How to Tap Progress: The Role of Trade Openness

Raymond RobertsonMacalester College

Trade Policy in Three Parts

Mexico’s recent trade policyThe Apparel ExperienceNorth American Integration

Prospects for the future

Trade Policy

A Remarkable Transformation

Trade liberalization in early 1990sGATT 1986NAFTA 1994WTO 1996Trade Policy: TTBs

Mexico: A Liberalization Leader

05

1015

1990 1995 2000 2005 2010year

Trade Weighted Simple Average

Ad Valorem (%)Figure 1: Mexican Average Tariff RatesMexican Average Tariff Rates

Robertson, Raymond (2011) “Mexico: A Liberalization Leader?” in Bown, Chad P. (ed) The Great Recession and Import Protection: The Role of Temporary Trade Barriers. London, UK: CEPR and the World Bank.

Increasing Trade Diversity

0255075

100125150175200225250

1990 1995 2000 2005 2010year

USA GermanyJapan ChinaRest of World

Billions 2000 US DollarsFigure 2: Total Mexican ImportsTotal Mexican Imports

Average Anti-dumping Duties Imposed

Country

Number of Covered HS8 Categories

Earliest Final Dumping

Decision Date

Latest Final Dumping

Decision Date

Simple Average

DutyChina 1113 25-May-92 16-Apr-09 210.49Indonesia 1 4-Jul-03 4-Jul-03 182.05Germany 5 29-Feb-88 28-May-07 149.46Japan 4 25-Jun-90 30-Oct-00 97.70India 2 17-Oct-91 7-Dec-95 60.05EU 5 13-Jul-90 23-Aug-99 50.94Ukraine 13 1-Jul-95 9-Apr-08 49.81Netherlands 5 25-May-92 19-Dec-95 48.43Brazil 35 29-Nov-88 24-Jan-06 47.36Canada 6 19-Dec-95 9-May-05 41.17Russia 16 1-Jul-95 8-Sep-05 39.69Kazakhstan 2 29-Jun-99 29-Jun-99 34.00USA 77 4-Sep-87 7-Sep-05 29.61South Korea 5 9-Aug-93 28-Feb-02 28.81Guatemala 2 13-Jan-03 13-Jan-03 25.87Venezuela 2 23-Dec-91 28-Dec-95 25.02Denmark 2 28-Mar-00 17-Dec-07 24.98Spain 4 3-Apr-89 12-Dec-03 16.41Taiwan 4 11-Oct-90 14-Nov-03 15.57

United Kingdom 1 23-Dec-09 23-Dec-09 5.91Chile 1 20-Oct-94 8-May-06 0.14

Peso Crisis

U.S. Recession

Financial Crisis

-.002

5-.0

02-.0

015

-.001

-.000

50

Tota

l

1990 1995 2000 2005 2010Year

Year Coefficient EstimatesFigure 7: Annual Probit ResultsAnnual Probit Results

0

3

6

9

12

15

18

1990 1995 2000 2005 2009year

China USARest of World

Billions 2000 US$Figure 5: AD Covered Trade by CountryAnti-Dumping Covered Trade by Country

.289

5.2

9.2

905

.291

.291

5C

hina

.05

.050

5.0

51.0

515

.052

.052

5U

SA

1990 1995 2000 2005 2010Year

USA China

China and the United StatesFigure 6: Annual Probit ResultsAnti Dumping Probit by Country:

Trade Policy: Main Points

Mexico has largely embraced trade liberalizationAlthough USA remains important trading partner, Mexico

has aggressively pursued trade agreements with other countries; trade has diversified

Mexican TTB measures began with notable focus on China with large number of AD duties

Focus remains on the USA and ChinaDuration is often longVery little evidence of increase during the crisis; crisis

measures fit into recent context rather than seeming to be a break from past patterns

Main lesson: Hard to blame trade policy for lack of growth

Apparel

Big Picture

Hanson, Gordon, and Robertson, Raymond (2010) “China and the Manufacturing Exports of Other Developing Countries” in Feenstra, Robert and Shang-Jin Wei (Eds.) China's Growing Role in World Trade, National Bureau of Economic Research. Also NBER Working Paper 14497.

Overall, Mexican competition from China is limited

In certain sectors, however, Chinese market share rose while Mexico’s fell

Main example: Apparel

Popular Perception

Star Tribune 14 September 2012 p. D1

Mexico ChinaHong Kong KoreaDominican Republic HondurasBangladesh IndonesiaTaiwan IndiaPhilippines ThailandOther

Source: OTEXA

2000U.S. Apparel Imports

China VietnamIndonesia BangladeshMexico IndiaCambodia HondurasEl Salvador Sri LankaPakistan NicaraguaGuatemala Other

Source: OTEXA

Through July 2012U.S. Apparel Imports

050

100

150

200

250

U.S

. App

arel

Impo

rts (M

illio

ns)

1990m1 1995m1 2000m1 2005m1 2010m1Time

Category Units (SME)U.S. Apparel Imports from Mexico

Apparel Exports: Change After MFA

Log GDP per Capita

Fitted values Log Change in Total Apparel Exp

4 6 8 10 12

-1.5

-1

-.5

0

.5

1

1.5

Nepal

Madagasc

Banglade

Cambodia

Pakistan

Vietnam

India

Guyana

Bolivia

Philippi

Honduras

Mongolia

Sri LankIndonesi

Swazilan

Parag uay

Morocco

China

Jor dan

Armenia

Ecuador

Ukraine

AlbaniaThailand

F iji

M acedoni

Peru

Dominica

Ir an, Is

Bosnia a

Azerbaij

Colombia

Saint ViSaint Vi

South Af

Botswana

Belarus

Bulgar ia

Costa Ri

Panama

Mauritiu

M alaysia

Brazil

Arg entin

Kazakhst

Romania

Uruguay

Mexico

Turkey

Chile

Seychell

Russian

Poland

Lithuani

Latvia

Hung ary

Cr oatia

Estonia

French P

TrinidadTrinidad

Korea, R

Malta

Czech Re

Portug al

Slovenia

Bahrain

Israel

New Zeal

Hong Kon

Cyprus

Gr eece

Spain

Japan

Singapor

Macau, C

United K

Andorr a

Ger many

France

Canada

United S

Belgium

Australi

Austria

Finland

Sweden

Iceland

Nether la

Ir eland

Denmark

Switzerl

Nor way

Luxembou

Lopez-Acevedo, Gladys and Raymond Robertson (eds) (2012) Sewing Success? Employment, Wages, and Poverty Following the End of the Multi-Fibre Arrangement, The World Bank, Washington, D.C.

Implications

Has Mexico moved beyond apparel and into other goods?

YesWill apparel return to Mexico if Chinese

wages continue to rise?Unlikely: Other suppliers have much lower

costs and higher product responsiveness◦Bangladesh◦Cambodia

North American Economic Integration

Mexico’s Trade Strategy

NAFTA’s goal: Increase trade and investment among North America

Trade and investment increasedRestructuring of Mexico’s manufacturing:

◦Integration into North American production chain

◦Continued emphasis on assembly operations◦Innovation?

U.S. and Mexican MFG Employment

.8.9

11.

1

1994Jan 1996Jan 1998Jan 2000Jan 2002Jan 2004Jan 2006JanTime

US Prod Emp 94=1 MX NonProd Emp 94=1MX Prod Emp 94=1

Robertson, Raymond (2009) “Estimating International Labor Complementarity: Some Preliminary Results”, in Soloaga, Isidro (ed.) Sobre México: Temas actuales de política económica Universidad Popular Autónoma del Estado de Puebla (UPAEP), Puebla, Mexico, 53-70.

2.9

33.

13.

23.

3M

XM

FG

11.5

1212

.513

13.5

14U

SM

FG

2007q1 2008q1 2009q1 2010q1 2011q1 2012q1time

USMFG MXMFG

Source: BLS CES (US) and INEGI (Mexico)

Millions of WorkersManufacturing Employment

-50

510

US

$ Tr

ade

Bal

ance

1993m1 1998m1 2003m1 2008m1 2013m1Time

USA ChinaEurope

Billions U.S. DollarsMexican Trade Balance

4000

045

000

5000

055

000

6000

0E

xpor

ts to

US

(1,0

00,0

00s)

2400

2600

Tota

l Em

pl (1

,000

s)

2007

:1

2007

:2

2007

:3

2007

:4

2008

:1

2008

:2

2008

:3

2008

:4

2009

:1

2009

:2

2009

:3

2009

:4

time

Total Empl (1,000s) Exports to US (1,000,000s)

(Border States: Non-Tradable Sectors Only)Employment and Exports to the US

Employment and Wage Responses to Trade Shocks: Evidence from Mexico during the 2008-09 U.S. Recession (2012 Working Paper) David S. Kaplan (Inter-American Development Bank, dkaplan@iadb.org)Daniel Lederman (World Bank, Dlederman@worldbank.org)Raymond Robertson (Macalester College, robertson@macalester.edu)

North American Integration

Prior to NAFTA, U.S. production workers◦and Mexican empleados were complements◦and Mexican obreros were substitutes

After NAFTA, U.S. production workers◦and Mexican empleados were substitutes◦and Mexican obreros were complements

We should think of North America as a single production unit.

But…

1200

014

000

1600

018

000

Thou

sand

s of

Wor

kers

1980q1 1990q1 2000q1 2010q1Time

1982-2012U.S. Manufacturing Employment

Source: U.S. BLS CES

Progress in the Value Chain Context

Integration into value chain has distinct advantages

Key to progress in the value chain context is the ability to upgrade◦Process◦Products

Countries with directed policies towards upgrading tend to have more success

Conclusions

Mexico has been a leader in trade liberalization among developing countries

Mexico merged into the North American value chain

Continued diversification important Key to success in value chain context is

directed policies to encourage upgrading