PUBLISHED:November 19, 2008

Reassessing NAFTA

Nov. 19, 2008 — Almost fifteen years to the day since the North American Free Trade Agreement (NAFTA) was ratified in the U.S. Senate, Duke Law convened a panel of international trade experts to assess its successes and shortcomings and discuss its future.

Taking part in the Nov. 18 discussion moderated by Fritz Mayer, a Duke University professor of political science and public policy, were Mexican Environmental Secretariat official Alejandro Posadas LLM ’95, SJD ’03, Professor Debra Steger of the University of Ottawa, and Gary Hufbauer of the Peterson Institute for Economics. The event was sponsored by the Center for International & Comparative Law.

Mayer, who helped draft U.S. implementing legislation in the Senate while on the staff of Sen. Bill Bradley (D-N.J.), recalled the “long and contentious” debate that preceded its passage. “Few issues, and certainly no trade issues, had ever become so heated and so much a matter of public discourse, and had so much misinformation about its effects,” he said, recounting former presidential candidate Ross Perot’s prediction that there would be “‘a giant sucking sound’” of jobs leaving the U.S. for Mexico, among many other impassioned arguments for and against NAFTA’s passage.

The passage of time has done little to quell concerns about the trade agreement, he added, pointing out its emergence as a campaign issue as Democratic primary opponents Hillary Clinton and Barack Obama both pledged to revisit the agreement. “Disentangling the real NAFTA — the real effects of this thing — from the symbolic NAFTA is not an easy task,” he said.

From a Canadian perspective, NAFTA has enhanced trade and allowed a number of North American industries to integrate across borders, said Steger. “Now there’s a lot of seamless intra-firm trade,” she said, offering the automobile industry as an example.

Canadians don’t want to do away with NAFTA, but are open to retooling and revising it, she said. Canada would seek to go beyond negotiations on labor and the environment and tackle energy issues, she added.

“We have the oil and gas. We can supply your market. We can be your security into the future, but we might want to have some other conditions in the NAFTA dealing with energy, in particular,” she said. Other parts of the agreement also need improvement, most notably its dispute settlement mechanisms, which she described as “pretty well broken,” and its side agreements on labor and environment, the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor and Cooperation (NAALC).

Canada is particularly interested in reaching a trilateral agreement on climate change, Steger said. Various provinces and states are already setting up their own climate tax regulatory schemes, she pointed out. “If we don’t get our act together on the national level under NAFTA, we’re going to have a regulatory nightmare on our hands that we have to unwind. And it’s a lot harder to unwind things like that than it is to do it right in the beginning.” A successful agreement between the NAFTA partners would also set a positive example for the rest of the world, she said.

Posadas, an international trade expert and former dean of CIDE Law School in Mexico City, is director of the Office for North America for the Mexican Environmental Secretariat, and focuses on environmental issues that arise out of NAFTA. He called the alliance an enormous success in its stimulation of trade and investment in Mexico, on the part of NAFTA signatories and other countries. Mexico’s development of environmental institutions is one of NAFTA’s greatest success stories, he said.

“In 1989, Mexico established, for the first time, a federal environmental agency,” he said. “During the NAFTA negotiations, the federal funding for environmental protection doubled, and has since increased substantially. I think Mexico has built very important institutional capacity and expertise on the environmental field — probably one of the strongest of any developing country.”

The NAFTA partners collaborate closely in the areas of environment and trade linkages, sustainable development, the dissemination of environmental information, biodiversity conservation, and pollutants and health issues, among others, he pointed out. Posadas endorsed the creation of a North American carbon market as an excellent way to build on success in sustainable development and environment.

Hufbauer joked that in the United States, NAFTA “has created a durable effigy” for people who don’t like globalization — and who are great in number. But without it, he said, U.S. exporters would be paying substantially higher tariffs to ship goods to Mexico and Canada. “That’s really what NAFTA was all about — to get the tariffs down to zero,” he said. It has improved trade flows and has not resulted in the job losses claimed by critics. His organization estimates that NAFTA-related activity brings $60 billion into the U.S. economy each year. “It’s more than most government programs deliver to your pocket,” he pointed out. The proportionate gains to Mexico and Canada are much larger because of their greater dependence on trade, he added.

Hufbauer agreed that the “North American relationship” should be updated, though necessarily under NAFTA, which he called “a failed brand.” He expressed the hope that at least some of the funds intended to stimulate the economy will be put towards North American development. The spending priorities he listed include loans intended to improve transportation and port infrastructure along the borders and within Mexico and energy security. The latter would include investment in nuclear, wind, solar, carbon capture, and transmission lines, he said. Some kind of streamlined, international regulatory process is needed to facilitate energy security, he added.

Hufbauer also endorsed a North America climate compact. “If we could average out and borrow” from Mexico, which has lower per capita emissions than either Canada or the United States, “it would be part of this great deal to give Mexico some additional funding to build infrastructure,” he said.