11 years into NAFTA . . . was it worth it?

Ever since the North American Free Trade Agreement (NAFTA – http://en.wikipedia.org/wiki/NAFTA) went into effect on January 1, 1994, Canada, the U.S. and Mexico have been a common free-trade zone. Unlike the European Union, NAFTA has no elected supranational policymaking bodies and no supranational legal structure; it’s just a free-trade agreement. The three members retain their own national currencies.

Now the Bush Administration is pushing to establish a Dominican Republic-Central American Free Trade Agreement (DR-CAFTA – http://en.wikipedia.org/wiki/CAFTA), as a step on the path to a Free Trade Area of the Americas (FTAA – http://en.wikipedia.org/wiki/FTAA) which would include every country in the Western Hemisphere except for Cuba. (This would be modeled on NAFTA, not the EU – no elected FTAA Parliament or anything like that.) So I think it’s timely for us to debate the trade arrangement that started it all.

  1. In what respects has NAFTA been good for the U.S.?

  2. In what respects has it been bad for the U.S.?

  3. In what respects has NAFTA been good for Canada.?

  4. In what respects has it been bad for Canada?

  5. In what respects has NAFTA been good for Mexico?

  6. In what respects has it been bad for Mexico?

  7. Has it been better for some social classes or interest groups and worse for others?

  8. Would it be better if NAFTA had some directly elected policymaking body, like the European Parliament?

  9. Have there been any mistakes of NAFTA that DR-CAFTA and FTAA might learn from? Any way the NAFTA model might be improved upon?

First of all, the timing here is different for Canada; the free trade agreement between the two countries started in 1989, not 1994. NAFTA changed the arrangements somewhat, but for most practical purposes simply drew Mexico into an existing arrangement.

As to what’s been good about it for Canada, that is very easy to figure out. In 1989, the annual Canadian trade surplus with the United States was about $7 billion a year. Today, it’s about $7 billion every month. Our trade surplus with the USA has averaged 15% growth since free trade was implemented. So the good thing has been that our businesses are making money hand over fist from the U.S. market, resulting in lots of jobs, more income, and more tax revenue. In a wonderful twist, we have managed to do this completely under the radar, while American pundits and politicians slam countries like China and India with whom their trade deficit is far smaller.

As to what’s been bad about it… umm, I can’t say that there’s been much bad about it at all. As predicted, there was some restructuring at first - lost jobs, economic inefficiency - but that’s more than been made up for since in new jobs and new money.

It’s not precisely clear if the addition of Mexico has had a substantial impact to Canada at all.

I think the only guy still against NAFTA in Canada is David Orchard.


Orchard is a Canadian hyper-nationalist who doesn’t like Americans, and has been campaigning against free trade for 20 years. When it happened and none of the doomsayers’ predictions proved correct, he just barreled ahead anyway. He was in and out of the Progressive Conservative Party, once ran for its leadership, and then sued to try to prevent it from merging with the Alliance party.

He’s sort of the Canadian poster boy for lost causes; he continues to harp about NAFTA years after just about all intelligent Canadians have accepted that it worked, and continues to pretend he belongs to a party that doesn’t exist anymore.

The plight of the Zapatistas aside, there is ample macroeconomic evidence that the benefits of NAFTA from a Mexican standpoint have been reaped extensively by a small few to the exclusion of the larger population.

A little grist for the mill…

I’m sure someone will drop in to post economic counter-evidence. But that’s the nature of economic analysis. If you look hard enough, you see what you want to see.

As they say… Lies, damn lies, and statistics.

OK, we’ve heard from Canada (NAFTA good) and we’ve heard from Mexico (NAFTA good for the elite, not so good for the masses) – but has NAFTA been, on the balance, good or bad for the U.S.?

Hard to say. It certainly hasn’t been the “silver bullet” that would change Mexico into a 1st World nation, or… on the other hand- destroyed the US economy and peed on the Constitution.

Yes, Ross Perot’s “giant sucking sound of American jobs going to Mexico” hasn’t exactly eventuated, has it?

It depends on who you talk to. Public Citizen claims that three million jobs were lost during NAFTA and that “525,000 workers have been specifically classified as job-loss victims under justy one narrow government retraining program.”

See http://www.citizen.org/trade/nafta/ for more of theor criticism of NAFTA and http://www.citizen.org/trade/ for their criticism of other “free trade” programs.

How about Canada?

Granted, this is an article that talks about health care costs instead of NAFTA effects, but I wonder if such a move would have been fiscally feasible in a non-NAFTA economy.

The autopact of 1965 basically setup free trade on car manufacturing, so the FTA and consequently the NAFTA may not have that much to do with it.

So, what have we learned from all this? If we create a new DR-CAFTA, what will that mean for the Central American states and the Dominican Republic? And what will it mean for the existing NAFTA members?