NAFTA Essay, Research Paper

“The free trade argument states that, if each nation produces what it does best and permits trade, over the long run all will enjoy lower prices and higher levels of output, income, and consumption that could be achieved in isolation.”

The North American Free Trade Agreement (NAFTA), implemented in January of 1994, created a situation in North America in which there are no taxes on most products imported and exported between the three countries. Ideally, the governments of Canada, the U.S. and Mexico believed that breaking the trading barriers would increase jobs and other things as it bettered each of their economies. NAFTA, however, has not necessarily helped the economies in the way in which the governments had projected.

There was much speculation before the signing of the treaty that NAFTA would not work out the way it was projected to. Some economists believed that one major problem which NAFTA would create, as opposed to what the governments thought, is loss of jobs. “In Canada and the United States, much of the political opinions against NAFTA has centered around the low wage rates in Mexico and the possibility of jobs being moved south of the Rio Grande River.” It had seemed obvious for some that many wealthy factory owners would move to or expand in Mexico, resulting in thousands of lost jobs. As well, this would clearly create more exports for Mexico, and less exports for Canada and the United States. However, in the eight months after the implementation of the agreement, Canada had exported 33.2% more to Mexico and imported 31% more from Mexico than usual. This may show that Canada still exported more to Mexico then it imported from them, but, one must think that when the agreement!

was first implemented, exports to Mexico may have included factors of production, businesses, etc. If so, these exports will have soon leveled off and jobs would be lost in Canada as businesses moved to Mexico. This has been seen to be case with the United States. “Although U.S. exports to Mexico have grown since NAFTA went into effect, the Administration’s [Clinton’s] own numbers show that imports from Mexico have gone through the roof; a U.S. trade surplus of $1.7 billion in 1993 spiraled downward into a deficit of $15.4 billion by 1995.”

Not only has NAFTA caused a loss in jobs in all three countries, but it has also caused a decrease in job benefits for workers in Canada and the United States. Before NAFTA went into effect, the corporate group USA*NAFTA claimed that “NAFTA itself will improve working conditions by generating economic growth, which will enable all three countries to provide more jobs with higher pay in a better working environment.” However, this proved not to be the case. In actuality, NAFTA has given corporations more power to lower wages and decrease working conditions. “The most direct method is through ‘whipsaw bargaining,’ or threatening to shift production to Mexico unless workers agreed to concessions.” In a situation where one’s job is at risk, one must accept wage and benefit cuts. It seems as though since the implementation of NAFTA, workers rights have diminished. Even though productivity growth has occurred in many corporations, “In Canada, as well as in the U.S., real wages ar!

e stagnating and the proportion of full-time workers living in poverty continues to grow.” There should never be any workers, let alone full-time workers, living in poverty. In Canada as in any country, poverty should not exist among the working class. This is definitely not the case in Mexico where NAFTA has slammed the middle class back into poverty.

Another thing which NAFTA affects is the environment. NAFTA supporters promised that the agreement would lead to increased investment in environmental cleanup and less maquiladoras along the U.S.-Mexico border. However, many communities still lack access to both water and sewage systems. “Today, only 10 percent of Mexico’s yearly output of 7 million tons of hazardous waste receives adequate treatment, with the rest poured into clandestine waste dumps or municipal sewers.” Maquiladoras are plants owned by foreign companies which send raw materials to Mexico for assembly. NAFTA has eliminated the duty on the importation of those goods back to Canada and the United States. NAFTA has caused an increase in the amount of maquiladoras. This has caused an increase in the amount of pollution in Mexico. NAFTA has taken emphasis away from the global environment as it puts the production of goods and exportation first. If workers aren’t healthy, are we not headed for lower levels of pro!

duction? This is without even mentioning the possibilities of a continent-wide epidemic. How can our economy be healthy if our people aren’t even healthy?

Now, we shall look at the benefits of the North American Free Trade

Agreement to the Canadian economy, as well as those of the other two countries. First of all, NAFTA has eased the creation of new coalitions which cross borders and political party lines, “…and embrace constituencies as diverse as workers, farmers, environmentalists, consumers and religious groups.”

“Canada’s Bank of Montreal has launched the first mutual fund, to be marketed in all three countries, targeting companies poised to cash in on the North American Free Trade Agreement.” Companies such as Bombardier who have constructed plants in Mexico are prime candidates of this mutual fund.

Mexico’s economy has gotten a little better. Canadian and U.S. companies invested $2.4 billion in Mexico in the first eight months of 1994, accounting for 55% of Mexico’s total foreign direct investment. This is good for the Mexican economy in the long-term as well as in the short-term. In the long-term, these investments will lead to more exports. Corporations from Canada and the U.S. build plants in Mexico, and export those goods from Mexico back into the Canadian and United States economy.

Another thing NAFTA does is as it creates a “trinational superpower”, it becomes appealing to foreign investors. For example, Toyota Motor Co. built a $450 million expansion in Ontario to make Corollas for the North American market. Foreign countries want to invest and build plants in North America to get in on the North American market with less angst. It not only costs less for Canada, the U.S. and Mexico to trade, but it costs less for any foreign corporation with a factory in North America. As well, these new plants in Canada mean more jobs available for Canadian citizens.

Another advantage NAFTA gives to the Canadian economy is higher productivity levels. Canadian corporations with plants in Mexico produce goods at lower costs. Canadian corporations benefit with these low production costs, due to low hourly work wages in Mexico. Canadian corporations had not been so eager to build factories in Mexico prior to the implementation of the agreement due to the tariffs which must be paid when the goods crossed the border.

It can be seen that there are more points against the North American Free Trade Agreement than for it. NAFTA must be in place for nine

hundred days since its implementation in January of 1994. It seems as though the majority of citizens in all three countries in the agreement are now against NAFTA. NAFTA does not create the jobs it said it would in any of the three countries involved. In fact, thousands of jobs have been lost. Though productivity may be up in many corporations, workers have not been taking part in the benefits. Workers have actually lost benefits and have had wage cuts. The environment is also doing much suffering due to the plants created in Mexico without adequate disposal of toxic wastes. It had been the speculation of the governments of all three countries in the agreement that NAFTA would cause great economic growth. Somehow, the governments were somewhat off in their predictions. Now Canada, and the rest of the western hemisphere, will suffer.

Bibliography

Anderson, Sarah. et al. “NAFTA: Trinational Fiasco.” The Nation July 15,

1996: 26-29

Carbaugh, Richard G. International Economics. U.S.A.: Wadsworth

Publishing Company, 1989.

Dentzer, Susan. “The Pain and Gain of Trade.” U.S. News Sept. 1992: 62+.

Harbrecht, Douglas. et al. “What Has NAFTA Wrought? Plenty Of Trade.”

Business Week Nov. 21, 1994: 48-49

Lewis, Charles, and Margaret Ebrahim. “Can Mexico and Big Business

USA Buy NAFTA?” The Nation June 14, 1993.