North American Free Trade Agreement - Essay Example

North American Free Trade Agreement (NAFTA) Introduction The North American Free Trade Agreement (NAFTA) continues to generate issues or concerns. Its implementation embarked on January 1, 1994 and the agreement aimed at eliminating most blockades to trade and outlays among the North American countries; the United States, Mexico, and Canada. Under t NAFTA, various non-tariff barriers to agricultural trade were eliminated between the United States and Mexico. Besides, various tariffs were eliminated immediately, with others being phased out within the period of 5 to 15 years. This paved way for an orderly adjustment to free trade with Mexico following the inception of NAFTA in the beginning of January 1, 2008. The U.S.-Canada agricultural provisions for Free Trade Agreement were incorporated into the NAFTA in 1989. With the creation of NAFTA all tariffs affecting agricultural trade between the United States and Canada were all removed but with very few exceptions for items covered by tariff-rate quotas. Moreover, Mexico and Canada also reached a separate bilateral NAFTA harmony on market entree for farm products. The Mexican-Canadian agreement also served in the elimination of a number of tariffs. However, some tariffs remained in force between countries such as those affecting trade in dairy, poultry, eggs, and sugar products. This paper intends to highlight some of the reasons behind Canada, the US, and Mexico, entering into the NAFTA, the concerns of each nation, and finally determine whether these concerns materialized. The Conception of the NAFTA Idea The most significant characteristic of the manner in which the free trade within the Western Hemisphere had influenced the trading system was a culmination of efforts to bridge the gap between the Northern and Southern Divide. NAFTA ensures that there is free trade between a major developing country and two developed countries that have undergone significant industrial revolution. This agreement in its entirety is usually based fully on reciprocal commitments. For instance, Mexico, in its own self-interest decided to open its market to far better degree as compared to United States and Canada. Mexico made this move because its tariffs accompanied by other border restriction were much higher at the onset. In addition, some of the areas of commitment that were extremely significant to Mexico include intellectual right to property, unrestricted procurement, ventures, and free transportation. It is worth noting that the sharp peculiarity between developed and developing nations, which permeated the General Agreement on Tariffs and Trade (GATT) and currently the World Trade Organization (WTO) and which held the history of preferential trade considerations was not included within NAFTA. Furthermore, the outlook for a Free Trade Area of the America (FTAA) agreement aims at continuing with this non-special/non-differential affiliation. Even the small countries are certain to receive special and fair treatment since the implementation of free trade commitments and such regional integration on non-preferential basis is likely to have a considerable impact on the future of NAFTA. In fact, this process of developing a comprehensive free trade area within the Western Hemisphere through closing down the gap between the developed and developing nations or countries is compatible with the continued transformation of the multilateral World Trade Organization. However, there were various reasons behind Canada, Mexico, and US joining North American Free Trade Agreement (NAFTA), which are discussed hereunder: Reasons behind Canada’s Entry into NAFTA Upon the introduction of NAFTA, Canada did not welcome the idea of expanding the Free Trade Agreement (FTA) to a third country. In Ottawa, politicians were reticent in regards to the FTA and therefore they questioned the insight of additional tribulations. Nevertheless, through absolute expediency, Canada realized that the Mexico and U.S. were more than willing to sign an agreement in the midst of or devoid of the participation of Canada. They then assumed that such a move was likely to draw investment capital away from Canada. Instead, Canada saw it prudent to engage in a separate agreement with Mexico, a move that would result in the formation of a Canada-Mexico trade agreement. Another obstacle was the fact that Canadians considered Mexico to be just another “poor country.” However, they were dismayed to realize that the average Mexican consumer was buying more Canadian goods (approximately USD 325) Canadian goods as compared to European (USD 200) yearly. This was considered as another case of prejudice that had to be addressed by employing economic facts. In addition, the fear over the ever-soaring US dollar and the rapidly increasing US trade deficits, which would necessitate protectionist measures to the Americans, was an inhibiting factor to the adoption of NAFTA. There were four major objectives for Canada to negotiate such an agreement. These included phasing out of tariffs to gain greater access to the US markets, upholding a certain degree of protection for the cultural industries in Canadian and bargaining dispute settlements agreement aimed at providing some sort of insulation to Canada from the likely arbitrary submission of US trade remedy bylaws. Canada also sought to delink itself from the most likely consideration of the expansionist U.S. defense. Reasons behind Mexico’s Entry into NAFTA Mexico’s entry into the trade organization was very essential since they were considered the initiators of the process. In Mexicans’ case, their historical background played a very significant role in their entry into this agreement, especially with regard to the manner in which they view their Northern neighbors. They also had the feeling that they were close to the US and more inclined to European ties. Mexico was also certain that the move would help counterbalance the overwhelming presence of their US neighbors. To begin with, Mexico had the desire to attract American investment capital into its domestic industries. They were also hopeful that in the first year of the agreement, they would have an influx of roughly USD 15 billion (Judith, 254). Mexico’s urge to join free trade agreement with the U.S. and Canada was further motivated by the fear of being barred from the FTA, which already subsisted and had expanded free trade deals. Mexico was also interested in maintaining its autonomy. Undoubtedly, they knew that any future relationship with the US required economic integration with its neighboring countries. Reasons behind the United States Entry into NAFTA The introduction of FTA stirred the interest of several US politicians towards joining NAFTA. For the US, the driving force was the anticipation that the agreement would create a leeway for economic opportunities within Mexico. They also knew that such an agreement was likely to be beneficial in terms of foreign policy since it was likely to open the door to relationships between the three countries. The fact that investment barriers were tranquil and the protection of markets certain assured the US of a much bigger market in Mexico. Nevertheless, the Americans knew that the trade agreement would be beneficial, however, not in the entire sectors of the financial system in all the three countries in partnership. The notion that this move was likely to be realized prevailed in the negotiation process. Some of the economically oriented reasons that made Americans to expand NAFTA towards the south included the need to make North America more powerful when competing against regional economies in both Europe and Asia. The US was also keen on protecting and enhancing market access for its domestic goods to the newly open growing economy in Mexico. In addition, the U.S. intended to push for fresh opportunities within the services sector and signing contracts with government firms, both in Canada and Mexico. Finally, the U.S. aimed at ensuring that American companies received fair treatment in the multilateral market (Judith, 342). Concerns of Each Nation Entering into NAFTA For the Americans, the passage of this agreement faced all sorts of opposition whereby the major critics were environmentalists and labor unions. The environmentalists demanded guarantees in the area of pollution control while the labor unions were afraid that jobs would be moved to the south. The labor unions particularly demanded better guarantees in terms of employees’ rights. These talks were initiated in the presence of President George W Bush who was a Republican. A number of opponents led by the very powerful and contentious American industrialist Ross Perot contended that NAFTA implementation would replicate Mexican trade agreement, where people are paid a dollar an hour, with no health care provisions in place, no rules controlling pollution, and very few retirement benefits, among other issues. They also observed that the signature of the agreement was also likely to pull jobs out of the United States, according to Ross Perot and other Americans who opposed the move. In 1992 election campaigns, Bill Clinton, the then Democratic presidential candidate, made a promise of three additional agreements with Mexico and Canada on environmental control, labor, and unanticipated problems. During this period, NAFTA was considered a nonpartisan agreement and this saw its approval without much opposition. It became clear that NAFTA would aim at making North America a stronger economic bloc. This strong economical base was geared towards increasing competitiveness within regional economies in both Asia and Europe. In that sense, the current economic growth being experienced in North America as compared to other regions clearly indicates that these concerns have finally materialized. Additionally, there was another significant motive for the US to bargain with Mexico. NAFTA served as a vote of confidence in Mexico and it stood for optimism as regards the relationship of U.S. with Mexico following a long history of strained relations. Through the passage of NAFTA, autonomous principles were introduced throughout Mexico. Such democratic principles included lucidity, open records, and various options for solving business disputes. While there were no illusions that problems brought about by immigration difficulties, corruption, drug trafficking, among other pressing issues would be brought to an end, there was hope through the introduction and implementation of NAFTA that employees’ working conditions were likely to improve. In answering the question of whether the concerns materialized, we must admit that since the institution of North American Free Trade Agreement, the rise in the U.S. trade deficit with Canada and Mexico has really caused displacement of production. Various jobs that have been lost were particularly high-wage positions in the huge modern industries. The loss of these jobs accounts for NAFTA’s impact on the economy of the United States. On one hand, NAFTA has also caused income inequality to increase, weakened bargaining power of employees, suppressed wages, and condensed fringe benefits. Additionally, NAFTA as free trade agreement has guaranteed with unique provisions that in turn have stimulated foreign direct investment and the free movement of factories within the hemisphere. This has particularly augmented trade from United States to Canada and Mexico even though there were no provisions within the core of agreement to maintain labor and environmental standards. In addition, NAFTA has been of great economical significance in favor of investors, and against workers. The Verdict therefore is …. According to the facts, the verdict therefore is that NAFTA is a success rather than a failure. Generally, following the signing of the agreement between partners has contributed to a significant increase in trade. It is a common knowledge that at its inception, there were losers and this could not be avoided. Nonetheless, the impacts appear comparatively local and those affected appears insignificant. In addition, relocalization of various firms have affected a number of companies and contributed to several employees to lose their jobs thus creating personal hardships and negative economic impact on various towns. Conversely, NAFTA has also created many additional employment opportunities to absorb those that had been lost. NAFTA can not be blamed on the perceived suppressed wages because this is considered a global phenomenon. North America must therefore contend persistently with global cost reductions. All in all, NAFTA is a measure of the aptitude of its member countries towards ensuring that they adapt to global pressures with the aims of eventually succeeding. Conclusion It is clear the dawn of North American Free Trade Agreement had a lot of difficulties as the initial case of Free Trade Agreement. There were lobby groups and variety skeptics aimed at preventing the signature of the agreement. Certain issues needed to be compromised through the introduction of some exceptions in order to cater for the national interests. NAFTA is much more than just the tariffs elimination between member states; it embraces a variety of multifaceted guiding principles and regulations established with the aim of protecting the interest of each member country. Some claim that NAFTA has been a failure and yet such cases are considered baseless since there are no verifiable facts. However, the United States feared loosing massive flight of American jobs to Mexico but this did not materialize. The cases of jobs being lost to either Canada or Mexico are relatively minimal compared to the jobs created in that particular period. It is not an exception that during the five year of NAFTA, both Canada and Mexico witnessed their level of exports increase enormously. Such information supports the argument that NAFTA was a success rather than a failure. Besides, if it wasn’t a success then why do Canada, the US, and Mexico considering to continue with the agreement and intensifying it to other countries? There is a variety of trade agreements around the globe and the most astonishing issues were in regards to expansion and intensification efforts. Each trade agreement is significant but it is all based on regional realities and the difficulties being faced by the adjacent region. Generally, the panoramas of free trade are potential in the hemisphere. In addition, in that regard, a gradual expansion of regional trade agreement is very logical and is an attainable course of action. Work cited Bello Judith, American Bar Association, and Section of International Law and Practice. The North American Free Trade Agreement: A new frontier in international trade and investment in the Americas. New York: Section of International Law and Practice, the American Bar Association and the International Lawyer, 1994, 68-397. Read More