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Since the birth of this great nation in 1776, the United States has
remained a dominant world power in many aspects. The American standard of living has been
the envy of the world, powered by an economy rivaled by nearly no one. Our economy
continues to be the rock with which the global economy can lean on, as evidenced by
nations that rely on huge reserves of the dollar because of its stability as a means of
settling international debts. Unfortuneatly, despite the solidity that our economy is so
often associated with, we have accumulated a 5 trillion dollar (that's 9 zeros) national
debt. Something has to be done about this colossal problem to ensure that the United
States retains its status as a world power in the global economy. One vital catalyst to
help promote growth and neutralize the massive account deficit and foreign debts is the
North American Free Trade Agreement. NAFTA, for short, is one positive effort that not
surprisingly, has met with the opposition of many. In light of this opposition, it is
evident that NAFTA is accomplishing its primary goals and encouraging the growth of the
American economy.
NAFTA negotiations began on June 11, 1990 when former President George
Bush and Mexican President Carlos Salinas de Gurtari met to discuss the possibility of
revising current trade policies. The thing that set the NAFTA apart from other trade
agreements historically was that it was to be the first trade agreement entered into
between two industrial countries and a developing country. By much of the world the NAFTA
is often viewed upon as North America's answer to the European trading bloc. Many
provisions of the NAFTA take their roots in the Canada-U.S. Free Trade Agreement which
became operational January 1, 1989. A target objective was to create free trade between
the United States, Mexico, and Canada rather than a comprehensive economic union such as
that of the European Community. Whereas the EC dealt with monetary exchange rate issues by
implementing a standard in currency called the "Euro-Currency", the NAFTA would
be off limits to such control. Like many issues today, this topic was hotly debated. Many
people vehemently argued that job loss and low wages would plague the United States and
Canada inflicting more damage on these two already struggling economies. The pro-NAFTA big
business sector reportedly coughed up between 20 and 30 million dollars for lobbying. This
seems to make sense considering that 86% of the companies listed on Fortune magazine's top
500 list has operations in Mexico. With the support of current president, Bill Clinton,
the NAFTA passed through Congress late in 1993.
The 2,000 page NAFTA plan details many things, one of the most
important clauses being the reduction of tariffs. Over the next 15 years all internal
tariffs will be reduced to zero for trade amongst the United States, Canada, and Mexico.
Tariffs on "sensitive" goods such as agricultural products that require a longer
adjustment period will remain in place for the full 15 years, while being subjected to
incremental decreases each year. All in all there are 4 tariff classes, quite cleverly
lettered A, B, C, and C+, to be reduced to zero eventually. Tariffs for the "A"
class were void as of January 1, 1994. The "B" category will diminish at a rate
of 20% for five years, the "C" class at a rate of 10% a year for 10 years, and
finally the "C+" category which will stretch tariff reductions out over the full
15 years. Other than tariffs, NAFTA also eliminates things such as the costly need to
convert drivers as merchandise rolls over the borders of a neighboring country.
What all of this could do for the United States is quite clear. The
most important objective is to improve the efficiency and productivity of the member
countries to more effectively compete against foreign suppliers at home and abroad. The
NAFTA imparts an export-led growth strategy to help solve the United States' account
deficits. The premise behind the whole thing is quite simple. Once our nation experiences
the expected increase in productivity, which in turn forces prices down, exports would
ultimately increase. NAFTA will undoubtedly contribute to economic growth in Mexico, which
will also increase the demand for U.S. goods and services in our neighbor to the South. A
prosperous Mexico, which is already this country's third largest trading partner, would
become a thriving market for U.S. exports. Another promising goal of the NAFTA is the
amount of jobs it will create, not lose, in the American workforce.
According to the book North American Free Trade, U.S. jobs are assumed
to be created at the rate of 14.5 thousand new jobs per billion dollars of net improvement
in the U.S. trade balance. The employment impact of the NAFTA will vary across the country
but never be too significant in one area. It seems that the rationale of the typical NAFTA
critic is that a wave of American jobs will be lost as companies make a run for the border
or imports flood our market. This is not the case. It is estimated that perhaps 100,000
American jobs will be lost over the next 10 years due to NAFTA. Naturally, workers will be
needed to fill all the jobs in our booming export sectors and the government is prepared
to retrain these individuals to succeed in areas of the workforce such as this. If
anything, the burden will fall primarily on the low-wage workers rather than the skilled,
higher-wage workers. Evidence of this burden has yet to surface, this supported by a
statement in the economic magazine appropriately titled The Economist proclaiming that
some 3.5 million more American jobs have been created than lost since the NAFTA was put
into operation.
One more important effect that the NAFTA could encourage is a slowing
of the flood of illegal immigrants that enter our country, with Mexico understandably
being the largest contributor. At present this is a formidable problem in our country. The
extreme number of immigrants surfacing in our country, approximately 1.8 to 3 million from
Mexico alone put a huge strain on our economy. The main cause of this problem is the
relentless search for higher paying jobs which leads Mexicans to stray across the border
into this country, that or the new value menu at Taco Bell. By encouraging the Mexican
economy to grow, the United States can focus less on harsh immigration policies such as
California's Proposition 187 and more on correcting the problem currently at hand.
Once this economy in Mexico begins to establish itself and experience
any growth, labor laws and regulations will become increasingly more enforceable. Despite
what may be thought by many Americans, The labor laws of Mexico nearly parallel those of
the U.S. and in some instances exceed them, but without the funds or manpower to back them
up, they are as worthless as the paper that they are written on. Keep in mind though, that
sharp decreases in illegal immigration are not expected immediately, rather within the
next two decades will the influx of these people be reduced significantly.
Since NAFTA passed in late 1993 and took effect, it has lived up to
it's promises. Ross Perot and his cohorts can gloat about the fact that U.S. imports from
Mexico increased by about $6 billion dollars, but conversely U.S. exports to Mexico
increased by $8 billion. If you get out your calculator and do the math, you can see that
the U.S. is left with a $2 billion dollar net improvement in their trade balance with
Mexico. North to Canada, our exports increased by 12.7% in the first 10 months that NAFTA
has been functioning. If the Big Three automakers are any barometer of what is to come
from NAFTA, this has been one of the wisest economic trade alliances this country could
have entered into. According to the Commerce Department, Big Three automobile exports from
the U.S. and Canada to Mexico for the first quarter of 1994 reached 9,925 units, compared
with 9,479 during all of 1993. In addition, Chrysler, Ford, and GM are expecting a
combined 55,000 cars and trucks to be delivered to Mexico in ‘94. As for the warning
that auto industry jobs would be lost to the Mexican market, it is not foreseen anytime in
the near future as a car manufactured in Detroit is now $600 dollars than it's equivalent
counterpart manufactured south of the border due to the reduction in tariffs. The Commerce
Department also backs this up by proclaiming that 130,000 American jobs have been secured.
What needs to be understood is that there will always be two sides to
this issue. Each faction will take and exploit a given statistic any way that they can to
try and fortify their position. When separating the carefully gathered facts from the
fiction, it is hard to see how the NAFTA has had any seriously detrimental effects has on
the U.S. This trade agreement is certainly still very young, but apparently is reaching
higher and higher levels as it boosts the economies of the member nations.
As aforementioned, NAFTA was the focal point of heated debates for
nearly 14 months, and during that period, the plights of many people began to surface,
environmentalists included. Once again, the target for enraged environmentalists was the
less developed Mexico. At present their ecological system is in shambles when compared to
that of the other countries participating in NAFTA. When you look at it from the
perspective of the nature buffs, you end up with a worst case scenario of sorts. They
feel, if NAFTA remains intact, that a reduction in trade restrictions and the newfound
competition will destroy the already damaged environment. Forced to be efficient and throw
the occasional barrel of toxic waste into the groundwater supply or face bankruptcy,
companies may resort to "environmentally unfriendly" means of dumping wastes.
While stingy environmental standards remain in the U.S. and Canada, Mexico, which can
escape such restrictions due simply to a lack of enforcement, will push itself up in the
market costing American jobs. On the homefront, this also means that vegetables from
Mexico may have a tendency to end up on our tables pesticide ridden as long as the trade
laws permit them to be.
In response to the pleas from groups such as the Audubon Society and
Friends of the Earth, George Bush put environmental concerns front and center. He
implemented the "Gephardt-Rostenkowski Resolution" which keyed on the
environment and forces the president to report to Congress on progress toward meeting the
objectives of an action plan. In essence, there is only so much that the U.S. can do to
persuade Mexico to clean up it's act because provisions in NAFTA pertaining to
environmental standards are not feasible at this point. Of late, Mexico has put forth an
honest effort, as they enter the third year of a plan utilizing nearly $800 million
dollars for projects such as nature preserves, solid waste disposal, and the cleaning up
of the Mexico-U.S. border. Another government agency that has been receiving a significant
increase in funds is the Mexican equivalent of the United States' EPA. Provisions
concerning the environment and industry standards may escape NAFTA, but due to mounting
pressure, they will not escape serious revamping at the national level.
In conclusion, NAFTA, the brainchild of George Bush and Salinas de
Gurtari, has many positive aspects that with a little ironing out could prove to be a
dynamic economic catalyst for this country. By using this export-led growth strategy
centered around a reduction in tariffs over a 15 year period, the member nations can
achieve all that they hoped to. After about 2 years of NAFTA, the U.S. has shown
formidable gains in it's economy. To avoid problems that critics argue such as job loss
and depletion of the environment, the U.S., Canada, and Mexico can create policies on the
national level to curb such things as these from happening. All in all, granted support
from the constituencies of the member nations, NAFTA should be around for a while.
The North American Free Trade Agreement
Dave Brian
Professor Brady
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