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Forming a free-trade agreement with the United States provided Canadian producers a danger and an opportunity. the danger was that U.S. producers might be more price competitive than Canadian producers; the opportunity was that longer production runs for Canadian producers, made possible by a free-trade agreement, would result in cost reductions due to economies of scale.
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Some trade creation was expected to occur as a result of the U.S.-Canada free-trade agreement, since Canadian exports to the United States and U.S. exports to Canada were expected to expand at the expense of imports from Germany and Japan that faced trade restrictions.
Negotiating the North American Free Trade Agreement was relatively easy since it involved meshing two large industrial countries with a developing country.
Critics of the North American Free Trade Agreement maintained that it would result in manufacturing firms fleeing Mexico's stringent pollution-control policies and relocating in the United States and Canada.
U.S. labor unions argued against the North American Free Trade Agreement on the grounds that it would result in U.S. companies relocating in Mexico in qrder to take advantage of lower wage rates.
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