The NAFTA Connection: The Role of “Free” Trade in Mexico’s Tragic Travails

Mexico’s liberalization of trade and finance, with help from the world’s largest banks, has enabled drug traffickers and the corrupt political establishment.

By Don Quijones, Spain & Mexico, editor at WOLF STREET. His blog: Raging Bull-Shit.

Mexican blood is once again being splashed liberally across the front pages of the international press. After eight long years of the government’s disastrous war on drugs, the people have finally had enough and are rising up in a wave of quiet fury.

For Mexico’s ever-dashing President, Enrique Peña Nieto – the man that Time magazine not so long ago dubbed Mexico’s “savior” – none of this was part of his script to transform Mexico into a miracle economy. Even with the assistance of Televisa, Mexico’s largest media company, he can no longer keep up the pretense that things are on the up – not since the disappearance of 43 trainee teachers from the South Western city of Iguala two months ago.

According to the latest revelations (backed up by scant evidence), the students met a brutal end at the hands of a makeshift coalition of municipal police officers and drug gang members – all supposedly at the bidding of a local mayor, José Luis Abarca, and his wife, María de los Ángeles Pineda Villa, both of whom moonlighted as agents for Guerrero Unidos, a local drug cartel.

The Final Proof

The events prove what had long been common knowledge – namely that the federal government and local authorities have been infiltrated and in some cases replaced by organized crime cartels. As Jeff Faux recently wrote:

Many in the police, the judiciary and even the military are intimidated, inadequately trained, and/or corrupt. The influence of drug money within all three major political parties is now taken for granted…

That is not to say that Mexico is a failed state, as some are asserting, but it is failing in many critical areas – in particular at the local level. Endemic political corruption has played a vital part. According to international security expert Eduardo Buscaglia, political corruption is the “mother and father of organized crime’s expansion in Mexico” and there is a “pact of immunity” between all three main political parties. A fact that even some senior politicians are beginning to admit.

This chronic breakdown in law and order has its roots in Mexico’s transition, in the 1990s, from a de facto one-party state into a multiparty democracy. This transition opened up an enormous power-vacuum. Organized crime rushed to fill it, using corruption and violence to expand their operations and co-opt political power.

On a positive note, the problem of endemic political corruption in Mexico is now finally getting the attention it deserves, both inside and outside Mexico’s borders. However, corruption tells only part of Mexico’s tragic sage. There is another no less important, but generally ignored, factor in the rise to dominance of Mexico’s drug cartels: the North American Free Trade Agreement (NAFTA).

NAFTA & Narcos

Signed in 1994, NAFTA was sold to the Mexican people as a one-way ticket out of third-world poverty. For the narcos, however, it was a godsend, for the following three reasons:

1) NAFTA lowered the U.S.-Mexico’s border’s drawbridge for all purveyors of goods, whether legal or illegal. The border between the United States and Mexico is 1,954 miles long and the most heavily transited international border in the world. With NAFTA, the volume of trade across the border swelled, and pressure from business to move goods made it impossible for U.S. Customs officials to make thorough inspections for contraband.

As a result, it became much easier and cheaper to move cocaine from Columbia that had previously been delivered by sea or air, overland through Mexico. This gave the Mexican drug lords a central role in the logistics business, just at a time when a political power vacuum was leaving strategically situated local and state authorities ripe for infiltration and take over.

In the other direction, truckloads of U.S. guns and ammunition trundled unhindered through the border into Mexico and into the hands of these narco gangs. The sheer volume of licensed dealers — more than 6,600 along the U.S. side of the border alone, many of them operating out of their houses — makes policing them a tall order. And as the “Too Fast and Furious” scandal revealed, many of those guns, which were later found at crime scenes on either side of the border, were allowed to “walk” into Mexico with the tacit knowledge or even complicit connivance of U.S. federal bureaus such as the ATF, ICE, and the FBI.

Most of them ended up in the hands of the Sinaloa cartel, an organization that, according to some reports, was given preferential treatment by the Mexican army and U.S. authorities, in return for providing incriminating dirt on rival gangs.

2. NAFTA created a fertile breeding ground for narco foot soldiers. Twenty years after NAFTA there can be no denying that the volume of trade between Mexico and its two northern neighbors, the U.S. and Canada, is greater than ever. Still, most Mexicans earn less than they did in 1994 and nearly half of the population live below the poverty line. Perhaps most tellingly, defenders of free trade continue to tout the country as an attractive destination for foreign investment precisely because of its low-cost of labor.

By far, NAFTA’s most destructive impact was on Mexican agriculture. Within months of its signing heavily subsidized U.S. corn was flooding the Mexican market, putting millions of farmers out of work. This, in turn, drove waves of migration northwards or into the precarious fringes of Mexico’s fast-growing cities. For those who stayed behind, there was only one source of employment left: the drug trade. With poverty and inequality rife and U.S.-style consumerism being plugged 24/7 by Mexico’s corporate-owned media, personal ambition is now high and life cheap in Mexico’s badlands.

The problem does not stop there, however. According to a recent investigation by Greenpeace, new legislation by Nieto’s government promises to transfer land used for agriculture and even national parkland into the hands of global energy giants keen to frack every last drop of oil and gas out of Mexico’s resource-rich land. There is also increasing pressure from global agribusiness lobbies to open up Mexican corn production to the world’s biggest GMO producers like Monsanto, Syngenta and Dow.

If they get their way – and for the moment there’s only one Mexican judge standing in their way – millions more people will be uprooted from the land and chased into the towns. It would be yet another recruitment bonanza for Mexico’s criminal organizations.

3. Nafta made it much easier for drug traffickers to move their money. Another key, oft-ignored aspect of NAFTA is the liberalization of Mexico’s financial sector. In 1997 Mexico removed all restrictions to the entry of foreign banks. Now, 17 years later, almost all of the country’s major banks are part or fully owned by foreign entities, including Citi, Santander and BBVA.

Naturally, financial liberalization has made it much easier and quicker for investors, including drug traffickers, to move money in and out of Mexico, with the help of some of the world’s largest banks. In 2011 an investigation by the U.S. Drug Enforcement Agency revealed that Wachovia, now part of Wells Fargo, had failed to apply the proper anti-money-laundering strictures to the transfer of a staggering $378 billion – a sum equivalent to one-third of Mexico’s gross national product – into dollar accounts from currency exchange houses with which the bank did business.

For all its sins and its crimes Wachovia was forced to pay federal authorities $110 million in forfeiture and a $50 million fine for failing to monitor cash used to ship 22 tons of cocaine. Not a single bank employee was prosecuted. Indeed, the only person to lose his job was the British whistle-blower who exposed the crimes.

According to Roberto Saviano, the best-selling author of Gomorra and Zero, Zero, Zero, rampant financial liberalization on both sides of the Atlantic has also meant that drug traffickers no longer need to use tax havens, or at least they use them less than before:

Instead, they use European [and obviously American] banks. In the new book, I mention Antonio María Costa, the former Under-Secretary of the United Nations Office on Drugs and Crime, who said at the beginning of the crisis that the European banking system had lowered its security barriers. In other words, they had opened the floodgates to drugs money. Costa has publicly stated that the European financial systems were as good as saved by the global drugs trade, yet no EU government has responded to his accusation.

As long as organized crime outfits have fat bundles of cash to launder and global banks an incurable addiction to liquidity, the illicit proceeds of Mexico’s deadly drugs trade will continue to travel along the digital freeways of today’s global financial system, unhindered and unmolested.

Mexico: Living Testament to the “Free” Trade Con

Organized crime is not a national industry, but rather one of the world’s largest, most globalized, most diversified markets. As Prof. Buscaglia told DW, Mexico’s organized criminals have diversified into 21 different “sectors”, including people trafficking, sex trafficking, extortion and kidnapping. They also have links with Italian, Chinese, and Russian mafia, to name a few.

To have any chance of addressing the almost intractable problems now facing Mexico, a much more global perspective and response is needed. An ideal starting point would be to revisit the role of free trade agreements in globalizing organized crime while reducing the ability of supposedly sovereign states to police their own borders.

We are often told that freer trade is a panacea for all our economic ills. Yet if that were the case, Mexico, which has signed more trade agreements than just about any other nation on the planet, would be one of the world’s richest, strongest performing economies. Instead it’s on the verge of a vertiginous descent into social chaos, endemic lawlessness, and failed statehood, while its economy – at the exclusive service of transnational corporations, home-grown oligarchs [“Slimlandia”: Mexico in the Grip of Oligarchs], corrupt politicians and drug lords – continues to splutter in the slow lane.

Peña Nieto’s government excels at selling its message abroad and controlling its PR with an iron fist. But at home, reality is not so great. Read….. How Mexico Reengineers Reality to Lure Foreign Investors

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  4 comments for “The NAFTA Connection: The Role of “Free” Trade in Mexico’s Tragic Travails

  1. Fernando Berron says:

    Excellent piece!
    I’m Mexican, and never seen such an in depth analysis of our situation of the last 20 Years with Nafta, that Mr Quiñones is offering us.
    I was thinking on sending this article to Stratfor to educate them on our reality and not what they are writing about us.
    Thank you

  2. Orlando says:

    Interesting article, unlike Mr Quijones I believe Mexico is approaching a failed state. Today it has the second largest economy in Latin America (1.7 TUSD). However, its’ economy has languished at about 10% the size of the USA since the late 1970’s. It also is behind Colombia, another narco state having a FTA with the USA, in GDP per capita. Venezuela, which is rapidly approaching hyperinflation, also has a higher per capita GDP than Mexico.
    Maybe the current trend toward legalization of drug use in the USA, the EU and the OECD helps Mexico and Latin America, in general, as drug interdiction and their related activities decrease. The cartels can then be forced into more productive enterprises. As such, the drug business contributes little to GDP, and it comes at great social cost. It would be nice if Latin America could lead in this area by regulating and taxing the cartels instead of being the victim of a failed drug war by the richer countries of the world.

  3. Adam says:

    Using the famous Hermann Goering Quote: “Naturally the common people don’t want war (a bad economy). That is understood. But, after all, it is the leaders of the country who determine the policy and it is always a simple matter to drag the people along. Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is tell them they are being attacked (tell them it’s free trade).”

  4. titaluk says:

    Wow Don Quijones. at last someone makes things clear about how NAFTA opens a big , big road for drug traffickers, something that many, many of us couldn¨t understand. Thank you.

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