Historical Overview of North American Free Trade Agreement

Introduction

The North American Free Trade Agreement (NAFTA) is an agreement between the three northern countries that is Canada, Mexico, and the United States of America. The North American trade bloc was established in the year 1993 by the presidents of the countries is Bill Clinton of the United States, Brian Mulroney of Canada, and Carlos Salinas de Gortari of Mexico[1]. It fully came to effect in 1994 during the reign of Jean Chretien in Canada and Bill Clinton in the U.S. It has grown to be the largest trade bloc in the world and is a force to reckon with in relation to nominal GDP. It is composed of two sub-treaties that is, the North American Agreement on Environmental Cooperation (NAAEC) and North American Agreement on Labor Cooperation (NAALC).[2]

North American agreement on environment cooperation

NAAEC was formed by environmentalists who were concerned that the U.S. standards on the environment would go down if there was the failure of the three states in achieving an environmental directive[3]. It does not impose other environmental laws but compels the countries to execute their own laws on the environment. In its effort to reach the goals of environmental and trade targets, the NAAEC started the American Commission for Environmental Cooperation which was a mechanism that would set a platform that would ensure the enhancement of environmental and trade cohesion between the three countries.

It also established the North American Development Bank (NADBank) for enhancing projects and financing projects in pollution reduction. It also started the Border Environmental Cooperation Commission (BECC), which, together with Nedbank, has been very beneficial to Mexico because they are responsible for financing various projects in environmental pollution reduction[4].

North American Agreement on labor cooperation

This was established to oversee the country’s cooperation in solving the problems that they were experiencing in their respective individual and combined labor systems. It was also established to enhance the cooperation between social organizations in the region as well as the cooperation of the trade unions and hence the improved labor conditions in the North American region. This was to oversee the improvement of the welfare of the workers in the region.

Historical Overview of NAFTA

The idea of the agreement was born of the United States and Canada’s politicians, who supported the idea of free trade in the region. Among the pioneers of the agreement are Brian Mulroney, the then prime minister of Canada; George H. W. Bush, the then president of the United States and also Mexican President Carlos Salinas de Gortari[5]. The agreement was supported by business interested in the economic integration of the three countries. It was opposed by primarily the environmental and labor organizations of the three countries and also other businesses which were somehow opposed to the agreement[6].

George H. W. Bush, Brian Mulroney, and Carlos Salinas de Gortari signed the agreement in December 1992. This was subject to the approval of the three legislatures. The NAFTA pact called for the removal of all trade restrictions and tariffs gradually especially on the goods that are produced and traded within the North American region. In 1994 NAFTA was started in the three countries. It is one of the biggest free trade zones and is in the same league with the European Economic Area, which compromises of the European Union and European Free Trade Association which was also affected in 1994.

Another agreement between the United States and Canada which was titled U.S.-Canada Free Trade Agreement preceded NAFTA. This agreement was made effective on January 1989 but has now been irrelevant since the formation of NAFTA. In 1992 there was a function in which a ceremony was held to initialize NAFTA. There was a campaign that lobbied for the reduction of tariffs on United States goods shipped to Mexico and the gradual phase-out of all imposed trade barriers and tariffs, which had been effected for a period of more than a dozen years. This reduction and gradual phasing out encompassed all categories of industries[7].

The agreement recognized and protected the intellectual rights inclusive of patents, trademarks and copyrights. It also outlined the promotion of trade between the countries in the region. Additional provisions would later be added, especially those that involved environment and labor[8].

The NAFTA agreement was influenced by the U.S. and Canada governments which were both conservative in nature. The ruling regime in Canada was the Progressive Party with Brian Mulroney as the president. Likewise, in the United States, the ruling party was the Republican Party with George H. W. Bush. The two governments worked aggressively to see to it that the agreement was enacted and was working. Generally, there was opposition in both countries, and Bill Clinton was forced to make NAFTA a legislative proposal which was a major initiative.

In the United States it was passed after a heated political debate and several agreements prior to the NAFTA were slightly jeopardized by the American congress and senate. Even today, there is opposition against the agreement and this is championed by labor unions, especially in Canada[9]. There have been numerous debates in the legislatures of the three countries about the benefits and costs of the North American Free Trade Agreement and how they affect the three economies collectively.

NAFTA’s opposition

One key opposition of NAFTA was the fear of trade barriers abolishment, which would eventually result in United State’s firms relocating to Mexico where they would benefit from cheap labor which was locally available in Mexico. This opposition was championed by labor unions across the region. Also other organization such as environmental organizations opposed because the treaty did not adequately address the policies in which it would protect the environment from pollution.[10]

Mexico opposition to NAFTA

In Mexico, the opposition to NAFTA was centered around labor and the peasant farmers who were on the losing end. The treaty gearing toward the abolishment of trade barriers brought fears of American firms relocating to Mexico where they would adversely benefit from the cheap labor that would be readily available in the country. This was really apposed to labor unions in the region as they saw it as an unfair advantage to America[11].

Experts also were opposed to the agreement because they predicted that America would benefit from trade deficits with the two countries. The most affected by the trade deficits was Mexico whereby they stood to lose a lot of jobs if the deficit deteriorated like it was likely to. The most affected of the people turned out to be citizens in small towns and in the rural where they are limited job alternatives.

There was also the opposition since environmental organizations were worried about environmental pollution. This was because the treaty did not adequately address the problems that would lead to environmental pollution. The most affected would eventually be Mexico since most companies would relocate to the country, and hence the country stood the chance of its environment being polluted to large extents[12].

Some people are calling for renegotiation of the agreement as it seems to not protect the Mexican industry from imports from the other two countries. The most affected sector in Mexico is agriculture. The abolishment of trade barriers and the enactment of the American Farm Bill all pose as a threat to the agricultural sector of Mexico.

U.S. opposition to NAFTA

The opposition the agreement faced in the United States was centered on the concerns of various organizations which included environmental and labor unions. The labor unions had the fears that with the inevitable relocation of some firms to Mexico where they would benefit from cheap labor, the American populace stood the chance of facing unemployment. This is because Mexico offered better labor solutions than the American government did and hence the eventual relocation of the American companies[13].

There was also the fear that the agreement would enhance environmental pollution in the region since it did not adequately address the issue of environmental pollution. The environmental organization aired the heated opposition to the agreement[14].

Economists also opposed the agreement on grounds that it would increase income inequality gaps in the region as well as in the United States. This is because while the ordinary people toiled, the big corporations reaped the benefits. These corporations were mainly owned by Canadian and American people, and those who suffered most were the third class people, most of them in Mexico but a substantial number of them in both Canada and America.

American producers were opposed to the agreement because they stood the chance of facing the most expenses compared to their competitors. A good example is the agricultural sector whereby the American sector is faced with many taxes.[15]

Canada’s opposition to NAFTA

Canada has not fully accepted the provision that once a commodity has been sold, the government is unable to stop its future sale. Canada provides the region with water from its numerous lakes and rivers. There are concerns that the Canadian ecosystems may be in jeopardy in the future[16].

There are also fears that the agreement affects Canadian law. Its laws are bound by the treaty’s provisions and when transacting within the region, its laws are secondary while the provision for the treaty are primary. There are fears that the Canadian lawmaking will eventually lead to it being victimized by the other countries in the agreement.

NAFTA effects

Mexico

Generally, the agreement has been beneficial for Mexico since the abolishment of trade barriers between Mexico and America which paved the way for a two-way trade between the two countries has seen the improvement of trade between the country and other countries. Mexico has also benefit in economic growth since the signing of the agreement. It has experienced double growth rate since the singing of the agreement and now[17]. There has been improved employment rate in the country, especially the export jobs. Its gross domestic product (GDP) has been growing steadily, and experts agree that exports have played a good role in the growth of the GDP of Mexico. Exports have been seen as the playing the most important role in helping the country recovering from the 1995 financial crisis[18].

In the sector of agriculture, Mexico exports benefited very much from the agreement. Free trade and the incorporated regional competition have greatly helped the Mexican sector in reduction of the cost of food processing and livestock rearing. Despite the competition, the total revenue that is derived from the sector of agriculture has been rising steadily over the years.

The various sectors of Mexico have proved to be a match for the United States sectors, especially in agriculture. The country has been successful in their export of horticultural products and has increased by over a 100%[19].

Economic effects

There was an improvement in the manufacturing exports between the years 1995 and 1999. This is greatly attributed to the Maquiladora factories which are built near the border United States and their primary role is to manufacture products for the exportation to United States.

There was improved employment in the country, especially thanks to Maquiladore factories. The jobs in the factories have multiplied by the years, and this is a good economical effect of the agreement to Mexico[20].

The Mexican economy has gone through the process of economic, regional and social polarization. In the process, though, only a small number of Mexican entities have benefited from the agreement and globalization as a whole.

In the 1990s the Mexican economy created around 500,000 jobs per year. Despite that, the economically active population increased in staggering numbers that the jobs created could not fully accommodate the population. This led to the migration of Mexicans to the United States and Canada, where there were limited opportunities of getting a formal job but informal jobs were in plenty. The country’s industries only created job opportunities for five percent of the economically active people[21].

After the financial crisis of 1995, the Mexican peso has been overvalued in currency exchange markets. This overvaluation has been estimated by experts to be ranging between 25 percent and 30 percent. This has resulted in exports loosing and imports benefiting. Mexican firms are negatively affected by this overvaluation since they compete with cheaper imports in the market of their products.

Mexico has also failed to in provision of resources to the sectors which are most productive in the country. All Mexican entities manufacturing and business depend on the Mexican financial sector apart from the exporting companies which have a bigger stake in the international and issues bonds to international markets and financial institutions[22].

The manufacturing industry despite being one of the biggest revenue sources for the Mexican GDP has been faced with the challenge of trade deficits. The ratio of trade deficit and GDP has been on the rise since the imports liberalization in 1988. It was the most affected in the financial crisis of 1995 because it had billions in trade deficit. The manufacturing sector requires the increase in imports so that it can grow as a result of GDP and exports ratio.

The agreement has victimized many Mexican firms and companies. The end result of the agreement has seen to it that the country as a whole have low GDP and income inequality[23].

Effects on Mexican foreign policy

Mexico plays a particular role in the North American region because it is an accepted partisan of the North America Free Trade Agreement. Mexico being one of the states that form the agreement, there are more than economic implications and hence there are other implications like foreign policy and other social and political implications[24].

The three countries had different approaches to foreign policy, which varied in many degrees. Since their integration in 1944, their foreign policy approaches have been duly influenced by the integration.

One effect is that Mexico is indirectly influenced by the United States policies on foreign matters. It is in this respect that Mexico has broken its traditional links with former allies like Latin America. The country has also focused its economic relations in the Northern American Region. Although it has other relations with other countries outside the region, most of its relations, especially in trade and economics are with the United States and Canada. Mexican goals are linked to the United States in that both countries are strongly oriented in the creation of a free market and democracy. This has brought the two countries closer, especially in global politics[25].

Canada being a member of the North American Free Trade Agreement has also enjoyed closer ties with Mexico since 1994. Mexico and Canada enjoys a more balancing and equal relationship with the United States, unlike its relationship with Mexico. They have come up with strong mechanisms like the Inter-American Democratic Charter established in 2001, among other mechanisms. These mechanisms are geared toward the fight against terrorists, corruption and other vices[26].

Social effects

First, there was the immigration of workers who wanted to work formally in companies in Mexico, but there being no opportunities around, they went to work in informal jobs in America. The social effects of the agreement tend to be revolving around labor wars within the region. Many places remained undeveloped in Mexico as a result of rural-urban migration.

After the implementation of Northern America Free Trade Association, there was almost an immediate development of the labor market. These affected Mexico labor force because foreign companies exploited the cheap labor that is readily available in Mexico[27].

Many people of the Mexican working-age population were not offered any labor, environmental or health standards by the agreement. The agreement instead focused on the protection of corporations and investors.

In other instances, the environment was vulnerable to pollution as many companies relocated to Mexico and the agreement had not focused on the environment protection[28].

The effects of NAFTA on Mexico compared to the other countries in the region

Economically the agreement has seen to it that the Mexican economy is improving albeit the exploitation of the labor force of Mexico. Many sectors of the economy in Mexico are now competing with the American sectors, especially the agriculture sector, which can be said to be better than the American agriculture sector. However, the country is still the losing in growth as the other two countries are economically stable while Mexico is still struggling. It is important to note that Mexico has not reached the developed countries status while the United States and Canada are the leading world economies.

In the foreign policy, Mexico has been seen to lose the traditional links it had with the Latin America and other regions as well and have intensified their focus on the relation with United States and Canada. The country has also been leaning towards the idealism of democracy and free labor just like the United States and Canada advocates for. It has also started establishing institutions with the United States and Canada which are geared to fight corruption and such vices as terrorism. The Mexican country can be said to be dictated into their policies by the two countries[29].

In social effects, the country has suffered because its environment and labor are almost in jeopardy while the United States and Canada seem to be exploiting Mexico in these areas. The agreement does not put in place effective environment and labor policies, and the United States and Canada seem to be exploiting the lack of these policies to further gain from the integration[30].

Conclusion

The North American Free Trade Agreement has adversely affected Mexico. Mexico can be said to be the least developed in the North American Region and it can also be said to be the weakest economy in the region as the other two countries are the leading developed and economic country in the world, not only the region. It is in this respect that it is exploited by the United States and Canada in various fields like environment and labor policies. The agreement had put in place a clause indicating that the agreement would not jeopardize the policies of the member states. This is the clause that the Mexican government needs to exploit to come up with new policies that would ensure that their interests in the region are protected[31].

The country has also to look in the direction of catching up with its partners in terms of development and financial stability. It had suffered a financial crisis in the year 1995, and this should have set the basis of the country’s focus on the financial stability like the other countries in the region. It needs to come up with new economic strategies so as to improve the economy and be able to competently compete with the other countries in the region.

Bibliography

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North American Free Trade Agreement: President Bush’s Final Version. Washington, D.C.: Lithographics, Inc.; 1993.

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Adcock, Patrick and Judith T. Kildow. “Environment and the Trading System. (International Trade in the 1990’s: The Problematic Journey).” The Fletcher Forum of World Affairs 16 (1992): 55-62.

Don J. and Terry L. Bruce. “U.S. Congress Responds. (Human Rights and U.S.-Mexico Free Trade Agreement) (Latin American Struggles for Human Rights and Social Justice).” National Lawyers Guild Practitioner (1992): 5-6.

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