The North American Free Trade Agreement (Nafta): Issues And Impacts For Minnesota

This study has attempted to respond to four key questions surrounding the debate over NAFTA and its impact on Minnesota. The first question concerns its employment impacts: Will NAFTA cost jobs in Minnesota? The answer appears to be no. The magnitude of employment impacts from NAFTA is small but positive. Many of the gains will be in Minnesota agriculture with some widely distributed benefits in manufacturing and no effect on services employment. If the effect of NAFTA is to lead Mexico into a period of higher sustained growth, the dynamic process of income generation that results could boost demand for trade with Minnesota to levels higher than predicted, with accompanying increases in employment. But taking the most conservative predictions, a range of estimates resulting from various econometric studies suggests job creation from NAFTA over the next decade in Minnesota is likely to be from 400 to 3,500 jobs. The second question concerns the "side-agreements" under discussion on environmental and labor standards. These are important issues for Minnesotans, and the success of the negotiating process in this area will be key to a final NAFTA package. The North American Commission on the Environment (NACE), and proposals to upgrade labor standards in Mexico, are important steps in the process of integrating the Mexican, U.S. and Canadian economies. It is important to keep in mind that without NAFTA, those issues would not have come to the fore. If NAFTA is defeated, so will be much of the associated effort to raise environmental and labor standards. It is also important to distinguish those who advocate side-agreements because they believe that they must accompany trade liberalization, from those who would use them to defeat a trade agreement, thus defeating their ostensible environmental and labor goals. Most of the major national environmental interest groups have now announced provisional support for NAFTA, if a satisfactory side-agreement and NACE can be negotiated. A third question concerns the side-agreement discussions over import surges, especially in sugar. There is evidence to support the possibility of such surges; there is also evidence which casts doubt on this possibility. It would appear that safeguards can be found to prevent such surges, in the event that they materialize, without sacrificing the entire NAFTA agreement. A final question is: What if NAFTA fails? Failure will hurt Mexico's growth prospects far more than those of the U.S. or Minnesota; yet in a larger sense, it may also bring additional and as yet uncalculated costs. Among them is a probable slowdown in the process of economic reforms and growth in Latin America generally, which has been a rapidly growing market for U.S. exporters. Political and economic stagnation in Latin America has traditionally been associated with higher rates of illegal migration and growing political instability, which have imposed costs on U.S. taxpayers for both domestic and foreign programs of intervention. Finally, as noted above, failure would probably end the attention currently given to badly needed reforms in the environmental and labor areas. For these reasons, the NAFTA "package," including the side-agreements discussed above, is more attractive than the alternative of a failed agreement.