Nafta

N A F T A: Good or evil?

It was the year 1992. Three presidents from three different countries of North America decided to give birth to a new organization. Inspired maybe by the success of the European Union and by the benefits of free trade are, Mexico, USA, and Canada decided to create an organization called the North American Free Trade Association. The purpose of the organization was clear, to promote free trade among these states and facilitate movement of goods and services through the borders. The goal is that by 2008 all physical barriers to free trade will be moved and the countries in NAFTA will indeed have a free trade amongst them and not just a freer trade like they do now. The impact NAFTA has had on the countries is a very debatable issue. In order for anyone to make a decision on NAFTA it would probably require an in depth look at all three countries involved in it.

The reality is that NAFTA, like almost every agreement or treaty leaders of the world sign, is not perfect but not all bad either. There are winners and losers in the process and the perception that someone might have on the organization might very well depend on his personal position rather than the overall knowledge on NAFTA and its policies. There is also one major point that many people miss when they try to assess the accomplishment, or not therefore, of NAFTA. People automatically believe or sometimes are led to believe that free trade by itself will improve the overall economic condition of the country. This is a myth according to every economist. While free trade no doubt helps to improve the situation of a country there are other elements that have to be taken under consideration. They might be positive or negative ones such as education on one side and corruption for example on the other.

On the countries involved in NAFTA Canada has probably been the one less affected by its policies and for that reason I will not mention it much during the evolution of this paper. The reason why NAFTA hasn't had the impact on Canada that it has had on USA and Mexico might have to do more with geography rather than economics. Even prior to NAFTA, Canada had a much more limited trade with Mexico than US did (The Economist, 2003). Most of Canada's trade is with US and the two countries have had very loose borders for each other for a long time. Even economically Canada is not much more behind US and is considered as one of world's most industrialized countries. Also most of Canada's economy is based in fishing and high-tech jobs while agriculture if further back because of difficult weather conditions so there never was a big fear of losing jobs to cheaper labor.

The two other states that have had the most problems with the agreement have been US and Mexico but for totally different reasons though. In US criticism towards NAFTA comes from two different perspectives, economic and political. While I will focus more on the economical side of the issue it is important to know the political side of the problem too. To many Americans, the US is losing its independence or sovereignty through NAFTA (Jasper 2002). Traditionally Americans have disliked to obey to rules set by an international organization and it should not be a surprise therefore that they would not like to obey to NAFTA policies either. And then there is the much debated issue of opening the borders or erasing them as some have actually argued. There is a widespread belief that with NAFTA the borders will be easier to penetrate for immigrant workers coming from South and Central America (Jasper 2002). Most of these political arguments though are weak and fail considerably. First of all, NAFTA works because of US! The standards and regulations it has set have all been in compliance with US interests and not to hurt US companies. The US will not sign an international treaty if they have the slightest fear that it might hurt their economy (see Kyoto treaty). There have been cases of American companies going to courts against local governments in Mexico and winning based on the different NAFTA regulations. The argument that borders have been erased and that people can enter the US without facing many obstacles is not true at all either. NAFTA is concerned with promoting free movement of goods and services but it never mentions free movement of people. Visa regulations and passport checks are still in place and no one is thinking about removing them any time soon.

But when it comes to economy the issue is different and you can very easily make an argument for both sides. What we do know is that a lot of American companies have moved south, to Mexico, mainly because they believe cheap labor will lower cost of production. This has created unrest within the US as unemployment, especially recently has gone up. The belief is that Mexico is sucking away jobs from the United States and is causing the economy to go into crisis (Imbriani, 2001). While there might be some truth to this argument there are a few things that it fails to mention. When NAFTA began operating in 1994 and until 2000 there were no huge problems of job losses. Economists were claiming that the job structure was changing in the US as hard-working, physical jobs were going abroad but they were being substituted with higher skill jobs (Imbriani, 2001). For 6 years that was the case and it seemed that people liked the tradeoff also because they were getting cheaper products on the market. There were two million new jobs produced in the US during the 1994-2000 period and most of them were high skill jobs substituting the ones that had moved to the south (The Economist, 2003). What happened after that though is that the economy hit a recession, the downswing of a business cycle. In a downswing the economy slows down and there is little demand on the market. So therefore production of goods and services diminishes too and employers have to lay off a few workers. Unemployment would have gone up in a recession regardless so it is not totally correct to claim that NAFTA is responsible for it. What NAFTA has done is change the employment pattern where more skills are needed because "raw jobs" will be going abroad.

On the other side the overall value of trade has between US and Mexico has almost tripled since NAFTA began operating. Trade between US and the other two NAFTA member states counts for one third of US' international trade, up from one fourth where it used to be prior to NAFTA. This is especially remarkable since US international trade with other countries has also grown considerably in all these years (Naik, 2002). Greater wealth has been generated, GDP has increased and when it comes down to it that is what free trade is supposed to do. It can not control the overall flow of the economy but it will promote investment which later on should generate more wealth