International Trade and America's Place in the Global Economy - Nafta

The United States, Canada, and Mexico implemented the North American Free Trade Agreement (NAFTA) on January 1, 1994. Agricultural products were an integral part of NAFTA. A primary objective of NAFTA has been the complete elimination of barriers to trade among the three signing countries. Many tariffs were dropped immediately; others have been or are being phased out. All agricultural provisions are to be implemented by 2008. As Figure 3.2 illustrates, agricultural exports to NAFTA partners have grown faster than exports to the rest of the world. At the same time, agricultural imports from NAFTA partners also grew. (See Figure 3.3.)

Figure 3.4 shows that agricultural trade among the NAFTA countries has grown faster than NAFTA partners' trade with the rest of the world. Two-way agricultural trade between the United States and Mexico increased by more than 70% between 1994 and 2002, when it reached $12.7 billion. Two-way agricultural trade between the

TABLE 3.1

Trade in goods, 2001–03
[Balance of payments basis, millions of dollars, quarters seasonally adjusted]
	Current dollars
				2003
	2001	2002	2003p	Ir	IIr	IIIr	IVp
rRevised.
pPreliminary.
n.e.c. Not elsewhere classified.
Note: Because chain indices use weights of more than one period, the corresponding chained dollar estimates are usually not additive.
SOURCE: Adapted from "Table D. U.S. Trade in Goods, Current and Chained (2000) Dollars," in U.S. International Transactions, 2003, Bureau of Economic Analysis, U.S. Department of Commerce, April 2004, http://www.bea.gov/bea/ARTICLES/2004/04April/0404ITA.pdf (accessed January 4, 2005)
Exports	718,712	681,874	713,761	173,385	174,287	177,777	188,312
Agricultural products	54,889	54,513	60,961	14,435	14,578	15,364	16,584
Nonagricultural products	663,823	627,361	652,800	158,950	159,709	162,413	171,728
Foods, feeds, and beverages	49,408	49,615	55,078	13,282	13,205	13,640	14,951
Industrial supplies and materials	160,199	156,896	172,980	42,474	42,945	42,918	44,643
Capital goods, except automotive	321,724	290,495	293,044	70,627	70,363	73,266	78,788
Automotive vehicles, parts, and engines	75,435	78,943	80,135	19,959	19,950	19,676	20,550
Consumer goods (nonfood), except automotive	88,331	84,359	89,899	21,607	22,023	22,705	23,564
Exports, n.e.c.	23,615	21,566	22,625	5,436	5,801	5,572	5,816
Imports	1,145,927	1,164,746	1,263,170	309,328	312,299	314,025	327,518
Petroleum and products	103,588	103,491	133,305	33,969	32,613	34,266	32,457
Nonpetroleum products	1,042,339	1,061,255	1,129,865	275,359	279,686	279,759	295,061
Foods, feeds, and beverages	46,641	49,687	55,817	13,581	13,745	13,908	14,583
Industrial supplies and materials	276,115	268,074	317,093	79,271	77,833	80,667	79,322
Capital goods, except automotive	297,993	283,322	295,653	70,896	72,937	73,796	78,024
Automotive vehicles, parts, and engines	189,781	203,744	210,148	51,126	52,884	50,933	55,205
Consumer goods (nonfood), except automotive	284,485	307,986	333,879	82,000	82,238	82,199	87,442
Imports, n.e.c., and U.S. goods returned	50,912	51,933	50,580	12,454	12,662	12,522	12,942

United States and Canada grew by more than 75% over the same period, reaching more than $19 billion in 2002.

NAFTA has had a positive effect on the marketability of goods among the participating nations. Efficient production of goods in one country that are exported to another keeps pricing fair and competitive as nations produce and export the goods for which they already have the natural resources and the best pools of employee talent.

However, there has been concern that importing goods from other countries could cause the loss of jobs in the United States. In 1993 advocates of NAFTA argued that when U.S. businesses and industries prosper because they are producing efficiently and cost-effectively, U.S. companies would stay in business and keep Americans employed. At the same time, individuals affected by the transfer of jobs to countries with lower labor costs, such as Mexico, can find it difficult to find jobs that pay as well as the lost positions. In "The High Price of 'Free' Trade" (November 17, 2003), Robert E. Scott of the Economic Policy Institute estimated that by 2002 approximately 879,000 U.S. jobs—mostly high-paying manufacturing industry positions—were displaced as a result of NAFTA's removal of trade barriers. Workers displaced due to NAFTA were eligible for the NAFTA-Transitional Adjustment Assistance program, administered by the Department of Labor Employee & Training Assistance Program, which offered "rapid and early response to the threat of unemployment and the opportunity to receive reemployment assistance, including job search assistance, retraining and income support while in training, to enhance and ease the transition to a new job." The ETA estimated in November 2004 that 525,407 workers had been covered by the program between 1994 and 2003. Because of the impact on employment, free trade agreements such as NAFTA remain controversial.

The European Union

In 1957 six European countries signed the Treaty of Rome, establishing the European Economic Community (EEC). In 1992 the Maastrict Treaty was signed, officially establishing the European Union (EU). After centuries of war, leaders of European countries hoped that by engaging in commerce they could create long-term stability and enforce the rule of law in cooperative democratic societies. The EU, one of the most important trading partners of the United States, expanded in 2004 from fifteen nations to twenty-five—twelve with a common currency—with a population of 462 million consumers, creating the largest trading bloc in history. As of March 2005, the EU included Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, The Netherlands, and United Kingdom. Candidate countries included Bulgaria, Croatia, Romania, and Turkey.

TABLE 3.2

International trade balance, 1960–2003
	Total	Goods	Services
Notes:
(1) Compiled from official statistics of the U.S. Department of Commerce, Bureau of Economic Analysis. Data reflect revisions through 6/14/2004.
(2) Balance of Payments (BOP) basis for goods reflects adjustments for timing, coverage, and valuation to the data compiled by the Census Bureau. The major adjustments concern: military trade of U.S. defense agencies, additional nonmonetary gold transactions and inland freight in Canada and Mexico.
(3) Goods valuation are F.a.s. for exports and customs value for imports.
SOURCE: Adapted from "Table 1. U.S. International Trade in Goods and Services Balance of Payments (BOP) Basis, 1960–2003," in Foreign Trade Highlights, U.S. Department of Commerce, Bureau of Economic Analysis, August 6, 2004, http://www.ita.doc.gov/td/industry/otea/usfth/aggregate/H03t01.html (accessed January 4, 2005)
1960	3.5	4.9	−1.4
1961	4.2	5.6	−1.4
1962	3.4	4.5	−1.2
1963	4.2	5.2	−1
1964	6	6.8	−0.8
1965	4.7	5	−0.3
1966	2.9	3.8	−0.9
1967	2.6	3.8	−1.2
1968	0.2	0.6	−0.4
1969	0.1	0.6	−0.5
1970	2.3	2.6	−0.3
1971	−1.3	−2.3	1
1972	−5.4	−6.4	1
1973	1.9	0.9	1
1974	−4.3	−5.5	1.2
1975	12.4	8.9	3.5
1976	−6.1	−9.5	3.4
1977	−27.2	−31.1	3.8
1978	−29.8	−33.9	4.2
1979	−24.6	−27.6	3
1980	−19.4	−25.5	6.1
1981	−16.2	−28	11.9
1982	−24.2	−36.5	12.3
1983	−57.8	−67.1	9.3
1984	−109.2	−112.5	3.3
1985	−122.1	−122.2	0.1
1986	−140.6	−145.1	4.5
1987	−153.3	−159.6	6.2
1988	−115.9	−127	11.1
1989	−92.2	−115.2	23
1990	−81.1	−109	27.9
1991	−30.7	−73.8	43.1
1992	−38.2	−96.9	58.7
1993	−69.2	−132.5	63.3
1994	−97.2	−165.8	68.6
1995	−95.1	−174.2	79.1
1996	−102.9	−191	88.1
1997	−107	−198.1	91.1
1998	−163.2	−246.7	83.5
1999	−261.2	−346.0	84.8
2000	−375.4	−452.4	77
2001	−362.7	−427.2	64.5
2002	−421.7	−482.9	61.2
2003	−496.5	−547.6	51

GATT and the World Trade Organization

One of the most important trade agreements is the General Agreement on Tariffs and Trade (GATT), which was first signed by the United States and twenty-two other countries in 1947. This agreement dealt primarily with industrial products and marked a trend toward the increasing globalization of the world economy. The agreement reduced tariffs, removed other obstacles to international trade, and clarified rules surrounding barriers to free trade. Agriculture was for the most part kept out of the initial negotiations. By the end of the 1980s more than one hundred countries had ratified the GATT. A series of GATT negotiations that concluded in 1994 created the World Trade Organization (WTO), which replaced GATT and now functions as the principal international body charged with administering rules for trade among member countries. The new agreements covered a range of topics, including agriculture, food safety, animal and plant health regulations, technical standards (testing and certification), import licensing procedures, trade in services, intellectual property rights (including trade in counterfeit goods), as well as rules and procedures for settling disputes. As of October 2004, the WTO consisted of 148 member countries.