In previous chapters we developed the theory and history underlying NAFTA's creation. Then we examined the content of the agreement itself and its two side agreements. Now we turn to the question of how NAFTA is working in practice since its implementation in January 1994 and speculate on where it might go in the future. Given the complexity of the agreement and its many economic, social and environmental implications, we will limit our discussion to those topics which we believe have most relevance to the readers.
In the first part of the chapter we look at the 'Mexican dilemma' -- the special issues presented by Mexico's status as a still developing country (and its consequent macroeconomic instability) and how this status affects NAFTA. Next we look at NAFTA's evolution during the first three years, as a tool for managing the de facto integration occurring in the region. In the third section we look 'beyond NAFTA' at the possibility for reforming and/or deepening and widening the current agreement.
We have argued that economic integration in North America was well under way before the signing of NAFTA, as indicated by the flows of goods, services and investments. Given these substantial flows, there was no obvious reason why two developed economies-the United States and Canada-would choose to form a trade alliance with a developing economy like Mexico. Not only was size a problem (the Canadian and US economies in combination are about twenty times larger than the Mexican economy), but there are other problems as well: Mexico's autocratic political system, frequently associated with political violence and disrespect for human rights; and significant differences in legal practices between Canada and the United States, on the one hand, and Mexico, on the other. The differences in legal systems posed problems for Canadian and US trade officials, who were unsure about how Mex-