To determine what the effect is of the member states I am going to take several points in account, especially those which were in the agenda of the opponents and promoters. First, I will compare the GDP and its annual growth over the last decade, to determine whether there is an economic growth or not. Also the employment and the shift in employment between the countries will be compared. Also the in- and export between all the countries and to finish with I will give an overview of the before NAFTA situation and after.
2. Canada
Since world-war II Canada became the second wealthiest industrialized country of the world⁸. Their economy has shown a tremendous growth since the recession in the early 1990 this was due to a low Canadian dollar, controlled inflation rate and low interest rates. Also, the trade relation with the US has helped Canada to grow; Canada, which is a country full of resources, happened to be the neighbor of the largest industrial nation of the world¹⁴. That is why the Canadian economy is closely related to the economy of the U.S.
Nevertheless after 15 years of NAFTA the economy is still growing. As you can see in Figure 1 the past 15 years show an increase of almost 165% in GDP.
Figure 1
(source: )
The increase in GDP is partly due to a shift in manufacturing techniques. Canada used to gain the resources and export them. All the added value was created abroad. This has changed over the years, now Canada is adding more value to the products itself¹⁴.
Figure 2
(Source: )
One of the fears of the opponents was that the NAFTA would have a huge effect of the amounts of jobs in the U.S. and Canada. As can be seen in figure 2 the unemployment rate in Canada is decreasing. According to the Canadian foreign affairs 3.1 million new better paid jobs have been created since 1994¹³. But according to ‘better choice.ca’¹º it is true that the unemployment rate has fallen but a large amount of good paying jobs has disappeared. The jobs created instead aren’t paid as good, in fact according to ‘better choice’ the wages of the bottom 50% of the workers has fallen. They state that the only real winners are the corporate elites, who have now cheaper labor and earn a lot of money.
Contrary to the U.S. Canada is promoting Mexican immigrants. “Canada has its arms open to immigrants, and the United States has its arms closed. It's as simple as that," accountant Marcos Ramírez Posadas.
This is because Canada need more skilled people, the population is shrinking and if Canada want to continue to grow, it will need more skilled people¹¹.
Weird is that Canada is relaxing its immigration rules to attract foreign skilled labor, while ‘better coice.ca’ stated that in particular that kind of jobs were disappearing.
Figure 3 is showing the U.S.-Canadian trade, where U.S. import is the Canadian export and U.S export is Canadian import. Canada its trade surplus on the U.S is now nine times bigger than before the NAFTA. Also the export and the import increased tremendously. Canada’s biggest trade partner is the U.S., 86% of all exports goes to U.S.¹², as well as 74% of all the imports come from the U.S. ¹².
Figure 3
According to betterchoice.ca, ´the rise in export almost entirely explained by the drop in the Canadian dollar´.
Figure 4
As for the Canadian trade with Mexico it also had a tremendous grow, which makes Mexico Canada’s third largest trade partner¹⁵.
3. United States
According to the CBO study²² NAFTA has only a small influence of the GDP of the U.S. The study advocates that the growth in trade only realized a 0.4% annual growth in GDP. Figure 5 shows the GDP of the U.S.
Figure 5
One of U.S´s biggest fears was the loss of jobs. As figure 7 shows, the unemployment rate at this moment is lower than the moment the NAFTA came in to force. But according to Jeff Foux¹6, from the economic policy institute, NAFTA destroyed almost 800.000 jobs, real and potential, especially those for non-college educated workers. More or less, it is the same situation as in Canada according to the critics, jobs disappear and the ones they get in return have less salary and are less secure.
But since trade between U.S. and Mexico already exists before the NAFTA and most likely the trade would have grown more or less the same if NAFTA didn’t exist, I am wondering if the job loss to Mexico is really to blame on NAFTA. And because the unemployment rate is decreasing it is hard to tell who is right.
Figure 6
Source: Bureau of Labor Statistics, Current Population Survey
U.S. trade with the other member states has grown significantly as you can see in figure 3 and 7. Although their import has grown faster then their export which has lead to a trade deficit. 23% Of al U.S exports go to Canada which makes it the nr. one export market, on the second place is Mexico with 13.5%. Also the Canadian imports are at nr one with 17.5% and Mexico is third with 14.5. Critics blame the NAFTA for a huge increase of the trade deficit of the U.S., but again, how would the trade balance look like without the NAFTA? U.S. has a trade deficit with almost all their trade partners, so is it really NAFTA to blame?
Figure 7
4. Mexico
At the enforcement of NAFTA Mexico was in a financial crisis, this crisis was caused due to a fast devaluating Peso¹⁷. NAFTA was responsible for the quick recovery after this crisis, due to its trade with the U.S. According to Joseph E. Stiglitz¹⁸, Nobel price winner, Mexico only benefit during the post-crises period. Mexico’s GDP per capita only grow 1% over the last 10 years, while the grow used to be higher during the post-NAFTA period.
As stated in the introduction, more than 50% of the population is extremely poor. The fear that critics had of Mexico being a third world development country with too low wages, NAFTA promoters responded that Mexico would become more equal to the northern-neighbours due to NAFTA. According to Joseph E. Stiglitz¹⁸, unfortunately, this has never happened. In fact the gab between the incomes has grown by more than 10%, and the wages in Mexico are declining with 0,2% each year.
The Poverty among the corn farmers in Mexico is rapidly increasing. According to Monica Campbell and Tyche Hendricks, Chronicle Foreign Service and Chronicle Staff Writer¹9, an estimated 1.5 million agricultural jobs are lost because of the NAFTA. The farmers can not compete with the subsidized prices of the U.S. So they need to find other jobs.
As an affect of the huge increase in import and export (179% growth only to the U.S.), as you can see in figure 4 and 7, the most jobs are found in a maquiladora, which is a factory or assembly plant used for export production. About 40% of all the maquiladoras are owned by the U.S.²º
Figure 4
Figure 7
The dark site of these factories are their long working hours, low wages, bad health care and compensation costs, and weak- or non- existence of labor and environmental law²¹.
Critics state that there are more accidents in the maquiladoras since the NAFTA. But isn’t it a logical aspect that with the growth of export, there is a growth in the number of plants so the increase in accidents would be a logical consequence? And again, is it NAFTA to blame? Wouldn’t it be exactly the same without the existence of NAFTA? Most likely the trade between Mexico and the U.S. would also have developed without the NAFTA, and it would have the same consequences as there are now.
6. Conclusion
After my research it is clear that NAFTA is very controversial. On one hand it provides a lot of benefits for all the three nations but on the other hand it brings a lot of adversity.
By my opinion the NAFTA is beneficial for Canada. Although critic’s state that jobs has declined, especially the well paid ones, the government statistics tell otherwise. For me it will be strange if a government invest in attracting foreign labor when there is a surplus in your own country. Also the unemployment rates tell a different story, they state that unemployment is at his bottom rate since 5 years at 6,1%.
Evaluating the trade and GDP, both show significant growth figures. My concern is that Canada is very depending on the U.S., since that is their biggest market. But as long as trade remains stable, NAFTA is beneficial for Canada.
For the U.S it is a different story. Unemployment has fall compared to 1994, but around 2001 it was higher. Critics of the NAFTA claim a loss of more or less 800.000 jobs and there is nobody who denies it.
Import and export has increased tremendously, as same as the trade deficit. I think that NAFTA especially benefits the large MNE’s and companies related to trade. But I also think that without the NAFTA the situation remains the same. Because a trade agreement between Canada and the States already exists before the NAFTA. And since the U.S always has been very eager to get in to the Mexican market, there wouldn’t be many differences.
For Mexico it’s hard to find any benefits of the trade agreement. Although the import and export showed an immense growth the consequences for the citizens are miserable. The GDP per capita only has grown 1% in 10 years and still more than half of all Mexicans are living under the poverty line. The farmers have a hopeless fight against the cheap agricultural products of the U.S., which already have cost 1,5 million jobs.
Instead of being a farmer they could work in the maquiladoras, which have poor work circumstances, like low wages and weak- or non- existence of labor and environmental law.
Again, I think the situation wouldn’t be very different without the NAFTA. Like I explained before, the increase in export and import will still exist, probably it would have developed slower, but it will be there. Also in Mexico, only the large MNE’s and the companies related to trade will become richer.
So my overall conclusion is that NAFTA above all is beneficial for the already rich MNE’s, and they will become richer because of this agreement. NAFTA makes it easy to trade within the trade block. But without the NAFTA the same problems will occur, only the development of it would have been slower.
Notes
- CIA world factbook
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- http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/LACEXT/MEXICOEXTN/0,,contentMDK:20233967~pagePK:141137~piPK:141127~theSitePK:338397,00.html
- http://www.economywatch.com/world_economy/canada/structure-of-economy.html
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Chris Hawley, Arizona republic,
- http://www.tcm-mec.gc.ca/mexico/agri-en.asp
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Jeff Faux, Economic Policy Institute,
- http://en.wikipedia.org/wiki/Economy_of_Mexico#NAFTA
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About the Author: Joseph E. Stiglitz, professor of economics at Columbia University and author of "The Roaring 90's," was chief economist of the World Bank from 1997 to 2000. He won the Nobel Prize in economics in 2001,
- Monica Campbell and Tyche Hendricks, Chronicle Foreign Service and Chronicle Staff Writer, http://www.bilaterals.org/article.php3?id_article=5715
- http://fpc.state.gov/documents/organization/34486.pdf