NORTH AMERICAN FREE TRADE AGREEMENT (ISSUE)

Formal negotiations for the North American Free Trade Agreement (NAFTA) began in 1991. Within three years the United States, Canada, and Mexico signed the trilateral free trade agreement and it went into effect in 1994. Pushed through by both the administrations of Presidents George Bush (1989–1993) and Bill Clinton (1993–) amidst much domestic controversy, this historic agreement established a formal trading bloc with 364 million consumers and a combined economic output of six trillion dollars in North America.

The agreement established what was called the world's largest free trade zone, and included a 15-year gradual phase-in of the elimination of tariffs and traditional non-tariff barriers on trade for all goods and services among the three countries. The accord is a 2,000-page text that contains detailed rules for hemispheric trade liberalization and two side agreements. The rules cover such areas as rules of origin (the country where the product was produced) to qualify for free trade, protection of intellectual property rights, and dispute settlement procedures.

NAFTA originated in negotiations begun in the mid-1980s between Canada and the United States to establish a bilateral agreement to guarantee market access between the two countries. The subsequent U.S.-Canada Free Trade Agreement was implemented in 1989. Canada then wanted to expand the agreement into a trilateral arrangement when the United States and Mexico initiated negotiations on a bilateral agreement of their own in 1990.

In the 1980s Mexican President Carlos Salinas de Gortari (1988–1994) decided to expand economic reforms through international agreements when the protectionist, state-dominated economy was in crisis and unable to pay off its debts to commercial banks. Moving to a market-based economy, the Salinas administration implemented accelerated trade-barrier reductions to encourage foreign investment. Having removed or reduced most of the tariffs between the United States and Mexico since Mexico joined the General Agreement on Tariffs and Trade (GATT) in 1986, the hope for Mexico was that a free trade agreement between the two countries would continue to stimulate foreign investment and economic growth.

The Bush administration had support from most large U.S. industrial corporations that would be able to take advantage of lower Mexican wages. Thus the administration requested "fast-track" negotiating status for NAFTA, which permits a president to negotiate international trade treaties and submit them to Congress for approval without amendments. In 1991 Congress gave NAFTA fast-track status.

NAFTA became a hotly debated issue in the 1992 U.S. presidential elections. Differentiating himself from the incumbent, presidential candidate Ross Perot opposed NAFTA, calling for the public to hear the "giant sucking sound" of jobs being pulled from this country and going South to Mexico. Meanwhile as a compromise in support of NAFTA, candidate Bill Clinton promised that NAFTA would include guarantees for the trading countries to abide by environmental and labor standards. Clinton was the target of mounting pressure from environmental groups and organized labor that NAFTA would amount to a "green light" for environmental "dumping" and human rights abuses in Mexico. After Clinton was elected as president and NAFTA was ratified in 1993 along with the two labor and environmental side agreements, the same groups criticized NAFTA for not having any effective enforcement mechanisms.

Opponents of NAFTA, such as labor leaders, were especially concerned that the agreement would result in massive losses in U.S. manufacturing jobs after Mexico began to attract foreign investment. Critics and supporters drew contradictory conclusions about the long-term consequences of NAFTA after the agreement was implemented in 1994. On one hand, opponents conducted studies such as the one by the Economic Policy Institute (EPI). The EPI authors, Jesse Rothstein and Robert E. Scott, concluded in their report, NAFTA and the States, that "an exploding deficit in net exports with Mexico and Canada has eliminated 394,835 U.S. jobs since NAFTA took effect in 1994." On the other hand, supporters such as Nora Claudia Lustig, a senior fellow at the Brookings Institute, claimed that "there is evidence that NAFTA has created more jobs than it destroyed."

Critical studies such as the EPI report contended that NAFTA resulted in the net export deficit growing from $16.1 billion in 1993 to $48.3 billion in 1996. Consequently jobs created with increased exports were offset by jobs lost with increased imports. The EPI argued that the implementation of NAFTA had affected all 50 states, with job losses ranging from 621 in Vermont to 38,406 in California. The states hardest hit were those with the greatest production facility relocation, industries such as automotive manufacturing, textiles, apparel, computers, and electrical appliances. In addition, wages fell four percent between 1993 and 1996 and real median wages fell in at least 25 states.

Meanwhile NAFTA proponents at the Brookings Institute, such as Lustig, claimed that the agreement "has resulted in an increase in U.S.-Mexican trade, business partnerships, specialization in production processes and direct investment flows into Mexico. At the same time, the agreement has protected U.S. exporters from the brunt of the Mexican crisis [peso crisis of 1994], especially in comparison to exporters from Japan and the European Union." The report's author claimed that "there is even some evidence that NAFTA has created more jobs than it destroyed." Lustig contended that a net job gain may be the end result because a strong Mexican economy makes a strong market for U.S. exports.

Despite the absence of follow-up initiative on Capitol Hill to push for fast-track negotiations that would include other countries such as Chile and Brazil in the free trade bloc, President Clinton remained sanguine concerning the outcome of NAFTA in its early years. In a letter to Congress, Clinton noted that "NAFTA is an integral part of a broader growth strategy that has produced the strongest U.S. economy in a generation."

Thus the history of the negotiations over and implementation of the landmark agreement further complicated a centuries-old debate over the economic impact of free trade policies. Departing from traditional trade liberalization agreements, NAFTA became part of a public controversy that resulted in the unique inclusion of labor and environmental standards as an element in a trilateral free-trade bloc in North America.

NORTH AMERICAN FREE TRADE AGREEMENT (ISSUE)

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