North American Free Trade Agreement overview

¶ … NAFTA Lived up to Its Promises?

The North American Free Trade Agreement (NAFTA) is a trilateral trade agreement creating a free trade area between United States, Mexico, and Canada. The agreement came into force on 1 January 1994, and was hailed as the economic milestone that would help to increase trade between the three countries, and create a higher level of efficiency to provide economic benefits for the parties to the agreement. The agreement had the aim of eliminating trade tariffs between the countries, a significant number of tariffs were eliminated immediately, with tariffs that remained being phased out over the following 10 years. However, more than 20 years after the agreement was put into place, is there any evidence to demonstrate that the reality has lived up to the expectations.

The claims regarding the agreement included statements that it would help to create new and better jobs, help to increase incomes benefiting the poor in a proportional manner, and would lead to accelerated growth (The Economist, 2003). Meanwhile, a number of critics were less optimistic, expressing concerns that the agreement could cost jobs and that benefits would not be proportionately spread (The Economist, 2003).

Despite the economic claims, it appears that the outcome is not been as beneficial as expected by the optimist. In 2002 a survey undertaken indicated that only 29% of Mexicans believed that NAFTA had benefited Mexico, whereas 33% believed it had been detrimental to the economy (The Economist, 2003). Likewise, consumers in both the U.S. And Canada also expressed similar sceptical views on the benefit of the trade liberalisation agreement (The Economist, 2003). However, opinions are not always aligned with the actual results. Therefore, to examine whether or not NAFTA has lived up to its promises, it is essential to consider the outcomes.

The agreement has had a direct impact on jobs. With a free trade agreement, many production jobs have moved from the U.S., to Mexico, where there are lower overheads and lower wages, creating a motivation for jobs to be moved to Mexico as a result of comparative advantage (Scott, 2011). This movement is argued as detrimental to the U.S. economy, with the loss of jobs. While this may be seen as beneficial to Mexico, there are also arguments this has been detrimental, as in developing more production facilities, and industrial base has grown, there has been a displacement of Mexican agricultural workers (Aguilar, 2012). In the U.S., while there have been job losses due to comparative advantages available in Mexico, there have also been job gains, with Aguilar (2012), arguing that approximately 6 million jobs have been created.