Peek: NAFTA the catalyst for border region’s economic growth

MCALLEN, RGV – A top economist at South Texas College has issued a bleak warning for the border region if the North American Free Trade Agreement is dissolved.

Kevin Peek provided an in-depth analysis on the impact of NAFTA at a recent RGG LIVE event on Facebook. On Friday morning he hosts a summit on NAFTA at STC’s Pecan Campus in McAllen.

“I don’t mean to be excessively serious but the reality is that the existence, the economic vitality, the ongoing prosperity of the entire border region is at stake here,” Peek said.

“If we change the rules and regulations of the NAFTA, it can lead to a reduction in the cross border flow of goods and services. Which leads to a reduction in investment in these areas. Which forces companies to have to relocate to other areas. What does that do for employment? What does that do for our wages? What does that do to ongoing prosperity? These are all issues that we need to take into consideration.”

Peek said border residents do not have to go far to see the impact NAFTA has had. He said that when NAFTA started in 1994, the national unemployment rate was about six or seven percent. In Hidalgo County it was between 20 and 25 percent.

“That (unemployment rate) was astronomical. The North American Free Trade Agreement was implemented in 1994. Slowly but surely we see it is bringing in jobs, creating economic growth and development. That unemployment rate of 24 percent that we saw in the 1990s slowly but surely drops, until today we see an unemployment rate that hovers around four or five percent.”

Asked how much credit should go to NAFTA, Peek said: “I would give almost all of that credit to NAFTA. You shut down the maquiladoras, they lay off workers. They stop buying goods and services in stores. Those stores sell less goods and services, they lay off more workers. It is a domino effect.”

It is not just the border region that has benefited from NAFTA, Peek explained.

“I discuss it with my students and they never quite believe it. In 1993, Texas was the ninth poorest state in the country. A little difficult to believe,” Peek said. He noted that investment not related to NAFTA, such as in the oil and gas industry in Houston, also had an impact.

“According to the Department of Commerce, approximately 25 percent of the increase in economic activity that we have seen at the state level since 1994, when the NAFTA was implemented, can be directly traced back to the NAFTA. It is the multiplier affect,” Peek said. “This is not just a regional issue. It is going to affect the entire state. We all need to pay attention.”

NAFTA summit

Friday’s summit is called: “Renegotiating NAFTA: Challenges and Opportunities.” It takes place at STC’s Cooper Center for Communication Arts, starting at 9 a.m. and finishing at 1 p.m.

Peek, an associate professor of economics, said the conference is an opportunity to understand how NAFTA renegotiations could change the quality of life in South Texas.

“The conference is a truly bilingual, binational, event that brings together experts from both sides of the border to discuss how potential changes to NAFTA will affect the regional economy,” said Peek. “Investment, job creation, and ongoing prosperity are some of the topics that will be discussed in relation to the renegotiations of the NAFTA.”

Peek said the conference will include roundtable discussions on strategies that can be applied to prepare for changes in NAFTA. There is no admittance fee to attend and lunch will be provided.

For more information contact Kevin Peek at 956-872-3502 or [email protected]

Livestream

In his livestream conversation with the Rio Grande Guardian, Peek made clear his view that NAFTA has been of great benefit to the Rio Grande Valley, to other border regions, and to Texas as a whole.

“Essentially, the North American Free Trade Agreement is the single most important engine for economic growth and development in our region. I think that is without a doubt. If we look back at the last 24 years, since the NAFTA was implemented, you can see that it has brought employment opportunities. In fact unemployment has dropped to a third of what it was in 1993, when it was implemented,” Peek said.

“It has brought investment opportunities. Just look along the border, the maquiladoras, the expansion of firms on both sides of the border, are a direct result of the changes made by the NAFTA. The economic growth rate alone has tripled since 1993 when it was implemented.”

Peek said that depending on the outcome of the current renegotiations, much of what the border region has achieved over the past 20 plus years “will slowly but surely revert and that is definitely what we are hoping to avoid.” For this reason, he said, border residents should pay great attention to the current renegotiations.

“There are specific elements in the NAFTA that are directly responsible for the economic growth we are seeing. Prior to the North American Free Trade Agreement, let’s say you are an American national and you want to open up a firm in Mexico. In order for a U.S. corporation to open up in Mexico, by law, 51 percent of that corporation had to be in the hands of a Mexican national. The North American Free Trade Agreement changed that,” Peek said.

“Now, they are thinking about going back to that original constraint. Imagine, thousands and thousands of firms on both sides of the border had to change the rules, had to change the regulations and had to look for Mexican investors to own 51 percent. That is just one example of how renegotiating the North American Free Trade Agreement poses a threat, in the sense that it will change the rules and regulations that have given rise to the expansion of our economy on both sides of the border.”

One of the sticking points thus far in the renegotiation of NAFTA has been how much local content should be in incorporated into goods manufactured within North America. “There really is a reluctance on the part of the American negotiators to adhere to some of the original agreements. Canada and Mexico have been very flexible in this area. This 8th Round is tremendously important,” Peek said.

Peek said the reason NAFTA has been controversial in some parts of the United States has been because the country’s trade deficit has grown exponentially. “The U.S. is importing much more than it is exporting,” Peek said.

However, if one was to look only at the border region, the impact of NAFTA has been incredible, Peek said.

“If we just look at the impact on the border region, it has been transformative. Monterrey, if we go back to 1993, was a fraction of what it is today. The level of economic growth and development we have seen in the manufacturing sector has transformed Reynosa. McAllen, Brownsville, Laredo. The entire Valley region has undergone a level of economic growth and development that even the most optimistic of observers did not anticipate. So, let’s just start of with the understanding that yes the North American Free Trade Agreement is controversial, its impact on the rest of the nation is up for debate. But for the border region it is critical to our survival. That is why the 8th Round is important.”

Peek pointed out that under the NAFTA renegotiation rules, nothing is agreed until everything is agreed. He said Mexico and Canada have largely been on the same page, with the U.S. wanting most changes to the treaty. “We have seen impasse after impasse after impasse in the previous seven rounds. They go home and then the dynamic changes. They were asking for A and now they are asking for B,” Peek said. “I think in the final analysis we are going to move past this. It is going to take time, it is going to take patience, it is going to take flexibility and the understanding by all participants as to what truly is at stake here.”

Peek said border residents should pay particular attention to the NAFTA renegotiations.

“People may be thinking, what impact does this have on me – I am not investing, I am not hiring anybody, I do not work for a maquiladora. This has an impact on absolutely all of us. Firms disappear, wages fall, those individuals no longer buy goods and services from other companies. Those companies where you work may have to lay off workers. It is a domino affect. It impacts all of us. We need to be paying attention to the re-negotiation.”

Asked why some border residents are not paying as much attention to the NAFTA renegotiations as they could, Peek said:

“I think we are not fully aware of what is at stake here. We are not aware of the inevitable consequences if the renegotiation process leads to new rules and regulations that adversely affect investment, the goods and services that cross the border, the relocation of resources. I think it is understandable. i have been studying NAFTA for the last 24 years. I have written several articles, several chapters. I am an economist. But, you cannot expect everybody to be interested in the topic. You hope your government is going to represent your interest and that we are going to negotiate an agreement that benefits everybody.”

Peek said taking this attitude, of hoping the government’s negotiators will get it right, might be fine for other topics, but not NAFTA.

“If this was any other subject, I would say this was fine. But, once again, to reiterate and to stress, this is a subject that impacts all of us. So, we all need to be truly paying attention,” Peek said.