"Is NAFTA Economic Integration?"

Is NAFTA Economic Is NAFTA Economic Integration?Integration?

Gruben and Welch’s Gruben and Welch’s ArgumentArgument

NAFTA is not really integration but is more NAFTA is not really integration but is more of a “Hegelian dialectic” where of a “Hegelian dialectic” where innovations in trade liberalization are innovations in trade liberalization are countered by innovations in protectionism countered by innovations in protectionism and are succeeded by some synthesis that and are succeeded by some synthesis that is temporarily acceptable to each of the is temporarily acceptable to each of the two competing sides until more two competing sides until more innovations in liberalization and innovations in liberalization and protectionism occur as the cycle protectionism occur as the cycle continuously repeats.continuously repeats.

Proposed example of Proposed example of Hegelian dialecticHegelian dialectic

U.S forms regional trade block with U.S forms regional trade block with Canada and Mexico to further Canada and Mexico to further liberalize trade (NAFTA) however liberalize trade (NAFTA) however certain provisions of the trade certain provisions of the trade agreement such as the requirement agreement such as the requirement for increased domestic content in for increased domestic content in automobiles and textiles result in automobiles and textiles result in protectionism.protectionism.

Is the authors’ argument Is the authors’ argument correct?correct?

History of U.S. trade postures shows that the U.S was the worlds History of U.S. trade postures shows that the U.S was the worlds #1 proponent of a multilateral approach to trade liberalization #1 proponent of a multilateral approach to trade liberalization from WWII to 1970from WWII to 1970

U.S. became frustrated with GATT due to the caravan effect, the U.S. became frustrated with GATT due to the caravan effect, the free-rider problem and rise of trade related issues not covered by free-rider problem and rise of trade related issues not covered by GATT (FDI, Intellectual property rights)GATT (FDI, Intellectual property rights)

U.S. frustration with GATT and LDC practices led to a policy of U.S. frustration with GATT and LDC practices led to a policy of “aggressive reciprocity” to promote open trade (and “aggressive reciprocity” to promote open trade (and protectionism)protectionism)

GATT reduced tariffs so LDC nations wanting to keep home GATT reduced tariffs so LDC nations wanting to keep home markets closed developed new forms of protectionism to replace markets closed developed new forms of protectionism to replace them…them…

The desire for trade liberalization among the U.S. eventually led to The desire for trade liberalization among the U.S. eventually led to the consideration of NAFTA the consideration of NAFTA

NAFTA History and GoalsNAFTA History and Goals First signed in 1992First signed in 1992 Implemented January 1, 1994Implemented January 1, 1994 Determined by pro and anti-Determined by pro and anti-

protectionist efforts (parallel protectionist efforts (parallel agreements*)agreements*)

NAFTA aimed for:NAFTA aimed for:

Gradual transition to free trade Gradual transition to free trade (though not completely free trade) (though not completely free trade) between the U.S., Canada and Mexicobetween the U.S., Canada and Mexico

Elimination of barriers to trade and Elimination of barriers to trade and investment over timeinvestment over time

Harmonization of policies on trade in Harmonization of policies on trade in services and intellectual property services and intellectual property rights, etc.rights, etc.

Source of photo:Source of photo: www.finanafi.org/eng/integ/chronologie.aspwww.finanafi.org/eng/integ/chronologie.asp

NAFTA RealitiesNAFTA Realities-Liberalization Innovations--Liberalization Innovations-

To reduce and eliminate all tariff and most non-tariff To reduce and eliminate all tariff and most non-tariff barriers between Canada, U.S. and Mexico over a period of barriers between Canada, U.S. and Mexico over a period of 15 years15 years

No signatories can increase their tariffs on imports from No signatories can increase their tariffs on imports from countries within or outside the free trade areacountries within or outside the free trade area

Ends requirements on domestic sales and restrictionsEnds requirements on domestic sales and restrictions Tightens the protection of intellectual propertyTightens the protection of intellectual property Loosens restrictions on expanding operationsLoosens restrictions on expanding operations Expands ability to purchase businesses in MexicoExpands ability to purchase businesses in Mexico Removes restrictions on profit remittancesRemoves restrictions on profit remittances Extends temporary work permits in Mexico for U.S/CAN Extends temporary work permits in Mexico for U.S/CAN

workersworkers

Positive aspects of NAFTAPositive aspects of NAFTA NAFTA undoubtedly liberalizes trade in North AmericaNAFTA undoubtedly liberalizes trade in North America There is little trade diversionThere is little trade diversion Improves transportation, communication and regulationImproves transportation, communication and regulation Hope for wage equalization and improved migrationHope for wage equalization and improved migration

NAFTA RealitiesNAFTA Realities-Protectionist Innovations--Protectionist Innovations-

Protects sensitive sectors; ag, minerals, Protects sensitive sectors; ag, minerals, banking textiles, apparel (most of this banking textiles, apparel (most of this protection is temporary)protection is temporary)

Contains some types of protection that are Contains some types of protection that are permanent and raise trade barriers above permanent and raise trade barriers above pre-NAFTA levels (no examples mentioned pre-NAFTA levels (no examples mentioned and no stats)and no stats)

Imposes North American content rules Imposes North American content rules (autos, textiles)(autos, textiles)

Negative aspects of NAFTANegative aspects of NAFTA

Possible job loss in Possible job loss in some U.S. sectors some U.S. sectors (small)(small)

More competition More competition for certain sectors; for certain sectors; sugar, fruits/veg, sugar, fruits/veg, apparel, appliancesapparel, appliances

Some wage effectsSome wage effects PollutionPollution

Authors’ ConclusionsAuthors’ Conclusions

NAFTA liberalizes but does not free NAFTA liberalizes but does not free tradetrade

NAFTA is better described by the NAFTA is better described by the Hegelian dialecticHegelian dialectic

NAFTA is not economic integrationNAFTA is not economic integration

CritiqueCritique The authors do not provide a very specific/clear example of The authors do not provide a very specific/clear example of

the Hegelian dialectic (slide 3) the Hegelian dialectic (slide 3)

Examples of protectionism under NAFTA are weak or Examples of protectionism under NAFTA are weak or lacking (few examples and no stats)lacking (few examples and no stats)

The authors admit that there is integration and The authors admit that there is integration and liberalization in the North American region, but this liberalization in the North American region, but this somewhat weakens their argumentsomewhat weakens their argument

Perhaps the Hegilian dialectic better applies to U.S. trade Perhaps the Hegilian dialectic better applies to U.S. trade policy but not that of Canada or Mexicopolicy but not that of Canada or Mexico

There is no evidence that NAFTA was created to keep non There is no evidence that NAFTA was created to keep non NAFTA nations out (international vs. regional NAFTA nations out (international vs. regional integration/protection)integration/protection)

ConsiderationsConsiderations Would NAFTA have been ratified if more Latin Would NAFTA have been ratified if more Latin

American/Caribbean nations were involved?American/Caribbean nations were involved?

Do regional trade blocks help or hinder free Do regional trade blocks help or hinder free trade?trade?

Are regional trade blocks more beneficial when Are regional trade blocks more beneficial when they include both developed and developing they include both developed and developing nations?nations?

How will the emergence of more trade blocks How will the emergence of more trade blocks effect international free trade?effect international free trade?

Just for fun….Just for fun….