Implementation of the North American Free Trade Agreement (NAFTA) began on January 1, 1994. This agreement was made to remove most barriers to trade and investment among the United States, Canada, and Mexico. Under the NAFTA, all non-tariff barriers to
agricultural trade between the United States and Mexico were eliminated. In addition, many tariffs were eliminated immediately, with others being phased out over periods of 5 to 15 years. This allowed for an orderly adjustment to free trade with Mexico, with full implementation beginning January 1, 2008.
The agricultural provisions of the U.S.-Canada Free Trade Agreement, which had been in effect since 1989, were incorporated into the NAFTA. Under these provisions, all tariffs affecting agricultural trade between the United States and Canada, with a few exceptions, were removed by January 1, 1998.
Mexico and Canada reached a separate NAFTA agreement for agricultural products. This agreement did away with most tariffs either immediately or over 5, 10, or 15 years. Tariffs between the two countries affecting trade in dairy, poultry, eggs, and sugar were maintained.
Economically, the result was supposed to be a large boon to the GNP of all concerned countries, a higher standard of living for each nation’s workers, and improved unemployment rates. Although these are the most obvious of the reasons for the unilateral agreement, there is one more very important goal that is less obvious. Mexico, an undeveloped country, has considerably less commerce and business potential than either the United States or Canada, two of the strongest economic powers in the world. NAFTA was also created to make the financial future of its citizens brighter, thus stemming the tide of immigrants, both legal and illegal, across our borders.
Although there have been positive effects on each country’s economic picture, much of what has happened would have happened anyway, even without NAFTA. The Congressional Budget Office of the United States estimates that the increased trade resulting from NAFTA has probably increased U.S. gross domestic product, but by a very small amount–probably a few billion dollars or less, or a few hundredths of a percent. NAFTA has had a comparatively small, but growing, positive effect on U.S. exports to Mexico (ranging from 2.2 percent in 1994 to 11.3 percent in 2001) and a similar effect on U.S. imports from Mexico (ranging from 1.9 percent in 1994 to 7.7 percent in 2001). The effects of NAFTA on the U.S. balance of trade in goods with Mexico have been positive in most years, and very small in all years, since the agreement began. The CBO reports further that in 1994, the first year of the agreement, the total effect on the U.S. economy by way of the NAFTA was less than half a billion dollars, or 0.005% of the GNP. By 2001, that effect had increased to only 3.6 billion, or 0.041% of the GNP. In addition, the growth in U.S. trade in services with both Canada and Mexico has been even less impressive, amounting to about two-thirds the percentage increase between the U.S. and the rest of the world.
Nor has the agreement had much effect on our country’s unemployment woes. In 1993, the year before the signing, the national unemployment rate was 6.9%. There has been a gradual decline over the years to 4.6% in 2006, but much of that can be attributed to a strong economy and other factors, and not much credit can be given to the NAFTA. Some of the lack of improvement in our unemployment picture can actually be directly attributed to the agreement which was supposed to improve that area. Many “maquiladoras” plants have sprung up on the Mexican border along the United States. These facilities import raw materials from U.S. manufacturers, cheap Mexican labor is used to assemble the final product, and then the units are shipped back over the border back to our country. This not only skews the optimistic import/export numbers upon which the NAFTA boasts much of its success, but it takes manufacturing jobs away from U.S. workers.
For Mexico, the situation has been even worse. The country went through a recession in 1994, with a Gross Domestic Product that declined by 6.94 percent, and inflation reached 51.97 percent . In addition, the country’s unemployment rate from 1994 to 2006 has hovered from 3.0 to 3.7%, so no appreciable gain in that regard has been realized. In the 1980s, Mexican real wages fell 66%. In the 1980s, the average Mexican worker’s wage was one-third that in the U.S. In the 2000s, the ratio is one-eighth, and immigrants continue to flow across our borders at a rate of 400,000 per year.
In summary, the NAFTA has changed little regarding the progression of import/export balance, the economic picture of any of the participating countries, or the unemployment rate for the United States. The flow of illegal immigrants that is a direct result of bleak economic outlooks in Mexico has not slowed appreciably. Big business should be left to large corporations who understand the balance of supply and demand, and can anticipate the cause and effect of major economic strategies. Government should only step in to handle the finer points of negotiation, and then only with the assistance of the corporations whose task it will be to make it all work.