NAFTA and its Discontents

Abstract

While the North American free trade agreement (NAFTA) was a major event in Mexico, it was of only sectoral interest in the US and of interest primarily to the free trade community in Canada. The major event in Canada was, of course, the Canada-United States free trade agreement (FTA) five years earlier. The combined effects of the Canada-U S FTA and several rounds of GATT trade liberalization had created a situation in which the impacts of NAFTA were expected to be rather small: tariff barriers had already been lowered (average Mexican tariffs were 13 percent and US and Canadian tariffs were about six percent); many of Mexico's quantitative restrictions had been removed; and trade diversion from other developing countries was thought to limit the impacts of low wage imports into Canada and the US from Mexico. The final estimates of the probable effects of the more significant FTA (1989) were an increase in Canadian gross domestic product in the range of only two-three percent, and one-tenth of that for the US. Nonetheless, there was considerable opposition to NAFTA in each of the three countries. Furthermore, being a trade liberalization initiative, NAFTA was treated by many as just another aspect of globalization and was subjected to the same criticism that all such initiatives receive. It is only the opposition that is related specifically to intra-North American consequences that will be considered in this paper; once this has been discussed we will evaluate those concerns in light of the actual consequences of this important trinational exercise in trade liberalization. The criticisms of NAFTA ranged from the most general and contextual to the narrowly economic to issues of sovereignty.' Each set of criticisms will be examined in this order.One widely held, perhaps journalistic, general opinion was that the US was an economy in decline. The combination of the OPEC oil price increases of the 19703, the lingering consequences of the Vietnam War, the burdens of arming itself against the threat posed by the Soviet Union, and the fiscal excesses of the Reagan administration were seen as draining the US economy and spirit of their vitality. Japan was very much on the rise and Europe was attempting to deal with its decade-long lethargy by implementing the Single European Act and thereby realizing the potential inherent in the treaty of Rome. Why, then, should Canada link itself more closely to the US when some sort of third option II2 might have been possible and would, if achieved, certainly bring greater gains to Canada? As things turned out, the US had a very good decade during the 19905, Japan slipped into a decade of stagnation, and the European Union dithered. China and India both soon emerged but they were not part of the argument during the mid-late 19803. Canada was able to increase its exports to the US by a very impressive 140 percent between 1992 and the end of the decade, so this concern of US decline actually had little to speak for it, and was at best premature.The architecture of North American economic relations was also seen as a structure that militated against the interests of the two smaller countries. In 1992, the US was the market for 77 percent of Canada's exports and for 81 percent of Mexico's, while Canada and Mexico accounted for just 20 percent and nine percent, respectively, of US exports. Incidentally, Canada was the market for just two percent of Mexico's exports and Mexico took only .4 percent of Canada's exports. Clearly, secure access into the US market was the only issue here. What this meant was that the US would be quite indifferent in terms of aggregate trade flows, while increasing these flows was something of crucial importance to the vitality of both the Canadian and Mexican economies. Thus, the US was understood to be in the driver's seat in negotiations, and both Mexican and Canadian critics argued that the US would not be inclined to give much if anything in exchange for significant concessions by the two other negotiating teams. …