In an attempt to debunk a few of the myths that have been perpetrated by the media, and other interest groups, over the years regarding the effectiveness (or ineffectiveness) of NAFTA, the North American Free Trade Agreement, the Office of the United States Trade Representative (USTR) released a report on March 3, 2008, which addressed some of these myths in detail.
Many companies within the State of Washington have been affected by this Treaty for better or for worse. Since the Clinton Administration signed NAFTA into law 14 years ago, the common question amongst businesses and consumers has been whether NAFTA has helped or hurt the economy in Washington State? Such an open-ended question cannot sufficiently be answered in this kind of a forum. However, looking at the USTR "Fact Sheet" on NAFTA, may provide us with some insight into the long-term impact of that Treaty, as it pertains to the State of Washington. Below is a sample of some of the "myths" the USTR tries to dismiss:
Myth: NAFTA has cost the U.S. jobs.
Fact: U.S. employment rose from 110.8 million in 1993 to 137.6 million in 2007, an increase of 24%. The average unemployment rate from 1993-2007 was 5.1% as opposed to 7.1% during the period 1980-1993.
Myth: NAFTA has suppressed U.S. wages.
Fact: U.S. business sector real hourly compensation rose by 1.3% each year between 1993 and 2007, for a total of 19.3% over the full period. During 1979-1993, the annual rate of real hourly compensation rose by0.8% each year, or 11% over the full 14 year period.
Myth: NAFTA has not delivered benefits to U.S. Agriculture.
Fact: Canada and Mexico accounted for 37% of the total growth of U.S. agricultural exports since 1993. Moreover, the share of total U.S. agricultural exports destined for Canada or Mexico has grown from 22% in 1993 to 30% in 2007. NAFTA access is most crucial for agriculture, where Mexico has its highest MFN tariffs. Mexico is the top export destination for beef, rice, soybean meal, corn sweeteners, apples, and dry edible bean exports. It is the second export market for U.S. corn, soybeans and oils, and third larges for pork, poultry, eggs, and cotton.
Granted, these statistics are based on national averages, and opponents of NAFTA would most likely be able to quickly offer counter-statistics to rebuke the USTR findings. However, rather than go into a "my stats are better than your stats" argument, this article attempts to address the fundamental impact NAFTA has on the Washington State economy as a whole, rather than at a more micro-level where we begin to examine statistics and get cross-eyed. One way to examine this issue is to compare the political similarities and contrasts between the United States and Canada.
The political philosophies of Canada and the U.S. are the same – federalism – but their differing approach to federalism can create many problems for effectively administering cross-border transactions between the two countries. Therefore, having a streamlined tool, in the form of an international treaty, like NAFTA, makes it much easier for someone in Washington State to do business in Canada and vice versa. In the United States, federalism is a system of government in which power is divided and shared between the central government in Washington, D.C., and the government of each of the 50 States. In Canada, federalism is delineated by the divisions of power between the federal parliament in Ottawa, Ontario, and the 10 provincial and 3 territory governments.
What does "federalism", a political philosophy, have to do with the economic benefits of a treaty like NAFTA for the State of Washington? A lot.
A trivial explanation can answer this question: 2 of the largest cash crops in the State of Washington are timber and apples. If an apple grower or lumber company located in Wenatchee and Longview, WA, respectively, want to do business with company’s in British Columbia, how must they go about it?
The easiest answer would be for the State of Washington to make a treaty regarding cross-border business transactions (e.g. NAFTA) with the provincial government of British Columbia. However, the U.S. Constitution (Art. I, Section 10) prohibits the States from entering into such treaties with foreign governments. We are required to go to D.C. and convince the other 49 States that they can derive a mutual benefit in adopting a formal trade treaty with Canada, even though the residual benefits may be unequal at the various regional levels. Conversely, the provincial government in British Columbia, can unilaterally enter into a treaty with or without the acknowledgement from Ottawa. In many respects, the provinces of Canada have greater power and a more visible role in the development of policy at the national level than in the United States. Thus, making it easier to adopt legislation/treaties.
Or simply put, in the United States, the central government usually takes the lead in developing policies for the States to adopt (i.e. requiring that states raise the legal drinking age to 21 in order to receive highway funds), as opposed to in Canada, where the provinces are the leaders in developing policy (e.g. gay marriage/marijuana laws) for the central government to follow.
There is a large dependence on trade between the State of Washington, Canada, and Mexico, thus making our economies interrelated. Business leaders must understand the advantages and avoid the pitfalls of doing cross-border business transactions in order to better position their product/services for success. The enforceability of international business contracts between private companies can be very difficult to uphold and extremely expensive to litigate. Even if a company wins in a trial to enforce a contract between 2 parties, collecting the award is a whole other monster (see Texaco Libya Arbitration case).
Having business assets (e.g. factories, money, etc.) tied up in a foreign country without some sort of formal treaty between our government and the prospective foreign government, can be a very risky business proposition. Without the convenience of treaties between governments, businesses must rely on carefully drafted agreements protecting their rights when doing cross-border transactions.
For a complete viewing of the fact sheet please visit the USTR website at www.ustr.gov. To read the full USTR report on NAFTA please click on the following link below: