We contrast NAFTA's advantages and disadvantages. Find out more about NAFTA's benefits and achievements, as well as its negative impact on job creation, working conditions and the environment. Join our debate help us get the attention of others who may have something to say about this controversial free-trade agreement.
What is NAFTA?
The North American Free Trade Agreement, NAFTA, is a much criticized and praised trilateral agreement signed by Mexico,Canada and the United States, in 1993. It came into force on 1 January 1994 and its goal was to eliminate trade barriers and promote economic exchanges between the three North American countries. NAFTA replaced the previously existing Canada-United States Free Trade agreement and meant the immediate elimination of tariffs on fifty per cent of exports from Mexico to the U.S. and from the U.S. to Mexico. Alongside NAFTA, Canada, Mexico and the U.S. also signed two supplementary treaties: the North American Agreement on Labor Cooperation (NAALC) and the North American Agreement on Environmental Cooperation (NAALC). Today NAFTA covers an economy with a combined output of over US$17 trillion and more than 440 million people.
In the U.S. the big parties pushed the NAFTA agreement. George H. W. Bush started the negotiations and Bill Clinton made NAFTA a central part of his 1992 presidential campaign. However, NAFTA was always a controversial issue. Before its signature the agreement was already so contentious that Ross Perot, an independent millionaire, launched a relatively successful presidential campaign centered around opposing the free-trade agreement in 1992. The "Giant sucking sound" was the famous phrase Perot used to describe the negative effects NAFTA could bring to America. There have been fears about the loss of jobs that NAFTA could cause in these countries, legal disputes regarding some exports, and concerns about its environmental and social impacts. President Obama already suggested that NAFTA may have had a negative impact in employment in some sectors and areas of the country. Most recently the Republican candidate for the White House, now President elect Donald Trump, has accused NAFTA of being "the single worst trade deal ever approved" in the United States. Hillary Clinton brought up the idea that NAFTA may need to be amended.
But why is this longstanding trade agreement still raising so many concerns? Who benefits from NAFTA? Here we outline the main advantages and disadvantages of NAFTA to help you get a better sense of what is a stake and whether you think some action should be taken to strengthen this agreement or to limit it.
Watch this video by CNN Money explaining what NAFTA is:
NAFTA pros and cons
- Economic growth: although it is difficult to isolate the direct effect of NAFTA on the economic performance of these countries, most analysts consider the North American Free Trade Agreement to have positively contributed to economic growth in the three countires involved, which since the signature of the agreement have grown at a higher speed than the average of OECD countries. Some regions, such as Texas, have seen their clothing and metal industries flourish.
- More trade: the increase in trade among the three countries can be considered one of the most important NAFTA achievements. Exports from Canada and Mexico to the US increased 192%, exports those from the US to Canada and Mexico climbed 201% and 370% respectively (from 1993 to 2012)
- Tranformed Mexican economy: trade liberalization in Mexico has boosted trade and investment flows and contributed to diversifying exports, from primarily oil, to include a variety of manufactured products.
- Benefited companies: thanks to NAFTA many corporations from the three countries have increased sales and grown. Companies such as Bombardier, Unique Solutions (Canada), Canterpillar Inc., Mary Kay Inc. (US), Mabe and Modelo (Mexico) offer interesting success stories linked to the new opportunities for partnerships and internationalization created by NAFTA.
- More jobs and foreign investment in Mexico: foreign direct investment in Mexico has grown more than 150% since the entry into force of NAFTA. Thanks to a surge in outsourcing, millions of jobs have also been created in the Latin American country.
- Positive effect on labor: thanks to NAFTA, and in particular to the North American Agreement on Labor Cooperation (NAALC), working conditions and living standards have been improved in the three countries. Provisions against discrimination (in particular against migrant workers), as well as standards for occupational health and safety have been introduced.
- Lower cost of imports: consumers and companies have benefited from the reduction in tariffs on many products in Canada, Mexico and the US.
- American trade deficit: according to a study of the Economic Policy Institute, US trade deficit has increased from US$17 billion to US$177.2 billion between 1993 and 2013.
- Loss of manufacturing jobs: manufacturing jobs in America have decreased since 1994. Although an important part of that trend is attributed to relocation of production to China and India, many American companies have also moved their production to the south of the border. Californa, Michigan, New York and Texas were the hardest-hit states in terms of job losses in manufacturing industries.
- Low workers wages: NAFTA is blamed for increasing pressure to reduce or at least limit the increases in wages for workers in order to keep production competitive. Even companies that did not move production to Mexico used this possibility as a bargaining chip to suppress labor union proposals to increase wages.
- Maquiladora workers exploitation: the maquiladora program for American companies to employ Mexican workers near the border has been problematic. It is claimed that these workers do not enjoy health protection or labor rights as they should, and that workdays extend sometimes beyond 12 hours.
- Hurt Mexican farmers: the influx of cereals and beef from the US has reduced the market share of Mexican farmers as well as the subsidies they were receiving from their government.
- Poorly implemented regulations: some regulations enacted to support NAFTA are not being respected. For instance, there are complaints in the US about Mexican trucks crossing the border and going beyond the 20-mile commercial zone limit imposed by the House of Representatives. In this case American truckers complain because there is no reciprocity and their larger and heavier trucks are not allowed in Mexico due to the size restrictions imposed south of the border.
- Negative impact on the environment: critics of NAFTA argue that the agreement has put pressure, in particular on Mexican farmers, to compete with American products leading to a important increase in the utilization of fertilizers and other chemicals. A report on NAFTA and the environment released on the 20th anniversary of the North American Free Trade Agreemen, argues that the greenhouse gas emissions in the region jumped from 7 billion metric tons in 1990 to 8.3 billions in 2005. The report also links deforestation and unsustainable water use with NAFTA.
Watch this video in which both Trump and Clinton criticize NAFTA
Emerging questions: Are NAFTA's advantages and disadvantages simply the side effects of a wider process of globalization? What will happen to NAFTA if the TTIP and/or TPP are approved? Are politicians focusing on NAFTA simply to please their electorate or do you think they really intend to amend or supress the agreement? Do we need more or less economic protectionism? Is this another example in which the largest corporations in the world impose their will to the governments? Which of the three countries has benefited the most?
If you change your mind, you can change your vote simply by clicking on another option.
NAFTA pros and cons: is NAFTA good or bad?
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