Winners and Losers: The Costs and Benefits of NAFTA

NAFTA (North American Free Trade Agreement) came into force on January 1, 1994. The agreement has affected the US, Canada, and Mexico by setting out trade rules, reducing or removing tariffs for importation and exportation of many goods and services, and putting in place an infrastructure to handle disputes arising as a result of those rules (including anti-dumping and countervailing rules and the agencies responsible for administering dispute settlement provisions).

Mexico’s Gains and Losses

Mexico’s employment increased, but much of it was in the industries taking advantage of low-wage factories run by US companies, which the promoters of NAFTA promised would disappear.  The agricultural sector was devastated and the share of jobs with no security, no benefits, and no future expanded.

Canada’s Gains and Losses

NAFTA’s effect on the social cohesion of Canada’s society, and the well-being of a large majority of Canadians, has been negative.  Some sectors of the economy, and some income groups have benefitted, but the overall effect has not been good.  While average income growth under free trade has registered its worst performance of any comparable period since World War II, income inequality(after tax and transfers) has grown for the first time since the 1920s.

The most striking feature of this growing inequality has been the massive gains of the richest 1% of income earners at the expense of most of the population.  The growth of precarious employment, the undermining of unions as a countervailing power to transnational capital, the erosion of the Canadian social state, and heightened economic dependence on the US are the hallmarks of the free trade era in
Canada.

National Debts and Trade Balances Under NAFTA

The United States had a small but relatively stable trade deficit with Canada and Mexico(combined) in the 1980s and early 1990s.  After NAFTA took effect in 1994, this country developed large and rapidly growing deficits with these trade partners.

Since NAFTA started, Mexico’s economic policy, based on an open-market economy, resulted in a poor performance of its national economy.  Despite the increase in its trade surplus with the US, its global trade deficit is growing.

During the NAFTA era, Canadian grain and dairy farmers have faced steeply rising debt.  Agricultural prices have plummeted, farm incomes have collapsed, and critical domestic agriculture safety net programs have dismantled.  International free trade and domestic policies have proved to benefit only the largest agricultural businesses, while the majority of farmers and consumers have lost.  The rate of Canadian farm bankruptcies and delinquent loans is five times that before NAFTA.

Conclusion

NAFTA is a social experiment which has accrued 16 years of measurable data. As we enter a new decade, there is no better time for a detailed evaluation of the costs and benefits to all parties to the agreement. Only then can we determine whether the experiment is worth continuing.

Sources

1.) http://www.gfmag.com/archives/25/931-focus-nafta-terms-of-trade.html

2.) http://www.epi.org/publications/entry/bp173/

3.) http://epi.3cdn.net/6def605657a958c3da_85m6ibu0h.pdf

4.) http://www.citizen.org/publications/release.cfm?ID=6788

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