From NAFTA to USMCA

NAFTA?
 The North American Free Trade Agreement
(NAFTA) is an international agreement signed
by the governments of Canada, Mexico, and
the United States, creating a trilateral trade
bloc (Free Trade Area) in North America.
 NAFTA created the largest free trade area

and richest market in the world.

 The North American Free Trade Agreement
(NAFTA) is an agreement that brought together
three North American countries, i.e., the United
States, Canada, and Mexico, to form a trading bloc
in North America. The agreement aimed to reduce
trading costs and make North America a
competitive trading bloc in the global market
place.
 NAFTA is the world’s largest trade agreement, with
the three member countries reporting a
gross domestic product (GDP) of more than $20
trillion
NAFTA?
 The agreement came into force on January 1,
1994. The goal of NAFTA is to eliminate all
tariff and non-tariff barriers of trade and
investment between the United States,
Canada and Mexico.
NAFTA: Historical background
 The origin of a regional policy on the part of the US lay partly in
the debt crisis when the US acted quickly in the Mexican crisis of
August 1982 to ensure that a Mex materialise and thereby
jeopardise US financial stability. However, it was the com which
led to the appreciation of the dollar and the associated dramatic
deteriorati deficit in the first half of the 1980s which created a
real groundswell for change i 1992, 124). In such a climate, the
Regan administration responded favourably to a C a Canada-US
Free Trade Agreement (CUSFTA). The CUSFTA was concluded in
negotiated in the 1980s, was the natural outgrowth of a strong
working relationship the Bush administration also accepted
Mexico's initiative to negotiate a bilater negotiations from 1991,
which Canada decided to join and which in summer of 1992
Dominated by the US, NAFTA involves the creation of the world's
largest FTA, w of $6.3 trillion and a population of 363 million in
1990 (W
NAFTA: Historical background
 The incorporation of Mexico (in the agreement with developed
countries, namely, was the first case of a developing country's accession
to this type of agreement with a fully reciprocal basis, and this equation
added another aspect to the issue. It was an very unequal partners. The
three partners very much differ in terms of respective l and economic
capabilities. The US and Canada are highly advanced industrialised co
already united in the CUSFTA in 1989. Mexico, although ranking as a
'newly industr some time now, shows a per capita gross national
product ratio of 1 :6 vis-à-vis its N Apart from this major developmental
disparity, NAFTA is also characterised discrepancy in the size of the
economies: the US accounts for almost 88 per cent of product of NAFTA;
Mexico, 5 per cent; and Canada, 7 per cent. In the political sph US have
stable democratic systems; Mexico is governed on semi-authoritarian
basis b Revolutionary Party (Schirm 1997, 68). The agreement promised
to make the who continent into one economic zone and perhaps, even
set a precedent for trade and e between the wealthy North and the less
developed South (F
NAFTA:Objectives
 From the perspective of U.S. strategic interests, relations with Mexico are
a priority.
 The main motives that guided the administration of President George
Bush in pursuing the signing of NAFTA were to link Mexico’s economic
development and consequent rise in living standards with U.S. strategic
security interests. These include two of the most important: raising the
standard of living in Mexico will reduce immigration pressures on the
U.S., both from legal and from illegal immigrants, and reduce the
problem of drug smuggling into the U.S. market across the southern
border. In addition, U.S. support for Mexico’s reform and economic
development had another purpose: to identify Mexico as a model of
development for other indebted and politically unstable Latin American
countries. Also important from the U.S. perspective were the expected
economic effects of NAFTA, such as increased exports of U.S. goods,
lower prices for imported goods from Mexico, and the growth in the
number of factory jobs in the U.S. due to the increased export potential
of U.S. firms.
History of the North American Free Trade Agreement

 The idea of establishing the North American

free trade zone was first proposed by US
President Ronald Reagan as part of his
presidential campaign in 1980. President
Reagan’s proposal was inspired by the
success of the
European Economic Community that
stimulated trading activities among its
member countries.
History of the North American Free
Trade Agreement
 The talk for a common trade zone was
initiated in 1985 by Canadian Prime Minister
Brian Mulroney with a proposal to formulate a
Canada-US free trade agreement. The
negotiations commenced in 1986, and the
two countries signed the agreement in 1988.
The Canada-US agreement came into effect
on January 1, 1989.
History of the North American Free
Trade Agreement
 In 1990, then Mexican President Carlos Salinas initiated
discussions with the United States to join the North
American free trade zone. Consequently, Reagan’s
successor, President George Bush, began negotiations in
1991 for a North American trade agreement that would
bring together the United States, Mexico, and Canada.
 In 1992, President Bush (US), Prime Minister Brian
Mulroney (Canada), and President Salinas (Mexico)
signed the North American Free Trade Agreement. The
parties also signed two supplemental agreements on
labor and environmental protection. The legislatures of
the three countries ratified the agreement in 1993, and
it became active on January 1, 1994.
Historical Background
 The United States commenced bilateral trade
negotiations with Canada more than 30 years
ago, resulting in the U.S.-Canada Free Trade
Agreement, which entered into force on
January 1, 1989. In 1991, bilateral talks
began with Mexico, which Canada joined. The
NAFTA followed, entering into force on
January 1, 1994. Tariffs were eliminated
progressively and all duties and quantitative
restrictions
NAFTA: Objctives
 NAFTA fundamentally reshaped North American economic
relations, driving unprecedented integration between the
developed economies of Canada and the United States and
Mexico’s developing one.
 What are some of the key goals of the NAFTA?
 to reduce barriers to trade
 to increase cooperation for improving working conditions in
North America
 to create an expanded and safe market for goods and services
produced in North America
 to establish clear and mutually advantageous trade rules
 to help develop and expand world trade and provide a catalyst
to broader international cooperation

NAFTA:Objectives
 When negotiations for NAFTA began in 1991,
the goal for all three countries was the
integration of Mexico with the developed,
high-wage economies of the United States
and Canada. The hope was that freer trade
would bring stronger and steadier economic
growth to Mexico, by providing new jobs and
opportunities for its growing workforce and
discouraging illegal migration.
NAFTA:Objectives
 For the United States and Canada, Mexico was
seen both as a promising market for exports
and as a lower-cost investment location that
could enhance the competitiveness of U.S.
and Canadian companies.
 The United States had already completed

a free trade agreement (FTA) with Canada in

1988, but the addition of a less-developed
country such as Mexico was unprecedented
 It is important to mention the criticisms coming from various political
and social circles and concerns in the United States over the
negotiation and signing of NAFTA. The then head of the Federal
Reserve Board Alan Greenspan accurately characterized the
circumstances and atmosphere surrounding the NAFTA negotiation
process of the early 1990s: Clinton impressed me again that fall by
fighting for ratification of NAFTA. The agreement, negotiated while
Bush was still president, was designed primarily to phase out tariffs
and other barriers to trade between Mexico and the United States,
though it also included Canada. Labor unions hated it, as did most
Democrats and some conservatives. Few observers in Congress gave
NAFTA a chance. But Clinton argued that there was no stopping the
Earth – whether you wanted it or not, America was increasingly part of
the global economy, and NAFTA embodied the belief that trade and
competition create prosperity, and you need a free market to achieve
it. The White House finally made its stand, and after two months of
fighting, the agreement was ratified. 3
 . President George Bush has combined the implementation
of economic tasks on the international stage with the aims
of national interest of the United States. U.S. economic
activity on the international stage was intended to benefit all
NAFTA members (the United States, Canada, Mexico) and
participants in the GATT Uruguay Round. However, the
United States has made no secret of the fact that the main
goal of its acting is to ‘maintain and improve U.S. living
standards in the face of stiff foreign competition and
sluggish economic growth’.10 This reflects President Bush’s
views on how much attention the United States has attached
to economic issues. U.S. economic initiatives aimed primarily
at Western Hemisphere countries are one of the methods of
strengthening the U.S. position in the unipolar system
 President Bush triumphantly summed up the
successful conclusion of the NAFTA
negotiations on 12 August 1992: The Cold
War is over. The principal challenge now
facing the United States is compete in
a rapidly changing and expanding global
market place.
NAFTA:Proponents
 Supporters such as Presidents Bush and
Clinton countered that the agreement
would create hundreds of thousands of new
jobs a year, while Mexican President Carlos
Salinas de Gortari saw it as an opportunity to
modernize the Mexican economy so that it
would “export goods, not people.”

 Source:
NAFTA:Proponents
 Economists largely agree that NAFTA
benefited North America’s economies.
Regional trade increased sharply [PDF] over
the treaty’s first two decades, from roughly
$290 billion in 1993 to more than $1.1
trillion in 2016. Cross-border investment also
surged, with U.S. foreign direct investment
(FDI) stock in Mexico increasing in that period
from $15 billion to more than $100 billion
NAFTA:Opponents
 Opponents of NAFTA seized on the wage
differentials with Mexico, which had a per
capita income just 30 percent [PDF] that of
the United States. U.S. presidential candidate
Ross Perot argued in 1992 that trade
liberalization would lead to a “giant sucking
sound” of U.S. jobs fleeing across the border
NAFTA:Opponents
 One of the criticisms of NAFTA centers on the
destruction of American jobs. Critics argue that the
agreement resulted in US jobs relocating to Mexico,
even after participating countries signed the
North American Agreement on Labor Cooperation.
 The agreement affected thousands of American
workers after US companies relocated their
manufacturing facilities to Mexico to take advantage of
the lower wages and relaxed worker health and safety
regulations. In addition, according to the critics, the
agreement led to environmental degradation due to
the rapid industrialization in Mexico.
 What are the benefits of the NAFTA for U.S.
consumers?
 more free trade resulting in greater choices in
goods and services
 lower prices and improved quality products
 stronger health and safety standards
 improved economic stability in the U.S. marketplace
 a marketplace that is increasingly driven more by
supply and demand than by barriers to commerce
How did NAFTA affect the U.S. economy?

 In the years since NAFTA, trade between the

United States and its North American
neighbors more than tripled, growing more
rapidly than U.S. trade with the rest of the
world. Canada and Mexico are the two largest
destinations for U.S. exports, accounting for
more than one-third of the total.
How did NAFTA affect the U.S.
economy?
 NAFTA supporters estimate that some
fourteen million U.S. jobs rely on trade with
Canada or Mexico, and that the
nearly two hundred thousand export-related
jobs created annually by the pact pay 15 to
20 percent more on average than the jobs
that were lost.
How did NAFTA affect the U.S.
economy?
 On the other hand, critics of the deal argue that it
was to blame for job losses and wage stagnation in
the United States, driven by low-wage competition,
companies moving production to Mexico to lower
costs, and a widening trade deficit. The Center for
Economic and Policy Research’s (CEPR) Dean Baker
and the Economic Policy Institute’s Robert Scott
argue that the surge of imports after NAFTA caused
a loss of up to six hundred thousand U.S. jobs over
two decades, though they admit that some of this
import growth would likely have happened even
without NAFTA.
How did NAFTA affect the U.S.
economy? (negative)
 Many workers and labor leaders
blame trade agreements such as NAFTA for
the decline in U.S. manufacturing jobs. The
U.S. auto sector lost some 350,000 jobs since
1994—a third of the industry—while Mexican
auto sector employment spiked from 120,000
to 550,000 workers.
How did NAFTA affect the U.S.
economy? ( positive )
 Economists, including Gary Clyde Hufbauer and
Cathleen Cimino-Isaacs of the Peterson Institute for
International Economics (PIIE), have emphasized that
increased trade produces overall gains for the U.S.
economy. Some jobs are lost due to imports, but
others are created, and consumers benefit significantly
from falling prices and often improved quality of
goods. Their 2014 PIIE study of NAFTA’s effects found
a net loss of about fifteen thousand jobs per year due
to the pact—but gains of roughly $450,000 for each
job lost, in the form of higher productivity and lower
consumer prices.
How did NAFTA affect the U.S.
economy? ( positive )
 many economists assert that the recent troubles of U.S.
manufacturing have little to do with NAFTA, arguing that
domestic manufacturing was under stress decades before the
treaty. Research by David Autor, David Dorn, and Gordon
Hanson published in 2016 [PDF] found that competition with
China has had a much bigger negative impact on U.S. jobs
since 2001, when China joined the WTO. Hanson, an
economist and trade expert at the University of California, San
Diego (UCSD), says that the steepest decline in manufacturing
jobs—seventeen million to eleven million between 2000 and
2010—is mostly attributable to trade with China and
underlying technological changes. “China is at the top of the
list in terms of the employment impacts that we found since
2000, with technology second, and NAFTA far less important,”
he says.
How did NAFTA affect the U.S.
economy? ( positive )
 In fact, NAFTA helped the U.S. auto sector compete with
China, says Hanson. By contributing to the development of
cross-border supply chains, NAFTA lowered costs,
increased productivity, and improved U.S.
competitiveness. This meant shedding some jobs in the
United States as positions moved to Mexico, he says, but
without the pact, even more could have been lost.
“Because Mexico is so close, you can have a regional
industry cluster where goods can go back and forth. The
manufacturing industries in the three countries can be
very integrated,” Hanson says. These linkages, which have
given U.S. automakers an advantage over China, would be
much more difficult to achieve without NAFTA’s tariff
reductions and protections for intellectual property.
How did it affect the Mexican economy?

 NAFTA boosted Mexican farm exports to the

United States, which have
tripled since the pact’s implementation.
Hundreds of thousands of auto
manufacturing jobs have also been created in
the country, and most studies have found
[PDF] that the agreement increased
productivity and lowered consumer prices in
Mexico.
How did it affect the Mexican
economy? ( positive)
 The pact catalyzed Mexico’s transition from
one of the world’s most protectionist
economies to one of the most open to trade.
Mexico had reduced many of its trade
barriers upon joining the
General Agreement on Tariffs and Trade (GAT
T)
, the precursor to the WTO, in 1986, but still
had a pre-NAFTA average tariff level [PDF] of
10 percent.
How did it affect the Mexican
economy? ( positive)
 In addition to liberalizing trade, Mexico’s
leaders reduced public debt, introduced a
balanced-budget rule, stabilized inflation, and
built up the country’s foreign reserves. So
although Mexico was hard hit [PDF] by the
2008 financial crisis due to its dependence on
exports to the U.S. market—the next year,
Mexican exports to the United States fell 17
percent and its economy contracted by over 6
percent—its economy bounced back relatively
quickly, returning to growth in 2010.
How did it affect the Mexican
economy? ( Negative)
 Unemployment also rose, which some
economists have blamed on NAFTA for
exposing Mexican farmers, especially corn
producers, to competition from heavily
subsidized U.S. agriculture. A study led by
CEPR economist Mark Weisbrot estimated that
NAFTA put almost
two million small-scale Mexican farmers
[PDF] out of work, in turn driving illegal
migration to the United States.
How did it affect the Mexican
economy? ( Negative)
 Many analysts explain these divergent
outcomes by pointing to the “two-speed”
nature of Mexico’s economy, in which NAFTA
drove the growth of foreign investment,
high-tech manufacturing, and rising wages in
the industrial north, while the largely agrarian
south remained detached from this new
economy.
What was the impact on Canada?
( positive)
 Canada saw strong gains in cross-border
investment in the NAFTA era: Since 1993, U.S.
and Mexican investments in Canada have
tripled. U.S. investment, which accounts for
more than half of Canada’s FDI stock,
grew from [PDF] $70 billion in 1993 to more
than $368 billion in 2013.
What was the impact on Canada?
( positive)
 the most consequential aspect for Canada—
opening its economy to the United States, by
far Canada’s largest trading partner—predated
NAFTA, with 1989 entry into force of
the Canada-U.S. Free Trade Agreement
(CUSFTA). Overall Canada-U.S. trade increased
rapidly in the wake of Canada’s trade
liberalization. Post-NAFTA, Canadian exports to
the United States grew from [PDF] $110 billion
to $346 billion; imports from the United States
grew by almost the same amount.
What was the impact on Canada?
( positive)
 Agriculture, in particular, saw a boost.
Canada is the leading importer of U.S.
agricultural products, and Canadian
agricultural trade with the United States has
more than tripled since 1994, as did
Canada’s total agriculture exports to NAFTA
partners.
What was the impact on Canada?
( negative)
 Canada became more dependent on trade
with the United States, relying on its southern
neighbor for 75 percent of its exports. Other
high-income countries tend to be much more
diversified, rarely relying on a single partner
for more than 20 percent.
Trump and NAFTA
 Trump instead made good on his campaign
promise to renegotiate NAFTA.
 Trump’s demands included more access to

Canada’s highly protected dairy market,

better labor protections, dispute resolution
reform, and new rules for digital commerce.
 President Donald J. Trump says NAFTA

undermined U.S. jobs and manufacturing

USMCA
 President Donald J. Trump says it undermined U.S. jobs
and manufacturing,
 In late 2019, the Trump administration won support
from congressional Democrats for the USMCA after
agreeing to incorporate stronger labor
enforcement. and in December 2019, his administration
completed an updated version of the pact with Canada
and Mexico, now known as the U.S.-Mexico-Canada
Agreement (USMCA). The USMCA won broad bipartisan
support on Capitol Hill and entered into force on July 1,
2020. In early 2020, the U.S. Congress approved the
USMCA with large bipartisan majorities in both
chambers, and the deal entered into force on July
USMCA
 The USMCA achieved stronger enforcement
mechanisms for labor provisions than the
original deal, leading the AFL-CIO, the largest
collection of U.S. labor unions, to support the
pact—a rare endorsement from a group that
heavily criticized NAFTA.
References
 https://www.cfr.org/backgrounder/naftas-ec
onomic-impact
 https://www.cbp.gov/trade/north-american-
free-trade-agreement
 https://library.unt.edu/gpo/oca/nafta.htm
 https://corporatefinanceinstitute.com/resour
ces/economics/north-american-free-trade-a
greement-nafta/
 Sehgal, Sheveta. The Evolution of NAFTA: An
Experience in Regionalism. India Quarterly ,
Vol. 66, No. 3 (September 2010), pp. 303-
316
 FROM NORTH AMERICAN FREE TRADE
AGREEMENT TO UNITED STATES–MEXICO–
CANADA AGREEMENT (USMCA) Author(s):
Rafał WORDLICZEK Source: Politeja , 2021,
No. 74