North American Free Trade Agreement
North American Free Trade Agreement
NAFTA AS A POLITICAL AND ECONOMIC PROCESS
On January 1, 1994, the North American Free Trade Agreement (NAFTA) went into effect, creating the largest free-trade area in the world. Many view NAFTA as a major policy victory for the architects of a new era of trade liberalization and economic globalization. Yet proponents of this view did not go unchallenged. NAFTA’s departure from several traditional trade concerns opened political opportunities for challengers to ally across borders and overcome longstanding political divisions, making it the most contentious trade policy initiative to date (Dreiling 2001).
NAFTA AS A POLITICAL AND ECONOMIC PROCESS
At the most explicit level, NAFTA is a treaty designed to liberalize trade and investment activity in North America. The trade agreement sets timetables for significant reductions in duties and a steady elimination of tariffs between the three trading partners (Canada, the United States, and Mexico). Partly as a result of these reduced transaction costs, trade between the three countries has increased significantly. According to International Monetary Fund (IMF) data, the three NAFTA countries traded over $620 billion in goods and services in 2004, nearly doubling total trade volume in the ten years since NAFTA was implemented. Combined, the three countries produced over $12 trillion in goods and services in 2004 and, with more than 425 million people, constitute a major economic bloc in the world economy.
Literature on globalization portrays NAFTA as one of three distinct trading blocs in the world economy (Dicken 2003). The concentration of trade flows studied by sociologists, geographers, and economists reveals a growing tripolar configuration of world trade relations and policy agendas of leading states. This research suggests that NAFTA and the Maastricht Treaty on European Union (1992) were driven by global economic forces as well as strategic political responses to globalization. NAFTA, seen from this perspective, reflects a trade-policy response to the regionalization of capitalist competition at a global level. Content rule, tariff reduction schedules, and other NAFTA provisions are designed to favor North American capital. Premised on an improved capacity to export commodities produced under low-cost conditions in Mexico into the high-price consumer markets of North America, western Europe, and Japan, NAFTA is an attempt to reclaim economic power in a capitalist world system. James Petras and Morris Morley argue that “NAFTA is the centerpiece of a new economic strategy … which Washington hopes to use as a springboard for its reemergence as a more competitive player in the world market” (1995, pp. 128–129).
During the debate over NAFTA, considerable attention was addressed to the question of “jobs.” Ross Perot’s presidential bid and famous claim of an impending “giant sucking sound” helped frame the political debate, but also alluded to important economic trends in all three countries. Prior to the conclusion of NAFTA, a steady erosion in manufacturing employment in the United States, coupled with a rapid increase of manufacturing employment by U.S. multinational corporations operating in Mexico, aroused fears of a decline of American industrial supremacy. Economists, such as Robert Blecker and William Spriggs (1992), showed how these patterns would likely continue with NAFTA, particularly in the maquila sector. The maquiladoras—literally meaning “twin plants”—generally refer to export industries along the U.S.-Mexico border, though the term is also used in reference to export processing industries in El Salvador, Guatemala, and elsewhere in Central America. After NAFTA’s ratification, the increase in manufacturing employment in Mexico by U.S. multinationals certainly did not create a “giant sucking sound,” but the movement of industrial-sector jobs has continued.
In a policy context, NAFTA represents an economic integration plan that extended the deregulation and free-market agendas of governments in the United States, Canada, and Mexico. Administrations under presidents Ronald Reagan and George H. W. Bush in the United States, Prime Minister Brian Mulroney in Canada, and President Carlos Salinas in Mexico initiated national reform agendas where market principles supplanted other institutional goals and organization. Known as neoliberalism —where market forces are believed to be the most efficient and least costly mechanism for allocating all societal goods—this ideological context all but guaranteed a free-market approach to North American integration. In this way, NAFTA emerged as a neoliberal counterpart to Europe’s more social democratic Maastricht Treaty.
NAFTA extends and accelerates market deregulation and trade liberalization efforts across the continent by creating supranational institutions and binding agreements between signatory governments. For example, one feature of NAFTA contained in Chapter Eleven prevents governments from discriminating against cross-border investors—all North American capital is to be treated as domestic capital, eventually. These provisions also establish an investor-state arbitration system that permits companies from one NAFTA country to seek monetary damages for actions or policies of another NAFTA government (national, state/provincial, or local). One often-cited case began in 1997 when the Ethyl Corporation, a U.S. company, challenged Canada’s environmental ban of a known carcinogenic gasoline additive, methylcyclopentadienyl manganese tricarbonyl (MMT)—a chemical made by Ethyl. In July 1998 the arbitration panel ruled against Canada, forcing Canada to reverse its environmental ban on MMT and pay $13 million in damages and legal fees to Ethyl. As of 2005, five Chapter Eleven cases have settled in favor of investors, leaving critics wary of NAFTA’s bias in favor of capital at the expense of national sovereignty and environmental protection. From an analytical standpoint, the neoliberal framework of NAFTA helps investor rights trump environmental or national rights.
Neoliberal defenders of NAFTA, and free markets more generally, praise this “deepening and widening” of markets in the hemisphere, calling for an extension of NAFTA to Central America and throughout the Western Hemisphere as envisioned in the Free Trade Area of the Americas. Elaborate hemispheric plans for subregional and continental integration are discussed among elite policy organizations, from the Council on Foreign Relations to the highly influential Business Roundtable (Dreiling 2001). May 2005 discussions by elite supporters of NAFTA alluded to a new “security perimeter” around North America, known as the North American Initiative.
THE IMPACT OF NAFTA
Migration from Mexico to the United States has risen significantly under NAFTA. Growing rural unemployment in Mexico and the instability of small farming in Mexico stem in part from NAFTA’s liberalization of trade in agricultural goods. With cheaper corn and grains imported from Canada and the United States into Mexico, small, often indigenous farmers are hurt economically. Worries persist that these pressures will also hurt peasant communities throughout Central America with the adoption of the Dominican Republic-Central America Free Trade Agreement in 2005. While pressure to migrate has increased, anti-immigrant politics persist in the United States, and the number of people found dead along the U.S.-Mexico border rose to a peak in 2003. Other U.S.-Mexico border problems were compounded by NAFTA. Mexico’s environment and urban infrastructure remain inadequate to support the growing population and heavy concentrations of export-oriented industry. The number of labor-intensive, export-processing factories along the border in Mexico increased by about 73 percent between 1993 and 2000, putting strain on both the environment and the mostly female workforce in those factories.
The expectation that greater wealth and income growth in Mexico would increase political pressures to limit environmental pollution remains unrealized. Arguments that refer to the environmental Kuznets curve—that pollution increases with per capita gross domestic product (GDP) at lower levels of national income while pollution decreases with per capita GDP at higher levels of national income—suggest that increased trade, and hence increased wealth pollution, will decrease in Mexico (Grossman and Krueger 1993). More research is needed to address this important question about the relationship between trade, economic growth, and political pressure to improve and enforce environmental regulations in Mexico and elsewhere.
Perhaps the most significant impact of NAFTA flowed not from the agreement itself, but the conflicts that arose in NAFTA’s wake. NAFTA, like its close relative and successor, the World Trade Organization (WTO), significantly departed from the direction of previous multilateral trade initiatives and inadvertently opened political opportunities for challengers to question neoliberal trade policy. Advancing new language on investment protections, institutionalizing language and protocols for protecting trade related intellectual property rights (TRIPs), and promoting a series of policy shocks to liberalize trade in agriculture, NAFTA drew a line that subsequent conflicts over trade policy would brave. These three concerns remain pivotal dividing lines within the WTO and in the ongoing discussions for a Free Trade Area of the Americas. Confrontations over patents on seeds and other “intellectual property,” nontariff agricultural subsidies in richer countries, and investment rules have, for example, stalled agendas at the WTO ministerial meetings in Seattle in 1999 and in Cancun, Mexico, in 2003. NAFTA anticipated and presaged these same divisions, prompting conflict both prior to and following its implementation.
The conflict over NAFTA catalyzed a mobilization of forces for and against the agreement. For over two years, the NAFTA negotiations faced challenges and changes, from a legal decision at a U.S. district court that required an environmental impact statement on NAFTA (which was subsequently appealed and overruled) to negotiations for two-side agreements on labor and the environment. Critics nearly stopped the passage of NAFTA. By the time that NAFTA went public in 1991, a broad spectrum of groups—from farmers to human rights organizations—began meeting to develop both national and international strategies to stop NAFTA in its tracks. Three years later, voices against NAFTA had developed a transnational movement, providing a supportive, if not encouraging, backdrop for the armed insurgency in Chiapas, Mexico, that initiated its mobilization with deliberate intent on January 1, 1994, NAFTA’s birthday.
Beyond the contentious interests mobilized for and against NAFTA, the agreement and the historical stage it set caught the eye of scholars. NAFTA, at a social scientific level, came to represent a triumph of markets, a continentalization of economies, and a window into the political struggles over globalization. As Jeremy Brecher and Tim Costello argued (1998), this neoliberal “globalization from above”—via free trade and corporate-sponsored multilateral institutions—is being resisted not only by “older” nationalist and protectionist foes of free trade, but also by a “globalization from below.” NAFTA helped set this stage.
SEE ALSO Barriers to Trade; Liberalization, Trade; Quotas, Trade; Tariffs; World Trade Organization
BIBLIOGRAPHY
Blecker, Robert A., and William E. Spriggs. 1992. Manufacturing Employment in North America: Where the Jobs Have Gone. Briefing paper. Washington, DC: Economic Policy Institute. http://www.epinet.org/briefingpapers/1992_bp_manufacturing.pdf.
Brecher, Jeremy, and Tim Costello. 1998. Global Village or Global Pillage: Economic Reconstruction from the Bottom Up. 2nd ed. Boston: South End.
Dicken, Peter. 2003. Global Shift: Reshaping the Global Economic Map in the 21st Century. 4th ed. New York: Guilford.
Dreiling, Michael. 2001. Solidarity and Contention: The Politics of Security and Sustainability in the NAFTA Conflict. New York: Garland.
Grossman, Gene M., and Alan B. Krueger. 1993. Environmental Impacts of a North American Free Trade Agreement. In The Mexico-U.S. Free Trade Agreement, ed. Peter M. Garber, 13–56. Cambridge, MA: MIT Press.
NAFTA Secretariat. http://www.nafta-sec-alena.org/DefaultSite/index.html.
Office of the United States Trade Representative. North American Free Trade Agreement. http://www.ustr.gov/Trade_Agreements/Regional/NAFTA/Section_Index.html.
Petras, James, and Morris Morley. 1995. Empire or Republic: American Global Power and Domestic Decay. New York: Routledge.
Michael Dreiling