One of the more controversial acts of the United States in the late twentieth century, the passage of the U.S-Canada Free Trade Agreement (FTA) in 1988, and its antecessor, the North American Free Trade Agreement (NAFTA) of 1994, arguably changed the economic climate of all three nations involved for a long time to come. Both of these free trade acts were enthusiastically supported by the Republican Party, several major industries, and pro-trade organizations. While detractors, mostly from the Democratic Party and environmental groups, have denigrated both the FTA and NAFTA for effectively taking jobs away from Americans, as well as contributing to the destruction of the environment, there are nonetheless enthusiastic supporters. The major players in the 1988 FTA were President Ronald Reagan and then-Canadian president Bryan Mulroney. Among other concessions, the FTA provided for the removal of trade barriers between Canada and the United States, the stimulation of competition within the newly-created free trade zone, supporting cross-border investment, and the establishment of accurate dispute resolution procedures. While many Canadians were opposed to the creation of the FTA, it was nonetheless signed into law in 1987, and became active in 1988. With the emergence of obvious benefits from the U.S.-Canada FTA, the Republican Party then sought to expand the treaty to include Mexico, which proved to be a much more controversial measure. Nonetheless, NAFTA, which was a trilateral trade agreement between the United States, Canada, and Mexico, was signed into law by President Bill Clinton in 1993, and became active in early 1994. While NAFTA was signed into law by a Democratic President, it is nonetheless apparent that the Republican Party, several major industries, and a pro-trade President all brought about the existence of NAFTA.
The Republican Party and NAFTA
Were it not for the actions of the Republican Party in the 1980’s and 1990’s, it is unlikely that either the United States-Canada FTA or NAFTA would have ever come to fruition. The FTA was the creation of several GOP congressmen working under the aegis of the Reagan Administration in the 1980’s. As the realities of economic globalization were becoming increasingly apparent, the G.O.P. wished to eliminate trade barriers with Canada in order to ensure that the United States, and by extension, North America would remain the global economic hegemon. When news of the potential agreement with the United States began to spread throughout Canada, it created a great deal of controversy among Canadians, many of whom felt certain that their nation would be on the losing end of any trade agreement with the United States. Unfortunately for these Canadians, they had a strongly conservative Prime Minister in office at the time, Brian Mulroney, who had a close alliance with then American President Ronald Reagan, and thus they were largely powerless to stop the moving train of the U.S.-Canada Free Trade Agreement.
With regards to the popular American reaction to the news of the U.S.-Canada Free Trade Agreement, there was very little notice of this act. In fact, according to polls taken at the time, almost 40 percent of Americans were unaware that the act had even been written into law. In the late 1980’s, the American economy was still going strong, and there was a great deal of public support for President Reagan and for the Republican Party. As such, the United States Congress granted Reagan the ability to enter into a trade agreement with Canada, with the condition that the President submit the agreement for a Congressional review on October 5, 1987. In 1986, representatives from both the American and Canadian sides began to negotiate the details of the agreement. The United States was represented by Peter O. Murphy and the Canadian side by Simon Reisman, the former Minister of Finance.
The United States-Canada Free Trade Agreement removed most trade tariffs between the two nations, and fostered liberalized trade. While the tariffs were greatly reduced, this was not the major goal of the FTA. As for Canada, they were motivated by a desire for free access to the large and lucrative American market. The United States, meanwhile, hoped to benefit from Canadian energy reserves and cultural products. As the details of the FTA were worked out, however, Canada was able to gain assurance that the United States would not try to influence their cultural products, nor their public education or health care systems. Further, the Canadians sought the right to protect their water supply, but were unsuccessful in obtaining this concession. Further, the Canadians were unsuccessful in gaining the right to bid for lucrative United States government contracts.
Clearly, the Canadians were the losers in the US-Canada FTA of 1984, and most studies of the economic impact that followed have concluded that the Canadians benefited very little from the agreement. However, the United States gained many benefits as a result of the FTA, and several key members of the Republican Party began to set their sights on expanding the parameters of the FTA to include Mexico. Mexico possessed many things that could prove to be a boon for United States industry, in the eyes of these Republican Party members. Mexico has substantial oil reserves within its borders, for one thing, which could prove to be a close and inexpensive supply of petroleum for the United States. However, Mexico had something much more valuable than its fairly limited oil supply, and that was human capital.
The Republican motivation for seeking to include Mexico in the scope of a larger, North American Free Trade Agreement was due to the existence of large maquiladoras, or manufacturing facilities which could be adapted to accommodate the manufacturing needs of American companies. Entering into a free trade agreement with Mexico would mean that many American companies could not only take advantage of Mexican labor, which was far less expensive than American labor, but also Mexican labor laws, which are much less restrictive than American employment laws. In essence, American companies would be able to have access to a labor force that was willing to work longer hours, with fewer protections, and for far less money than their American counterparts. The Mexican President at the time, Carlos Salinas, welcomed the possibility of American companies setting up shop in Mexico and providing jobs for unskilled Mexican workers. However, this was the greatest point of contention in the United States against the passage of the North American Free Trade Agreement. Whereas with the U.S.-Canada Free Trade Agreement, very few Americans even paid attention to its passage or were even aware that it occurred, it was an entirely different story with the possible passage of NAFTA in the mid-1990’s. Almost immediately, United States labor unions such as the United Auto Workers and the United Service Workers Union began to issue statements arguing vehemently against the ratification of NAFTA, stating that it would take away manufacturing jobs from Americans and effectively outsource them south of the border. In many ways, these labor union representatives’ admonitions have turned out to be correct; in the decades since the passage of NAFTA, it has become nearly impossible to earn a living in a manufacturing job that can sustain a middle-class lifestyle.
As with the United States-Canada Free Trade Agreement of 1984, NAFTA was largely the brainchild of Republican politicians, in particular President George H.W. Bush. While President Bush was the one who started the negotiations for NAFTA, the responsibility for signing NAFTA into legislation ultimately fell upon the shoulders of his successor, President William Clinton. While Clinton was, of course, a Democrat, he was remarkably pro-business and pro-trade, and was an enthusiastic supporter of NAFTA. The agreement with Canada and Mexico was signed into law in 1993, and became active in 1994. Besides Clinton’s pro-business agenda, he additionally had a G.O.P.-dominated Congress with which to contend, should he have decided to act against NAFTA. In fact, Democratic congressmen were largely against passing NAFTA, but they were outvoted by their Republican counterparts. In the House of Representatives, 132 Republicans and 102 Democrats voted in favor of passing NAFTA, and in the Senate, 34 Republicans and 27 Democrats voted for NAFTA. As stated previously, United States labor unions agitated vociferously against its passage, but they were outnumbered by the lobbying arms of various American industries who believed that they could benefit enormously from the liberalization of trade restrictions with Mexico.
Major Industries and NAFTA
As predicted, several major industries in the United States stood to benefit enormously from NAFTA, particularly with regards to the section of the agreement that opened up trade with Mexico. The aerospace and automobile industries, especially, were able to outsource much of their manufacturing labor south of the border, thus saving a great deal of money on wages and worker benefits. Additionally, large agricultural business benefited from NAFTA, in several different ways. Many agri-businesses were able to establish farms in Mexico, and were also able to import labor from Mexico. Additionally, several major appliance makers stood to benefit greatly from the ability to outsource manufacturing jobs to Mexico. Overall, NAFTA benefited a wide variety of United States-based industries, in that it placed an overall downward pressure on wages in the United States, as the increased labor competition for unskilled jobs in the U.S. removed a great deal of bargaining power from labor unions.
Many observers have also argued that NAFTA would stand to have an additional economic benefit to the United States, in that the outsourcing of unskilled labor to Mexico would motivate blue collar workers to return to school to increase their skill levels. As manufacturing jobs declined in the United States as a result of NAFTA, and American citizens could no longer rely on factory jobs to provide them with a decent living, many of these workers did indeed return to school for additional training. As a result, jobs in the service sector have greatly increased in the American economy, but without the benefits that the Republicans and other NAFTA supporters anticipated back in the 1990’s. What has resulted is a phenomenon of overcredentialization, and jobs that once required only a high school diploma now require, at minimum, the attainment of a Bachelor’s degree. Further, service sector jobs often pay much less than the manufacturing jobs of yesteryear, and lack the same union-based protections that factory jobs once had.
Conclusion
The United States-Canada Free Trade Agreement of 1987, and its offshoot, the North American Free Trade Agreement of 1994 were the products of maneuvering by the Republican Party and major industry, as well as the cooperation of a pro-trade President. In the years following the passage of NAFTA, it has become clear that the major beneficiary of NAFTA is the United States. Moreover, the beneficiaries are not all Americans, but a small subset who owns the means of production and manufacturing.
- Ibbitson, John. “After 25 years, free-trade deal with U.S. has helped Canada grow up.” The Globe And Mail. 29 September 2012. Web. 23 February 2016
