NAFTA…?

New Zealand Australia Free

Trade Agreement.
North American Free Trade
Agreement
 Signed by which countries?
 Mexico

 UnitedStates
 Canada
 Went into effect when?
 January 1, 1994
Mexican president Carlos Salinas de Gortari, United States president George Bush,
and Canadian prime minister Brian Mulroney, left to right, look on as their trade
ministers initial the North American Free Trade Agreement (NAFTA) in San Antonio,
Texas, in 1992. Passage of the treaty in 1993 counted as one of the Mulroney
government’s most significant achievements.
 NAFTA Provisions
 NAFTA called for immediately eliminating duties
on half of all U.S. goods shipped to Mexico and
gradually phasing out other tariffs over a period
of about 14 years. Restrictions were to be
removed from many categories, including motor
vehicles and automotive parts, computers,
textiles, and agriculture. The treaty also
protected intellectual property rights (patents,
copyrights, and trademarks) and outlined the
removal of restrictions on investment among the
three countries. Provisions regarding worker and
environmental protection were added later as a
result of supplemental agreements signed in
1993.
 Controversy

 Who favors NAFTA? Why?

 “Transnational Corporations”
have tended to support NAFTA in
the belief that lower tariffs would
increase their profits.
 Controversy

 Who opposes NAFTA? Why?

 Labor unions in Canada and the
United States have opposed NAFTA
for fear that jobs would move out of
the country due to lower wage costs
in Mexico.
NAFTA FEARS
This Maquila in one of Tijuana’s new industrial parks could easily be
mistaken by a building in San Diego. The road in this area are new
and well-paved, and professional landscaping surrounds the area.
NAFTA: A BRIEF
HISTORY

Two short videos

 Trade after Nafta: Mexico
TRADE WITH MEXICO (in millions
of dollars)

YEAR EXPORTS IMPORTS BALANCE

1994 50843.5 49493.7 1349.8
1995 46292.1 62100.4 -15808.3
1996 56791.6 74297.2 -17505.6
1997 71388.5 85937.6 -14549.1
1998 78772.6 94629 -15856.4
1999 86908.9 109720.5 -22811.6
2000 111349 135926.3 -24577.3
2001 101296.5 131337.9 -30041.4
2002 97470.1 134616.0 -37145.9
2003 97411.8 138060.0 -40648.2
2004 110835 155901.5 -45066.5
2005 (August) 77744.8 109960 -32215.2
 Trade after Nafta: Canada
TRADE WITH CANADA (in millions
of dollars)

YEAR EXPORTS IMPORTS BALANCE

1994 114438.6 128405.9 -13967.3
1995 127226 144369.9 -17143.9
1996 134210.2 155892.6 -21682.4
1997 151766.7 167234.1 -15467.4
1998 156603.5 173256 -16652.5
1999 166600 198711.1 -32111.1
2000 178940.9 230838.3 -51897.4
2001 163424.1 216267.9 -52843.8
2002 160922.7 209087.7 -48165
2003 169923.7 221594.7 -51677
2004 189879.9 221594.7 -51671
 NAFTA AFTER 10 YEARS: AN
EVALUATION (CATO Institute)
 For one thing, it has delivered on its
principal promise of increasing trade.
Since 1993, the year before the pact
took effect, two-way commerce
between the United States and
Mexico roughly tripled, from $81
billion to $232 billion
 NAFTA AFTER 10 YEARS: AN
EVALUATION
 NAFTA helped to break the grip of
the once-dominant PRI party over
the daily life of Mexicans. It set the
stage for the election of Vicente Fox
in 2000 as the first opposition-party
candidate to be elected president in
71 years
 NAFTA AFTER 10 YEARS: AN
EVALUATION
 Critics continue to assert that NAFTA has
cost hundreds of thousands of American
jobs and, further, is somehow responsible
for the lingering recession in U.S.
manufacturing.
 They use NAFTA as an argument against
proposed trade agreements with Central
American and other Latin American
countries.
 NAFTA AFTER 10 YEARS: AN
EVALUATION
 There has been no "giant sucking
sound" of jobs and investment
heading south. In the past decade,
the U.S. economy has added a net 18
million new jobs.
 America's unemployment rate is
actually lower today than it was in the
year before NAFTA went into effect.
 NAFTA AFTER 10 YEARS: AN
EVALUATION
 SinceNAFTA, about 400,000 Americans
have qualified for trade adjustment
assistance under a special program for
workers displaced by imports from
Mexico, but that is a small number
when spread over a decade and when
compared to the millions of jobs being
eliminated and created every quarter in
the U.S. economy.
 NAFTA AFTER 10 YEARS: AN
EVALUATION
 In the past four years, America's direct
manufacturing investment in Mexico has
averaged $1.9 billion a year, a fraction of
the $200 billion invested annually in our
domestic manufacturing capacity.
 In fact, U.S. companies invest far more
each year in other high-wage, high-
standard economies, such as those of
Western Europe and Canada, than they do
in such developing countries as Mexico.
 NAFTA AFTER 10 YEARS: AN
EVALUATION
 NAFTA has been a blessing for many U.S.
manufacturers. Our domestic automobile
industry, for example, now produces about
the same number of cars and light trucks
in the United States as it did before the
agreement, but it assembles those
vehicles more cost-effectively by
spreading out its sourcing among the
three NAFTA countries -- the United
States, Mexico, and Canada.
 NAFTA AFTER 10 YEARS: AN
EVALUATION
 Totalmanufacturing output in the
United States has risen 41 percent
during the past ten years, compared
to 34 percent in the preceding 10
years. In the first five years of
NAFTA, the U.S. economy added a
net half million manufacturing jobs
 NAFTA AFTER 10 YEARS: AN
EVALUATION
 By allowing American manufacturers
to more efficiently allocate their
production, NAFTA deserves a share
of the credit for the healthy increase
in U.S. worker productivity since the
mid-1990s.
 NAFTA AFTER 10 YEARS: AN
EVALUATION
 The recession in manufacturing sector
that began in 2000 cannot be reasonably
blamed on NAFTA. It began years after
the agreement took effect, and for
reasons unrelated to NAFTA, such as the
East Asian financial crisis, the bursting of
the dot com and telecom bubbles, a
collapse of business investment and
demand, corporate scandals and
uncertainty caused by the war on
terrorism.
NAFTA AFTER 10 YEARS (CATO Institute)

 Infact, since 2000, imports from and

exports to Mexico have both
declined. The problem for U.S.
manufacturers is not too much trade
with Mexico, but not enough.
NAFTA AFTER 10 YEARS (Joseph Stiglitz)

 In the United States, the North American

Free Trade Agreement has failed to fulfill
the most dire warnings of its opponents
and the most fervent expectations of its
supporters.
 In Mexico, however, the treaty remains
controversial and even harmful — as do
America's efforts to liberalize trade
throughout the hemisphere.
 NAFTA AFTER 10 YEARS: ANOTHER
EVALUATION (Joseph Stiglitz)
 There is some good news: In America, the
"giant sucking sound of jobs being pulled
out of this country" that Ross Perot
predicted never quite materialized.
 The first six years of Nafta saw
unemployment in the United States fall to
new lows.
NAFTA AFTER 10 YEARS (Joseph Stiglitz)

 Nafta has brought some benefits to Mexico as

well; it was trade with America, fueled by Nafta
— not the bailout of Wall Street lenders — that
was responsible for Mexico's quick recovery
after the financial crisis of December 1994.
 But while Mexico benefited in the early days,
especially with exports from factories near the
United States border, those benefits have
waned, both with the weakening of the
American economy and intense competition
from China.
NAFTA AFTER 10 YEARS (Joseph Stiglitz)

 Growth in Mexico over the past 10 years

has been a bleak 1 percent on a per capita
basis — better than in much of the rest of
Latin America, but far poorer than earlier
in the century. From 1948 to 1973, Mexico
grew at an average annual rate of 3.2
percent per capita. (By contrast, in the 10
years of Nafta, even with the East Asian
crisis, Korean growth averaged 4.3
percent and China's 7 percent in per
capita terms.)
NAFTA AFTER 10 YEARS (Joseph Stiglitz)

 And while the hope was that Nafta would

reduce income disparities between the
United States and its southern neighbor,
in fact they have grown — by 10.6 percent
in the last decade.
 Meanwhile, there has been disappointing
progress in reducing poverty in Mexico,
where real wages have been falling at the
rate of 0.2 percent a year.
NAFTA AFTER 10 YEARS (Joseph Stiglitz)

 These outcomes should not have

come as a surprise. Nafta does give
Mexico a slight advantage over other
trading partners. But with its low tax
base, low investment in education
and technology, and high inequality,
Mexico would have a hard time
competing with a dynamic China.
NAFTA AFTER 10 YEARS (Joseph Stiglitz)

 Naftaenhanced Mexico's ability to

supply American manufacturing firms
with low-cost parts, but it did not
make Mexico into an independently
productive economy.
NAFTA AFTER 10 YEARS (Joseph Stiglitz)

 Under Nafta, if foreign investors believe they are

being harmed by regulations (no matter how well
justified), they may sue for damages in special
tribunals without the transparency afforded by
normal judicial proceedings. If successful, they
receive direct compensation from the federal
government.
 Environmental, health and safety regulations
have been attacked and put into jeopardy. To
date, suits with claims in excess of $13 billion
have been filed.
NAFTA AFTER 10 YEARS (Joseph Stiglitz)

 While many of the cases are still pending, it is

clear that there was not a full and open debate of
the consequences of Nafta before passage.
 Conservatives have long sought to receive
compensation for regulations that hurt them, and
American courts and Congress have usually
rejected these attempts. Now businesses may
have accomplished indirectly, through treaty,
what they could not get more openly through the
democratic political process.
NAFTA AFTER 10 YEARS (Joseph Stiglitz)

 Meanwhile, those harmed by the actions of

the foreign firms, for instance by what
they do to the environment, do not have
comparable protections of appealing to an
international tribunal and receiving
compensation.
 This fetid creek runs through the middle of Chilpancingo. The water
flows down from the polluted mesa above. Community members claim
that a drainage pipe carrying toxins from the maquilas runs only at night
to evade detection by government officials.
NAFTA AFTER 10 YEARS (Joseph Stiglitz)

 All of this has important implications for the

proposed Free Trade Area of the Americas, and
for countries thinking of signing onto bilateral
trade agreements with the United States. Signing
a free trade agreement is neither an easy nor an
assured road to prosperity.
 The United States has said it does not want
agriculture or nontariff barriers to be on the table
in these talks. But while it refuses to give in on
these points, it wants Latin American countries to
compromise their national sovereignties and to
agree to investor "protections."
NAFTA AFTER 10 YEARS (Joseph Stiglitz)

 In fact, the United States has been demanding

that countries fully liberalize their capital markets
just as the International Monetary Fund has
finally found that such liberalization promotes
neither growth nor stability in developing
countries.
 Unfortunately, many of the smaller and weaker
countries will probably agree in the quixotic hope
that by linking themselves to America, they will
partake of America's prosperity.
NAFTA AFTER 10 YEARS (Joseph Stiglitz)

 In the long run, while particular special-interest

groups may benefit from such an unfair trade
treaty, America's national interests — in having
stable and prosperous neighbors — are not well
served.
 Already, the manner in which the United States is
bullying the weaker countries of Central and
South America into accepting its terms is
generating enormous resentment. If these trade
agreements do no better for them than Nafta has
done for Mexico, then both peace and prosperity
in the hemisphere will be at risk.