North American Free Trade Agreement Implementation Act (1993)

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North American Free Trade Agreement Implementation Act (1993)

William D. Araiza

Excerpt from the North American Free Trade Agreement Implementation Act

[T]he Congress approves—

the North American Free Trade Agreement ... with the Governments of Canada and Mexico ....
(b) CONDITIONS FOR ENTRY INTO FORCE OF THE AGREEMENT.—The President is authorized to exchange notes with the Government of Canada or Mexico providing for the entry into force, on or after January 1, 1994, of the Agreement for the United States with respect to such country at such time as—

The President—
(A) determines that such country has implemented the statutory changes necessary to bring that country into compliance with its obligations under the Agreement ... and
the Government of such country exchanges notes with the United States providing for the entry into force of the North American Agreement on Environmental Cooperation and the North American Agreement on Labor Cooperation for that country and the United States. (19 U.S.C. § 3311)

The leaders of the United States, Mexico, and Canada signed the North American Free Trade Agreement (NAFTA) on December 17, 1992. NAFTA created a "free trade zone" through the elimination and reduction of tariffs and barriers to trade. President William Jefferson Clinton signed NAFTA without consulting Congress. Congress later approved and implemented NAFTA on December 3, 1993, with the passage of the North American Free Trade Agreement Implementation Act (P.L. 103-182). The act provided a series of laws to enforce NAFTA's provisions within the United States.

CIRCUMSTANCES LEADING TO THE ACT

By the late 1980s the United States had entered into a free trade agreement with Canada. As part of the Reagan Administration's commitment to free trade, plans had been made eventually to extend this free trade area to Mexico and, ultimately, to the rest of the Western hemisphere. The first step in this expansion was Mexico, which in the early 1990s led to the negotiation of NAFTA.

POLITICAL DEBATE

NAFTA was the subject of heated political debate in the United States. Business interests and mainstream economists generally supported the idea of freer trade, especially with close neighbors such as Canada and Mexico, with whom American business had historically enjoyed close ties. On the other hand, labor and environmental groups, among others, were concerned that NAFTA, and especially the prospect of freer trade with Mexico, would lead to (1) the loss of manufacturing jobs to the lower-paying Mexican economy, and (2) to the relaxation of labor and environmental protections as part of NAFTA's overall requirements of free trade and the elimination of non-tariff barriers. Free trade can often result in the relaxation of those protections, if those protections are alleged to be nothing more than attempts to impose non-tariff trade barriers. In addition, if the free trade agreement is between a country with strict standards and one with less strict standards, firms in the former nation will be tempted to shift operations to the less strict country to circumvent the stricter standards. Because of the free trade agreement, they would still have complete access to the markets of the nation with the stricter standards. Ross Perot, an independent presidential candidate, made NAFTA a central issue of his 1992 campaign. He argued that it would lead to a large-scale loss of employment in the United States. But because both major parties supported NAFTA, it was largely to be expected that the United States would sign the agreement.

In the congressional debate on NAFTA, an issue of major importance was the provision of assistance (called "transition adjustment assistance") to American workers whose jobs were lost because of the effects of free trade. Congress provided for such assistance in title V of the act.

CONSTITUTIONAL ISSUES

The 2001 case Made in the USA Foundation v. United States (242 F.3d 1300, 11th Cir.) raised constitutional issues concerning NAFTA. The first issue concerned whether workers displaced as a result of NAFTA can sue based on a claim that the act is unconstitutional. The Court of Appeals for the Eleventh Circuit held that the workers who brought that suit and claimed to be adversely affected by NAFTA did have standing to sue. The court reasoned that a favorable judgment in such a lawsuit would result in a reimposition of trade barriers eliminated by NAFTA. This would in turn be likely to raise import costs, thus making domestic manufacturing more profitable and providing jobs to the plaintiff-workers.

The second issue concerned whether NAFTA satisfied the requirements for treaty ratification set out in the treaty clause of the Constitution (Article II, section 2). If NAFTA did in fact fail to satisfy these requirements, it would be unconstitutional. The Eleventh Circuit held that this was a political question that could not be settled in a court of law.

EXPERIENCE UNDER THE ACT

In the period since congressional enactment of the NAFTA Implementation Act, American trade with both Canada and Mexico has increased significantly. For example, from 1993 to 1998, trade between the United States and Canada increased by 80 percent. Investment across borders by the countries that signed NAFTA has also increased significantly. For example, from 1993 to 1998 direct U.S. investment in Canada increased by 63 percent, while Canadian investment in the United States increased 86 percent. It could be argued that expansion in trade and investment was primarily a consequence of the economic boom of the 1990s. However, lower trade barriers presumably ensured that some of this increased economic activity took the form of trade with Canada and Mexico. Mexico's peso crisis of the mid-1990s also muddies the picture of NAFTA's effect on American trade with Mexico.

The overall effect of NAFTA on jobs in the United States is also a matter of dispute. However, because of the small size of the Canadian and Mexican economies in relation to that of the United States, any such effect will most likely be minor. (By contrast, the United States is Mexico's largest trading partner, with Mexico shipping almost 90 percent of its exports to the United States and receiving 70 percent of its imports from the U.S.) President Clinton's 1997 report to Congress on NAFTA estimated that the agreement had a "modest positive effect" on U.S. exports, income, investment, and export-oriented jobs. One result of NAFTA's reduction of trade barriers has been the continued expansion of maquiladora plants, that is, assembly plants located in Mexico near the United States border. These plants take advantage of low Mexican wage rates and nearness to the U.S. market to assemble and manufacture goods destined for that market.

Dispute Resolution. NAFTA states that certain disputes, such as those concerning antidumping claims, will be resolved not by national institutions, such as the United States Court of International Trade, but instead by a system of binational review panels involving the affected nations. It also states that disputes over investment will be resolved by arbitration.

AMENDMENTS

In response to concerns from American labor and environmental groups, the United States negotiated "side agreements" with Mexico and Canada on labor standards and environmental protection. For example, the environmental side agreement required that each country agree to maintain and enforce high levels of environmental protection. Each country promised not to weaken those protections in the hope of attracting foreign investments. The labor side agreement requires each government to establish an office to receive public complaints about nonenforcement of that country's labor law. These agreements, however, do not provide for significant trade sanctions against participating countries that violate the side accords.

Expansion of NAFTA to include all of the Western hemisphere remains official United States policy, but progress on that front has been slow.

See also: Trade Act of 1974.