TABLE OF CONTENT

ACKNOWLEDGEMENT

ABSTRACT

INTRODUCTION NAFTA AND ITS PURPOSEOBJECTIVES OF NAFTA

The North American Agreement on Environmental Cooperation

The North American Agreement on Labor Cooperation

NAFTA TRADE BALANCE

EFFECTS OF NAFTA ON

ENVIRONMENT

AGRICULTURE

MOBILITY OF PERSONS

CRITICISIM AND CONTROVERSIES

PROS AND CONS OF NAFTA

Does NAFTA really promote free trade?

CONCLUSION

REFRENCES

INTRODUCTION

NAFTA AND ITS PURPOSE

NAFTA is short for the North American Free Trade Agreement. NAFTA covers Canada, the U.S. and Mexico making it the world’s largest free trade area. NAFTA was launched 20 years ago to reduce trading costs, increase business investment, and help North America be more competitive in the global marketplace.

The first of NAFTA's stated objectives is to "eliminate barriers to trade in, and facilitate the cross-border movement of, goods and services between" the Parties. This goal is being accomplished as the various provisions of the NAFTA are phased in which eliminate duties, harmonize procedures, recognize standards as equivalent and encourage the exchange of information. In addition, the NAFTA created some two-dozen working groups, committees and subcommittees to advance the objectives of the Agreement. Article 316.3 emphasizes the importance of facilitating trade in goods and provides a means for ensuring that, as the NAFTA is implemented and as its various working groups meet, sufficient communication takes place to assure that the common goal of facilitating the cross-border movement of goods is undertaken in a comprehensive, coordinated and efficient manner.

NAFTA was signed by President George H.W. Bush, Mexican President Salinas, and Canadian Prime Minister Brian Mulroney in 1992. It was ratified by the legislatures of the three countries in 1993. The U.S. House of Representatives approved it by 234 to 200 on November 17, 1993. The U.S. Senate approved it by 60 to 38 on November 20, three days later. It was signed into law by President Bill Clinton on December 8, 1993 and entered force January 1, 1994. Although it was signed by

President Bush, it was a priority of President Clinton's, and its passage is considered one of his first successes.

Grant the signatories Most Favored Nation status. Eliminate barriers to trade and facilitate the cross-border movement of goods and services. Promote conditions of fair competition. Increase investment opportunities. Provide protection and enforcement of intellectual property rights. Create procedures for the resolution of trade disputes. Establish a framework for further trilateral, regional and multilateral cooperation to expand NAFTA's benefits.

NAFTA has eliminated trade barriers, increased investment opportunities, and established procedures for resolution of trade disputes. Most important, it has increased the competitiveness of the three countries involved on the global marketplace

0BJECTIVES OF NAFTA

1. The objectives of this Agreement, as elaborated more specifically through its principles and rules, including national treatment, most-favored-nation treatment and transparency, are to:

a) Eliminate barriers to trade in, and facilitate the cross-border movement of, goods and services between the territories of the Parties;

b) Promote conditions of fair competition in the free trade area;

c) Increase substantially investment opportunities in the territories of the Parties;

d) Provide adequate and effective protection and enforcement of intellectual property rights in each Party's territory;

e) Create effective procedures for the implementation and application of this Agreement, for its joint administration and for the resolution of disputes

In his October 1992 campaign address, Clinton set out US negotiating objectives for the labor and environment side agreements. Clinton argued that the environment side agreement should create an environmental protection commission to clean up and prevent water pollution and to encourage the enforcement of each country's domestic environmental laws through education, training, and a commitment of resources. Similarly, Clinton stated that the labor side agreement should create a labor commission to encourage high worker standards and safety and to educate, train and develop minimum standards for the region

SUB AGREEMENTS UNDER NAFTA

The environment and labor side agreements have two main objectives: (1) To improve environment and labor conditions in North America through cooperative initiatives.

(2) To mediate environment and labor disputes. The side agreements create transactional environment and labor commissions to carry out these objectives. The main goals and achievements of each agreement is examined in turn below.

The North American Agreement on Environmental Cooperation

The negotiation of the NAFTA provoked numerous concerns about the impact of increased trade and investment on environmental conditions in the region. The most widely-cited problems raised by the environmental community in the United States involved: (1) worries that US environmental protection standards would be driven down in NAFTA member countries by businesses moving or threatening to move production to countries with lower environmental standards in order to gain a cost advantage; (2) that lax Mexican environmental enforcement could result in a "pollution haven" in Mexico which would threaten the competitiveness of manufacturing facilities in the United States; (3) and that pollution "spillover" into the United States would rise as Mexican production, especially in the US-Mexico border region, increased.3 The NAAEC was created to respond to environmental concerns related to the NAFTA.

The NAAEC has these broad goals:

(1) To encourage improvement of environmental conditions in North America, through cooperative initiatives,

(2) To provide a mechanism for mediating environmental disputes. The NAAEC provides an institutional structure—the Commission for Environmental Cooperation (CEC)—to implement these environmental objectives.

(3)The CEC consists of an independent Secretariat located in Montreal, a Council of cabinet level representatives from each NAFTA country, and a Joint Public Advisory Committee (JPAC) composed of fifteen citizens, five from each member country.

(4) The Secretariat carries out the day-to-day activities of the CEC, while the Council meets annually and holds special sessions at the request of any NAFTA member.

(5) The JPAC provides a channel for public input on Council deliberations and Secretariat activities.

Goal 1: Cooperation Agenda

The CEC has established a tripartite work program to promote improvement of environmental conditions in North America. The 1997 CEC total budget was US$9.9 million: US$3 million from each member country and US$0.9 million from other sources.6 of the total budget, US$2.7 million was used for direct program expenses.

The CEC has given priority to the protection of human health and the environment. In that area, the Commission agreed at the regular session of the CEC Council on October 13, 1995 to create regional plans for

reducing or phasing out selected persistent organic pollutants. Regional plans have been developed for PCBs, chlordane, DDT, and mercury. Other initiatives related to human health and environment include programs on limiting adverse climate change effects and a program to develop a North American pollutant release inventory .

A significant portion of CEC cooperative program resources (24 percent of total direct project costs in 1997) have been devoted to programs related to habitat and species. Initiatives in this area include the creation of a set of North American ecosystem maps, the development of a Network of Important Bird Areas and an agreement to increase protection of Marine and Coastal Area Ecosystems. Programs have also been created to enhance existing conservation efforts for migratory songbirds and the Monarch Butterfly.

The remaining cooperative program resources have been spent on a variety of programs: Environment, Trade and Economy,9 and Information and Public Outreach (20 percent of total direct project costs in 1997) and Enforcement Cooperation and Law (16 percent of total direct project costs in 1997).

Goal 2: Dispute Settlement

The NAAEC contains three provisions to resolve environmental disputes:

(1) Investigations of controversial issues initiated by the Secretariat.

(2) Submissions by non-governmental organizations (NGOs) and individuals

(3) Government initiated consultations under Part V regarding enforcement.

The North American Agreement on Labor Cooperation

The NAALC was developed to mitigate concerns that NAFTA would distort labor markets in both the United States and Mexico. The two main labor concerns were that Mexico has poorer working conditions and labor standards, and that low Mexican wages and poor enforcement of Mexican labor standards would attract investment to Mexico, depriving US workers of jobs and driving down US wages.

The NAALC has two broad goals: (1) to encourage the improvement of labor conditions in North America through cooperative activities, including the promotion of a set of eleven labor principles;21 and (2) to provide a mechanism for mediating labor disputes. To fulfill these objectives, the NAALC created the Commission for Labor Cooperation (CLC), composed of a Council of cabinet-level ministers from the three NAFTA countries and a Secretariat with an annual budget of US$1.8 million in 1996. The NAALC also requires that each government establish a National Administrative Office (NAO) within its Labor Ministry. The NAOs serve as a point of contact between the domestic government agencies, the NAOs of the other NAFTA countries, and the Secretariat. They are charged with responding to public requests regarding labor law matters in the other NAFTA countries and helping the Commission carry out its cooperative activities.

NAFTA TRADE BALANCE

NAFTA's effects, both positive and negative, have been quantified by several economists, NAFTA has been beneficial to business owners and elites in all three countries, but has had negative impacts on farmers in Mexico who saw food prices fall based on cheap imports from US agribusiness, and negative impacts on US workers in manufacturing and assembly industries who lost jobs.

Critics also argue that NAFTA has contributed to the rising levels of inequality in both the US and Mexico. Some economists believe that NAFTA has not been enough (or worked fast enough) to produce an economic convergence.

Trade

The agreement opened the door for open trade, ending tariffs on various goods and services, and implementing equality between Canada, USA, and Mexico. NAFTA has allowed agricultural goods such as eggs, corn, and meats to be tariff-free. This allowed corporations to trade freely and import and export various goods on a North American scale. Since the implementation of NAFTA, the countries involved have been able to do the following:

Exports

At $248.2 billion for Canada and $163.3 billion for Mexico, they were the top two purchasers of US exports in 2010.US goods exports to NAFTA in 2010 were $411.5 billion, up 23.4% ($78 billion) from 2009 and 149% from 1994 (the year prior to Uruguay Round) and up 190% from 1993 (the year prior to NAFTA). US exports to NAFTA accounted for 32.2% of overall US exports in 2010.

The top export categories (2-digit HS) in 2010 were machinery ($63.3 billion), vehicles (parts) ($56.7 billion), electrical machinery ($56.2 billion), mineral fuel and oil ($26.7 billion), and plastic ($22.6 billion).US exports of agricultural products to NAFTA countries totaled $31.4 billion in 2010. Leading categories included red meats, fresh/chilled/frozen ($2.7 billion); coarse grains ($2.2 billion); fresh foods (excluding nuts) ($1.8 billion); and fresh vegetables ($1.7 billion).

Imports

At $276.5 billion for Canada and $229.7 billion for Mexico, they were the second and third largest suppliers of goods imports to the United States in 2010. US goods imports from NAFTA totaled $506.1 billion in 2010, up 25.6% ($103 billion), from 2009, up 184% from 1994, and up 235% from 1993. US imports from NAFTA accounted for 26.5% of overall U.S. imports in 2010.

The five largest categories in 2010 were mineral fuel and oil (crude oil) ($116.2 billion), vehicles ($86.3 billion), electrical machinery ($61.8 billion), machinery ($51.2 billion), and precious stones (gold) ($13.9 billion).

US imports of agricultural products from NAFTA countries totaled $29.8 billion in 2010. Leading categories include fresh vegetables ($4.6 billion); snack foods including chocolate ($4.0 billion); fresh fruit (excluding bananas) ($2.4 billion); live animals ($2.0 billion); and red meats, fresh/chilled/frozen ($2.0 billion).

US imports of private commercial services excluding military and government were $35.5 billion in 2009 (latest data available), down 11.2% ($4.5 billion) from 2008 but up 100% since 1994.

Trade balances

The US goods trade deficit with NAFTA was $94.6 billion in 2010, a 36.4% increase ($25 billion) over 2009.The US goods trade deficit with NAFTA accounted for 26.8% of the overall U.S. goods trade deficit in 2010.The US had a services trade surplus of $28.3 billion with NAFTA countries in 2009 .

Investment

The US foreign direct investment (FDI) in NAFTA Countries (stock) was $357.7 billion in 2009 (latest data available), up 8.8% from 2008.

The US direct investment in NAFTA countries is in nonbank holding companies, and in the manufacturing, finance/insurance, and mining sectors. The foreign direct investment, of Canada and Mexico in the United States (stock) was $237.2 billion in 2009 (the latest data available), up 16.5% from 2008.[3][4][5]

Industry

Maquiladoras (Mexican factories that take in imported raw materials and produce goods for export) have become the landmark of trade in Mexico. These are plants that moved to this region from the United States, hence the debate over the loss of American jobs. Hufbauer's (2005) book shows that income in the maquiladora sector has increased 15.5% since the implementation of NAFTA in 1994. Other sectors now benefit from the free trade agreement, and the share of exports from non-border states has increased in the last five years while the share of exports from maquiladora-border states has decreased. This has allowed for the rapid growth of non-border metropolitan areas, such as Toluca, León and Puebla; all three larger in population than Tijuana, Ciudad Juárez, and Reynosa.

NAFTA EFFECT ON ENVIRONMENT

The North American Agreement on Environmental Cooperation (NAAEC), which led to the creation of the Commission for Environmental Cooperation (CEC) in 1994. To alleviate concerns that NAFTA, the first regional trade agreement between a developing country and two developed countries, would have negative environmental impacts.

In response to this mandate, the CEC created a framework for conducting environmental analysis of NAFTA, one of the first ex post frameworks for the environmental assessment of trade liberalization. The framework was designed to produce a focused and systematic body of evidence with respect to the initial hypotheses about NAFTA and the environment, such as the concern that NAFTA would create a "race to the bottom" in environmental regulation among the three countries, or the hope that NAFTA would pressure governments to increase their environmental protection mechanisms.[14] The CEC has held four symposia using this framework to evaluate the environmental impacts of NAFTA and has commissioned 47 papers on this subject. In keeping with the CEC’s overall strategy of transparency and public involvement, the CEC commissioned these papers from leading independent experts

EFFECT ON AGRICULTURE

From the earliest negotiation, agriculture was (and still remains) a controversial topic within NAFTA, as it has been with almost all free trade agreements that have been signed within the WTO framework. Agriculture is the only section that was not negotiated trilaterally; instead, three separate agreements were signed between each pair of parties. The Canada–U.S. agreement contains significant restrictions and tariff quotas on agricultural products (mainly sugar, dairy, and poultry products), whereas the Mexico–U.S. pact allows for a wider liberalization within a framework of phase-out periods (it was the first North–South FTA on agriculture to be signed).

The overall effect of the Mexico–U.S. agricultural agreement is a matter of dispute. Mexico did not invest in the infrastructure necessary for competition, such as efficient railroads and highways, which resulted in more difficult living conditions for the country's poor. Mexico's agricultural exports increased 9.4 percent annually between 1994 and 2001, while imports increased by only 6.9 percent a year during the same period.

One of the most affected agricultural sectors is the meat industry. Mexico has gone from a small-key player in the pre-1994 U.S. export market to the 2nd largest importer of U.S. agricultural products in 2004, and NAFTA may be credited as a major catalyst for this change. The allowance of free trade removed the hurdles that impeded business between the two countries. As a result, Mexican farmers have provided a growing meat market for the U.S., leading to an increase in sales and profits for the U.S. meat industry.

Production of corn in Mexico has increased since NAFTA's implementation. However, internal corn demand has increased beyond Mexico's sufficiency, and imports have become necessary, far beyond the quotas Mexico had originally negotiated. Zahniser & Coyle have also pointed out that corn prices in Mexico, adjusted for international prices, have drastically decreased, yet through a program of subsidies expanded by former president Vicente Fox, production has remained stable since 2000.

The logical result of a lower commodity price is that more use of it is made downstream. Unfortunately, many of the same rural people who would have been likely to produce higher-margin value-added products in Mexico have instead emigrated. The rise in corn prices due to increased ethanol demand may improve the situation of corn farmers in Mexico.

In a study published in the August 2008 issue of the American Journal of Agricultural Economics, NAFTA has increased U.S. agricultural exports to Mexico and Canada even though most of this increase occurred a decade after its ratification. The study focused on the effects that gradual "phase-in" periods in regional trade agreements, including NAFTA, have on trade flows. Most of the increase in members’ agricultural trade, which was only recently brought under the purview of the World Trade Organization, was due to very high trade barriers before NAFTA or other regional trade agreements.

Impact on Mexican farmers

In 2000, U.S. government subsidies to the corn sector totaled $10.1 billion. These subsidies have led to charges of dumping, which jeopardizes Mexican farms and the country's food self-sufficiency.

Other studies reject NAFTA as the force responsible for depressing the incomes of poor corn farmers, citing the trend's existence more than a decade before NAFTA's existence, an increase in maize production after NAFTA went into effect in 1994, and the lack of a measurable impact on the price of Mexican corn due to subsidized corn coming into Mexico from the United States, though they agree that the abolition of U.S. agricultural subsidies would benefit Mexican farmers.[41] According to Graham Purchase in Anarchism and Environmental Survival, NAFTA could cause "the destruction of the ejidos (peasant cooperative village holdings) by corporate interests, and threatens to completely reverse the gains made by rural peoples in the Mexican Revolution."

The preparations for NAFTA included cancellation of Article 27 of Mexico's constitution, the cornerstone of Emiliano Zapata's revolution of 1910–1919. Under the historic Article 27, Indian communal landholdings were protected from sale or privatization. But under NAFTA this guarantee was defined as a barrier to investment. With the removal of Article 27, Indian farmers would be threatened with loss of their remaining lands, and also flooded with cheap imports (substitutes) from the US. Thus, the Zapatistas labeled NAFTA as a "death sentence" to Indian communities all over Mexico. Then EZLN declared war on the Mexican state on January 1, 1994, the day NAFTA came into force.[43]

Mobility of persons

According to the Department of Homeland Security Yearbook of Immigration Statistics, during fiscal year 2006 (i.e., October 2005 through September 2006), 73,880 foreign professionals (64,633 Canadians and 9,247 Mexicans) were admitted into the United States for temporary employment under NAFTA (i.e., in the TN status). Additionally, 17,321 of their family members (13,136 Canadians, 2,904 Mexicans, as well as a number of third-country nationals married to Canadians and Mexicans) entered the U.S. in the treaty national's dependent (TD) status. Because DHS counts the number of the new I-94 arrival records filled at the border, and the TN-1 admission is valid for three years, the number of non-immigrants in TN status present in the U.S. at the end of the fiscal year is approximately equal to the number of admissions during the year. (A discrepancy may be caused by some TN entrants leaving the country or changing status before their three-year admission period has expired, while other immigrants admitted earlier may change their status to TN or TD, or extend TN status granted earlier).

Canadian authorities estimated that, as of December 1, 2006, a total of 24,830 U.S. citizens and 15,219 Mexican citizens were present in Canada as "foreign workers". These numbers include both entrants under the NAFTA agreement and those who have entered under other provisions of the Canadian immigration law.[24] New entries of foreign workers in 2006 were 16,841 (U.S. citizens) and 13,933 (Mexicans).

Criticism and controversies

There is much concern in Canada over the provision that if something is sold even once as a commodity, the government cannot stop its sale in the future. This applies to the water from Canada's lakes and rivers, fueling fears over the possible destruction of Canadian ecosystems and water supply.

Other fears come from the effects NAFTA has had on Canadian lawmaking. In 1996, the gasoline additive MMT was brought into Canada by an American company. At the time, the Canadian federal government banned the importation of the additive. The American company brought a claim under NAFTA Chapter 11 seeking US$201 million, from the Canadian government and the Canadian provinces under the Agreement on Internal Trade ("AIT"). The American company argued that their additive had not been conclusively linked to any health dangers, and that the prohibition was damaging to their company. Following a finding that the ban was a violation of the AIT, the Canadian federal government repealed the ban and settled with the American company for US$13 million. Environmental Protection Agency disagree with Health Canada, and cite studies that include possible nerve damage.

The United States and Canada had been arguing for years over the United States' decision to impose a 27 percent duty on Canadian softwood lumber imports, until new Canadian Prime Minister Stephen Harper compromised with the United States and reached a settlement on July 1, 2006. The settlement has not yet been ratified by either country, in part due to domestic opposition in Canada.

Canada had filed numerous motions to have the duty eliminated and the collected duties returned to Canada.After the United States lost an appeal from a NAFTA panel, it responded by saying "We are, of course, disappointed with the [NAFTA panel's] decision, but it will have no impact on the anti-dumping and countervailing duty orders."On July 21, 2006, the United States Court of International Trade found that imposition of the duties was contrary to U.S. law.

Change in income trust taxation

American citizens Marvin and Elaine Gottlieb filed a Notice of Intent to Submit a Claim to Arbitration under NAFTA, claiming thousands of U.S. investors lost a total of $5 billion dollars in the fall-out from the Conservative Government's decision the previous year to change the tax rate on income trusts in the energy sector. On April 29, 2009, a determination was made that this change in tax law was not expropriation.

Further criticism in Canada

A book written by Mel Hurtig published in 2002 called The Vanishing Country charged that since NAFTA's ratification more than 10,000 Canadian companies had been taken over by foreigners, and that 98% of all foreign direct investments in Canada were for foreign takeovers.

An increase in domestic manufacturing output and a proportionally greater domestic investment in manufacturing does not necessarily mean an increase in domestic manufacturing jobs; this increase may simply reflect greater automation and higher productivity. Although the U.S. total civilian employment may have grown by almost 15 million in between 1993 and 2001, manufacturing jobs only increased by 476,000 in the same time period.

PROS AND CONS OF NAFTA

When a regulation changes, it can be difficult to determine which changes in the economy were directly caused by the regulatory change, and which were caused indirectly or by unrelated factors. The North American Free Trade Agreement (NAFTA), implemented on Jan. 1, 1994, is no exception. Here are some of the gains and losses that have been attributed to the agreement. NAFTA is clearly responsible for some, but others have a less clear cause.

Pros

NAFTA Decreased Tariffs

A tariff is a tax that a national government places on an imported or exported good or service to encourage or discourage trade. Tariffs increase costs for consumers, which in turn discourages consumption of those items. One of the most common reasons governments impose tariffs is to "protect" domestic companies from cheaper foreign competitors. Tariffs can also be used to retaliate against a trading partner's own tariffs or to express disapproval of a country's foreign policy.

The decreased trade restrictions brought about by NAFTA have made it easier for Americans to purchase Canadian and Mexican goods. As of 2010, the most recent year for which these data were available, the United States received about a quarter of its imports from these two countries, which are its second and third largest suppliers of imported goods. In particular, the U.S. gets much of its crude oil, vehicles, machinery and gold from these two countries, as well as fresh produce,

snack foods, live animals, red meat and chilled and frozen foods

All Three Countries Experienced Real Wage Increases

According to a November 12 Washington Post article, a study done by three Federal Reserve economists showed that NAFTA increased wages in the U.S. by 0.17%, in Canada by 0.96% and in Mexico by 1.3%. We don't doubt that these economists were rigorous in their analysis, but numerous factors can affect wages, so it's difficult to tell how much influence one factor really had.

NAFTA Increased Trade Between the U.S., Mexico and Canada

NAFTA is credited with significantly increasing trade among the U.S., Mexico and Canada. The U.S. alone traded $1.6 trillion in goods and services with its NAFTA partners in 2009, the latest year for which data are available, and the U.S. sold 32.2% of its exports to Canada and Mexico in 2010. Trade of goods and services between the U.S., Canada and Mexico has increased from $337 billion in 1993, before NAFTA went into effect, to $1.182 trillion in 2011.

NAFTA Increased Industrial Integration Between the U.S. and Mexico

Occidental College Dean Jorge Gonzales said in a recent NAFTA summit that U.S.–Mexico industrial integration, particularly in automobile manufacturing, was NAFTA's greatest success, the San Antonio Express News reported. The biggest categories of U.S. exports to Canada and Mexico in 2010 were electrical machinery, vehicle parts, mineral fuel and oil and plastics. The U.S. also saw 800,000 new manufacturing jobs from 1994 through 1998, reversing a 13-year trend during which the country lost 2 million manufacturing jobs.

NAFTA Created Jobs for U.S. Workers

According to the U.S. Chamber of Commerce, increased trade from NAFTA supports about 5 million U.S. jobs. The chamber of commerce also points out that unemployment was 7.1% in the decade before NAFTA and 5.1% from 1994 to 2007. We can't say for sure that this decrease is attributable to NAFTA, and we also know that unemployment from 2008 to 2012 has been significantly higher - a point that the chamber doesn't seem eager to attribute to the free trade agreement.

Penny Stock of the Day

NAFTA may have had many benefits. However, it hasn't eliminated all the problems associated with international trade between the three countries.

CONS OF NAFTA

Mexican Workers Have Benefited Less Than Expected

While NAFTA encouraged significant U.S. investment in Mexico, much of that investment has been in the form of factories near the border that are called maquiladoras, where Mexican workers provide cheap labor to produce U.S. goods. This arrangement has fallen short in its goal of increasing the size of Mexico's middle class because Asian labor has proven to be cheaper, and maquiladora towns have a poor quality of life for workers.

NAFTA Lifted Tariffs but not Regulations

NAFTA may have eliminated tariffs between the U.S., Canada and Mexico, but it didn't do away with the numerous customs regulation that

can stifle trade. Rule of origin regulations decide whether a good qualifies for trade under NAFTA guidelines, and exporters must complete certificate of origin paperwork. More rules determine what records businesses must keep for trades under NAFTA and for how many years. Businesses that believe their goods have wrongly been deemed unqualified can go through an appeals process. Each of the three countries has a different procedure for NAFTA claims, and businesses that violate the laws or customs procedures of any country are subject to administrative, civil or criminal penalties.

The Bottom Line

As we approach the agreement's 21st anniversary, contemplation of the benefits and costs that have been attributed to NAFTA can help U.S. leaders consider how to best approach trading relationships, not just with Mexico and Canada, but with all foreign countries.

NAFTA: Does the North American Free Trade Agreement really promote free trade?

The North American Free Trade Agreement (NAFTA) took effect in 1994.  Its negotiation spanned two American presidencies and was one of the most talked about trade agreements in the world.  It has become a flashpoint for both critics and supporters of globalization and free trade; it allowed one of the world’s wealthiest economies to refocus its economic power, more closely connecting it to its two neighbors and their particular economies.

Since WWII regional trade agreements have been seen as a way to achieve a more secure and stable environment within a given geographic region.  European countries led the way, with the formation of the European Union (EU).  East Asian nations organized the Association of South East Asian Nations (ASEAN) and the Asian Pacific Economic Cooperation Pact (APEC, of which the United States is also a member). African and Latin American countries were looking to follow suit.

The challenge for a North American trade pact was that the countries involved had drastically different levels of economic development, different social safety nets, and different labor and environmental standards.  One was a super power whose economy depended upon the private sector, one was a middle-class society with a strong social safety net, and the last was a third-world peasant nation with a thin layer of first-world economic attributes.

The overall idea of NAFTA was to create a set of rules whereby Mexicans, Americans, and Canadians could engage in “free,” borderless (or nearly borderless) economic relationships that would allow goods and services to be bought and sold with less regulation.  Beyond constructing what might seem like a smart regional trade policy, the deeper question NAFTA was supposed to address was, “How do you integrate rich and poor?”  Economists agree that the simple answer is

expanded markets and economic integration.  Just how to create effective policies to achieve this is where the issue becomes complex.  

Before NAFTA, there were separate barriers governing trade and investment across each of the borders and between each of the countries. NAFTA sought to unify those rules so they would be the same for all three countries.  Unfortunately that never happened.  

NAFTA was supposed to encourage lower-skilled manufacturing to relocate to Mexico, thereby displacing American workers for Mexican labor that was much cheaper, moving Americans into more service-oriented jobs and decreasing cross-border migration.   In the first few years of NAFTA, this trend did produce thousands of jobs in Mexico, with the significant growth of multinational maquiladora towns along the US-Mexican border.  But by 2000, more American jobs were being lost to Asia, and soon many of the maquiladora jobs were bumped to Asia, as well.

The creation of more jobs and factories in Mexico was also supposed to translate into more investment in infrastructure, such as roads, sewage, water, and basic education.  This infrastructure was supposed to raise the standard of living for average Mexicans.  Instead, over the last 15 years, the average wage in Mexico has gone down by about 14%, while the cost of food has gone up.  Meanwhile, the economy in the United States has grown at a rapid pace, opening up new jobs in the US and making illegal immigration more attractive.  

Peasant farmers growing corn in Mexico have been hit particularly hard by NAFTA.  US farmers are being subsidized by the government to grow corn, making the cost of US corn cheaper than Mexican corn.  This means that even though corn used to be one of Mexico’s primary crops, it is now being imported from the US.  Some farmers transitioned to growing crops like strawberries, which are of higher value and attain a higher price from the American market.  Supermarkets in America now carry tomatoes, cucumbers, berries and various other produce items that are being imported from Mexico.  This transition, however, did not happen overnight, and farmers who have been cultivating crops like corn

for centuries were not given adequate technical support to learn to grow new crops.  Many have been forced out of farming, leading to an increase in illegal immigration northward.

One of NAFTA’s key features is known as Chapter 11.  This feature created a unique legal system that allows companies to sue any of the three governments should those governments enact laws or take actions that interfere with the company’s sanctioned operations.  It established a tribunal to which arbitrators are appointed whose deliberations are secret and whose judgments are binding.  As environmental laws change and environmental standards diverge among the three countries, Chapter 11 has led to lawsuits which in some cases protect companies which are engaging in environmentally damaging activities.

Compared to the European Union, NAFTA is a very different kind of regional trade agreement.  Some have said that it is “free trade” without “free market” fundamentals.  The EU, like NAFTA, supports subsidies to its farmers, but allows the free movement of workers across borders. The EU’s integration plans are also more comprehensive in securing social services to protect workers while jobs are displaced, new industries are created, and workers are retrained. Further, the EU demands that before countries join, their economies must conform to EU standards on a wide range of issues.  Thus the broad discrepancy in economic policies which is a fact in North America, is not an issue within the EU.

Although there are many criticisms of NAFTA, even from the three participating countries, aspects of it have proved beneficial.  For example, in the auto industry, engines are now made in Ontario, with transmissions assembled in Ohio or Michigan, with parts made in China. All these pieces get sent to Mexico for final assembly, and are then re-shipped back to the US.

CONCLUSION

Even though NAFTA affects every American, fewer than 10 people joined Brigham Young University Professor Earl Fry for his talk on United States-Canadian trade after the implementation of NAFTA.

Perhaps the low attendance was indicative of one of Fry's observations about Americans concerning the North American Free Trade Agreement: Many Americans hold negative views toward NAFTA, not because the treaty has caused them great economic harm, but primarily because of their ignorance of it.

"Americans think globalization goes along with financial instability," he said. "They are fearful for their own jobs and the jobs of their children.".

Interestingly enough, Ben Fullalove, an art history graduate student from Canada, said Canadians' greatest fear about NAFTA is losing their cultural and economic control without maintaining their political sovereignty. Canadians are worried about preserving their cultural heritage, he said, even if it means limited access to certain Internet sites or television programs from other countries.

Despite the fact that economic interaction with Mexico is more publicized than its trade with Canada, the neighbor to the north is actually a more valuable trading partner. Three million U.S. jobs are linked to Canada. More significantly, he said, the United States and Canada are the leading suppliers of imports for each other.

In fact, Canadian manufacturers produce more goods for the United States than for their own country. Canadians are the United States' primary source of foreign tourists and that the United States exports more to the province of Ontario than to Japan.

Overall, We can say Americans must be willing to accept certain sacrifices to be successful. "We need to be prepared to give up some of our national sovereignty for the good of our people," .

REFRENCES:

http://www.dukechronicle.com/article/scholar-praises-nafta-globalization

http://www.tx.ncsu.edu/jtatm/volume2issue3/articles/Giermanski/Giermanski_full.pdf

http://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement

http://www.ustr.gov/Document_Library/Press_Releases/2006/July/US,_Canada_Reach_Final_Agreement_on_Lumber_Dispute.html