The North American Free Trade Agreement (NAFTA) became effective in Canada, Mexico, and the United States on January 1, 1994. This agreement removed the tariffs and other trade barriers on goods produced and sold in North America. NAFTA was built upon a prior 1989 trade agreement between the U.S. and Canada that was responsible for tariff reductions between the nations. NAFTA forms the world's second largest free trade area. The largest free trade area is the European Economic Area, which also became effective in 1994.
NAFTA was created to increase and promote commerce among North American countries. When NAFTA was passed, supporters had very high goals and expectations for the new trade pact. The elimination of tariffs was expected to increase exports and create a greater, more stable, and more efficient North American economy. The most direct economic benefit of trade comes from the fact that countries do not have the same production capabilities.
They vary from one another because of differences in natural resources, levels of education, money, and technical knowledge. Without trade a country must make everything needed to support life, including items that cannot be produced in an efficient way. When trade is allowed, each country can concentrate its efforts in an efficient way (what they do best). When countries allow trade, the total production output increases.
Supporters also expected NAFTA to develop beneficial financial standards for all of North America though the regulation and improvement of environmental laws, investment opportunities, intellectual property rights (copyrights, software, patents), working conditions, and the overall economies of Canada, Mexico, and the U.S.
Supporters predicted that NAFTA would also strengthen the bonds of friendship and secure our future markets. They also thought that NAFTA would establish fair trading rules, stimulate more innovation, create new employment opportunities, and strengthen environmental regulations.
People who opposed NAFTA had many concerns about its effect on American workers. Their main concern was that U.S. jobs would be lost in the transfer of factories to foreign nations where U.S. companies would take advantage of cheap labor and the lax environmental policies. Environmental groups were concerned that enforcing pollution laws would be difficult in foreign countries with loose environment laws.
After ten years there is still wide spread disagreement on the effects of NAFTA. Supporters believe that NAFTA has been good financially for the economies of Canada, Mexico, and America. They say that the cost of goods has been lowered, and the standard of living has improved. Even workers who lose their jobs to another country might gain in the long run. The North American Free Trade Agreement Transitional Adjustment Assistance Program (NAFTA/TAA) provides aid to workers who lose their jobs as a direct result of increased imports from Mexico or Canada, or because of a shift in U.S. production to those countries. If approved for NAFTA/TAA, the federal program will pay for two years of college education. This often leads to higher pay and more satisfying jobs.
Detractors say that NAFTA has hurt many working middle class families in the U.S. more than it has helped them. NAFTA puts American's in direct competition with skilled Mexican workers who work for less. Unfortunately, with this system of free trade, thousands of U.S. jobs have been outsourced. U.S. companies can move to a place like Mexico, hire cheap labor, and export their product back to the United States. It is clear that American companies are not in the business of providing employment. Jobs are just the by-product of successful business.
Layoffs are devastating to older worker's who depended on their good paying jobs to support their families and their life styles. Many of them are forced to take jobs that pay much less. Some lose their cars or houses because unemployment or a lower paying job isn't enough to make the payments.
NAFTA has had a negative effect on the wages of many Americans whose jobs have not been relocated but whose wage bargaining power with their employers is substantially lessened. According to the U.S. Department of Labor, the professions with the largest expected future growth rate are cashiers, waitresses, waiters, janitors, and retail clerks. These and other low paying jobs are the kind that will most likely be available to workers displaced by NAFTA.
The environment has also suffered as a result, because NAFTA has not been enforcing environmental laws. The increased pollution through disposal of chemical wastes has increased the rates of hepatitis and birth defects along the U.S. border with Mexico. Several Mexican trucks inside U.S. borders have spilled hazardous materials. The toxins created by pollution are a serious threat to some U.S. water sources.
The arguments over NAFTA are likely to continue for many years. Investors and businessmen will continue to see NAFTA as good, while many workers, worker advocates and environmentalists will continue to see it as a threat.
Encarta Encyclopedia 2000
Office of the United States Trade Representative at www.ustr.gov
The Global Exchange at www.globalexchange.org
The North American Free Trade Agreement