On January 1st, 1994, 21 years ago, Canada, Mexico, and the United States of America formed the North American Free Trade Agreement (NAFTA). Prime Minister Brian Mulroney and President Ronald Reagan had already implemented the Canada-United States Free Trade Agreement in 1988, so the extension of this agreement with Mexico became NAFTA. Despite controversial– and sometimes conflicting– studies, the agreement has been quite beneficial to the economies of North America.
NAFTA’s reduced protectionism has undeniably increased trade and investment across North America, not to mention lowered consumer prices. American export growth to Canada and Mexico has skyrocketed since ’94. Indeed, NAFTA has brought together these three countries to make the biggest “free trade area” on Earth, weighing in with a combined GDP of $20 trillion annually, which trumps the European Union’s output.
Furthermore, increased trade between the countries may point to better civil diplomatic relations. For skeptical fodder, NAFTA critics point to an initial job loss that correlated to the shuffle in North America’s labor market. In spite of the drop, each North American country has experienced improved employment opportunities and increased wages since NAFTA’s inception.
That being said, the 2,000-page NAFTA outline does need re-forming. Most of the document consists of varying tariff rates and trade barriers. It has certainly reduced protectionism across North America, but free trade is not just about reducing and managing protectionist policies; also, abolishing them. NAFTA has created an intergovernmental bureaucracy to manage this agreement, but bureaucracy breeds the same by nature, so… plain and simple, NAFTA should protect the voluntary exchange of goods and services.
Contradictory bureaucratic absurdities abound, including many provisions that allow the NAFTA governments to arbitrarily return to pre-NAFTA tariff rates, something that jeopardizes the progress made so far. A different provision reduces trade barriers for agreement partners, undermining other international goods; the document calls this “rules of origin,” wherein US-M-C goods receive “preferential tariff treatment.” Thus, commerce has fallen into political tyranny yet again.
And what NoAm-centered issue is more political than immigration? NAFTA has tended to reduce economic barriers between countries, but one major stifler to economic integration remains. NAFTA has not addressed customs regulations, nor mobilized cross-border laborers. The urgency of regulating customs and greasing laborers’ migration is drowned in the political muddle– strict immigration policy and poorly constructed visa programs challenge North Americans seeking economic and educational opportunities elsewhere.
Regulation is preferable to quitting the agreement cold turkey, so it’s time to think smart about directional changes to the document. Keeping in mind that, the freer the trade, the greater the benefits of comparative advantage, regulators should aim to lower consumer costs by completely eliminating tariffs and trade barriers. This includes the “rules of origin” provision that assumes consumers desire North American goods over intercontinental ones. It sounds reasonable on paper, but I’d rather not pay extra customs fees when my Amazon order is coming from Nicaragua rather than Mexico. The discrimination nicely lends itself to the hot-button issue of opening borders. Maybe EU openness wouldn’t work for NoAm, but streamlining both the immigration process and visa programs to workers and students sounds fair. For instance, liberalizing the distribution of temporary worker visas would be a great start.
If the appropriate (bold) steps are taken in reforming NAFTA, it will strengthen NoAm’s economies, improving half a billion lives. Reformers have to keep this goal in mind when the discussion of revision resurfaces again.
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