ABSTRACT
While problems continue in terms of continued protectionism (especially in agriculture and energy), security concerns in the aftermath of September 11lh, and difficulties in institutionalizing Mexican democracy, the agreement has helped to increase employment and living standards (with the exception that real wages have fallen in Mexico since NAFTA), provided a framework for resolving trade disputes, and strengthened enforcement of environmental and labor laws.
FULL TEXT
Hufbauer, Gary Clyde and Jeffrey J. Schott, NAFTA Revisited: Achievements and Challenges. Washington, DC: Institute for International Economics, 2005. 517pp.
Two leading experts analyze the history of the North American Free Trade Agreement (NAFTA), evaluate its impact in its first decade, and offer some solutions to problems that have either been created or continued since NAFTA's passage. This book offers an excellent review of the negotiations that led to NAFTA and its ratification, but more importantly it systematically analyzes the effects of NAFTA without the vitriolic anger of its critics or assumed success of its advocates. While Hufbauer and Schott are clearly favorable to the agreement and the opening of trade between the US, Canada, and Mexico, they are cognizant of problems with this agreement and take its shortcomings seriously. Overall, Hufbauer and Schott credit NAFTA for achieving most of its realistic objectives. While problems continue in terms of continued protectionism (especially in agriculture and energy), security concerns in the aftermath of September 11lh, and difficulties in institutionalizing Mexican democracy, the agreement has helped to increase employment and living standards (with the exception that real wages have fallen in Mexico since NAFTA), provided a framework for resolving trade disputes, and strengthened enforcement of environmental and labor laws.
Hufbauer and Schott specifically focus on certain key sectors of the economy to analyze the effect of NAFTA. First, they note that autos account for 20% of intra-N AFTA trade and are the largest single sector for trade among the three states of NAFTA. They believe that the agreement has helped integrate Mexico into a larger automobile market, both in terms of production and consumption. By expanding supply lines, the agreement has increased efficiency in the manufacturing of autos. Agriculture is another key sector examined by Hufbauer and Schott. They find that agricultural trade more than doubled in the first decade of the agreement, and the growth in agricultural trade was twice as fast among these states than with these states and the rest of the world. While agriculture accounts for only 5% of trade within NAFTA, its importance is much greater given the political influence so many actors in this sector have in each state. The third important sector that NAFTA affected (or in the case of Mexico perhaps did not affect) was energy. Trade in energy accounts for 7% of all trade between these countries. Trade in energy is primarily based on Canadian exports of oil and natural gas to the United States. While NAFTA has served to accelerate trade in energy between the United States and Canada, Mexico's constitutional prohibition against foreign investment in the energy sector has resulted in a slower development of its energy exports than would have been the case if US and Canadian companies had the opportunity to invest in exploration and production.
Hufbauer and Schott believe that NAFTA has increased trade, not just diverted trade through one of the NAFTA states to gain access to the larger North American market. Growth in terms of the trade of services did not keep pace with merchandise trade in the first decade of the agreement. One of the continuing problems with expanding trade further under NAFTA is the need to liberalize cross-border trucking. One of the ways that NAFTA has been successful has been the ability of Mexico to attract foreign direct investment (FDI). This investment has not led to a great sucking sound resulting in dramatic job losses in Canada and the United States. Despite the fast growth of FDI into Mexico, its GDP has grown slower than Canada's and the United States'. Growth in FDI in Mexico has slowed in recent years as the competition for foreign capital has become more intense. This is one of the long-term challenges for NAFTA. For it to be successful, it has to promote investment in Mexico at a pace to create more and more jobs for the rapidly growing labor force in Mexico. Otherwise, it will lead to a growth in emigration from Mexico to the United States that has created increased political pressure on the US government in recent years.
In general, NAFTA's dispute resolution process has worked well when the obligations states have are clearly stated in the treaty but have been more difficult when domestic political interests have become active in the process. The areas of labor and the environment have proved to be less troublesome than predicted with the institutional arrangements created by the side agreements to the initial treaty increasingly working to facilitate cooperation. Hufbauer and Schott provide specific recommendations that highlight the limitations of the administrative framework created by NAFTA and other previous agreements. Their careful study lends credibility to the argument that the institutions created by NAFTA should be strengthened to achieve the goals of the agreement and not disbanded that would most likely result in not only a weakening of economic growth and job creation but lower environmental and labor standards.
The strength of this book rests in three areas. First, the authors have done an excellent job of reviewing and integrating the previous research by other scholars. secondly, Hufbauer and Schott have attempted to analyze primary data to come to their own conclusions and not just rely on studies or estimates provided by others. Finally, they have presented a book that is both highly readable and technical at the same time. The generalist will be able to quickly and easily read this well written book while the specialist will have plenty of tables, footnotes, and appendices to analyze the authors' conclusions. Overall, Hufbauer and Schott have written a major work that will become the source for most scholars who seek to understand and evaluate NAFTA.Journal of Third World Studies
