20 years of NAFTA: is North America better off?

This year marks the 20th anniversary of the North American Free Trade Agreement’s implementation, revolutionizing trade between Canada, the United States and Mexico. The agreement created a trilateral rules-based trade bloc in North America to lift barriers, regulations and tariffs that complicate trade between these major economies and neighbors. 

Negotiated under President George H.W. Bush, then ratified and implemented under his successor Bill Clinton in 1994, NAFTA helped pry open markets when globalization was in its infancy. Highly controversial at the time, the agreement drew objections from environmentalists, low-wage workers, and others who feared it would lead to increased pollution, wage erosion and the devastation of American and Canadian manufacturing.

Today the NAFTA region produces more than $17 trillion worth of goods and services annually. Forty percent of Canada’s, Mexico’s and the United States’ combined worldwide trade occurs within the NAFTA partnership.

We spoke with two ambassadors to the U.S — Canada’s Gary Doer and Mexico’s Eduardo Medina-Mora — for the Inside Story.

Is NAFTA popular in Canada?

Gary Doer: It is very popular. Trade with the United States and Mexico is extremely popular … When we’re here in Washington, we point out that Canada is the United States’ largest customer. We buy more goods from the United States then the whole European Union put together. I think sometimes we talk about trade agreements in abstract terms. We have to be, I think, more effective in talking as customers of each other as well as sellers to each other.

And in Mexico?

Eduardo Medina-Mora: I think it is very popular as well. I think after 20 years, what we have achieved in terms of trade with Canada and the U.S. and more over what we have achieved in terms of really integrating the very deep level the value added change. We actually trade a lot with each other. We are the second largest customer of the U.S., as Ambassador Doer was saying. This is something which is normally taken for granted. And we sell a lot to the U.S., of course. The U.S. is our largest market, many U.S. jobs depend how much Mexico buys from the U.S. Many U.S. jobs depends on how much Canada buys from the U.S. We actually have figured out to really build together and market together, here in this market in North America as well to the rest of the world.

Did NAFTA become less important because something we couldn't have really known about in 1990 when it was negotiated, the rise of China? Did China end up being a player in a way that we could not have imagined when this trade deal was being worked out? 

Medina-Mora: Originally the first two or three years of NAFTA … the manufacturing activity in Mexico was really booming. And then an uninvited guest appeared in a room, and that was China. And of course, a lot of manufacturing went away from the region to China. Now amazingly, our total cost of production in the region has come down to a very competitive level vis-à-vis China.

In 2001, Mexico had a 271 percent wage differential with China. Today it’s less than 10 percent. In terms of total cost of production and opportunity cost, we are very competitive. So we are getting back many manufacturing, new investments that are now seen in North America … But like I said, this is shared production scheme. A very well-integrated value-added change.

Are the NAFTA partners stronger in their efforts to hold on to what they’ve got to be competitive against China than they are as individual countries?

Doer: We’re strong as a neighborhood. Just look at one of the biggest issues for attracting and retaining business, and that’s predictable, affordable, reliable energy. And when you look at the reforms in Mexico to the constitution, to allow for some private investment into their oil sector, when you look at the innovations and developments in Canada, when you look at the developments in the United States on the energy side, in this neighborhood of North America, we have an incredible amount of resources. We can be more sustainable with energy efficiency. We’ve got light vehicle emissions standards. In Lyon and in Detroit and in Windsor — how do we continue to work on a sustainable economy but also a reliable energy economy? Because it’s a huge advantage, not only with China but with the rest of the world. I think that’s a great reality that we have today when the three leaders meet.

For a long time, the Ross Perot quote about the giant sucking sound — a lot of jobs did leave the United States, but they didn’t go to Mexico. They went to China.

Mora: They did, and now they are coming back to our region in that sense. And of course, the only … sucking sound we hear in Mexico is Mexicans actually consuming U.S. products and Canadian products. So this is a totally different approach than what we saw 20 years back.

Someone standing in an Edmonton supermarket or driving a truck out of a pulp mill in Quebec, if we stopped them and asked, “Did NAFTA work out for you?” What would they say?

Doer: Well, they may have different opinions. We live in three great democracies. So you’ll have divided opinions. I’m sure you can get people in an interview that would be skeptical of NAFTA and people that would be very positive about NAFTA. Most of the Canadian public believes that trade with the United States and Mexico … is good for our country and good for our neighborhood.

Has a manufacturing worker in Canada had the same pressure on him and his place of business as one in Michigan or Ohio?

Doer: Yes, they have had a lot of the same pressures, partly based on technology and the change in technology. Partially based on some outsourcing to countries like China, and it has created a lot of pressure. You heard from Carla Hills talking about a plant floor. If you go to a Boeing plant in my old province of Manitoba in Winnipeg — the technology, the kind of skills and the people you need and the training that goes into their jobs beforehand is quite different than what it was 20 years ago. There are obligations that we have as well in this trading environment.

One, companies are worried about losing their intellectual properties. We’ve got to continue to work on having a predictable intellectual properties regime with innovations. Two, we have to train people for those skilled jobs in manufacturing. Even though there is less of them, we can do a better job, I think, in North America at training those people for jobs of the future. 

One of the promises made to support NAFTA was that it would reduce the need for young Mexican men and women to head north to find jobs. Has that part of it worked out? Millions of Mexican nationals are living in the United States. We were told they wouldn’t feel the need to come because things would be so much better in Mexico.

Medina-Mora: If you see the numbers, actually, net flows from Mexico, from 2010 on, are negative. We had more Mexicans in 2007 than we do today, Mexican-born citizens. And the numbers at the southwest border, in the year 2000 for instance, the Border Patrol apprehended 1.7 million people. In 2012 they apprehended 386,000.

And I would say a large proportion of them in 2012 and 2013 are non-Mexicans. So in this sense, Mexico is not going to be a major source of migrants to the U.S. in the future because the Mexican economy is performing much better, and of course, we are facing demographic change in a very dramatic way.

So in this sense, migration from Mexico to the U.S. has been changed from the demographic dynamics on its own and, of course, from the way the Mexican economy is performing now, and NAFTA has a lot to do with that. In terms of modernization of our own economy and now with … reforms, we are envisioning reducing barriers of entrance and reducing transaction costs for small and medium-size enterprises to really profit from the domestic market and from engaging themselves with the North American equation.

The United States is waiting for a final decision on the Keystone Pipeline, which would eventually take Canadian energy resources down through the Mississippi Basin to the Gulf of Mexico. How come something like that doesn’t fall under NAFTA? How come we have fights over things like softwood lumber and Keystone and it doesn’t just fall under the mechanism  of NAFTA to get it worked out?

Doer: We got about 80 percent of our trade free, as they say, between our countries. We didn’t get 100 percent a number of years ago, but we got a lot of predictability across our countries with NAFTA. On energy, oil is coming down from Canada. It’s just how it is getting there. It’s coming down as part of the commercial decisions that are being made in the United States. We’ve gone from about 19 percent so-called foreign oil with the United States four years ago to 32 percent. It’s just coming down on rail — with higher GHGs [greenhouse gases] and higher risk. 

So the debate about a pipeline is not about whether the oil is coming down. People allege it won’t, but they are wrong. It’s a question of how it gets there. The safer way to send it is the way the State Department articulated it with their State Department report. So we hope science and merit make the final decision on how it gets there. It is getting … to the Gulf Coast. It’s just getting there on rail.