Evaluation Essay on NAFTA

Introduction

NAFTA was a multilateral trade agreement between governments of the three North American countries Mexico, the United States and Canada which was established in 1994. Under the framework, the three countries committed to work together to ensure a conducive trade environment gradually. NAFTA's primary aim was to eliminate trade barriers by 2008, particularly those resulting from prohibitive tariffs. Collectively, these countries hoped that in meeting the NAFTA requirements, there would be the liberalization of trade in the automobile, textile and agriculture industries. The agreement also created a framework for dispute resolution, the protection of intellectual property, and the implementation of environmental and labor safety measures (Villareal and Ian 3). One unique feature of NAFTA was the differences in the economies of the member countries. Mexico had a developing economy whereas the economies of Canada and the United States were already established.

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Pros and Cons of NAFTA

There are at least six advantages that the three countries derive from their membership in NAFTA. Foremost, NAFTA has led to increased trade between the member countries. Based on the trade volume, an unrivaled free trade area was created. Two decades after its inception, the combined gross domestic product of the three countries was way over $22 trillion, and this was directly attributable to NAFTA (Villareal and Ian 5). The 2017 Congressional Research Service report noted that within the period of the existence of the trade agreement, trade between the United States and its two neighbors, Mexico and Canada, had more than tripled. Coupled with this was the fact that NAFTA gradually reduced and finally eliminated prohibitive tariffs. Improved trade between the three neighbors was instrumental in the expansion of their economies driven by increased production and consumption which also prepared their companies for globalization.

Secondly, as a result of the improved trade, the three countries each recorded increased economic output. When the various factors involved in the trade agreement are considered, the economies of each country were found to have significantly appreciated. In the case of the United States, it was projected that full adoption of NAFTA requirements would lead to annual economic growth of up to 0.5 percent (Villareal and Ian 7). Thirdly, the increased trade had a direct impact on the economies in terms of jobs. Within the period of its existence, the member countries reported a significant increase in jobs for their increasing populations. The United States free trade agreements report of 2010 noted that of all trade agreements, NAFTA provided the highest number of direct jobs for American citizens, estimated at 5.4 million (U.S. Chamber of Commerce 11). It also states that an estimated 18 million jobs were supported by the trade resulting out of the agreement.

Engagement in trade under NAFTA terms saw foreign direct investment (FDI) between the member countries more than triple. Between 1993 and 2012, U.S. FDI to Mexico increased from about $15 billion to about $104 (U.S. International Trade Service par.3). Canada benefited from FDI increase from the U.S. from about $70 before NAFTA to over $350 billion barely two decades later (U.S. International Trade Service par.4). The favorable trading environment also enabled the reduction of prices of essential commodities such as oil which was in Mexico. As a result, Mexico recorded increased oil sales to its neighbors, and the U.S. reduced its dependence on oil from the Middle East. Reduced oil prices led to lower food prices. Lastly, improved government spending created competition among suppliers and producers in the three countries.

There are several cons associated with NAFTA. Foremost, as reported by the Economic Policy Institute in 2011, the U.S. recorded job loses as a result of NAFTA. These mainly resulted in textile, automotive, computer, and manufacturing industries (Robert 7). Secondly, in pursuit of environments that offered fewer production costs, the trade agreement suppressed wages. In fear of trade unions, American companies shifted their operations to Mexico. Thirdly, NAFTA created an imbalance in trade. Given the United States' advanced agricultural environment and subsidies, Mexican farmers were technically put out of business. The disenfranchised Mexican farmers ended up illegally crossing the border to offer labor in the U.S farms. Fourthly, focus on increased production with cheap labor meant that the majority Mexican labor force had to work under substandard conditions. The focus on increased production volumes also indicated less concern for the impact of such production on the environment. There were increased deforestation and soil pollution. Lastly, the U.S. disputed the entry of Mexican trucks which it pointed out were subjected to lenient safety rules.

United States-Mexico-Canada Agreement (USMCA)

The United States-Mexico-Canada Agreement (USMCA) is the alternative multilateral trade agreement spearheaded by President Donald Trump ostensibly create an improved trade environment to that existing under NAFTA. It provides that it is intended to enable a more level playing field for American citizens, through the proper regulation of currencies and stricter rules on the origin of goods such as automobiles (Puig 57). The agreement intends to protect the American farmers and agribusinesses through the modernization of farming approaches. Also captured under USMCA are intellectual property protections and spelling out the trade environment within the digital space.

Opinion on the Effectiveness of Original NAFTA

The original NAFTA was very instrumental in preparing North American companies for globalization. The resulting regional trade environment enabled companies in the member countries to improve their production volumes and quality. Considering its contribution to the growth in GDP of the member countries and the FDI involved, it was significant in ensuring improved living standards in Mexico and the expansion of Canadian and American firms which also benefited from a broader market for products.

Works Cited

Puig, Sergio. "The United States-Mexico-Canada Agreement: A Glimpse Into The Geoeconomic World Order." AJIL Unbound 113 (2018): 56-60. Web.

Robert E. Scott. Heading South: U.S.-Mexico Trade and Job Displacement After NAFTA. Washington, DC: Economic Policy Institute, 2011. Web. 2 Mar. 2019.

U.S. Chamber of Commerce. Opening Markets, Creating Jobs: Estimated U.S. Employment Effects of Trade with FTA Partners. Washington, DC: U.S. Chamber of Commerce, 2019. Print.

U.S. International Trade Service. "NEWS RELEASE 03-077; August 12, 2003." Usitc.gov. N.p., 2019. Web. 2 Mar. 2019.

Villareal, M., and Ian F. Fergusson. The North American Free Trade Agreement (NAFTA). Washington D.C: The Congressional Research Service, 2017.