REGIONAL COOPERATION:
NAFTA
4/19/2010
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
Regional Trading Blocs
Potential Benefits
 Economic
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Encourages increased trade activity
Access to new markets and increased access to traditional markets
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Increased competition
Stimulates investment as alternative to non-bloc trade
Cheaper products
Encourages and facilitates global multilateral trade negotiations
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Economies of scale
Increased bargaining power
Facilitates cooperation and compromise
Potential to target benefits from trade
Political
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Counter to alternative economic and political powers
Encourages political stability and democratic politics
Regional Trading Blocs
Concerns
 Sectoral losers
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Agriculture
Non-bloc losers
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Global trade tends to suffer as blocs may distort trade by discouraging
trade outside the bloc
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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
What is NAFTA?
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Trilateral
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Canada, United States, Mexico
Free Trade Area
Eliminates tariffs and barriers to investment
 Intellectual Property Rights
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Safeguards
Labor protection
 Environmental Protection
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Dispute Resolution Mechanisms
Gradual Implementation
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Final aspects implemented Jan 1, 2008
Benefits of NAFTA

Increased trade between the three countries
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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
Drawbacks of NAFTA
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Certain sectors within a given country face retraction and its
workers face wage reductions or unemployment
Empowers MNCs at the expense of workers
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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.
Drawbacks of NAFTA

Incomplete
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New problems have arisen that NAFTA does not
(adequately) address
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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
Health concerns
Quality and safety standards
Border security and national security
Inability to effectively adjust NAFTA to changing conditions
Complicating Factors of NAFTA
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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
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Trade with Mexico was growing and would have continued to
grow even without NAFTA
Alternate explanations for loss of manufacturing jobs:
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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
Case Study: Agriculture
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Helps American agribusiness
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Helps American consumers
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Increased access to export markets
Hurts small-scale agriculture in Mexico
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Reduced price and increased availability of agricultural products
from Mexico
Helps Mexican agribusiness
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Increased export of U.S. agricultural goods
Less competitive in internatl markets than large-scale produces
Hurts Mexican consumers of staple agricultural goods
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Change in market incentives leads to reduced production
Reduced production and increased export increase domestic cost
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”
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Most economic arguments against NAFTA talk about absolute
losses and/or factors that may be better explained by nonNAFTA conditions
The social effects of NAFTA are mixed but, within current
structures, probably harms more individuals
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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