Economic Interests and Regional Trading Arrangements: The Case of NAFTA

Abstract

This article examines lobbying in the United States on the North American Free Trade Agreement (NAFTA). I argue that economies of scale and production sharing across borders create incentives for firms to seek regional trade liberalization. Statistical analysis demonstrates that sectors with these characteristics were more likely to lobby for free trade in North America; these sectors were also exposed to free trade more rapidly under the tariff-phasing schedule in the NAFTA treaty. However, corporate restructuring to rescale production for the regional market and to increase offshore assembly presented adjustment costs for U.S. workers, which created divisions between labor unions and their employers. I conclude that regional arrangements are an attractive mechanism to liberalize trade for firms in need of larger-than-national markets to take advantage of economies of scale or to develop production-sharing networks.