NAFTA North American Free Trade Agreement

The North American Free Trade Agreement (NAFTA) is an agreement signed by Canada, Mexico, and the United States of American that came into effect January 1st, 1994. This agreement established the world's largest free trade region involving over 400 million people and 11 trillion dollars in annual production.[1] It established a new trading relationship based on more secure and more open access to each other's markets. It was supposed to bring benefits to several sectors of the Canadian economy. Overall, consumers in all three countries were supposed to reap the benefits of the more efficient distribution of resources and by paying less for goods and services. NAFTA advocates that capital owners win, workers win, consumers win therefore everyone is better off living under NAFTA. Many government officials, businesses, and citizens however, have debated whether NAFTA has been beneficial to Canada. Proponents of NAFTA claim that because the agreement will increase trade throughout North America and moderate product prices, it will lead to creating new jobs in all three countries. NAFTA, while it has brought some disadvantages for Canada, as a whole it has had a positive effect. The positive effects of job creation and higher wages has been outweighed by the negative effects on the manufacturing industry specifically, the auto sector. In addition, Canada has succeeded in maintaining high labour standards and laws compare to its NAFTA partners due to Canadian legislative environment that alleviate against downward harmonization.

This paper will examine three aspects of NAFTA and its effects on Canada. First, it will look at labour and discuss the effects of NAFTA on employment and wages. Then it will examine the manufacturing industry, in particular Canada's automotive industry. Finally, the paper will look at why Canada has been able to maintain high labour standards and laws compare to Mexico and the United States. It will conclude that any loss for Canada is outweighed by the gains.

One of the main issues by labour rights advocates was that increased trade liberalization would jeopardize the Canadian economy to compete with low-wage workers in México and the southern United States. [2] This was supposed to push investments away from Canada, especially from low-skilled industries, leading to plant closures and cutbacks resulting in job losses. It was further argued that the competitive environment would causes wages to decrease. Gunderson simulated the possible impact of NAFTA and analyzed the expected wage and employment impact of trade liberalization. His study showed that the overall impacts are likely to be positive but extremely small for both Canada and the United States, as job created associate with export expansion is slightly higher than job destruction associated with increased imports. He also found that job gains would be at the high end of the wage spectrum, while job losses, which can be significant in some sectors, would be at the lower end. [3] Opponents may argue that this is not beneficial to the economy as there are more people in Canada working in low-end jobs than there are in high-end jobs. When the low-end job workers are unable to find employment they would be forced to go on social welfare such as unemployment insurance. This would cost the government more because the government would lose a source of income due to the elimination of tariffs, less people paying income tax, and supporting the unemployed through unemployment insurance and other welfare programs. However, this is not the case because studies have shown NAFTA has had no effect on unemployment, instead since NAFTA came into effect Canada's employment rate has increased.

In a recent study conducted by the Bank of Montreal involving 109 senior executives in Canada, it concluded that majority of the businesses have either hired more or employed the same number of people since NAFTA came into effect. In addition, most employers reported that NAFTA has not affected their labour costs and it has increased their productivity level.[4] This increase in productivity may have to do with fear of relocation to southern United States or Mexico. In Canada, 50 percent of the senior executives reported that they had hired more workers, 39 percent stated no changed in work force size, and merely 11 percent reported they had lost workers.[5] This study shows critics that NAFTA has not resulted in unemployment and companies have either hired more or employed the same number of people.

A study conducted by Vicario, an economist with the North American Agreement on Labour Cooperation (NAALC), supports the findings of the Bank of Montreal. Using Canada Labour Force statistics, she found that the average growth rate of employment from1994-1998 remained at 1.9 percent per year, or an annual increase of 258,000 jobs. Most of these jobs were full-time, as matters of fact, in 1998, 9 out of 10 jobs created were full-time. What is more surprising is that workers salary increased by 2.6 percent between 1994 and 1997 and 0.3 percent in 1998. [6] This study goes a step further because it not only proves to critics that NAFTA has helped create jobs but also increased wages for the employees. It is safe to say that employers are making a larger profit because they would only increase wages if their profits increased. This research shows that NAFTA has not only created jobs but also increased company profits and employee wages.

Kumar and Holmes conducted a study in the auto industry of Canada, a sector that NAFTA critics feared would have harsh negative impact due to low-wage competition from Mexico and southern United States. Their study concluded that production level and employment in the Canadian automotive parts industry grew significantly between 1991 and 1996. They further claim that there is no evidence to suggest that NAFTA has had any negative effect on the Canadian auto industry. [7] Regardless of these positive effects, employers and unions have been pressured to reduce wages and cut jobs in the manufacturing sector.[8] This is a small price to pay because overall Canada has become a richer country since NAFTA came into effect. Overall, Canada has had a higher employment rate, higher company profits, and higher wages.

Please be aware that the free essay that you were just reading was not written by us. This essay, and all of the others available to view on the website, were provided to us by students in exchange for services that we offer. This relationship helps our students to get an even better deal while also contributing to the biggest free essay resource in the UK!