NAFTA has been a highly influential FTA. While its merits and true impact are still vigorously debated by commentators, there is little doubt that NAFTA has contributed to some fundamental changes in the economies of member countries and the way in which they trade with one another. The most discernible impacts of NAFTA include a significant growth in intra-bloc trade, a proliferation of regional value chains and a surge in Foreign Direct Investment (FDI). That being said, it is difficult to ascribe sole credit to NAFTA for these outcomes, given that they coincided with other influential events in the global and domestic economies, such as the 1994 Peso Crisis and the 2008 financial crisis, as well as latent trends which predated the Agreement.

Most proponents of NAFTA point to the large increases in trade volumes which have followed its implementation. Since 1993, trade between member countries has grown from approximately $290 billion to well over $1.1 trillion.8 Trade between Mexico and the United States has quadrupled, compared to a threefold growth in trade between the United States and the rest of the world.9

Increases in trading volumes have largely come through improvements in productive capacity, as opposed to trade distortion. The removal of barriers to trade and investment has facilitated the creation of regional value chains within the NAFTA bloc, allowing producers to undertake aspects of the production process where it makes the most economic sense. Perhaps best represented by the maquiladoras along the US-Mexico border, this supply chain rationalization has particularly benefited the auto, electronic and machinery industries. As regards the auto industry, integration since the Agreement has seen Mexico become the largest supplier of auto goods to the United States (accounting for 28% of imports), followed closely by Canada, with 21%10. The extent of integration achieved is also reflected by the fact that US inputs represent 25% and 40% of goods imported from Canada and Mexico respectively.11 As a point of comparison, it is believed US inputs only constitute 4% of imports from China.12

Some aspects of increased trade flows, however, are likely to have been the result of trade distortions.13 Studies have shown that this has mostly been limited to sectors deliberately aided by protectionist provisions within the Agreement. Strict rules of origin for the textiles industry, known as “yarn forward”, have had the effect of artificially rendering American fabric more attractive as inputs for clothes manufacturing in Mexico, and hence have diverted supply away from Asia.14 The same distortion has also been observed in relation to the footwear industry.

FDI between member countries has also improved since the Agreement took effect. Of particular note, the flow of American capital to Mexico has increased by over 500%, from $15.2 billion in 1993 to $101 billion in 2012.15

NAFTA has served as an influential model for subsequent FTAs and multilateral ventures, including the Uruguay round of the GATT negotiations. It was one of the first FTAs to move beyond mere trade provisions, and cover areas such as investment, intellectual property and dispute resolution. Commentators, however, have been loath to point to it as an ideal FTA model, due to its failure to more seriously tackle restrictions on investment in energy and basic petrochemicals, its stifling rules of origin regime, and its failure to continually evolve to meet contemporary challenges.

Other opposition to the Agreement has mostly been based on claims of job losses and a degradation of environmental and labour standards. One study has suggested that associated job losses in the United States have mostly occurred in import competing sectors, and may amount to 0.1% of annual job turnover.16

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