Concept of Trade Blocs and Nature of Economic Integration - Essay Example

I am sending you an email for changing PLEASE The section which is highlighted in black leave it same and you must to Summarize the part of blueink and you need to include that part but make sure the maximum words limit should be 3300 not more than for all please. 2. Focus on the State of Mexico only. 3. Tables have not changed. I need this change ASAP please. Thanks. Table of Contents I am sending you an email for changing PLEASE. 1 1.The section which is highlighted in black leave it same and you must to Summarize the part of blue ink and you need to include that part but make sure the maximum words limit should be 3300 not more than for all please. 1 Table of Contents 2 Answer to Question Number 1 3 The Impact of Liberalisation 3 Concept of Trade Blocs 4 Nature of Economic Integration 8 Answer to Question Number 2 13 NAFTA: North American Free Trade Agreement 13 Timeline of NAFTA 17 Evaluation of the Impact of NAFTA: Case Study for Mexico 20 References 24 Chambers, & Smith, (2002). NAFTA in the new millennium. Alberta, Canada: The University of Alberta Press. 24 Frankel, J. A. (1997). Regional trading blocs in the world economic system. Washington DC, USA: Institute for International Economics. 24 Jenkins, D. E. (2000). Market whys and human wherefores: Thinking again about markets, politics and people. London, UK: Continuum International Publishing Group. 24 Park, D. & Goh, S. (1998) “Prospects of Economic Integration in Southeast Asia” in East Asian economic issues (Vol 4) by Kendall, J. D. & Donghyun, P. (eds). London, UK: World Scientific Publishing. 25 Peng, M. W. (2008) Global Business. New York, USA: Cengage Learning. 25 Sanchez, M. (April 14, 2000) “NAFTA’s Economic Effects on Mexico” [Online]. Available at (Accessed: April 13, 2010). 25 Sanchez, V. (May, 2006). “A Comparison of EU-NAFTA Integration Regimes: From a Trade Bloc to an Institutional Development Model” [PDF]. Available at < http://repository.upenn.edu/cgi/viewcontent.cgi?article=1029&context=wharton_research_scholars> (Accessed: April 11, 2010). 25 Vega-Canovas, G. (1999) “NAFTA and the EU: Towards Convergence?” in Regional integration and democracy: expanding on the European experience by Anderson, J. J. (ed). Oxford, England: Rowman & Littlefield Publishers. 25 Young, S. (1998). “Globalism and regionalism: complements or competitors?” in International economic integration: critical perspectives on the World economy by Jovanović, M. N. (ed). London, UK: Routledge. 25 Answer to Question Number 1 The Impact of Liberalisation Soon after the wave of liberalisation pulled down the iron walls that various economies had built around themselves, the idea of conjuring trade blocs leapt up. Liberalisation had wiped out all notions which went against international trade and had highlighted upon the advantages that the participating nations could draw from it. It discouraged the past policies of implementing barriers to trade through unnecessary imposition of quotas and tariffs. Hence, a natural consequence of the measure had been the availability of a wider basket of consumption goods and eventually, a rise in the average standard of living (Jenkins, 2000). But one point that had been almost ignored at the time was that, opening up of the economies also made them susceptible to various external disruptions, so that the contagion effect which had been negligible so far, now became a significant problem. As the adjoining graph, capturing fluctuations in the economic growth rate of the world, would reveal, the disturbances had been wider post 1990s than they had been in the period prior to that. The peaks and trenches in the growth rate are clearly evident, signifying that the economies were now required to be more careful about the external events to shield themselves appropriately. It increased the responsibilities of the domestic governments of various nations and even then, most of the times hardly any measure were proven to be suitable enough in this respect. The impact that the East Asian Crisis of 1997 and the Global Financial Crisis of 2008-09 had all over the globe is prominent from the downfall in the world economic growth rate depicted above. The economic growth rate, however, is a sheer reflection of the devastation experienced by different nations. Concept of Trade Blocs The idea behind trade blocs triggered when the objective behind minimum liberalisation to be implemented equally everywhere, emerged to be one with a serious loophole – vulnerability to exogenous disruptions. A trade bloc is an agreement reached between a subset of nations so as to facilitate the smooth transaction of goods between them and form trade discrimination against the non-member nations simultaneously. Hence, only the member nations of a trade bloc might enjoy the benefits of being a part of the group, while for others, there actually occur a distortion in the terms of trade (Bernal, 1997). Some of the major or rather the most significant trade blocs in the world, accompanied by their location, have been presented in the table below. The diagram above captures the base of a few major trade blocs over the world and their component nations, being formed by the end of 2008. Table 1: Major Trade Blocs in the World Location or Base Trade Bloc Europe European Union (EU), European Free Trade Agreement (EFTA), European Agreements and the European Economic Area (EEA), United States North American Free Trade Agreement (NAFTA), Canada-US Free Trade Agreement (CUSTA), US-Israel Free Trade Agreement Latin America Common Market of the South (MERCOSUR), Central American Common Market (CACM), Andean Pact, Latin American Integration Association (LAIA), Caribbean Community and Common Market (CARICOM) Sub-Saharan Africa Communaute Economique de l’ Afrique Occidentale (CEAO), Union Economique et Monetaire de l’ Afrique Occidentale (UEMAO), Union Douaniere et Economique d’ Afrique Centrale (UDEAC), Common Market of Eastern and Southern Africa (COMESA), Preferential Trade Area for Eastern and Southern African States (PTA), Southern African Customs Union (SACU) Asia Association of Southeast Nations (ASEAN), ASEAN Free Trade Area (AFTA) Australia Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA) The member nations draw an agreement between themselves that obliges them to respect the terms and conditions decided mutually. These terms are meant for the benefit of the entire bloc rather than of each individual nation. Trade blocs are basically meant to minimise the existence of trade barriers between a chosen set of nations, so as to assist a smooth flow of goods between national boundaries. Some of the features which define a trade bloc can be summarized as follows. Protection - Trade blocs are meant to shield the underlying nations from the devastating impact of any external shock arising outside the bloc. It is beneficial for the external economies too, since a shock arising in the block might not have as massive an impact on them as the latter would face. Cheaper Trade between Member Nations - Nations comprising a trade bloc are mostly found to be framing policies in the interests or favour of their allies including themselves. In a large number of situations, they are found to be allowing a free flow of goods and services so that the trading partners can enjoy optimum benefits from the same (Bilal, 2001). Hence, the nations underlying a trade bloc are bestowed with a bigger market for their goods, without having to pay any custom duties or taxes for the additional benefits they enjoy (Bernal, 1997). Monopoly Power - The trade blocs might gain a monopoly power in cases where they comprise of a large number of countries. In such situations, they make up for a considerable proportion of the total world market, and hence the sufferance of those willing to trade their goods and services, rises. They often have to give up to the whims of the latter and finally cannot add up to their profit figures as much as they could have in the absence of a trade bloc (Bilal, 2001). Bargaining Position - Bigger that the size of a trade bloc is, more will be the power at its expense. They are often found to be lying in an advantageous position in various political or economic summits; this fact often helps them to gain a bargaining position so as to orient most of the policies in their interests (Bernal, 1997). Simplification - The nations in a trade bloc try to coordinate between their activities and policy implementations so as to simplify the terms of their deals with other member nations (Bernal, 1997). A trade bloc however, might not only be considered as a probable method to establish trade liberalisation in its true sense, among a group of nations. In addition, a number of causes could be cited behind the formation of a trade bloc among a group of nations. Protection against external shocks - The primary objective that operated behind their formation was to unite together and fight against any external shock in a consolidated way. Political and Military Alliance - Later it was also viewed as a possible way-out to end various political trysts and military conflicts existing between nations, whether neighbouring or not (Mansfield & Pevehouse, 2000). Protection of Weaker Domestic Industries - Moreover, formation of trade blocs might also be targeted towards the protection of the niche industries indigenous to the particular region (Bilal, 2001). In most situations it is found that the nations lying close to one another face similar deficiencies as far as natural endowments are concerned. If absolutely free trade is allowed, the industries with otherwise good prospects would have to face high competition than their much equipped and endowed rivals. Hence, the national governments decide to protect them and help them grow to make them fit for world market competition (Young, 1998). Building up of trade blocs might seem to be a beneficial move for the member nations, but unfavourable for the external economies, since in most of the cases they are exposed to discriminatory behaviour from the former. It might even be argued that the measure which apparently seems to serve as a catalyst assisting liberalisation between member nations, is actually distorting the terms of trade against the external economies. The non-members have to operate in narrowed down markets and that too with their products being sold at relatively higher prices to compensate for the hefty duties on shipments (Frankel, 1997). Unless the products imported from outside the trade bloc can guarantee the members of a premium quality or belong to a renowned brand, there are little chances towards their sustenance. In fact, many a times it is also associated with the incurrence of certain costs to the member nations. For instance, there is a cost of negotiation associated with zeroing upon an agreement, since prior to the pact the nations are all individual entities with different interests; hence, a common ground needs to be reached at first. The potential members cast their votes for or against the conditions of the deal so that it becomes a rather complicated process at the end (Frankel, 1997). Moreover, there might be a reduction in labour wages in the member nations, which now shed nominal objection to labour migration. On account of free movement across national boundaries, the employers in each nation have an access to a larger supply of workforce which automatically cuts down the bargaining power of the labour market (Jenkins, 2000). But, despite these drawbacks, the concept of trade blocs continues to attract the nations and their political leaders eager to attract vote banks. One major benefit that the theory is synonymous to is that of lower rates of inflation due to low cost of production as well as transportation and a wider market basket. Nature of Economic Integration Trade blocs are considered as an almost universal solution for attaining trade liberalisation between member nations. At least that is how the global political leaders prefer to put it since such integrations have most often led to unity among the member nations who until now might have been involved in petty quarrels. The example of the European Union is worth mentioning in this case since it combines a number of economies which had been waging wars against one another even a few years prior to the amalgamation. But the benefits of integration could be attained to their brim if it is concentrated among the neighbouring nations rather than amidst economies scattered around the world. A regional concentration helps to create stronger political influence with negotiators in different summits. Hence, the concept of a regional economic integration is more popular these days compared to that of a global economic integration (Peng, 2008). Time has paved the path for variations in the nature of economic integration that the nations go for. In other words, the fundamental nature of a trade bloc depends on the type of regional economic integration that it is a part of. There are, till date, six broad categories of economic integration (Park & Goh, 1998). They have been arranged according to the amount of complications that they involve and have been illustrated in the following paragraph in a tabulated form. Table 2: Types of Economic Integration Type of Economic Integration Definitions and Illustrations 1. Preferential Trade Agreement (PTA) Definition - It is simplest type of economic integration reached between a set of nations. The only discrimination that it allows is that of the privilege of a reduced tariff rate for a selective range of goods, to the member nations compared to the external nations. There exists a roof or a floor respectively, beyond which the rates cannot move (Marrewijk, Ottens & Schueller, 2007). Examples - A few economic integrations which might fall under the category of Preferential Trade Agreements are the European Union (EU), the European Economic Area (EEA), etc. 2. Free Trade Area (FTA) Definition - In case of a Free Trade Area (FTA), the member nations are barred from making any kind of tariff or non-tariff payments. Non-tariff barriers (NTB) are those non-monetary restrictions which bar the free flow of goods and services between nations, namely, quotas, licenses and product safety regulations. (Park & Goh, 1998). However, the member nations do not frame any external trade policies. However, there are some drawbacks of such a move. Due to a lack of any concrete external policy, there is always a risk that one of the member countries might import a commodity from another non-member that exerts lower trade barriers, and sell it to the member nations, thus taking advantage of FTA and extracting hefty profits. So, the apex body of the integration ensures that the every commodity being transacted between the member-nations are accompanied by a certificate of their origin. Measures such as Free Trade Agreements are meant to shove up the political and economic robustness of a region. But, such deflationary actions might lead to an unanticipated consequence (Marrewijk, Ottens & Schueller, 2007). Examples – The European Free Trade Agreement (EFTA) and North American Free Trade Agreement (NAFTA) are two examples of the kind described above. 3. Customs Union (CU) Definition - Customs Union is almost similar to that of an FTA, in the sense that there is a complete absence of trade restrictions among the member nations of the agreement. However, one additional feature is that they set common external trade policies for the non-member nations; hence there is almost no way that a member nation might earn an arbitrage profit as in the case of FTAs. Example – The European Economic Community (EEC) is a good example of a Customs Union. 4. Common Market (CM) Definition - A Common Market is a combination of a Customs Union allowing a mobilisation of factors of production. (Park & Goh, 1998). Naturally, there is a high tendency of the Common Market towards becoming a large integrated market with no variations in factor costs. If Country A and B have agreed to a trade pact of the kind of a Common Market, and the factor cost in A is higher than that in B, all resources from B will be deflected to A. The mechanism will continue until the costs in both the economies are not equated with one another. Complications will be further reduced if the member nations also eliminate other barriers, like product standards and taxes upon the final goods (Marrewijk, Ottens & Schueller, 2007). Example – The European Union (EU) is a Common Market. 5. Economic and Monetary Union (EMU) Definition - The Economic and Monetary Union is a modified version of the Common Market. Apart from the features that a Common Market allows, there is also cooperation in the fiscal, monetary and other economic policies being framed by the member nations. The objective of the nations is to ensure regional harmony and as little competition as possible between the member states. Sometimes, there only exists fiscal cooperation when the type of economic integration is known as Economic Union, while in many others, it is only a monetary union. Nevertheless, there also exist cases of both types assimilated into one (Marrewijk, Ottens & Schueller, 2007). Examples – The European Monetary Union is an example of an Economic and Monetary union. 6. Supranational Union or Complete Economic Integration Definition - A Supranational Union or a Complete Economic Integration is that where there is a single governing body at the topmost level and the member nations give up their control from the policies being set by it. In other types of economic integration, there are allowances for the member states to put forward their opinions while a common policy is framed. But, the formation of a Supranational Union is almost unviable, since no country will be willing to give up their liberty and dominion. (Park & Goh, 1998). The adjoining diagram depicts the cumulative number of economic integrations that the world has seen over the years. The number of Free Trade Agreements has overgrown the other types of economic integration. At present, i.e., as per the data of 2007, there are almost 100 FTAs in the world. The reason for the popularity of the same is that it allows for liberty of cooperation between member nations and at the same time is a political solution to various fights that exist between nations. However, at the same time, it does not take away the control that a nation has upon itself unlike that in the case of a Customs Union or Common Market. Answer to Question Number 2 NAFTA: North American Free Trade Agreement NAFTA was the result of a trilateral free trade agreement between the North American economies of USA, Canada and Mexico in the spring of 1991. As the name itself suggests, the pact was mainly characterised by a permission of a transaction-cost free trading between the three member nations, while the non-members were subjected to discrimination. However, prior to 1991, there already existed a bilateral free trade agreement (FTA) between USA and Canada since January 1, 1989 (USDA, 2009). FTA (1989) between USA and Canada USA had historically been one of the largest importers in the world, with almost every nation in the world involved in trade with the former. By the latter half of 1970s and the first half of 1980s, it was discovered that playing the role of a consistent importer had cost the nation a bulk of its financial resources. The nation was deep into trade deficit and resorted mainly to foreign savings to maintain a national account balance. But given the uncertainty of the same, the economy was at the verge of losing its currency value. Figure 4 clearly shows how the value of US dollar against English Pounds (GBP) had started to fall post 1975 and again post 1981, after which its growth had almost retarded. The national government decided to tighten its buckles and started thinking about implementation of tariffs and quotas on imports. They reasoned out their strategy through raising issues about protection to the weaker domestic industries and to minimise the outflow of resources as import payments. But Canada, being a major US importer, feared of getting deprived from the privilege of trading their goods in the largest and the wealthiest of all markets in the world. According to 1988 statistics, the amount of trade occurring between the two nations approximated to US$ 158 billion, which made them the biggest bilateral trade partners in the world (Menz & Stevens, 1991). The nation used to extract 70% of its net export income from trading their goods with USA. Thus, they convinced USA to enter into a free trade agreement with the latter. Meanwhile, soon after USA declared its new policy, most of the European nations backed off from maintaining further trade relations with the former. In fact, it could be considered as a rather normal behaviour on their part amidst a world full of economies ready to accept their exports at lower duties. Japan too, which had gained a worldwide popularity through producing goods endowed with newly invented technology, seemed reluctant to trade with USA anymore. These implicit protests aroused by major economies around the world, against the terms and conditions of trade that USA was about to implement drove the latter to think hard about Canada’s proposal. The national administration, with an objective to lure back the European nations as well as the Southeast Asian emerging market economies, signed into a Free Trade Pact with Canada in 1987 that was realised from 1989. With two of the world’s largest economies bound together in their free trade pact, most of the economies could almost foresee crisis paving its way towards their economy. They knew that two nations would now become the greatest trading partners of one another leaving the others at a lost end due to loss of two of the biggest markets in the world. However, despite their knowledge, the prospects of going for a regulated trade with the USA went against their economical interests. Hence, finally the nations gave up any attempt to establish their dream of unlimited free trade with USA, with the consent of the committee formed under the General Agreement on Trade and Tariffs (GATT) (Vega-Canovas, 1999). NAFTA (1991) between USA, Canada and Mexico Later in 1991, NAFTA was formed with the inclusion of Mexico in the pact, which now consisted of three member nations. The new member had resorted to this step to restore stability within its economic spheres. It had succumbed to a debt crisis soon after the collapse of oil prices in the 1980s. Mexico had been largely dependent on its net oil exports and had retained the fifth position among major oil exporters in the world. The nation faced widespread recession, increased levels of unemployment and poverty due to the sudden misfortune which fell over it and thus, decided to join its hands with the USA. The idea which Mexico had was that, USA being one of the largest markets in the world, could prove to be a fertile destination to absorb the excess produce of the former. Moreover, being a part of FTA would imply that Mexico would not have to bear the hefty expenses of trade tariffs unlike for others that charged almost some of it. In contrast, a huge opportunity cost will be incurred if the US market is completely avoided to get rid of the drawbacks of getting discriminated. Such a measure could also relieve Mexico of its economic and political instability. Hence, the nation thought the better of it and proposed to become a component of FTA (Chambers & Smith, 2002). Thus, NAFTA was conjured in the spring of 1991 between the already two founding nations of USA and Canada, with Mexico as the newly included one, but was implemented from January 1, 1994 (Vega-Canovas, 1999). The impact of NAFTA had been an increased trade between the component nations. Canada and Mexico earn the lion’s share of their national income through exporting their products in the US market (see Figure 6). USA on the other hand, is more into imports than exports; but even then a considerable proportion of its GDP comes from exports made to the two members. Timeline of NAFTA The story of NAFTA, beginning from 1994 till date, could be enveloped in the following table, with highlights upon the most significant events which surmounted it, corresponded with a timeline. The timeline could be broadly categorised into three distinct phases – signing of the agreement in 1991, introduction of North American Development Bank (NADBANK) and Border Environment Cooperation Commission (BECC) in 1994 and renewal of NADBANK and BECC by Environmental Protection Agency (EPA) in 1996 (Sanchez, 2006). Table 3: Timeline of NAFTA Time Significant Event December 17, 1992 NAFTA was finally signed as an economic integration or rather a formal trade bloc between the three major North American countries of USA, Canada and Mexico after days of negotiations. The US President Bush, Canadian Prime Minister Mulroney and Mexican President Gortari sign their final approval for the treaty. January 1, 1994 NAFTA comes into effect along with the twin issues about labour and environment. November 16, 1994 Canada and Mexico sign an agreement about nuclear energy conservation and using them for peaceful purposes. December 22, 1994 Hyperinflation in Mexico followed by the President’s decision to let the currency float. The US and Canada forward their help to the former to boost up their internal resources. February 21, 1995 Mexico signs a deal with USA in Washington that obliged the former to pay a part of its oil export revenues to USA in lieu of the financial aid that it forwarded to revive Mexico. February 28, 1995 Mexico decides to charge an escalated customs duty from nations not associated with it in any free trade. March 9, 1995 The Mexican President Zedillo implements certain terse measures which might assure the nation of a quick recovery. It included measures such as reduction in government expenses, rise in gas, electricity and transportation prices, increase in nominal wage rate, fall in interbank rate, etc. August 1, 1999 Free Trade Agreement between Chile and Mexico comes into effect. November 27, 2000 Negotiations between USA and Chile to help Chile get an entry to NAFTA. July 4, 2000 Mexican President Fox proposes a common market for North America over a 20 to 30 years timeline. April, 2001 Mexico, Canada and USA agreed to form a North American Energy Working Group (NAEWG) to focus upon energy crisis in the region. September 11, 2001 Canada and Mexico cut down their connections with USA temporarily with the USA following the 9/11 terrorist attacks. November 1, 2004 The three integral nations develop a guideline, Safe Third Country Agreement, to ensure North American security and well-being of their residents. March, 2005 The three nations of USA, Canada and Mexico sign the Security and Prosperity Partnership (SPP) to ensure an economically stable and mobilised region. July 2005 The Central American Free Trade Agreement (CAFTA) is approved by the House of Representatives, USA. March 31, 2006 The North American Summit in Cancun, saw the establishment of the Leaders Joint Statement between the Canadian Prime Minister Stephen Harper, President Bush of USA and Mexican President Fox release. The statement presents six action points: 1) A Trilateral Regulatory Cooperative Framework is established. 2) The North American Competitiveness Council (NACC) is signed. 3) North American Emergency Management is opened. 4) Promises to create an Avian and Human Pandemic Influenza Management 5) Formation of North American Energy Security 6) Assurance of Smart, Secure North American Borders. August 20 – 21, 2007 USA, Mexico and Canada meet at the third North American Summit in Quebec, to zero down upon the creation of a “regulatory cooperation framework” (North American Forum on Integration, n.d.). Evaluation of the Impact of NAFTA: Case Study for Mexico Mexico had been a rather late entrant in the treaty of Free Trade Agreement, which existed between USA and Canada since 1989. The inclusion of the nation was a much thought-out process and meant to serve greater interests than merely bailing the country out of its prolonged economic and political instability. The more robust founding economies of USA and Canada considered that incorporation of Mexico would pave the path towards the formation of a strong North American power which quite naturally would enjoy an upper hand in various world summits. Since such a region would comprise of the world’s biggest and wealthiest market, they might easily focus the attention of all nations keen to climb the path of economic growth and development via international trade. But, amidst the three fundamental economies which combined together to form the organisation, Mexico had been the most benefitted one. The remaining two nations already were dynamic in their operations, but it was Mexico which was characterised by regular disruptions in their activities. The integration was almost a blessing in disguise for the nation which would be prominent from the impact that it had over the region. It is often acclaimed that the nation, which had submerged so deep underwater following the hyperinflation of December, 1994, couldn’t have surfaced back had it not been for its counterparts in NAFTA. The help been forwarded by USA had been especially commendable in certain instances when they were meant to boost up the nation’s financial resources so as to escalate its depressing currency. Though Mexico had to bear a price for the same, viz., a promise to share a part of its gross export revenue with the USA, it had been almost like a grain of salt compared to the assistance that the latter forwarded during such a devastating crisis. The help that it had advanced during such a critical phase had culminated into a rise in the level of investment in the nation, rise in trade and various other key variables that defined the activities in an economy. The following set of graphs showing trends in economic variables, accompanied by a brief note would reveal the real consequence that the NAFTA had over the Mexican economy. The adjoining diagram is proof enough of the fact that the amount of foreign direct investment had sharply grown in Mexico, following its inclusion in NAFTA. Prior to the amalgamation in 1994, the amount of FDI had remained quite low and did not grow at an exemplary rate over the years. But, the year 1995 saw a two-fold increase in the same than what it was even a year back. Besides, there is a clear hint that these investment flows comprised of larger proportions of the national income or rather, GDP, over the years, signifying the importance that lay over it (Sanchez, 2000). In addition, there were increases in the volume of international trade that Mexico participated in following its inclusion in NAFTA. It is clearly evident from the side diagram that the exports made by the economy rose over the years and considerably so after 1994. In addition, there were increases in the volume of imports as well, which spoke about the nation’s growing capabilities to pay for the same. The latter claim is quite relevant given that the export figures had already started to soar up implying a steady flow of finances from the source (Sanchez, 2000). There had been a rise in the nominal wages of the workers too, accompanied by a surge in the degree of productivity. Though the wages had been decent in 1980s, they started sliding down henceforth and continued so until inflation seeped into the nation by the end of 1991. It was then that the economy began seriously exploring its possibilities to avoid the crisis that was to follow. But, the nominal wages continued to rise as did the rate of inflation that had grabbed the nation. Finally, by the end of 1994, the Mexican economy saw the peak of its hyperinflationary phase and to deal with the chaos that the labour unions had created, declared a 10% rise in labour wages at the nominal level. As soon as such an announcement was made, a sense of relief set into the scenario and the labours happily went in for their work with a sharp rise in their productivity. However, it all happened at the dawn of the NAFTA and once it was implemented, the USA forwarded its financial help to Mexico, helping it to climb back to its position. There was a fall in the nominal wage rate. However, as people already had a bigger portion of their income disposed at their hands due to a fall in the rate of inflation, they supported the idea and this was reflected through a stable productivity level (Sanchez, 2000). The GDP in the nation had already been growing over the years, but it had eroded following the hyperinflation that set in 1994. But, the nation soon got over the entire episode and recovered its GDP soon after 1995. The GDP growth rate of the nation was recorded at 0.7% in 1995, despite the inflationary crisis that took over the nation in the year. The same story could be applied for the number of employments in the manufacturing sector of the nation. In fact, the connection is almost visible in the graph. It could be easily concluded that the nation largely depends on its manufactured goods to earn their income. So, higher that the employment in manufacturing sector went higher went the GDP of the nation (Sanchez, 2000). Nevertheless, there is no reason to believe that all that NAFTA did to Mexico was escalating its economy and various economic units. There are a few issues which actually went worse after the integration. One of them was the level of economic activity in Mexico. Since USA offered a higher wage than Mexico, the former magnetized a lion’s share of the Mexican labour force. Moreover, the USA took advantage of the poverty of the Mexicans and the relatively poorer control that their government had over the region. The US firms employed Mexican labourers at lower wages and made them work for long strenuous hours without providing them without the bare privileges of either labour rights or health protection. Moreover, there was a high amount of loss that the agricultural sector of Mexico faced following the signing of the NAFTA. This is because, after Mexico adhered to the terms and conditions of the Free Trade Agreement, there was hardly any way left to avoid the imports of subsidised agricultural goods from the USA. The Mexicans were naturally inclined to buy the latter which were almost perfect substitutes to the comparatively high priced goods produced in Mexico. Hence, the farmers in Mexico had to suffer the brunt of the change. But despite it all, the nation could as well emerge as a much better place to live in after the signing of the NAFTA. The drawbacks had been taken care of by the Mexican government over time as much as possible so as to hike the economic conditions, or at least not worsen them, of the Mexicans dwelling in North America. References Bernal, R. L. (1997). Trade Blocs: Regionally Specific Phenomenon or a Global Trend?  Washington, D.C.: National Policy Association Bilal, S. (2001). “Trade Blocs” in Routledge Encyclopaedia of International Political Economy by Jones, R. (ed). London, UK: Routledge. Chambers, & Smith, (2002). NAFTA in the new millennium. Alberta, Canada: The University of Alberta Press. Frankel, J. A. (1997). Regional trading blocs in the world economic system. Washington DC, USA: Institute for International Economics. Jenkins, D. E. (2000). Market whys and human wherefores: Thinking again about markets, politics and people. London, UK: Continuum International Publishing Group. Mansfield, E. D. & Pevehouse, J. C. (2000). “Trade Blocs, Trade Flows and International Conflict”, International Organization, Vol. 54 (4), pg775-808 [Online] Available at (Accessed: April 10, 2010). Marrewijk, C., Ottens, D. Schueller, S. (2007) International economics: theory, application, and policy. Oxford, UK: OUP. Menz, F.C. & Stevens, S. A. (1991). Economic opportunities in freer U.S. trade with Canada. New York, USA: State University of new York Press. North American Forum on Integration (n.d.). “NAFTA Timeline” [Online]. Available at (Accessed: April 13, 2010). Park, D. & Goh, S. (1998) “Prospects of Economic Integration in Southeast Asia” in East Asian economic issues (Vol 4) by Kendall, J. D. & Donghyun, P. (eds). London, UK: World Scientific Publishing. Peng, M. W. (2008) Global Business. New York, USA: Cengage Learning. Sanchez, M. (April 14, 2000) “NAFTA’s Economic Effects on Mexico” [Online]. Available at (Accessed: April 13, 2010). Sanchez, V. (May, 2006). “A Comparison of EU-NAFTA Integration Regimes: From a Trade Bloc to an Institutional Development Model” [PDF]. Available at < http://repository.upenn.edu/cgi/viewcontent.cgi?article=1029&context=wharton_research_scholars> (Accessed: April 11, 2010). United States Department of Agriculture: Economic Research Service (November 4, 2009). “Real Historical Gross Domestic Product (GDP) and Growth Rates of GDP”. [Online] Available at (Accessed: April 10, 2010). United States Department of Agriculture: Foreign Agricultural Service (August 11, 2009). “North American Free Trade Agreement (NAFTA)” [Online]. Available at < http://www.fas.usda.gov/itp/Policy/nafta/nafta.asp> (Accessed: April 11, 2010). Vega-Canovas, G. (1999) “NAFTA and the EU: Towards Convergence?” in Regional integration and democracy: expanding on the European experience by Anderson, J. J. (ed). Oxford, England: Rowman & Littlefield Publishers. Young, S. (1998). “Globalism and regionalism: complements or competitors?” in International economic integration: critical perspectives on the World economy by Jovanović, M. N. (ed). London, UK: Routledge. Read More