[Opinion] A Lesson From Mexico

Is KBS right or is the government right?

Last June, in a program titled “The upside and downside of NAFTA; twelve years later in Mexico,” the Korean Broadcasting System (KBS), a Korean major network, claimed that the FTA devastated the Mexican economy. The program said that U.S. capital dominated Mexican agriculture and businesses, forcing Mexicans to become jobless or street sellers or illegal immigrants.

The government, which used to agree with KBS, immediately refuted the KBS program, confusing people who trusted the national network in the process.

To sum up, KBS was wrong. Without a cause-and-effect analysis, it blamed Mexico’s tragedies on the North American Free Trade Agreement (NAFTA). When you look at graphs of the 2005 International Monetary Fund report, you can see the differences before and after the conclusion of the NAFTA. The volume of exports within the region has doubled, Mexico’s foreign investment increased four-fold, and Gross Domestic Product (GDP) increased two-fold. Meanwhile, the number of street vendors and illegal immigrants has increased, because the underprivileged class was further driven out of the market due to the inflexible labor market, regulations, and substandard education.

The IMF said, “The lesson drawn from Mexico is that only structural reform efforts based on an FTA can maximize their effect.” Although Mexico opened its financial market, it kept protecting its government-run banks. As a result, the country suffered a serious financial crisis in 1994 and 1995. The powerful teachers union’s insistence on equity-based education has discouraged the development of technological skills. As a result, Mexico failed to shift its industry to high value-added industries, falling behind China. Labor unions discouraged the government’s efforts to allow firms to hire and fire employees freely in 2003. Loose management of government-run companies, such as the energy industry, and corruption still remain rampant.

Striking an FTA deal is neither a problem nor a panacea. Even if Korea opens its market, half-hearted reforms and half-hearted competition measures will halve the effects of the FTA. Moreover, the Korea-U.S. FTA did not include provisions outlining methods by which Korea can increase its competitiveness in sectors such as education and medical services.

The government said last February, “The delays in structural reform of the financial, energy and labor markets in Mexico reduced potential economic growth rates.” This means that the government is aware of the problems and solutions involved. The government should begin reforms in public sectors and show its determination as a result.

Kim Sun-deok, Editorial Writer, yuri@donga.com