NAFTA and its Effects for all Parties Involved

Essay by IndentHigh School, 10th gradeA-, November 2002

download word file, 6 pages 4.6

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:

∙ To strengthen bonds of friendship and cooperation

∙ To be a catalyst for international cooperation

∙ To create, expand, and secure future markets

∙ To establish fair rules of trade

∙ To ensure a predictable framework for business planning

∙ To enhance firms competitiveness in foreign markets

∙ To foster creativity and innovation

∙ To create new employment opportunities

∙ To promote development

∙ To strengthen environmental regulations (

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

American issue.

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.

Works Cited

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.