Abstract
In 2018, presidents from the US, Canada, and Mexico renegotiated about the North American Free Trade Agreement (NAFTA) of 1994 and came up with United States-Mexica-Canada Agreement (USMCA) to replace NAFTA. By February 2020, both Mexico and the US had ratified USMCA and only awaiting Canada to confirm, so that it may become a law. This paper aims to review the achievements and failures associated with NAFTA because its existence may come to an end soon. This research concludes that NAFTA has been able to achieve most of its core objectives, like removing sanctions and restriction on trade between three countries. It has also led to the creation of jobs and booming of the economy in the member states. As long as it has achieved all these, NAFTA has led to job loss in specific fields, exploitation of Maquiladora workers, and failure to implement some policies.
Free trade can be described as the type of trade that excludes tariffs, quotas, and other business restrictions. Free trade can exist between cities, towns, or even between countries. There are many cases in which countries pose trade sanctions and restrictions to others to control trade between them. For instance, the US has long sanctioned goods from Iran by imposing a higher tax. Also, the US imposes sanctions on Chinese goods to control their entry into the country. Free trade agreement (FTA) refers to the pact between two or more countries to remove or reduce trade barriers to trade between the countries. In most instances, the agreements are entered between neighboring countries or countries in the same region. One of the most famous pacts is the European Union (EU). The EU allows free trade between member states, which are mostly from Europe. The agreement has stabilized trade by establishing a common currency, the Euro, which is used in 19 countries in Europe. Fairtrade refers to trade between companies in developed countries and developing countries in which fair prices are paid to the producers. The main aim of fair trade is to support and improve the economy of developing countries. However, the objective of this paper is not to discuss fair trade. It discusses the North American Free Trade Agreement (NAFTA), which is a treaty signed in 1993 by the United States, Mexico, and Canada but became effective in 1994.
In 1988, President Ronald Reagan signed a free trade agreement with the Canadian president named the Canada-United States Free Trade Agreement. Later, the Mexican president, Carlos Salinas de Gortari, approached president George WH.W. Bush to come up with a similar agreement. The US had put a lot of restrictions on Mexican goods, which affected the economy of the country Since the US was a potential trade partner. Canada feared that the benefits it was gaining from the agreement would come to an end if the US entered into a deal with Mexico. Thus Canadian president approached the two presidents, and in 1992, the three presidents signed the North American Free Trade Agreement (NAFTA). Still, it needed to be ratified by the parliaments or legislative bodies in specific countries. By December 1993, the three countries had ratified the agreement, and thus it was set to become active on January 1, 1994.
NAFTA had several objectives in regard to trade between the three countries. The goals are outlined in Chapter 1, article 102 of the pact document. The first objective was to eliminate existing trade barriers and promote of movement of goods between the member countries. Before NAFTA, Mexico’s economy was highly hit by the sanctions that the US had placed on its products. The waiving of the restrictions would transform into an economic boost. There were minimal sanctions between Canada and the US due to the existence of free trade before NAFTA. The second objective was to increase the conditions of fair competition in the free trade area. These are to help in the increment of market coverage of the manufactured goods within the country. Third, NAFTA aimed at effectively protecting intellectual property rights in each state’s territory. The agreement also aimed at increasing direct foreign investment within the member states. This would lead to the creation of many jobs due to the presence of many investors. The agreement was also helpful to the US because it enabled it to compete with emerging economic giants in the world, mostly from Europe and Asia i.e., China. Lastly, the agreement aimed at lowering prices for essential goods. Not all goals could be achieved at the start of the deal, but most purposes would be achievable in a span of 10 and 15 years.
The pact has been able to achieve some of its goals while others remain a dream to be completed. I am first going to discuss the pros of NAFTA and, later, the cons of the same. First, NAFTA has been able to partially or fully remove tariffs on goods from the member countries. This has mainly profited Mexico and the US because the two countries had tariffs on goods from each other due to the tension that existed between them. By 2008, most of the tariffs on agricultural exports between the US and Mexico had been removed, enabling trade from both countries to be comfortable and profitable. For instance, Texas, which directly borders Mexico saw growth of industries, especially the metal and apparel industries, because they exported directly to Mexico without restrictions. According to research, Texas’ economy grew by 13 percent before the formation of NAFTA.
NAFTA led to quadrupled trade. According to research, between 1993 and 2019, the deal between member states increased from $290 billion to 1.23 trillion. During the period, the United States exports to both Mexico and Canada grew from $142 billion to $549 billion. As a result, the two countries became the top export markets for the US, marking 33 percent of all the US exports. Likewise, the US imports from Mexico and Canada increased to $678 billion. Mexico Exports to the US were $358 billion, while Canada shipped 320 billion to the US. As it is observed from the above data, the three countries have become the main trading partners to each other, and it has been beneficial to them.
NAFTA has been able to create jobs in the three countries. Since the formation of NAFTA, trade between the three countries boomed, and industries were provided with new market where they could sell their goods. As a result, there was a need for employees to fill the additional workers needed in the companies for higher production to satisfy the customer demand. According to research, one of six jobs in Canada is related to the export of goods from Canada to NAFTA partners. In the US, NAFTA is believed to have created around more than 800,000 jobs between 1993 and 1997. Mexico, on its side, has seen a rampant boost in job creation due to the increased exports to the member states. For instance, agricultural exports have tripled.
NAFTA has boosted foreign direct investment in the three-member countries. Today it is more likely to find American companies and investments in both Mexico and Canada. This has enabled American companies to make more profits as they can access new markets.NAFTA has laws that protect the intellectual property of companies that venture into business in other markets, and this discourages pirating in the member states. Also, NAFTA promised foreign investors from the member states that they would have equal legal rights to local investors.
NAFTA has also contributed to increased economic growth. Though the pact covers only three countries, it is one of the most significant treaties in the world in terms of GDP. Agriculture, automobiles, and services economic sectors were highly boosted by the establishment of NAFTA. By 2016, farm exports from the US to Mexico had increased to $43 billion compared to $11 billion in 1993. Mexico offers the biggest market for US agricultural products like beef, corn sweeteners, beans, soybeans, and rice. Most of the cars assembled in North America have parts sourced from NAFTA members. This has boosted exports from within pressing competition from Asian and European manufactured goods. For instance, since 2008, the US imports most of its cars from Mexico rather than Japan which has dominated the industry
The pact has also been associated with several disadvantages. First, the treaty has been associated with a high rate of unemployment in the member countries. Both President Obama and Trump complained of the pact causing the high rate of unemployment to US residents. In 1994, many US-based companies opted to move their production to Mexico because of they of the availability of cheap labor. As a result, many US residents who were working in the companies were left without jobs. However, this was positive to Mexicans because it provided job opportunities. On the other side, Mexican small scale farmers were unable to withstand the competition from American agricultural goods. Low prices highly contributed to this due to the lack of taxation on goods from America.
Second, NAFTA led to the exploitation of Maquiladora workers. Maquiladora refers to the state in which the US-based companies near Mexico bounder employ Mexicans employees. With the establishment of NAFTA, the Maquiladora program expanded by 30 percent due to the absence of tariffs. This led to the overexploitation of the Mexican employees since they did not have any labor protection rights. Different reports have established that the workers worked for more than 12 hours, which is against the UN policies on labor. Also, the employees were exposed to adverse working environments.
Lastly, some of the pact policies or objectives have not been accomplished. Even today, Canada still has tariffs on agricultural goods from Mexico. Products like sugarcane, rice, and maize from Mexico face high taxes in Canada. Second, there has been a continuous dispute between the US and Mexico over free access to Mexican trucks in America. According to NAFTA’s laws, the trucks should access the US without any interference. On the other hand, the US has claimed that the trucks pose a danger to the American roads, because they are not made to the standard of American trucks.
Partially, these disadvantages and conflicts led to the three countries to start rethinking on the union. In September 2018, they reached a new agreement, which was named the United States-Mexico-Canada Agreement (USMCA). The agreement was signed into law by President Trump in January 2020 after Congress ratified it. Mexico approved the deal in 2019, and it is awaiting Canadian legislators to confirm it so that it becomes a law. The new pact changes NAFTA in six areas. Until it becomes active after approval by all countries, NAFTA will remain to be effective in the three countries.
NAFTA has been an essential Pact in the United States, Mexico, and Canada. It has helped in the improvement of the economy of the three countries due to increased trading. NAFTA is even the most significant pact in terms of GDP. In my opinion, I believe NAFTA has not only increased trade between member states but also reduced tensions that existed between member states, especially between the US and Mexico. There is a lot of advancement in the world, and thus, NAFTA policies needed to be reviewed, and the three presidents decided to change the new deal from NAFTA to USMCA, and this does not mean NAFTA did not achieve its goals. It has achieved most of its initial objectives.