Free Paper Example - Effects of NAFTA on Mexican Workers in Agriculture

The North American Free Trade Agreement (NAFTA) was a treaty between Canada, Mexico, and the U.S. It took effect in January 1994 to eradicate most tariffs – especially those associated with agriculture, automobiles, and textiles – existing among the three countries. The agreement was developed as the greatest trading bloc globally, covering 21,783,850 km2 (Chepeliev et al., 2019). Essentially, this was to promote economic activity between the three major economic powers of North America. Prior to its implementation, agricultural productivity in Mexico was lower than in the U.S. Upon enacting the policy, the price of agricultural products dropped in the U.S. (Gantz, 2019). It also led to a hike in cheap agricultural products exports from the U.S. to Mexico. Just a year after its enactment, corn exports from the U.S. were at $391 million, while 21 years after, in 2015, the exports had spiked to $2.4 billion (Chepeliev et al., 2019).

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However, the trade resulted in unfair competition between the U.S. and Mexico since the U.S. federal offers American agricultural export subsidies. The specific factor model describes a distinguishing aspect; a production factor that is considered specific to a given industry. The specific factor is fixed in an industry, and it cannot be transferred within industries to respond to market changes (Ethier, 2017). The model assumes that goods are produced using two production factors, including capital and labor. Capital is supposed to be entirely fixed within one industry, while labor is termed to be movable to other industries in a free, costless way (Ethier, 2017). Since capital is immobile, it can be assumed that two industries have distinct capital, and therefore it cannot be substituted in production. Under this model, the Mexican agricultural sector has suffered under NAFTA, considering that its products cannot fairly compete with the U.S. agricultural products whose U.S. industry receives subsidies leading to cheap capital (Gantz, 2019). Accordingly, the Mexican industry cannot encourage competitive prices between itself and the U.S. since it cannot transfer capital from other better-performing sectors to boost the ailing agricultural sector. During NAFTA's negotiations, Mexico had over 3 million agricultural producers making up 40% of all Mexicans, specifically corn farming (Chepeliev et al., 2019). But upon its initiation, the corn producers were hardest hit by the treaty, as the free trade without quotas allowed cheaper imports of beans and corn from Canada and the U.S. Consequently, small farmers producing for the local market had no options but to bear with the impact of competing with cheaper imports. For the farmers whose jobs were not lost, primarily the self-employed, their monthly income declined tremendously from earning 1959 pesos in 1991 to a mere 228 pesos in 2003. Additionally, Mexico's living standards fell drastically, with a 50 percent fall in the essential products that Mexicans could purchase during the decade, exacerbating poverty problems. Moreover, over 1.3 million Mexican agricultural jobs were lost, more so the poor farmers from the rural sector who produce beans and corn since they did not receive subsidies from the government and were not covered by excessive importation (Gantz, 2019).

The Free Trade Area of the Americas

The Free Trade Area of the Americas (FTAA) involved a free trade agreement between the U.S. and 34 other countries in Central, North, and South America and the Caribbean, exempting Cuba. Negotiations for the policy commenced right after NAFTA's enactment, although they were never actualized after Argentina, Brazil, Bolivia, and Venezuela declined the deal. Majorly, they were anticipated to have been finalized by January 2005 (Chepeliev et al., 2019). The trade agreement's failure led to the formation of the Central American-Dominican Republic Free Trade Agreement of August 2004 (Gantz, 2019). The constituting countries included the YSM Costa Rica, Nicaragua, Guatemala, the Dominican Republic, Honduras, and Salvador. The treaty led to the elimination of tariffs and other trading fees.

Considering that the policy opened markets to U.S. agricultural products in Mexican target markets, it led to a decline in Mexican agricultural exports to the Central American region. Given that Americans had a comparative, the U.S. offers subsidies to its farmers, allowing them to generate cheap and abundant agricultural produce to capture the newly identified trade markets under the policy (Gantz, 2019). Therefore, it became relatively hard for Mexican farmers to compete with the vast cheap U.S. products flocking its alternate potential central American markets, which would have served as an alternative following the tough competition staged in its local market. Agricultural exports accounted for 4.7% of the GDP between 2015 and 2017, which is 1.4% lower than from 1996 to 1998 (Chepeliev et al., 2019). As a result, local farmers had to take odd jobs in the U.S. factories developed in their country. However, the positions were not permanent because they are moved at any time cheaper opportunities arise. Therefore, with the emergence of new cheaper locations in the surrounding countries, Mexican farmers suffered profoundly as some firms moved the cheaper (Finley-Brook, 2018).

A New Canada-United States-Mexico Agreement

The new Canada-United States-Mexico Agreement (CUSMA) was enacted in July 2020 (Kirby, 2020). The policy was signed at the Summit of G20 Leaders margins in November 2018 in Buenos Aires. It was a replacement for NAFTA. The outcomes of CUSMA maintained the key elements for the enduring trading relationship between Canada, Mexico, and the United States and incorporated new and advanced provisions that aim to address trade issues associated with the 21st century and grow opportunities for the North American people (Canada and the US) (Gantz, 2019). The U.S. steered CUSMA under Donald Trump's administration. Trump wanted to renegotiate NAFTA because it led to excessive labor immigration of asylum seekers in the U.S.

NAFTA's severe effects on poor farmers in Mexico prompted many of them to seek better opportunities in the U.S. as the condition within their country was deteriorating. According to White, immigration from Mexico increased from nearly 350,000 annually in 1992 to almost 800,000 annually, with 60 percent being undocumented (Kirby, 2020). The heightened immigration is increasingly composed of Mexican rural sector workers. In May 2019, President Trump threatened to impose 5% tariffs on all imports from Mexico. The threat was to ensue if the Mexican authorities did not take extreme measures to decrease the number of immigrants entering the U.S. (Mercier, 2020). USMCA entailed a deal to eliminate the tariffs. USMCA developed an independent investigatory panel to explore industries accused of breaching the rights of workers and halt shipments from those industries. Accordingly, Mexico embarked on enforcing a broad spectrum of labor reforms for workers to unionize, especially those from the agricultural sector who were severely affected, and reduce abuse and violence of workers (Gantz, 2019). The new provisions were to ensure that there are improved working conditions for Mexican workers and create more equitable playing fields between the Mexican and U.S. agricultural industries (Kirby, 2020). The policy further intimidated Mexican farmers since they could no longer seek better working conditions since no agricultural import quotas or tariffs were imposed to limit the excessive inflow of related products into the country hence creating better sources of income for them (Gantz, 2019).

References

Chepeliev, M., Tyner, W. E., & van der Mensbrugghe, D. (2019). How differing trade policies may impact U.S. agriculture: The potential economic impacts of TPP, USMCA, and NAFTA. USMCA, and NAFTA (February 1, 2019). http://dx.doi.org/10.2139/ssrn.3346662

Ethier, W. J. (2017). The relevance of Ricardian trade theory for the political economy of trade policy. In 200 Years of Ricardian Trade Theory (pp. 185-187). Springer, Cham. https://doi.org/10.1007/978-3-319-60606-4_15

Finley-Brook, M. (2018). CAFTA-DR: diverging trajectories and uneven development. In Handbook of International Trade Agreements (pp. 166-180). Routledge.

Gantz, D. A. (2019). The United States-Mexico-Canada Agreement: Textiles, apparel, and agriculture. Mexico Center, Rice University's Baker Institute for Public Policy (2019), 19-22. https://ssrn.com/abstract=3475043

Kirby, J. (2020). USMCA, Trump's new NAFTA deal, explained in 600 words. Vox. https://www.vox.com/2018/10/3/17930092/usmca-mexico-nafta-trump-trade-deal-explained

Mercier, S. (2020). Adding a new perspective to U.S. agricultural trade policy. Renewable Agriculture and Food Systems, 35(4), 445-448. https://doi.org/10.1017/S174217051800042X[Opens in a new window]