Question

What were the main reasons for the United States, Canada, and Mexico to sign on to the original NAFTA? After more than 20 years, has NAFTA delivered the benefits expected? How might NAFTA be improved to the benefit of all three member countries?

Answer 1

Trade is generally a good thing; it helps raise living standards, and it raises the level of economic activity on both sides. Yet sometimes there's a net transfer, and certainly the notion of winners and losers. Perhaps the work would have gone to China or elsewhere; most of the workers would have moved to China. The U.S. had a $54 billion trade deficit with Mexico in 2013 but with China it was a $318 billion deficit, so the U.S. deficit with China is five times bigger than with Mexico. In other words, you'd say, perhaps for every job we've lost to Mexico in the US, five jobs have been lost to China.

NAFTA's labor and environmental provisions were not included in the agreement's main text, but were instead implemented as weak side deals that had no enforcement mechanism. One of the main reasons companies operating in Mexico are cheaper is because the nation has lower labor and environmental standards. Although all three countries agreed to adopt their current standards, Mexico has often fallen short.

Increasing these requirements in Mexico will make the U.S. more competitive andpre-empt any competition down the line. However, NAFTA's chapters on labor and climate were not subject to the dispute settlement process of the agreement. The TPP's labor and environmental chapters, which allowed Member States to impose trade sanctions on countries that refused to fulfill their commitments, could be used as a guide to strengthen Mexican commitments compliance.

To ensure that goods coming from Mexico do not consist of intermediate parts from Asia, NAFTA's rules of origin mandate that a minimum amount of North American content be required to qualify for the lower tariffs of the free trade agreement. Nevertheless, given the increasing globalization of the automotive industry, it may be prudent to enforce greater criteria for regional value content to support U.S. production.