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Central American University - UCA  
  Number 150 | Enero 1994



NAFTA: More than just Free Trade

Behind NAFTA are hidden the military and security interests of the U.S. – and also a thirst for Mexican oil.

John Saxe-Fernández

Discussions about NAFTA tend to atomize its complex and multiple variables. If these discussions simply obeyed epistemological vices or academic deficiencies, the issue would be reduced to the self destructive tendencies of some professionals or groups of analysts to make fools of themselves in public. But it is more serious if this de linking forms part of a deliberate policy by those who represent interests that consider it inconvenient or inappropriate to make the connection between commercial issues and political military ones, national sovereignty or even human rights.

The Need to Be Powerful

A typical example of this argument, put out by official spokespeople and business leaders, presents an economic analysis something like this: "In the press and in many seminars and forums, the theme of sovereignty appears when dealing with economic themes like the Canada US Mexico common market. This bores me."
In addition to being artificial and frivolous, this line of thinking tries to avoid problems and obstacles by circumventing reality. The de linking acquires a more practical and threatening character when human rights violations and the irregularities of the electoral process in Mexico have intensified. Alan Stoga, right arm of Henry Kissinger and Latin American specialist in the influential private consulting firm Kissinger Associates, considered it opportune to emphasize, just days after the release of the Americas Watch report on increasing human rights violations in Mexico, that "the United States government is not at all concerned about the Mexican human rights situation and elections."
The economic and political strategic processes and interests present in US Mexico relations since the Guadalupe Hidalgo Treaty was signed have gone through changes usually contingent on the needs and challenges both nations have faced. Since the United States has greater weight, it gains greater advantages in these changes.

The 1973 oil crisis, which achieved its most intense strategic expression with the success of the OPEC embargo against the US Middle East policy, indicated that historical US hegemony was entering into decline. The defeat in Vietnam indicated the same. Simultaneously, the competition by Japan, the United States and Europe for markets broadened while their need for natural resources intensified. Today these needs are only satisfied by mineral deposits especially petroleum located outside their national borders.

The predisposition and inclination to use financial and political military instruments to guarantee privileged access to markets and resources has been intensifying. The tendency for the Americas was perceived in the following way at the beginning of the 1970s: "The impulse towards hemispheric hegemony under the direction of the United States is stronger today than in any other period of the 20th century. As Europe's recovery from World War II turns into Europe leading a real attack on the dollar, and as other economic markets fall under the domination of Japanese capital, the United States, out of necessity, will begin to rationalize its economic imperialism in hemispheric terms."

The US Oil Shortage

The United States entered a historic period of enormous strategic vulnerability in essential raw materials: oil, manganese, nickel, platinum, tin, zinc, bauxite, chrome, cobalt, mercury, titanium and copper, among many others. The uncertain availability of these essential raw materials and their changing prices necessarily add conflictive characteristics to Washington's international political behavior. The situation worsened after the bloody political destabilization of the government of Salvador Allende in Chile which, among other important measures, had seriously restricted US businesses access to that country's vast copper deposits.

The strategic trauma the United States experienced in the 1970s was synthesized by ex Secretary of the Interior Rogers C.B. Morton, who, on February 13, 1975, made public knowledge what until then had been a state secret: US gasoline reserves were so low "that the United States could not defend itself if it had to declare war at this time." Later he added that "if the United States were involved in a war today we would run out of gasoline before we could defend ourselves. We do not have the reserves or the sources to support us in a serious confrontation."
According to Edward J. Dyckman, raw materials specialist at the US Naval Research and Development Center, financial difficulties and high costs made construction of new industrial installations impossible after 1974. The lack of an adequate productive capacity and the general increase in energy and materials costs created scarcities from the largest to the smallest industries. In listing the significant causes of this state of affairs he mentioned, in first place, "the nation's dependence on a high proportion of foreign products for the elaboration of basic industrial materials and processes. The United States has a severe disadvantage because the raw materials abandoned the controlled prices of the domestic market in search of higher prices abroad."
From that moment on, financial and diplomatic military activity was aimed at correcting this vulnerability. US interest in this hemisphere's markets and raw materials began to be articulated at that time. Particularly intense pressure was put on Canada and Mexico. In 1979, the Wall Street firm of Blyth, Eastman Dillon Investment Research synthesized Washington's strategic business posture with respect to its neighbors as follows: "Our dependence on crude oil imports from the Middle East would not exist if we could count on a North American energy policy that would recognize the availability of sufficient energy resources on our continent which, removing the national differences between Canada, the United States and Mexico, could satisfy almost all the legitimate energy requirements of these three countries in the next years. What is needed is a kind of common market that integrates the vast energy resources of North America, through an efficient distribution system, while fulfilling these countries' aspirations to have free trade among them."

It All Began in 1982

The political military and intelligence instruments used to articulate and intensify the "integration" process found that the monetary path contained the most promises, since Mexican vulnerabilities in that area were, and are, serious. That revived interest in the dominant circles in the United States to use Mexico's foreign debt servicing to force the nation to fully "integrate itself."
Today, anyone who analyzes the programs applied by the International Monetary Fund (IMF) and the World Bank in Mexico in detail, will conclude that the free trade process, as well as the privatization and sale to foreigners of mineral reserves, the banking system and substantial parts of the petrochemical and oil industry, began with the signing of a Letter of Intent with the IMF in 1982.

Mexico's economic policy decision making has slowly been denationalized. Its foreign investment and foreign trade policies, as well as the denationalization and disincorporation of state businesses, have not responded to endogenous criteria and rhythms, but rather to Washington's periodic and material needs, expressed through "suggestions" made with great persuasive force by the IMF and the World Bank.

The trade opening begun during the De La Madrid government took place within this "power cauldron" of credit conditionality. The Mexican officials charged with that negotiation acted and act not with "national interest," but within the frame of reference explicitly set out by the creditors. In other words, the definition and negotiation of interests vital to any contemporary economy, such as foreign trade, have been carried out within the context of US power projection and, to a lesser degree, that of other creditors.

Co government with the World Bank

What did that power relationship consist of specifically and how was it manifested economically and commercially? In the first place, in the separation of the trade policy from domestic social and economic conditions, that is to say, separated from the national productive apparatus and the needs of the Mexican population. The IMF's conditionality was reflected most of all in macro economic terms; to that was added the management of the economic branches and businesses of most interest to the creditors through conditional World Bank loans. Trade and export policies, mining and petrochemicals, and even road, port and train construction programs fell under this management, as did municipal policy, technological development programs, urban transport, agricultural extension, road maintenance, labor training, "reconstruction" of the steel, agricultural and fertilizer sectors, port rehabilitation, housing construction, the design of economic policy promotion programs, social assistance, combating extreme poverty, financial, administrative and industrial deregulation, and goods and personnel transport, among many others. The World Bank participates actively in each of these areas with conditional loans and, of course, with evaluation, control and technical oversight missions. Between 1982 and 1990, the World Bank's sectoral loans increased to more than US$11.5 billion, which allowed that institution tremendous influence, both in trade and agrarian policy and in finance and industry.

Virtually all the secretaries of state, offices of directors and sub-directors, state businesses and many private ones have some sort of direct or indirect relationship with the World Bank, whether of evaluation and supervision or control and monitoring. The World Bank is a parallel government, or, as James Petras has called it, a "co government." Maybe the concept is too generous, given the level of subordination to the World Bank in this "convergence," at least during the most recent governments.

The High Cost of Loans

Part of the task in understanding this vast and complex process of relations, influences and crossovers in command lines consists of decoding the technical language and, especially, the metaphors used to refer to politically delicate aspects. For example, when the documents mention "a greater integration of Mexico into the world economy," it must be understood that this means virtual "incorporation" into the United States, and not only in economic terms. This is due to Mexico's geographic closeness and the very high level of dependence and concentration of our commercial, financial, investment and migratory flows to the United States. But this has always existed. What is new is the convergence, from 1982 forward, of two tendencies in this "integration" process; Mexican docility and US determination.

The last two Mexican governments have been willing not only to accept, but to adopt as theirs, the economic policy contained in the IMF Letters of Intent and in the World Bank loan programs. The cornerstone of the so called structural adjustment program was the transformation of Mexico into a US economic tributary through the servicing of the foreign debt; debt payment is still given priority over any other political, social or even constitutional consideration.
The IMF World Bank "crossed conditionality" has important political consequences, among them the "denationalization" of vital decision making processes. The sectoral loan program has the explicit mission of filling the gap generated by directing more than 50% of the federal budget to servicing the foreign debt. This is how the transfer of vital command lines began and later intensified. In other words, through the sectoral loans, the World Bank had a determining influence on structuring specific economic programs and took on extensive evaluation, supervision, control and oversight roles.

The World Bank loans in the area of commercial policy (Trade Policy Loans or TPL) were developed to promote the process of "integration with the United States guaranteeing the fulfillment of the guidelines established in the IMF Letter of Intent. A growing liberalization of trade was thus promoted that was characterized by the total absence of reciprocity by our greatest trade partner, the United States, as well as by being a process that did not obey the needs of the Mexican productive apparatus, but rather was dictated from outside, precisely through the TPL. In their essence, these are instruments to design, determine and apply the country's trade policy."
The unilateral liberalization process was "supported" by the World Bank through the following operations: TPL1 (Loan 2.745 ME), TPL2 (Loan 2.882 ME), and two export loans. According to the office of the World Bank director, the results of these instruments "are promising." Import barriers have already been reduced in a pronounced manner for primary agricultural inputs such as machinery, pesticides and other high technology products.

Through loans such as these, which totaled $1 billion, the United States adjusted Mexico's trade policy today embodied in NAFTA to its needs and agenda. Tariffs and export licenses were eliminated, and a drastic duty reduction program was implemented in 4,900 customs categories. The World Bank imposed a deadline for all this of October 1988 (the year the greatest reductions were made).

Washington Decides Everything

The country did not negotiate with the "world economy," only with the United States. The trade opening was unilateral, a product of World Bank and IMF loans destined to "restructure" our trade according to the needs of the US economy, which is plagued by immense trade and fiscal deficits. "The Mexican government," officially states the World Bank, "fulfilled its obligations and commitments according to the operations stipulated in both loans. It liberalized more than three quarters of its domestic production and licenses. Less than one quarter continues to be controlled (some agricultural and food products, oil and its derivatives, cars, certain electronic products, pharmaceuticals and others)."
The World Bank presidency later added that the loan for trade policy was a breakthrough of great importance. Through it, the World Bank managed to finance the introduction of the trade reform process. The second loan aimed at maintaining the impetus toward openness within the parameters established by the first and set out a series of goals the Mexican government should fulfill as a prerequisite for the release of funds for the second phase.

The conditioned loans permit the establishment of a coherent control system. Vital decisions are made by bureaucracies located in Washington, for example decentralizing the Secretariat of Foreign Relations with respect to certain trade authorities in cities such as Toluca, Monterrey, Hermosillo, Guadalajara and La Paz. Or "decentralizing" the decision making ability of the Secretariat of Public Credit and Finance with respect to customs services and offices; or establishing privileges to export firms (ALTEX); or modernizing the import and export license procedures of SECOFI; or simplifying the registration, in accordance with World Bank criteria, of the National Registry of the Pharmaceutical Industry among others; or "improving" the respective inspection systems. All are decided from Washington.

Objective: Oil and Petrochemicals

Industrial sectors such as fertilizers, microcomputers, petrochemicals, metalworking and electronics are in a different situation than the deregulation and trade liberalization of the almost totally foreign owned automotive industry. The process includes a series of adjustments so the results will not be traumatic. A program is being implemented to gradually liberalize the import of cars, small, medium and heavy trucks, tractors and trailer busses. Automobile import liberalization contemplates restructuring national laws "for 1991," while the World Bank demonstrates its satisfaction because the Mexican government has now deregulated the commercial banks, rationalized the development banks and practically eliminated all industry subsidy credits.

The "deregulation" of strategic sectors, particularly petrochemicals, has proceeded according to the indications, calendars and needs. One of the main goals of the program, begun in 1986, was to permit the participation of both the national and foreign private sector in basic petrochemicals, which is constitutionally reserved to the state. According to official World Bank documents, it was oriented among other things, to limit the role of PEMEX, the state oil company, at that time the only producer of basic petrochemicals. This required adopting administrative measures to modify the situation. It can be said today that Miguel de la Madrid and Salinas de Gortari fulfilled this condition to the letter of the law through the strategy of "reclassifying" basic petrochemicals in the list of "secondaries." The program also demands that the pricing policy for PEMEX basic petrochemicals be "flexible," and permit the private sector to import basic petrochemicals, promoting fiscal incentives for this.

To the World Bank, the US oil industry and the Defense Department, PEMEX is a "serious" strategic, political, commercial and business "impediment." In official World Bank documents, PEMEX is considered an obstacle "to the good development of the petrochemical industry," and, according to the World Bank presidency, the Mexican government should quickly confront the problem of PEMEX's "dominant position" in the industry. "Private international companies," say World Bank officials and consultants, "cannot achieve vertical integration due to PEMEX's control of basic petrochemicals," while "PEMEX's expansion plans" make potential foreign investors see Mexico only as a "short term market."
The World Bank presidency affirms that the Mexican government finally agreed in 1989 to apply an action program to this sector, which included the following fundamental measures: 1) limit the that industry's exclusive right to produce a maximum of 25 basic petrochemicals and to define an official list of "secondary" petrochemicals open to private sector participation, and 2) encourage a program of "cooperative" accords between the private sector and PEMEX; in other words, promote the increasing privatization of this industry. Loans to "reform" the public sector, known as Public Enterprise Reform Loans (PERL) are oriented to making the sector "more flexible," which in more direct words means dismembering and privatizing various large enterprises that would emerge from the current PEMEX.

Debt Asphyxiation

Without using a single tank, soldier or bazooka, Mexico has been dynamically incorporated into the United States in sectors that, according to private and official US versions, are "vital" to its "national security." As expressed on one occasion by the distinguished analyst Marcus Raskin, "national security is business and business is national security" for the United States. This demystification is welcome in all discussions about NAFTA, especially after the Mexican press, at the end of 1989, reported with little fanfare on a terse press release by the Secretary of Energy, Mines and Parastate Industry (SEMIP), which stated that the Mexican government had finally given the green light to "co investments" between PEMEX and the Federal Electricity Commission (CFE), and similar companies from "other countries."
According to estimates of SEMIP's General Office for International Affairs, investments of close to $50 billion will be needed in the next five years to respond to domestic demands for energy, crude oil, petroliferous oil and petrochemicals. A "packet" has already been prepared for this that includes industry construction, electricity generation plants, oil products and derivatives, as well as gas and oil well drilling. The "technical study" was financed as part of World Bank support through PERL, with the argument that the country does not have enough financial resources and that, if it depended only on available finances, it would take 50 years to carry out the government's primary propositions. Simultaneously the Secretary of Housing released a detailed explanation of why there are not more resources: Mexico "punctually" and "without exception" paid over $14 billion to international creditors in total foreign debt interest and amortizations in 1989.

That amount represents 7.4% of the country's gross domestic product. Of that, 62.4% was paid in interest and 37.6% in amortizations. The 1980s, and what has already passed of the 1990s, has been characterized by the confluence of two processes in the "non military" area with serious economic and political strategic implications: on the one hand, over $124.5 billion was paid on debt servicing, and, on the other, the transfer of the nation's economic decision making and primary enterprises to foreign organizations and businesses, fundamentally from the United States, was accentuated. The de facto privatization and denationalization of PEMEX and the CFE, which are the most sensitive and of greatest economic strategic importance, are happening rapidly and with the support of administrative procedures, promoted by PERL, whose contradiction with Mexico's Constitution does not appear to present any obstacle.

Close, Abundant Oil

The process of "incorporating" petrochemicals and PEMEX and the energy sector into the US business apparatus and also into the Mexican one, although as a minor partner because of our lack of capital and energy makes excellent business sense in addition to constituting a US national security objective.

Mexico is a key link in building Washington's "energy security" strategy. Keeping oil in mind, it is not difficult to visualize both NAFTA's commercial dimension and its security one. The strategic problem is well known, but must be emphasized. US oil reserves have diminished drastically since 1987, when they were approximately 26.9 billion barrels. Although there was a perceived abundance of relatively low priced crude oil at the end of the 1980s, the US Department of Energy, in a report prepared for the President, calculated that by 1995 the United States would have to spend more than $80 million (sic) a year on oil imports.

Energy policy an integral part of US strategy is complicated by the formation of a virtual confederation of European states that, through their unification, will acquire an increased ability to project their power in the Middle East, particularly since the United States depends on oil imports for the functioning of its economy. It is therefore understandable that Washington would try to guarantee Mexican and Canadian supplies through a mechanism like NAFTA.

It should be emphasized that the commercial and strategic importance of Mexican oil is far superior to that of Canadian oil. It should also be noted that the United States is applying financial instruments similar to those used in Mexico to guarantee privileged access to Venezuelan oil reserves. According to the American Petroleum Institute, the proved reserves in Mexico are the fourth largest in the world. Saudi Arabia has more than 166 billion barrels, Kuwait has 91.9 billion, Iran has 48.8 billion and Irak 47.1 billion. The Arab Emirates follow Mexico with 33.1 billion, then the United States the greatest oil consumer in the world with 26.9 billion, Venezuela with 23 billion and Libya with 21.3 billion.

The situation created by a united Europe, together the total oil dependence of Japan and the "developing" countries, complicates the world oil equation for Washington. The countries that form the European Community have to import 64% of the oil they consume and studies by the US Department of Energy anticipate a substantial increase in imports for the rest of the century until 2010, by which time the competition and struggle for control of this energy source will be fierce.

The geographic proximity of Mexico's petroleum reserve, located in its territory and waters, and the enormous strategic advantage it offers (there are no long and vulnerable maritime lines susceptible to interdiction between it and the United States) help explain the US insistence on "incorporating" our immense oil reserves and our petrochemical industry in the context of the explicit NAFTA relations. It also explains the "deregulation" and privatization programs.

At the moment the World Bank applied the loan program to promote "trade liberalization" sponsoring as it did so a "partnership" for sectors of strategic interest to the United States, the Energy Department released a document in Washington recognizing the importance of Mexican crude in the US market until the year 2010. Data released by the press reveal that the United States acknowledges its "energy security" strategy based on unrestricted access to Mexico's oil and petrochemical riches, and notes that the US economy's dependence on Mexican crude has increased by more than 4,300% in the last 15 years. "The changes in bilateral trade between both nations illustrate the importance the US government puts on Mexican oil," it says.

Bankers and Oil Producers Unite

The happy convergence between "national security" and business is particularly notable. To whom specifically is the country's principal wealth being transferred? It is a bit crude and general to simply answer "our creditors." It is important to be precise, remembering that Citibank, Mexico's most important creditor, is the major shareholder in the Continental Oil Corporation, which was bought by Dupont, one of those most interested in our petrochemicals. Citibank is also the third and fifth most important shareholder, respectively, of Texaco and Exxon.

Mexico's second creditor is the Bank of America, owner of Standard Oil Company of California, second most important shareholder of Union Oil of California and third most important shareholder of Continental Oil of Dupont. Similarly, our third creditor, Manufacturers Hanover Trust, is the owner of the largest shareholding blocks of Arco, Exxon and Phillips Petroleum. Our fourth creditor, Chase Manhattan Bank, controls Exxon as its most important shareholder, as well as Standard Oil Company of California (Chevron) and Mobil Oil.
Mexico's fifth creditor is Bankers' Trust, owner of Continental Oil Corporation (Dupont) and Mobil Oil. The sixth, Continental Illinois, is the fourth most important shareholder of the oft mentioned Continental Oil and the third most important of Standard Oil of Indiana. The Morgan Guaranty house, our seventh creditor, is the primary shareholder of Mobil Oil, the second most important of Exxon and Gulf, the third most important of Union Oil of California (Unocal) and the fourth of Texaco. Finally, our eighth and ninth creditors, First National of Chicago and Prudential Insurance, respectively own the largest shareholders blocks of Texaco and Standard Oil of Indiana, and of Union Oil, Mobil Oil and Arco.

The linkages between "national security," the banks, business and the military apparatus are, of course even more complex given the enormous multiplicity of interrelations between them. It is the great "interdependence" that characterizes what Mills called the "power triangle." Many such interrelations weave together groups and businesses with private institutions, banks, organizations and companies, and Executive and Congressional offices. Although the convergence divergence of interests in NAFTA with Mexico is equally heterogeneous, and not only on the federal level, but also on the regional and state level, the different units of power agree on some elements, and therefore project the ability to "influence events." This is the case of two central aspects of NAFTA: oil and petrochemicals, and the "incorporation or absorption" of Mexican states bordering on the United States.

Some social and economic processes in the border Mexican states, such as special financial programs, depend on certain municipal reforms. These have been promoted by the World Bank throughout the 36 municipalities that border the United States.

As a Mexican analyst recently stated, "a national development strategy based on foreign trade implies greater international integration, which necessarily means that the northern border region, as a clear export zone with geographical advantages for these activities, will increase its foreign integration. If it was not successfully integrated into the rest of the national economy previously, it will now be even more difficult. The result will probably be exactly the opposite. That is to say, the national economy will be more integrated into the northern border region."

No More Borders

There is agreement that borders are very important for nations and that no state can be asked to passively accept its own destruction. The problem is that the current economic policy, with its crossed lines of command, appears to concretely imply precisely that in areas as fundamental as banking, oil, petrochemicals and mining. Room for negotiating with the United States is greatly reduced.

If we add to this the growing militarization along the US border with Mexico, it is not difficult to perceive a substantial drop in the "maneuvering field" for defending the Mexican state's sovereignty and "jurisdictionality" in that region, even if there was willingness to do so, which does not at present appear to be the case.

While the programs and attempts to achieve a functional and significant relationship between the border region and the national economy have faced great domestic and foreign obstacles, especially during the cold war, it is also true that NAFTA will settle practically all those efforts and promote a process of turning the Mexican economy, and territory, into a trampoline to Latin America for US interests.

This is precisely the important area of "convergence" between the current Mexican government and Washington. The former has officially and publicly admitted that it is promoting Mexico's "economic complementarity with the United States based on joint job promotion, shared production in diverse industrial sectors and actions to make agricultural cycles compatible."

NAFTA: A Major Miscalculation

Between economic complementarity and "incorporation" there is no more than a linguistic turn of the tongue. According to a document presented by SECOFI, foreign investment will be given "automatic" authorization to begin projects with a majority of foreign investment in 70% of the economic sectors that make up the Mexican gross domestic product. There will also be "affirmative 'fiction' in foreign investment projects and international investment will be encouraged in the coasts and border areas."
The incorporation of the Mexican economy into the US one is also promoted because according to the SECOFI, "the complementarity in production shared in diverse industrial sectors, and the union of Mexican and US competitiveness will allow Mexico to win the international market."
According to SECOFI, all of these changes within the World Bank sectoral and "deregulation" programs, as well as those contained in the PERL loans, address sectors that range from sugar, coconut, coffee, domestic and telecommunications trade, to the petrochemical industry, transportation, aquaculture, transfer of technology and "other sectors." This information was made public by Trade Secretary Jaime Serra Puche, in San Diego, California.

In this political and economic context it is redundant to discuss the greater limits of autonomy, whether of the regions or the country. Behind these economic and production problems and processes lie more serious strategic military, political and constitutional problems. It should be noted that terms like globalization, while referring to real processes of global interaction, limit the evaluation, in real dimensions, of the implications of incorporating Mexico de facto into the United States, and its formalization through NAFTA. The economic and political military "order" developed after the World War II Bretton Woods and NATO with Washington at the head, is dissolving into various sub units, with growing shared interests. "Trade liberalization" is much talked about, assuming that the United States still has the ability to coordinate the capitalist system worldwide. In reality, however, we are in the presence of "commercial and political military blocks" still in formation.

The competition for raw materials, access to oil, markets and financial resources will tend to increase regional and national resentments and conflicts. In the midst of this panorama, the line of subordination adopted by the Mexican government since 1982 will be seen in history as one of the greatest errors in judgment that has been committed. As Alan Stoga, an economist from the influential consulting firm Kissinger Associates, said of the merging interests of businesses, bankers and national security, "For strategic and commercial reasons, Latin America's future is in the United States and vice versa. It is necessary to begin to exploit the significance of a hemispheric free trade accord. The key is Mexico, the United States and Canada. If this trilateral free trade accord is developed, trade relations will develop that will eventually create a hemispheric trade zone."
Such a project and aspirations for domination are not new. This is the Monroe Doctrine at its purest, with the difference that the Mexican government now shares the same pretensions.

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