North American Free Trade Agreement
North American Free Trade Agreement
On January 1, 1994, the North American Free Trade Agreement (NAFTA) went into effect, creating the largest free-trade area in the world. Many view NAFTA as a major policy victory for the architects of a new era of trade liberalization and economic globalization. Yet proponents of this view did not go unchallenged. NAFTA’s departure from several traditional trade concerns opened political opportunities for challengers to ally across borders and overcome longstanding political divisions, making it the most contentious trade policy initiative to date (Dreiling 2001).
At the most explicit level, NAFTA is a treaty designed to liberalize trade and investment activity in North America. The trade agreement sets timetables for significant reductions in duties and a steady elimination of tariffs between the three trading partners (Canada, the United States, and Mexico). Partly as a result of these reduced transaction costs, trade between the three countries has increased significantly. According to International Monetary Fund (IMF) data, the three NAFTA countries traded over $620 billion in goods and services in 2004, nearly doubling total trade volume in the ten years since NAFTA was implemented. Combined, the three countries produced over $12 trillion in goods and services in 2004 and, with more than 425 million people, constitute a major economic bloc in the world economy.
Literature on globalization portrays NAFTA as one of three distinct trading blocs in the world economy (Dicken 2003). The concentration of trade flows studied by sociologists, geographers, and economists reveals a growing tripolar configuration of world trade relations and policy agendas of leading states. This research suggests that NAFTA and the Maastricht Treaty on European Union (1992) were driven by global economic forces as well as strategic political responses to globalization. NAFTA, seen from this perspective, reflects a trade-policy response to the regionalization of capitalist competition at a global level. Content rule, tariff reduction schedules, and other NAFTA provisions are designed to favor North American capital. Premised on an improved capacity to export commodities produced under low-cost conditions in Mexico into the high-price consumer markets of North America, western Europe, and Japan, NAFTA is an attempt to reclaim economic power in a capitalist world system. James Petras and Morris Morley argue that “NAFTA is the centerpiece of a new economic strategy … which Washington hopes to use as a springboard for its reemergence as a more competitive player in the world market” (1995, pp. 128–129).
During the debate over NAFTA, considerable attention was addressed to the question of “jobs.” Ross Perot’s presidential bid and famous claim of an impending “giant sucking sound” helped frame the political debate, but also alluded to important economic trends in all three countries. Prior to the conclusion of NAFTA, a steady erosion in manufacturing employment in the United States, coupled with a rapid increase of manufacturing employment by U.S. multinational corporations operating in Mexico, aroused fears of a decline of American industrial supremacy. Economists, such as Robert Blecker and William Spriggs (1992), showed how these patterns would likely continue with NAFTA, particularly in the maquila sector. The maquiladoras—literally meaning “twin plants”—generally refer to export industries along the U.S.-Mexico border, though the term is also used in reference to export processing industries in El Salvador, Guatemala, and elsewhere in Central America. After NAFTA’s ratification, the increase in manufacturing employment in Mexico by U.S. multinationals certainly did not create a “giant sucking sound,” but the movement of industrial-sector jobs has continued.
In a policy context, NAFTA represents an economic integration plan that extended the deregulation and free-market agendas of governments in the United States, Canada, and Mexico. Administrations under presidents Ronald Reagan and George H. W. Bush in the United States, Prime Minister Brian Mulroney in Canada, and President Carlos Salinas in Mexico initiated national reform agendas where market principles supplanted other institutional goals and organization. Known as neoliberalism —where market forces are believed to be the most efficient and least costly mechanism for allocating all societal goods—this ideological context all but guaranteed a free-market approach to North American integration. In this way, NAFTA emerged as a neoliberal counterpart to Europe’s more social democratic Maastricht Treaty.
NAFTA extends and accelerates market deregulation and trade liberalization efforts across the continent by creating supranational institutions and binding agreements between signatory governments. For example, one feature of NAFTA contained in Chapter Eleven prevents governments from discriminating against cross-border investors—all North American capital is to be treated as domestic capital, eventually. These provisions also establish an investor-state arbitration system that permits companies from one NAFTA country to seek monetary damages for actions or policies of another NAFTA government (national, state/provincial, or local). One often-cited case began in 1997 when the Ethyl Corporation, a U.S. company, challenged Canada’s environmental ban of a known carcinogenic gasoline additive, methylcyclopentadienyl manganese tricarbonyl (MMT)—a chemical made by Ethyl. In July 1998 the arbitration panel ruled against Canada, forcing Canada to reverse its environmental ban on MMT and pay $13 million in damages and legal fees to Ethyl. As of 2005, five Chapter Eleven cases have settled in favor of investors, leaving critics wary of NAFTA’s bias in favor of capital at the expense of national sovereignty and environmental protection. From an analytical standpoint, the neoliberal framework of NAFTA helps investor rights trump environmental or national rights.
Neoliberal defenders of NAFTA, and free markets more generally, praise this “deepening and widening” of markets in the hemisphere, calling for an extension of NAFTA to Central America and throughout the Western Hemisphere as envisioned in the Free Trade Area of the Americas. Elaborate hemispheric plans for subregional and continental integration are discussed among elite policy organizations, from the Council on Foreign Relations to the highly influential Business Roundtable (Dreiling 2001). May 2005 discussions by elite supporters of NAFTA alluded to a new “security perimeter” around North America, known as the North American Initiative.
Migration from Mexico to the United States has risen significantly under NAFTA. Growing rural unemployment in Mexico and the instability of small farming in Mexico stem in part from NAFTA’s liberalization of trade in agricultural goods. With cheaper corn and grains imported from Canada and the United States into Mexico, small, often indigenous farmers are hurt economically. Worries persist that these pressures will also hurt peasant communities throughout Central America with the adoption of the Dominican Republic-Central America Free Trade Agreement in 2005. While pressure to migrate has increased, anti-immigrant politics persist in the United States, and the number of people found dead along the U.S.-Mexico border rose to a peak in 2003. Other U.S.-Mexico border problems were compounded by NAFTA. Mexico’s environment and urban infrastructure remain inadequate to support the growing population and heavy concentrations of export-oriented industry. The number of labor-intensive, export-processing factories along the border in Mexico increased by about 73 percent between 1993 and 2000, putting strain on both the environment and the mostly female workforce in those factories.
The expectation that greater wealth and income growth in Mexico would increase political pressures to limit environmental pollution remains unrealized. Arguments that refer to the environmental Kuznets curve—that pollution increases with per capita gross domestic product (GDP) at lower levels of national income while pollution decreases with per capita GDP at higher levels of national income—suggest that increased trade, and hence increased wealth pollution, will decrease in Mexico (Grossman and Krueger 1993). More research is needed to address this important question about the relationship between trade, economic growth, and political pressure to improve and enforce environmental regulations in Mexico and elsewhere.
Perhaps the most significant impact of NAFTA flowed not from the agreement itself, but the conflicts that arose in NAFTA’s wake. NAFTA, like its close relative and successor, the World Trade Organization (WTO), significantly departed from the direction of previous multilateral trade initiatives and inadvertently opened political opportunities for challengers to question neoliberal trade policy. Advancing new language on investment protections, institutionalizing language and protocols for protecting trade related intellectual property rights (TRIPs), and promoting a series of policy shocks to liberalize trade in agriculture, NAFTA drew a line that subsequent conflicts over trade policy would brave. These three concerns remain pivotal dividing lines within the WTO and in the ongoing discussions for a Free Trade Area of the Americas. Confrontations over patents on seeds and other “intellectual property,” nontariff agricultural subsidies in richer countries, and investment rules have, for example, stalled agendas at the WTO ministerial meetings in Seattle in 1999 and in Cancun, Mexico, in 2003. NAFTA anticipated and presaged these same divisions, prompting conflict both prior to and following its implementation.
The conflict over NAFTA catalyzed a mobilization of forces for and against the agreement. For over two years, the NAFTA negotiations faced challenges and changes, from a legal decision at a U.S. district court that required an environmental impact statement on NAFTA (which was subsequently appealed and overruled) to negotiations for two-side agreements on labor and the environment. Critics nearly stopped the passage of NAFTA. By the time that NAFTA went public in 1991, a broad spectrum of groups—from farmers to human rights organizations—began meeting to develop both national and international strategies to stop NAFTA in its tracks. Three years later, voices against NAFTA had developed a transnational movement, providing a supportive, if not encouraging, backdrop for the armed insurgency in Chiapas, Mexico, that initiated its mobilization with deliberate intent on January 1, 1994, NAFTA’s birthday.
Beyond the contentious interests mobilized for and against NAFTA, the agreement and the historical stage it set caught the eye of scholars. NAFTA, at a social scientific level, came to represent a triumph of markets, a continentalization of economies, and a window into the political struggles over globalization. As Jeremy Brecher and Tim Costello argued (1998), this neoliberal “globalization from above”—via free trade and corporate-sponsored multilateral institutions—is being resisted not only by “older” nationalist and protectionist foes of free trade, but also by a “globalization from below.” NAFTA helped set this stage.
SEE ALSO Barriers to Trade; Liberalization, Trade; Quotas, Trade; Tariffs; World Trade Organization
Blecker, Robert A., and William E. Spriggs. 1992. Manufacturing Employment in North America: Where the Jobs Have Gone. Briefing paper. Washington, DC: Economic Policy Institute. http://www.epinet.org/briefingpapers/1992_bp_manufacturing.pdf.
Brecher, Jeremy, and Tim Costello. 1998. Global Village or Global Pillage: Economic Reconstruction from the Bottom Up. 2nd ed. Boston: South End.
Dicken, Peter. 2003. Global Shift: Reshaping the Global Economic Map in the 21st Century. 4th ed. New York: Guilford.
Dreiling, Michael. 2001. Solidarity and Contention: The Politics of Security and Sustainability in the NAFTA Conflict. New York: Garland.
Grossman, Gene M., and Alan B. Krueger. 1993. Environmental Impacts of a North American Free Trade Agreement. In The Mexico-U.S. Free Trade Agreement, ed. Peter M. Garber, 13–56. Cambridge, MA: MIT Press.
NAFTA Secretariat. http://www.nafta-sec-alena.org/DefaultSite/index.html.
Office of the United States Trade Representative. North American Free Trade Agreement. http://www.ustr.gov/Trade_Agreements/Regional/NAFTA/Section_Index.html.
Petras, James, and Morris Morley. 1995. Empire or Republic: American Global Power and Domestic Decay. New York: Routledge.
"North American Free Trade Agreement." International Encyclopedia of the Social Sciences. . Encyclopedia.com. (September 25, 2017). http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/north-american-free-trade-agreement
"North American Free Trade Agreement." International Encyclopedia of the Social Sciences. . Retrieved September 25, 2017 from Encyclopedia.com: http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/north-american-free-trade-agreement
North American Free Trade Agreement
NORTH AMERICAN FREE TRADE AGREEMENT
The North American Free Trade Agreement (NAFTA) was made between the United States, Canada, and Mexico, and took effect January 1, 1994. Its purpose is to increase the efficiency and fairness of trade among the three nations.
At the heart of NAFTA is a simple goal: the elimination of tariffs—the taxes each nation imposes on the others' imports—and other bureaucratic and legal barriers to trade. In addition to its central terms, the massive, highly detailed agreement also includes so-called side agreements intended to ensure that each nation enforces its own labor and environmental laws. The bulk of its regulations are to be phased in over the course of 15 years.
The impetus for NAFTA developed in the 1980s. Its roots lie in the United States-Canada Free Trade Agreement of 1988—implemented by the United States-Canada Free Trade Agreement Implementation Act (19 U.S.C.A. § 2112 note [Supp. 1993])—which, by the mid-1990s, had already eliminated most trade barriers between the United States and Canada. With the world gradually becoming divided into large regional trading blocs where goods and services move freely, as in the European Union, NAFTA's supporters saw the inclusion of Mexico as necessary for North America to compete internationally.
In the United States, debate over NAFTA threatened to derail it. Proponents saw economic benefits for all three nations in the agreement. But opponents concentrated their attack on the implications for the relationship between the United States and Mexico. They feared several potential outcomes if NAFTA were signed: the loss of U.S. jobs, damage to the environment as a result of economic growth in Mexico, and the likelihood that U.S. safety regulations would be challenged as barriers to free trade.
In 1993, a coalition of consumer and environmental groups brought suit in an attempt to block congressional consideration of the agreement. In Public Citizen v. United States Trade Representative, 5 F.3d 549 (D.C. Cir. 1993), the coalition argued that the administration of President bill clinton had failed to comply with the national environmental policy act (42 U.S.C.A. §§ 4321 et seq. ), which requires all federal agencies to submit environmental impact statements for all legislation or actions that affect the environment. The suit failed when a federal appellate court ruled that it had no authority to review the president's actions.
In response to anti-NAFTA criticisms, the White House negotiated three side agreements that were signed on September 14, 1993. The side agreements attempted to ensure that the three countries comply with their own labor and
environmental laws; established fines and limited trade sanctions for violations; and called for consultations by the members if increases in imports from one country appeared to be having a devastating effect on an industry in one of the other countries. Two months later NAFTA won congressional approval. The House of Representatives narrowly passed the implementing legislation (North American Free Trade Implementation Act [19 U.S.C.A. §§ 3314 et seq., Pub. L. No. 103-182, 107 Stat. 2057]), and the Senate also passed it.
NAFTA specifies a timetable for its changes. When the agreement went into effect on January 1, 1994, the United States eliminated all tariffs on 60 percent of imports from Mexico that previously were subject to tariffs. On January 1, 2003, more U.S. tariffs on Mexico's imports were removed, and 92 percent of previously taxed Mexican goods were able to enter the United States without tariffs. Finally, on January 1, 2008, all remaining tariffs on the three countries' goods will be eliminated. Other barriers were removed beginning January 1, 2000. For instance, U.S. banks, which had traditionally been shut out of Mexico, became free to take over as much as 15 percent of the Mexican financial market.
Investor Protection Provisions Under NAFTA
One of the more controversial provisions in NAFTA (Chapter 11) involves the "investor-to-state" dispute resolution process. This provision provides a vehicle and a forum for corporations and other companies to sue governments directly for what is called "regulatory expropriation", which is similar to eminent domain under domestic law. A company may allege regulatory expropriation in such instances as the actual taking of property by a country through condemnation, or constructive taking by way of laws or regulations that negatively affect the commercial value of a property. In order for a company to bring suit under this provision, it need only show that it is an "investor party."
In Metalclad Corp. v. Mexico, a special NAFTA dispute resolutions panel awarded U.S. corporation Metalclad $16.7 million in damages under this provision. In response, Mexico filed an appeal. The decision was then reviewed by a neutral Canadian court, the Supreme Court of the Province of British Columbia, which upheld the decision, but slightly reduced the damages to $15 million. Both parties withdrew their appeals in 2001.
Metalclad, a U.S. waste-disposal company, requested the creation of the special NAFTA tribunal in 1997, after a local Mexican government condemned property that Metalclad owned. The property in question was a closed toxic-waste dumping site, which Metalclad had purchased, and which the company intended to clean up and reopen. After it purchased the site, Metalclad successfully secured permits for the $20 million project from Mexican federal authorities, including federal environmental agencies, but it had not coordinated with local authorities. Local and state authorities refused to issue permits to Metalclad, claiming that the site was part of a 600,000-acre protected environmental reserve.
Metalclad complained to NAFTA officials, charging that the Mexican government's actions constituted expropriation. Mexico countered that Metalclad had started construction without waiting for all levels of approval. In particular, what angered Mexican authorities was that Metalclad had bypassed local jurisdictional forums and gone directly to NAFTA, claiming $90 million in damages and lost profits. The Canadian court that reviewed the appeal found that the original NAFTA panel, meeting behind closed doors in Washington, had interpreted the NAFTA Chapter 11 investor protection clause too broadly. It disagreed with the panel's decision that federal, state, and local governments in Mexico had issued a series of contradictory declarations to Metalclad, which violated NAFTA's guarantee of clear and transparent rules to protect investors.
By 2001, at least nine companies had invoked NAFTA's investor protection clause to file multimillion-dollar damage claims against the three member countries of NAFTA. Many of them alleged trade-restrictive practices involving environmental regulations. Canada's Methanex Corporation filed a claim against the state of California, charging that the state's ban on the gasoline additive MTBE resulted in company losses of more than $1 billion. Conversely, the U.S.-based Ethyl Corporation was reimbursed $13 million in damages for Canada's restrictions on the importation of the gasoline additive MMT. Another U.S. company, S. D. Myers, sought $20 million in damages against Canada for its ban on importing PCB chemicals.
Hufbauer, Gary Clyde, et al. 2000. NAFTA and the Environment: Seven Years Later. Washington, D.C.: Institute for International Economics.
NAFTA Handbook. 2002. Buffalo, N.Y.: W. S. Hein.
"North American Free Trade Agreement." West's Encyclopedia of American Law. . Encyclopedia.com. (September 25, 2017). http://www.encyclopedia.com/law/encyclopedias-almanacs-transcripts-and-maps/north-american-free-trade-agreement
"North American Free Trade Agreement." West's Encyclopedia of American Law. . Retrieved September 25, 2017 from Encyclopedia.com: http://www.encyclopedia.com/law/encyclopedias-almanacs-transcripts-and-maps/north-american-free-trade-agreement
North American Free Trade Agreement
NORTH AMERICAN FREE TRADE AGREEMENT
NORTH AMERICAN FREE TRADE AGREEMENT. The General Agreement on Tariffs and Trade (GATT), which went into effect in 1948 in the wake of World War II, sought to expand free trade by reducing tariffs between the twenty-three signatory nations. A strong supporter of GATT throughout its history, the United States in 1986 began to urge that GATT move beyond the reduction of trade barriers and that its agenda include foreign investment, services, agriculture, and intellectual property rights.
Increasing competition from Pacific and European countries caused the United States to begin trying to assemble a dollar-dominated block in the American hemisphere. This desire led first to the Free Trade Agreement (FTA) with Canada, effective January 1989, and then to an expanded trilateral agreement with Canada and Mexico, the North American Free Trade Agreement (NAFTA), effective January 1994. Given the earlier agreement between the United States and Canada, NAFTA dealt primarily with restructuring trade between the United States and Mexico and between Mexico and Canada. All tariffs between the United States and Canada would end by the year 1998; those between the United States and Mexico would be eliminated by 2008.
The agreements, however, much like the expanded agenda for GATT, covered more than the elimination of trade barriers and led to divisive debate in all three countries. Concerns among Canadians in 1988 and Mexicans in 1992 reflected a lingering view of the United States as a powerful nation that might yet seek to swallow up or strangle its neighbors. While some critics employed a powerful emotional rhetoric reminiscent of the days when the United States was roundly condemned as the Colossus of the North, others focused on the perceived need to protect Canadian and Mexican sovereignty, which they saw as threatened by expanded U.S. investment in such crucial national resources as oil and in institutions such as banking. Given the unequal status between them and their powerful neighbor, these opponents argued, both Canada and Mexico risked becoming in effect economic colonies of the United States.
In 1988 Canadians voiced many of the same concerns expressed by labor leaders and environmentalists in the United States in the early 1990s. Because Canada was already part of GATT, Canadians questioned the necessity of the FTA and the benefit to Canada of tying itself more closely to the largest debtor nation in the world. They argued that the movement of jobs from Canada to the United States, already a problem because of lower U.S. labor costs, would accelerate and that Canada's higher standards of environmental regulation and social programs would be threatened by U.S. investment and business practices. By far the most emotional issue in all three countries was the effect of NAFTA on employment. While proponents of NAFTA stressed that implementation would create jobs, opponents argued that the accord would lead to job loss. The negotiations commenced and continued during a period of global recession and high unemployment. While the movement of jobs from Canada to the United States and from the United States to Mexico had preceded the FTA and NAFTA negotiations, labor groups in both the United States and Canada were unshakable in their opposition.
As the leaders of both Mexico and the United States sought to assuage the fears of those at home who opposed NAFTA, the fate of the pact had implications beyond the borders of North America in the early 1990s. When President George Bush and Mexican President Carlos Salinas de Gortari announced in June 1990 the possibility of a free trade agreement between Mexico and the United States, Bush also announced the Enterprise for the Americas Initiative, which envisioned a free-trade block stretching from Alaska to Tierra del Fuego. This announcement preceded a dizzying number of new trading alignments within Latin America, including the agreement among Argentina, Brazil, Paraguay, and Uruguay in March 1991 to establish MERCOSUR, which pledged to integrate their economies by 1995, and numerous framework trade agreements between the United States and its southern neighbors.
The creation of a multinational trading bloc was a political and economic project. By the early 1990s, Latin American leaders had come to see the opportunity to move closer to the United States economically as a way to move their countries politically along a modern path of reform. At stake, then, was more than an economic reordering of the relationship among the three North American countries; there was also a foreign policy objective: strengthening political ties throughout the hemisphere. The U.S. Congress approved NAFTA in November 1993. A complicated and cumbersome document largely unread by proponents and opponents alike, it included concessions from all the parties because the United States, Mexico, and Canada saw in it an opportunity to promote their own economies, and protect the frailest components of those economies.
Bowker, Marjorie Montgomery. On Guard for Thee: An Independent Analysis, Based on the Actual Test of the Canada-U.S. Free Trade Agreement. Hull, Quebec: Voyageur, 1988.
Bulmer-Thomas, Victor, Nikki Craske, and Monica Serrano, eds. Mexico and the North American Free Trade Agreement: Who Will Benefit? New York: St. Martin's Press, 1994.
Cavanagh, John, et al., eds. Trading Freedom: How Free Trade Affects Our Lives, Work, and Environment. San Francisco: Institute for Food and Development Policy, 1992.
"North American Free Trade Agreement." Dictionary of American History. . Encyclopedia.com. (September 25, 2017). http://www.encyclopedia.com/history/dictionaries-thesauruses-pictures-and-press-releases/north-american-free-trade-agreement
"North American Free Trade Agreement." Dictionary of American History. . Retrieved September 25, 2017 from Encyclopedia.com: http://www.encyclopedia.com/history/dictionaries-thesauruses-pictures-and-press-releases/north-american-free-trade-agreement
North American Free Trade Agreement
North American Free Trade Agreement (NAFTA), accord establishing a free-trade zone in North America; it was signed in 1992 by Canada, Mexico, and the United States and took effect on Jan. 1, 1994. NAFTA immediately lifted tariffs on the majority of goods produced by the signatory nations. It also calls for the gradual elimination, over a period of 15 years, of most remaining barriers to cross-border investment and to the movement of goods and services among the three countries. Major industries affected include agriculture, automobile and textile manufacture, telecommunications, financial services, energy, and trucking. NAFTA also provides for labor and environmental cooperation among member countries. The pact contains provisions for the inclusion of additional member nations. Labor representatives have criticized NAFTA, claiming the agreement has led to numerous jobs lost in the United States because industries have moved plants to Mexico (see maquiladoras); NAFTA proponents point to the U.S. jobs created because of increased imports by Mexico and Canada. The agreement has negatively affected the economies of several Caribbean countries whose exports to the United States now compete with duty-free Mexican exports.
"North American Free Trade Agreement." The Columbia Encyclopedia, 6th ed.. . Encyclopedia.com. (September 25, 2017). http://www.encyclopedia.com/reference/encyclopedias-almanacs-transcripts-and-maps/north-american-free-trade-agreement
"North American Free Trade Agreement." The Columbia Encyclopedia, 6th ed.. . Retrieved September 25, 2017 from Encyclopedia.com: http://www.encyclopedia.com/reference/encyclopedias-almanacs-transcripts-and-maps/north-american-free-trade-agreement
North American Free Trade Agreement (Issue)
NORTH AMERICAN FREE TRADE AGREEMENT (ISSUE)
Formal negotiations for the North American Free Trade Agreement (NAFTA) began in 1991. Within three years the United States, Canada, and Mexico signed the trilateral free trade agreement and it went into effect in 1994. Pushed through by both the administrations of Presidents George Bush (1989–1993) and Bill Clinton (1993–) amidst much domestic controversy, this historic agreement established a formal trading bloc with 364 million consumers and a combined economic output of six trillion dollars in North America.
The agreement established what was called the world's largest free trade zone, and included a 15-year gradual phase-in of the elimination of tariffs and traditional non-tariff barriers on trade for all goods and services among the three countries. The accord is a 2,000-page text that contains detailed rules for hemispheric trade liberalization and two side agreements. The rules cover such areas as rules of origin (the country where the product was produced) to qualify for free trade, protection of intellectual property rights, and dispute settlement procedures.
NAFTA originated in negotiations begun in the mid-1980s between Canada and the United States to establish a bilateral agreement to guarantee market access between the two countries. The subsequent U.S.-Canada Free Trade Agreement was implemented in 1989. Canada then wanted to expand the agreement into a trilateral arrangement when the United States and Mexico initiated negotiations on a bilateral agreement of their own in 1990.
In the 1980s Mexican President Carlos Salinas de Gortari (1988–1994) decided to expand economic reforms through international agreements when the protectionist, state-dominated economy was in crisis and unable to pay off its debts to commercial banks. Moving to a market-based economy, the Salinas administration implemented accelerated trade-barrier reductions to encourage foreign investment. Having removed or reduced most of the tariffs between the United States and Mexico since Mexico joined the General Agreement on Tariffs and Trade (GATT) in 1986, the hope for Mexico was that a free trade agreement between the two countries would continue to stimulate foreign investment and economic growth.
The Bush administration had support from most large U.S. industrial corporations that would be able to take advantage of lower Mexican wages. Thus the administration requested "fast-track" negotiating status for NAFTA, which permits a president to negotiate international trade treaties and submit them to Congress for approval without amendments. In 1991 Congress gave NAFTA fast-track status.
NAFTA became a hotly debated issue in the 1992 U.S. presidential elections. Differentiating himself from the incumbent, presidential candidate Ross Perot opposed NAFTA, calling for the public to hear the "giant sucking sound" of jobs being pulled from this country and going South to Mexico. Meanwhile as a compromise in support of NAFTA, candidate Bill Clinton promised that NAFTA would include guarantees for the trading countries to abide by environmental and labor standards. Clinton was the target of mounting pressure from environmental groups and organized labor that NAFTA would amount to a "green light" for environmental "dumping" and human rights abuses in Mexico. After Clinton was elected as president and NAFTA was ratified in 1993 along with the two labor and environmental side agreements, the same groups criticized NAFTA for not having any effective enforcement mechanisms.
Opponents of NAFTA, such as labor leaders, were especially concerned that the agreement would result in massive losses in U.S. manufacturing jobs after Mexico began to attract foreign investment. Critics and supporters drew contradictory conclusions about the long-term consequences of NAFTA after the agreement was implemented in 1994. On one hand, opponents conducted studies such as the one by the Economic Policy Institute (EPI). The EPI authors, Jesse Rothstein and Robert E. Scott, concluded in their report, NAFTA and the States, that "an exploding deficit in net exports with Mexico and Canada has eliminated 394,835 U.S. jobs since NAFTA took effect in 1994." On the other hand, supporters such as Nora Claudia Lustig, a senior fellow at the Brookings Institute, claimed that "there is evidence that NAFTA has created more jobs than it destroyed."
Critical studies such as the EPI report contended that NAFTA resulted in the net export deficit growing from $16.1 billion in 1993 to $48.3 billion in 1996. Consequently jobs created with increased exports were offset by jobs lost with increased imports. The EPI argued that the implementation of NAFTA had affected all 50 states, with job losses ranging from 621 in Vermont to 38,406 in California. The states hardest hit were those with the greatest production facility relocation, industries such as automotive manufacturing, textiles, apparel, computers, and electrical appliances. In addition, wages fell four percent between 1993 and 1996 and real median wages fell in at least 25 states.
Meanwhile NAFTA proponents at the Brookings Institute, such as Lustig, claimed that the agreement "has resulted in an increase in U.S.-Mexican trade, business partnerships, specialization in production processes and direct investment flows into Mexico. At the same time, the agreement has protected U.S. exporters from the brunt of the Mexican crisis [peso crisis of 1994], especially in comparison to exporters from Japan and the European Union." The report's author claimed that "there is even some evidence that NAFTA has created more jobs than it destroyed." Lustig contended that a net job gain may be the end result because a strong Mexican economy makes a strong market for U.S. exports.
Despite the absence of follow-up initiative on Capitol Hill to push for fast-track negotiations that would include other countries such as Chile and Brazil in the free trade bloc, President Clinton remained sanguine concerning the outcome of NAFTA in its early years. In a letter to Congress, Clinton noted that "NAFTA is an integral part of a broader growth strategy that has produced the strongest U.S. economy in a generation."
Thus the history of the negotiations over and implementation of the landmark agreement further complicated a centuries-old debate over the economic impact of free trade policies. Departing from traditional trade liberalization agreements, NAFTA became part of a public controversy that resulted in the unique inclusion of labor and environmental standards as an element in a trilateral free-trade bloc in North America.
See also: Free Trade
Baer, M. Delal, and Sidney Weintraub, eds. The NAFTA Debate: Grappling with Unconventional Trade Issues. Boulder, CO: Lynne Rienner Publishers, 1994.
Bognanno, Mario F., and Kathryn J. Ready, eds. The North American Free Trade Agreement: Labor, Industry, and Government Perspectives. Westport, CT: Quorum Books, 1993.
Cohen, Stephen D., Joel R. Paul, and Robert A. Blecker. Fundamentals of U.S. Foreign Trade Policy: Economics, Politics, Laws, and Issues. Boulder, CO: Westview Press, 1996.
Ensign, David. "NAFTA: Two Sides of the Coin." Spectrum, Fall 1997.
Lustig, Nora C. "NAFTA: Setting the Record Straight." The World Economy, August 1997.
Mayer, Frederick W. Interpreting NAFTA: The Science and Art of Political Analysis. New York: Columbia University Press, 1998.
"North American Free Trade Agreement (Issue)." Gale Encyclopedia of U.S. Economic History. . Encyclopedia.com. (September 25, 2017). http://www.encyclopedia.com/history/encyclopedias-almanacs-transcripts-and-maps/north-american-free-trade-agreement-issue
"North American Free Trade Agreement (Issue)." Gale Encyclopedia of U.S. Economic History. . Retrieved September 25, 2017 from Encyclopedia.com: http://www.encyclopedia.com/history/encyclopedias-almanacs-transcripts-and-maps/north-american-free-trade-agreement-issue
North American Free Trade Agreement
"North American Free Trade Agreement." World Encyclopedia. . Encyclopedia.com. (September 25, 2017). http://www.encyclopedia.com/environment/encyclopedias-almanacs-transcripts-and-maps/north-american-free-trade-agreement-0
"North American Free Trade Agreement." World Encyclopedia. . Retrieved September 25, 2017 from Encyclopedia.com: http://www.encyclopedia.com/environment/encyclopedias-almanacs-transcripts-and-maps/north-american-free-trade-agreement-0