NAFTA
Mexico and the United States along with Canada
have entered into a trilateral
free trade agreement called the North American
Free Trade Agreement otherwise
known as NAFTA. NAFTA has got to be the
largest trading agreement in history;
the agreement creates a single market
of 370 million consumers. The people of
NAFTA talk about potential gains
from increased free trade between Mexico and
the U.S. as the two countries
remove tariffs, other trade barriers and
restrictions on investment so that
businesses would have access for goods,
service and investment. They argue
that the U.S. stands to gain from the
agreement as Mexico offers trade
potential in a growing market, more investment
opportunities, low cost labor,
abundant natural resources, and geographical
prospects and growing markets
for American goods. On the other hand, outsiders
argue that the agreement
would further encourage American businesses to move
their production
facilities to Mexico in search of low cost labor so that the
U.S. would
lose a lot of jobs along with money. They also claim that the
pollution in
the environment, which is already bad to begin with, will be
worsened by the
agreement. These opposing arguments need to be sorted out so
that the
potential benefits and costs of the agreement can be identified. A free
trade
area is formed when countries remove tariffs and other barriers to
trade
among them while maintaining tariffs and other commercial policies
against
non-member nations. This selective trading arrangement would appear
to be a
movement toward freer trade and therefore, greater economic
efficiency. The
trade barriers among the member countries are removed while
others remain. There
are other potential benefits to members of a free trade
area. Successful
businesses within the trade agreement can take advantage of
the economy as their
market expands. Another source of benefits comes from
increased competition.
Competition increases managerial efficiency,
worker productivity, and higher
rate of investment by low-cost firms. The
development of more efficient
economies, in turn, creates more jobs and
increases standards of living in the
member countries. In addition, reduced
tensions and an increased likelihood of
peace may be another benefit from a
trade agreement. There are several
components in the agreement. One component
deals with market access. Issues such
as tariffs, non-tariffs barriers, rules
of origin and governemnt procurement are
addressed under this category. Trade
rule components deal with issues such as
subsidies and health and safety
standards. The agreement also deals with issues
facing specific industries
such as the automobile, textile, energy and
agriculture. The financial and
telecommunications industries are the two areas
of conflict. The other
components include investment, intellectual property, and
dispute settlement.
There are four major issues in NAFTA: rules of origin,
labor, agriculture and
environment. Rules of Origin. Any regional free trade
agreement is subject to
a "transshipment problem." Without a Rules of
Origin clause, a business
from a non-member country could import unfinished
products into the member
country with the lowest tariff rates. The foreign
company could then assemble
its products in the member country and ship them to
the remaining member
countries, avoiding their higher tariffs. The Rules of
Origin, also known
as local content requirement, can be defined as ‘the
minimum percentage of a
country's exported product the must be produced or
substantially transformed
within the border of the exporting country"
(Aguilar 1993). Labor. Among
those who are strongly against NAFTA are labor
unions who fear that American
workers will suffer as U.S. businesses move their
business to Mexico in
search of lower labor cost. In 1991, the average
manufacturing wage rate in
the U.S. was $15.45 per hour while that of Mexico was
only $2.17.
Agriculture. Currently the majority of agricultural products traded
between
the U.S. and Mexico consist of grains, livestock and oilseeds. Mexico
also
exports sugar for refining and cattle for feed lots, which are
re-exported
for sale. The U.S. has tariffs on fruits and vegetables. Overall,
the average
tariff on Mexican farm products to the U.S. is about 6 percent.
Environment. The
environmental issue has taken a backseat to many of the
economic concerns Mexico
has had to address in the past. In the 1980's Mexico
faced a debt crisis. In
order to revitalize the Mexican economy the Mexican
government allowed an
increase in foreign investment within its borders.
However, this investment also
meant increased pollution. The pollution that
has been allowed for so long has
escalated into a serious problem that Mexico
must address as they face
increasing free trade with the U.S. and Canada .
NAFTA introduced a major
breakthrough in the history of trade among the three
North American countries.
Supporters of the agreement argue that NAFTA
will benefit all that are involved
in terms of rising standard of living, as
their production and consumption
possibilities will be increased through
specialization and exchange in line of
comparative advantage. Opponents
argue, however, that the costs of job
relocation will be very heavy for the
United States whose wage rates are much
higher than those of Mexico.
Bibliography
http://naftalab.vus.utexas.edu
http://the-tech.mit.edu/Bulletins/Nafta
http://www.tehtsys.com/nafta.impact/nafta.html
http://www.nafta.net
http://www.tpusa.com/menus/nafta1.html
http://lawlib.wuacc.edu/forint/nafta/tariff.1
www.newsletters/nafta/monitor
Aguilar, Linda M. (1993) "NAFTA: A Review of
the Issues." Economic
Perspectives (Federal Reserve Bank of Chicago). Mings,
Turley and Marlin,
Matthew (2000) "The Study of Economics." Do you
hear a giant sucking sound
yet?
Bibliography
Bibliography http://naftalab.vus.utexas.edu
http://the-tech.mit.edu/Bulletins/Nafta
http://www.tehtsys.com/nafta.impact/nafta.html
http://www.nafta.net
http://www.tpusa.com/menus/nafta1.html
http://lawlib.wuacc.edu/forint/nafta/tariff.1
www.newsletters/nafta/monitor
Aguilar, Linda M. (1993) "NAFTA: A Review
of the Issues." Economic
Perspectives (Federal Reserve Bank of Chicago).
Mings, Turley and Marlin,
Matthew (2000) "The Study of Economics."