Case Study → North American Free Trade Agreement (NAFTA)

Context

● Set up in 1994 ● Made up of USA, Canada and Mexico ● Goal was to eliminate trade barriers and provide investment between all 3 member countries ● After establishment, half the tariffs on trade between Mexico and the USA were eliminated and those remaining are being phased out over a 15-year period ● Relative decline in USA international competitiveness was a major factor leading to the formation of NAFTA, and due to: ○ Rise of Japan and recovery of Europe ○ Multilateralism → free trade • so USA faced competition from revitalised economies of Western Europe and Japan ○ Lost out on its traditional industries such as cars, consumer electronics, textiles ● Employment grew largely in service sector through the 90s, but average wages were 77% that of manufacturing industry ● Established ease of transport between Canada and Mexico, 📝 e.g. CANAMEX corridor • series of highways

Benefits of Being Part of NAFTA

Social ● Mix of culture ● More jobs available means better quality of life for especially Mexican citizens Economic ● North American employment levels up 23% since 1993 • net gain of 39.7 million jobs ● Merch trade among NAFTA partners > tripled • $946.1 billion in 2008 ● Trade between USA-Mexico > quadrupled ($1 trillion) ● USA service employment up >10 million ● Since initiation the North American economy has doubled in size ● Combined GDP surpassed $17 trillion in 2008, up from $7.6 trillion in 1993 ● Mexico became one of the largest recipients of FDI among emerging markets, receiving $156 billion from NAFTA partners between 1993-2008 ● An extra 10 million employed in services Environmental ● Introduced $9 million annual budget for improvement schemes and protection towards the environment ● Development on decreasing toxic products Political ● Allows countries to maintain independence ● Political 'voices' louder for Canada and Mexico due to being part of the trade bloc

| Negatives of
Being Part of
NAFTA
| Social
● The migration rate from Mexico to the USA doubled since NAFTA establishment

Economic
● Mexico saw a net loss of employment under NAFTA • around 600,000 gained in
manufacturing, but at least 2 million lost in agriculture
● 1/2 population can't find formal employment in Mexico
● Poverty and inequality rates only decreased slightly (mainly due to increased
remittances)
● Mexico's wage gap with the USA got 6x bigger
● Average wages in services 77% of that in manufacturing
● Manufacturing companies leave USA for Mexico due to cheaper land and workforce
● Most of the profits go back to US owned companies • 'maquiladoras' are US owned
assembly plants set up in Mexico which employ Mexicans but export products mostly
back to USA
● 1.5 million jobs lost in manufacturing in USA

Environmental
● US companies clearing land in Mexico for factories
● Industrial processes = more pollution
● Mexico has a poor record of enforcing environmental laws • fears that Mexico may
become a dumping ground for hazardous material
● Mexico's rivers and air are already being polluted

Political
● USA has the most political control in NAFTA
● Untrustworthy policies in Mexico due to US dominance in Mexican markets |

| Winners of NAFTA | ● Unemployed • In N America as jobs up 23%
● Farmers • 2 way agriculture trade (USA-Mexico) ↑ by 55%+ since 1944
● Workers' basic rights protected more by NAFTA
● Multinational corporations • benefit from cheaper labour in Mexico whilst taking most of the profit
● Belief that GDP ↑ is due to NAFTA | | Losers of NAFTA | ● Factory workers in the USA whose companies moved to Mexico • 1 mil job losses
● 2 mil agricultural workers in Mexico who lost their jobs
● People who started working in service industries • 77% of manufacturing wages |

•                                                                                NAFTA*