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NAFTA: A Quick History and its Implications

Representatives from Canada, Mexico, and the United States started the ball rolling for the renegotiation of the North American Free Trade Agreement (NAFTA), which has been the occasional focus of many tirades coming from the U.S. President Donald Trump–who even went on to say that the agreement was “the worst trade deal in history” on campaign last year.

NAFTA took effect on January 1, 1994, which makes it a 23-year-old agreement that has given modest but substantial benefit to the North American economies and even on average citizens. However, it has also never run out of critics and has been a central topic in many political and economic debates and disputes.

A Brief History

NAFTA was created and signed by the three countries in order to promote economic growth following different provisions on intellectual property, environment, agriculture, and transportation infrastructure. A series of events with the agreement as its central issue ensued thereafter.

When the trade agreement came into effect, a group of Mayan Indian guerrilla army declared war against the Mexican government that continued for days of fighting and left dozens of dead. The rebels retreated to the jungle in the end.

In 1999, an enormous number of anti-globalization protesters converge in Seattle, a U.S. city, and were involved in several riots. The protest started a scattered opposition to free trade deals including NAFTA.

In the tenth year since the agreement was signed, the three countries issued a joint statement strengthening expanded trade in North America, celebrating the deal’s effect in the value of U.S. exports, and the rise in agricultural trade between Mexico and the U.S.

2001 saw the integration of China, an Asian trade giant, into the global economy. By 2006, trade deficit in the U.S. shot up to more than $800 billion.

In the beginning of 2008, trade between the three North American countries more than tripled in value.

About a decade later, talks about the “modernization” of NAFTA escalated as Trump constantly criticized the deal and thus led to a renegotiation which started today in Washington, with the U.S. Trade Representative Robert Lighthizer, Canadian Foreign Minister Chrystia Freeland, and Mexican Economy Minister Ildefonso Guajardo as officials in-charge of concluding the modified pact.

In September this year, the second round of meetings is planned to take place in Mexico.

Some Specific Impacts on Canada and Mexico

Canada received considerable positive effects. Canadian manufacturing employment didn’t seem to be affected by an international downward trend and this was attributed to NAFTA’s effectivity. The nation’s bilateral agricultural flows have been boosted. Canada’s 2008 exports to the U.S. and Mexico were more than $300 billion, and imports from NAFTA were around $200 billion.

In Mexico, although the projected large-scale growth wasn’t attained, economic growth was steady. Exports increased from 8.56 percent of Mexican GDP in 1993 to 36.95 percent in 2013, hence the lower Mexican trade deficit. Foreign investment flowed generously , although manufacturing exports became concentrated to select industries.

Oppositions

There have been many groups and organizations opposed to NAFTA, describing the pact as a disappointment on other fronts in spite of its recognized benefits.

In 1992, then U.S. Presidential candidate Ross Perot warned the people to prepare for a “giant sucking sound” pertaining to jobs being moved across to Mexico, where companies used cheaper labor to their advantage. Even the U.S. ex-President Barrack Obama criticized NAFTA and stated that its terms might be altered or renegotiated.

Other groups describe NAFTA as toothless when it comes to labor and rights protection  for workers. Environmental concerns are also raised and claimed that provisions, specifically Chapter 11, give corporations too much power.

The Future of NAFTA

Many critics and experts argue that if the U.S. choose to move out of the agreement, trade barriers would reemerge. This and other unintended effects would then lead to somewhat a “backward” trade system.

Daniel Drezner, a political scientist, put front the argument that if Trump withdraws from NAFTA, Mexicans would turn to left-wing populist strongmen like what other South-American countries have done.

Chad P. Brown, from Peterson Institute for International Economics, emphasized that the reestablishment of trade barriers would not help workers to take advantage of new employment opportunities.

As for its renegotiation, Canada and Mexico also insist on getting what they want out of the deal. Canada is said to aim for an enhanced and deeper access to the U.S. market. Mexico similarly wants to get better access of goods and services, and a stronger energy security.

As the first round of talks is described as “ambitious” by a senior U.S. trade official, many things hang at stake while conversations, modifications, and deals are done by three persistent representatives.

The future of trade in the North American nations is being renegotiated as long term effects are carefully being analyzed and predicted by experts.

 

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