The North American Free Trade Agreement (NAFTA) is a trade agreement between the

Question

The North American Free Trade Agreement (NAFTA) is a trade agreement between the United States, Canada, and Mexico whose purpose is to eliminate tariffs between the countries and promote all aspects of international trade. There are many arguments for and against the treaty. One of the arguments against centers on the fact that Mexican industries do not have to meet the same environmental regulations as industries in the United States and Canada. The U.S. and Canada have intervened in the marketplace and tried to internalize some of the costs of pollution by placing regulations on the amount of pollutants that industries can emit. Opponents of NAFTA point out that pollution is largely a free good in Mexico, and that being free to pollute gives industries in Mexico an economic advantage over those in the U.S. and Canada. Is there anything in what we have studied, particularly in Chapter 14, that can point us towards an equitable solution to this problem while still protecting the environment we all share? What is that solution?

Explanation / Answer

Is the Mexican environment worsening because Mexico is serving as a pollution haven for highly polluting industries in the United States? A number of studies analyze the extent to which economic activity in pollution-intensive industries expanded in Mexico before and after NAFTA. One would expect that the amount of pollutionintensive industry would decrease in the United States and increase in Mexico. What was found, however, was that the amount of dirty industry decreased more in Mexico than in the United States. The reason why there is little evidence for pollution havens in developing countries is that the economic costs of environmental regulation and compliance are relatively small compared to other factors of production

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