NAFTA is the North American Free Trade Agreement an enacted by Congress 14 years ago, held out an alluring promise: the agreement would reduce illegal immigration from Mexico . Mexicans, the argument went, would enjoy the prosperity and employment that the trade agreement would undoubtedly generate — and not feel the need to cross the border into the United States.
Why didn’t Nafta curb this immigration? The answer is complicated, of course. But a major factor lies in the assumptions made in drafting the trade agreement, assumptions about the way governments would behave (that is, rationally) and the way markets would respond (rationally, as well).
Nafta remains the model for trade agreements with developing Latin countries, including the Central American Free Trade Agreement, passed by Congress in 2005. Three more Nafta-like agreements are now pending in Congress — with Panama, Columbia and Peru. When Nafta finally became a reality, on Jan. 1, 1994, American investment flooded into Mexico, mostly to finance factories that manufacture automobiles, appliances, TV sets, apparel and the like. The expectation was that the Mexican government would do its part by investing billions of dollars in roads, schooling, sanitation, housing and other needs to accommodate the new factories as they spread through the country.
It was more than an expectation. Many Mexican officials in the government of President Carlos assured the Clinton administration that the investment would take place, and believed it themselves, said Gary Hufbauer, a senior fellow at the Peter G. Peterson Institute for International Economics in Washington who campaigned for Nafta in the early 1990s.
Meanwhile, Mexican manufacturers, once protected by tariffs on a host of products, were driven out of business as less expensive, higher quality merchandise flowed into the country. Later, China, with its even-cheaper labour, added to the pressure,