NAFTA: North American Free Trade Agreement

What is NAFTA?  NAFTA: North American Free Trade Agreement.  Became law on January 1,  Broke down trade barriers and reduced tariffs between the United States, Mexico, and Canada.

Tariff  Tariff: tax on imported goods.  Why would a country want to tax goods coming into their country?  Protect domestic production.

Advantages of NAFTA  1. Increased Trade:  Trade between the NAFTA countries tripled, from $297 billion in 1993 to $903 billion in  Specifically, U.S. goods exports to Canada and Mexico grew 157%, from $142 billion to $364.6 billion.  Exports from Canada and Mexico to the U.S. grew 231%, from $151 billion in to $501 billion.

Advantages of NAFTA  2. Increased Agricultural Exports:  NAFTA is especially helpful for agricultural exports because it reduces high Mexican tariffs. Mexico is the top export destination for beef, rice, soybean meal, corn sweeteners, apples and beans.  As a result of NAFTA, the percent of U.S. agricultural exports to Canada and Mexico has grown from 22% in 1993 to 30% in 2007.

Advantages of NAFTA  3. Increase in Trade of Services:  More than 40% of U.S. GDP is services, including financial services and health care. U.S. services exports to Canada and Mexico grew 125%, from $25 billion to $62 billion in 2006.

Advantages of NAFTA  4. Increase in Foreign Direct Investment:  Since NAFTA was enacted, U.S. foreign direct investment (FDI) in Canada and Mexico tripled to $331 billion Canadian and Mexican FDI in the U.S. was $165 billion.  NAFTA reduces risk for investors by guaranteeing they will have the same legal rights as local investors. It also guarantees they will receive fair market value for their investments in case the government decides to nationalize the industry or take the property by eminent domain.

Disadvantages of NAFTA  1. Loss of Jobs:  Since the cost of labor is cheaper in Mexico, many manufacturing industries moved part of their production from high-cost U.S. states. Between 1994 and 2002, the U.S. lost 1.7 million jobs, gaining only 794,00, for a net loss of 879,000 jobs. Most of these jobs(78%) were in manufacturing. States hit hard included California, New York, Michigan and Texas.

Disadvantages of NAFTA  2. Lower Wages:  Employers in industries that could move to Mexico used that as a threat during union organizing drives, thus suppressing wage growth. Between 1993 and 1995, 50% of all companies used the threat; by 1999, that rate had grown to 65%.

Disadvantages of NAFTA  3. Border Work is Increasing:  NAFTA caused an increase of the maquiladora program, in which U.S. owned companies employ Mexican workers near the border to cheaply assemble products for "export" to the U.S. This now comprises 30% of Mexico's labor force. These workers have "no labor rights or health protections, workdays stretch out 12 hours or more, and if you are a woman, you could be forced to take a pregnancy test when applying for a job," according to Continental Social Alliance.