View this Free Essay in PDF format

This free essay has been submitted by: samar shah

Should the U.S. support the Free trade Area of the Americas?

The NAFTA treaty among the United States, Canada, and Mexico took effect on January 1, 1994, after a prolonged debate and narrow approval by Congress. Supporters of NAFTA argued that it would benefit U.S. trade by expanding its market and by creating more jobs. On the other hand, its opponents criticized it as non-beneficial to the U.S. economy due to cheap foreign labor in Mexico, degradation of environment and decrease in jobs and wages for U.S. workers. Seven years have passed since NAFTA came into effect. This period provides a preliminary background to solve the question – Should the U.S. support the Free trade Area of the Americas?

Dr. John Kirton, the acting director of the Center, International Studies at the University of Toronto, a team leader of the Commission on Environmental Co-operation’s project on NAFTA’s environmental effects and a member of the Canadian Government’s International Trade Advisory Committee, states, “NAFTA has been a striking success” (Kirton). He reports that NAFTA expanded U.S. trade with Mexico and Canada by 44% during its first 3 years. Also, U.S. exports to Mexico grew 37% from 1993 to 1996, and the trade with Canada and Mexico resulted in 53% of total U.S. export growth in 1997(Kirton).

Mary E. Burfisher, a senior economist with the Economic Research Service of the U.S. Department of Agriculture; Sherman Robinson, the director of Trade and Macroeconomic division, International food policy Institute (IFPRI) and Karen Thierfelder, an associate professor at the Naval Academy, calculated that between 1990 and 1998, U.S. agricultural exports to NAFTA countries increased by an annual average of 9.5% compared to 2.8% annual increase to its non-NAFTA partners (Burfisher, et al.135). Also, according to the U.S. Department of Commerce, 1999, U.S. exports of auto parts to Mexico and Canada increased by 30% (136). These data show a considerable increase in U.S. exports and its expanded trade market.

Robert E. Scott, an economist with the Economic Policy Institute, says that “Ignoring imports and counting only exports is like trying to balance a checkbook by counting only deposits but not withdrawals”(Scott). He reports that increase in imports by 248% from Mexico and 79% from Canada phase out the benefits of increase in exports by 147% to Mexico and 66% to Canada (Scott). He further argues that due to NAFTA, U.S. export deficit increased by 378% to $62.8 billion by 2000(Scott). Dr. Ann Davis, Director of the Marist College Bureau of Economic research, also reports that “The balance trade in goods with Mexico has changed from a surplus of $1.3B in 1994 to a deficit of $25.7B in 1999” (qtd. In Duvoli).

Scott holds these trade deficits responsible for the jobs losses in all 50 states and the District of Columbia. He reports elimination of 766,030 U.S. jobs between 1994 and 2000 (Scott). Davis reports that Forgo Manufacturing, a producer of electrical parts, will close in Poughkeepsie, New York, and move its operations to Tennessee and Mexico (Duvoli). Scott argues that the growth in U.S. trade and trade deficits has decreased the wages of unskilled U.S. workers who represent 72.7% of the total U.S. workforce (Scott).

UNITE (Union of Needle trade Industrial and Textile Employees), founded in 1995, a merger of two of the nation’s oldest Unions, the International Ladies’ Garment Workers’ Union (ILGWU) and the Amalgamated clothing and Textile Workers Union (ACTWU), opposes NAFTA. It reports of an overall job loss of 250,000 in the U.S. due to the trade deficits incurred by NAFTA (“The NAFTA Scam”). It also reports decline in standard of living and an annual pay loss of over $4,400 of a rehired U.S. worker due to relocation of a plant to Mexico. According to the coalition for Justice in Maquiladoras, General Motors has employed 74,500 employees in Mexico who earn around 70 cents an hour (“The NAFTA Scam”). This figure shows a much lower wage rate than in the U.S., so companies take advantage of cheap labor and liberal environmental laws and shift to Mexico. Scott argues that NAFTA contributed to growing income inequality. He explains that due to NAFTA, wages of unskilled workers have declined whereas wages of other workers have remained the same, widening the gap of income inequality and distribution (Scott).

Kirton reports that NAFTA partners currently support 2.3 million U.S. jobs (Kirton). He further argues that U.S. exports generate jobs; but that, its imports don’t destroy jobs. He says that U.S. industry cannot meet the demand of some things like oil that it currently imports from Mexico (Kirton). As a consequence of imports, U.S. consumers get benefits of lower costs and quality goods due to competition from the to other NAFTA countries (Kirton). NAFTA countries invested $39.1 billion in the U.S. automobile industry compared to $3 billion in Mexico. Thus, automotive investment has increased in the U.S. (Kirton). Daniel T. Griswold, an associate director of the Cato Institute’s Center for Trade Policy Studies, reports that American manufactures invested $1.7 billion in Mexico, which equals to about 1% of annual U.S. domestic investment in manufacturing (Griswold). He argues, “Indeed, global expansion strategies are driven in large part by relative economic stability, well developed infrastructures, lucrative market potential, and talented and skilled workers. Access to lower cost labor and raw materials is important, but not the primary driver” (qtd. In Griswold).

Burfisher, Robinson and Thierfelder argue that the job impact proves relatively small, as the U.S. economy creates 200,000 jobs per month, which seems larger than an annual job loss of 37,000 due to Mexican trade (Burfisher, et al. 130). They further report that according to Department of Commerce, exports to NAFTA countries support 2.3 million jobs in the U.S. (130). They also explain that NAFTA has a provision in which “NAFTA-TAA [NAFTA – Trade Adjustment Assistance Program] expands the trade adjustment benefits, which were originally established in 1962 Trade Expansion Act by providing job training as well as additional income support for workers displaced by imports from Mexico and Canada”(129). These petitions help the workers affected due to relocations of plants and imports from Mexico. Since the numbers of affected workers appear quite low in context of U.S. labor markets, “NAFTA has no discernible effects on aggregate employment” (130).

Scott admits that job losses seem negligible relative to the size to economy; nevertheless, NAFTA promised to create new jobs rather than to destroy the existing ones (Scott). He argues that increased import competition and capital mobility resulting from globalization has increased the employers’ threats to the local workers, thereby weakening their bargaining powers and ability to organize unions (Scott). Employers of the mobile industries often threaten the workers due to close their plants and move to Mexico against the unionizing drives of workers (Scott). UNITE reports a Wall Street Journal poll in which employers intended to use NAFTA “as a bargaining chip to keep donw wages in the U.S.” (“The NAFTA Scam”). Burfisher, Robinson and Thierfelder argue that “[the] Clinton administration did not rely on the arguments about the job creation” (Burfisher 132). President Clinton, in a speech to the World Economic Forum in Davas, Switzerland, said: We can also, I must say, do better in the developed countries if we are able to make a more forceful case for the value of imports. None of us do this enough… There are benefits to imports. We don’t just do a favor to developing countries, or to our trading partners in developed countries, when we import products and services from them. We benefit from those products. Imports stretch family budgets; they promote the well-being of working families, by making their dollars go further; they bring new technology and ideas; they, by opening markets, dampen inflation and spur innovation (qtd. in 132). Arthur MacEwan, a professor at the University of Massachusetts – Boston and a Dollars and Sense associate, arugues that removal of restrictions on the movement of financial capital resulted in the Mexican peso crisis (MacEwan). Scott reports that peso lost about 31% of its real inflation adjusted value between 1994 and 1995 after Mexican financial crisis (Scott).

Burfisher, Robinson and Thierfelder say that NAFTA did not cause peso crisis; on the contrary, it helped Mexico to resolve it (133). They say that the peso crisis led to the U.S. trade deficits with Mexico as during this time imports from U.S. decreased (133). De Janvry, from the Gianni Foundation, University of California, Berkeley, says that NAFTA helped avoid 52% of the fall in exports to Mexico during peso crisis (134). Levy and Van Wijnbergen in Modeling Trade Policy, says that if Mexico would liberalize agricultural trade and eliminate farm supporters and allow import competition, then Mexican corn sector would collapse resulting into illegal migration of Mexicans to the U.S. (134).

Burfisher, Robinson and Thierfelder says that the final NAFTA agreement allowed a 15 year transition period for sensitive crops under which Mexico imported 2.2 million tons of corn from U.S. and 1000 tons from Canada to enter duty free in Mexico, and it increased the quota by 3% thereafter (135). Nora Lusting, a senior fellow in the Brookings Foreign Policy Studies Program, says that NAFTA will reduce the pace of illegal migration of Mexican workers to the U.S. as they get higher wages (Lusting). She reports that Mexico has announced $4 billion per year compensation for the farmers hurt by NAFTA (Lusting).

Ken Dermota, a Knight Foundation Journalism fellow in Santiago, Chile, claims that NAFTA would stimulate the trade in drugs. He says “Not only did the increased amount of cargo crossing the U.S.-Mexico border provide lots of nooks and crannies in which to hide drugs, but NAFTA’s international capital flows made the search for drugs profits that equivalent of looking for a needle in a haystack” (Dermota). Miles Frechette, the American ambassador to Columbia, replies that the Clinton Administration does not regard the argument, that the increase in trade and exports would increase drug trafficking and money laundering, persuasive enough to prevent the U.S. from expanding its trade through NAFTA (Dermota). MacEwan shows concern regarding severe pollution problems in Mexican Maquiladara zones along the U.S. border (MacEwan). He says that NAFTA gives greater bargaining powers to firms in terms of environmental regulations (MacEwan). The pollution along the border is not only harmful to Mexican environment, but also to the U.S. Kirton says that the NAFTA institutions have changed the policy in regard to environmental issues (Kirton). He reports an improvement in vehicle emission standards, inspection and maintenance in Mexico and Canada (Kirton). He, as a team leader of the Commission on Environmental Co-operation’s project on NAFTA’s environmental effects, assures that the upward, “high-level harmonization” will continue in the future (Kirton).

Bruce Stokes, a columnist of National Journal shows concern regarding the legal mechanism that the NAFTA creates under the provision of Chapter 11, by which foreign firms can sue the local government if it might interfere in their right to carryout their business (Stokes). Stokes says that “this [NAFTA committee’s] decision is binding, and the process is closed to public” (Stokes). He reports that ADF Group Inc., a Canadian firm filed a lawsuit against the U.S. government as buy-American rules denied it a business opportunity, violating the free trade agreements prohibition against domestic requirements (Stokes). He says that, “if ADF prevails, American taxpayers could owe the company at least $ 90 million in damages” (Stokes).

Howard Mann, an international lawyer and the author of Private Rights, Public Problems: A Guide to NAFTA’s controversial Chapter on Investor Rights, published by Canada’s International Institute for Sustainable Development, says that “Industry has turned the defensive tools embedded in NAFTA that were designed to protect foreign investment against traditional expropriation into offensive weapons used to handcuff foreign government regulators” (Strokes).

Linda McQuaig, a journalist and author of All You Can Eat: Greed, Lust and the Triumph of the New Capitalism published by Penguin Books, reports that Methanex, a Canadian company sued the U.S. government for $970 million as California banned a gasoline additive which contaminated the local water supply as some to the additive leeched into municipal wells in the city of Santa Monica (Cooper). The issue shows a serious abuse of the NAFTA chapter 11 provision as the executives of Methanex could sue local government even though the company’s product had contaminated a city’s drinking water. McQuaig says, “even though issues like the safety of drinking water and the future of our medicare systems are clearly of broad public interest no member of the public is allowed to attend these tribunal hearings, no transcripts are released, and no reasons are given for the decisions” (Cooper).

Kirton syas, “The very credibility of NAFTA dispute settlement process appears to have deterred unfair actions” (Kirton). He says that NAFTA institutions have managed to settle the disputes before they appear in front of NAFTA court (Kriton). He says that this kind of law provides stability and certainty to the market place that a business needs (Kirton). Nevertheless, NAFTA’s Chapter 11 needs clarification. Trade liberalization due to NAFTA has resulted in job losses, trade deficits, wage suppression, environmental hazards and lawsuits. However, NAFTA has resulted in the increase of U.S. exports, comparative advantage of lower cost goods to U.S. consumers, creation of jobs and increased gains. NAFTA has a relatively small beneficial effect on the U.S. economy, but still some issues like drug trafficking, environmental hazards, lawsuits under Chapter 11 and employers’ threats need serious attention from all the three NAFTA partners.

Works Cited

Burfisher, Mary E. ; Robinson, Sherman; Theerfelder, Karen. “The Impact of NAFTA on the United States.” Journal of Economic Perspectives 15 (Winter 2001): 125-145

http://econpapers.hhs.se/article/aeajecper/v_3A15_3Ay_3A2001_3Ai_3A1_3Ap_3A125-144.htm

Cooper, Sherry; McQuaig Linda. “Face Off.” Canadian Business 74 (Apr 2001): 106-110. Academic Search Premier. EBSCO host. Middlesex County College Library, 22 Oct. 2001

http://www.canadianbusiness.com/xta-asp/storyview.asp?viewtype=search&tpl=search_ frame&edate=2001/04/30&vpath=/2001/04/30/feature/1327.html&maxrec=4&recnum= 4&searchtype=BASIC&pg=1&rankbase=&searchstring=methanex&pc=cb

Dermota, Ken. “Snow Business.” World Policy Journal 16 (Winter 99/00): 15-25. 106-110. Academic Search Premier. EBSCO host. Middlesex County College Library, 22 Oct. 2001 Duvoli, John. “NAFTA brings good, bad news to area corporations.” Hudson Valley Business Journal 10 (Jan 2000): 1-3. Academic Search Premier. EBSCO host. Middlesex County College Library, 22 Oct. 2001

Griswold, Daniel T. “Whatever Happened to ‘ the Giant Sucking Sound?’” Business Journal (Central New York) 14 (Jun 2000): 27-28. Academic Search Premier. EBSCO host. Middlesex County College Library, 22 Oct. 2001

Kirton, John. “NAFTA Stands Tall.” Aftermarket Business 107 (Nov 97): 90-94 . Academic Search Premier. EBSCO host. Middlesex County College Library, 22 Oct. 2001

Lusting, Nora. “NAFTA : Doing Well by Doing Good.” Brookings Review 12 (Winter 94): 47-48. Academic Search Premier. EBSCO host. Middlesex County College Library, 22 Oct. 2001

Mac Ewan, Arthur. “The North American Free Trade Agreement (NAFTA).” Dollars and Sense 233, (Jan/Feb 2001): 25-27. Academic Search Premier. EBSCO host. Middlesex County College Library, 22 Oct. 2001

Scott, Robert E. “NAFTA’s Hidden Costs; Trade Agreement Results in Job Losses, Growing Inequality, and Wage Suppression for the United States.” 11 Nov 2001.

<http://www.epinet.org/briefingpapers/nafta01/us.html>

Sissell, Kara. “NAFTA.” Chemical Week 163 (Nov 2001): 12-13. Academic Search Premier. EBSCO host. Middlesex County College Library, 22 Oct. 2001

Stokes, Bruce. “Talk About Unintended Consequenses!.” National Journal. 33 (May 2001): 1592-1594. Academic Search Premier. EBSCO host. Middlesex County College Library, 22 Oct. 2001

“The NAFTA Scam.” UNITE. 11 Nov 2001

http://www.uniteunion.org/reclaim/political archive/nafta/nafta.html

Add a Review for this free essay

Name: Rate: Select 10 (Good) 9 8 7 6 5 4 3 2 1 (Bad)

Comments Characters Left
Verify:*

Sticky Note Text....