NAFTA at 20: Time to Refocus? Professor Hansen argues there is still a place for NAFTA
A little knowledge can be a dangerous thing. As the American child of a Mexican immigrant, I spent much of my childhood in the company of friends and family who still lived in Mexico or had recently left. My background made me very aware of the long history of distrust between the United States and Mexico. It also made me overly quick to dismiss the idea of a North American common market, which Ronald Reagan first proposed during his 1980 presidential campaign. To me, it seemed an impossible notion.
The next two decades appeared to prove me wrong. By the time Reagan left office in 1989, the U.S. had entered a bilateral free trade agreement with Canada which produced a contentious debate in Canada, but very little debate in the U.S. Soon after, President George H.W. Bush initiated negotiations to replace the U.S.-Canada agreement with a new North American Free Trade Agreement (NAFTA) including Mexico as well as Canada. The agreement, signed in 1992, provoked extensive debate in all three countries — including a famous televised debate between vice president Al Gore and presidential contender Ross Perot, who warned that NAFTA would produce a “giant sucking sound” of lost U.S. jobs. The agreement was submitted to Congress by President Bill Clinton, but only after Canada and Mexico agreed to negotiate additional “side agreements” on environmental and labor cooperation. NAFTA was finally ratified in all three countries (along with its side agreements) and went into effect in 1994.
Twenty years later, it is time to reassess NAFTA and the North American vision that lay behind it. The debate over NAFTA and its impact on jobs, wages and the environment lives on. The debate is complex, but three things seem quite clear to me. First, NAFTA has had a strong positive impact on trade and investment among the three NAFTA partners. Second, the NAFTA countries have experienced a number of pressing problems in the past 20 years, some related to NAFTA and some not. Finally, and perhaps most importantly, NAFTA has become increasingly irrelevant as a means for solving these new problems. Rather than pursuing Ronald Reagan’s vision of a North American common market, NAFTA countries are looking outside NAFTA for solutions. The debate over NAFTA continues, but the debate over how to improve NAFTA does not seem to have begun.
What explains NAFTA’s current marginalization? To a certain extent, NAFTA has been a victim of its own success. Many of its once-innovative provisions served as a template for improved provisions in newer agreements, which are now displacing it. For example, NAFTA’s dispute settlement provisions were initially praised as a significant improvement over the weak provisions of earlier trade agreements. But the following year saw the emergence of a new World Trade Organization (WTO) with even stronger dispute settlement provisions. NAFTA countries have often preferred to settle their disputes in the newer WTO. In the past 20 years, NAFTA panels have issued only three decisions on disputes between NAFTA countries. The last NAFTA panel decision (relating to U.S. restrictions on Mexican trucking) was issued more than 13 years ago — and the U.S. has not yet fully complied with it. Meanwhile, the WTO has issued important decisions in a number of disputes between the U.S. and its NAFTA partners, including long-standing disputes regarding softwood lumber imports from Canada and tuna imports from Mexico.
NAFTA also suffered from being oversold by its early proponents. After NAFTA entered into force in 1994, it became clear that the level of economic growth many people expected as a result of NAFTA could not be achieved through trade and investment alone; instead, Mexico would have to undertake much more comprehensive and difficult infrastructure and policy changes. Predictions that NAFTA would solve the problem of undocumented immigration from Mexico also proved untrue. The issue continues to bedevil U.S. politics and U.S.-Mexico relations more generally.
Finally, NAFTA was overtaken by unanticipated events. After Sept. 11, 2001, the United States’ attention moved away from the economic and regional issues at the heart of NAFTA toward broader security concerns. At the same time, Mexico experienced an unprecedented growth in drug-related violence that threatened to destabilize its economic and political system. When negotiations in the WTO failed to produce significant results, each country turned its attention to trade interests outside NAFTA. After NAFTA entered into force, the U.S. entered into new free trade agreements with 17 countries; Canada entered new agreements with more than 10 countries; and Mexico entered new trade agreements with more than 40 countries.
Is there still a place for NAFTA in this complex web of new agreements? I believe so. Our shared borders — and the constant flow of goods, people and ideas across those borders — raise unique problems and opportunities. For example, since NAFTA went into effect, Mexico successfully transitioned to political democracy, and enacted major economic reforms in important sectors such as energy. This kind of change opens up exciting possibilities for new forms of North American cooperation.
Although the NAFTA countries must continue pursuing their interests outside North America, they should do so in a way that permits them to identify and pursue the unique interests and opportunities that exist within North America. A first step in this direction took place in 2012, when Canada and Mexico joined the United States in negotiations for a comprehensive new Trans-Pacific Partnership (TPP) agreement aimed at creating a platform for economic integration across the Asia-Pacific region. A next step would be for Canada and Mexico to join current U.S.-European Union negotiations for a new Transatlantic free trade agreement (informally known as TAFTA). At the same time, the three neighbors should engage in a new dialogue among themselves on ways to modernize NAFTA so that it can produce present-day North American solutions to present-day North American issues. It is not an impossible notion.
Written by Patricia I. Hansen, the J. Waddy Bullion Professor at The University of Texas School of Law