In the past decade, the world's business practices have become increasingly globalized.
A main reason for this is increased free trade between nations. Members of the industrialized
world have joined trade alliances with others in close proximity to them. One of the most
important and controversial of these alliances is the North American Free Trade Agreement
(NAFTA), consisting of Canada, the United States, and Mexico, and NAFTA quickly became a
major force in the global economy.
Negotiations for the agreement began in 1993, when the Canada United States Trade
Agreement (CUSTA), a trade alliance between Canada and the United States that had been
established since 1989, began negotiations with the Mexican government to create a new three-
nation alliance. NAFTA was launched on January 1, 1994, with goals to eliminate all industrial
tariffs in ten years and all agricultural tariffs in fifteen years. On January 1, 1998, all tariffs
between Canada and the United States were lifted and several Mexican tariffs were also
eliminated. All industrial tariffs are to be lifted by January 1, 2004, and all agricultural tariffs by
January 1, 2008.
By the time all of these have taken place, the agreement will almost certainly include at
least these eight other nations in the western hemisphere: Brazil, Panama, Uruguay, Argentina,
Peru, Venezuela, Chile, and Columbia. Ministerial meetings for the Free Trade of the Americas
(FTAA) have taken place in the United States (1995), Columbia (1996), Brazil (1997), Costa
Rica (1998), Canada (1999), and Argentina (2001). The first ever Summit of the Americas took
place in Miami, USA in December of 1994, with later summits taking place in Santiago, Chile
in April of 1998 and Quebec City, Canada in April of 2001. The advancements made towards
accomplishing the goal of cross-hemispherical trade during these meetings made this agreement
Supporters of NAFTA, when it was passed, had very high goals and expectations for the
new trade pact. The following is an official list of goals, purposes, and expectations of the
positive outcomes of the agreement:
ÃÂ¢ÃÂÃÂ To strengthen bonds of friendship and cooperation
ÃÂ¢ÃÂÃÂ To be a catalyst for international cooperation
ÃÂ¢ÃÂÃÂ To create, expand, and secure future markets
ÃÂ¢ÃÂÃÂ To establish fair rules of trade
ÃÂ¢ÃÂÃÂ To ensure a predictable framework for business planning
ÃÂ¢ÃÂÃÂ To enhance firms competitiveness in foreign markets
ÃÂ¢ÃÂÃÂ To foster creativity and innovation
ÃÂ¢ÃÂÃÂ To create new employment opportunities
ÃÂ¢ÃÂÃÂ To promote development
ÃÂ¢ÃÂÃÂ To strengthen environmental regulations (Ustr.gov)
It can be questioned whether this list reflects the true aspirations of NAFTA supporters. Cynics
would argue that the purpose of NAFTA was not as ideal as the above list leads one to believe.
They believe that NAFTA was implemented to assist big business in cutting costs and
expanding in the global market.
One nation that was very reluctant to join any trade agreement with its North American
counterparts, especially the United States, was Canada. However, NAFTA has provided for
many positive outcomes on the Canadian economy in the global, and continental markets.
The major benefit of NAFTA for Canada is that it has provided it with a larger piece of
the global market. In the seven years prior to NAFTA, the annual average of foreign direct
investment into Canada was under $5 billion (U.S.). In the first seven years of NAFTA, the
amount of foreign direct investment into Canada has exceeded $21 billion (U.S.). Much of this
increase is due to its trade with the other NAFTA nations, as their merchandising exports to its
two trade partners has almost doubled since the initiation of the trade agreement.
Amount Of Foreign Direct Investment Into Canada and Mexico (1989-1999)
(Source: Economic Policy Institute)
However, despite these major economic advancements, many Canadians have still not
accepted NAFTA as a success for their nation. Critics cite the decline in the value of the
Canadian dollar, which has lost 27% against the American dollar since the initiation of CUSTA,
as a major consequence of free trade. They also see the declining dollar as the primary reason
for the increase in foreign direct investment into the country. NAFTA has also increased
Canadian fear of being too dependent on the United States for economic survival. They also
claim that the only Canadians to benefit from NAFTA are the wealthiest twenty percent of the
population, which they had always feared would happen.
The United States has been the center, both economically and geographically, of
NAFTA. Being the world's largest economic power, the financial well-being of Canada and
Mexico depends heavily on the state of the economy of the United States of America. America
has both benefited and suffered because of NAFTA, and the alliance will always be a major
As was the case with Canada, the United States has been reaching all-time highs
regarding foreign direct investment. Since the signing of NAFTA, the United States has
received an average over $110 billion in foreign direct investment. Also, although critics have
raised questions concerning the ethics of their practices, American business and investors have
benefited greatly from the increased use of inexpensive Mexican labour which was made
possible because of NAFTA.
The major concern caused by NAFTA facing the United States is the loss of potential
jobs to cheaper Mexican and, to a lesser extent, Canadian labour. An estimated 766 030
potential American jobs were lost to its NAFTA partners. Increased trade with Canada and
Mexico has increased the American trade deficit with these nations. Also, as is the case with all
NAFTA parties, the alliance is said only to benefit the wealthy and exploit the blue-collar
Mexico is the nation in NAFTA which initiates the most controversy. This is because its
economic conditions are so vastly different from those of Canada and the United States. Its low
wages and loose environmental laws were (and still are) major concerns for the other NAFTA
nations when they were signing the pact.
There are several ways that Mexico have benefited from NAFTA, most notably from the
jobs gained from the United States due to their inexpensive labour. As a result, Mexico
exported 225% more to its NAFTA partners in 2000 than it had in 1993, which accounted for
more than half of the increase in Mexico's Gross Domestic Product since 1993. Also, as trade
with the United States increased, so did the Mexican trade surplus with the U.S. which has
helped Mexican business to survive.
One disappointment of NAFTA for Mexico was that most of the economic growth from
NAFTA has taken place in the "free trade zone" near the American border, which remains
somewhat isolated from the rest of Mexico. Also, workers in the "free trade zone" are exploited
more than in the rest of Mexico, as the average Mexican makes $1.85/hour (US) while the
average worker in the free trade zone makes $0.85/hour (US). There has also been a noticeable
decline in the working conditions and job security of Mexicans, especially in the free trade
zone. As is the case with Canada, the value of the Mexican peso has been unstable since the
signing of NAFTA. Also, 97% of Mexico's exports were to the United States, which has made
Mexico very dependent on the American economy for the survival of their own economy.
One expectation of NAFTA that it was to help soften the potential blow to the
environment which did not happen. Canadian and American businesses have taken advantage of
loose Mexican environmental laws. This threat is only going to increase when other Latin and
South American nations are admitted. A possible solution for this is to make one of the
stipulations for joining the Free Trade of the Americas is to have each potential member agree
to a set of standardised environmental laws. This will put every member on a level playing field
when it comes to the environment.
Another, more controversial change would be to standardise the currencies of the
members of NAFTA, like Europe did with the introduction of the Euro. This would end any
concern Canada or Mexico has regarding the value of their individual currency and would also
stabilize the economy of all three participating nations.
Economic Policy Institute. "NAFTA at Seven." April 2001.
Irwin, Douglas. Free Trade Under Fire. Princeton University, 2001
The United States Trade Representative. "NAFTA at Eight." 2002.
FTAA Secretariat. "Free Trade Area of the Americas." 13 September 2002.