Implementation of the 1994 North American Free Trade Agreement (NAFTA)

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Essentially every major event and political shift in history has been the product of various triggers building up to their occurrence, and in Mexico’s history, this holds true. In this essay, I will discuss the main factors behind the conception and implementation of the 1994 North American Free Trade Agreement (NAFTA). Moreover, after discussing the triggers that led up to the development of 1994’s NAFTA, I will explore some of its resulting impacts in regard to policy changes or events following NAFTA’s establishment.

In order to be able to fully discuss the events and policies that triggered the creation of the North American Trade Agreement as it was in 1994, we must first set the stage for the state of Mexico prior to the enactment of NAFTA. Leading up to the 1990s, Mexico and the United States generally held a rather ambivalent relationship, particularly in their trade propositions towards each other. Often times, especially at moments wherein one country wouldn’t benefit from a dealing, no policy proposition was made in agreement between the both of them. One example of this lack of interest in some negotiations can be seen during Mexico’s dismissal of joint efforts to explore other forms of oil extraction such as that of deep-water oil due to Mexico’s desire to stay away from unnecessary joint policies (Weintraub, 2010). 

However, one of the beginnings to U.S.-Mexican relations can be traced back to 1986 when the United States enacted a legislation that capped the number of Mexican immigrants allowed to enter; and prior to this legislation, there were no instated policies on U.S.-Mexican immigration. At the time in which this policy was implemented as well as in subsequent years, Mexico and the United States were embroiled in the trade negotiations that would result with NAFTA as its product. 

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This American immigration legislation is important to consider in NAFTAs’ creation because a direct result of this decision was the placement of immigration in the wayside in favor of establishing some sort of trade agreement, if only because of the United States’ firm assertion that there would be no negotiations regarding its immigration policy if Mexico had wanted to secure a deal. And in the end, it was Mexico’s desire to increase its own gross domestic product (GDP) growth that greatly motivated their efforts in going through negotiations with the United States, and with Canada soon after, regarding NAFTA’s areas of interest and influence (Weintraub, 2010).

After the establishment of NAFTA, a variety of things occurred—both good and bad, to some extent with differences in opinion across a range of analysts and experts. However, we will begin with an assessment of NAFTA’s direct impacts within Mexican economic policy. The biggest impact of NAFTA was in Mexico’s change of position within the world economy, transforming from an oil-exportation country to a manufactured goods country. And while this shift allowed for a boom in the exportation of goods, it did little to create enough new jobs to support rising employment demands from Mexico’s growing labor force (Brid et al., 2005). 

And alongside this issue, NAFTA also failed to improve Mexican minimum wage, particularly in relation to both the United States’ labor force as well as in the case of wage inequality within Mexico. Although NAFTA was projected to reduce the wage gap in Mexico, there was a relatively unforeseen influencing factor—technology. The rise of technological change on the wage gap essentially nullified the benefits of trade liberalization in its early infancy of enactment, and as a result of this, wage inequality between low-skill and professional jobs within Mexico wasn’t mended (Esquivel & Rodriguez-Lopez, 2003).

Furthermore, there were also indirect consequences of the implementation of NAFTA within Mexico; both in the early years following its integration to even now in present day. NAFTA was almost a herald for the following chain of liberalization reforms that cropped up during the 1990s, some of which massively influenced Mexico’s agricultural sectors using export farms resulting from contract farming and subsidy payments. As a result of this major structural change in the agricultural sector, many poor farmers were negatively impacted because of the long and expensive adjustment periods that followed trade liberalization and its subsequent growth. 

However, NAFTA also prompted some of Mexico’s rural communities to take action to combat this problem. One way in which they did so was through the adoption of the National Rural Accord in 2002 which works to promote collaborative cooperation on agricultural trade and development issues between the Mexico, the United states, and Canada (Audley et al, 2003). In order to look at more present-day impacts of NAFTA, we can observe Mexico’s relationships with its NAFTA partners. In 2017, both Canadian and U.S. officials accused Mexico of unfairly getting an advantage over them due to Mexico’s low minimum wage (which hadn’t seen as much improvement as expected and desired by NAFTA’s proponents in 1994). With this pressure upon Mexico to increase its minimum wage, the U.S., Canada, and Mexico signed a deal to overhaul NAFTA with the U.S.-Mexico-Canada Agreement (USMCA), which set the minimum wage for 40-45% of automobile part workers at $16 USD.

In conclusion, NAFTA’s creation in 1994 was mainly ignited by the Mexican administration’s desire to drastically improve Mexico’s gross domestic product and therefore its economy for the better. However, the actual implementation of NAFTA resulted in a variety of policies and events, whether directly or indirectly; some of these examples range from the resulting period of liberalization reforms that occurred soon after the trade liberalization that NAFTA prompted to the way in which poor farmers within Mexico, particularly in the southern regions, sought to adjust to changes within the agricultural sector, to even the way in which NAFTA was dismantled and switched with the USMCA—which was created to hold the countries involved to the same fair standards, such as the minimum wage of automobile part workers. 

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