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NAFTA has made North American businesses of all sizes more competitive by providing them with better access to intermediate inputs and capital sources from across the continent.
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Myths vs. Reality
A review of the myths and realities surrounding NAFTA reveals the extent to which its critics have been proven wrong.
Myth 1: NAFTA has not achieved its core goals of expanding trade and investment between Canada, the United States, and Mexico.
Reality: Since NAFTA came into effect, trade among the NAFTA countries has more than tripled, reaching US$949.1 billion. In 2008, Canada and the United States’ inward foreign direct investment from NAFTA partner countries reached US$469.8 billion. Meanwhile, Mexico has become one of the largest recipients of foreign direct investment among emerging markets, and received more than US$156 billion from its NAFTA partners between 1993 and 2008.
Myth 2: NAFTA has resulted in job losses.
Reality: Since NAFTA came into effect, the overall job growth has been strong in all three partner countries. Across North America, total employment has grown by almost 40 million jobs since 1993.
Myth 3: NAFTA hurts workers by eroding labor standards and lowering wages.
Reality: The NAFTA partners negotiated and implemented a parallel agreement on labor cooperation, the North American Agreement on Labor Cooperation (NAALC). The NAALC adds a social dimension to NAFTA. Through the NAALC, the regional trading partners seek to improve working conditions and living standards, and to protect, enhance, and enforce basic workers’ rights.
Over the years, the NAALC has helped to improve working conditions and living standards in Canada, the U.S., and Mexico. It has also raised the public profile of major labor rights issues, including pregnancy-based discrimination, secret ballot voting, protection contracts, and protection of migrant workers.
The NAALC promotes the effective enforcement of domestic labor laws in all three countries and highlights cooperation on labor matters in three key areas: industrial relations, occupational health and safety, and employment standards.
In addition, NAFTA has promoted higher wages. In Mexico, for example, export firms employ one in five workers; these workers are paid 40% more on average than those in non-export jobs. Firms with foreign direct investment employ nearly 20% of the labor force and pay 26% more than the domestic average manufacturing wage.
For more information, please visit the website of the Commission for Labor Cooperation (CLC).
Myth 4: NAFTA undermines national sovereignty and independence.
Reality: NAFTA is a trilateral agreement designed to facilitate trade and investment between Canada, the United States, and Mexico. It respects the unique cultural and legal framework of each of the three countries and allows them to maintain their sovereignty and independence.
Myth 5: NAFTA does nothing to help the environment.
Reality: The NAFTA partners negotiated a parallel agreement on environmental cooperation, the North American Agreement on Environmental Cooperation (NAAEC). The NAAEC commits the NAFTA partners to work cooperatively to better understand and improve the protection of their environment. The agreement also requires that each NAFTA partner effectively enforce its environmental laws.
The Commission for Environmental Cooperation, established under the NAAEC, has produced concrete improvements in the management of North American environmental issues. With a budget of US$9 million annually, some initiatives of the Commission include the:
- development of North American management practices for toxic chemicals;
- establishment of the first Mexican national air emissions inventory;
- launch of the North American Bird Conservation Initiative, which provides a resource for bird conservation programs in the three countries;
- promotion of best practices to address the linkages between the environment, the economy, and trade.
Additionally, the United States and Mexico created two binational institutions. The Border Environment Cooperation Commission provides technical support for the development of environmental infrastructure projects in the U.S.-Mexico border region (www.cocef.org). The North American Development Bank finances these projects (www.nadbank.org). To date, they have provided nearly US$1 billion for 135 environmental infrastructure projects with a total estimated cost of US$2.89 billion and allocated US$33.5 million in assistance and US$21.6 million in grants for over 450 other border environmental projects. The Mexican government has also made substantial new investments in environmental protection, increasing the federal budget for the environmental sector by 81% between 2003 and 2008.
For more information on what has been accomplished by the parties under the NAAEC, please visit the Commission for Environmental Cooperation website at www.cec.org/.
Myth 6: NAFTA hurts the agricultural sector.
Reality: NAFTA has led to increasingly integrated agricultural and agri-food trade within the North American market. Since 1993, agricultural and agri-food trade and investment flows between the NAFTA partners has grown, with overall agricultural trade reaching about US$50 billion.
The NAFTA partners are one another’s largest agricultural export markets: Canada and Mexico are the two largest agricultural suppliers to the United States, and the United States is the leading agricultural provider to both the Canadian and Mexican markets. U.S.-Mexico agricultural trade reached US$26.9 billion in 2008.
As NAFTA has contributed to further integration of the trading partners’ agricultural sectors, Mexican industries have required more U.S. agricultural inputs. For example, U.S. feedstuffs have increased Mexican meat production and consumption; likewise the importance of Mexican produce to U.S. fruit and vegetable consumption is growing. Grains, oilseeds, meat and related products make up three -fourths of U.S. agricultural exports to Mexico, while beer, vegetables and fruit account for three-fourths of U.S agricultural imports from Mexico.
Myth 7: NAFTA negatively impacts the North American manufacturing base.
Reality: Since NAFTA came into effect, North American manufacturers have enjoyed better access to materials, technologies, capital, and talent available across the continent. Thousands of manufacturers have capitalized on this to improve efficiency and better refine technology, making them more competitive at home and around the world.
U.S. manufacturing output rose by 62% between 1993 and 2008, compared with 42% between 1980 and 1993. In 2008,U.S. manufacturing exports reached an all-time high of US$1.0 trillion.
Canadian manufacturing output (real GDP) increased by 62% between 1993 and 2008 compared with 23% between 1981 and 1993. Over the same period (1993-2008), Canadian manufacturing exports grew at a much faster pace (up 103.6%).
NAFTA has empowered Mexico’s industrial base by facilitating modernization. As a strategic manufacturing center in North America, Mexico enhances the region’s competitive status in the global marketplace. Since NAFTA’s implementation, Mexico’s international presence has been invigorated by the growth of manufacturing output, which has since tripled. In addition, Mexico’s manufactured exports have multiplied five times over the past 15 years.