NAFTA's Effects on Economy

Free trade is an agreement between nations that allows for trade without any tariffs, taxes or any other trade barriers on the imported or exported goods. Currently the United States is a major advocator of free trade agreements, having overseen the establishment of many organizations and agreements, including the WTO (World Trade Organization) and NAFTA ( North American Free Trade Agreement). NAFTA set up free trade between Canada, Mexico and the United States. NAFTA brings many pros and cons to the table and has advocates and opponents with strong views on the subject.

NAFTA was officially signed into being on December 17, 1992, with a meeting between the heads of state of Mexico, Canada and the US, Carlos Salinas, Brian Mulroney and George H. W. Bush respectively. The three leaders wet in San Antonio, Texas so sign the agreement. Before the negotiations were finalized and the agreement was ratified by the legislative branches of each government the head of state in the US changed and in Canada had changed twice. NAFTA was a big issue in Canada, being the prime motivator for the changes in leadership in the government. In the US NAFTA face opposition as well from members of Congress who were worried that it would harm the labor market in the States. After Bill Clinton took office he made some changes to the agreement to protect American jobs; however the agreement still failed to pass the Senate. But through campaigning Clinton was able to convince the senate of the necessity of NAFTA and in 1993 it was signed into law in Congress. The agreement officially started in January of the following year. Before NAFTA the United States had negotiated a free trade agreement with Canada already, the Canada-United States Free Trade Agreement. When The States began negotiating with Mexico for a similar agreement Canada had joined the negotiations in an effort to keep them from losing the benefits gained with the existing agreement.

In the 15 years NAFTA has been in effect there has been an increase to the GDP's of the existing countries and it produces trillions of dollars in goods and services each year. Estimations put it close to $15 trillion dollars produce annually by NAFTA with an increase of around .5% to the GDP of the United States. In 1993 trade produced $297 billion dollars for the US, by 2007 that number had tripled to $903 billion. US exports and imports to and from the participating countries, Canada and Mexico, increased exponentially. Records put it at a 157% increase for exports and 232% for imports. NAFTA advocates the exportation of numerous goods and services from the United States, including Agricultural goods, financial services, health care services and direct foreign investment, doubling and tripling all of these services and in some cases, as in the cases of services exported, increasing them by up to 125%. Another benefit offered by NAFTA is the protection of intellectual properties and allowing companies and corporations in the participating countries to bid on government contracts. Another increase brought about by NAFTA is an increase of 24% to employment in the United States as well as increasing manufacturing by 58% and raising wages to 23.7% as of 2007.

However NAFTA has not been all good news. Despite the increase of jobs in the United States many works have also lost theirs as their employers send production to Mexico or Canada and have been forced to enter retraining programs offered by the government and Mexican manufacturing has decreased by 13.5% as Mexico imports more goods from the US. The negative impacts do not stop there for Mexico; small farms have been all but wiped out due to the increase of agricultural imports from the United States. Estimates put the number of farm jobs lost around 1.3 million. Also, NAFTA has done nothing to stem the tide of illegal immigrants coming to the United States from Mexico. And the downsides extend to Canada as well. Social programs have been more or less annihilated in Canada since the inception of NAFTA. In 2002 a man named Mel Hurtig wrote a book proclaiming that NAFTA has caused a significant portion of the companies in Canada to be taken over by foreign entities and that almost all of the direct foreign investment in Canada has been caused by the takeover of said Canadian companies by foreign corporations.

Another main criticism of NAFTA concerns certain chapters of the NAFTA agreement, specifically chapters 11 and 19. Chapter 11 gives individuals the right to bring litigation against the governments of the United States, Mexico or Canada for governmental actions that cause harm to their investments. But the main problem is the wording of the chapter gives such a broad scope that even laws passed in an effort to protect citizens or constitutional rights can be brought to court if it damages their investments. Laws concerning the environment are especially focused on. Chapter 19 calls for cases involving anti-dumping and countervailing duty to be heard by a committee with representatives from two of the three nations.

While both sides bring excellent points to the debate regarding NAFTA the actual belief of the majority of economists is that NAFTA has thus far had a minor impact on the overall economies of the participating nations. And there is no foreseeable change to this. Despite both the negative and positive impacts the agreement has had on certain sectors of the economy any benefits or harm caused is very small and in no way likely to grow.