North America Free Trade Agreement
North America Free Trade Agreement (NAFTA), is one of the most dominant global agreements among the United States, Canada, and Mexico. The agreement defined the economic, social, and political development of the three nations in the Northern American region. The main aim of NAFTA was to bring about positive effects on the development of economies of the three nations that were bound by an agreement. The origin of NAFTA began when Canada and the United States were planning a US/Canada free trade area agreement. The government of Mexico was also undertaking strategic reforms in its approach towards international trade. The reforms was stirred by the oil price breakdown as well as the foreign debt crisis that was hitting the nation of Mexico in the early 1980s. As a consequence of these crises and international economic disorder, the Mexican government opted to transform its international economic policies and joined the General Agreement on Tariffs and Trade (GAAT). Having joined the GATT, the nation was wide-opened to reduced berries as well as complying with international trade standards. This was under the reign and administration of President Miguel de la Madrid Hurtado. In addition to this orientation and the economic reforms initiated earlier, the nation was now ready to join the US and Canada in coming up with a trade agreement. This was the genesis of NAFTA, which was created in August 12, 1992 that stretched from the Arctic Circle to Mexico’s borders with Guatemala and Belize. NAFTA forms the largest trilateral trade agreement across the globe.
Significance of NAFTA Agreement
NAFTA, as indicated earlier, is the world’s largest trilateral trade agreement with profound economic, political, and social consequences. NAFTA entails a trading block consisting of size, wealth, and potential force that is influential in the whole world. NAFTA nations incorporated a massive combined market of approximately 370 million people with an estimated Gross Domestic Product of US $ 6.2 trillion at the time of its formation (Musalem et al., 22). The agreement is also significant to Mexico as a nation because it elevates it from the status of developing nations to a level of first world economy, which has consequences on the United States exports and job creation. Increased exports and the number of employment opportunities by NAFTA were significant.
The first world economy in Mexico was significant for the US since nothing was more desirable. A first class global market in Mexico also represents an exponential increase in the US exports as well as job creation opportunities. This meant that for a single billion dollar additional export of the US, 25, 000 employment opportunities are created. Apart from this economic implication, NAFTA also has important social consequences. The agreement signifies the fact that the northern and southern hemispheres can co-exist in the prosperity of the planet 11. This is important in trying to fill the gap between the rich and the poor in America.
Moreover, initially, NAFTA was meant to be an absolute economic agreement among the US, Canada, and Mexico that was aimed at facilitating trade between the member states as well as economic collaboration for nations to a new level (Condon 2). Nevertheless, after the proclamation of the agreement by the member nations, NAFTA effects began to be felt in other aspects like political and social spheres that brought about both positive and negative consequences to the member nations. Consequently, NAFTA turned out to be a controversial agreement that its effects were being implicated on the development of the member states. On one hand, NAFTA was playing a significant role in accelerating the economic collaboration between member countries and the incentive for industrial rising while on the other hand it triggered a sudden deterioration of other industries. Therefore, this situation placed large Multinational Corporation to a beneficial position from the free trade agreement between the three nations.
The genuine essence of NAFTA agreement was not a simple trade agreement but a global institution that was not only intended to enhance the future of the member nations but also influence free trade and economic relations across the globe. Thus, it aimed at setting global precedents.
Provisions of NAFTA
- NAFTA incorporated three nations: the United States, which was the larger partner, followed by Canada, and then Mexico in that order. The trade among these three nations was initially established through the US/Canada free trade agreement as well as the US/Mexican trade. However, NAFTA provisions liberalized trade in the following spheres;
- Tariffs are either eradicated or phased out within a period of fifteen years. In addition, on the NAFTA’s passage, 50% of US exports to Mexico and 70% of Mexico’s exports to the US became tariff quota free.
- The agreement also enabled the limits on investments to be eradicated. This means that investors from the three nations are treated equally and currency is exchanged equally freely at market rates among the member countries.
- Trade services are also liberalized as well as equal treatment for all service providers and professionals in all nations. Member nations are tasked with facilitating the processes of licensing and foreign investors and by 1996, it was meant to eradicate citizenship and permanent residency requirements for all experts.
- Liberalization of transport requirements in that by the end of the era, transport facilities, such as trucks and bus will have a free access to all member states of NAFTA.
- The agreement also provided for protection of intellectual properties strength that included literary works, computer programs, and process patents.
NAFTA also enhanced several other provisions that facilitate an easy flow of trade among the three member nations. These entailed policies, such as the trilateral trade commission that resolve differences, offer provisions to review, and prevent dumping of products among the member nations. The commission also offers procedures in allowing nations to reestablish prior arrangements before the implementation of NAFTA agreements, especially if they will impact the member nations.
Image of NAFTA
NAFTA, as indicated earlier, entails a trilateral trade agreement between three nations: the United States, Canada, and Mexico. These nations, apart for being members of NAFTA, are also member nations of the World Trade Organization (WTO). This means that the government of the three nations are subject to the two agreements (Condon 1). NAFTA trade agreement is often seen as a reflection and kind of rekindling of the shared experiences and interconnected interests of the member nations that have existed over the years. At the same time, these nations are also divided by their interests and social norms, for example, Mexico is seen to be more traditional inclined as compared to the US.
Therefore, before looking further at the agreement effects and controversies, it is important to draw attention to the fact that NAFTA is considered a renaissance in a very comprehensive sense. This is not only in the economic terms but also in the political as a well as social cultural implications. This is the main reason why the trade agreement is significant for the member nations since they rediscover and support each other as partners and assume a new model of America entailing nations with strong and tenuous links. The process of cultivating this new relationship between the three nations requires time since it cannot take place instantly. This process apparently comes along with several effects like complications, and conflicts among other issues. Therefore, it may not be the easiest way of connecting the three nations but the end results are worth it. For this relation to mature, of which they must mature to experience full benefits, there must be serious conflicts and public concerns that must arise. Therefore, to address these challenges effectively, NAFTA has come up with a dynamic structure that is updated frequently to allow the agreement to address certain issue raised as well as the older problems. This means that conflicts and controversies arising from the trade agreement may be amended any time they spring up.
Benefits and Controversies of NAFTA
NAFTA regulations may not only focus on the trade agreement in goods, services, foreign investment, and property rights but also impact the global business policy. It is evident that numerous benefits, are accrued from NAFTA agreements as well as drawbacks and regulations. However, there are many drawbacks and controversies that have been directly or indirectly caused by the NAFTA agreement. Fundamentally, one of the major problems of NAFTA that have been felt in the United Sates is the high rate of job cuts (Shimko 134). This is because most of the production bases that were located in the US to provide employment to the citizens were shifted to other nations, especially Mexico where wages were much lower. At the same time, this was advantageous to the organizations because of the reduced cost of production, therefore, allowing them to remain competitive.
Furthermore, the elimination of trade barriers between member states enhanced economic integration. The creation of NAFTA was important in eradication of the existing fiscal barriers and other constrictions that prevented the organizations operating in the different member nations to trade with each other’s markets. Consequently, NAFTA provided a leeway for free trade, and the organizations were also offered an opportunity of developing their businesses further in other member countries’ territories without any barriers, especially from local governments.
Moreover, there are several question that have been raised regarding the extend that the agreement is felt among the member nations. In fact, the main concern is the question of who actually benefits more in the whole trade agreement. The proponents and supporters of NAFTA hold to the fact that free trade catalyzes the economic growth in the member states, which are signatory to NAFTA. This means that through the agreement, the trade between the three nations has immensely grown. This has translated to the creation of new employment opportunities and businesses that enhance the social economic situation in all the member nations of NAFTA.
Nevertheless, the benefits of NAFTA are very insignificant as compared to the risks and controversies that have emanated from its development among the three nations. In the first place, the development of NAFTA not only imply free movement of goods and services but also free movement of capital and human resource. This means that NAFTA has also encouraged integration among the populations in the three nations. This integration, however, is a source of several problems and controversies. For example, the United States has been hit by the issues of growing immigrants originating for Mexico, which was a result of the abolition of barriers between the two nations. I addition, Mexico national corporations also faced the problem of being eliminated in the market by the dominance of the US and Canada corporations. The local organizations proved to be too weak to compete with the large multinational corporations from the US and Canada. Canada was also affected by the growing numbers of the US Corporations in its market that threatened the existence of the local firms. This confirms the controversial nature of the NAFTA among the three member states. On one hand, the agreements stimulated the economic cooperation among the three nations thereby enhancing business activities. On the other hand, several corporations ran bankrupt and deteriorated the status of local people, mostly the US employees, through loss of employment opportunities as a result of the migration of production facilities where production costs were comparatively lower.
Besides, through NAFTA, several debates came about concerning the integration of the three nations to an extent of introduction of a common currency. This strategy would make NAFTA members operate in the same way as other trading partners like the European Union (EU) that use a common currency. The common currency aspect will be essential in facilitating free trade effectively. However, the notion of common currency was put on hold because it was seen as to have serious implications on the US financial position and it could be a source of economic problems. Furthermore, a common currency would bring about several other political issues since the national currency is viewed as a symbol of independence. In addition, such an initiative also exposes the independence of national economies to the risk of eliminating national frontiers, thus, making the nations to depend on each other. Therefore, the implications of NAFTA agreements were not any felt in the economic spheres but also in the social arena.
Regarding the aspect of unemployment as mentioned above, NAFTA had a severe effect on the United States population. The American population suffered due to outsourcing that was triggered by the high unemployment rates in Mexico and partially Canada. This also had an effect on the growing small firms in Canada and Mexico due to their inability to compete with the American owned firms. The large US firms in real sense swept away the smaller firms in the other nations and made them ran bankrupt. This resulted in many of the former entrepreneurs in the nations bankrupt, and therefore, social tension and stress due to lack of jobs.
The issue of increased immigrants from Mexico to the United States and Canada was also another controversy regarding the trade agreement. The increasing inflow of immigrants from Mexico and Canada was influenced by NAFTA since it enhanced free movement of goods, services, capital, and people among the member nations. Consequently, a large number of Mexicans moved northwards to the US and Canada in the name of searching for good lives. The immigrants also increased the competition for the labor market in the nations, an aspect that heightened the economic condition and fuelled social tension. This issue made many of the American populations to demand that some of the immigration laws should be revised to stop and control the inflow of immigrants, especially from Mexico. This tension and social discomfort, therefore, created one of the growing controversies of NAFTA.
Another controversial issue brought about by NAFTA is the aspect of neoliberalism. Neoliberalism enhances the idea of free trade as also supported by NAFTA in the improvement of economic relations. The rise of NAFTA was indeed entwined with the rise of neoliberalism in the 20th century. Neoliberalism is founded on the grounds that minimal intervention of interferences of governments should influence the economic development and other business activities of the nations in a trade agreement. Nevertheless, the development of such approaches on agreements, such as NAFTA fail to materialize because the policy does not address the negative effects of such agreements and control them. This means that further economic integration under such agreements as NAFTA will worsen of the prevailing complications. The problems of NAFTA are growing unemployment and immigration levels, depopulation and removal of hazardous production facilities, and replacement of small business firms by larger American and Canadian corporations in Mexico. The American and Canadian countries, on the other hand, will continue to face the problems of amplified movement of immigrants from Mexico and outsourcing of many production facilities from the US to Canada and Mexico due to low production levels.
NAFTA in its social conflict phenomena has also been regarded as the main cause of capitalism that is a controversial issue that nations across the world are fighting. Precisely, free trade forms the natural part of the capitalist economic development when the accumulation of capital enhances further expansion of large organizations as well as intense exploitation of employees. As the organizations attain their limit within national edges, they expand to the international markets through channels like NAFTA. As they penetrate the new markets, they take control due to their strong financial position in new areas, thus, creating a market monopolization. The ultimate result of this form of capitalism is where large organizations take the larger part of the member nations’ economies as in the case of the US corporations in Mexico after the enactment of NAFTA. This controversial issue, therefore, calls for stringent measures in the agreement to ensure that large organizations are controlled to enhance the growth of national economies.
Another controversy that arose from the trade agreement between the three nations was the environmental concern. During the debate about the issue concerning NAFTA, the concern over the United States and Mexican border was referred to as “a two thousand mile love canal” as a result of the atrocious environmental conditions in the industrial areas along the border. The border was characterized by open combustions, exposed sewers, industrial runoff, as well as toxic dumping. The Mexican electric power is also reported to apply old obsolete technologies that are harmful in the regions as a way of maintaining low costs of production. These negligence in the environmental conditions along the US and the Mexican border and other stiffed environmental situations in Mexico, triggered the US environmental organizations and groups to seek legal reparation against NAFTA. The consequence of this initiative was the court direction in June 1993 that mandated the United States to folder an environmental control statement on the probable effects of NAFTA. The directive was, however, appealed by the Clinton administration on the basis that the environmental group’s legal requirement to file the suite on the grounds was contrary to the constitution as well as an interference with the powers of the Presidents of the United States of America. In response, the Circuit Court of Appeals ruled that NAFTA agreement was a presidential action not reviewed by courts, thereby rejecting the directive of an environmental impact statement and enabling the ultimate passage of NAFTA. The environmental degradation factor is still one of the controversy issues regarding the trade agreement between the three nations (Lind and Ivan 22).
Another controversy brought about by NAFTA is the issue of the promises. – Many promises have been made by NAFTA, but they are yet to be achieved. Many arguments for and against were brought forth regarding the formation of the trade agreement between the three nations. This debate is still ongoing, especially in the United Sates even after the promulgation of NAFTA, with its main concern being the economic and political situations in Mexico.
The first promise was the increase of jobs and growth of industries among the member nations. This was one of the major reasons that fostered the formation of NAFTA. On the other hand, loss of jobs was one of the strongest opponents’ points in opposing the formation of NAFTA. As indicated earlier, it evident that many employment opportunities have been lost and will continue to be lost due to the labor intensive industries. However, on a balanced scale, NAFTA is also expected to produce a net gain in the employment industry. Furthermore, the growth of industries was also predicted to increase due to large market base for exports. The increase of exports was also meant to bring about employment opportunities. However, these promises have a controversial effect on both nations. For Instance, in as much as the United States is increasing its exports, the majority of its citizens are jobless, thus, having a negative and controversial perception on the agreement. In addition, while the Mexican populations are getting employment from the multinational facilities, their businesses on the average scale are also fading away because of the monopoly created by the US firms. From an individual analysis, the promises provided a wide controversial issue on who really benefits from the NAFTA arrangement.
The promise and stability of Mexico is another controversial concept that is as a result of NAFTA. Initially, the endorsement of NAFTA was a significant move regarding the economic stabilization of Mexico. This expedited the continuation of economic and political reforms that had initially been enacted in Mexico. The United States specifically assured Mexico of development and stability in its course both politically and economically. Even though NAFTA was significant in reshaping the prevailing economic condition that had hit the nation of Mexico, the agreement has, however, not helped the nation from the recent economic damages to the countries’ prestige. This has brought about controversial argument that the agreement is not beneficial to Mexico as it was initially thought to be, but it is only enriching the US at the expense of Mexico.
It is important for nations across the globe to form trading agreements and blocks like NAFTA that symbolize an exemplar shift from the traditional ways the nations used to relate to each other in terms of trade. This model shift should reflect and recognize the emergence of trade alliances in the global market; a model that cannot be ignored. However, it is important to note that the world is independent, and all the nations are independent. Therefore, such agreements like NAFTA are bound to encounter both positive and negative consequences that have implications on the political, economic, and social policies of different member countries. Therefore, the blocks need to incorporate changes that are aimed at preventing the negative effects in the arrangements. Policy makers are responsible for making NAFTA and other international blocks socially responsible to protect the interest of all the member nations and employees.
Condon, Bradly J. Nafta, WTO and Global Business Strategy: How Aids, Trade and Terrorism Affect Our Economic Future. Westport CT: Quorum Books, 2002. Print.
Lind, Nancy S, and Bernard Ivan. Tamas. Controversies of the George W. Bush Presidency: Pro and Con Documents. Westport, Conn: Greenwood Press, 2006. Print.
Musalem, Alberto, Dimitri Vittas, and Asli DemirgOu-Kunt. “North American free trade agreement.” World Bank Policy Research Working Paper (1993).
Shimko, Keith. International Relations: Perspectives, Controversies and Readings. Cengage Learning, 2012.Print.