How NAFTA Has Affected Mexico

The North American Free Trade Agreement (NAFTA) is an agreement between the United States, Canada, and Mexico which provides for free trade among the three countries by removing or reducing restrictions to trade, such as tariffs and quotas, and providing a fair method for settling disputes. NAFTA went into effect in 1994. "The agreement covers all merchandise trade as well as trade in services, investment, and intellectual property rights" (Sawyer et. al., 2006, p. 219).

Controversy

NAFTA was controversial at the time of implementation, and is still considered controversial today, due to disagreement over the effect it has had on the residents of the three countries. While some effects, such as increased trade, can be considered both positive and negative depending on the circumstance, some effects are obviously positive, such as improved health services, and some effects are obviously negative, such as the reduction in average GDP growth. This combination of positive and negative results is likely to prevent agreement on the overall effects of NAFTA.

Dependence on the U.S. Economy

One result of NAFTA is that Mexico's dependence on the U.S. economy has increased markedly. Although Mexico has implemented a dozen trade agreements which have removed trade barriers with over 40 countries, more that 80% of Mexican trade is still with the U.S. According to the U.S. Central Intelligence Agency, Mexican "trade with the U.S. and Canada has tripled since the implementation of NAFTA" (2006). However, Mexico's gross domestic product (GDP) has not grown accordingly. Based on data accumulated from the Penn World Tables, Mexican real per-capita GDP has averaged 1.8% growth since the implementation of NAFTA in 1994, while Mexican GDP growth rates averaged 2.7% in the 1950's, 3.5% in the 1960's, and 3.2% in the 1970's. This is of particular concern, because developing countries should grow much faster than wealthy developed countries. The 1980's were the only decade that Mexican GDP did not grow, averaging a negative 0.3% growth rate.

Investment Between the U.S. and Mexico

International investment between the U.S. and Mexico has also been affected by NAFTA. With the removal of Mexican limits on foreign investment, as well as the removal of tariffs, it has become much more profitable for Americans to invest in Mexico. Increased investment is particularly noticeable "in plants for final assembly of products destined for the United States" (Congress of the United States Congressional Budget Office, 2003, p. x).

Worker Rights

On the other hand, worker rights have not been positively influenced by NAFTA. According to Jeff Faux of the Economic Policy Institute, NAFTA "explicitly excluded any protections for working people in the form of labor standards
"In a surprisingly critical report, the U.S. government agency with the responsibility to enforce the labor provisions of the North America Free Trade Agreement (NAFTA) has confirmed what worker rights advocates have long argued: that Mexican authorities regularly deny the establishment of democratic, independent trade unions" (2004).

Effects on Employment

While official unemployment rates in Mexico are lower now than they were before NAFTA, there has been an increase in underemployment, as well as an increase in low-pay jobs and low-productivity jobs. Therefore, even though unemployment has decreased, the incomes of the employed have actually fallen.

Quality of Life

There have been some improvements to Mexican quality of life due to NAFTA. According to several speakers at a NAFTA conference, health care for the citizens of Mexico has improved due to the import of U.S. health services and technology. However, there is still room for improvement, because the wide range in differing income levels, as well as differences in the level of health care facilities, is affecting the availability and delivery of quality health care to all Mexican citizens.

Conclusion

It is obvious that the controversy surrounding NAFTA still exists today. It is difficult to get a consensus on whether the overall effects resulting from NAFTA are positive or negative for the countries involved. The only thing that can be agreed upon is that the effects, good or bad, have been felt all over.

References

Central Intelligence Agency. (2006). "The World Factbook: Mexico." URL: http://www.cia.gov/cia/publications/factbook/geos/mx.html

Congress of the United States Congressional Budget Office. (2003). "The Effects of NAFTA on U.S.-Mexican Trade and GDP." Congressional Budget Office website. URL: http://www.cbo.gov/ftpdocs/42xx/doc4247/Report.pdf

Faux, J. "NAFTA at Seven: Its Impact on Workers in All Three Nations." (2001). Economic Policy Institute website. URL: http://www.epinet.org/content.cfm/briefingpapers_nafta01_index

Sawyer, W.C., & Sprinkle, R.L. (2006). "International economics." (2nd ed.). Upper Saddle River, NJ: Pearson Prentice Hall.

United States-Mexico Chamber of Commerce. (n.d.) "NAFTA conference: The North American Free Trade Agreement: Five Years Linking U.S. & Mexican Markets." URL: http://www.usmcoc.org/n5.html

U.S./Labor Education in the Americas Project. (2004). "U.S. Report Shows NAFTA Fails Worker Rights Test." URL: http://www.usleap.org/Recent%20Headlines/Recent%20Headlines%2010-04/NAFTA.htm