TRADE

Can NAFTA keep up with the rest of the world?

 

cmeacham@csis.org

On Jan. 1, the North American Free Trade Agreement (NAFTA) will celebrate its 20th anniversary. And in the context of a continent that is more deeply interconnected than ever before largely as a result of the two-decade long agreement, it’s an ideal time to consider what the future holds for North America.

The agreement was conceived as an effort to boost cross-border trade, economic growth and good jobs. And in its first 20 years, NAFTA has achieved all three goals. Since its inception, U.S. trade with Canada and Mexico has nearly quadrupled — and our continental neighbors together buy about one-third of U.S. exports worldwide.

According to the U.S. Chamber of Commerce, trade with Canada and Mexico supports just under 14 million U.S. jobs — and almost 5 million of those have been specifically enabled by NAFTA alone. Agricultural exports to Canada and Mexico have tripled and quintupled, respectively, since 1994, providing a huge and growing market for U.S. farmers and ranchers.

Despite critics’ suggestion that the agreement has increased the U.S. trade deficit, the United States registered a trade surplus with its NAFTA partners in services ($40 billion), manufactured goods ($14.5 billion) and agricultural products ($2.6 billion) in 2011 alone. The benefits to U.S. manufacturing, agriculture and employment can hardly be disputed — even with crude oil imports continuing to offset that surplus.

Some challenges persist. Wage disparities among North American economies and differences in labor standards continue to be key drivers of illegal immigration — a nagging strain on relations among neighbors. And environmental standards come up time and again in international trade disputes as well.

Still, NAFTA has proven successful. With the exception of the Uruguay Round agreement that generated the World Trade Organization (WTO) in 1995, NAFTA has turned out to be the most impactful (and, for the U.S., beneficial) trade agreement in our country’s history.

But now it’s important to consider NAFTA’s future in light of the evolving free-trade context in the Western Hemisphere. To put it simply, it’s been a banner decade for free trade in the region. With the number of bilateral U.S. free-trade agreements in the region skyrocketing — nine have been signed since 2001 alone — dynamic trade liberalization is clearly a near-universal hemispheric priority.

Much the same holds true globally.

Negotiations for an agreement between the United States and the European Union began in July of this year. Should all go as planned, the TTIP would be the single biggest trade deal to date, formally linking the two biggest economies in the world. On the other side of the world, though the Trans-Pacific Partnership has a long way to go before it’s finalized, its forward-looking nature and expansive scope make it a promising step forward for free trade in the region.

And certainly not least among the region’s developments is the Pacific Alliance, a group of five Latin American states (Mexico, Costa Rica, Chile, Peru and Colombia) that have begun a process of trade liberalization and economic integration with a particular focus on targeting Asian markets—goals that have garnered attention all around the world.

All of this is to say that the hemisphere is facing a critical juncture. The region’s surge in free trade has immeasurably increased its competitiveness — and that trend will only continue moving forward.

But what is lacking is a forward-looking initiative for North America specifically. And this is where NAFTA has a real opportunity to adapt its successful framework for a new and emerging era. With hemispheric competitiveness on the rise and regional free-trade promotion unmatched around the world, North America needs to step up — or it may risk being left behind.

So what is the way forward for NAFTA? There are several viable options, ranging from an internal reevaluation of NAFTA’s goals to member states’ push for the inclusion of all three in the TTIP, among others.

Broadly, what will serve all three member nations best is for them to have the option to be treated collectively in their international commercial interactions — especially when it's in their interest. Only this will ensure NAFTA's competitiveness in the context of our increasingly dynamic world.

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