NAFTA at 20: Building a Future of Lasting Growth and Shared Prosperity

When President Clinton signed NAFTA into law twenty years ago, who would have imagined it would have such an impact?

Brought together by extraordinary bipartisan unity, NAFTA was the most comprehensive trade agreement of its time, and a shining moment for US foreign economic policy. The agreement aimed to promote trade and investment integration across Canada, the US and Mexico through the creation of what was at the time the largest unified free market in the world. And it has done just that. At the same time, it has also improved competitiveness for the continent and its companies.

In a debate over NAFTA with then Vice President Al Gore, Ross Perot famously predicted a “giant sucking sound” of jobs and businesses leaving the US. Instead, the agreement has breathed new life across North America by raising standards of living, supporting millions of good jobs, and enhancing the position of member countries and their companies in a fast changing global economy.

Since NAFTA’s entrance into force, total trade between the partners has skyrocketed three and a half times to almost 1.4 trillion USD. The US conducts over 3.2 billion USD in trade with Canada and Mexico every day. US exports of goods and services to our North American neighbors have tripled since NAFTA, so that Canada and Mexico are now our largest export markets, topping to 526.5 billion USD in goods exports in 2013. They are also our second- and third largest import suppliers, meaning lower prices and greater product choices for US families and companies.

US services exports to Canada and Mexico more than tripled from 27 billion USD in 1993 to 89 billion USD in 2012. US agricultural exports to Canada and Mexico have tripled and quintupled, respectively, such that one in every ten acres on American farms feeds Canadians and Mexicans.

The sheer volume of trade is impressive –and yet it is the depth of integration that adds the real value and increases competitiveness. We do not just trade together; we produce together. The accord has created a unified production platform for North America, with parts and materials passing back and forth across borders throughout the manufacturing process. A quarter of US imports from Canada consist of value added from the US. Cars assembled in the Great Lakes region frequently cross the US-Canadian border up to six times before they are fully assembled. And an incredible 40% of the value of US imports from Mexico consists of goods partly assembled in the US. For every dollar that Mexico earns from exports, fifty cents are spent on American goods. In contrast, US imports from China only contain 4% US content.

We are also investing more in one another. The stock of foreign direct investment in Mexico from all sources has increased by four fold since 1993. Combined foreign direct investment between Mexico and the US stands at over 100 billion USD. US-owned companies operating in Mexico created 25 billion USD in value added and employed nearly a million workers. Approximately 1.4 billion USD of merchandise trade and one million people cross the US-Mexico border every day. Twenty-three US states count Mexico as their first or second- largest export destination.

NAFTA’s impact on job creation in each of the member economies is a trickier subject. NAFTA has undeniably supported and created jobs in Canada and the US. The US Chamber of Commerce estimates 14 million US jobs depend on trade with Canada and Mexico. But as former Mexican President Ernesto Zedillo points out in the winter 2014 issue of Americas Quarterly, “the generation of economic opportunities is influenced by many factors, not just international trade and investment.”

Of course, critics argue that NAFTA has not solved Mexico’s challenges; that since its signing, poverty rates and inequality have not been addressed, and the gap between Mexico’s GDP per capita and that of its NAFTA partners has widened. The fact is that NAFTA was only a trade agreement. And measured on those terms, it has opened each member’s economy to unprecedented trade and foreign investment, allowing them to grow more integrated and competitive. Trade –let alone NAFTA– is not a “magic wand” for job creation; rather, it is one instrument that, in conjunction with the right national policies, strengthens the entire North American economy on an increasingly competitive global stage. In Mexico, enormous advances have already been made to implement the reforms necessary to take advantage of the accord. President Peña Nieto’s reform agenda to open up the energy sector, break up and regulate telecoms monopolies, and to create more flexible working environments holds the potential to further spur economic growth.

So what do the agreement’s next twenty years look like? It’s time to take NAFTA further. The agreement has created a strong framework for cooperation and integration. Yet Mexico is the only country whose foreign ministry has a bureau of North American affairs. We also need to better focus on the trilateral versus solely the bilateral relationship in our policy-making, and take advantage of opportunities to leverage the weight of our entire continent on the global stage. Although Canada and Mexico were belatedly invited to join the Trans-Pacific Partnership (TPP) negotiations, the US must now work with them to align their interests with regards to Asian competitors. Canada and Mexico should also be more directly involved in US negotiations for a free trade agreement with Europe.

As we look back on the last two decades under NAFTA, we see an integrated web of interdependent supply chains growing across our continent. The agreement strengthens our commitment to look outward and rightly pushes us to invest in each other’s success, for the good of all. Does NAFTA need to be updated? Certainly. As current Mexican ambassador to the US, Eduardo Medina Mora has said, the countries are engaged in 21st century trade, operating on a 20th century policy format, with a 19th century infrastructure. We need to invest in new infrastructure which further connects and integrates our continent. Another huge opportunity is in energy, where enhanced cooperation will lead to true energy independence for North America, which will also have a significant impact on our future competitiveness.

On its 20th anniversary, as we celebrate the progresses made, let’s build on its foundation to ensure its next twenty years bring our families, farmers, workers, and businesses more closely together in order to build, innovate, and invest in each other. Let’s ensure North America’s growth and prosperity, and help maintain its status as the most competitive region in the world.

This article was originally published in Negocios ProMéxico. Read the Spanish version of this article here.