https://www.proquest.com/docview/1865287992?accountid=4485&parentSessionId=0Phh0a%2BaqU3aklFKJ55jYjdZ56s8guGV5UHAQmwV%2FHM%3D&pq-origsite=primo

The trade deficit of the USA with its NAFTA partners, Mexico and Canada, increased since 1994 from 21,991 to 119,257 million dollars in 2013 (UNCOMTRADE, 2015 . http://comtrade.un.org/db), and most of this increase is explained by the growth in the volume of commerce between Mexico and the USA. Nonetheless, since the mid-1990s Mexico has been experiencing its lowest economic growth rates. By using the World Input Output Database and the Input-Output Analysis, this paper presents an estimate of the intra-NAFTA trade flows in terms of value added and its distribution among both labor and capital; labor by skill level; and content of persons engaged. The findings show that trade between the NAFTA members is quite different concerning value added. In 1995 the USA had a trade deficit of 30,351 million dollars with Canada, of which 6384 million dollars was a surplus in favor of Canada in terms of value added. Similarly, the same year the USA had a deficit of 4276 million dollars with Mexico that became a surplus for the latter of 4561 million dollars in terms of value added. For the following years, until 2011, a similar pattern was observed. The distribution of this value added between capital and labor compensations tends to favor USA and Canadian workers, especially middle-skilled labor, and the sector that tends to have the lowest share is the low-skilled Mexican and Canadian workers. Even more, the average labor compensations per hour grew less for the three types of Mexican workers.

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CervantesMartnez et al. Economic Structures (2016) 5:27

DOI 10.1186/s4000801600592

http://orcid.org/0000-0002-1524-0379

Web End = *Correspondence: m..c@cucea.udg.mx Economics Department, University Centerfor Economicand Administrative Sciences, University of Guadalajara, Mdulo K302, Perifrico Norte 799, Ncleo Universitario Los Belenes, C.P. 45100, Zapopan, Jalisco, Mexico

NAFTA trade (and some extra NAFTA trade) invalue added andits distribution, 19952011

Rosario CervantesMartnez*http://orcid.org/0000-0002-1524-0379

Web End = , Jorge VillaseorBecerra and Martn RomeroMorett

1 Background

On the rst of January of 1994 the North American Free Trade Agreement (NAFTA) entered into eect, signed by Mexico, the USA, and Canada. With this treaty it was hoped that, particularly in Mexico, greater economic growth, employment, and wage rates would be observed. Today, after more than 20 years after the beginning of the agreement, the Mexican economy has not achieved greater growth rates, and in fact, they are below those observed during the 19501980 time period. Annual average growth rates for the 1950s, 1960s, and 1970s were around 6.5%, and after the so-called lost decade of the 1980s, the higher annual average growth rate was the one observed in the 1990s at 3.4%, a decade in which the largest volume of foreign trade was achieved.1

1 GDP growth rates for Mexico were calculated using World Bank data (2013). The Author(s) 2016. This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/

Web End =http://creativecommons.org/licenses/by/4.0/ ), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.

CervantesMartnez et al. Economic Structures (2016) 5:27

The literature on the reasons why the Mexican economy has lagged behind the expected growth rates dwells on the need of deeper reforms, but also on the possibility that it was the way the nation entered the world economy the fact that helps to explain the lack of economic performance of the latter years. From the analysis of the Global Value Chains (GVCs) and the way Mexico participates in them, this research estimates the domestic value added contained in trade ows between the NAFTA members, its distribution in labor and capital compensations, and its employment content (measured as the volume of persons engaged), in order to validate the second explanation given above, as one of the main reasons why Mexicos economic performance has not being as expected. The main goal is to show not only that, when the largest share of the volume of foreign trade is constituted by intermediate goods and raw materials, a double accounting problem in trade ows is observed, but also that production specialization and trade of goods with a low value-added content impose an additional restriction to the export-led growth strategies2 and that, through factorial distribution of income as a consequence of exports and median income, it can also be explained how exports growth did not contribute to the growth of the Mexican economy signicantly.

The rest of the document is organized as follows: In Sect.2, a brief literature review on the theoretical aspects of free trade advantages, free trade agreements, and trade evolution between the NAFTA members is made. Section3 describes the method used in the estimation of the account balances of trade ows between the NAFTA members in terms of value added, its distribution as payments to factors of production, and its employment content. In Sect.4, the estimation results for the total amount of value added, in both the intermediate and nal goods trade ows, as well as its distribution in compensations to capital or labor, are reported. In Sect.5 a brief balance of persons engaged, directly or indirectly, in the intra-NAFTA trade is made; also, some evidence of wider gaps in the average labor compensations per hour by skill level is showed. In the last section we conclude.

1.1 Free trade, free trade agreements, andthe evolution ofNAFTA

Since the publication of An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith (2008, [1776]) it has been discussed that production specialization and free trade are both essential aspects for the better use of available and scarce resources. In an oversimplied way, it is supposed that, if every individual exclusively does what it does best, more production can be achieved and, through free trade, each participant obtains more and better goods and services than without such free trade. However, the economic systems in which goods and services are traded through monetary payments are complex systems in which, during the resource allocation; the production volume; and the price determination processes; multiple and dynamic relationships can be observed between buyers and producers of raw materials, capital and consumption goods, nancial services and labor. The latter implies that in the development of free trade theory more elements that help understanding free trade advantages, at both an individual and economic system levels, functioning with dierent currencies, had to be introduced.

2 In Giles and Williams (2000) can be found a survey of the extensive amount of empirical works measuring or validating the relationship between exports and economic growth.

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Twenty-five years after the North American Free Trade Agreement (NAFTA) came into force, what impact has it had on the US-Mexico border environment? This paper asks what lessons NAFTA offers to contemporary debates about trade and environmental governance through analysis of time series data and expert perceptions on the environment of the US-Mexico borderlands. In the early 1990s, scholars and activists argued that NAFTA would have mostly negative impacts on the US-Mexico border, creating water scarcity and increasing air, land and water pollution; degrading ecosystems; and causing health problems. The debate over NAFTA was part of the larger discussion on the environmental impacts of trade and globalization. In response to these concerns, several governance institutions were created to monitor the environment (the Commission for Environmental Cooperation) and to certify and fund improvements to environmental infrastructure along the US-Mexico border (the Border Environment Cooperation Commission and North American Development Bank). NAFTA was recently replaced with a new trade deal (the USMCA). In this paper we review trends in environmental conditions over the past 25 years, mostly on the Mexican side of the border where greater impacts were anticipated, through datasets, institutional reports and scholarly literature. We also present and discuss the results of semi-structured interviews and surveys with 49 experts (researchers, activists, government personnel, and other border institutional actors) to understand the varied legacy of NAFTA on the border environment at 25 years. Although missing data and challenges in attribution complicated our analysis, we found both positive and negative trends in environmental indicators and the literature. 1. Introduction The North American Free Trade Agreement (NAFTA) came into force on 1 January 1994, with the goal of reducing trade barriers and increasing trade between Mexico, the United States and Canada. At the time, academics and activists raised concerns about the environmental impacts of free trade, especially along the US-Mexico border (Benton, 1996; Krugman, 1993; Mumme, 1993). Others saw NAFTA as a victory for neoliberalism in the Americas, with a pioneering side agreement to protect the environment (Clark, 1994; Fox, 1995). NAFTA's negative environmental impacts have been employed to oppose almost every new proposal for free trade agreements since, including the Trans Pacific Partnership (TPP) and the renegotiation of NAFTA as the USMCA (United States Mexico Canada Agreement). Some have called NAFTA the greenest trade agreement ever (Deere and Esty, 2002); others see it as a disaster for North American environment and society (Roberts and Thanos, 2013; Sanchez, 2002; Sierra Club, 2014). The debates often use selective evidence and lack careful analysis of trends, research literature, and expert opinion. Can these diverging perspectives be resolved through a more systematic exploration of available data, literature and

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https://crsreports.congress.gov/product/pdf/IF/IF10047/13

https://crsreports.congress.gov Updated June 14, 2018 North American Free Trade Agreement (NAFTA) Overview NAFTA is a free trade agreement (FTA) among the United States, Canada, and Mexico that entered into force on January 1, 1994 (P.L. 103-182). At the time it was negotiated, NAFTA was unusual because it was the first time that a U.S. FTA linked two advanced economies with a lower income country. For this reason, the agreement sparked debate among policymakers, industries, labor unions, and other stakeholders about its potential benefits and costs. NAFTA-implementing legislation included revisions to the U.S. trade adjustment assistance program to address production shifts and assist dislocated workers. On May 18, 2017, the Trump Administration sent a 90-day notification to Congress of its intent to renegotiate NAFTA, as required by the 2015 Trade Promotion Authority (TPA). Negotiations began on August 16, 2017, and eight formal rounds of negotiations had taken place as of April 2018. In May, the parties continued a "permanent round" of talks to resolve contentious issues related to U.S. proposals on automotive rules of origin, seasonal produce, dispute settlement, and a sunset clause to reevaluate the agreement every five years and to negotiate other issues such as labor and intellectual property rights (IPR). The 115th Congress may continue oversight of and its role in the negotiations, consider whether the Administration is following consultation requirements and negotiating objectives under TPA, and evaluate economic implications of a new agreement or possible NAFTA withdrawal. NAFTA Facts Milestones. Negotiations began in February 1991. The agreement was signed by President George H. W. Bush on December 17, 1992. NAFTA side agreements were signed in August 1993. The NAFTA Implementation Act was approved by Congress on November 20, 1993. NAFTA entered into force on January 1, 1994. Prior Liberalization. NAFTA enhanced prior liberalization efforts. The U.S.-Canada FTA had been in effect since 1989, and Mexico was in the process of substantive unilateral trade and investment liberalization measures. NAFTA Text. NAFTA includes eight parts consisting of 22 chapters. It contains provisions on tariff and nontariff barrier elimination, customs procedures, energy, agriculture, technical barriers to trade, government procurement, foreign investments, services trade, temporary entry for business persons, intellectual property rights protection, and dispute resolution procedures. Labor and Environmental Side Agreements. NAFTA parties approved additional side agreements on labor and the environment, which were included in the NAFTA Implementation Act. Why Is NAFTA Important? NAFTA initiated a new generation of trade agreements in the Western Hemisphere and other parts of the world, influencing negotiations in areas such as market access, rules of origin, IPR, foreign investment, dispute resolution, worker rights, and the environment. NAFTA addressed new trade policy issues and served as a catalyst for future FTAs and concluding multilateral negotiations. The United States now has 14 FTAs with 20 countries. What Are Supporting Views? Past and present proponents of NAFTA view the agreement as an opportunity for generating economic growth, creating jobs, increasing productivity, reducing income disparity, and strengthening trilateral relations. They ask that the Trump Administration "do no harm" in the NAFTA renegotiations. What Are Opposing Views? Opponents argue that the agreement has caused job losses in the United States as companies moved production to Mexico to lower costs, put downward pressure on U.S. wages, increased income disparity, and has been an infringement on U.S. sovereignty. Some labor groups ask that the NAFTA renegotiations include stronger protection of worker rights. Key NAFTA Provisions Market Opening. An important aspect of NAFTA relates to national treatment and market access for goods and services. The agreement eliminated tariffs over 10 years (15 years for sensitive products) and most nontariff barriers on North American goods, as long as they meet specific rules of origin. Trade barriers on sensitive items, such as sugar and corn, received the longest phase-out periods. IPR Protection. NAFTA was the first trade agreement to include a chapter on IPR. It set minimum standards of protection and enforcement for patents, copyrights, trademarks, and other forms of IPR. It also served as a template for the World Trade Organization's (WTO) TradeRelated Aspects of Intellectual Property Rights Agreement. Foreign Investment. NAFTA removed significant investment barriers, especially in Mexico, ensured basic protections for NAFTA investors, and provided a mechanism for dispute settlement. It includes countryspecific liberalization commitments and exemptions such as Mexico's energy sector and cultural industries in Canada. Labor and Environmental Provisions. The original text of the agreement did not include enforceable labor or environmental provisions. Due to congressional concerns at the time, the three countries negotiated and signed separate side agreements. NAFTA was the first U.S. FTA with labor and environmental commitments and dispute settlement provisions, but these do not go as far as more recent FTAs. North American Free Trade Agreement (NAFTA) https://crsreports.congress.gov Economic Effects The overall net effect of NAFTA on the U.S. economy appears to have been positive, though modest, primarily because trade with Canada and Mexico account for a small percentage of U.S. GDP. Most economists contend that the claims on both sides of the NAFTA debate were exaggerated. NAFTA did not cause the job losses feared by the critics or the employment gains predicted by the proponents. Many economists and other observers credit NAFTA with helping North American manufacturing industries become more globally competitive through greater economic integration, including through the development of supply chains. The deepening of manufacturing integration among NAFTA parties has significantly changed the nature of the trilateral economic relationship. The three countries do not simply sell finished products to one another, but increasingly produce them together. As a result of this unique trade relationship, supply chains have increasingly crossed national boundaries as manufacturing work is performed wherever it is most efficient. While NAFTA may have accelerated North American trade since 1993, other factors, such as economic growth patterns and Mexico's unilateral liberalization measures, also affected trade. Trade also has been affected by factors such as currency fluctuations and economic growth. Job gains and losses since NAFTA's entry into force may not be totally attributable to the agreement. Trade and employment levels tend to increase during cycles of economic growth and tend to decrease as growth declines. Although the net economic effect was positive, there were worker and firm adjustment costs as many industries adapted to the more open and competitive trade environment. These losses tended to be more concentrated in specific industries, such as the apparel industry in the United States or the agricultural sector in Mexico. Industries tend to be concentrated in certain geographical regions, making some communities more vulnerable than others to adverse employment effects. In contrast, the gains from trade tend to be more widespread. Figure 1. U.S. Merchandise Trade with NAFTA Partners (billions of US$) Source: Compiled by CRS using data from ITC. Trade Trends Since NAFTA Since NAFTA's entry into force, U.S. merchandise trade with Canada and Mexico has more than tripled. In 2017, Canada was the leading market for U.S. goods exports, while Mexico ranked second. The two countries accounted for 34% of total U.S. exports and 35% of U.S. imports. Canada and Mexico ranked second and third (China was first), respectively, as suppliers of U.S. imports. Merchandise imports from NAFTA partners increased from $151 billion in 1993 to $614 billion in 2017 (307%), while exports increased from $142 billion to $525 billion (271%). Issues for Congress Congress may consider numerous policy issues related to the renegotiation of NAFTA and the future of U.S. trade policy such as the roles of Congress and the President regarding the negotiations or potential NAFTA withdrawal, as well as the economic effects. It may also consider political and strategic implications of U.S. relations with Canada and Mexico, as well as the economic effects of their trade initiatives such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Canada, Mexico, and the nine other remaining signatories of the Trans-Pacific Partnership (TPP) signed the CPTPP on March 8, 2018. The agreement has the potential to affect the economic well-being of certain U.S. stakeholders, as well as U.S. global economic leadership and long-standing U.S. promotion of an open, rules-based trading system. The outcome of NAFTA renegotiations has implications for the future of U.S. trade policy and the broader North American economic and strategic relationship. Some economists estimate that if NAFTA were to terminate, real GDP, trade, investment, and employment would decline in all three NAFTA countries. A successful conclusion of the negotiations could modernize NAFTA with updated provisions in areas such as digital trade, labor, IPR protection, and anti-corruption. A new FTA would likely be considered by Congress under TPA. On the other hand, NAFTA implementing legislation states that the President may proclaim modifications to certain rules of origin and tariffs under certain circumstances and subject to Congressional consultation and lay-over provisions. Some policy experts contend that maintaining an open trade relationship with NAFTA parties helps promote cooperation and has a positive impact on the economy and overall relations. Labor groups and some consumeradvocacy groups argue that NAFTA needs to be reconsidered because of possible job losses, negative effect on U.S. wages, poor working conditions in Mexico, and the perception that it weakens U.S. regulatory protections. For more information see, CRS Report R44981, NAFTA Renegotiation and Modernization, by M. Angeles Villarreal and Ian F. Fergusson, CRS In Focus IF10038, Trade Promotion Authority (TPA), by Ian F. Fergusson and CRS In Focus IF10000, TPP: Overview and Current Status, by Brock R. Williams and Ian F. Fergusson. M. Angeles Villarreal, Specialist in International Trade and Finance IF10047 North American Free Trade Agreement (NAFTA) https://crsreports.congress.gov | IF10047 VERSION 13 UPDATED Disclaimer This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has been provided by CRS to Members of Congress in connection with CRS's institutional role. CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you wish to copy or otherwise use copyrighted material.

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