Since the beginning of civilization, trade has been an important issue. Christopher Columbus sailed to the Americas in search of a faster and safer trade route to India. We as Americans fought for our independence over trade related issues, such as tariffs and rules on with whom we were allowed to export and import goods. Our people have always fought for the rights and ability to buy and sell what they want at a reasonable price. The North American Free Trade Agreement, or NAFTA, is yet another attempt at this. NAFTA was signed on December 17, 1992 and put into effect on January 1, 1994 (SICE). It is a trade agreement between Canada, the United States, and Mexico. This paper will explain all the finer points of the agreement, its affects on our economy, and some predictions to the future. I shall end with my opinion of NAFTA based on what I have learned while researching this paper.
To discuss NAFTA with a greater understanding, it is important to realize why the three major governments on the North American continent would want to form a trade alliance. According to the law library at Southern Methodist University “its purpose was to remove tariff barriers between Canada, the United States and Mexico” (North). Removal of these barriers obviously promotes trade between these countries. It also promotes the buy and selling of goods between these countries by making those goods more easily accessible. Sellers can produce with lower costs and buyer can get the end product cheaper than if the tariffs were included in the price. But NAFTA had much loftier goals then just lowering cost and price. It was established “with the goal of fostering greater economic growth in Canada, the United States, and Mexico” (John). The ways in which NAFTA planned to create this spark in the economies of three different nations, was outlined in the actual NAFTA agreement text, in Article 102: Objectives. It states that the purpose of the agreement is to:
eliminate barriers to trade in, and facilitate the cross-border movement of, goods and services between the territories, promote conditions of fair competition, increase substantially investment opportunities , provide adequate and effective protection and enforcement of intellectual property rights , create effective procedures for the implementation and application of NAFTA, for the resolution of disputes, and, establish a framework for further trilateral, regional and multilateral cooperation to expand and enhance the benefits of NAFTA. (SICE)
In layman’s terms, NAFTA hoped to encourage trade by eliminating the former obstacles in order to facilitate the ease of goods and services across all borders. It also expected to improve fair competition by making all countries abide by the rules laid out in the agreement.. An example of how NAFTA has improved investment opportunities is evident in Canada, where the “direct investment in the United States and Mexico has increased by 340 percent between 1990 and 2002 from $60 billion to 205 billion. In addition Canada benefited from $225 billion in American and Mexican direct investment in Canada” (Further). As far as intellectual property in concerned, everyone knows that it’s easy to get foreign, more specifically Mexican made, designer knock-offs. Under NAFTA, these practices would be prohibited and each country would have to respect the other’s trademarks, copyrights, etc. NAFTA sets out guild lines to deal with disputes as well as a set of rules that outlines practices and procedures. Through these objectives, NAFTA is tying to improve the relations and the economies of all three nations.
Of course, no one would enter into an agreement on just good faith. There are many rules and conditions of NAFTA. One of these rules is the Rule of Origin, which is a requirement that encourages “the production of goods with in Canada, the U.S. and Mexico by granting them lower tariffs” (Qualifying). However, you can’t just slap a “Made in the U.S.A” sticker on you product and say it originated here. For the most part, all of the materials and the labor used to make finished goods must have originated in that country. This ensures that only those countries that are part of the agreement benefit from NAFTA.
But how much are we really benefiting from NAFTA? What are some of the advantages and disadvantages of the agreement? According to the Federal Reserve Bank of St. Louis’ website, one “absolute advantage is the ability to do something more efficiently – with less labor or resources – than another country” (Comparative). NAFTA also made the cost of producing lower by lowering the tariffs. Through its implementation “NAFTA provided for immediate tariff reductions on 68 percent of U.S. exports to Mexico, and 49 percent of U.S. imports from Mexico. With respect to U.S.-Canada trade, virtually all tariffs on U.S.-Canadian trade have been eliminated” (Executive). Producing at a lower cost gives a company higher profits and the competitive edge of setting prices below that of their competitors. NAFTA allows us to more cheaply attain labor and other resources from the countries in the pact, giving us the ability to produce goods at a lower cost. However, what may seem good for big business is rarely good for the little guy. The Federal Bank of St. Louis also states that, “international trade does not benefit everyone. In particular, low-skill U.S. workers may lose out” (Key). NAFTA depresses wages of low-skilled U.S. workers because, “trade permits us to import unskilled labor” (Negatives).
An agreement of this magnitude and that spans this large a land mass, will have major impacts on all the countries. Let’s keep on the subject of unemployment. According to The John F. Henning Center for International Labor Relations:
While labor and environmental groups argue that while NAFTA has enriched international corporations, it brought little benefit to workers or the environment. The US, for example, has lost an estimated 766,000 jobs due to the agreement, while Mexico, where many American companies relocated their production, has seen a nearly 21% drop in manufacturing wages. (John)
Americans lost 766,000 jobs to Mexico, while Mexican wages dropped. Also says that, “many workers are temporarily (sometimes permanently) unemployed by changes in industry structure” (Negatives). NAFTA has not helped the job market in the U.S. or Mexico. On the environmental side of the coin, ” in the name of removing barriers to free trade, corporations have used the system to challenge environmental and public health regulations in all three NAFTA countries” (Deepening). Thee key problems with NAFTA’s environmental policy are that the policies are liable to abuse, the procedures and programs referring to NAFTA are flawed, and that’s its environmental institutions are poorly funded by all three governments. These three factors in combination have caused a major environmental problem. I’m from Houston, Texas, and on our side of the Gulf of Mexico the pollution is so bad you can’t see your feet when you’re ankle deep in the water. The farther away you get from Mexico in the Gulf, the less of an issue the pollution is. I’ve also been to Destin, Florida, which is on the Gulf side, and it is beautiful and crystal clear. Another disadvantage to NAFTA is, “the growing dependency of the United States, Canada, and Mexico on intra-NAFTA trade” (Deepening). This is apparent in such areas as agriculture. According to the Center for North American Studies, ” U.S. agricultural trade with the rest of the world has decreased from 83.4 percent of the total in 1989 to 62.6 percent in 2002, reflecting the increasing importance of NAFTA partners in agricultural trade” (Deepening). Americans haven’t stopped eating. We have been importing foods from Mexico and Canada. This lessens our presence in the international agriculture markets and makes us more venerable if something should happen to the food supplies in Mexico or Canada.
But has NAFTA done more harm or good since its implementation? As we have already discussed, America has seen a loss of 766,000 jobs. Many of those jobs were low-skill jobs and those loses, both those real and potential have “weakened collective bargaining powers and ability to organize unions, and reduce fringe benefits” (Briefing). Since there are fewer opportunities available, workers do not have the stability and freedom to form unions and fight for benefits. According to the Economic Policy Institute:
US factories began to shift production to maquiladora factories along the order, where the Mexican government assures a docile labor force and virtually no environmental restrictions. The US trade surplus with Mexico quickly turned into a deficit, and since then at least a half-million jobs have been lost, many of them in small towns and rural areas where there are no job alternatives. (viewpoints)
American factories are moving across the Mexican border where the rules and environmental standards are more slacked. Meanwhile, Americans are losing jobs and we now have a trade deficit with Mexico. This wouldn’t be so bad if the Mexican economy was flourishing, but as I’ve already stated the wage of Mexican workers have actually dropped since NAFTA was implemented. In the case of Canada, they have seen “an upward redistribution of income to the richest 20% of Canadians, a decline in stable full-time employment, and tearing of Canada’s social safety net” (Briefing). With such benefits to businesses, the wealthy making more money by lowering costs, while moving low-skilled jobs to Mexico, lowering the opportunities of Canadian workers. As far as U.S. trades are concerned, exports to Mexico grew 147 percent and 66 percent. These numbers look great, until you look at our imports from the two countries which “have gone up by 248% from Mexico and 79 percent from Canada” (Briefing). While our exports have gone up, they have not done so as much as our imports from our NAFTA partners. This vast difference resulted in an increase of 378 percent in the U.S. net export deficit with NAFTA countries, from $16.6 billion in 1993 to 62.8 by 2000 (Briefing).
What does all this say about the future of NAFTA’s participants? As more manufacturing jobs move to Mexico, the maquiladora factories will have to become more spaced out, trickling down the nation. This will create more jobs and hopefully raise the wages of Mexican workers. Due to a lose of low-skilled jobs in the U.S. and Canada, more people will be forced to get some form of educations, and our economy will shift more and more to a service economy. Canada is seeing a change in their socialist government to more of a capitalistic one.
I have always had a negative opinion of NAFTA. I was hoping that through doing research for this paper I would become enlightened and see what a great agreement NAFTA is. But my I was surprisingly reaffirmed in my previous opinion. As I stated before, I’m from Houston, Texas, and my father is a truck driver who owns his own truck. Growing up I always heard him complaining about NAFTA taking jobs out of the trucking industry. Not only do Mexican trucks not have to meet the admissions and licensing standard that American drivers have to, but they wouldn’t have to stop at all of the weigh station that slow down U.S. truck’s delivery time. Since they don’t have to stop at weigh stations, Mexican trucks also don’t have to fill out logs or follow the same guidelines on how many hours they are permitted a day to drive and how much they must sleep. This lack of regulations gives Mexican truck a competitive edge, as well as put dangerous, unregulated trucks on American highways. Having the perspective that I have from growing up in such close proximity to Mexico, I’ve seen manufacturing companies move across the borders and had many friend’s parents lost their jobs. I also have had friends whose parents were farmers, and have seen them get poorer and poorer, in part due to the excessive importation of agricultural goods. If it were doing great good for the Mexican economy, I would rule NAFTA as fairly successful, since I understand that eventually, that money will make its way back to America, but through my research I learned that this is simply not the case. In the over ten years since NAFTA was implemented, Mexican wages have actually decrease. To have an already impoverish people make less money as the cost of living is increasing does not sing praises to NAFTA. Even Canada, which is a stable, successful nation, say a loss of full-time jobs and more money go to the wealthy than to the masses. From what I have read, NAFTA seems to be great for big business, they get to move to Mexico, pay their workers next to nothing, and not worry about environmental standards. For the rest of us, NAFTA seems to be hurting more than helping.
1.Briefing Paper. 2001. Economic Policy Institute. 03 Apr. 2004.
2.Comparative Advantages. Economic Research: Federal Researve Bank of St. Louis. 02 Apr. 2004.
3.Executive Summary. United States International Trade Commission. 09 Apr. 2004.
4.Further Opportunites. 05 Jun. 2003. Department of Forign Trade Affaris and International Trade. 07 Apr. 2004.
5.Faux, Jeff. “Viewpoints:NAFTA at 10”. The Nation. 02 Feb, 2004. Economic Policy Institute. 03 Apr. 2004.
6.The John F. Henning Center for International Labor Relations: The North American Free Trade Agreement. 2003. The John F. Henning Center for International Labor Relations. 04 Apr. 2004.
7.Key Points to Remember. Economic Research: Federal Researve Bank of St. Louis. 02 Apr. 2004.
8.Mumme, Stephen. “Nafta and Enviroment”. Foreign Policy In Focus. Volume 4. Number 26 (1999):
9.Negatives of Trade. Economic Research: Federal Researve Bank of St. Louis. 02 Apr. 2004.
10.North American Free Trade Agreement. 01 Jul. 2003. SMU Underwood Law Library. 02 Apr. 2004
11.”The North American Free Trade Agreement (NAFTA): Deepening Economic Integration and resposes to Competition”. Center for North American Studies. Jul. 2003. Texas A;M University. 10 Apr. 2004.
12.SICE:North American Free Trade Agreement. SICE: Foreign Trade Information System. 06 Apr. 2004.
13.Qualifying for NAFTA. FedEx. 05 Apr. 2004.