Sample Essay on Free Trade Areas and Difference from Colonization

Free Trade Areas and Difference from Colonization

Trade is the backbone of the contemporary world. Even more important today is free trade that aims at removing trade barriers and traditional national protectionist tendencies that often hinder the smooth flow of trade. Part of the agitation for free trade is the fact that it is mutually beneficial to all participating members. Evidence from NAFTA (North America Free Trade Agreement), a free trade agreement signed by the U.S., Mexico, and Canada shows that free trade offers more benefits to the member states than inherently limiting national/domestic protectionist policies. While many argue that free trade is a synonym for modern-day imperialism/colonization, unlike colonization, it is voluntary and mutually beneficial to all members of the agreement. Therefore, free trade agreements are not only a precursor to economic development but are also distinct from colonization, given the mutual benefits that accrue to all members of the agreements.

Free Trade Areas and the NAFTA Agreement

Free trade agreements traditionally remove trade barriers that previously prevented trade. NAFTA, for instance, removed trade barriers to increase trade among the member countries, which included the U.S., Canada, and Mexico. The achievement of the free trade area is qualified by the replacement of the domestic production of goods to remove the comparative advantage from one member country while obtaining lower-cost imports from the other member countries (Chioetto and Kulkarni 4). NAFTA increased fourfold trade among the three countries raising the trade volumes to $1.23 trillion from $290 billion between 1993 and 2019 (Johansson et al. 147). This change significantly boosted economic growth, increased the profit margins, and had an equal effect of reduced prices of the commodities to consumers. The amount of job creation from the inception of NAFTA was second to none.

Free trade agreements increase the volume of trade among member countries. During the trading period of 1993 and 2019, the exports from the U.S. to Mexico and Canada had culminated to $549 billion from $142 billion that had previously been recorded. The roundup total of the U.S. exports shows that 33% of its total exports went to the Canadian and Mexican markets as a result of NAFTA (United States Census Bureau n.p). From 1994 to 2003 only, the exports from America to Mexico rose to 91% compared to the rest of the world, which received only 41% (United States Census Bureau n.p). On the other hand, U.S. imports from NAFTA partners increased by 179% compared to its imports from the rest of the world (Kulkarni and Chioetto 20). By 2019, the U.S. imports from its NAFTA partners were $678 billion, quadrupling the $151 billion imported in 1993 (Kulkarni and Chioetto 20). The exports, therefore, increased because of the trade relationship created by NAFTA among the member states.

The other benefit of low tariffs was reduced import prices, and this had positive effects. Through NAFTA, there was a marked inflationary risk reduction that facilitated low-interest rates from the Federal Reserve. The low-interest rates were important to the U.S. considering its large importation of oil. In 2017, the U.S. had $15 billion worth of oil shipped from Mexico (United States Census Bureau n.p). The low-interest rates helped the U.S. make savings, given that the volume of oil imported in 2017 was worth $24 billion in 2009 (United States Census Bureau n.p). The low tariffs also enabled the U.S. to reduce its reliance on the Middle East and Venezuelan oil. Previously, oil exporters such as Iran and Venezuela took advantage of their oil reserves to influence trade between them and the U.S., an advantage that the agreement removed.

Trade agreements additionally increase bilateral trade among member states due to lowered tariffs. NAFTA’s removal of tariffs lowered the cost of business, which saw Mexico and Canada increase their food exports to the U.S.  A 2017 report on Mexico’s food export to the U.S. estimated shipment worth $26 billion (Kulkarni and Chietto 6). Canada’s food exports to the U.S. amounted to $24 billion. The cumulative amount of both Canada and Mexico’s food export to the U.S. was a 67% increase from the $30 billion worth of food imports in 2008. Estimates indicate that in the absence of NAFTA, it would have cost $27 billion more to import food into the U.S. (Kulkarni and Chietto 6). Such an increase would have caused a ripple effect on the consumers as they would have to bear the additional cost. The formation of NAFTA, therefore, benefitted all parties involved.

NAFTA also boosted the economies of America, Canada, and Mexico. The U.S. economy, for instance, witnessed a growth rate of 0.5% a year after the inception of NAFTA (Peterson Institute of International Economics 23). Among the biggest beneficiaries were the agricultural, auto, and service sectors. American agricultural exports to Canada and Mexico grew from $11 billion in 1993 to $43 billion in 2016 (Peterson Institute of International Economics 23). The trade resulted in $54.6 billion in the U.S. business investment besides supporting 20 million jobs (Peterson Institute of International Economics 23). On the other hand, the U.S. service export to Mexico and Canada spiked from$25 billion in 1993 to $106.8 billion in 2007 (Peterson Institute of International Economics 23). It is, therefore, safe to say that NAFTA induced a notable growth in the U.S. economy.

Free trade agreements ease economic growth among member countries. As mentioned, Mexico and Canada also experienced economic growth. The free trade area initiative in Canada resulted in increased market shares of Canadian goods in the U.S. Between 1988 to 1994, Canada’s U.S.-bound exports increased more rapidly compared to those from other countries given that the U.S. imported 58.4% of its total imports from Canada, reserving only 47.9% for the rest of the countries (Goldstein 186). Other product export to the U.S., including telecommunication equipment, precision equipment, and tools, increased by 48.9% from 1988 to 1992 (Goldstein 186). Mexico’s exports in the auto industry equally increased, surpassing Japanese imports by the United States. With the U.S. sourcing most auto parts from Canada and Mexico, the agreement fended off Japanese imports, which previously exported twice as many auto parts as Mexico (Wharton n.p). The U.S. Canada and Mexico all benefited through different sectors on the NAFTA initiative.

NAFTA played an important role in creating an inter-investment opportunity for the U.S. Canada, and Mexico. The office of the United States Trade representative in 2019 reported more than triple the amount of foreign investment in both Mexico and Canada cumulatively amounting to $500.9 billion. An investment of $391.2 billion was apportioned to Canada and $109.7 billion to Mexico from the U.S. The investment boosted both Canada and Mexico’s economies in addition to opening more investment opportunities for U.S. investors. U.S. investment in Canada and Mexico was equally reciprocated. Foreign direct investment by both Canada and Mexico into the U.S. amounted to$471.1 billion. Canada invested $453.1 billion, while Mexican investors pumped $18 billion into the U.S. economy. This was a rise from $219.2 noted in 2007 (United States Census Bureau n.p.). The protection of intellectual properties by NAFTA promoted good business through vigilance on piracy (Villarreal and Fergusson 29). This created confidence in foreign direct investment as companies were aware of the international law safeguarding their rights. Additionally, the idea of the same legal rights for foreign investors guaranteed investors’ ease in transacting. NAFTA, therefore, accorded foreign investors confidence in investing across the three countries given the legal protection since the agreement put in place avenues for legal recourse even against the governments.

Contrasting Trade and Colonization

Trade, particularly free trade, has been termed as an extension of colonization/imperialism. Proponents of this argument posit that even with the end of colonization, most of the former colonial masters maintained ties with their former colonies as a way of continued extraction of benefits from these colonies (Bewaji 1950003-3). The former masters established trade agreements meant to “facilitate” trade between them and their former colonies, yet often the agreements were in favor of the masters since they allowed them to continue with the extraction without seeming imperialist. The dependency theory herein argues that there are unequal terms of trade within the free trade agreements that mostly benefit the global North at the expense of the global South. While this argument holds some credence, worth noting is that trade in the current form is voluntary and mutually beneficial to all members that participate or enter into trade agreements.

Among the distinguishing features of colonization and trade is the use of force. Colonization is traditionally imposed by military force. For instance, “because of the potential economic gains to be had in the Caribbean, the colonizers imported slaves to till the land… in African countries, the slavers collected their human resources for transport, leading to the depletion of human capital in some African countries” (Bewaji 1950003-3). The slaves, in this case, were uprooted from their native land, shipped across the Atlantic thousands of miles from their original homes, and forced to work with little to no welfare, care, and remuneration. The injustice includes separation and sometimes murder of their families. In contrast, trade is voluntary. Created in 1994, NAFTA remerged from an agreement between the U.S., Canada, and Mexico, birthing one of the world’s largest free trade areas (Kose, Meredith, and Towe 4). The distinguishing feature of NAFA lay not in the magnanimity of the trade area created but as a defining moment in global trade policy given the wide-ranging nature of the agreement that encompassed merchandise trade and issues linked to environmental policies, investment, and labor markets (Kose, Meredith, and Towe 4). Even more significant for the agreement was that it did not involve military force but was voluntary, besides the fact that it was a trade contract between a developing country and some of the world’s top developed economies.

Another difference between colonization and trade is that the former benefits imperial power at the expense of the colonies. European colonies provided both free labor and a source of raw materials for manufacturing industries in Europe. Essentially, per Kallab and Terra, the “territories were a source of resources for European imperialists and a market for its products” (291). On the other hand, trade is mutually beneficial to all parties involved. For instance, following the creation of NAFTA, trade for all three countries quadrupled from $209 billion in 1993 to $1.23 trillion in 2019 (U.S. International Trade Commission 22). Despite Mexico being less developed than the other NAFTA member states, it had higher volumes of exports to the two partner states. Mexico shipped goods worth $346.5 billion and $318 billion to the U.S. and Canada, respectively, even as the U.S. shipped goods worth $265 billion and $298.7 billion to Mexico and Canada respectively (U.S. International Trade Commission 22). Canada exported goods worth $318.5 billion and $320 billion to Mexico and the U.S., respectively (Villarreal and Fergusson 14).  The trade volumes show mutual benefits among the three members, a fact that distinguishes trade from colonization.

Colonization thrives in the master-subject/servant relation as opposed to the equals/mutually beneficial relationship that comes with the trade. In the colonial era in Africa, the Caribbean and Latin American colonialists often recruited labor at poor rates of pay and under primitive conditions of work (Anderson 459). The subject-master relation meant little to no benefit for colonial subjects from the colonial government. Moreover, most companies operating in the colonial territories did not plow back profits from their operation in the territories, taking the bulk of the proceeds from these operations back home in Europe. Trade, in contrast, not only creates jobs for both locals and trade partners but also leads to foreign direct investment in trade partners. The U.S. Chamber of Commerce indicates that exports from the U.S. to NAFTA members created about 5 million jobs in the U.S. (U.S. Chamber of Commerce 2). In Mexico, since the signing of the agreement, there has been a boom in the Mexican auto sector, which has created close to a million jobs for Mexicans. Moreover, the amount of foreign direct investment (FDI) in the country has increased. Surveys show that FDI from the U.S. to Mexico grew from $15.2 billion in 1993 to $104.4 billion in 2012 even as it (the U.S.) received $16.6 billion in 2015 up from $1.2 billion in 1993 from Mexico (Villarreal and Fergusson 20). The mutually beneficial terms of trade, therefore, contrast with the one-sided benefit of colonization, whereby the master reaps all the benefits from the labor and hard work of the subject/servant.

Conclusion

Free trade areas are agreements between member states for reduced tariffs on imports and exports and the adoption of policies that ease trade among the members of the trade areas. NAFTA, as one of the free trade areas signed by the U.S., Mexico, and Canada, is a testament to the mutually beneficial nature of the areas. Increased volumes of trade, foreign direct investment, economic, and lower import prices are among the joint benefits enjoyed by members of free trade areas, as seen through NAFTA member states. Moreover, trade contrasts with colonization in different ways; for instance, while colonization uses forced to benefit the colonial masters, trade is voluntary and involves the signing of concessions among member states benefit all parties. NAFTA is one such agreement signed voluntarily by the three-member states and has been beneficial through increased trade volume, creation of jobs, and foreign direct investment. Trade, therefore, builds better relations and propagates social and economic development among trade partners.

Works Cited

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