NAFTA: Sunshine and Rainbows, or Pain and Despair for All Involved?
NAFTA or the North American Free Trade Agreement, is an agreement between Canada, Mexico, and the United States that allows for the exchange of goods and services between those three countries to have reduced or no tariffs. While it was controversial since 1993, in the 2016 presidential election, NAFTA was thrust back into the limelight, amplifying the free trade agreement’s controversy once more with each candidate expressing their opinion on whether NAFTA is beneficial for the United States or not. No matter what, NAFTA has influenced the United States economy. On one side, there are antidumping statutes that prevent the excess importation of lower cost goods into the US, certificate of origin requirements that require proof that the imported goods were produced in a NAFTA country, and requirements of substantial transformation for companies who are exporting to a NAFTA country to receive preferential NAFTA treatment. On the other hand, NAFTA can prevent foreign direct investment, incentivize manufacturing and assembly companies to leave the United State, and, while certificate of origin helps prevent fraud, it can also cause trade to slow down.
NAFTA has many advantages. To begin with, although NAFTA promotes the free trade of goods which allows for lower prices, there is a way to prevent dumping so that local economies are not as hurt as demonstrated in Canadian Lumber Trade All. v. United States where Canadian Lumber claimed that the US was in breach of contract when customs agents applied the Byrd Amendment to the Tariff Act to Canadian goods upon entering the US. With such limitations, dumping can be managed so that neither Canada, Mexico, nor the United States experiences extreme amounts of dumping, leading to decreased competition and a weaker economy. These types of restrictions not only promote economic well being, but also prevent non-NAFTA countries’ companies from filing for preferred treatment. Certain rules under NAFTA require importers and exporters to follow procedures that allow the prevention of fraudulent claims of preferred treatment under NAFTA. As seen in Xerox Corp. v. U.S., Xerox was required to have a written declaration that their goods qualified for NAFTA; in other words, Xerox was required to show a certificate of origin in order to qualify for NAFTA treatment. This prevents the United States government from having to subsidize unqualified goods. If non-NAFTA countries wish to apply for preferential treatment, they can do so by providing the materials to make the goods, but the materials must have a substantial transformation within a NAFTA country in order to qualify for preferential treatment. For example, in Samsung Int'l, Inc. v. United States, Samsung requested preferential treatment under NAFTA as they sent materials from their manufacturers to a NAFTA country and they were modified to the point of qualification. By having this requirement, foreign companies are incentivized to have assembly/ manufacturing facilities within the United States, which increases the amount of unskilled labor positions available. This would promote economic growth within the United States and other NAFTA countries.
While there are many advantages to NAFTA, there are also disadvantages. For one, forcing importers and exporters to have certificates of origins would slow down the trading process. As seen in Bestfoods v. United States, forcing importers to meet certain criterion can cause a delay in delivery of goods. Being able to abide by those criteria, such as having proper labeling on something as simple as peanut butter, can lead to longer trading processes. This leads to longer shipping delays causing companies to either increase prices of goods or find a way to cut costs so prices of goods will not increase. In order to avoid having consumers take on the increase in cost, companies tend to reduce the amount of staff needed or completely automate their processes which increases unemployment. With more unemployed consumers, spending on more expensive, domestic goods decrease since spending does not stop when a person becomes unemployed. While this is beneficial to either Canada or Mexico, the US made goods would suffer. With NAFTA, it is easier for companies to move their operations from the United States to Mexico where labor is less expensive than in the US or Canada. Since it is easier to move to a lower cost country, US companies either reduce or stop manufacturing within the US, leading to a loss of jobs and a slump in the economy which was one of the arguments made in the Made in the USA Found. v. United States case. In this case, Made in the USA Found argued that NAFTA increased competition in the US and unions and nonprofits could not keep up with demand (Made in the USA Found. v. United States). NAFTA also fails to account for previously existing trade restrictions between the US and Mexico as seen in Berriochoa Lopez v. United States where Mexican citizens fought to repeal the Bus Regulatory Reform Act of 1982 that prevented them from owning, operating, or investing US trucks and trucking companies. It was stated that according to “Annex I of NAFTA, the parties agreed that Mexican nationals would be permitted to obtain operating authority to provide cross-border trucking services in four border states three years after the signing of the agreement… [allowing] specifically Mexicans, would be able to invest in U.S.-domiciled trucking companies as of December 18, 1995” (Berriochoa Lopez v. United States). This would allow for increased foreign direct investment, allowing the United States economy to improve and expand.
While there are incredible arguments for both sides, the strongest argument, in my opinion, would be in favor of NAFTA. There are a few improvements that may be beneficial to the US economy if they were to be added to NAFTA. For instance, adding a clause that allowed for the free movement of people along with goods and services. This would allow citizens of Canada, Mexico, and the United States to travel, work, and live in any of the three countries. With this Schengen-type agreement, illegal immigration would be less of an issue, therefore the amount of money spent on finding, detaining, and deporting illegal immigrants would be free to be used in other aspects of the US economy such as education. Similar to the European Union, the free movement of people, goods, and services would benefit all three NAFTA countries as there would be increased competition to the point that consumers would benefit the most since the competition would likely lead to lower costs of goods. This would increase purchasing power and opportunity within the US, strengthening the economy.
In conclusion, NAFTA has been both beneficial and detrimental to the countries involved. While there are antidumping statutes, and substantial transformation requirements that all benefit the United States’ economy, there are also deterrents to foreign direct investment and incentives for relocating manufacturing facilities that damages that US economy. Then there are the certificate of origin requirements that can both help and hurt the US economy. Having the certificate of origin requirements can aid the US in preventing fraudulent claims of goods being NAFTA eligible, leading the US to lose out on the incomes from those tariffs while also slowing trade. Exporters have to take the extra time to make sure that they have the proper certificate of origin while also ensuring that they meet any criteria that are required of the country that they are exporting to.