It was in 1993 that the North American Free Trade Agreement (NAFTA), a free-trade trilateral deal affecting the United States, Mexico, and Canada came to be. The U.S President Bill Clinton signed the agreement trade pact into law. The aim of the trade pact was to enhance free trade among three northern countries, the U.S., Mexico, and Canada by eliminating all tariffs and restrictions. Abolition of trade tariffs would lead to both gradual and radical effects on the economies of the three countries and on job availability. This research paper seeks to determine the effect of the passage of North American Free Trade Agreement (NAFTA) of 1993 to the economy and availability of jobs to Mexican and U.S. citizens as well as its significance to workers.
Background Information
In December 1992 and on three different occasions, Carlos Salinas de Gortari the Mexican President, President George Bush and Brian Mulroney the Canadian Prime Minister signed NAFTA, a North American Free Trade Agreement. The trade pact had the framework of abolishing restrictions with regard to the movement of merchandises, services, and investments within the three North American countries, Canada, U.S., and Mexico. On the fateful day of November 17, 1993, the Representative House saw the approval of NAFTA by 234 to 200 votes, 16 more than the minimum votes required for passage. The Senate approval followed on November 20 by 61 to 38 votes1. The signing into law of the trade pact took place on December 8, 1993, and implementation of NAFTA took effect on January 1, 1994.
NAFTA is outlined to have been inspired by the European Community who eliminated tariffs to boost trade among member countries. The purpose of NAFTA was to eliminate tariff hurdles from manufacturing, agricultural produce, services and investment, importation and exportation as well the protection of intellectual property rights (trademarks, copyrights, and patents) among three largest Northern American countries. Commissions to settle trade disputes and environmental concerns were also stipulated in NAFTA. It is under the influence of NAFTA that Mexico, Canada, and the United States became a massive and incorporated single market in the North American corridor affecting close to 400 million individuals and with goods and services worth $6.5 trillion annually. Mexico is said to be the second in the world in importing manufactured goods and third in the importation of agricultural produce from the U.S.
NAFTA, Economy, and Jobs
The global lessening of trade barriers after World War II has brought with it tremendous economic benefits for the participating countries. Way before NAFTA came to being, tariffs in Mexico alone were close to 250% when put against the U.S. The trade pact eliminated half of the tariffs between Mexico and the U.S. with the remaining half being streamlined to a period of 15 years mainly on services and investments. The premise of NAFTA was to intensify the movement of goods and services across Northern American countries, thus, refining the standard of living of the citizens on either side of the borders. The abolished trade tariffs would enable free movement of goods to and from the three countries, Canada, the U.S., and Mexico.
The projected trend and the results of NAFTA was efficiency in income generation, increased Gross Domestic Product (GDP), with reduced costs spreading all over because of large scale investments, enlarged market base and enhanced/smooth procedural process and operations of trade leading to international competition and overall improved economy of either country. NAFTA benefited the entire U.S. economy by lowering the costs of consumer necessities such as food, electronics, clothing, and automobiles. Massive labor required for the production of the vast necessities coupled with enlarged labor market base would further lessen the labor cost and meanwhile, reflect on the retail prices. Reduction of the cost of consumer goods lowered inflation thus improving the living standards of U.S. citizens and brought about competitive production. An enormous export to Mexico from the U.S. reflects positively on the American economy as a result of NAFTA. Mexico was prior considered to be the third largest commercial partner of the United States after Japan and Canada respectively before the onset of NAFTA.
The surplus production envisaged by NAFTA in Mexico as a result of a wide market base and competition would lead to an improved economy by raising the Gross Domestic Product and per capita income. The price of essentials such as clothes, food, and electronics among the Mexican citizens was reduced hence improving their livelihoods. Northern Mexico aeronautical and car manufacturing industries expanded as a result of NAFTA hence increasing the production power of Mexico. Increase in production power of a country coupled with enlarged market-based and labor market led to the improved Mexican economy. Mexico’s agricultural production increased due to the availability of a ready market to the U.S. and Canada would in turn. The strongest critics and sentiments on NAFTA claimed that it would lead to loss of jobs mainly to U.S. citizens. This is a fact that cannot be refuted in that truly jobs have been lost and others created especially in the labor-intensive industrial sector. The countering envisaged provision in NAFTA was that it would lead to the creation of a net gain of jobs. An upsurge in trade and production would indeed lead to increased job opportunities for both, the Mexicans and U.S. citizens. The truth regarding NAFTA was that it had no limit of the number of jobs that could be created.
For instance, industries manufacturing shoes and apparel mainly utilize high costs during the production, therefore, semi-skilled and unskilled labor in the U.S. moved to Mexico. Most of the unskilled United States workers are found distributed in the service sector; for example, the retail shops and restaurants. These sectors could never by any means be deprived off labor by Mexicans in the sense that rather than being threatened, the service industry in the U.S. would benefit from the cheap agricultural and punter goods produced by Mexicans bringing a win-win situation that would expand the job market. NAFTA, on the other hand, helped to lower competition for semi-skilled and unskilled jobs by illicit immigrants. Expansion of the Mexican labor market meant that there would be reduced or few immigrants to the U.S. in pursuit of employment. It was estimated that in 1993, there were between 2.5 to 4 million illegal Mexican immigrants working in the U.S. mainly in agriculture, construction and food service sectors. NAFTA led to the expansion of industries in both countries catering to the vast unskilled and semiskilled labor market.
The labor unions mainly opposed NAFTA during its drafting but it turned out that the unions only benefited from the trade pact. The service sector unions reap the benefits of the agreement as a result of increased cross-border warehousing and trucking. The areas that experienced job loss, such as the automotive and household industries were minimal compared to the overall benefits of NAFTA. NAFTA spurred massive growth in export industries that are well known to harbor skilled and high-wage professions that benefits the labor unions.
Since 1965, the United States’ assembly co-production companies still existed in the Mexican border; maquiladora program. This program encompassed components being made in the U.S. to be assembled in Mexico by the use of available cheap labor. Some of the finished products were later sent to the U.S., others exported to other countries. NAFTA strengthened the maquiladora program and made it swifter by enhancing more production and creating more jobs for the unskilled and semi-skilled Mexican residents. Mexico and U.S. co-production helped in the face of stiffer competition that existed where companies exporting cheaper goods to the U.S., achieved due to availability of inexpensive labor in those countries, prevailed and flooded the market with cheap goods. This rendered the U.S. based companies inoperable and at times reduced the number of employees in these sectors.
As a result of co-production, it was also feared that many U.S. citizens would lose jobs due to the availability of cheap and inexpensive labor in Mexico. Movement of the U.S. to the south in search of cheap to counter competition was seen as a gateway through which Americans would lose jobs to Mexicans. This was envisaged with the view that NAFTA would open up the door for the U.S. to increase the number of companies in Mexico under the maquiladora program which would allow more Mexicans to have their way to the jobs to provide cheap labor. In response to the loss of jobs, NAFTA projected that by spurring exportations to Mexico coupled with mass production under cheap labor, the production of the goods would create a platform through which U.S. products would be competitive in the market; thus generating more jobs to the economy.
The labor required for the production of glassware, shoes, and textiles was intensive. Local production in the U.S. would not only reduce jobs but also the amount of produce so as to balance the product’s cost with that factored during manufacturing. NAFTA benefited both countries in that Mexico was rich in unskilled and semi-skilled labor and the United States had the market. Mexico being a fast market for U.S. goods, the abolition of trade restrictions would result in vast production. This was projected in the sense that prior to NAFTA passage, reduction in trade restrictions by Mexico in 1992 resulted into a trade surplus of $6.8 billion for the U.S. It was then envisaged that as Mexico modernized to compete within the region, the equipment required would be imported from the U.S. which would create extra jobs in the export industry. Mexico not only created jobs during modernization but also benefited from cheap goods that are tariff-free.
When commercial activity increases, job opportunities are created; wages, on the other hand, vary in response to the labor demand. There is no such economy that is said to be static. Only by embracing new opportunities and acclimating to shifting circumstances economies are able to avoid unproductivity.
NAFTA was helpful to the employees in myriads of ways. One of the major significances was the fact that the body would be used by employees to safeguard their welfare and long term security. For instance, it would prove to be a powerful weapon that the employees would use in order to determine or assess the possibility of a shutdown in factories and in turn request for better pay or unionization.
Conclusion
North American Free Trade Agreement (NAFTA) was signed into law on December 8, 1993, by Bill Clinton, the president of the United States and its implementation started on January 1, 1994. This paper sought to determine the effect of the passage of the North American Free Trade Agreement (NAFTA) of 1993 to the economy and availability of jobs to Mexican and U.S. citizens and its significance to workers.
It was established that NAFTA led to lower inflation rates, massive production of goods and services, availability of skilled, semiskilled and unskilled labor, which are all favorable factors of production that has raised the economies of Mexico and U.S. Co-production has led to the ability to compete in the commercial market and creation of jobs for the semi-skilled and unskilled Mexicans. Modernization of Mexico to meet the standards of the Northern market has led to more jobs in the industrial sector for the U.S. workers and equally to Mexicans involved in the transformation. Free-trade has also opened markets for agricultural Mexicans to sell their produce to service industries in the U.S.
This paper argued in favor of the significance of NAFTA with regard to economy and job creation, therefore it is limited to the positive side of the trade pact. This does not refute the fact of the possibility of having detrimental factors associated with the passage of NAFTA on the job market. The paper also covered the effect of NAFTA to Mexico and U.S. economies and job market; Canada being part of the treaty requires attention too. Further research papers can be done to address these limitations.
