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Debate: NAFTA

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Has the North American Free Trade Agreement (NAFTA) been beneficial? Is it a model?

Background and context

The North America Free Trade Agreement was initially created as a bilateral agreement between the USA and Canada in 1994, with Mexico joining later. The aims of NAFTA are different for all three nation states, as is the opposition to it from within those states. It is not really comparable to the modern European Union - it exists purely as a free trade bloc with no political ties. This means that the countries agree to trade without barriers but have their own individual barriers with countries outside of the trading bloc. It is also a loose arrangement. Opposition to NAFTA was vocal at its inception - the Canadian government who signed it into law was reduced to just 2 MPs in the following general election. In the USA, Ross Perot’s bid for the Presidency was largely based around opposition to the NAFTA proposals, gaining him the largest third party vote for decades.[1]

Contents

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Democracy: Does NAFTA have strong democratic processes?

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Yes

  • NAFTA "fast track" authority is necessary to bypass a non-acting congress Martin Wolf, Why Globalization Works?. Yale University Press. 2004. ISBN 0-300-10777-3. pp 90. - "In the United States, use of the administration's powers to reach agreements with foreigners has also been a way of bypassing the constitutionally mandated, but historically catastrophic, logrolling in congressional legislation on trade policy, which culminated in the calamity of the Smoot-Hawley tariff of 1930."
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No

  • Free trade undermines democratic processes Ralph Nader on Free Trade. On the Issues. - "Q: There must be firms or forces in society that you have decided now are more malignant than you thought 25 years ago, and companies on the other hand that actually have improved and are behaving better. There must have been some changes.
A: With the collapse of communism and with the absence of any alternative way of ordering private property and using public assets, we’re entering into a generation of global power of the multi-national corporations. There’s no society that’s able to withstand commercial western culture. Perhaps fundamentalism and Islam is trying to do it.... But that’s going to be the challenge now, whether democracy is going to be up to it. Whether these giant corporations are going to be able to respect instead of erode and control democratic processes and these new trade agreements like GATT and the World Trade Organization are not encouraging."[2]


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US economy: Has NAFTA benefited the economy of the United States?

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Yes

  • NAFTA has improved the GDP of the United States "The Pros and Cons of Pursuing Free-Trade Agreements". The Congressional Budget Office. July 31, 2003 Cites a small but positive effect - "The effects of current FTAs shed some light on the likely effects of the proposed new agreements. The Congressional Budget Office recently analyzed the effects of NAFTA over its first eight years using a statistical model of U.S.-Mexican trade.(6) That model indicated that by 2001 (eight years into the agreement), NAFTA had increased U.S. exports to Mexico by only 11.3 percent ($10.3 billion, or 0.12 percent of U.S. GDP) and had increased U.S. imports from Mexico by only 7.7 percent ($9.4 billion, or 0.11 percent of U.S. GDP). According to the model, the agreement had almost no effect on the U.S. trade balance with Mexico, and what little effect it did have was positive in most years--a $0.9 billion increase (or 0.01 percent of GDP) in 2001. On the basis of those estimates and the results of other studies in the economics literature, CBO estimated that the expanded U.S.-Mexican trade resulting from NAFTA increased annual U.S. GDP by a small amount-- probably a few billion dollars or less.
  • NAFTA has increased the number of American jobs "NAFTA and Job Losses". Cyril Morong (Ph. D.), The Wall Street Journal, May 4, 2005 - "Did NAFTA cause the U.S. to lose so many jobs [citing figures provided in the range of 2 million and 800,000], especially high-paying manufacturing jobs? Probably not. I say probably, since causality, in any social science (economics included), is difficult to prove since so many factors change so quickly in the real world. But if many high-paying manufacturing jobs were lost, it took many years until after NAFTA went into effect before they were...But what about manufacturing jobs? We had just about 17 million in 1994. It actually rose to 17.56 million in 1998 and was at 17.26 in 2000 (still higher than in 1994 the year NAFTA went into effect). Then we had a recession in 2001 and since then the number of manufacturing jobs has fallen quite a bit, down to 14.3 million. So that is a loss of nearly 3 million since 2000, which might be due to the recession. If it were due to NAFTA, then why did it take so long for the loss to happen?"
  • American wages have not been harmed by NAFTA Cyril Morong, Ph. D. "NAFTA and Job Losses". Wall Street Journal. 4 May 2005 - "Economists generally like trade since it allows each nation to specialize in the goods it can produce most efficiently. The increased output can be traded to other nations for their increased output. In that case, jobs move from one industry to another. For example, although we lost manufacturing jobs, we gained about 2 million construction jobs from 1994-2004, which paid well. In 2004, the average hourly wage for construction workers was $19.23. Construction wages also showed real gains from 1994-2004 while showing losses in the 1984-94 pre-NAFTA period."
  • Free trade increases the purchasing power of consumers By increasing efficiency in the international markets and decreasing prices of consumer goods, NAFTA has increased the purchasing power of individual consumers and workers. This means that, even if some workers lose out from free trade and NAFTA, most gain from their increased purchasing power.


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No

  • Retraining workers that lose from free trade is costly Diana Furchtgott-Roth,”Free Trade Advantage”December1,2006 - "One major program for workers affected by trade is Trade Adjustment Assistance. TAA services include higher levels of benefits for a longer period, career counseling, job search help, résumé preparation assistance, and interview skills preparation. Plus, the program provides information on the local job market, training and educational opportunities, and health benefits, all designed to help laid-off workers get on their feet quickly.The government assisted 100,000 individuals through this program in 2005. In FY 2005, the government spent about $1 billion on the program or approximately $10,000 dollars per displaced worker. Benefits are available for up to two years, and a Health Coverage Tax Credit, worth up to 65% of health insurance premiums, is also available to workers undergoing retraining.In addition, the Department of Labor is addressing the decline of Eastman Kodak, Xerox, and Bausch & Lomb in upstate New York by investing $15 million in the Finger Lakes Partnership. Working with Monroe Community College, Finger Lakes Community College, and Genesee Community College, the project attempts to create an entrepreneurial culture focusing on optics, agriculture and food processing, advanced manufacturing, and biotechnology."
  • Workers who lose their jobs to free trade earn less in the new jobs they find Jonathan Tasini, “No Wonder People Are In Debt”, 01 of April, 2007Across America, more than 30 million people have been forced out of jobs since the early 1980s, the Bureau of Labor Statistics reports, and regaining lost incomes has not been easy. Nearly 50 million new jobs have been created over that same period, according to the bureau, so there are always new opportunities but more often than not at lower pay. Among those who have lost work, only a third held new jobs two years later that paid as well as those that were lost, according to the bureau’s surveys of displaced workers. Another third of those displaced were in jobs that paid, on average, 15 to 20 percent less than their previous employment — while the final third had dropped out of the labor force entirely
  • Companies that out-source cheaper labor aren't investing enough in innovation Thea Lee and Ralph Nader, The case against free trade; Happily never NAFTER, there's not such thing as free trade. Earth Island Press, 1993 ISBN 156431694. Chapter 5, pp. 71. - "As for efficiency, it is not much to get excited about when the savings come from cheap labor rather than better technology or easier access to resources. In fact, as firms shift production to Mexico, lured by wages of $1 or $2 an hour, they lose some incentive to invest in cutting-edge techniques that improve productivity. For years, U.S. firms have been setting up "maquiladora" factories just over the Mexican border, and NAFTA would simply speed the trend."
  • A trade deficit has been created as a result of NAFTA: Experts predicted a trade surplus with Mexico of up to $12 billion. In reality, in 2000 our trade balance with Mexico was negative $24.2 billion according to Dena Hoff of the Free Trade Task Force of the National Family Farm Coalition.


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Mexican economy: Has NAFTA benefited Mexico's economy?

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Yes

  • NAFTA has benefited the Mexican economy "The Pros and Cons of Pursuing Free-Trade Agreements". The Congressional Budget Office. July 31, 2003 - "The effects of the FTAs on the economies of the partner countries are likely to be much larger, however, because those countries have much smaller economies than the United States does. The NAFTA-induced increase in U.S. exports to Mexico by 2001 indicated by the CBO model, although trivial in comparison to the U.S. economy, equaled 1.9 percent of Mexican GDP. Likewise, the NAFTA-induced increase in U.S. imports from Mexico by that year equaled 1.7 percent of Mexican GDP. The disparity in size between the U.S. economy and the economies of many of the countries for which free-trade agreements have been proposed is even larger than that between the U.S. and Mexican economies. Thus, the benefits to those economies relative to the benefits to the U.S. economy are likely to be even larger than was the case for Mexico with NAFTA. Moreover, the economies of many small developing countries are less diversified than the U.S. economy, producing one or two main products for export. An agreement allowing those products into the United States would be of tremendous benefit to such a country's economy."
  • NAFTA has stimulated democratic reform and opened markets in Mexico.
  • NAFTA has increased living standards in Mexico. According to the Bush administration, the agreement has been "improving lives and reducing poverty in Mexico."
  • NAFTA helps states recover from crisis (i.e. Peso crisis). NAFTA has been good for Mexico and the bilateral relations with US's southern neighbor. NAFTA helped Mexico recover from its own homegrown peso crisis in 1994-95. While it took a full seven years for U.S. exports to Mexico to recover after the debt crisis of 1982, it took only 17 months for our exports to rebound after the peso crisis. Since 1995, incomes in Mexico have been rising and its economy has been one of the most stable and dynamic in Latin America.Source = CATO.org


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No

  • NAFTA has harmed Mexican jobs The Carnegie Endowment for International peace reported that 1.3 million farm jobs have been lost since 1993. The Carnegie report also concluded that the pact has generated few new jobs in Mexico and might only be credited for a "very small net gain" in jobs in the U.S.[4]
  • Increased supply has reduced the price that the farmers recieve and thus threatened livlihoods: "Prices that Mexican farmers receive for their corn have fallen by 48 percent since NAFTA, and the value of other crops has also fallen. The only positive trade balance is for the Mexican products of beer, tequila and mescal." 1
  • NAFTA caused rioting by farmers who could not cope with new competition. Tariffs on almost all agriculture products were reduced to zero on Jan. 1, 2003. As a result there was a sudden increase in competition from large US and Canadian farms which can benefit from economies of scale. This means that there average costs would be cheaper and therefore they can charge less. This is effectively "Dumping" of below cost of production products on a developing economy. As a result the Mexican farmers demonstrated against the tariff removal to " declare the Mexican countryside in a state of economic, social and environmental emergency." The problem with external competition is developing countries is that it invariably stymies any chance of industrial growth. This is similar to the infant industry argument, as new or struggling, in this case, industries face higher costs and will fail when exposed to more efficient competition. NAFTA and Agriculture


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Consumer benefits? Do consumers in its member countries benefit from NAFTA?

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Yes


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No

  • NAFTA creates the problem of multilingual labeling on goods and products From the perspective of North American consumers, one of the negative effects of NAFTA has been the significant increase in bilingual (and often trilingual) labeling on products for simultaneous distribution through retailers in Canada, the United States, and Mexico in French, English, and Spanish.
  • NAFTA's enforcement of drug patents harms poor drug consumers.
  • NAFTA creates new patent rules that raise medicine prices.


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Businesses: Does NAFTA benefit the companies of its member countries?

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Yes


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No

  • NAFTA subjects businesses to greater competition and challenges.
  • NAFTA puts small businesses and farms out of business.
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Global free trade: Does NAFTA help or harm the cause of global free trade?

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Yes

  • NAFTA's existence encourages free trade globally "The Pros and Cons of Pursuing Free-Trade Agreements". The Congressional Budget Office. July 31, 2003 - "They also offer a way to continue making headway toward the goal of free trade in the face of difficulties that have slowed progress in the Doha Round of WTO negotiations. In fact, they may help stimulate progress in that round because countries not party to the FTAs may fear being left behind while countries that are party to such agreements expand trade with the United States."
  • Efficiency gains should be generated: For any country servicing a large market gives economies of scale and scope and a greater number of external economies of scale and each country can become more specialised. This theoretically should benefit any country trading with NAFTA and not just NAFTA members.


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No

  • NAFTA and other FTAs make multilateral free trade agreements more difficult to construct - NAFTA and other Free Trade Areas (FTAs) complicate the global trade environment and make it difficult for a global free trade agreements to be concluded. Doha and the World Trade Organization are examples of more multilateral frameworks. If global free trade is desired, NAFTA and other FTAs should not stand in the way of more global, multilateral free trade arrangements.
  • It is possible that there is trade elitism within the trading bloc and therefore less trade with the rest of the world. As a result of a group being reluctant to trade with outsiders who do not have the same standards, or simply the artificial barriers makes such trade inefficient, the real gains from trade may not be fully exploited.
  • Lack of diversity With just 3 countries in NAFTA there is a possibility of little difference in relative opportunity costs that drives the comparative advantage process to make all better off through specialisation and trade. This may not be so severe due to the relative sizes of the economies of America and Canada and the diversity of them. However it could be in reference to the electrical and technological sector to an extent with such global monopolies from Asia - Sony.
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Environment: Has NAFTA had a positive environmental impact?

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Yes


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No

  • NAFTA is bad for the environment - NAFTA increases trade, which increases the shipping and transportation of goods, with inherently damaging results for the environment such as increased energy consumption and carbon emissions.


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Intellectual property: Would NAFTA uphold patent and intellectual property standards?

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Yes

  • NAFTA helps control the exploitation of Mexico's poor intellectual property laws Thea Lee and Ralph Nader, The case against free trade; Happily never NAFTER, there's not such thing as free trade. Earth Island Press, 1993 ISBN 156431694. Chapter 5, pp. 71. - "NAFTA would also thwart domestic policy in the area of intellectual property rights, that is, copyrights and patents on printed materials, sound or video recordings, pharmaceuticals, and computer software. Software developing nations often show little regard for intellectual property rights, since exclusive authority to make a product generally means steep prices. By ignoring drug patents, for example, Mexico has provided relatively cheap pharmaceuticals. No longer [with NAFTA's rules]."
  • NAFTA's enforcement of drug patents harms poor drug consumers.
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No

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Human rights: Does NAFTA uphold and advance human rights?

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Yes

  • Trade, using economic theory, results in the distribution of wealth: (Alain Anderton Economics Second Edition CPL) "Free trade over time will inevitable involve changes in the worlds income distribution." The distribution of wealth creates equitability (usually it goes from the rich to the poor) and as a result it is important for human rights. Fundamentally one could argue that human rights are only important when they protect an acceptable standard of living (this is suggested due to the analogy, how important are human rights to a homeless, starving, lonely person). Redistribution of wealth increases the standards of living and therefore one could argue human rights become more important with this progression.



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No

  • NAFTA creates a two tier trade system where North Americans have an advantage. As other countries will not benefit from this, humans rights worldwide will lessen.
  • NAFTA incentivizes the exploitation of poor labor laws in Mexico - Thea Lee and Ralph Nader, The case against free trade; Happily never NAFTER, there's not such thing as free trade. Earth Island Press, 1993 ISBN 156431694. Chapter 5, pp. 74. - "Mexico has lenient child labor laws, and they aren't well enforced, 14 and 15-year olds are allowed to work up to 36 hours a week, while the U.S. limit is 18 hours during school season. Children make up almost one-third of Mexico's work force, according to the Mexican Center for Children's Rights."
  • NAFTA's enforcement of drug patents harms poor drug consumers.
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Public opinion: Where do the various public stand?

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Yes

Results from surveys suggest popular opinion:

  • Public opinion in Mexico, Canada and the United States tends to be positive toward NAFTA and the prospect of widening free trade across the hemisphere. A survey conducted in July 2004 by CIDE and COMEXI in Mexico found that 64 percent of the Mexican public favored NAFTA, and 62 percent also supported a possible Free Trade Agreement of the Americas stretching from Canada to Chile.
  • 70% of Canadians agree with NAFTA in June 2003 Ipsos Reid survey.
  • The Program on International Policy Attitudes reported in a January 2004 poll that a plurality of 47 percent of Americans felt that NAFTA has been good for the United States.
  • Thus a variety of polls conducted after 7-10 years of experience with NAFTA indicate that public opinion in all three countries generally supports the pact and increasing trade in general. Opinion


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No

  • There is massive opposition to NAFTA in all three countries, which shows the potential danger. The US is worried about being swamped with Mexican goods through comparative advantage. The Trade Unions are against it and there are serious environmental concerns. Canadians fear they will lose cultural diversity. Canada’s influence in NAFTA has not stopped the US using protectionism over their largest single export, softwood lumber. Mexico may get swamped by US goods. Multinational companies may relocate and crush Mexican industry. There is the possibility of exploitation of land and labour which are cheaper in Mexico.[5]
  • Public Citizen opposes NAFTA
  • NAFTA was intended to reach the Free Trade Area of the Americas Agreement and the posposal of this seems to suggest little public support for trade acts in general: NAFTA entered into force in 1994, creating one of the world’s largest free trade blocs. An even more ambitious regional trade pact—the Free Trade Area of the Americas—has been on the hemispheric agenda since 1994 and was intended to be in place by 2005, but President Bush returned from the Summit of the Americas in Argentina in November 2005 with little movement toward an agreement. Opinion polling on NAFTA reveals the complex public reactions to liberalizing trade: majority support for freer trade but reservations about fairness between countries and about trade’s impact on groups within their society. Opinion


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Pro/con resources

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Yes

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No


See also

External links

Books:


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