In 1994 the United States Congress passed the North American Free Trade Agreement (NAFTA). The agreement was between Canada, Mexico and the United States. NAFTA removed all trade barriers between these nations, including tariffs and quotas. The purpose of the agreement was to create a unified trading block on the North American continent. Many Americans in the business community thought that the trading groups in Europe and Asia had a comparative advantage. They wanted to create an agreement that would allow the U.S. to compete. NAFTA was designed to help maintain U.S. supremacy in world trade.

CS Question 1: Why was NAFTA created?

Many union members opposed NAFTA. They believed that Mexico had a comparative advantage in the production of many goods. The advantage existed because of low labor and materials costs. The unions feared that without tariffs the goods imported from Canada and Mexico would be very inexpensive compared with goods produced in the U.S. They also feared the loss of jobs. Because the cost of labor is less in Mexico, they believed that companies would move their production plants to Mexico. They stated that the number of immigration workers from Mexico would increase in the United States. Although the majority of jobs migrant workers typically fill have very low wages, without these immigrants the jobs would have to be filled by U.S. workers. According to recent figures, more than 200,000 U.S. jobs have been lost because of NAFTA.

CS Question 2: Why did unions oppose the signing of NAFTA?

Congress passed NAFTA to open the Mexican and Canadian markets to U.S. goods. NAFTA provided the U.S. with access to many consumers in Mexico and Canada. By having free access to these markets, the U.S. was able to compete with local products. The U.S. has absolute advantage in the production of many goods it exports. The restricted barriers created by NAFTA allow some U.S. companies to dominate the North American market. They do this by charging lower prices than Canadian or Mexican companies and providing higher-quality goods. However, the lack of tariffs also allows inexpensive goods from Canada and Mexico to come into the U.S. market. These inexpensive goods are usually labor-intensive goods. They are too expensive to produce in the United States. The free trade policies allow Mexico to export these goods to the U.S. at a lower cost. They can then pass the savings on to the U.S.consumer.

CS Question 3: What advantages does NAFTA offer U.S. citizens?

NAFTA has advantages and disadvantages for all three nations. Each nation wants NAFTA to be implemented only to the extent that the agreement helps that nation's own interests. These interests include those of workers and business owners. Each nation has a different idea about how much of NAFTA should be implemented. In the United States, most large corporations support the agreement. Most of the emphasis has been put on inexpensive goods from Mexico and the United States. Many Canadian groups are fighting to protect native Canadian goods. In Mexico, many businesses appreciate the market access that NAFTA provides. However, many of these same businesses do not wish to follow the strict labor and health regulations that are required from U.S. corporations. In the end, like all political issues, NAFTA can be seen as positive or negative. It simply depends on whose viewpoint you consider.

CS Question 4: In your opinion, which nation benefits most from NAFTA?

Further Thought:

1. Which nation benefits most from the legal protection of domestic jobs? Why?
2. What can Canadian businesses do to keep their products competitive in the U.S. and Mexican markets?
3. Do you think NAFTA will help or hurt U.S. consumers? Why?