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20 Years On, NAFTA’s Effects Difficult to Measure, Report Says

Monday, March 11, 2013

20 Years On, NAFTA’s Effects Difficult to Measure, Report Says

The Congressional Research Service recently issued a report examining NAFTA 20 years after it was signed. The report finds that NAFTA did not cause the huge job losses in the U.S. predicted by those who feared that companies would move production to Mexico to lower costs, nor did it yield the large economic gains anticipated by supporters.

The economic impact of NAFTA is difficult to measure, the report states, since trade and investment trends are influenced by numerous variables such as economic growth patterns, inflation and currency fluctuations. Between 1993 and 2012 the U.S. saw trade gains of 506% with Mexico and 192% with Canada, compared to 279% with non-NAFTA countries. Many economists have credited NAFTA with helping U.S. manufacturing industries become more globally competitive through the development of cross-border supply chains, and the agreement was instrumental in the integration of the North American auto industry. However, the net overall effect of NAFTA on the U.S. economy appears to have been relatively modest, primarily because total trade with Canada and Mexico was less than 5% of U.S. GDP at the time NAFTA went into effect.

With respect to Mexico, a World Bank study found that NAFTA helped Mexican manufacturers adapt to U.S. technological innovations more quickly, likely had positive impacts on the number and quality of jobs, reduced wide variations in the GDP growth rate, and increased the levels of synchronicity in business cycles in the three partner countries. Some have argued that NAFTA’s success in Mexico was limited by the fact that it was not supplemented by improvements in education, industrial policies and/or infrastructure investment that could have promoted deeper regional integration.

The study adds that from the Canadian perspective the important consequence of NAFTA may have been that “many of the fears of opening up trade with the United States did not come to pass.” For example, Canada “did not become an economic appendage” to the U.S., did not lose control over its water or energy resources, and did not see its manufacturing sector gutted.

“Given the increasing number of regional trade agreements throughout the world and the ongoing Trans-Pacific Partnership” negotiations, the report states, “one general question that policymakers may consider in forming future trade policy is whether or not NAFTA has lost its relevance.” The report notes that NAFTA has served as a model for other FTAs the U.S. and Mexico have negotiated as well as for multilateral negotiations, particularly in areas such as market access, rules of origin, intellectual property rights, foreign investment, dispute resolution, worker rights and environmental protection. Going forward, however, “both proponents and critics of NAFTA agree that the three countries should look at what the agreement has failed to do as they look to the future of North American trade and economic relations.” Policies could include strengthening institutions to protect the environment and worker rights, considering the establishment of a border infrastructure plan, increasing regulatory cooperation, promoting research and development to enhance the global competiveness of North American industries, and investing in more border infrastructure to make border crossings more efficient. 

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