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Summary
This report analyses the effects, both positive and negative of the North American Free Trade Agreement on the economies of Mexico, California and Texas.
Why NAFTA?
The North American Free Trade Agreement between the United States, Mexico as well as Canada was ratified in January of 1994. With the agreement, the United States hoped to create a counterweight to the growing economic power of the European Union and decrease in illegal immigration from Mexico. Other objectives of NAFTA include the elimination of trade barriers by 2008, fair competition in the free trade area, an increase in investments in the member countries, and the protection of intellectual property rights. Through Mexico’s membership, unions feared a loss of bargaining power, a depression of US wages, and a loss of jobs due to Mexico’s lower wages. ... )
History
Although the North American Free Trade Agreement (NAFTA) between the United States, Canada, and Mexico went into effect in January of 1994, negotiations for the treaty already began in 1990. The United States had established a free trade zone with Canada in 1989 but soon recognized it needed to expand the free trade area to include Mexico for several reasons. First, there was a necessity to create a counterweight to the European Union, which was continuously gaining in economic power as trade among its members became less restricted. Second, NAFTA was hoped to allow better access for American and Canadian investors in Mexico. And finally, illegal immigration from Mexico had increased dramatically throughout the past decades. The creation of a free trade area was meant to promote market liberalization in Mexico, stabilize its economy, improve the living conditions in the country and therefore decrease the attractiveness of immigration to the United States. Canada, skeptical at first, agreed to join the negotiations between the US and Mexico in 1991 mainly out of defensive reasons. ... With 200 pages and 22 Chapters of specific obligations on trade in goods, services, financial services,
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investments, intellectual property rights, and barriers to trade, NAFTA was not only the most highly detailed trade agreement ever but also created the largest trading bloc today with a total population of 360 million. ... )
NAFTA’s Objectives
1. The elimination of barriers to trade in, and the facilitation of cross-border movement of goods and services between the territories of the Parties
Some tariffs and non-tariff barriers were phased out immediately with NAFTA in 1994; others will be eliminated by 2008. The United States, for instance, reduced its tariffs from an average of just over four percent in 1993 to less than two percent in 1994. Mexico’s reduction in tariffs was even more drastic, from an average of 25 percent to five percent with the intent of attracting industries to the country. ... The promotion of conditions of fair competition in the free trade area
Prior to NAFTA, political disputes, in particular between Mexico and the United States, had often been accompanied with restrictions on trade. ... The agreement and its clauses are now hoped to prevent such drastic measures. ... The substantial increase in investment opportunities in the territories of the Parties
To attract foreign investment, Mexico’s’ trade barriers had been falling since 1987. Through the establishing of the free trade area, however, it hoped to attract even greater amounts of American as well as Canadian foreign direct investment to boost its economic development. ... Providing adequate and effective protection and enforcement of intellectual property rights in each Party’s territory
The counterfeiting of consumer goods such as compact discs and videotapes in Mexico had increasingly become a problem during the 1980s. ... NAFTA was to prevent such criminal actions in Mexico. ... The creation of effective procedures for the implementation and application of this agreement, for its joint administration and for the resolution of disputes
(“North American Free Trade Agreement” n. ... Supplemental agreements to NAFTA
To maximize NAFTA’s benefits as well as to quiet some critics’ voices, the newly elected President Clinton then supplemented the treaty with agreements on environmental laws, on guarantees of worker standards, and on protection from sudden import surges. These agreements were, however, largely symbolic and almost impossible to enforce due to a lack of legislative power over Mexico. ... )
Controversy over Mexico’s Joining
However, NAFTA not only broke barriers through its size and great detailed agreement but also through granting the free-trade status to a less developed country, Mexico that is, by two developed nations for the first time in history. For that reason, particularly Mexico’s joining of the agreement caused controversy among politicians and economists who feared that Mexico would have negative effects on the
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trading relations as well as the United States’ and Mexican economies. Now, eight years after the passing of NAFTA, as one returns to its initial objectives and attempts to evaluate the agreement, the outcomes and effects of the treaty are still uncertain. (Smith 57)
Effects on the Mexican Economy
Mexico’s economy has greatly benefited from NAFTA. Its exports have increased by 176 percent and its imports by 117 percent while the US is the country’s largest trading partner, leading to Mexico’s dependence on the US economy. ... 7 percent pre-NAFTA to 2. ... (Whalen 61)
Opponents of NAFTA
Possible effects on the American workforce
The North American Free Trade Agreement caused lengthy debates, especially among historical structuralists in the United States, one of which centered on the American workforce. This school of thought strongly believed that the working class of both countries, the United States as well as Mexico, would be the main losers of the agreement. The AFL-CIO and the Teamsters Union, for instance, feared the relocation of many American businesses and therefore many jobs to Mexico where not only the wages but also the workers’ standards and taxes are considerably lower. ... 9 million American jobs in danger due to NAFTA. (“Background Notes: Mexico, August 1999” n. ... )
Also, in light of the tremendously lower wages in Mexico, many critics believed a depression of US wages as a consequence of the treaty to be possible. ... When confronted with a demand for higher wages, opponents thought, many corporations would opt for relocation in Mexico. ...
(“Background Notes: Mexico, August 1999” n. ... )
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Union’s concerns
Workers’ Unions in particular feared a loss of bargaining power through NAFTA and claim that the agreement has failed to address the fundamental rights of workers in the thousands of pages of rules.
Approximate Word count = 5325
Approximate Pages = 21.3
(250 words per page double spaced)
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