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The economic terms of the NAFTA have been implemented substantially in
accordance with its terms. [69] As a
consequence, tariff and non-tariff barriers to trade in goods and services
among the NAFTA countries have fallen, and cross-border flows of capital and
investment have been facilitated.
Economic analysis of the NAFTA's
effect is complicated by the Peso Crisis of 1994/95, which dramatically
affected the terms of trade between the NAFTA Parties. Regardless of the
NAFTA's effect in reducing trade barriers, the sharp drop in the value of the
peso would have resulted in a short term increase in Mexican exports to the
U.S. and Canada, and a short term decline in Mexican imports from the United
States and Canada. [70] Nevertheless, in light
of large gains in Mexico's exports dominated in dollars, and the robust pattern
of trade among Canada, Mexico and the United States (which included substantial
gains in U.S. exports to Mexico), it seems reasonable to attribute a positive
effect of the NAFTA on increasing cross-border economic activity among its
Parties. [71]
A U.S. Executive
Branch Study emphasized the positive influences of the NAFTA in Mexico's
relatively rapid recovery (in aggregate terms) from the effects of the Peso
Crisis. [72] After the 1982 financial crisis,
it took 5 years for Mexican economic output to reach pre-crisis levels.
Following the late-1994 Peso Crisis (in which output dropped more quickly),
Mexican economic output reached pre-crisis levels in two years. Mexico's return
to international capital markets was far more rapid following the 1994 crisis
than following the 1982 crisis.
On the whole, it appears reasonable
to conclude that the NAFTA had a net positive economic welfare effect in its
three Parties during its first years of operation. [73] The Mexican economy has substantially recovered from the
Peso Crisis, and its economic outlook today is reasonably promising.
[74]
The classical model of regional integration economics generally posits
that the global welfare effects of such arrangements may be determined by
examining whether they are net trade-creating or trade-diverting.
[75] If there is an increase of trade among
members that exceeds the level of trade lost with non-members,
[76] then there is a net positive global
economic welfare effect. If the level of lost trade with non-members exceeds
the increase in trade among RIA members, then there is a net negative global
welfare effect. The trade statistics compiled by the United States for its
three year study do not permit a complete evaluation of the NAFTA's net effect
on trade creation and trade diversion. The Study indicates that diversion of
trade occurred during the first three years following NAFTA's entry into force.
[77] It states, for example, that Mexico's
market share gains in the U.S. apparel sector displaced imports from China,
Hong Kong, Taiwan and Korea, the U.S. import market share of which fell by 9
percentage points in the relevant period. [78]
The fact that the NAFTA has diverted trade is consistent with the expectations
of NAFTA policy planners. [79]
The
NAFTA has also created a significant amount of trade among its Parties as, for
example, Mexico has supplanted Japan as the United States' second leading trade
partner (behind Canada). Moreover, the results of the GATT Uruguay Round were
implemented after entry into force of the NAFTA. Since the substantial trade
barrier reductions following the Uruguay Round should in any case have resulted
in substantial increases in levels of worldwide trade,
[80] it is unlikely that trade with NAFTA
non-members has been diverted in aggregate terms, even if the market share of
some non-members has declined in relation to NAFTA Parties.
The
principal positive effect of the NAFTA appears to be its stabilizing effect on
the Mexican economy. Without doubt, the Peso Crisis hurt the Mexican economy
and has resulted in significant social hardship. Nevertheless, Mexico has
largely been spared from the effects of the 1997-98 global economic crisis
which has had an enormously destabilizing effect on many developing economies,
and which has resulted in substantially lower economic growth throughout Latin
America. Mexico's economy and capital markets performed well during the 1997-98
period, and the Mexican government has publicly attributed this to its NAFTA
commitment.
The NAFTA's social ambitions are modest. [81] The NAFTA and its Supplemental Agreements on the
Environment and Labor created two institutions: the North American Commission
for Environmental Cooperation (CEC) and the North American Commission for Labor
Cooperation (CLC). [82] The CEC and CLC are
each designed to promote social interests without affecting the legislative
prerogatives of the NAFTA Parties and without a substantial intrusion on the
administration of laws in its Parties.
The North American Agreement
on Environmental Cooperation (NAAEC) establishes a procedure by which
interested persons may request the preparation of a "factual record" by the CEC
Secretariat. The factual record will report on whether a NAFTA Party is
effectively enforcing its environmental law. The CEC Secretariat has prepared
and published its first factual record in a case involving construction of a
port facility in Cozumel, Mexico. [83] In
addition to the factual record procedure, the NAAEC establishes a procedure
under which a Party may seek a determination by an arbitral panel that another
Party has persistently failed to enforce its environmental law. This procedure
has not yet been invoked. The CEC has put together a program to map the North
American environment, as well as a number of other research programs. The CEC
provides a forum for periodic meetings of North American environment ministers,
and it organizes environment-related fora. [84]
Though the tangible results of the CEC's
activities are limited, the NAAEC has on balance had a positive effect.
Environmental interest groups in the Parties have coordinated activities in
respect to petitioning the CEC in factual record and report matters. If the
various research projects are successfully completed, there will certainly be
benefits in planning for future environmental programs. The NAFTA's
environmental record has been criticized by a CEC-appointed group of experts
because of a lack of coordination both within and among the various NAFTA
bureaucracies, and because government funding for environmental programs has
been limited. [85] However, while the NAFTA
could certainly do more in the area of environmental protection, the
institutional structure created by the NAFTA would seem to be better than the
absence of such structure. The WTO has made limited progress on environmental
matters, so that the NAFTA appears so far to present advantages over the
multilateral trade system structure for addressing environmental concerns.
A similar picture emerges in respect to the North American Agreement on
Labor Cooperation (NAALC). The CLC Secretariat does not have the power to
prepare factual records as does the CEC Secretariat. However, the NAALC
obligates each Party to establish a National Administrative Office (NAO) to
hear complaints concerning labor law enforcement in the Parties, and each Party
has established an NAO. The NAALC also provides an inter-Party complaint
procedure involving allegations of persistent failure to enforce labor laws.
The NAO complaint procedure has been more robust than might have been
expected. Labor unions of Canada, Mexico and the United States have initiated a
number of complaints that have resulted in negotiations among Labor Ministers
of the Parties, and in several cases have produced concrete results in terms of
remedial action by employers or government administrative reform.
[86] As the NAAEC led to increased interaction
among environmental interest groups, so the NAALC has fostered substantial
cooperation among labor unions of the Parties. The accomplishments of the NAALC
should not be exaggerated. Nevertheless, a base of inter-Party and inter-Union
labor cooperation has been established, and this is a substantial advance over
action on labor matters at the WTO.
The NAFTA does not make a
compelling case for action on social welfare matters by regional integration
arrangements. Yet the NAFTA did not set out with a social welfare charter; it
set out with an economic charter. The NAFTA has moved in advance of the WTO on
environment and labor matters, and it would be hard to make a case that the
NAFTA has harmed the multilateral trading system in the process.
The NAFTA was initially portrayed as the first step in a regional
trading arrangement stretching from Anchorage (Alaska) to Tierra del Fuego
(Argentina). This strategic vision was embodied both in short term negotiations
for accession to the NAFTA by Chile, and in longer term negotiations for a Free
Trade Area of the Americas. Shortly after the NAFTA entered into force,
momentum in the western hemisphere for pursuing this vision stalled. The U.S.
Congress was sharply divided by the NAFTA debate, and a Democratic President
could not induce his own party members to continue along the path of regional
integration. The countries of the Mercosur (Argentina, Brazil, Paraguay and
Uruguay, with Bolivia and Chile associated), have pursued their own
regionalization program. Mercosur countries continue negotiations with Andean
Pact and other Latin American countries.
The NAFTA was in part
negotiated to counterbalance the growing economic and political influence of
the EU. [87] The formation of the NAFTA in
turn raised EU concerns over U.S. dominance in the western hemisphere economy.
The EU has since pursued negotiations with Mercosur and with Mexico on closer
economic relations. The countries of Asia expressed concern over the potential
trade diverting impact of the NAFTA. Enterprises of some of these countries
have responded to the NAFTA by increasing their investments in North America.
Asian countries have also pursued regional integration arrangements, including
APEC. [88] These arrangements remain in
formative stages, and the 1997/98 economic crisis has set back their progress.
The NAFTA appears to have increased Mexico's strategic economic
importance to the EU. From a U.S. standpoint, the NAFTA continues to provide a
political and economic counterweight to the ever-expanding EU.
[69]This author has reviewed the
implementation history of the NAFTA from a legal standpoint in two papers,
Frederick M. Abbott , The NAFTA as Architecture for Political Decision
(May 1997) and The NAFTA and Legalization of International Relations: A Case
Study (Aug. 1998), each prepared for a Project on Legalization and World
Politics. The second of these papers will be published in an edited volume of
collected works resulting from the project. See generally U.S.
Executive Branch, Study on the Operation and Effect of the North American
Free Trade Agreement (NAFTA) , prepared and transmitted to Congress as
required by section 512 of the NAFTA Implementation Act (1997), www.ustr.gov
[hereinafter U.S. Executive Branch Study]. In the first three years of NAFTA
operation, Mexican applied tariffs on U.S. goods declined from an average of 10
percent to 2.9 percent. During the same time period, Mexican applied tariffs on
goods of non-NAFTA origin increased to an average 12.5 percent. Id. at
ii & 7.U.S. applied tariffs on Mexican origin goods declined from 2.07
percent to 0.65 percent in the comparable time frame, while U.S. applied
tariffs on Canadian origin goods declined from 0.37 percent to 0.22 percent
Id. at ii, 7-8.
[70]The U.S.
Executive Branch Study confirms that it is difficult to isolate the effects of
the NAFTA on regional trade or investment flows during the first three years of
its operation because the Peso Crisis overwhelms NAFTA-specified changes. The
U.S economy was exceptionally strong during the measurement period, and this
alone might account for changes in import-export trends. Id., e.g., at
12-14.
[71]In the period from 1994
through 1996 covered by the U.S. Executive Branch Study, there was a
substantial increase in two-way trade between the United States and Mexico.
There was also a substantial increase in the share of U.S. imports in the
Mexican market, and the share of Mexican imports in the U.S. market. Economic
movements in the NAFTA services markets were not significant during the same
three year measurement period. Id. at 8-11, 29-44. Since the entry into
force of the NAFTA, there has been a modest increase in the level of U.S.
foreign direct investment (FDI) in Mexico. Id. at 22-24.
[72]E.g., id. , at iii-iv.
[73]If we were to attribute at least partial
responsibility for the 1994 Peso Crisis to the NAFTA -- because the NAFTA may
have encouraged over-investment of short term capital in the Mexican market --
the economic picture is more mixed.
[74]A useful source of current data on the Mexican economy is
NAFTA Works published on a monthly basis by the government of Mexico,
SECOFI office.
[75]The classical
approach was developed in JACOB VINER, THE CUSTOMS UNION ISSUE (1950). For
discussion, including critique on grounds that trade creation/trade diversion
analysis does not adequately capture welfare effects attributable, inter alia,
to accelerated growth within CU/FTA, see WTO SECRETARIAT, REGIONALISM
AND THE WORLD TRADING SYSTEM (1995).
[76]Trade will be lost with non-members as tariffs are
reduced among members, and as these tariff reductions are not extended to
non-members.
[77]U.S. imports
recorded an overall market share gain of 6.2 percentage points in Mexico's
market for imported goods. Mexican imports recorded an overall market share
gain (in 22 broad sectors) of 2.3 percentage points in the U.S. market for
imported goods. The U.S. share of Mexico's textile import market gained 17.2
percentage points, and the U.S. share of the Mexican transport equipment import
market gained 19.2 percent points . Mexico's share of the U.S. apparel
market gained 5.2 percentage points. Id., e.g., at iv-vi, 35-36.
[78]Id. at vi & 39.
[79]Trade economists were aware of the
potential for trade diversion arising from creation of the NAFTA. See
C.A. Primo Braga, Raed Safadi and Alexander Yeats, Implications of NAFTA for
East Asian Exports, draft by members of International Economics
Department, The World Bank (1994).
[80]For predictive comparison of NAFTA and Uruguay Round
trade creation/trade diversion effects, see C.A. Primo Braga, Raed
Safadi and Alexander Yeats, id.
[81]Regarding NAFTA and the environment, see by this
author, Frederick M. Abbott, From Theory to Practice: The Second Phase of
the NAFTA Environmental Regime , in ENFORCING ENVIRONMENTAL STANDARDS:
ECONOMIC MECHANISMS AS VIABLE MEANS? 451 (RüDIGER WOLFRUM ED., 1996 );
The NAFTA Environmental Dispute Settlement System as Prototype for Regional
Integration Arrangements , 4 [1993] Y.B. INT'L ENVTL. L . 3 (Günther
Handl ed., 1994); Regional Integration and the Environment: The Evolution of
Legal Regimes , 68 CHI-KENT L. REV . 173 (1992); and a series of reports in
the Yearbook of International Environmental Law, International Trade Rules,
World Market Conditions and Environmental Effects , 8 [1997] Y.B. INT'L
ENVTL. L. [] , ([] EDS. 1998); 7 [1996] Y.B. INT'L ENVTL. L. [] (GüNTHER
HANDL ED. 1997); 6 [1995] Y.B. INT'L ENVTL. L. 349; 5 [1994] Y.B. INT'L ENVTL.
L. 283; 4 [1993] Y.B. INT'L ENVTL. L. 281; 3 [1992] Y.B. INT'L ENVTL. L . 341;
2 [1991] Y.B. INT'L ENVTL. L . 227 .
[82]See, e.g., Remarks of Lance Compa,
International Trade and Social Welfare: The New Agenda, 17 COMP. LAB.
L. J. 338 (1996).
[83]This factual
record is available at the CEC website, www.cec.org.
[84]See, e.g. , Commission for
Environmental Cooperation, 1996 Annual Report.
[85]NAAEC CEC, NAFTA's Institutions: The
Environmental Potential and Performance of the NAFTA Free Trade Commission and
Related Bodies (1997).
[86]These
developments are reported at the CLC website, www.naalc.org, with links to
NAOs. Particularly useful is the Canadian NAO website,
http://labour.hrdc-drhc.gc.ca/doc/nafta/eng.
[87]See Frederick M. Abbott, NAFTA
and the Future of United States - European Community Trade Relations: The
Consequences of Asymmetry in an Emerging Era of Regionalism , 16 HASTINGS
INT'L AND COMP. L. REV. 489 (1993) and The North American Free Trade
Agreement and Its Implications for the European Union , 4 TRANSNAT'L L.
& CONTEMP. PROB. 119 (1994).
[88]Regarding APEC and its relationship to the WTO,
see Jonathan T. Fried, APEC as the Asia-Pacific Model for Regional
Economic Cooperation , in CHINA IN THE WORLD TRADING SYSTEM 183 (F.M.
Abbott ed., 1998).
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