The North American Free Trade Agreement Essay

 

Introduction

The international trade has led to the development of economic integration. It is characterized by the removal of barriers for the movement of goods and factors. The international trading environment includes the trade policies, trade agreements and trade barriers, etc. NAFTA is considered as the extension of the earlier Free Trade Agreement between Canada and the U.S. in 1988. Under international law, it forms the part of a treaty where as in the United States law, it is considered as an agreement of congressional-executive (Bergstrand 1989.).

The North American Free Trade Agreement (NAFTA) was launched by Canada, the United States and Mexico in January 1994. It forms the world’s main free trade area. In all three countries, this Agreement has successfully brought rising standards and economic growth for the people. In addition to this, NAFTA is recognized as a well-built foundation for the future growth (Arndt ; Alex 2001).

Logic behind the formation of the NAFTA is that it can remove the bulk of trade tax on those products that are traded amongst Canada, the United States and Mexico. Apart from this, Restrictions on many categories such as, computers, motor vehicles, textiles, and agriculture were supposed to be removed. This treaty plays an important role in protecting the intellectual property rights that include copyrights, patents and trademarks and also removes the restrictions on investment among these three countries. Therefore, this treaty is regarded trilateral in nature. Except in the area of agriculture, the terms extend uniformly to all countries. Further, in 1992, as a consequence of signing of supplemental agreements the Provision related to the worker and environmental protection were also added (Burfisher, Sherman ; Karen 2001).

Doubts were related to the impact of NAFTA on the issue of employment in the US. The American companies will be benefited by the shifting of production unit to Mexico; this is because of the availability of cheap labor as compared to the United States. Finally, it was found that the NAFTA will promote the free movement of American capital to the Mexico.

Effects of NAFTA:

The NAFTA has both the positive and the negative effects. NAFTA has brought some positive results for Mexico. These positives results include the fall in the rate of poverty, rise in the income level even after the economic crisis of the 1994–1995. In all the three countries, it has contributed to the business owners and elite leaders.

On the other hand, it has negative consequences on the farmers of Mexico. This was because of the drop in the food price due to cheaper import from the agribusiness of the US and it also had negative consequences on the workers of the US as they lost their job in manufacturing and assembly industries. Apart from this, NAFTA has contributed to the increase in the intensity of inequality in U.S. and Mexico. According to few economists, NAFTA has not been capable of producing an economic junction and also it doesn’t reduce the poverty rates substantially. Some have suggested that in order to be fully benefited from the agreement, Mexico must invest more in education and promote innovation in infrastructure and agriculture. NAFTA has promised that huge investment would come to Mexico but Mexico has provided cheap labor, lots of taxes breaks, low social security payments, and fewer environmental regulations. The companies in Mexico do not allow their workers to form unions (Mexican NAFTA Experience Raises Questions for Free Trade, 2008).

The experience in Mexico illustrates that there would be a very bad impact on people after NAFTA. NAFTA had clearly reinforced the incentives for the foreign direct investment in Mexico (Mexican NAFTA Experience Raises Questions for Free Trade, 2008). The world trade organization has reported that the investment liberalization has served as a channel for development of Mexico but additional reforms are also essential.

NAFTA’s influence over the Trade, Industry and Agriculture are follows:

On trade:

NAFTA did not lead to the diversion of trade, except from the few industries i.e. apparel and textiles; in this, the rules were designed in such a manner that the firms of the U.S. preferred Mexican manufacturers. It was shown by the World Bank that NAFTA imports lead to the similar increase of non-NAFTA exports (Cherunilam 2005.).

On Industry:

Maquiladoras, which form the part of Mexican factories that take the imported raw materials and produces export goods, has become successful in trade of Mexico. The income of maquiladora reflected an increase of 15.5% in 1994 after the implementation of NAFTA. The Other sectors got the advantage through the free trade agreement and there was an increase in the exports share from non-border states in the previous five years. Non-border areas like Leon, Toluca, and Puebla were developed due to this process. Automobile industry was among the non-maquiladora industries that were benefited from NAFTA.

On Agriculture:

Within NAFTA, agriculture is the topic of controversy. Agriculture was not negotiated among the three nations. Rather, the three parties signed separate agreements. The agreement between the Canada-U.S. consists of the important restrictions and tariff quotas on the products of agriculture. Dispute has arisen in the agricultural agreement of Mexico-U.S. Mexico does not pay attention to the infrastructure required for competition that includes efficient highways and railroads. After NAFTA implementation, corn production in Mexico grew. Increase in the corn price because of the increase in the demand of ethanol may recover the situation of corn farmers.

Mobility of persons:

As per the Department of Homeland Security Yearbook, in fiscal year 2006, 74,098 foreign professionals comprising of 9,247 Mexicans and 64,633 Canadians were allowed in the United States under NAFTA for temporary employment.

As of December 1, 2006, Canadian authorities estimated that a total of 15,219 Mexican citizens and 24,830 US citizens were present as foreign workers in Canada, these numbers comprised of the entrants under the agreement of NAFTA and also all those who came under the requirements of the Canadian immigration law (Sharan 2007).

Extent of integration over integration over time

Different trade policies were pursued by these three countries. For instance, with 40 countries and more, in twelve agreements, Mexico has signed FTA. The thought of enhancing NAFTA was promoted by Vicente Fox, the Former President of Mexico and he called it NAFTA-Plus. But there was a sudden change in the priority of the United States after the attack in September 11, 2001. As a substitute of the unrelated and separated agreement, the security and prosperity partnership of North America was signed (Coughlin ; Howard 2001).

If the scope for agreement is given to the countries including the critical issues such as the environment regulation and liberalization of agriculture, less interest is shown by them in becoming a part of NAFTA. In its place, few countries, such as Chile, choose to negotiate three different bilateral agreements among the three members of NAFTA (Fukao, Toshihiro ; Robert 2003).
Controversies and Criticism

Many controversies are observed in the North American Free Trade Agreement. Some of the disputes are:

Dispute in Canada:

In Canada, it is believed that the government cannot limit the sale of anything in the future if that is sold as a commodity even once. There is some concern in Canada over the provision that if something is sold even once as a commodity, the government cannot restrict its trade in the future. It is applicable to the water from Canada’s rivers and lakes, leading to the fears over the probable damage of Canadian water supply and ecosystem.

Other fears came from the effects of NAFTA on lawmaking of Canada. The federal government of Canada barred the additive import. Under NAFTA, the Company of America brought a claim and argued that their additive is not associated to any dangers of health and the ban was causing damage to their company.

over the decision of the United States, The argument arouse between the Canada and United States for imposing a 27 percent duty of lumber imports on Canadian softwood, until Stephen Harper, new Prime Minister of Canada negotiated with the United States and achieved a resolution on July 1, 2006. Due to domestic resistance in Canada, the settlement was not ratified by either of country.

In order to eliminate the duty, Canada filed various motions. The United States after loosing a plea from NAFTA panel, countered by saying that they were not satisfied with NAFTA decision, but it had no effect on the countervailing duty orders and anti-dumping. It was realized on July 21, 2006 by the U.S. Court of International Trade that the duty imposition was opposing to law of the U.S.

Income trust taxation change was challenged by Canadian government

Under NAFTA, On October 30, 2007, two American citizens Elaine Gottlieb and Marvin put forward the Notice of Intent to offer a Claim to Arbitration. In the fall-out from the Conservative decision of Government, the claim of couple was that thousands of the US investors have misplaced $5 billion dollars last year.

When Canada imposes new measures under NAFTA, it is not permissible for Canada to focus other NAFTA citizens. Finance Minister of Canadian Federal, Jim Flaherty on record said that trusts on energy were included for the reason that they have high U.S. ownership. On the other hand, Trusts of Real Estate Investment are possessed by the Canadians. For Canada, NAFTA specified that it should pay reimbursement for hampering the investment by the U.S. investors. NAFTA also said that the U.S. investors are free to trust on the promises made by Canadian government. Repeated public promise was made by Harper that the Government is not liable to tax the trust as was by the earlier Liberal Government. The tax treaty of Canada with the U.S. explains that more than 15 percent trust income will not be taxed.

Effects on U.S. de industrialization

The enhancement in household manufacturing output and in manufacturing a proportional increase in the domestic investment should not be inked with the increase in the jobs of domestic manufacturing; rather it shows the superior automation and higher productivity.  Though the entire civilian employment rate in the U.S. has shown an increase of fifteen million from 1993 to 2001, yet the increment in the manufacturing jobs was about 476,000 in that period.

From 1994 to 2007, there was a decline in the overall manufacturing employment by 3,654,000, and this period marked the expansion of free trade agreements

Effects on Mexican farmers:

Government subsidies in the U.S in the sector of corn were about $10.6 billion in 2000. This reflected a figure, which is 10 times more than the agricultural budget of Mexico that year. Some studies discard NAFTA because they consider it as a force accountable for discouraging the incomes of deprived corn farmers. In 1994, as NAFTA went into effect, there was an increase in the production of maize. The Mexicans were in favor of the elimination of the U.S. agricultural subsidies as it brought benefits to the farmers of Mexican.

Business Integration

For the North American partnership, the past 4 years have proved to be quite difficult. Due to the war, it became difficult to reap the shared benefit among the three partners. As a result, the vast differences have arisen in the worldviews towards NAFTA.

Before dealing in a realistic talk of NAFTA plus, the three governments faced a collection of various challenges and difficulties. The first challenge was related to the relations of the United States with the world: In this situation, the three governments had to wait for normalization with its associates and for a subsequent change in the foreign policy agenda of the United States. The second challenge is the opinion of public about both the countries: Canada and Mexico. In order to get closer to the United States, both the countries must come to terms with a change. The third challenge is the economic inequality. All the three countries have significant economic inequalities and this would be considered as a challenge for all of these.

NAFTA has brought many win-win situations, but it has certain problems too. It has helped in achieving the business and market integration. Further, the business integration can be explained by taking bilateral alternative between Canada and Mexico. Huge cooperation emerged between the north and south of NAFTA. In the recent years, they have shown an enormous cooperation and progress. Tension also arises between them because of the conversation over the future of NAFTA with the Fox government. Problems were rising between both the countries. Particularly in United Nations, the agenda of foreign policy of these nations matched; this gave rise to the mutual understandings.

The noteworthy step towards the bilateral affair was the formation of the Canada-Mexico Partnership in October 2004. In both countries the major figure arrived from government and business for discussing the bilateral collaboration in wide areas. For housing and urban development 3 work groups were formed. Meanwhile the Canadian government subjected its IPS 2005 that satisfied its Mexican corresponding part extremely. Firstly, the statement laid the emphasis on the significance of North America as a main concern for Canada, in which the regions were defined under the trilateral terms. Secondly, the IPS considered Mexico as a significant country for Canada. It was not only within the region but also globally as an associate in international institutions. Apart from this, in September 2005, President Fox and PM Martin inaugurated the superior level of cooperation among the two countries.

In order to comprise the workers form other sectors, a small program conversation has begun. This would be an attracting and tempting program for the advocates, who play a bilateral relationship and have achieved their laurels. This would be a progressive and impressive period for them. Due to this, it is clear that at the national level, the present state of affairs is not stable and strong. It could be identified as a defenseless and weak position at the national level. It is concerned with the government of two countries and also with the changes in the United States. In both the countries, in 2006, there was a period of federal elections. As every coin has two sides, this situation also creates two aspects of the difficulties. The conservative victory of Canada could be easily stated as a swing back towards the United States and this could be a loss for Mexico. The second side is related to the victory of Mexico. The victory of Mexico could be a reason of decrease in the interest of North America. The economic relation between Canada-Mexico is short of the deep interdependence and is far from being unessential in relation to the national interest. The supreme priority of the Canadian foreign policy is to open the borders of the US so as to maintain the goods flow to the south; it is not easy to visualize Canadians giving the same importance to tourists flow towards the Cancun. Neither Canada nor Mexico reached cultural and social level of perception that can help in facilitating the cooperation in the long-term. For the previous two centuries, Canada and the US have climbed to a cultural accommodation, which is uneasy. The idea that should be implemented in order to overcome the barriers in culture is to give more preference to the Mexican relocation to Canada.

Market Integration

Market integration means trade between the countries. Market integration could be defined as the situation when the flow of the product outside the country or between the countries is based on the same terms and conditions as within the countries. In this situation, the product could be traded on the same terms and conditions in the national and the international market. Due to this market integration, the countries could take the advantages of competition and trade. This is also beneficial for the consumers because they enjoy the benefits of lower costs of the various products. Due to the market integration between the market of the United States and Mexico, the consumers of the United States are taking the advantages of low costs of fruits and vegetables, branded cloths and many other things (Rugman & Hodgetts 2006.).

 

 

 

Conclusion

NAFTA has changed the face of the U.S- Mexico-Canada trade. It has also mapped the progress of North American trade. NAFTA has helped in achieving the market integration. It has successfully measured the success in the agriculture trade between Canada and the U.S. It has created the win-win situation for the producers of the U.S. Its biggest contribution lies in increasing in the export of soybean to Mexico.

The U.S. trade prospects, without the aid of NAFTA, would be narrow and the livelihood of millions of workers belonging to American will be at risk. Mexico and Canada form the peak three trading partners with the U.S., which export further to NAFTA partners. Since 1993, these exports maintain an estimate of 2.3 million; this is in accordance with the United States Trade Representative’s Office. NAFTA prevented Mexico from concluding its market. This has preserved the jobs of a considerable number of Americans. With the rate of five percent, the economy of Mexico is growing. NAFTA has opened the door for the energetic market of Latin America for the exporters of services.

The U.S. expansion of NAFTA will help to accomplish the pledge of a broader hemispheric trade agreement. The primary candidate for the expansion of NAFTA is Chile, which forms the spontaneous growing markets in Latin America. With certain reservations, NAFTA has brought the huge success for the products that are consumer oriented. NAFTA plays a fundamental role in maintaining the interests of the U.S., therefore, it can be said that NAFTA agreement has huge positive blow on the U.S. economy, including the state of Washington.

NAFTA is key to opening the for U.S. exporters of. But U.S. foot-dragging has prevented further market access negotiations and ceded valuable markets to our foreign competitors. Tariff barriers are on average four times higher in Latin America than they are in the U.S. In addition, regional trade agreements like MERCOSUR are emerging as major factors in Latin American trade. The benefits flow to members leaving non-members, like the U.S., at a competitive disadvantage.

 

 
References

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