The Pros and Cons of NAFTA

January 20, 2004

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The North American Free Trade Agreement turned 10 years old this month, but the years have not dimmed the controversy. Find out why some consider it a success and others think it's a huge flop:

The first day of the year marked the 10th anniversary of the North American Free Trade Agreement, but instead of celebration, this milestone was greeted with renewed debate. If you listen to its backers, you will hear that NAFTA is a smashing success, helping stabilize Mexico's economy while moderately bolstering the economies of the U.S. and Canada. And if you pay heed to its critics, you will be informed that NAFTA?which opened up the flow of goods and investment through the U.S., Canada and Mexico?is an expensive flop, resulting in the loss of U.S. jobs and dealing a blow to Mexico's workforce, economy and environment.

Here are both sides of this raging debate:

Supporters say:

? The accord has stimulated democratic reform and opened markets in Mexico. ? According to the Bush administration, the agreement has been "improving lives and reducing poverty in Mexico." ? The administration also claims that NAFTA has led to income gains and tax cuts amounting to about $930 each year for the average U.S. household of four. ? Many of the 20 million new jobs the U.S. generated from 1993 to 2000 can be attributed to the free-trade bloc that NAFTA created, the administration continues. And negatives such as the escalating U.S. trade deficit and three years of dwindling factory jobs should be pinned on feeble demand abroad and the U.S. recession, certainly not on NAFTA, the administration contends. ? NAFTA brought in a flood of foreign investment and contributed to a 24% rise in Mexico's per capita income. "NAFTA gave us a big push," Vicente Fox, President of Mexico, tells Business Week. "It gave us jobs. It gave us knowledge, experience, technological transfer."

Detractors contend:

? The agreement has taken a toll on both U.S. and Mexican jobs, according to the Institute for Policy Studies (IPS). While real wages for Mexican manufacturing workers declined 13.5%, more than half a million U.S. employees have entered government retraining programs after their companies moved production south or north of the border, says IPS. ? NAFTA has wiped out Canadian social programs, purports IPS. ? The pact has also destroyed Mexico's small farmers, says IPS, bringing in an influx of subsidized U.S. food imports. In fact, about 1.3 million farm jobs have been lost since 1993, indicates a recent report by the Carnegie Endowment for International Peace. "NAFTA has been a disaster for us," remarks pig farmer Julian Aguilera to Business Week. ? The Carnegie report also concluded that the pact has generated few new jobs in Mexico and might only be credited for a "very small net gain" in jobs in the U.S. ? The new study also found that NAFTA has been ineffective in stemming the tide of illegal Mexican immigrants entering the U.S. to find jobs. In fact, according to most estimates, the number of Mexicans working illegally in the U.S. surged to 4.8 million in 2000, more than twice the 1990 total.

What's the Verdict?

So is NAFTA a success or a failure? While its backers and bashers continue to take impassioned positions, many choose the middle ground. In a recent Business Week article, Jeffrey Garten writes, "When it came to job generation vs. destruction in the U.S., NAFTA's impact has been pretty much a wash." And the Carnegie Endowment for International Peace comes to the same conclusion, calling the pact "neither the disaster its opponents predicted nor the savior hailed by supporters."

Sources:

10 Years Ago, NAFTA was Born
James Cox
USA Today, December 30, 2003
www.usatoday.com/money/economy/trade/2003-12-31-nafta_x.htm

Mexico: Was NAFTA Worth It?
Geri Smith and Cristina Lindblad
Business Week, December 22, 2003
www.businessweek.com

At 10, NAFTA is Ready for an Overhaul
Jeffrey E. Garten
Business Week, December 22, 2003
www.businessweek.com

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