I. Introduction
A. Opening Remarks: For centuries, countries have been working on having easy access to foreign markets for a variety of reasons.
B. Thesis Statement: Although the NAFTA presented positive changes to the economies of all signatories, the labor market suffered in some areas of the United States and Mexico due to the changing labor demand in the market and the lack of opportunities for the rural folk.
II. Background of the NAFTA
A. History: Economic integration has long been an issue discussed by North American governments since the 1900s.
B. Aims: Under the NAFTA, each signatory will enact policies that would eliminate trade barriers and improve border movement of goods and services between signatories.
III. Overall effects of the NAFTA and the status of the labor market
A. Since its application in 1994, the economies of each NAFTA signatory has changed dramatically as trade and investment increased two-fold.
B. Although there have been positive changes brought forward by the NAFTA, the labor market of both the US and Mexico do not reflect this level of improvement due to reports of job losses, open job opportunities and the ailing rural sector for both countries.
IV. Conclusion
A. Since it was signed by the US, Canada and Mexico, the NAFTA has been faced with both support and criticism due to the potential impacts it would bring to each nation as the years continue to progress.
B. Conclusion: Considering these trends, the NAFTA signatories must review the clauses of the agreement because the prosperity delivered by the NAFTA would be rendered moot due to the growing percentage of the labor force unable to enjoy its benefits.
North American Free Trade Agreement
For centuries, countries have been working on having easy access to foreign markets for a variety of reasons. Some hope to enter these markets for trade and commerce; while others aim to enter these foreign markets to increase their monopolies and influence. Several free trade agreements have been designed to remove barriers for trade and establish economic cooperation between signatories. One of the most notable free trade agreements established today is the North American Free Trade Agreement (NAFTA) which is designed to open trade barriers between its signatories and improve economic linkages. Since it was enacted, many experts have questioned the practicality and benefit of the NAFTA considering the impacts it has for its signatories, especially for their labor market. Although the NAFTA presented positive changes to the economies of all signatories, the labor market suffered in some areas of the United States and Mexico due to the changing labor demand in the market and the lack of opportunities for the rural folk.
Economic integration has long been an issue discussed by North American governments since the 1900s. According to M. Angeles Villarreal and Ian Fergusson of the US Congressional Research Service, US President William Howard Taft signed a free trade agreement with Canadian Prime Minister Sir Wilfred Laurier in 1911 in order to establish economic integration between both countries. However, with the loss of Laurier in the Prime Minister’s Office and the rejection of Canadians over the free trade agreement, the 1911 agreement was shut down. Regardless of this setback, both countries remained in negotiations for another free trade agreement which resulted to the enactment of the 1965 US-Canada Automotive Products Agreement. This agreement enabled trade liberalization for automobiles and automotive parts between both countries, making trade easier. This agreement was also hailed by experts as a pioneer act that improved the North American automobile industry.
Prior to the NAFTA agreement, the US and Canada signed the US-Canada Free Trade Agreement of 1989. The agreement was both significant for the US and Canada because it was the first free trade agreement that introduced seven major provisions that effectively introduced trade liberalization. Under the FTA, both the US and Canada would agree on eliminating all trade tariffs by 1998. The US-Canada Auto Pact is also continued with additional stipulations for the rules on origin. The agreement also contained concessions on investments regarding financial trade and importation restrictions. The federal government was also given additional funding to ensure that competition remains present in the market, while Canada insisted the creation of a binational panel that would monitor both nations in case of disputes. Both nations also agreed on the reduction on import and export restrictions for energy products. However, the FTA also had its controversies especially as Canadian leaders remained divided over the issue as most Canadians did not agree to a free trade agreement .
With Mexico starting to gain momentum and opening its doors to its neighboring countries, diplomatic negotiations between the US, Canada and Mexico started in the 1990s for the creation of a free trade agreement between the three countries. According to the book of Gabriela Kutting, the new free trade agreement’s major values was taken from the FTA, but this new agreement was made broader in scope and included the more open Mexico. In December 1992, the three leaders who spearheaded the discussions – Mexican President Carlos Salinas, Canadian Prime Minister Brian Mulroney and US President George H.W. Bush – signed the North American Free Trade Agreement or the NAFTA. The passing of the NAFTA was not made easy by the respective legislative assemblies of each nation, especially from the labor and environmental sectors. However, in order to pass the agreement, concessions were made by each government and added two supplemental agreements in each country that would defend labor and environmental advocacies.
Under the NAFTA, each signatory will enact policies that would eliminate trade barriers and improve border movement of goods and services between signatories. The NAFTA also intends to ensure that signatories promote fair competition between member countries. Investments are also made easier for signatories, opening new opportunities where investors can invest in any field. The countries have also included additional provisions with regards of intellectual property rights, adding new procedures that would enhance intellectual property protection. NAFTA signatories are also expected to work on creating a framework that would enhance the Agreement’s benefit for each signatory. The agreement also establishes a system that would ensure the signatories can resolve their disputes easily, and regular meetings are held in order to improve the administration of the NAFTA .
Since its application in 1994, the economies of each NAFTA signatory has changed dramatically as trade and investment increased two-fold. The US’ trade has tripled since NAFTA took into effect and enabled the country to record huge strides in trade rate with the rest of the world. In 2011 alone, the US recorded an overall trade of $1 trillion with its partners alone. A majority of the country’s goods – such as oil and petroleum – have also been exported to Canada and Mexico, doubling the growth of the trade rate of the country . Mexico, on the other hand; found itself able to reach the same level of development of the US and Canada as stated in the analysis of M. Angeles Villarreal in another study for the Congressional Research Service. NAFTA allowed Mexico to boost its industries and acquire technological innovations that upgraded Mexico’s industries. There was also a reduction of macroeconomic volatility in Mexico with businesses now stable and have open communication with their counterparts overseas. Investment also flowed easily in Mexico with the NAFTA and increasing its foreign direct investment .
Although there have been positive changes brought forward by the NAFTA, the labor market of both the US and Mexico do not reflect this level of improvement due to reports of job losses, open job opportunities and the ailing rural sector for both countries. In the case of the United States, the analysis of Gary Hufbauer, Cathleen Cimino and Tyler Moran for the Peterson Institute for International Economics said that even without the NAFTA, at least 4 million Americans are laid off from their jobs due to plant shutdowns and massive job layoffs despite the increasing job openings. Although import is increasing between the US, Canada and Mexico, only 5% or 200,000 workers per year is brought in to the US labor market by NAFTA to assist in the import and export industry. As trading increases, there are downsizing occurring in some firms which triggers job layoffs, especially in affected industries. Studies support this fact as a study in 2011 indicated that between 1994 to 2010, at least 683,000 US jobs were lost because of US’ trade deficit with Mexico. The public have long expressed their discontentment with the continuous practice of the NAFTA as seen in the 2010 survey of Pew Research as the survey denotes that job losses are inevitable in any free trade agreement .
Some US companies like General Electric, Siemens and Xerox laid off their workers in favor of moving their production lines in Mexico. In the analysis of Jeff Faux, this triggered the loss of 700,000 jobs for California, Michigan, Texas and manufacturing-reliant states. While it is true that there are openings the manufacturing sector take up like services and retail, the wages these people can have are very minimal from their original jobs. Some workers even find themselves unable to survive due to the loss of a permanent income. Workers, especially in rural areas, are also unable to receive higher wages because the NAFTA gives the power to their employers to impose stronger policies on what wages can be received. Some US companies even say to their workers that they will move their production line to Mexico or Canada to save more money and would only retain the factory if workers agree to lower labor fees. Even local labor unions are unable to stop these companies because companies can blackmail their local governments in accepting lower labor costs. Rural workers, especially those in the agriculture sector, also experience heavy challenges due to the NAFTA because with industrialization changing Mexico’s agriculture sector, Mexican workers are entering the US illegally and taking the available jobs meant for the less skilled American workers. Since Mexican workers have lower labor fees, American companies would prefer these workers than American workers .
In the case of Mexico, Sandra Polaski from the Carnegie Endowment for International Peace stated that prior to the application of the NAFTA, Mexico had a very diverse labor force. With the high population growth rate in the mid-1970s, the 1990s saw people now looking for work and this crowd included women. The Mexican labor force grew extensively from 32.3 million before NAFTA to 40.2 million by 2002. However, when the NAFTA was applied, the Mexican labor force slowly had to cut down its workforce which is affected by the removal of tariff and other trade barriers. The manufacturing and agriculture industries were the most affected industries for Mexico once the NAFTA was enacted because the reduction of tariff reduced the demand for Mexican goods and services. The US had cut down tariff for Mexican manufactured goods and restrictions are placed for Mexican crops. As a result of these restrictions, the labor market has shifted quite drastically in Mexico.
Upon the first few years of the NAFTA in Mexico, the available jobs in Mexico included the maquiladora jobs or those who would work on assembly plants scattered throughout the country and non-maquiladora manufacturing jobs. The maquiladora program has been active since 1965 and when the NAFTA was established, at least 800,000 were recorded to be in this industry. However, by 2003, the industry shed 250,000 jobs. Non-maquiladora manufacturing, on the other hand; only reached up to 500,000 workers in 1994 to 1999 but this declined throughout the years due to the decline of domestic manufacturing jobs in Mexico. Mexican manufacturers are often forced to lay-off their workers to meet the imports coming in the country, and some even shut down completely. At the present time, only small firms and informal workers – or those with low pay or less skills – are sustaining the manufacturing demand for the domestic market. Mexico is unable to bolster its employment rate due to the lack of training opportunities for science, engineering and accounting. Only 9.9% of Mexico’s manufacturing labor force are skilled laborers in 2000.
Agricultural employment, on the other hand; has also decreased extensively especially for Mexico’s rural areas. Originally, 8.1 million Mexicans were employed in the Agriculture industry in 1993 prior to the beginning of the NAFTA. However, this slowly dropped to 6.8 million by 2002. The increase in surplus from the US and Canada, the devaluation of the peso and the application of the NAFTA are considered major reasons of this employment decline. Many agricultural laborers are forced to leave the farms to enter the export-manufacturing sector. The service sector industry has also been affected by the NAFTA; but this is not as pronounced as the Mexican manufacturing and agriculture employment industries. Many Mexicans work under the service sector and there is an increase in total employment since the NAFTA was enacted. These added numbers are displaced farmers who are not covered by any unemployment insurance programs and are left to find alternate employment. Since they are not properly trained, these untrained workers are often left with domestic jobs and other low-pay and low-productivity jobs available in the Mexican service sector. Estimates suggest that the export sector would not claim Mexico’s increasing service sector employees in the near future .
Since it was signed by the US, Canada and Mexico, the NAFTA has been faced with both support and criticism due to the potential impacts it would bring to each nation as the years continue to progress. For the United States and Mexico, the NAFTA has achieved its targets in improving economic cooperation and bolstered trade liberalization. Industries have also prospered greatly because of the open channels between countries. However, the labor force of each signatory to the NAFTA is left unable to keep up with these developments due to the changing status of their economies. Since the NAFTA supports trade and economic competition, some sectors – such as manufacturing and agriculture – are forced to lay-off their people and find other means of employment with offers lesser pay. Considering these trends, the NAFTA signatories must review the clauses of the agreement because the prosperity delivered by the NAFTA would be rendered moot due to the growing percentage of the labor force unable to enjoy its benefits.
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