How NAFTA Can be Improved to Benefit America and Free up Trade


How NAFTA Can be Improved to Benefit America and Free up Trade

Feb 21, 2017 2 min read

Former Jay Van Andel Senior Policy Analyst in Trade Policy

Bryan served as an advocate for free trade through his research at The Heritage Foundation.

The North American Free Trade Agreement (NAFTA) has been good for the U.S. Since it took effect in 1994, our economy has grown 60 percent and manufacturing output has increased more than 80 percent. Meanwhile, we’ve added more than 29 million new private-sector jobs, and average compensation per job has nearly doubled.

So, should we worry that President Trump has pledged to renegotiate NAFTA?

Not necessarily. Done right, it could expand opportunities for Americans even more.

Much has changed since 1994. Google and Netflix did not exist then, and 90 percent of Americans did not even own a cell phone. But today, the McKinsey Global Institute (MGI) reports: “digital flows — which were practically nonexistent just 15 years ago — now exert a larger impact on GDP [gross domestic product] growth than the centuries-old trade in goods.”

And as a policy paper from eBay notes: “Small businesses, for the first time in history, are utilizing the Internet and the services built on top of the Internet to go beyond their local consumer base and reach out to the world. The economic and social benefits that are being created as a result of this new trend are astounding.”

These technological advances have profoundly affected our economy. In 2014, the U.S. International Trade Commission calculated that digital trade had increased GDP by as much as $710.7 billion and created up to 2.4 million jobs.

But those gains have come despite government barriers that interfere with digital transactions. These obstacles include measures that block cross-border data flows or mandate the use of domestic servers or content. A renegotiated NAFTA should eliminate or at least reduce these barriers.

It should also be expanded to encompass sectors excluded from the original agreement. Perhaps the most prominent example of latent opportunity waiting to be unlocked is Mexico’s energy sector.

NAFTA allowed the government of Mexico to continue to control the exploration and refining of crude oil and natural gas. In recent years, Mexico has made major strides to open its energy market. Constitutional reforms enacted in 2013 liberalized the oil, natural gas, and energy sectors. These reforms should be locked in and expanded as NAFTA is modernized.

A report by the Americas Society/Council of the Americas concludes: “Mexico’s energy reforms will benefit North America broadly, by providing an opportunity for North American leaders to develop a fully integrated North American energy sector.”

Finally, renegotiating NAFTA provides an opportunity to fix its biggest flaw: The inclusion of non-trade issues such as environmental and labor regulations in politically motivated “side agreements” that accompanied the trade deal.

In 1993, Rep. Jim Kolbe, Arizona Republican, observed: “We should keep in mind that the NAFTA is first and foremost a trade agreement. It is not a labor or environmental pact.”

Subsequent trade agreements gradually increased environmental and labor mandates. For example, President Obama called the proposed Trans-Pacific Partnership (TPP), which included a minimum wage provision, the “most progressive trade deal in history.”

Inclusion of environmental and labor mandates risks turning trade agreements into multinational regulatory arrangements that restrict trade flows rather than free them. It also obscures the fact that trade is good for workers and for the environment. Data presented in The Heritage Foundation’s annual Index of Economic Freedom demonstrate that countries that are more open to trade not only have stronger economies, they also score higher on the global Environmental Performance Index.

The U.S. Trade Representative is committed to an “America First Trade Policy” aimed at encouraging companies to stay in the U.S., create jobs in the U.S., and pay taxes in the U.S. Americans will benefit if trade negotiators are able to: keep the parts of NAFTA that work; modernize NAFTA to take advantage of new technologies; expand NAFTA to encompass sectors excluded from the original agreement, and eliminate counterproductive environmental and labor regulations.

This piece originally appeared in The Washington Times