North American Free Trade Agreement

• 1. Introduction

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  The North American Free Trade Agreement took effect on the 1st of January, 1994, binding Canada, Mexico, and the United States into one of the largest trade blocs on earth by gross domestic product. That same morning, an armed indigenous militia seized five municipalities in the southern Mexican state of Chiapas, calling NAFTA a death sentence. The contrast could hardly have been starker: diplomats in three capitals celebrating a new economic era while soldiers and farmers raised rifles against it.

  The agreement had been years in the making. Its roots stretched back to Ronald Reagan's 1979 announcement of his presidential candidacy, when he floated the idea of a North American free trade zone as a campaign promise. By the time the finished text was signed in December 1992, it ran to thousands of pages covering tariffs, investment rules, environmental obligations, labor standards, and an entirely new framework for resolving disputes between corporations and governments.

  What followed was a quarter-century of argument. Did NAFTA raise wages or suppress them? Did it create jobs or export them? Did it help small Mexican farmers or destroy them? The answers depended on where you stood, and the story of those answers is the story this documentary will tell.

• 2. The Road to a Signature

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  Mexican president Carlos Salinas de Gortari made the first concrete move toward a three-way agreement when he approached U.S. president George H. W. Bush in the early 1990s, seeking foreign investment after the devastation of the Latin American debt crisis. Canada joined the talks out of fear: Prime Minister Brian Mulroney's government worried that a separate U.S.-Mexico deal would erode the advantages Canada had already secured through its bilateral free trade agreement with the United States in 1988.

  Diplomatic negotiations had been underway since 1990, and the leaders of all three nations signed the agreement in their respective capitals on the 17th of December, 1992. Then the real fight began.

  In Canada, free trade was already a wound. The 1988 election had turned on the Canada-U.S. deal, and more Canadians had voted for anti-free-trade parties than for the pro-free-trade Progressive Conservatives. The PCs won anyway because the opposition vote split between the Liberals and the New Democrats. Mulroney passed NAFTA through a parliamentary majority, then lost the party leadership to Kim Campbell. When Campbell led the Conservatives into the 1993 election, Jean Chretien's Liberals decimated them, partly on a promise to renegotiate or cancel the deal.

  In the United States, Bill Clinton inherited a ratification fight from George H. W. Bush. To secure enough votes, Clinton added two side agreements: the North American Agreement on Labor Cooperation (NAALC) and the North American Agreement on Environmental Cooperation (NAAEC). The House passed the implementing legislation on the 17th of November, 1993, by a vote of 234 to 200. The Senate followed on the 20th of November, 61 to 38. At the signing ceremony on the 8th of December, 1993, Clinton singled out four people by name: Vice President Al Gore, Council of Economic Advisers chairwoman Laura Tyson, National Economic Council director Robert Rubin, and Republican Congressman David Dreier of California, who had been a proponent of the agreement since the Reagan years.

  Clinton told the room: "NAFTA means jobs. American jobs, and good-paying American jobs. If I didn't believe that, I wouldn't support this agreement." The Mexican Senate had approved the text on the 22nd of November, 1993. By January, all three ratifications were in place.

• 3. What the Agreement Actually Did

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  When NAFTA took effect, it immediately eliminated tariffs on more than half of Mexico's exports to the United States and more than a third of U.S. exports to Mexico. The plan was to phase out all remaining U.S.-Mexico tariffs within a decade, with a few sensitive U.S. agricultural exports to Mexico allowed fifteen years to adjust.

  Agriculture was handled separately from the rest of the deal. Rather than a single trilateral farm agreement, three separate bilateral arrangements were negotiated: one between Canada and the U.S., which preserved significant restrictions and tariff quotas on sugar, dairy, and poultry; and one between Mexico and the U.S., which allowed wider liberalization. The Mexico-U.S. farm pact was the first North-South free trade agreement on agriculture ever signed.

  The agreement also established the CANAMEX Corridor, a road transport route linking Canada and Mexico that was proposed for shared use by rail, pipeline, and fiber-optic telecommunications. Congress designated it a High Priority Corridor under the Intermodal Surface Transportation Efficiency Act of 1991.

  Chapter 11 introduced one of NAFTA's most contested features: the right of corporations or individuals to sue member governments directly for compensation when government actions violated international law. Chapter 19 created binational panels of five citizens, typically lawyers with international trade experience, to review antidumping and countervailing duty decisions in place of ordinary courts. The roster of NAFTA adjudicators included retired U.S. Supreme Court Justice Sandra Day O'Connor.

  The environmental side agreement created the Commission for Environmental Cooperation in 1994, mandated to conduct ongoing assessment of NAFTA's environmental effects and to test whether the agreement would trigger a race to the bottom in environmental regulation among the three countries. The commission held four symposia and commissioned 47 papers from independent experts on that question alone.

• 4. Winners, Losers, and the Numbers

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  A 2012 survey of economic experts found that 95 percent said U.S. citizens benefited from NAFTA on average, and none said NAFTA hurt U.S. citizens on average. A 2015 Congressional Research Service report estimated that NAFTA had added $80 billion to the U.S. economy since its implementation, equivalent to a 0.5 percent increase in GDP. U.S. trade in goods and services with Canada and Mexico grew from $337 billion in 1993 to $1.2 trillion in 2011.

  The picture for specific groups was different. A 2014 study found that the U.S. trade deficit with Mexico and Canada grew from $17.0 billion in 1993 to $177.2 billion in 2013, displacing an estimated 851,700 U.S. jobs. The AFL-CIO put the number of American manufacturing jobs sent to Mexico at 700,000 over that same period. A 2011 report by Economic Policy Institute economist Robert Scott counted roughly 682,900 U.S. jobs lost or displaced. University of California Berkeley economist Brad DeLong argued that NAFTA's impact on U.S. manufacturing was insignificant, and that automation explained 87 percent of manufacturing job losses.

  In Canada, a 2004 study by University of Toronto economist Daniel Trefler found that NAFTA produced a significant net benefit to Canada in 2003, with long-term productivity rising by up to 15 percent in the industries that faced the deepest tariff cuts. The contraction of low-productivity plants cost up to 12 percent of positions in those sectors, but overall unemployment in Canada fell after the agreement passed. A 2012 study found that Canada's trade with the United States and Mexico increased by only 11 percent under NAFTA, compared to 41 percent for the U.S. and 118 percent for Mexico.

  For Mexico, a 2005 study found that welfare increased by 1.31 percent as a result of NAFTA tariff reductions. A Tufts University study found that NAFTA lowered the average cost of basic necessities in Mexico by up to 50 percent. Growth in the maquiladora manufacturing sector ran at 4.7 percent as recently as August 2016. Yet Global Trade Watch found that real average wages for minimum wage workers in Mexico fell by 14 percent over NAFTA's first six years, even as hundreds of thousands of manufacturing jobs moved from the United States to Mexico. By 2003-80 percent of Mexico's commerce was conducted with the United States alone, creating a dependency that became visible during the 2001 recession.

• 5. The Farmers Who Were Left Out

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  Three million Mexican farmers worked small, rain-dependent fields without irrigation. For them, according to political scholar Courtney Jung, "NAFTA is a disaster." Their principal crop was maize, and when the agreement opened the door to heavily subsidized U.S. corn, domestic prices collapsed.

  From 1991 to 2007, 4.9 million Mexican family farmers were displaced. Seasonal labor in agro-export industries grew by about 3 million over the same period, leaving a net loss of roughly 1.9 million jobs. In southern states like Chiapas and Oaxaca, where smallholders practiced subsistence farming and had long preserved the genetic diversity of native maize varieties, the impact was particularly severe.

  Environmental economist Alejandro Nadal documented what happened to the soil. As cheap U.S. corn imports undercut local prices, farmers were pushed toward chemical-intensive monocultures that eroded topsoil and stripped away the biodiversity that indigenous communities had maintained for generations. Indigenous peoples account for approximately 60 percent of all Mexican corn growers, and their relationship to maize is, as Nadal noted, not only economic but also social and religious.

  The damage was not confined to farming. As rural employment dried up, migration intensified. A 2005 World Bank study found that extreme rural poverty in Mexico rose from roughly 37 percent in the early 1990s to about 52 percent between 1996 and 1998, though the report attributed much of this spike to the 1995 economic crisis alongside NAFTA's effects. Immigration scholar Kevin Johnson observed that U.S. negotiators had deliberately kept labor migration off the agenda, meaning that displacement was never treated as a policy problem to be solved, only as a side effect to be ignored.

  Those who did migrate to the United States, economist Ricardo Grinspun noted, were met with low wages and poor working conditions, kept that way in part to hold down labor costs in California's agricultural sector.

• 6. Armed Rebellion and the Constitution

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  Before NAFTA could take effect, Mexico's government quietly repealed Article 27 of its constitution, the legal foundation of Emiliano Zapata's revolution of 1910 to 1919. That article had protected indigenous communal landholdings from sale or privatization for generations. It was incompatible with the investment rules NAFTA required.

  The Zapatista Army of National Liberation, known as the EZLN, had spent months preparing. In March 1993, women led the first EZLN uprising, which ended without casualties and signaled what was coming. On the morning of the 1st of January, 1994, an estimated 200 men and women armed with guns, wood, and machetes seized control of five municipalities in Chiapas. They released approximately 200 prisoners and took the governor of Chiapas hostage. Their demands were explicit: work, land, housing, food, health, education, independence, liberty, democracy, justice, and peace.

  The EZLN called their action a rebellion, not a revolution. They did not seek to seize state power or to secede from Mexico. Their goal was a more participatory order built from the community level upward. The Mexican Commission for Indigenous Development noted that 67 percent of Mexico's indigenous population worked in agriculture, the sector NAFTA was about to transform.

  The Mexican government's response was primarily military. Troops deployed to Chiapas with a focus on intimidation rather than negotiation. The uprising destabilized investor confidence sharply enough to contribute to a 50 percent devaluation of the Mexican peso.

  By 2001, the Mexican congress passed an indigenous law acknowledging the multicultural character of the state and affirming that indigenous peoples could exercise autonomy and self-determination within a unified nation. The EZLN gradually withdrew from open conflict and built a network of autonomous communities that continue to govern themselves independently, running their own systems of education, healthcare, justice, and agriculture. The movement is ongoing.

• 7. Disputes, Chapter 11, and the Lawsuits

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  Chapter 11 generated a string of high-profile cases that tested how far corporate rights extended under the agreement. In 1996, Ethyl Corporation, an American company, filed a claim seeking US$201 million from Canada after the Canadian federal government banned imports of the gasoline additive MMT. Canada settled for US$13 million and repealed the ban, even though Health Canada studies found no significant health effects from MMT in fuel.

  Methanex Corporation, a Canadian firm, filed a US$970 million suit against the United States after California banned the fuel additive methyl tert-butyl ether, which had contaminated wells across the state. The tribunal rejected the claim, ordered Methanex to pay US$3 million to the U.S. government in costs, and held that a non-discriminatory public-purpose regulation enacted with due process did not constitute expropriation.

  The American corporation Metalclad was awarded US$15.6 million from Mexico after a Mexican municipality refused a construction permit for a hazardous waste landfill the company intended to build in Guadalcazar, San Luis Potosi. The NAFTA panel found the municipality lacked the authority to block construction on environmental grounds, even though the federal government had already approved the project with environmental conditions attached.

  Eli Lilly and Company presented a US$500 million claim against Canada over the standards Canadian law required for drug patents to be considered useful. Lone Pine Resources Inc. filed a US$250 million claim against Canada after Quebec moved to prevent fracking exploration under the St. Lawrence Seaway.

  On the lumber front, the U.S. maintained a 27 percent duty on Canadian softwood lumber imports for years. Canada filed repeated challenges, and after the United States lost an appeal before a NAFTA panel, a U.S. Trade Representative spokesperson said the decision would have no impact on the existing duty orders. The U.S. Court of International Trade eventually ruled on the 21st of July, 2006, that the duties were contrary to U.S. law.

• 8. Renegotiation and the USMCA

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  In a September 2015 television interview, Donald Trump called NAFTA "the single worst trade deal ever approved in the United States" and said he would either renegotiate it or break it. After his 2016 election, his administration provided a detailed list of proposed changes in July 2017. The top priority was reducing the U.S. trade deficit. The administration also sought to eliminate provisions allowing Canada and Mexico to appeal U.S.-imposed duties.

  Chad P. Bown of the Peterson Institute for International Economics described the proposals as making NAFTA less of a free trade agreement. Pat Roberts, the senior U.S. senator from Kansas, a major agricultural exporting state, said it was not clear who the anti-NAFTA moves were intended to benefit. Farm groups warned that even threatening withdrawal could push buyers toward non-U.S. suppliers.

  From June to late August 2018, Canada was sidelined as the United States and Mexico negotiated bilaterally. On the 27th of August, 2018, Mexico and the U.S. announced a bilateral understanding that included a rule requiring 75 percent of a vehicle's components to be made in North America, up from 62.5 percent, and a requirement that 40 to 45 percent of vehicle components be made by workers earning at least US$16 per hour. At the time, the average wage in Mexican car manufacturing plants was US$2.30 per hour.

  Canada re-entered the talks in late August, with Foreign Minister Chrystia Freeland cutting short a European diplomatic tour, cancelling a planned visit to Ukraine, to negotiate in Washington. On the 30th of September, 2018, the day of the deadline for the Canada-U.S. portion of the talks, a preliminary deal was reached. The agreement was renamed the United States-Mexico-Canada Agreement. All three countries ratified it by March 2020. In April 2020, Canada and Mexico notified the U.S. of their readiness to proceed. The USMCA took effect on the 1st of July, 2020, ending NAFTA's twenty-six-year run.