.S. Content in U.S. imports
(percentage)
45%
40%
35%
40%
30%
32%
25%
25%
20%
15%
10%
5%
4%
0%
Mexico
Canada
Production sharing
(intra-industry trade: 40%)
Weighted
average
(Mex-Can)
China
“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%
70%
Johansen cointegration since Jan-96
Mexico
60%
US
50%
Canada
40%
30%
20%
10%
Aug-93
Apr-94
Dec-94
Aug-95
Apr-96
Dec-96
Aug-97
Apr-98
Dec-98
Aug-99
Apr-00
Dec-00
Aug-01
Apr-02
Dec-02
Aug-03
Apr-04
Dec-04
Aug-05
Apr-06
Dec-06
Aug-07
Apr-08
Dec-08
Aug-09
Apr-10
Dec-10
Aug-11
Apr-12
Dec-12
Aug-13
0%
Cointegration test
(January 1996 – December 2013)
Series: Interest rates in Mexico, Canada & United States
Eigenvalue
Likelihood
ratio
Critical value
5%
Critical value
1%
35.45817
19.93711
6.634897
0.117007
37.05229
29.79707
0.034787
10.17363
15.49471
0.011626
2.525861
3.841466
Cointegrating
Equations
None **
At most 1
At most 2
* denotes rejection of the null hypothesis at a significance level of 5%
** denota el rechazo de la hipótesis nula con un nivel de significancia del 1%
Source: SAI Law & Economics with data from INEGI.
8
Macroeconomic convergence
Inflation
(annual variation, August 1999 – November 2013)
55%
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
-5%
Aug-13
Jun-12
May-11
Apr-10
Feb-09
Jan-08
Dec-06
Oct-05
Sep-04
Aug-03
Jun-02
May-01
Apr-00
Feb-99
Jan-98
Dec-96
Oct-95
Sep-94
Aug-93
Mexico
US
Canada
Cointegration test
(January 2000 – October 2013)
Series: Inflation in Mexico, Canada & United States
Eigenvalue
Likelihood
ratio
Critical value
5%
Critical value
1%
35.45817
19.93711
6.634897
0.120606
46.55095
29.79707
0.080837
25.85882
15.49471
0.073482
12.28778
3.841466
Cointegrating
Equations
None **
At most 1
At most 2
*denotes rejection of the null hypothesis at a significance level of 5%
** denotes rejection of the null hypothesis at a significance level of 1%
Source: SAI Law & Economics with data from INEGI.
9
Cycle coordination
Manufacturing production from Mexico and the Unites States
(annual growth,1981:T1-2013:T1)
Corr: 0.21
Corr: 0.76
Johansen cointegration since Jan-94
15%
10%
5%
0%
-5%
-10%
-15%
US
Mexico
1981/01
1982/01
1983/01
1984/01
1985/01
1986/01
1987/01
1988/01
1989/01
1990/01
1991/01
1992/01
1993/01
1994/01
1995/01
1996/01
1997/01
1998/01
1999/01
2000/01
2001/01
2002/01
2003/01
2004/01
2005/01
2006/01
2007/01
2008/01
2009/01
2010/01
2011/01
2012/01
2013/01
-20%
Johansen Cointegration test1
1980:T1 –1993:T4
Series: LOG(Man.Prod.MEX) LOG(Ind.ProdUSA)
Likelihood Critical Value Critical Value Cointegrating
Eigenvalue
5%
1%
ratio
Equations
0.115693
8.516043
15.41
20.04
None
0.034156
1.876684
3.76
6.65
At most 1
1994:T1 – 2012:T2
Series: LOG(Man.Prod.MEX) LOG(Ind.ProdUSA)
Likelihood Critical Value Critical Value Cointegrating
5%
1%
Eigenvalue
ratio
Equations
0.174543
16.594320
15.41
20.04
None *
0.031910
2.399811
3.76
6.65
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+
95 - 99
90 - 94
85 - 89
80 - 84
75 - 79
70 - 74
65 - 69
60 - 64
55 - 59
50 - 54
45 - 49
40 - 44
35 - 39
30 - 34
25 - 29
20 - 24
15 - 19
10-14
5-9
0-4
20
10
0
10
100+
95-99
90-94
85-89
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
20
Millones
60
40
20
0
20
40
60
Millions
Labor force, from 15 to 64 years
(accumulated annual change)
30%
25%
20%
15%
10%
5%
0%
2040
2030
2020
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
-5%
NAFTA
China
Source: SAI Law & Economics with data from U.S. Census Bureau and National Bureau of Statistics of China.
11
Cost competitiveness
Price of gas
(USD/MMBTU)
18
16
Russia - Henry Hub - Japan
Price Evolution (USD/ MMBTU)
14
12
10
8
6
4
2
Jan-2015
Ene-2015
Sep-2013
May-2012
Jan-2011
Indonesia-Japan
Sep-2009
May-2008
Jan-2007
Russia
Sep-2005
May-2004
Sep-2001
May-2000
Jan-1999
Sep-1997
May-1996
Source: SAI Law & Economics with data from FMI.
Jan-2003
Henry Hub
0
12
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
WTI @ $100
From China
WTI @ $150
WTI @ $200
From Mexico
Equivalent tariff
(percentage)
20
18
16
14
12
10
8
6
4
2
0
WTI @ $40
WTI @ $70
Equivalent rate
WTI @ $100
WTI @ $150
WTI @ $200
Equivalent rate + U.S. MFN tariff
Source: SAI Law & Economics with data from Rubin, Jeff and Benjamin Tal, “Will Soaring Transport Costs Reverse Globalization?”.
13
Green competitiveness
Additional investment to reach 450 Scenario
(% of GDP)
2.4%
NORTH AMERICA
2.0%
2.0%
CHINA
0.0%
2015
0.8%
0.5%
0.4%
0.4%
0.3%
0.8%
0.8%
1.2%
2020
2025
1.2%
1.5%
1.6%
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.
Source: SAI Law & Economics with data from The International Energy Agency.
14
C. Competition and Transparency
15
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
Airline
United Sates
1,157
1,983
1,502
Construction
1,666
1,641
Banking
-
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:
1°
Ranking:
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
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%
5
7
3
7
8
271
453
54
298
139
Spend (Million USD)
Average Number of Bidders
ROI
23
Government procurement auctions
30,000
Benefits (Millions of Pesos)
25,000
Transactional Value (Millions of Pesos)
IMSS - 3,546
CFE - 5,918
20,000
PEMEX - 2,610
SEP - 743
15,000
10,000
5,000
0
1
-5,000
2
3
4
5
6
7
8
9
10
Competition Index
24
D. The Future: A Dual Agenda
25
Intra-regional affairs
Intra-regional
Market access
Dumping + ITEC1 vs. common
competition policy (Chapter 15)
Seamless borders and transportation
North America Logistics Program
Energy synergies
North American Energy Program
Labor mobility vs. migration
North American Labor Agreement
2012 Dependency
ratio
Country
Ratio2
2030e/ Dependency
ratio
Country
Ratio2
Mexico
10.06
Mexico
17.45
US
19.76
US
32.10
Canada
23.17
Canada
41.40
NAFTA
17.66
NAFTA
28.85
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