Gaining sides in the enactment of NAFTA
Putting to the textile industry as textiles and apparel, positive impact seems to outweigh the negative impact upon enactment of NAFTA. his industry size can be defined by analyzing three relevant information: gross national product (GNP), employment rates, and the amount of establishments in this particular specific sector both in the Mexico and United States. The study states that NAFTA helped Mexican manufacturers to practise to U.S. technological innovations more quickly and likely had positive impacts on the jobs qualitatively and quantitatively. Mexico has a strong capability when it comes to skilled and professional labour as such engineers and technician in textile industry as American companies have been operating in the country for over 30 years before even NAFTA was been put into effect, they have brought their technical expertise with them. There are more established R&D centres in Mexico, as well as technical centres of excellence to train workers in higher skilled areas later on when NAFTA was implemented. This benefits Mexico in the other way round that enables them to compete with Asian imports which was a lucrative industry for them. Moreover textile companies in the United States need not worried of shortage of short or long term skill/unskilled labour as Mexico is the place where cheap and efficient labour lies. The Mexican industry's wages and benefits don't even top $2 per hour versus $13 to $14 per hour in the States. It's not good for workers in the U.S., but indirectly ensuring the long-term survivability of these companies." Another finding was that since NAFTA went into effect, several economists have noted that it is likely that NAFTA contributed to Mexico’s economic recovery directly and indirectly after the 1995 currency crisis. Mexico responded to the crisis by implementing a strong economic adjustment program but also by fully adhering to its NAFTA obligations to liberalize trade with the United States and Canada. NAFTA may have supported the resolve of the Mexican government to continue with the course of market-based economic reforms, resulting in increasing investor confidence in Mexico. The swift growth rate of Mexican imports since the second half of the 1980s was induced not only by the elimination of non-tariff barriers to foreign trade, but also by the expansion of domestic demand amidst a persistent appreciation of the real exchange rate. Facilitated access to external funds resumed at that time and likewise played a role. After decades of tightly restricted access to foreign products, Mexican consumers began to eagerly satisfy their demand for a wide variety of goods and brands from abroad. However, to some extent, such import demand also mirrors the strong relations between exporting firms and foreign suppliers. The case of maquiladoras, which make up the most successful export sector to date, is typical because they rely on imported inputs and materials, and have weak relations with local suppliers. Another factor that boosted import penetration to the domestic market, and that should not be ignored, is the breakdown of some internal linkages in Mexico domestic productive structure, as local producers, as such in the textile industry have been put out of business by foreign competition. Applied studies (inter alia by Aroche, 2005; Moreno-Brid, 2001; Pacheco-Lopez, 2004) revealed that, in the last fifteen to twenty years, the Mexican economical structural dependence on imports has increased significantly. These results indicate that the long-term income elasticity of demand for imports (essentially manufactured goods) like textiles, ie: cotton, apparel, etc has more than doubled over this period where it was previously valued between 1.31% and 1.56%, it has now risen to almost 3%. This implies that if Mexican real income is to grow at an annual average long-term rate of 5%, its imports in real terms will need to expand yearly by 15%. As a benchmark, it is worth recalling that during 1988 and 1999, when the US economy grew in robust, Mexican exports increased at an average annual rate of 10%. Nevertheless in the United States side, when NAFTA was enacted, U.S. foreign direct investment (FDI) in Canada and Mexico more than tripled to $348.7 billion, including the textile industry. Canadian and Mexican FDI in the U.S. grew to $219.2 billion. NAFTA reduces investors' risk by guaranteeing they will have the same legal rights as local investors. Through NAFTA, investors can make legal claims against the government if it nationalizes their industry or takes their property by eminent domain. The main effect has been a huge increase in United States agricultural exports to Mexico. U.S. agricultural exports to Mexico have been continuously growing since NAFTA started, despite a decrease in world and aggregate United States exports. They account for more than seven billion dollars, which is approximately 6% of the total U.S. exports to Mexico. Another staggering statistic is that United States agricultural exports to Mexico have doubled since 1994 and U.S. supplies more than 75% of Mexican agricultural products. The United States exports to Mexico that grew the most in terms of percentage volume change were cotton, apples, pears, cattle and dairy products. The positive impact has been a slight increase in United States jobs in the agricultural industry. This was due to the increased supply of agricultural products. Moreover consumer benefits from lower-priced imports can be especially large for lower-income workers because a larger share of their income goes for apparel, footwear, consumer electronics, basic foodstuffs, and other heavily imported products. They need not spent much on current expensive available items that can burden their savings. Consumers from both parties could work to more effectively use their comparative advantages and to respond more efficiently to changing economic conditions.
Losing sides on the enactment of NAFTA
To the side of the States, NAFTA is horrible in the first place as it eliminates the middle class and it allows company to lower their wages here in the United States threatening to move to Mexico. The U.S. has suffered a decrease in labour supply as a result of NAFTA. There has been a substantial decline in employment in the United States textile and apparel sectors. The building of maquiladoras was largely responsible for this decline. Maquilador as are foreign owned factories in Mexico, most of which are United States owned. While the United States has shifted many jobs to Mexico because of these factories, there has been debate about the exploitation of the low-wage workers. Despite this employment shift, the agricultural industry in the United States has experienced a slight increase in employment. This boost in United States labour supply in the agricultural industry helps to balance out the decrease in the textile industry. In fact Maquiladora workers were often exploited; NAFTA expanded the maquiladora program, in which U.S.-owned companies employed Mexican workers near the border to cheaply assemble products for export to the U.S. These workers have "no labour rights or health protections, workdays stretch out 12 hours or more, and if you are a woman, you could be forced to take a pregnancy test when applying for a job," according to Continental Social Alliance. U.S. wages were suppressed as not all companies in these industries moved to Mexico. When it became a choice between joining the union or losing the factory, workers chose the factory. Without union support, the workers had little bargaining power. The main losing party should eventually go to Mexico as Mexico's dependence on the U.S. economy has increased markedly. Although Mexico has implemented a dozen trade agreements which have removed trade barriers with over 40 countries, more that 80% of Mexican trade is still with the U.S. International investment by both party, U.S. and Mexico has also been affected by NAFTA. With the removal of Mexican limits on foreign investment, as well as the removal of tariffs, it has become much more profitable for Americans to invest in Mexico. Nevertheless it is obvious that the controversy surrounding NAFTA still exists till this very day difficult to get a consensus on whether the overall effects resulting from NAFTA are positive or negative for the countries involved.
Free Trade or Domestic Industry
What is a more important issue today: pursuing free trade or protecting American industries such as the textile industry? Here, I believe that pursuing the free trade agreement without looking into vulnerable industry like textile is much better applying. Big economic powers like the States in particular are not the only losers to consider here. Putting this in a simple analogy, many smaller developing countries have relied on the quotas to build nascent textile industries of their own. Countries like Bangladesh, Cambodia, and Sri Lanka, with weak and unstable economic and political mechanism, becoming dependent on exporting textiles, and they may be seriously affected their exports will be forced to compete with China and India. The textile factory workers in these countries—the ones who will soon lose their jobs—represent one of the most vulnerable segments in society. They include the poorest and least educated citizens in countries where social welfare safety nets are almost nonexistent. Most often the workers are women, as the global economy has come to rely on their cheap work. Nevertheless, continuing to enforce textile quotas to protect U.S. firms and workers will also drive up the cost of clothing and other textiles for the American consumer. The quotas also stand to pose a significant political obstacle to US-Mexico relations and for international credibility more broadly, given that such quotas are clearly inimical to the free trade rhetoric so often brought up by Washington. In exports basis, the U.S. textile and apparel industry is strongly NAFTA dependent, free trade agreement with about half of total exports going to either Canada or Mexico in 2001. The picture is different for imports: less than one fifth of sector imports come from NAFTA countries. However, it’s better to notice that imports from NAFTA partners grew at more than twice the rate of exports to NAFTA partners between 1993 and 2001, mostly due to strong increases in apparel imports from Mexico. In contrast, the U.S textile industry has benefited from NAFTA by expanding exports to both Mexico and Canada, especially of high and good quality textiles. In the current political and economic climate, it will be difficult to push the free trade agenda. A political backlash against greater economic openness has been building throughout the Americas 13 since the late 1990s, and it seems to be reaching its climax in the 2004 American elections. But if, as the evidence strongly shows, free trade accelerates the process of development, raising output, leading to a convergence of relative commodity prices, and ultimately reducing poverty and inequality in all three countries, then it is important to push this free trade process forward, institutionalize it, and extend it to the rest of the hemisphere. Not only does free trade have positive social and economic benefits, it also has important political benefits. Reasons for protectionism are many and varied, ranging from the eternal search for an optimal tariff that will deliver the most favourable terms of trade, while enhancing government (tariff) revenues, protecting infant industries to narrow and etc. One thing is clear, however, the integration process cannot be moved forward without political leadership and the elimination of corruption, securing of contracts and property rights, the reduction of distorting internal taxation policies, and the creation of a favourable climate for foreign investment. Yes, free trade may have damaged textile jobs. However, the agreement has not brought about the death of the workforce. Throughout the first 15 years of the North American Free Trade Agreement, the United States income and employment grew steadily which counter-balance the loss they faced during the initial phase of the free trade. In conclusion, the initial years of a free trade implementation have created a clear and concise trend revealing increased trade in the next phase of time. The act of protecting vulnerable sector, textile sector will clearly show a loss of revenue in time to come for a free trade.
Appendix
Autex Research Journal - Home Page. (n.d.). Retrieved July 1, 2009, from
Faux, G. P. (1993). The failed case for NAFTA: The ten most common claims for the North American Free Trade Agreement and why they don't make sense (Briefing paper / Economic Policy Institute). Washington, DC: Economic Policy Institute.
Grieco, P. L., Hufbauer, G. C., Schott, J. J., & Wong, Y. (2005). NAFTA Revisited: Achievements and Challenges (Institute for International Economics) (Institute for International Economics). Washington, DC: Institute For International Economics.