NAFTA Analysis

The North American Free Trade Agreement, or NAFTA, was completed in 1994 and makes a number of bold steps and implications for trade between the United States, Mexico, and Canada. However, at the same time, there are many who also believe that the overall impact that NAFTA has had, especially in terms of economics as a whole, is actually a negative one. These same individuals believe that unifying the trade elements of these three countries is not necessarily the ideal solution and, indeed, there is some precedent for this, as will be further explored later. There are also many, though, who believe that NAFTA has been extremely beneficial even though it has only been around for a little over two decades. To these individuals, the ability of NAFTA to generally improve the economies of all three major countries involved is a huge boon. To them, NAFTA will only continue to improve and evolve, making it have an excellent way for all three countries to invest in the future. Therefore, in order to better understand NAFTA and what it means for these countries, it is necessary to take a closer look at some facets of it.

One of the first major facets of NAFTA is that of illegal immigration, especially that of immigration from Mexico to the United States. To that end, one of the primary benefits that were touted through NAFTA was that it would reduce this illegal immigration and would make Mexico as a country much more self-sufficient, thereby allowing illegal immigration to reduce through more natural means. However, one source points out that this has not happened and, in fact, illegal immigration has only continued to increase after NAFTA was put into place. More specifically, this source finds that one of the key expectations of NAFTA was that the United States would begin to invest more and more into Mexico and, in fact, many Mexican officials helped with NAFTA under this assumption (Uchitelle, 2007). No doubt, this increased investment, which would, ideally, be beneficial for both parties involved, would allow for Mexico to prosper and was one of their most important facets within NAFTA.

Another of the key reasons for NAFTA coming about at all is that of energy, and it is here that some of the most prominent pros and cons of NAFTA begin to make themselves more obvious. Indeed, according to another source, NAFTA negotiations actually allowed Mexico to integrate its oil reserves with the United States and Canada financial capital and overall technological expertise (Hufbaur & Schott, 1993). Unfortunately, things were not so simple. Mexican trade experiences a far wider range of contingent restrictions than either the United States or Canada which serves to sully these benefits somewhat for all countries involved (Hufbaur & Schott, 1993). Furthermore, NAFTA actually failed to stop the monopoly that had largely been held by a Mexican oil company, Pemex, on a number of areas related to oil, such as that of fuel oil sales and oil exploration among others (Hufbaur & Schott, 1993). This was detrimental because this oil was one of the key ways that Mexico was able to stay competitive in a rapidly evolving economic environment, and the inability of NAFTA to properly integrate this represents one of its most profound cons. 

At the same time, though, there are some benefits to this that bear mentioning as well. For instance, according to this same source, one of the key advantages of NAFTA as a whole is that it serves to liberalize restrictions on the flow of investment between these three countries (Hufbaur & Schott, 1993). This is particularly advantageous because, according to this same source, it allows for the rationalization of production by various firms on a regional level, and it reinforces the economic reforms that have been put into place by Mexico in order to improve the general investment climate within it (Hufbaur & Schott, 1993). No doubt, this means that the economic element of NAFTA is alive and well, as these elements of investment have remained prominent even today. 

Tariffs are another important part of NAFTA and to that end, there has been a gradual phasing out of a number of different tariff concepts over the past few decades following NAFTA's creation. For instance, according to another source, 1994 saw the removal of Mexican tariffs on things like citrus fruit and US sorghum, as well as US tariffs on Mexican corn, poultry, beef, and other foods (Hufbauer, 2005). This phasing out of tariffs is an ongoing process, too, allowing it to have some degree of flexibility, meaning that this flexibility is one of the primary advantages of NAFTA as a whole. As recently as 2008 there have been phase-outs, such as that of the elimination of US tariffs on Mexican concentrated orange juice, peanuts, and winter vegetables, as well as Mexican tariffs on corn and dried beans (Hufbauer, 2005). This might seem middling, given the relatively small impact that tariffs might appear to have, but in reality it is huge because these tariffs are an integral component of the economies of many of these countries, especially Mexico, and the ability of NAFTA to regulate and oftentimes reduce or eliminate these tariffs means that trade between these countries, especially that of Mexico and the United States, is encouraged that much more. 

On the subject of commerce and agriculture, another key benefit of NAFTA is that it has successfully regulated a number of disputes, further increasing the overall positive impact of NAFTA. For instance, according to this same source, there were domestic concerns within the US of the growth of wheat imports from Canada, although these Canadian wheat exports to the United States are relatively small compared to that of total wheat production in the United States (Hufbauer, 2005). Because the United States remained such a key exporter of wheat, this led to a number of concerns and disputes regarding pricing (Hufbauer, 2005). However, thankfully, NAFTA was able to largely smooth over this dispute by putting into place elements that served to ensure that pricing was not an issue with regards to wheat. 

Lastly, the overall impact of NAFTA on the United States, perhaps the most important country of the three, must be examined. To that end, another source actually finds that trade liberalization, many believe, allows for gains to be observed from the increased trade with Mexico based on comparative advantage, primarily because of cheaper imports from Mexico (Burfisher, Robinson, & Thierfelder, 2001). Through a number of analyses performed by this study, the authors concluded that the overall impact of NAFTA would be minor, but still positive, for the United States economy but larger, and still positive, for Mexico (Burfisher, Robinson, & Thierfelder, 2001). Essentially, this means that NAFTA has greatly improved the relations between these countries simply by virtue of the facilitation of trade that has become such a core component of NAFTA. Through this, then, it is possible for the small benefits that were found through this data analysis to actually be made stronger through trade with both Mexico and Canada. Meanwhile, the larger positive impact felt by Mexico will be able to be made that much better thanks to this increased trade. 

Ultimately, it is clear that NAFTA stumbled a number of times throughout its relatively short history, angering many on all three countries in the process. However, as has also been shown, NAFTA, in and of itself, is cumulative, meaning that it is constantly changing in terms of its overall implications. This means that there are new pros and cons that can be observed as a result of NAFTA that are emerging every day, and as a result, it is difficult to truly say that NAFTA is positive or negative. Through this analysis, though, it seems clear that the overall effect of NAFTA has been a positive one, despite the valid complaints leveled against it by many others. If lines of communication can remain open on the part of all three countries, then, it seems clear that NAFTA can actually continue to prosper too.

References

Burfisher, M. E., Robinson, S., & Thierfelder, K. (2001). The impact of NAFTA on the United States. The Journal of Economic Perspectives, 15(1), 125-144.

Hufbauer, G. C. (2005). NAFTA revisited: Achievements and challenges. Peterson Institute. 

Hufbauer, G. C., & Schott, J. J. (1993). NAFTA: An assessment. Peterson Institute. 

Uchitelle, L. (2007). NAFTA should have stopped illegal immigration, right? Nafta, 1, 12.