North American Free Trade: Issues and Recommendations

North American Free Trade: Issues and Recommendations

North American Free Trade: Issues and Recommendations

North American Free Trade: Issues and Recommendations


A clear, well-written, and comprehensive statement of a number of salient issues involving North American free trade-- summarized and referenced to more detailed source material for the interested reader.--Clark W. Reynolds, Stanford UniversityA first-rate piece of work . . . Its great value is that it will be used for some time as a reference document by experts who will want to delve more deeply into the specifics of the many technical issues covered.--Sidney Weintraub, University of Texas, AustinNegotiations toward a North American Free Trade Area (NAFTA) began in June 1991. This book assesses both the substances and the form of a prospective NAFTA. Part One examines the objectives of the United States, Mexico, and Canada in the NAFTA negotiations; the potential shape and contents of the agreement (including dispute-settlement and institutional issues); its possible extension to third countries; and its implications for multilateral trade negotiations and the GATT.Part Two examines the broad economic implications of a NAFTA for trade, investment, and employment; labor and environmental concerns that arise because of Mexico's lower level of economic development; and the cross-sectional issues of rules of origin and intellectual property.Part Three analyzes how the energy, auto, steel, textile, agricultural, and financial services sectors of the Mexican economy could be affected by a NAFTA, and the implications for U.S. and Canadian industries. Part Four summarizes the major conclusions and policy recommendations.


Mexico's trade, like Canada's, exhibits a lopsided dependence on the United States (table 3.1). Mexican merchandise trade with the United States runs to about 75 percent of Mexican imports and exports; Mexican exports to the United States (including total maquiladora. shipments) account for some 13 percent of Mexican GDP. In contrast, US merchandise trade with Mexico consistently runs between 5 percent and 7 percent of US imports and exports (table 3.1), and US exports to Mexico make only a small contribution to US GDP.

In 1980 the composition of Mexican exports was dominated by energy products (table 3.2). Crude oil exports peaked in dollar terms in 1982-84 and then fell off. Meanwhile, manufactured exports have tripled since 1980. Mexican merchandise trade statistics do not include maquiladora imports and exports; instead the value added through these processing operations is recorded under Mexican service exports. Maquiladora value added grew sharply in the 1980s, from $0.8 billion in 1980 to over $3.0 billion in 1990.

On the import side of the Mexican trade accounts, intermediate goods are the dominant component of merchandise trade (table 3.3). If, as expected, Mexican policy reforms continue to pay off in terms of larger domestic investment in the 1990s, capital-goods imports should grow sharply.

The Macroeconomic Effects of a NAFTA

Former Speaker of the House Thomas P. "Tip" O'Neill was fond of proclaiming that "All politics is local." In that spirit, the local repercussions of a nafta have already sparked heated debate: How will it affect the broom industry in Iowa or the citrus growers in Florida? What will be the consequences for sewage disposal in Nogales, Arizona, and Nogales, Sonora? Will it exacerbate "midnight dumping" of hazardous wastes at unsupervised Mexican landfills? In contrast with the impact of a multilateral tariff cut, which spreads more or less evenly across the vast reaches of the US economy, establishment of a free trade area sharply affects the profile of fewer activities.

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