The North American Free Trade Agreement (NAFTA) refers to an agreement that was made in the year 1994 between the United States, Canada, and Mexico. It helped in lifting various restrictions that had been imposed on importation and exportation of agricultural products between these three states. The agreement brought about policies that were impacted immediately in accordance to the agreement. However, there were others that took over 15 years to be implemented (Hymson et, al. 226). The provisions provided by the North American Free Trade Agreement (NAFTA) were set in place by 2008 between the North American countries. This brought about free trade among the three nations. However, it also led to a lot of controversy as some believed that it had some impacts whereas other criticized the agreement (Hymson et, al. 226).
The North American Free Trade Agreement had various economic developments that were characterized into various stages. These stages included removing tariffs gradually and other trade barriers on most of the goods produced and sold in North America. In January 1st 1994 NAFTA brought benefits in other regions such as Canada and Mexico that were enjoyed for many years. NAFTA prides itself as the second largest free trade zone that brings together about 364 million consumers in Canada, Mexico and the United States within an open market (Delener, 21). This comes after the European Economic Area which is the largest free trade zone in the world. It brings together members of the European Union and the European Free Trade Association.
The stages involved in the North American Free Trade Agreement have economic benefits that date back years back. NAFTA was built based on the 1989 free trade agreement made between the United States and Canada. It eliminated the tariffs between these states and duties of all United States goods shipped to Mexico. This was accompanied by gradual phasing out of other tariffs over a period of 14 years. These restrictions had to be removed from categories that included motor vehicles and automotive parts, computers, textiles and agriculture (Delener, 31). This agreement also gave protection to intellectual property rights that entail patents, copyrights and trademarks. It also outlined in the removal of restrictions on investment among the three nations. Similarly, this was coupled with provisions that involved worker and environmental protection that were added with regard to supplemental agreements that were signed in 1993.
The formulation of the North American Free Trade Agreement occurred through the signing of leaders from the three countries. These included: Brian Mulroney from Canada, Carlos Salinas de Gortari from Mexico and George H.W. Bush from the United States. The signing of the agreement also required the legislatures from the three countries to vote and accept it. This saw the response to the concerns of the issues that had risen during the legislative process. These responses included two supplementary agreements that were added to the treaty. One of these treaties included addressing the labor issues while the second one addressed issues related to the environment. The United States was somehow reluctant to approve the treaty through the Congress as of November 1993 (Delener, 33).
The controversies brought about related to this agreement include the environmental provisions which entailed the agreement itself and separate Supplementary Agreement on the environment. The provisions brought forth by the North American Free Trade Agreement made the most environmental conscious trade agreement that were ever negotiated. Similarly, the Supplementary Agreement formulated a Commission on Environmental Cooperation (CEC). It comprised of senior environmental officials from every North American country (Delener, 51).
NAFTA aimed at formally expanding its operations to include countries such as Chile in the year 1995. However, the administration that ran under the tenure of Clinton was unable to conclude these negotiations. President George W. Bush came to the rescue when he announced that he would support the creation of a Free Trade Area of the Americas. This would ensure that all countries in the Western hemisphere were included (Delener, 51).
The controversies that emerged over the issue of the North American Free Trade Agreement had some supporters who purported that the accord had stimulated democratic reforms in opening markets in Mexico. However, according to President Bush through his administration the agreement had improved and still is improving lives and reducing poverty in Mexico (Delener, 51). The administration claimed that North American Free Trade Agreement has led to increase in gains as well as reduced taxes amounting to approximately $ 930 every year for the average United States household of four members (Delener, 41).
Similarly, most of the 20 million jobs generated in the United States between the year 1993 and 2000 could be attributed to the free trade bloc created by the agreement. The negative effects that are attributed to the agreement such as the escalating United States trade deficit and the three years of fluctuating factory jobs should be attached to the weak demand abroad and the recession in the United States (Campbell and Bruce, 34).
Similarly, the North American Free Trade Agreement brought significant foreign investment and contributed to a 24% increase in the per capita income of Mexico. It boosted the economy of Mexico in that it provided jobs as well as knowledge, experience and technological transfer among other things. This also boosted the trade between the three states by eliminating inflation and decreasing the costs for importation. These benefits were also felt through the creation of agreements on international rights for business investors. In turn, it led to reduction in costs involved in trade which brought about growth in terms of investments especially for small enterprises. Additionally, NAFTA provided the ability for firms and businesses in member countries to bid on government contracts (Campbell and Bruce, 34).
Critics on the other hand claimed that the agreement had brought about significant impacts both to the United States and Mexican jobs. This occurred through the decline of real wages for Mexican manufacturing workers while more than half a million United States employees entered government retraining programs after their companies moved production from the south to the north of the border (Campbell and Bruce, 14). Social programs in Canada were eliminated as well as destruction of the small farmers in Mexico. This has brought an influx of subsidized food imports in the United States. The facts produced concerning this issue portrayed that approximately 1.3 million farm jobs have been lost since the agreement was signed in 1993. This indicates that NAFTA has been disastrous for the people.
Reports have indicated that the agreement has generated very few new jobs in Mexico and might only be credited for a very small net gain in jobs in the United States. They have also indicated that the North American Free Trade Agreement has been over the years ineffective in eliminating the challenge of illegal Mexican immigrants entering the United States in search of jobs (Campbell and Bruce, 34). As a matter of fact, estimates have indicated that the number of Mexicans working in the United States illegally increased to heights of 4.8 million in 2000. This number had numbered over a period of ten years (Campbell and Bruce, 36).
These controversies have raised the question about whether the North American Free Trade Agreement was a success or a failure. This issue may be addressed through the analysis of the advantages and disadvantages that are associated with the North American Free Trade Agreement (Hymson et, al. 226). These will bring out the benefits that emerged after the agreement was signed as well as the impacts it had on the three nations. To start with, the North American Free Trade has brought about the creation of the world’s largest free trade area. This occurs through allowing over 450 million people in the United States, Canada and Mexico to export to each other products and goods at lower prices. Similarly, it prides itself for being responsible in the 1.6 trillion of goods and services that are exchanged every year. This is followed by the fact that it increases the economy of the United States as measured by the Gross Domestic Product by as 0.5% each year (Hymson et, al. 227).
In addition to these advantages, the North American Free Trade Agreement has impacted the states in that it has increased trade in all goods and services. This is apparent due to the fact that the trade between the NAFTA signatories has increased by more than four times, $ 297 billion in the year 1993 to about $ 1.6 trillion in 2009. Similarly, exports obtained from the United States to Canada as well as Mexico increased from about $142 billion to $ 452 billion in 2007. This aspect was encountered with a challenge when the financial crisis occurred in 2008. On the other hand, exports from Canada and Mexico that came to the United States increased from about $ 151 billion to $ 568 in 2007. This was followed by a decrease to about $ 438 billion in 2009.
Another advantage attributed to the North American Free Trade Agreement is that it improved the exports obtained from the farms in United States. The agricultural products that were exported to Canada and Mexico increased from 27% of the total exports from the farms to about 30% in 2007. These exports were significantly larger that the exports sent to other six markets combined. At some point, exports to these two countries almost doubled to heights of 156% as compared to 65% rates that were received from the rest of the world (Campbell and Bruce, 39).
Additionally, the North American Free Trade Agreement brought about the increase in farm exports after it had successfully eliminated the high Mexican tariffs. Mexico also benefited through becoming the top exportation destination for the United States. The main products that were exported in this case include grown beef, rice, soybean meal, corn sweeteners, apples and beans. Thus Mexico became the second largest export destination of corn, soybeans and oils.
In addition to this, the North American Free Trade Agreement brought about excessive trade in services. This was attributed to about more than 40% of the United States gross domestic product for instance financial services or even health care. Exportation of these services made an important contribution to the other states (Campbell and Bruce, 44). It also boosted the service exports in the United States to Canada as well as Mexico from $ 25billion in 1993 to about $106.8 billion in 2007. At some point the exports dropped to $ 63.5 billion in 2009. This advantageous aspect of NAFTA extends to the way it has helped in removing the trade barriers in almost all sectors.
This is coupled with the advantage of reducing oil and grocery prices. This occurred through the fact that the United States imported about $116.2 billion in terms of oil from Mexico and Canada in the form of shale oil. Apparently, this was a reduction in demand as in 2007 they had imported $ 157.8 million. In turn, this helped reduce the United States reliance on oil imports from the Middle East and Venezuela. This helped in establishing close ties between Mexico and the United States (Campbell and Bruce, 47). Similarly, the act that NAFTA eradicates tariffs, this makes the prices incurred for oil lower which occurs to other products such as food imports totaling to $29.8 billion in 2010. The absence of NAFTA would have brought about increased prices in these products.
In addition to the long list of advantages, the North American Free Trade Agreement helped in stepping up foreign Direct Investment. This has occurred through the increase of foreign direct investment from the United States in Canada and Mexico (Delener, 51). This was characterized with figures that indicated that FDI had increased by about three times. In 2009 the figures were at $357 while in 2007, the figures were at $ 348.7 billion. This was the same case for Canada which had increased their FDI to about $237.2 up from $219.2. Most of the investment was taken to sectors such as finance/ insurance, banking companies and manufacturing in the United States (Delener, 63).
Additionally, advantages in this sector might be felt through the three nations getting into an international corporation as well as boost business within countries that had cheap workforce and costs to produce their items. This would hence offer cheaper prices due to the fact that the competitiveness of free trade had increased.
Since every coin has two sides, the aspects and activities of NAFTA had negative effects or rather had some shortcomings in their objectives. The first demerit that may be discussed in this paper is that NAFTA made it a reality for many U.S manufacturers to move their jobs to lower-cost Mexico. This affected the manufacturers who remained in that they had to lower their wages in order to be able to compete in those industries. This is accompanied by the fact that Many Mexico farmers were rendered out of business by the subsidized farm products. The provisions maintained by NAFTA for Mexican labor and environmental protection were very weak to prevent the workers from exploitation (Delener, 57).
On the other hand, the effects brought about by NAFTA significantly affected people in that many jobs were lost in the United States. This was due to the fact that labor was cheaper in Mexico which made many manufacturing industries to move a section of their production from areas that incurred high costs (Delener, 61). Therefore, between 1994 and 2010 the trade deficits between the United States and Mexico stood at $97.2 billion. This had led to about 682,000 jobs being cut in the United States. Most of the jobs lost occurred in the manufacturing industry with parts such as New York, Texas, California were hard hit due to their high concentrations of the industries that moved plants to Mexico. The industries that were involved in this case include motor vehicles, textile, computers, and electrical appliances (Delener, 71).
Similarly, the disadvantages of the North American Free Trade Agreement were felt in the suppression of wages in the United States (Hymson et, al. 236). The companies that failed to move to the Southern part threatened to do so during organization unions. This challenged the workers in that they had to choose between the union and the factories, they chose the factories. Therefore, the union lacked support and the workers only contained little bargaining power. The end result of this was that the growth of wages was suppressed where in 1993 to 1995 about half of all the companies that had moved to Mexico, threatened to close the factory. The rates further decreased over the years (Hymson et, al. 222).
The relationship obtained from the North American Free Trade Agreement within the three states affected many people. For instance in Mexico many farmers were rendered jobless as their business was shut down. About 1.3 million farm jobs were lost in Mexico after the removal of tariffs. This lowered the costs for exporting corn and other grains thus rural farmers could not compete and thus had to run out of business. Mexico reduced their subsidies to farmers from about 33.2% of the total farm income in 1990 to about 13.2% in 2001. These subsidies were mostly enjoyed in the larger farms of Mexico and thus the small farmers had to close down their businesses (Campbell and Bruce, 29).
Additionally, the environment of Mexico continued deteriorating due to the pressures of competition. Agribusiness used more fertilizer as well as other chemicals that had high costs even in polluting their farms. Small farmers expanded into marginalized land which led to deforestation at very high rates. In addition to this, NAFTA brought about free access for Mexican trucks. This aspect stated that trucks from Mexico would have been allowed to travel into the United States beyond the 20mile limit that in place (Hymson et, al. 221). This project was however, terminated by House of Representatives who declined that idea. The reasons that they declined the issue were that they feared that the Mexican trucks would have brought about dangers on their roads. They claimed that both countries operate under different safety standards as the trucks from the United States (Campbell and Bruce, 29).
Similarly, the organization of truckers in the United States declined that part of the North American Free Trade Agreement. They claimed that they would have lost their jobs and thus the Mexican trucks ha to observe the 20 mile limit where their goods would have to be transferred to United States trucks (Hymson et, al. 224).
Reciprocation also emerged as another disadvantage as the NAFTA agreement would have permitted unlimited access for U.S trucks throughout Mexico. This was made in comparison to the other regions in which the agreement worked perfectly. However, the challenge with the U.S Mexico agreement was that the U.S had violated their end of the bargain by using bigger and heavier trucks against the restrictions imposed by the Mexican Government. In addition to this, NAFTA had expanded the program of Maquiladora where companies owned by the United States hired Mexicans near the border to assemble products at low wages in order to be exported to the United States. This boosted their workforce although they did not have any labor rights and health protections (Hymson et, al. 230).
Campbell, Bruce, and Ed Finn. Living with Uncle: Canada-us Relations in an Age of Empire. Toronto: Lorimer, 2006. Print.
Delener, Nejdet. Strategic Planning and Multinational Trading Blocs. Portsmouth: Greenwood Publishing Group, Incorporated, 2009. Print.
Hymson, Edward; Blakenship, Dianna; Daboub, Anthony. "INCREASING BENEFITS AND REDUCING HARM CAUSED BY THE NORTH AMERICAN FREE TRADE AGREEMENT." Southern Law Journal 19.1 (2009): 219-243. Web.