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Book TitleNAFTA Revisited: Achievements and Challenges
Book AuthorHufbauer, Gary Clyde and Schott, Jeffrey J.
Bibliographic InformationPeterson Institute for International Economics, 2005, Pages : 544, $27.95, ISBN 0881323349

Review Title
Reviewer(s) Knox, John

Short review

NAFTA Revisited: Achievements and Challenges. By Gary Clyde Hufbauer and Jeffrey J. Schott.  Washington, D.C.: Institute for International Economics, 2005. Pp. 544. $27.95.
Reviewed by John Knox.
            The debate over NAFTA, the North American Free Trade Agreement, was one of the most divisive issues in U.S. politics in the early 1990s.  In particular, NAFTA was a focal point of the 1992 U.S. presidential election, in which President George H.W. Bush defended the agreement his administration had negotiated, third-party candidate Ross Perot devoted much of his campaign to attacking it, and then-Governor Bill Clinton found a compromise solution: to support NAFTA only with supplemental agreements on labor and the environment.  With his election, the Clinton Compromise became official U.S. policy, and the supplemental agreements were duly drafted, negotiated, and added to the NAFTA package that Congress narrowly approved in 1993.
            The arguments over NAFTA did not end with its entry into force on January 1, 1994.  Instead, they only shifted tense, from whether NAFTA would be a success to whether NAFTA has been a success.  NAFTA remains a live issue not only because it governs the resolution of many sensitive issues arising among the North American countries, but also because the United States has sought to duplicate many of its provisions in other trade agreements.  Moreover, NAFTA’s success or failure is highly relevant to whether and how the North American countries should seek closer (if not necessarily “ever closer”) integration. 
            As the title of NAFTA Revisited suggests, Gary Clyde Hufbauer and Jeffrey J. Schott are not newcomers to the NAFTA debate.  Their 1992 book, North American Free Trade: Issues and Recommendations, was designed to influence the NAFTA negotiation, and NAFTA: An Assessment, which came out the next year, was intended to inform the discussions in Congress over whether to approve it.  NAFTA Revisited seeks to inform the current stage of debate by examining dispassionately and in detail how successful NAFTA has been.  There are many ways to define success, of course.  Hufbauer and Schott ask how well NAFTA has succeeded on its own terms.  They look to the goals set out in the agreement itself:  to promote increased regional trade and investment; to increase employment and improve working conditions and living standards in each country; to provide a framework for the conduct of trilateral trade relations and for the management of disputes; to strengthen and enforce environmental laws and basic workers’ rights; and to work together to promote further trilateral, regional, and multilateral cooperation to expand and enhance NAFTA’s benefits.  (pp.17-18.)
            Their conclusions are that NAFTA has been successful, on the whole, at promoting international trade and investment within North America.  Merchandise trade between Mexico and the United States increased by 227% from 1993 to 2004, compared to an increase in U.S. trade with non-NAFTA countries of 124%.  (p.18.)  While the authors are careful not to claim that NAFTA is solely, or even primarily, responsible for this growth, much of which could have occurred anyway, they conclude that “the available evidence points to a strong positive impact” from NAFTA on regional trade, and that the effect was to create trade, not just to divert it from other countries.  (pp.19, 24)  Similarly, NAFTA’s rules protecting foreign investments have contributed to an increase in U.S. investment in Mexico from $17 billion in 1994 to $61.5 billion by the end of 2003, and have helped Mexico attract investment from other countries as well: over the same period, total foreign direct investment in Mexico increased from $33 billion to $166 billion.  (p. 30)  The authors note, however, that Mexico is facing increasing competition from China and other east Asian countries in both trade and investment.
            On labor and environmental issues, the authors take a middle ground between those who have argued that a rising economic tide will eventually lift all labor and environmental boats, and those who blame NAFTA for a wide variety of social problems throughout North America.  On the one hand, Hufbauer and Schott argue that NAFTA has had very little effect in the United States – negative or positive – on jobs, wages, labor laws, and levels of environmental protection.  At the same time, by increasing foreign investment in Mexico and promoting Mexican exports, “NAFTA has mainly had a positive impact on the Mexican labor ledger.” (p.98).  With respect to the environment, they reject the concerns that NAFTA would induce U.S. and Canadian firms to move to “pollution havens” in Mexico, and that it would cause U.S. and Canadian governments to lower their standards to try to retain those firms. (p.163.)  On the other hand, Hufbauer and Schott recognize that thousands of U.S. workers have lost their jobs because of NAFTA and ended up in jobs with lower wages (p.86), that many small and medium-sized Mexican firms have gone out of business because they could not compete with multinational firms (p.105), that the Mexican government devotes inadequate resources to enforcing labor standards (p.102), and that environmental conditions along the U.S.-Mexican border “are bad and in some respects may be getting worse.” (p.181.)  More generally, they acknowledge that the components of NAFTA designed to improve labor and environmental protections – the Commission for Labor Cooperation, the Commission for Environmental Cooperation, the U.S.-Mexico Border Environment Cooperation Commission, and the North American Development Bank – have failed to meet their goals or the expectations of the North American public. 
            Most of their conclusions are not surprising; they represent the mainstream views of most NAFTA scholars.  The virtue of NAFTA Revisited is that it pulls together and logically organizes an impressive quantity of information, across a very wide spectrum, to support its assessment, and that it does so without the hyperbole that characterizes much of the NAFTA debate.  (A chapter on migration, written by Philip Martin, is a particularly helpful corrective to the current world-is-ending debate over Mexican emigration to the United States; he argues that emigration pressures in Mexico are likely to abate over the next five years for demographic and economic reasons, apart from any policy changes the United States adopts.)  
            For these reasons, NAFTA Revisited will be a valuable starting point for anyone researching NAFTA’s implementation and effects.  It should not be the final word, however, for several reasons.  First, a book that provides an overview of so many areas cannot give much detail about most of them.  Its treatment of trade, for instance, focuses on agriculture, cars, and energy, which together comprise, in the authors’ estimation, roughly one-third of total regional trade.  Their birds-eye approach may also lead the authors to occasionally ignore relevant sources, such as the 2004 TRAC report, an in-depth review of the environmental commission.  Second, the book does include a few errors.  Examples: The number of new investor-state cases filed under Chapter 11 has not “steadily increased over time,” (p.224) but rather has remained fairly constant over the past nine years, averaging three new cases a year.  (The authors make the mistake of counting notices of intent to file cases even when the cases were never submitted to arbitration.)  Most labor submissions filed pursuant to the labor side agreement are not “still under review.” (p.120.)  Investigative reports prepared by the secretariat under Article 13 of the environmental side agreement do not require party approval by a two-thirds vote. (p.158.)  Third, any book about the North American relationship will quickly begin to be out of date.  The book only briefly mentions the March 2005 Bush-Fox-Martin announcement of a new Security and Prosperity Partnership, which in principle has the potential to oversee all North American governmental cooperation. (p.470.)  And the sudden upsurge in political interest in immigration reform in 2005-06 came too late to be included. 
            The authors do more than merely assess the successes and failures of the NAFTA regime.  In nearly every area they discuss, they offer suggestions for improvement.  In general, their recommendations, like their assessments, are moderate: they stop well short of proposing a North American Community with a common currency (for that, see Robert Pastor’s Toward a North American Community (2001)), or a Mexican Marshall Plan.  They recommend marginal rather than sweeping changes, including moving toward a common external tariff, streamlining rules of origin, providing more money for and high-level attention to the labor and environmental institutions, promoting private corporate labor codes, expanding trade adjustment programs for workers, developing modern hazardous waste sites on the Mexican side of the border, and so forth.  On migration, the authors do not speak with one voice.  Martin recommends specific programs to reduce pressure for emigration from Mexico to the United States, but he emphasizes the need to try pilot projects before adopting major reforms.  He notes, “Experience shows that for most major immigration reforms, the unanticipated consequences are more important and long lasting than the anticipated consequences.”  (p. 464).  Every member of Congress should have to commit those words to memory before voting on immigration reform, and perhaps they should have been read more carefully by the chief authors, Hufbauer and Schott, who themselves make sweeping proposals for a guest worker program and permanent residence for current aliens.
            Unfortunately, despite the modesty of the book’s proposals, many seem close to impossible in the current political climate.  Rather than reinvigorating the labor and environmental components of NAFTA, the current administrations are generally ignoring the labor commission, have struggled to agree on the proper role for the environmental commission, and have even considered shutting down the North American Development Bank.  Congress seems hopelessly deadlocked, at least at the moment, over immigration reform.  And the authors see little or no evidence of a desire for closer economic union.  Indeed, they seem gloomy even about the prospects for obviously valuable steps toward closer security cooperation, such as common visa standards and integrated screening of outside visitors to North America. (p.481-82.)  They say that a Big Idea, such as border security, is necessary to capture the attention of policy-makers and lead to complementary economic integration, but in the next breath they acknowledge that this link is unlikely to be made. (pp. 472-73.) 
            Against this backdrop, the Security and Prosperity Partnership is interesting, since it seems to have made exactly the security-economic-social link that the authors propose.  But it is still unclear whether the SPP is an important step forward or is merely a repackaging of existing, relatively minor programs.  Its failure to link up with or build on existing NAFTA institutions, such as the environmental and labor commissions, is particularly puzzling, and even troubling, since the SPP does not seem to have either the institutional continuity or the commitment to public participation of those organizations.  Nevertheless, the creation of the SPP, and the annual presidential summits under its auspices, suggest that even during a period of relative inattention to North American cooperation, the level of that cooperation remains very high by historic standards.  NAFTA’s most important effect may well have been psychological: it made the citizens and leaders of North America far more likely than ever before to think of themselves as having something in common with their counterparts throughout the continent.  That the level of North American integration is, and is likely to remain, very far from that of Europe, should not obscure the importance of that achievement. 

but - by bryan
1/24/2007 9:34:24 PM
I woulnd´t necessarily say that chapter 11 cases has or has not increased. it is difficult to tell if they have since the public is not privy to all the outcomes. i use the term "cases" to describe any action whether it makes it to arbitration or not (outcome). this is the key is it not? who cares if it makes it to the tribunal or not. there could be a 100 fold increase in outcomes and that would be a marked increase even if NONE made it to arbitration. The very reason they would have outcomes would be a result of the NAFTA, thus they are significant.
I would say the more critical issue is understanding that an increase isn´t necessarily bad. It may just be the legal/public community at large gaining a better understanding of their rights. In spite of some of the opponents loud voices, I´m still not sure why Chapter 11 is considered an evil.