Twenty years after its passage, the North American Free Trade Agreement (NAFTA) continues to be a source of tension for many within North America. Yet despite its criticism, NAFTA has transformed the continent.
Economically, NAFTA has been a success, with trade between Canada, Mexico and the United States tripling to more than $1 trillion in 2011. NAFTA has made Canada and Mexico the United States’ top two exporting markets, accounting for a third of U.S. exports. Similarly, NAFTA has created a North American market, as supply chains have integrated between the three nations. In fact, a study by the Woodrow Wilson Center states that 40 percent of U.S. imports from Mexico were first made by American workers then transferred to Mexico for assembly; that figure is 25 percent for Canadian imports. The same report shows that 80 to 90 percent of the American auto industry’s production is within the continent, crossing the border eight times as pieces are put together. Finally, U.S. service exports have tripled, reaching $82 billion in 2011.
The benefits also extend to Mexico and Canada. In Mexico, NAFTA prompted legal and structural changes. By signing NAFTA, Mexico harmonized its laws with those of its North American partners, and was even pushed towards creating laws that it did not have, such as anti-dumping laws. All these changes stimulated growth in Mexico’s economy, with its gross domestic product growing 3.9 percent in 2012, surpassing Brazil’s 2.7 percent growth that year. For its part, Canada saw $211 billion in foreign direct investment from the U.S. in 2011. Most importantly, NAFTA gave Canada the opportunity to become a trading nation, with many of the fears (i.e. becoming “the United States’ 51st state”, losing control over its water and energy resources) not occurring.
Yet criticism of the treaty continues to this day. A recent study states that in 2010, nearly 700,000 jobs have been lost to Mexico. But, while critiques blame NAFTA, China’s economic rise is overseen. In fact, China’s rise affected North American manufacturing more than NAFTA, and Mexico’s reforms have allowed it to allow its workforce to compete at a global scale. Finally, the decline of Mexico’s agricultural sector is blamed on NAFTA, and many see it as the reason behind the increase in immigration to the United States that occurred in the late 1990s. While it is true that NAFTA affected Mexico’s agricultural sector, it is naïve to blame the treaty for its decline. Mexico’s signing of NAFTA coincided with its industrialization, a period in which a country’s agricultural sector sees a decline in its workforce.
The negotiation of the Trans-Pacific Partnership (TPP) – a trade agreement which includes Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam – gives the three North American partners an opportunity to upgrade NAFTA. In fact, given the interconnection of the countries ‘economies, it would benefit them to negotiate as a group. Whatever the results of the TPP, North America would benefit from upgrading NAFTA to incorporate the new sectors of the economies, such as the tech sector, so that the continent could benefit.