Regional Cooperation: NAFTA 4/19/2010

Regional Trading Blocs Levels of Economic Integration Free trade area Customs union Common market Economic union Trade within preferential trading blocs of one sort or another accounts for nearly 75% of global trade

Regional Trading Blocs Potential Benefits Economic Encourages increased trade activity Access to new markets and increased access to traditional markets Economies of scale Increased competition Stimulates investment as alternative to non-bloc trade Cheaper products Encourages and facilitates global multilateral trade negotiations Increased bargaining power Facilitates cooperation and compromise Potential to target benefits from trade Political Counter to alternative economic and political powers Encourages political stability and democratic politics

Regional Trading Blocs Concerns Sectoral losers Agriculture Non-bloc losers Global trade tends to suffer as blocs may distort trade by discouraging trade outside the bloc Trade diversion: more efficient goods from non-bloc members are replaced by goods from less efficient producers within the bloc Off-shoring Benefits and drawbacks are likely to be present simultaneously. The overall impact on national, regional, and global economic wellbeing will vary depending on the structure of the bloc agreement

What is NAFTA? Trilateral Free Trade Area Safeguards Canada, United States, Mexico Free Trade Area Eliminates tariffs and barriers to investment Intellectual Property Rights Safeguards Labor protection Environmental Protection Dispute Resolution Mechanisms Gradual Implementation Final aspects implemented Jan 1, 2008

Benefits of NAFTA Increased trade between the three countries The value of intra-N. American trade has more than tripled Intra-N. American trade has grown faster than trade with countries outside of NAFTA Since the agreement all three countries have grown economically Job creation and reduced unemployment Facilitates the movement of skilled labor Increases in productivity, spurs competition and innovation Technology transfers Secures access to critical resources, esp. energy Strengthen ties to critical allies

Drawbacks of NAFTA Certain sectors within a given country face retraction and its workers face wage reductions or unemployment Empowers MNCs at the expense of workers Facilitates outsourcing Improves the bargaining position of corporations vis-à-vis workers Drives down wages Social spending decreased while poverty levels remained stable or increased and inequality increased Dislocation of rural communities leads to increased migration, both internal and international Lack of enforcement of periphery regulations on labor standards, environmental standards, worker re-training, etc.

Drawbacks of NAFTA Incomplete Does not cover all countries in the region, let alone the global trading system Significant exceptions to rules exist Does not provide for the free movement of labor, esp. unskilled Worker benefits, ex. pensions, need to be made portable New problems have arisen that NAFTA does not (adequately) address Health concerns Quality and safety standards Border security and national security Inability to effectively adjust NAFTA to changing conditions

Complicating Factors of NAFTA What determines “success”? Most objections do not touch on the core concerns of the treaty; problems may be solved through additional regulations Indeterminate causality and globalization Trade with Mexico was growing and would have continued to grow even without NAFTA Alternate explanations for loss of manufacturing jobs: The US shift from heavy to light manufacturing and high-end services The rise of China and India as manufacturing centers Increasing energy costs Bilateral agreements may have achieved similar results Ending NAFTA would not necessarily reverse its consequences

Case Study: Agriculture Helps American agribusiness Increased export of U.S. agricultural goods Helps American consumers Reduced price and increased availability of agricultural products from Mexico Helps Mexican agribusiness Increased access to export markets Hurts small-scale agriculture in Mexico Less competitive in internatl markets than large-scale produces Hurts Mexican consumers of staple agricultural goods Change in market incentives leads to reduced production Reduced production and increased export increase domestic cost

Concluding Remarks on NAFTA The economic effects of NAFTA specifically are probably fairly small but positive and have expanded GDP in all three countries only “very slightly” Most economic arguments against NAFTA talk about absolute losses and/or factors that may be better explained by non- NAFTA conditions The social effects of NAFTA are mixed but, within current structures, probably harms more individuals Adequate safety nets for the (predictable) dislocated were never established Reduced social spending concurrent to and encouraged by NAFTA have emphasized the negative impacts on the poor and lower middle class workers