NAFTA's impact quantified; CATFTA's explored

There’s little evidence that large numbers of U.S. manufacturing jobs were lost due to the North American Free Trade Agreement (NAFTA). In fact, most economists believe NAFTA had only a marginal impact on the much larger U.S. economy.

08/20/2007


There’s little evidence that large numbers of U.S. manufacturing jobs were lost due to the North American Free Trade Agreement ( NAFTA ). In fact, most economists believe NAFTA had only a marginal impact on the much larger U.S. economy. For one, tariffs on Mexican goods were low in the first place, and today, about 80 percent of Mexico’s exports go to the U.S.
Ratified in 1994, NAFTA eliminated duties on many goods moving between Canada, Mexico, and the U.S. The World Bank estimates increases in trade between the three nations at more than 120 percent. Much of the growth is in automobiles and auto parts, which, at 20 percent, is the largest NAFTA category.
NAFTA has delivered more or less to expectations, says Dr. Fernando Sedano, an economist with Washington-based Manufacturer’s Alliance/MAPI . “Exports from Mexico have gone up dramatically, as have foreign investments and employment in Mexico.”
Within Mexico, NAFTA is a tale of two regions, Sedano adds.
“Northern Mexico and the states on the border have benefited from NAFTA, but Southern Mexico has seen no job creation or investment,” he says. “The geographic concentration makes sense from a business perspective, but within Mexico, the situation has created political tension.”
Since most illegal immigrants to the U.S. come from Southern Mexico, where 75 percent of the population lives below the poverty line in, one could argue it’s also creating political tension in the U.S.
CAFTA-DR returns promising
The Central American-Dominican Republic Free Trade Agreement , or CAFTA-DR, was signed in 2005, eliminating tariffs on many consumer and industrial goods moving between the U.S. and six countries—Costa Rica, Nicaragua, Honduras, El Salvador, Guatemala, and the Dominican Republic. These countries, with a combined population of 44 million, bought $17 billion of goods from the U.S. in 2005, according to a recent report authored by MAPI's Sedano.
CAFTA-DR provoked less controversy than NAFTA, partly because there was less fear of a flood of cheap goods. “Many different programs were in place to help these countries, so 80 percent of their products already came to the U.S. duty-free,” notes Sedano.


Competition from China has impacted the textile industry in CAFTA-DR countries.

The treaty’s impact will be felt mainly in a few sectors, notably electronics and instrumentation equipment. Costa Rica’s nascent high-tech business—Intel has a plant there—could benefit.
While some view CAFTA-DR as a potential savior for the region’s textile industry, Sedano believes “it will have no significant effect on textiles, as the agreement introduces no major changes.” Textiles account for half of all exports from CAFTA-DR countries to the U.S. As a result of stronger competition from Asia, textile trade is down for the last several years, and by 13.4 percent in the first six months of last year ( see chart ).
With less than a year of data available, it’s still too early to measure CAFTA’s overall impact. Still, early signs are encouraging: U.S. exports to CAFTA-DR countries are up 16.8 percent, while imports grew only 3.2 percent. That sluggishness is a direct result of the drop in textiles trade. Data from the National Association of Manufacturers shows the U.S. trade balance with CAFTA-DR went from $978 million deficit in 2005 to a $609 million surplus in 2006.
Sedano says the treaty’s long-term effect on Central American countries and the Dominican Republic will depend on investment patterns.
“Over time, investment from the U.S. is likely to increase, because rules and regulations are now standardized and stable across the region,” he explains. “It takes time to establish operations and get production up and running, so we might not see significant effects from the CAFTA-DR on these countries’ economies for a few years.”





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