How the Globalized Economy Works Today 335T HE NorTH AmEricAN FrEE TrAdE AGrEEmENT
The free- trade area negotiated by the United States, Canada, and Mexico in 1994 dif-
fers substantially from the Eu ro pean Union and other regional schemes. It comprises
one dominant economy and two dependent ones: Mexico’s and Canada’s combined
economic strength is one- tenth that of the United States. The driving force behind
NAFTA was not po liti cal elites but business interests (including multinational corpo-
rations) seeking larger market shares than their Japa nese and Eu ro pean competition
and free- trade advocates in all countries. It was opposed by labor, environmental, and
other groups. The phasing out of many restrictions on foreign investment and most
tariff and nontariff barriers, as well as the many restrictions on foreign investment, has
allowed MNCs to shift production to low- wage labor centers in Mexico and to gain
eco nom ically by creating bigger companies through mergers and acquisitions.
The social, po liti cal, and security dimensions we saw in the Eu ro pean Union are
absent from NAFTA. Cooperation in trade and investment is not intended to lead to
the free movement of labor, as the Eu ro pean Union championed. The goal is quite the
opposite; the United States expects that Mexican workers will not seek employment
in the United States, because economic development in Mexico will provide ample
employment opportunities. And economic cooperation does not mean po liti cal integra-
tion in NAFTA. With NAFTA, economic integration is to remain just that— confined
to specific economic sectors.
The phased elimination of tariff and nontariff barriers has resulted in expansion of
trade, particularly for Mexico. Mexico’s exports increased from $60 billion in 1994
to almost $400 billion in 2013. With the completion of the free- trade area and the
dismantling of both trade and investment barriers, trade among the three partners
increased to almost $1 trillion in 2010, a 218 percent increase since 1993. Foreign direct
investment among the three countries has increased tenfold. Since 2005, the rate of
growth in trade has slowed, however, largely because of the growth of trade with China
and the latter’s admission to the WTO in 2001.
Other provisions of NAFTA deal with property rights of companies making
investments in the three countries and with protection of some domestic producers,
notably the Mexican oil and gas industry and the U.S. shipping industry. NAFTA’s
sanitary and phytosanitary mea sures are designed to protect people and animals from
health risks, although such protective mea sures may not be imposed for economic
reasons alone. NAFTA’s flexible standards permit national and local governments to
impose stricter standards. Export subsidies are eventually to be eliminated, though
they are permitted in the Mexican market. There are also incentives for buying within
the region. Committees have been established to monitor and promote these vari ous
provisions.