NAFTA 2002: A Cost/Benefit Analysis for the United States Canada, and Mexico

I. INTRODUCTION With the establishment or the North American Free Trade Area (NAFTA) in 1994, the United States, Canada, and Mexico have created the world's largest free trade zone involving over 400 million people and 11 trillion dollars in annual production. In addition, three-way trade in goods and services reached 660 billion dollars in 2000, more than double the three-way trade of 300 billion dollars in 1993. January 1, 2002 marked the beginning of the ninth full year of the implementation of this historic continental agreement, an accord which will be fully in place in 2008. This monograph will assess some of the benefits and costs of NAFTA for its three member states, with the first part looking at macro- economic and political issues, and the latter part focusing on two controversial areas-labor and the environment. II. THE GLOBALIZATION PHENOMENA Globalization may be defined as a growing interdependence and interconnectedness among nations and people, whether on a global or regional scale. In terms of the economic dimension of globalization, the international movement of goods, services, capital, technology, and people stands at record levels. World trade in goods and services now adds up to seven trillion dollars annually. The volume of world trade is up 16-fold since 1947 and, in recent years, international trade has been growing at a rate almost three times faster than the aggregate growth in national economies. In the year 2000, global trade flows grew by a robust 13 per cent, although recessionary conditions and the aftermath of the September 11th tragedy cut this growth rate to little more than one per cent in 2001. Trans-border merger and acquisition activity approached a record 800 billion dollars in 1999, up almost 50 percent from the previous record levels of 1998, and both short-term and long-term investment flows doubled between 1995 and 1999. The half million affiliates of multinational corporations also produce sales of 11 trillion dollars per year, far outpacing the total cross-border trade in goods and services. The international movement of people for business, tourism, and immigration purposes has never been higher, with almost three million people crossing national borders daily, triple the level of 1980. (1) Roughly 698 million tourists traveled internationally in 2000 and spent 476 billion dollars, up dramatically from the 457 million travelers and 264 billion dollars in expenditures recorded in 1990. (2) In the realm of currency transactions, foreign-exchange markets have literally exploded with daily activity topping 1.5 trillion dollars. In cyberspace, more than 250 million people now go on-line using t he Internet, and this number is mushrooming. Telephonic communications are also at record levels with traffic on international switchboards topping 100 billion minutes for the first time in 2000. (3) As former Citicorp Chairman Walter Wriston has observed, the world is now "tied together in a single electronic market moving at the speed of light." (4) A. The United States and Globalization Over 18 million U.S. jobs are now directly linked to the international economy, with exports of goods and services by American-based companies exceeding one trillion dollars for the first time ever in 2000. More than 12 million jobs are tied to these exports, including 1 in 5 in the manufacturing sector. (5) In rural areas, crops grown on one of every three acres planted by U.S. farmers are also destined for overseas markets. Additionally, almost 7 million Americans work for foreign-owned companies on U.S. soil, and these corporations account for about 30 percent of U.S. merchandise imports and 22 percent of merchandise exports. (6) Cumulative foreign direct investment (FDI) in the United States, a type of investment providing foreign investors with a controlling interest in U.S.-based firms, stood at one and one-quarter trillion dollars in 2000, with overseas investors holding over eight trillion dollars in total U. …