The Scope and Limits of a Public–Private Hybrid: Dispute Settlement under NAFTA Chapter 19

Globalisation is often depicted as having led to an increase in private authority at the expense of that of the state. It is important to correctly specify the scope that private authority has achieved and the capacity of states to push back and limit that authority. This article grounds these theoretical issues in a discussion of the hybrid, public–private dispute settlement mechanism set up in the original Canada–US Free Trade Agreement (CUSTFA), and later extended into Chapter 19 of the North American Free Trade Agreement (NAFTA). It finds that privatising the enforcement process did make a difference. Trade experts on panels saw things differently to judges and in ways that were more sympathetic to exporters. This favoured Canadian and Mexican interests. However, the arrangement lacked deep roots. It was a late-stage compromise in trade negotiations. This rendered it vulnerable to a US counterattack once panels began to rule in favour of Canadian and Mexican challenges to US trade determinations. The transfer of quasi-judicial authority to a public–private hybrid proved contingent, partly on the hegemonic state's ongoing level of comfort with the arrangement, as well as on a lack of business consensus within the United States.     

TRADE CREATION AND DIVERSION EFFECTS OF THE U.S.-CANADIAN FREE TRADE AGREEMENT

This study empirically estimates and evaluates the economic benefits of the U.S. and Canadian Free Trade Agreement (FTA). Most past studies rely on aggregate data. The analysis here emphasizes the trade effects of removing tariff and nontariff barriers on each commodity group classified by the Standard International Trade Classification. Estimating the amount of trade expansion under FTA for both countries involves using the import demand elasticities from a dynamic demand model. Results show that U.S. imports from Canada are more sensitive to domestic, import, and world prices than are Canadian imports from the United States. U.S. imports from Canada would increase roughly £3.257 billion compared to the £2.432 billion increase for Canadian imports from the United States .     

What have the FTA and the NAFTA done to the Canadian labor market?

A central concern with respect to globalization is its effects on institutions. Institutions are thought to provide protections against the casual damage inflicted by market processes and, in various ways, to contribute toward aggregate economic efficiency. The effects of the Canada-United States Free Trade Agreement and the North American Free Trade Agreement on the Canadian labor market and its institutions provide a useful case study of the effects of globalization because Canadian trade is so heavily concentrated with the United States. In this paper I show that, while the agreements imposed considerable costs on employees in some manufacturing industries, overall, Canadian institutions have not been substantially changed by the agreements. Where those institutions have changed, other factors have been much more important.     

Trade and Global Income Inequality with Frictional Labor Markets: A Lesson from the Canada–US Free Trade Agreement

This paper develops a two-country trade model with frictional labor market structures to investigate the link between increased openness to trade and cross-country income inequality. Calibrated to US–Canadian data, the model simulation results show that the Canada–US Free Trade Agreement benefited Canada, the country with relatively higher capital intensity, more due to its capacity to flexibly expand in response to an increase in product demand. The results from counterfactual experiments indicate that increased capital intensity in the US is expected to increase gains from trade in both countries while making the distribution of gains less unequal.     

The effect of the Canada‐US Free Trade Agreement on Canadian multilateral trade liberalization

In this paper show that the Canada‐US Free Trade Agreement (CUSFTA) tariff preferences have triggered a decline in Canadian external tariffs, explaining a two percentage point reduction in the average tariff between 1989 and 1998. Next, we found that industries that generate the least export rent to the US firms experienced deeper tariff cuts in Canada; this result provides evidence of cooperation in trade policies between the US and Canada. Finally, we estimate the effect of the CUSFTA on the intensity of industrial lobbying for trade policy in Canada and find no relationship between preferential trade liberalization and lobbying activity.     

Trade and development policy in Mexico in the context of North American economic relations

This paper examines Mexico's trade and development policies and analyzes how these policies complement or conflict with those of the other North American nations. Looking closely at the periods 1950–1973 and 1973–1975, the authors explain how Mexico's development policies have marred or enhanced its ability to interact with the United States and Canada. They then show how the Mexico's history and strengths make it a strong candidate for partnership with Canada and the United States in a new North American Free Trade Agreement, a multilateral arrangement that will be important for continued economic prosperity in the North American region.     

NORTH AMERICAN FREE TRADE AGREEMENT BILATERAL TRADE EFFECTS

This study evaluates the effects of the North American Free Trade Agreement (NAFTA) on bilateral trade between the United States and Canada and between the United States and Mexico. Trade flow estimates are from a vector autoregression (VAR) model. The VAR methodology allows modeling bilateral trade in a flexible manner that incorporates both the interaction between different variables and the dynamics of trade, output, prices, and the exchange rate. After testing the outside sample forecasting ability of the models, the study produces dynamic forecasts of bilateral trade. It then compares forecasts incorporating the effects of the NAFTA with baseline forecasts. The results suggest expanded trade for all three countries and an improvement in the U.S. trade position with both Canada and Mexico.     

Border Enforcement and Selection of Mexican Immigrants in the United States

Abstract

Since 1986, the United States has made considerable efforts to curb undocumented immigration across the US–Mexico border, resulting in an increase in migration costs for undocumented immigrants from Mexico and placing a particularly heavy burden on undocumented immigrant women. Using data from the 1990, 2000 Decennial Census and the 2006–8 American Community Survey, this study finds three effects of rising migration costs for immigrants from Mexico: (1) A decrease in the relative flow of older and highly educated undocumented immigrant women relative to men; (2) An increase in the skill composition of immigrant women relative to men; and (3) An increase, due to stronger positive selection, in the average earnings of those groups most affected by increased migration costs, particularly women. This research has important implications in light of the barriers and increasing dangers that women across the globe may face when migrating.     

INTERNATIONAL COMPARISONS OF EARNINGS INEQUALITY FOR MEN IN THE 1980s

In this paper we present a comparative analysis of earnings inequality during the 1980s among prime age men who headed households and worked year-round, full-time from five industrialized countries-Canada, Sweden, Australia, West Germany, and the United States. The data were obtained from the Luxembourg Income Study (LIS) database, a multinational collection of microdata sets from various countries which have been assembled for the primary purpose of making cross-national comparisons of economic and social well-being. The results of the comparison indicated that during the mid-1980s, the United States had the most unequal distribution of earnings and Sweden the least unequal. Between the early 1980s and mid-1980s, however, the earnings distributions in all five countries showed evidence of becoming more unequal, especially in the United States, Canada, and Sweden.     

The Canada U.S. free trade agreement: Competitive tradeoffs between foreign direct investment and trade

This paper assesses the impact of the Canada U.S. Free Trade Agreement on exports and foreign direct investment of processed foods. Results indicate that U.S. exports to Canada more than doubled, while Canadian exports to the U.S. nearly doubled after the implementation of the Canada U.S. Free Trade Agreement in 1989. Regression results of the covariance model on panel data show that U.S. and Canadian food processing firms appear to use both exports and foreign direct investments as complementary market access strategies. This research was supported by a grant from the Canadian Embassy. In addition, the authors thank Carolyn Dimitri of the University of Maryland for helpful comments.     

BILATERAL TRADE RELATIONSHIP BETWEEN THE UNITED STATES AND CANADA: IMPLICATIONS OF THE FREE TRADE AGREEMENT

This study's primary objective is to evaluate empirically the economic effects of the U.S.-Canada Free Trade Agreement (FTA). The paper emphasizes bilateral trade flows of agricultural and industrial products between the United States and Canada, given that the FTA removes tariff and non-tariff barriers. It evaluates the FTA's impact on the two countries' trade with third countries. The paper specifies a traditional log-linear trade model consisting of import demand and export supply equations for both agricultural and industrial products. It uses quarterly time-series U.S. and Canadian trade data for 1972–1985.
The study uses the two-stage least-squares estimator to estimate the models. The models had R coefficients ranging from 0.78 to 0.99, indicating that the models' explanatory variables explain most causes of variations in the dependent variable. This study reveals that U.S. imports of agricultural and industrial products from Canada were more sensitive than were Canadian imports not only to import and domestic prices but also to world prices. This is because Canadian consumers have less domestic substitutes than do their U.S. counterparts. Also, Canada has a smaller internal market than does the United States. The study estimates that U.S. imports from Canada will increase $2.8 billion while Canadian imports from the United States will increase $1.2 billion. The impact on the two countries' trade with third-party countries will be insignificant.     

US Trade Policy in the Trump Administration

President Donald Trump has emphasized three recurring themes regarding trade policy: the importance of trade balances, including bilateral trade balances, currency manipulation to gain unfair advantage in trade, and “disastrous” trade agreements. Asia figures prominently in these concerns. Trump withdrew the United States from the Trans‐Pacific Partnership, is increasing contingent or process protection, demanding the renegotiation under duress of the North American Free Trade Agreement and the Korea‐United States Free Trade Agreement. These policies are modeled quantitatively and results generated for sectoral output and employment at the state and metropolitan area level.     

The macroeconomic impact of NAFTA termination

US President Trump has threatened to leave the North American Free Trade Agreement. How much would each member country gain or lose if this threat were carried out? Would trade imbalances within the region diminish? What would the transition to new production and consumption patterns look like? I provide quantitative answers to these questions using a dynamic general equilibrium model with a multi-sector input–output production structure, heterogeneous firms that make forward-looking export participation decisions, and adjustment frictions in trade and factor markets. Regional trade flows would fall dramatically, and while the US trade deficit with Canada would decline, the deficit with Mexico would grow. Welfare would fall by 0.04%, 0.12%, and 0.2% in the United States, Canada, and Mexico, respectively, and transition dynamics would significantly affect welfare in both the short run and the long run.     

Is the new immigration less skilled than the old?

This paper analyzes trends in the skills of immigrants to the US in the post-World War II period. Changes in the supply, demand, and institutional factors determining immigration are analyzed for their implications for immigrant skills. During the past 4 decades immigration has shifted from being predominantly European and Canadian in origin to being predominantly Asian and Latin American, and there have been changes in the criteria for rationing immigration visas. Immigrant skills can be analyzed within the context of a model of the supply of immigrants and the US demand for immigrants. Of the Asian immigrants subject to numerical limitation, the proportion who were occupational preference principals declined from 18.2% in 1970, to 11.9% in 1975, to 8.1% in 1981. A growing stock of the foreign-born population who are illegal aliens may lower immigrant quality; for low-skilled workers in neighboring low-income countries the economic incentives for illegal migration are very large. Immigrants from the UK have the highest annual earnings, with Canadian, other European, South Asian, East Asian, and other American immigrants having successively lower earnings. The Mexicans and the Vietnamese have the lowest earnings. Over the period 1950 to 1980, US immigration changed from primarily drawing immigrants from countries whose nationals have high relative earnings in the US primarily drawing immigrants from countries whose nationals do less well. Recent immigrants are less favorably selected on the basis of their level of schooling. The analysis of the relative earnings of immigrants during the 1970s using 3 data files shows there has been little change for white immigrants, an ambiguous pattern for Mexican immgrants, perhaps a small decline for Cuban immigrants, and a small rise for Asian immigrants. Overall, without returning to rationing by country of origin, public policy could raise immigrant skill levels by changing the balance between kinship and the individual's skills in the rationing of visas.     

Trade and inequality in a directed search model with firm and worker heterogeneity

This paper integrates the insight that exporting firms are typically more productive and employ higher‐skilled workers into a directed search model of the labour market. The model generates a skill premium as well as residual wage inequality among identical workers. A trade liberalization increases the skill premium and likely increases residual inequality among high‐skilled workers. The calibrated model generates results consistent with the prior literature examining the effect of the Canada‐US Free Trade Agreement on the Canadian labour market: a significant decrease in employment in manufacturing, but only a small change in unemployment and wages.     

Skill transferability and the earnings of immigrants

Using data on immigrants from the Canadian Census, we compare immigrants who received a bachelor's degree from a Canadian university to immigrants who receive a bachelor's degree in their home country, in order to investigate the returns to skills acquired in Canada versus skills acquired abroad. Our measure of skill is based on postsecondary fields of study linked to the O*NET matrix of skills and competencies. We find that immigrants educated in Canada receive higher returns to their communication skills than those educated abroad. To a lesser degree, they also receive higher returns to their logical and technical skills. These gaps in skill returns explain the entirety of Canadian-educated immigrant's 10% earnings advantage. Our results are robust to controlling for the quality of universities in the immigrant's country of study and for occupation and industry choice. The gaps are stable across time and across quantiles of the immigrant earnings distribution.     

The evolution of job stability in Canada: trends and comparisons with U.S. results

Abstract.  Using data from the 1976–2001 Canadian Labour Force Survey, we examine the stability of currently held jobs and find no period‐long drop in job stability. However, job stability declined across the 1980s and rose across the 1990s for workers with less than one year of tenure. When 1987 and 1995 are compared, it can be seen that job stability was steady in Canada but fell slightly in the United States, with the difference concentrated among medium tenured workers. We suggest that this difference was due to a slower recovery in Canada in the 1990s, which caused Canadian workers to be less mobile. JEL classification: J63     

The incidence of income taxes on high earners in Canada

This article explores the “brain drain” explanation for the concentration of incomes in Canada during the past 30 years, namely, that high-skilled Canadians make use of high salaries on offer in the United States to extract higher salaries at home. If this is the case, then for a given level of US salaries, the threat to accept outside offers should be more credible when the Canadian dollar is depreciating against the US dollar, and weaker when the Canadian dollar is appreciating. The data are broadly consistent with this claim: income concentration worsened during the depreciations of the 1980s and 1990s, and eased when the Canadian dollar began to appreciate in value. The article develops a simple two-parameter model based on the propositions that high earners in Canada can use US salaries to bargain for higher salaries, and that Canadian high earners can shelter part of their income from personal income taxes. It also offers some preliminary evidence about the parameter values consistent with available data. The results suggest that higher top marginal personal income tax rates may potentially accentuate top-end after-tax income inequality. If high earners are able to use their bargaining power to extract pay increases to offset higher tax rates, then the burden of increased personal income taxes will be deflected elsewhere, and may even have the perverse effect of making the after-tax income distribution more unequal than it was before.     

Technological change,occupational tasks and declining immigrant outcomes: Implications for earnings and income inequality in Canada

The earnings and occupational task requirements of immigrants to Canada are analyzed. The growing education levels of immigrants in the 1990s have not led to a large improvement in earnings as one might expect if growing computerization and the resulting technological change was leading to a rising return to non‐routine cognitive skills and a greater wage return to university education. Controlling for education, we find a pronounced cross‐arrival cohort decline in earnings that coincided with cross‐cohort declines in cognitive occupational task requirements and cross‐cohort increases in manual occupational task requirements. The immigrant earnings outcomes had only a small effect on overall Canadian earnings inequality.     

North America: A case for economic integration

The recent protectionist trend in trade policy in the United States and other OECD countries is making it more difficult for debtor countries, such as Mexico, to meet their external obligations. In contrast, Mexico and most other debtor nations have adopted more liberal trade policies in recent years. The success of the United States-Canada Free Trade Agreement will expand trading opportunities in the North American economies; however, Mexico is expected to encounter difficulties in competing in this market because of the barriers to trade and investment flows that have existed in the past. This paper discusses the potential impact of a North American Free Trade Agreement on the Mexican economy and the prospects for such an agreement in the current political economy.