NAFTA: United States, Canada and Mexico Trading Together - Research Paper Example

?Donna Purcell Order 538306 18 May NAFTA: United s, Canada and Mexico Trading Together What is NAFTA? It stands for North American Free Trade Agreement. NAFTA includes the United States, Canada and Mexico, making it the world’s largest free trade area in terms of GDP (Gross Domestic Product). The main purpose in launching NAFTA was to reduce trading costs, increase business investments, and basically place North America in a more competitive role within the global marketplace. The original NAFTA treaty was signed on December 8, 1993 by President Bill Clinton, however, was not placed into force until January 1, 1994. It was actually signed by President George H. W. Bush along with Mexican President Salinas, and Canadian Prime Minister Brian Mulroney in 1992. Ratification of the legislature by the three countries took place in 1993. By campaigning on a common market, President Ronald Reagan actually began formation of NAFTA, which lead to the passing of the Trade and Tariff Act in 1984. The act gave the president authority to negotiate free trade, but only allowing Congress the ability to approve or disapprove. Congress was not allowed to change any negotiating factors. Canada and the United States began negotiations for the Canada and US free trade agreement, which was put into effect in 1989. This treat is now suspended due to onset of NAFTA. Mexican President Salinas and President Bush began negotiations for a trade agreement between Mexico and the United States. History shows that Mexican tariffs on US Imports were 250 percent higher than US tariffs on Mexican imports. Canada was the first to suggest an agreement between the three countries, which lead to NAFTA. Since the signing of the NAFTA agreement in 1994, two addenda have been added. NAFTA has linked 450 million people from differing countries producing $17 trillion worth of services and goods. NAFTA was originally signed into law for a period of 15 years. NAFTA eliminated tariffs and created an agreement based on the rights of international business investors. This reduced the cost of trade, which promotes growth and investment. Eliminating tariffs also reduces inflation by lowering the cost of imports. Some features of NAFTA that specify its purpose were to eliminate existing barriers to trade and make effective the cross-border movement of services and goods. It was also to promote an atmosphere of fair competition. This, in turn, created increased investment opportunities for all three countries. Other features included providing enforcement and protection of intellectual property rights and creating procedures for the resolution of trade disputes. A precedence was also set that established framework for further expansion in trilateral, regional and multilateral benefits of the agreement. It also gave the three countries “most favored nation” status. There are, of coarse, positive and negative aspects to NAFTA. Trade between the three countries has tripled from $297 billion in 1993 to $1 trillion in 2007. Trade has grown due to the fact that NAFTA gives the ability for companies in the treaty to bid on government contracts, and protects intellectual properties. NAFTA has also boosted US farm exports to Canada and Mexico. We have seen a 22 percent increase in 1993 to 30 percent in 2007. Mexico is our top destination for exports in beef, corn sweeteners, rice, soybeans, apples and beans. Service exports have also been increased to 50 percent of US GDP services. This includes financial services and health care. Service exports hit $40 billion in 2007. Another benefit is reduced oil and grocery prices. It is important that we import oil from friendly countries. It reduces our dependence on countries from the Middle East and Venezuela. Both Venezuela and Iran have been selling oil in currencies other than the US dollar, which contribute to lowing the value of our dollar. The same is true for food imports. NAFTA has also allowed for stepped up foreign direct investments. US investments in both Canada and Mexico have more than tripled to $348.7 billion in 2007. NAFTA protects investor’s legal rights by giving them the right to make legal claims against the government if it is forced to take their property by eminent domain. Of coarse where there is a positive there are always negatives. The United States economists have pointed out the negative effects on the US. One of the most prominent negatives is in the area of trade balance. Before the signing of NAFTA the US had a relatively stable level of deficit with both Mexico and Canada. After 1994 our level of trade deficit has gone up 5 fold, reaching $107 billion in 2004. The total exports of the US to the rest of the world have declined 5% between 1994 and 2004. While expectations of NAFTA to step up the competitiveness of US firms, it has also given them access to Mexican Labor and Canadian raw materials. This has resulted in a large loss of jobs in the US, especially in the manufacturing industry. Many of these unemployed workers either dropped out of the workforce altogether or were reemployed in other manufacturing jobs that lowered their wages by as much as 13 percent. The goals of NAFTA have not been entirely positive for Mexico either. It has not boosted the economic growth in Mexico or raised the standards of living. It was also to create greater incentives for Mexican workers to stay in their own country rather than migrate North. The only real gainers from NAFTA have been large corporations and farm owners both in the US and Mexico. When NAFTA began, the former Foreign Minister of Mexico once remarked, “NAFTA was, and agreement for the rich and powerful in the United States, Mexico, Canada, an agreement effectively excluding ordinary people in all three societies.” Therefore, it has come as no surprise that NAFTA protects the interests of large corporations and undercuts workers’ rights, environmental protections, and democratic accountability. Canada has also seen the same undercutting of working families. Except for large corporations and upper income executives, incomes have remained virtually stagnated. Canadians were assured that NAFTA was necessary to “save the social safety net of which they were justly proud.” Defenders of NAFTA say that the damage to workers is exaggerated or that the problems of inequality are largely the result of domestic policies and have nothing to do with NAFTA. Still one cannot ignore the enormous increase in bargaining over workers and the shift to production out of the country. Then the products are sold back home. Looking at all three nations now 17 years later, it’s evident that corporate influence over economic policy has greatly expanded in the United States, Mexico and Canada. In one sense the “vision” of NAFTA has pushed these nations backward toward the 19th century theory that government’s economic function is to protect the interests of its investors, while the working people are left to fend for themselves. Entire Websites: Advantages of NAFTA. “US Economy.” Web. 18 May 2011. http://about.com/. North American Free Trade Agreement (NAFTA). Web. 18 May 2011. http://ustr.gov/. NAFTA: Economic and Environmental Impact on the US and Mexico. Web. 18 May 2011. http://dickinson.edu/. Cassise, Christopher J., 1996. “The European Union v. the United States Under the NAFTA: A Comparative Analysis of the Free Movement of Persons Within the Regions. Web. 18 May 2011. http://litigation-essentials.lexisnexis.com/. Amadeo, Kimberly., “History of NAFTA.” Web. 18 May 2011. http://about.com/. Scott, Robert E.; Salas, Carlos; Campbell, Bruce; Faux, Jeff. “Econonic Policy Institute, Research and Ideas for Shared Prosperity.” Web 18 May 2011. http://epi.org/publications/entry/. Read More