Page 259 - DECO503_INTERNATIONAL_TRADE_AND_FINANCE_ENGLISH

Unit 23 : Regionalism : EU and NAFTA

Mechanisms Notes
NAFTA’s effects, both positive and negative, have been quantified by several economists, whose
findings have been reported in publications such as the World Bank’s Lessons from NAFTA for Latin
America and the Caribbean, NAFTA’s Impact on North America, and NAFTA Revisited by the Institute for
International Economics. Someargue that NAFTA has been positive for Mexico, which has seen its
poverty rates fall and real income rise (in the form of lower prices, especially food), even after
accounting for the 1994-95 economic crisis. Others argue that NAFTA has been beneficial to business
owners and elites in all three countries, but has had negative impacts on farmers in Mexico who saw
food prices fall based on cheap imports from US agribusiness, and negative impacts on US workers
in manufacturing and assembly industries who lost jobs. Critics also argue that NAFTA has contributed
to the rising levels of inequality in both the US and Mexico. Some economists believe that NAFTA has
not been enough (or worked fast enough) to produce an economic convergence, nor to substantially
reduce poverty rates. Some have suggested that in order to fully benefit from the agreement, Mexico
must invest more in education and promote innovation in infrastructure and agriculture.
Investment
The US foreign direct investment (FDI) in NAFTA Countries (stock) was $357.7 billion in 2009 (latest
data available), up 8.8% from 2008.
The US direct investment in NAFTA countries is in nonbank holding companies, and in the
manufacturing, finance/insurance, and mining sectors. The foreign direct investment, of Canada
and Mexico in the United States (stock) was $237.2 billion in 2009 (the latest data available), up 16.5%
from 2008.
Industry
Maquiladoras (Mexican factories that take in imported raw materials and produce goods for export)
have become the landmark of trade in Mexico. These are plants that moved to this region from the
United States, hence the debate over the loss of American jobs. Hufbauer’s (2005) book shows that
income in the maquiladora sector has increased 15.5% since the implementation of NAFTA in 1994.
Other sectors now benefit from the free trade agreement, and the share of exports from non-border
states has increased in the last five years while the share of exports from maquiladora-border states
has decreased. This has allowed for the rapid growth of non-border metropolitan areas, such as
Toluca, León and Puebla; all three larger in population than Tijuana, Ciudad Juárez, and Reynosa.
Environment
For more details on this topic, see NAFTA’s Impact on the Environment.
Securing U.S. congressional approval for NAFTA would have been impossible without addressing
public concerns about NAFTA’s environmental impact. The Clinton administration negotiated a side
agreement on the environment with Canada and Mexico, the North American Agreement on
Environmental Cooperation (NAAEC), which led to the creation of the Commission for Environmental
Cooperation (CEC) in 1994. To alleviate concerns that NAFTA, the first regional trade agreement
between a developing country and two developed countries, would have negative environmental
impacts, the CEC was given a mandate to conduct ongoing ex post environmental assessment of
NAFTA.
In response to this mandate, the CEC created a framework for conducting environmental analysis of
NAFTA, one of the first ex post frameworks for the environmental assessment of trade liberalization.
The framework was designed to produce a focused and systematic body of evidence with respect to
the initial hypotheses about NAFTA and the environment, such as the concern that NAFTA would
create a “race to the bottom” in environmental regulation among the three countries, or the hope that
NAFTA would pressure governments to increase their environmental protection mechanisms. The
CEC has held four symposia using this framework to evaluate the environmental impacts of NAFTA
and has commissioned 47 papers on this subject. In keeping with the CEC’s overall strategy of
transparency and public involvement, the CEC commissioned these papers from leading independent
experts.

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