1. Regional Cooperation: NAFTA
4/19/2010

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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.

8. 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

9. 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

10. 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

11. 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