The North American Free Trade Agreement or NAFTA was implemented under President Bill Clinton’s term although it was President George W. Bush who signed it together with Mexican President Salinas and Canadian Prime Minister Mulroney in 1992. Fourteen years after it was made into a law, in January 1, 2008, its full provisions as well as elimination of all tariffs were implemented.
NAFTA stemmed from a vision to make North America more competitive in the global market and to reduce trading costs and strengthen business investment. It was also implemented for several purposes such as protection of intellectual property rights, facilitate cross border movement of goods and services, build framework to encourage cooperation among involved nations to expand trade agreement benefits.
What is NAFTA?
NAFTA is basically an open-market agreement among the United States, Canada and Mexico. Its implementation aims to remove investment barriers and tariff among the three countries involved. With Mexico and Canada being the largest export markets of the U.S., supporters see this as more beneficial to America. However, critics say otherwise which makes this a contentious issue among several groups.
Despite the benefits NAFTA has to offer, it still earned criticisms from different sides, some of which were included during presidential campaigns. President Obama talked about its effect on increased unemployment in 2008 and Hillary Clinton also brought up the idea of abolishing or amending the agreement. Both politicians have the same take on NAFTA. John McCain, on the other hand, is a proponent of NAFTA. Here are some of the benefits and setbacks of NAFTA as seen by two opposing groups.
List of the Pros of NAFTA
1. It has been a boost to trade and commerce.
Supporters of the trade agreement cite three benefits with regard to trade. They claim that NAFTA was able to remove all tariffs between the three countries involved, which, in effect reduced the importation costs and inflation. Moreover, the agreement made it possible for small businesses to expand and at the same time encourage investors to join the trade industry. They also said that with open-market trading, companies from these three countries within its borders were given a fair chance to bid in government projects. With this, there will be more bidders with lower bids and more choices for the government. As a result, this can help the government address budget deficits.
2. It strengthened the economies of member countries.
Groups in favor of NAFTA talk about how for the last two decades, trading among the U.S., Canada and Mexico quadrupled to $1.2 trillion from $297 billion. Canada and Mexico were the top export markets of the United States in 2014, with $312 billion and $240.3 billion, respectively. In the U.S., the agriculture industry was one of the sectors which enjoyed the benefits of NAFTA. Farmers were able to import their products, from soybeans to beef, to Mexico due to the reduction of Mexican tariffs.
3. It helped in the economic boost of regions and states, like Texas.
Advocates for NAFTA posited that the agreement is also important in the economy of the borders of the three countries. Texas is the longest border between the U.S and Mexico. Since the implementation of NAFTA, the clothing and metal industries in the state has flourished. According to reports, there was a 13% increase in sales in these industries during the first year of NAFTA implementation.
4. It had a positive effect on labor and wages.
On the issue raised by critics about the effect of NAFTA on working conditions and pay of employees, proponents contend that the trade agreement has resulted to coming up with a parallel agreement on labor cooperation which is known as the North American Agreement on Labor Cooperation (NAALC). This is responsible for the improvement of working conditions as well as living standards in the three regions. It ensures that workers’ rights are not violated and also help address certain labor issues such as discrimination, secret balloting and protection of migrant workers. This also includes standards of employment and occupational health and safety.
5. It lowered oil importation costs.
Aside from the shale oil produced by America, the country is no longer buying oil from Iran. With NAFTA, the U.S. can now import oil from Canada and Mexico at competitive prices unlike other foreign oil-producing countries which uses their natural products on their political agenda and charges on currencies which devaluates dollars. With lower oil importation costs and America’s own reserves, oil can be sold in the U.S. market at reduced prices.
List of Cons of NAFTA
1. It affected workers and their jobs.
Critics pointed out one of the disadvantages NAFTA has which put a dent in the manufacturing industry. They say that with the implementation of the agreement, many manufacturers chose to do business elsewhere and transfer their companies in Mexico and Canada. And because of this, there were able to lower their costs and prices. Those who were left had to reduce their prices as well to be competitive. This leaves them no choice but to cut the wages of workers who were forced to remain in the factories with lower pay and no representation from labor unions than lose their jobs. On the aspect of unemployment, opponents are blaming part of this on NAFTA. Since the implementation of the trade agreement, more U.S jobs were lost. Workers lost their jobs since many manufacturers were given the freedom to outsource workers from Mexico.
2. It hurt Mexican farmers and put a dent in industries.
Another setback of NAFTA raised by proponents is the effect of exporting U.S. crops and beef to Mexico. With the influx of corns and grains that were exported to Mexico, the farmers were not able to compete with the low prices which led to the decline in sales of domestically grown crops and products. Also, this prompted the Mexican government to reduce its subsidy to farmers. NAFTA has pushed Mexican farmers to lose their source of income.
3. It has a negative impact on the environment.
Critics are also firm with their contention that NAFTA is partly responsible for the deterioration of the environment, particularly in Mexico. They are concerned of the pressure NAFTA is giving the farmers and agriculturists who now make drastic measures to compete with American producers. They are now using more chemicals and fertilizers to increase production. In effect, these chemical pollute the environment. And in the case of expanding agricultural lands, more forests are burned or destroyed so rural farmers can have enough space to grow their crops. Continuous deforestation activities can have a long-term impact on the environment.
4. It exploits Mexican laborers.
With the signing of NAFTA, it also expanded the maquilodora program, which permits U.S. based manufacturing companies to hire Mexicans near its borders as workers in their assembly plants and factories. These include garment and automotive industries. Opponents maintain that although jobs were generated for Mexicans, American lost their jobs. Moreover, the maquilodora workers are taken advantage of because they are not given labor rights and paid cheaply. They are also forced to work long hours just so they can have more money to send to their families. Critics also say that most of these workers are not aware of labor unions, thus, they are not protected. There are even women workers who work in garment factories who live in dilapidated houses without electricity. Groups who are not happy with NAFTA talk about the poor working conditions and labor practices that are have not been addressed by the agreement despite its promises.
5. Its regulations are not properly implemented.
Opponents of NAFTA are not satisfied with the trade agreement not being able to address the issue on allowing Mexican trucks across the borders. With the agreement, these trucks can now go beyond the 20-mile commercial zone limit but the House of Representatives did not allow this part of the provision. This was because of their concern about potential road hazards as well as the outcry of U.S. truckers who oppose this for fear of closing up their businesses. Critics also specified the problem with regard to reciprocity between Mexico and the U.S. With Canada, there have been no issues but with Mexico, there were two factors to consider. U.S. trucks are heavier than Mexican trucks. Even if NAFTA would also allow trucks form the U.S. to bring goods, their trucks will not pass the weight and size restrictions imposed by the Mexican government. And because of this, opponents find the section of the provision with loop holes.
Is NAFTA more of a friend than an enemy for the America, Mexico and Canada? Critics have expressed significant views on its disadvantages but supporters also have crucial points raised. When it comes to environmental issues, American labor, industries loss and the maquiladora program, the setbacks are present. However, this open-market agreement also made the U.S. a stronger competitor in the global market. It also reduced government deficits. Perhaps, with stricter implementation of regulations and improving its framework on protection, NAFTA’s pros will outweigh its cons.