20 Years of NAFTA: What’s Next for North America?

  • Dec 12, 2013

    On January 1, the North American Free Trade Agreement (NAFTA) will celebrate its twentieth anniversary.

    The agreement, which was signed on December 17, 1992 and entered into force on January 1, 1994, was conceived of as an effort to boost cross-border trade, economic growth, and good jobs. And in its first 20 years, NAFTA has gone a long way in achieving all three.

    Today, North America is more deeply interconnected than ever before—largely as a result of the two-decade long agreement. In that light, it seems to be an ideal time to consider what the future holds for North America.

    So what has NAFTA achieved in the past 20 years, and what’s in store moving forward?

    Q1: What has NAFTA achieved since 1994?

    A1: Since NAFTA’s inception in 1994, U.S. trade with Canada and Mexico has nearly quadrupled—and our continental neighbors together buy about one-third of U.S. exports worldwide.

    According to the U.S. Chamber of Commerce, trade with Canada and Mexico supports just under 14 million U.S. jobs—and nearly 5 million of those have been specifically enabled by NAFTA alone.

    The benefits NAFTA has brought to U.S. manufacturing are huge, with about 40 percent of goods “Made in Mexico” containing components made in U.S. factories, by American workers.

    Agricultural exports to Canada and Mexico have tripled and quintupled, respectively, since 1994, providing a huge and growing market for U.S. farmers and ranchers.

    And, despite critics’ suggestion that the agreement has increased the U.S. trade deficit, the United States registered a trade surplus with its NAFTA partners in services (US$40 billion), manufactured goods (US$14.5 billion), and agricultural products (US$2.6 billion) in 2011 alone. The benefits to U.S. manufacturing, agriculture, and employment can hardly be disputed—even with crude oil imports continuing to offset that surplus.

    That isn’t to say that NAFTA has no critics. Rather, the agreement faces a number of challenges it would do well to address moving forward. Persistent wage disparities among North American economies and differences in labor standards continue to be key drivers of illegal immigration—a nagging strain on intra-NAFTA relations. And environmental standards come up time and again in international trade disputes as well.

    So NAFTA has, given its initial goals, proven successful. With the exception of the Uruguay Round agreement that generated the World Trade Organization (WTO) in 1995, NAFTA has turned out to be the most impactful (and, for the U.S., beneficial) trade agreement in our country’s history.

    Q2: Where does NAFTA stand in the Western Hemisphere?

    A2: With 20 years under its belt, it may be time to start a conversation to explore the direction NAFTA should take for the next two decades. And when considering NAFTA’s future, it’s important that we look at the agreement in light of the evolving free trade context in the Western Hemisphere.

    To put it simply, we’ve seen a banner decade for free trade in the region.

    With U.S. free trade relationships in the hemisphere skyrocketing—agreements with nine countries have been signed since 2001 alone, the implementation of NAFTA, the ongoing Transatlantic Trade and Investment Partnership (TTIP) and Trans-Pacific Partnership (TPP) negotiations, and the emerging Pacific Alliance, dynamic trade liberalization is clearly a near-universal hemispheric priority.

    Negotiations for the TTIP, a would-be agreement between the United States and the European Union, began in July of this year. And should all go as planned, the TTIP would be the single biggest trade deal to date, formally linking the two biggest economies in the world.

    The TPP has been in the negotiations process since 2010. As of August of this year, 12 countries in the Western Hemisphere and Asia were working together toward the proposed “high-standard” agreement aimed at linking American and Asian markets and addressing the emerging trade issues of the twenty-first century. Though the TPP has a long way to go before it’s finalized, its forward-looking nature and expansive scope make it a promising step forward for free trade in the region.

    And certainly not least among the region’s developments is the Pacific Alliance, a group of five Latin American states (Mexico, Costa Rica, Chile, Peru, and Colombia) that have begun a process of trade liberalization and economic integration with a particular focus on targeting Asian markets—goals that have garnered attention all around the world. In addition to reducing trade barriers and integrating their financial markets, the countries have begun working toward standardizing higher education and establishing the free movement of people—among other innovative objectives as the agreement continues to develop.

    All of this is to say that the hemisphere is facing a critical juncture. The region’s surge in free trade has immeasurably increased its competitiveness—and that trend will only continue moving forward.

    Conclusion: Despite the involvement of North American countries in every one of the region’s major economic initiatives, what is lacking is a forward-looking initiative for North America specifically. And this is where NAFTA has a real opportunity to adapt its successful framework for a new and emerging era.

    With hemispheric competitiveness on the rise and regional free trade promotion unmatched around the world, North America needs to step up—or it may risk being left behind. And while NAFTA is entering its twentieth year, the emerging agreements based in or involving countries in the region are unlike what we’ve seen before. If it hopes to keep up, NAFTA, in short, cannot afford to remain your grandma’s free trade agreement.

    So what, then, is the way forward for NAFTA? There are several viable options, ranging from an intra-agreement reevaluation of NAFTA’s goals to member states’ push for the inclusion of all three in the TTIP, among others.

    Broadly, what will serve all three members best is for NAFTA countries to have the option to be treated collectively in their international commercial interactions - especially when it's in their interest. Only this will ensure NAFTA's competitiveness in the context of our increasingly dynamic world.

    Carl Meacham is director of the Americas Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C.  Jillian Rafferty, staff assistant with the CSIS Americas Program, provided research assistance. 

    Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

    © 2013 by the Center for Strategic and International Studies. All rights reserved.

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