In contrast, estimates of the agreement’s impact on aggregate employment are widely divergent. Recent Studies of NAFTA’s Economic Impact

Mr. Chairman, let me now summarize the findings from three major reports on NAFTA’s impact: (1) the in-depth June 1997 ITC study of NAFTA;(2) the President’s July 1997 report on the operations and effect of NAFTA;and (3) a June 1997 study by some of the major critics of NAFTA. Because of the intense interest in NAFTA’s impact on U.S. labor and the difficulty in calculating such impact, analysts have used NAFTA-TAA data as a proxy for job dislocations attributable to NAFTA. In addition, NAFTA certifications represent potential job losses, not the actual number of jobs lost. While NAFTA-TAA is fully operational, little evaluation has been done of how effectively the program serves to provide retraining and adjustment assistance to affected workers. Comments on Methodology

It is very difficult to evaluate the impact of NAFTA since the agreement’s provisions are generally being phased in over a 10- to 15-year period, and it is hard to isolate the impact of the agreement from contemporaneous economic trends and other unique events. While recent studies offer valuable insights into the initial effects of NAFTA, in reviewing the studies we encountered methodological issues that need to be kept in perspective. While separating the crisis’ impact from that of NAFTA has merit, events in Mexico leading to the financial crisis and the response to the crisis are intertwined with NAFTA. Mechanisms for Avoiding and Settling Disputes

NAFTA contains mechanisms to help avoid trade disputes and settle them effectively when they do arise. U.S., Mexican, and Canadian private sector and government officials with whom we spoke were generally supportive of NAFTA’s dispute settlement process over the past 3 years. Implementation Progress

According to U.S., Mexican, and Canadian government officials, changes in NAFTA member countries’ trade laws precipitated by the agreement have increased the level of transparency in countries’ trade remedy determinations, particularly in Mexico. After 3-1/2 years of implementation, it is too early to say what definitive effect these side agreements will have on the environment and labor. However, implementation issues involving the focus of the commission’s cooperative work programs, transparency of the enforcement mechanisms, and the governments’ commitment to the agreement remain. Similar reactions were also expressed by some other environmental experts reviewing implementation of the environmental agreement. This includes a dispute settlement mechanism to address lack of enforcement by a party of certain labor law standards. The funding limitations are causing concern on the part of some observers that the commission does not have adequate resources to meet its obligations. International Trade: Implementation of the U.S.-Canada Free Trade Agreement (GAO/GGD-93-21, Oct. 10, 1992).
Why GAO Did This Study

GAO discussed the impact and implementation of the North American Free Trade Agreement (NAFTA), focusing on: (1) its review of three major studies of NAFTA's economic impacts and a brief overview of NAFTA's adjustment programs; (2) the implementation of NAFTA's mechanisms to both avoid and resolve disputes among the parties; and (3) the implementation of NAFTA's supplemental agreements on environmental and labor cooperation.

What GAO Found

GAO noted that: (1) it is difficult to evaluate the impacts of NAFTA since the agreement's provisions are generally being phased in over a 10-15 year period, and it is hard to isolate the impact of the agreement from other trends and events; (2) while recent studies by the International Trade Commission, the President, and the Economic Policy Institute offer valuable insights into the initial effects of NAFTA, in reviewing the studies GAO encountered methodological issues that need to be kept in perspective; (3) based on GAO's review of these studies and other work: (a) while NAFTA is not yet fully implemented, U.S. trade with NAFTA members has accelerated; (b) at the sectoral level, there are diverse impacts from NAFTA; (c) estimates of the agreement's impact on aggregate employment are widely divergent, ranging from gains of 160,000 jobs to losses of 420,000 jobs, but GAO believes that neither of these are reliable estimates of actual labor effects due to methodological limitations; and (d) while there is wide conceptual agreement on the contribution of trade liberalization to improvement in the standard of living through increased productivity and lower prices, estimating the extent to which NAFTA specifically furthers these goals presents a major empirical challenge that may never be overcome; (4) Mexico's response to its financial crisis of 1994-95 and the recent agreement to accelerate tariff reductions suggest that Mexico has been committed to meeting its NAFTA obligations; (5) while data on the use of the NAFTA Transitional Adjustment Assistance Program (NAFTA TAA) provides sectoral and geographic information on potential job dislocations, NAFTA-TAA certifications should not be used as a proxy for the number of jobs lost; (6) NAFTA's system for avoiding and settling disputes among the member countries is a critical element of the agreement; (7) according to government and private sector officials, these mechanisms have helped the governments resolve important trade issues and have kept the number of formal dispute settlement cases relatively low; (8) U.S., Mexican, and Canadian government officials with whom GAO met were generally supportive of NAFTA's dispute settlement process over the past 3 years, noting especially the professionalism and lack of national bias of the panelists reviewing the cases; (9) it is too early to determine what definitive effect the supplemental agreements will have on the North American environment and labor; and (10) U.S., Canadian, and Mexican government officials have also expressed some concerns about the agreements' implementation.