NAFTA

NAFTA
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).

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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.


Works Cited
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.

NAFTA

The North American Free Trade Agreement or as its most commonly known NAFTA is a comprehensive rules-based agreement between the United States, Canada, and Mexico, that came into effect on January 1,1994. All three countries signed it in December of 1992; later on November of 1993 it was ratified by the United States congress. NAFTA was not only used in cutting down on tariffs between both countries but it also help deal with issues such as Transportation, Border Issues, and Environmental Issues between these two countries. NAFTA changed some tariffs immediately and within fifteen years other tariffs will fall to zero. NAFTA was not created to just lower tariffs it was also created to open protected sectors in agriculture, energy, automotive trade, and most importantly textiles. It also opened up the U.S. Mexico border to previously restricted areas of trade. It set rules on government procurement and intellectual property.
Now after its fourth year of existence it is apparent that it is good for Mexico and the United States. Because of NAFTA Mexico has been able to make significant changes in their economy, far more than the U.S. The Mexican overall trade balance went from a $18.5 billion deficit it 1994 to a $7 billion surplus in 1995. Even though American exports slipped $4 billion in 1995, the recovery of the Mexican economy in 1996, when the GDP grew 5.1%, American exports came round and grew to 20%, later to 35% thanks to NAFTA. Also because of NAFTA two way trade between the United States and Mexico has grown to 60% from 1993.
Although Mexicos economy is making its first boom in sixteen years, it is still economically small compared to the U.S. Mexicos economy has been compared to that of the size of Florida. Because of this all the hype about the loss of jobs to the U.S., especially California, have been taken over the top. According to the most recent information it was proved that NAFTA has had almost no effect on U.S. employment levels. At first when NAFTA came into effect U.S. employment levels did decrease, but within three years all employment went back up to normal. Some say that this in fact is not due to NAFTA, but to the continuing expansion of the U.S. economy.


Another aspect that has made Mexicos economy boost is the Maquiladoras program. It began in 1995 as a side program of NAFTA, and set up a special customs regime in Mexico. It allows certain corporations duty-free imports of raw materials, equipment, machinery, and replacement parts, into Mexico. This is done to attract manufacturing of goods in Mexico. The U.S. tariff schedule provision known as 9802, formerly known as 806/807, greatly assisted the development of the Maquiladoras industry. This permitted U.S. goods to be exported to Mexico and face a duty only on the value added when the finished product is imported back into the United States. In 1996 40% of all Mexican exports to the U.S. were from the Maquiladora program. Also the U.S.-Mexico Chamber of Commerce conceived a group named Transformation 2000, whom would inform and educate all manufactures on the Maquiladora programs by the year 2001.
The Maquiladora program has also been an integral part in the rapid growth of the Mexico-U.S. border region. The U.S.-Mexico border separates four U.S. states (California, Arizona, New Mexico, Texas) and six Mexican states (Baja California, Sonora, Chihuahua, Coahuila, Nuevo Leon, and Tamaulipas). These are all called the twin cities, although the border politically separates them they share common air sheds and drainage basins. Seventy percent of all Maquiladoras are located in the border region of Mexico. Over 1,600 Maquiladora plants in the border area employ over 510,000 workers, about half of which are located in the two biggest Mexican border cities of Tijuana and Ciudad Juarez. There was a 13% growth in Maquiladora employment in the border region, within the interior of Mexico it was actually 28 %. At first most of the Maquiladora plants used very low skilled assembly workers but in the most recent years these plants have become more sophisticated and technologically advanced that a large number of Mexican engineers are being employed. Much of the growth in the U.s. twin cities is directly related to the growth on the Mexican side of the border. Not only have retail sales boomed with many Mexicans doing much of their shopping on the U.S. side of the border, but many firms have been established to supply the growing Maquiladoras across the border.

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The rapid growth in the border region has significantly outpaced the development of the infrastructure. The twin cities in the border region share common pollutants, drinking water and diseases. About 20% of the population on the U.S. side of the border lives at or below the poverty line compared with a national average of 12.4%. The growth of the border cities has been so quick that both governments have not been able to handle the increase in infrastructure to meet environmental regulations. Both governments have also not been able to speed up Transportation Infrastructure. Physical trade of goods between the U.S. and Mexico has doubled since 1990. Most officials and border residents feel that transportation infrastructure is o.k. But there needs to be some additional construction in order to fully utilize existing facilities. Although transportation can be moved by train, ship or air, truck still remains the most important means of transporting goods across the border. Normally trucks are forced to wait in long lines for several hours; this is due to the lack of adequate infrastructure. This also causes polluting exhaust to escape into the air causing an even greater problem in the border air; this causes 20% of all air pollution. The 2,000-mile border separates two regions with totally different economical levels as well as environmental concerns. The North American Agreement on Environmental Cooperation (NAAEC) was approved as a side agreement to NAFTA to insure that all parties enforce national and international environmental laws. It was also created to address any environmental problems due to NAFTA implementation. Because of this two environmental agencies have been set up to tackle these issues, they are the Border Environment Cooperation Commission (BECC) and the North American Development Bank (NADBank). They have set up mechanisms that allow community participation as well as allocated and approved funds for infrastructure projects. This in turn has created an upswing in the battle against environmental pollution along the U.S.-Mexico Border, may they be directly related to NAFTA or not.


Social Issues

Nafta

NAFTA “The free trade argument states that, if each nation produces what it does best and permits trade, over the long run all will enjoy lower prices and higher levels of output, income, and consumption that could be achieved in isolation.” The North American Free Trade Agreement (NAFTA), implemented in January of 1994, created a situation in North America in which there are no taxes on most products imported and exported between the three countries. Ideally, the governments of Canada, the U.S. and Mexico believed that breaking the trading barriers would increase jobs and other things as it bettered each of their economies. NAFTA, however, has not necessarily helped the economies in the way in which the governments had projected. There was much speculation before the signing of the treaty that NAFTA would not work out the way it was projected to.

Some economists believed that one major problem which NAFTA would create, as opposed to what the governments thought, is loss of jobs. “In Canada and the United States, much of the political opinions against NAFTA has centered around the low wage rates in Mexico and the possibility of jobs being moved south of the Rio Grande River.” It had seemed obvious for some that many wealthy factory owners would move to or expand in Mexico, resulting in thousands of lost jobs. As well, this would clearly create more exports for Mexico, and less exports for Canada and the United States. However, in the eight months after the implementation of the agreement, Canada had exported 33.2% more to Mexico and imported 31% more from Mexico than usual. This may show that Canada still exported more to Mexico then it imported from them, but, one must think that when the agreement! was first implemented, exports to Mexico may have included factors of production, businesses, etc. If so, these exports will have soon leveled off and jobs would be lost in Canada as businesses moved to Mexico.

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This has been seen to be case with the United States. “Although U.S. exports to Mexico have grown since NAFTA went into effect, the Administrations [Clintons] own numbers show that imports from Mexico have gone through the roof; a U.S. trade surplus of $1.7 billion in 1993 spiraled downward into a deficit of $15.4 billion by 1995.” Not only has NAFTA caused a loss in jobs in all three countries, but it has also caused a decrease in job benefits for workers in Canada and the United States. Before NAFTA went into effect, the corporate group USA*NAFTA claimed that “NAFTA itself will improve working conditions by generating economic growth, which will enable all three countries to provide more jobs with higher pay in a better working environment.” However, this proved not to be the case. In actuality, NAFTA has given corporations more power to lower wages and decrease working conditions.

“The most direct method is through whipsaw bargaining, or threatening to shift production to Mexico unless workers agreed to concessions.” In a situation where ones job is at risk, one must accept wage and benefit cuts. It seems as though since the implementation of NAFTA, workers rights have diminished. Even though productivity growth has occurred in many corporations, “In Canada, as well as in the U.S., real wages ar! e stagnating and the proportion of full-time workers living in poverty continues to grow.” There should never be any workers, let alone full-time workers, living in poverty. In Canada as in any country, poverty should not exist among the working class. This is definitely not the case in Mexico where NAFTA has slammed the middle class back into poverty. Another thing which NAFTA affects is the environment.

NAFTA supporters promised that the agreement would lead to increased investment in environmental cleanup and less maquiladoras along the U.S.-Mexico border. However, many communities still lack access to both water and sewage systems. “Today, only 10 percent of Mexicos yearly output of 7 million tons of hazardous waste receives adequate treatment, with the rest poured into clandestine waste dumps or municipal sewers.” Maquiladoras are plants owned by foreign companies which send raw materials to Mexico for assembly. NAFTA has eliminated the duty on the importation of those goods back to Canada and the United States. NAFTA has caused an increase in the amount of maquiladoras. This has caused an increase in the amount of pollution in Mexico.

NAFTA has taken emphasis away from the global environment as it puts the production of goods and exportation first. If workers arent healthy, are we not headed for lower levels of pro! duction? This is without even mentioning the possibilities of a continent-wide epidemic. How can our economy be healthy if our people arent even healthy? Now, we shall look at the benefits of the North American Free Trade Agreement to the Canadian economy, as well as those of the other two countries. First of all, NAFTA has eased the creation of new coalitions which cross borders and political party lines, “..and embrace constituencies as diverse as workers, farmers, environmentalists, consumers and religious groups.” “Canadas Bank of Montreal has launched the first mutual fund, to be marketed in all three countries, targeting companies poised to cash in on the North American Free Trade Agreement.” Companies such as Bombardier who have constructed plants in Mexico are prime candidates of this mutual fund. Mexicos economy has gotten a little better.

Canadian and U.S. companies invested $2.4 billion in Mexico in the first eight months of 1994, accounting for 55% of Mexicos total foreign direct investment. This is good for the Mexican economy in the long-term as well as in the short-term. In the long-term, these investments will lead to more exports. Corporations from Canada and the U.S. build plants in Mexico, and export those goods from Mexico back into the Canadian and United States economy. Another thing NAFTA does is as it creates a “trinational superpower”, it becomes appealing to foreign investors.

For example, Toyota Motor Co. built a $450 million expansion in Ontario to make Corollas for the North American market. Foreign countries want to invest and build plants in North America to get in on the North American market with less angst. It not only costs less for Canada, the U.S. and Mexico to trade, but it costs less for any foreign corporation with a factory in North America. As well, these new plants in Canada mean more jobs available for Canadian citizens. Another advantage NAFTA gives to the Canadian economy is higher productivity levels.

Canadian corporations with plants in Mexico produce goods at lower costs. Canadian corporations benefit with these low production costs, due to low hourly work wages in Mexico. Canadian corporations had not been so eager to build factories in Mexico prior to the implementation of the agreement due to the tariffs which must be paid when the goods crossed the border. It can be seen that there are more points against the North American Free Trade Agreement than for it. NAFTA must be in place for nine hundred days since its implementation in January of 1994.

It seems as though the majority of citizens in all three countries in the agreement are now against NAFTA. NAFTA does not create the jobs it said it would in any of the three countries involved. In fact, thousands of jobs have been lost. Though productivity may be up in many corporations, workers have not been taking part in the benefits. Workers have actually lost benefits and have had wage cuts.

The environment is also doing much suffering due to the plants created in Mexico without adequate disposal of toxic wastes. It had been the speculation of the governments of all three countries in the agreement that NAFTA would cause great economic growth. Somehow, the governments were somewhat off in their predictions. Now Canada, and the rest of the western hemisphere, will suffer. Bibliography Anderson, Sarah.

et al. “NAFTA: Trinational Fiasco.” The Nation July 15, 1996: 26-29 Carbaugh, Richard G. International Economics. U.S.A.: Wadsworth Publishing Company, 1989. Dentzer, Susan.

“The Pain and Gain of Trade.” U.S. News Sept. 1992: 62+. Harbrecht, Douglas. et al.

“What Has NAFTA Wrought? Plenty Of Trade.” Business Week Nov. 21, 1994: 48-49 Lewis, Charles, and Margaret Ebrahim. “Can Mexico and Big Business USA Buy NAFTA?” The Nation June 14, 1993.

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