North America Free Trade Agreement Term Paper

  • Length: 6 pages
  • Subject: Economics
  • Type: Term Paper
  • Paper: #14074809

Excerpt from Term Paper :

North American Free Trade Agreement

President Clinton signed the North American Free Trade Agreement Implementation Act-NAFTA on December 8th, 1993. Canada and Mexico soon followed suit and the North American Free Trade Agreement became active from January 1st 2004 and thus became the first comprehensive free trade agreement among major industrial nations and a developing a country. (A dynamic macroeconomic analysis of NAFTA - North American Free Trade Agreement -- Economic Perspectives) Thus NAFTA was launched in January 1994, and thereby The North American Free Trade Agreement became the largest free trade area in the world. (Canada and the North American Free Trade Agreement)

NAFTA created the world's largest free trade zone, which had coverage of around 360 million people and an annual investment and trade in terms of C$500 billion. (Key Economic events: 1994- North American Free Trade Agreement (NAFTA): Creating the World's Largest Free Trade Area) This agreement would encompass 365 million people in North America. (Players disagree on how free trade will be played out on U.S., Mexico soil - North American Free Trade Agreement - Cover Story) This agreement was consequent to the earlier Canada-U.S. Free Trade Agreement of 1989. NAFTA differs from the European Union in that a set of supranational governmental bodies have not been created. It also does not create a body of law, which is above the national law. NAFTA is similar to a treaty, though an international agreement and in Spanish is called a tratado. United States Law classes it as a congressional-executive agreement. (North American Free Trade Agreement-Wikipedia)

World Trade is estimated at $3.5 trillion dollars and mostly involves Northern, First World trading blocs. Those inside protected against the ones outside and trading without barriers and tariffs freely. The intention of NAFTA was the creation of just such a bloc as a competitor to the European Community and the not yet official Asian bloc, led by Japan. (Creating a trade bloc than won't block justice, freedom - North American Free Trade Agreement and Mexico - Editorial - Cover Story)

American aspirations in NAFTA lay in the expections, that jobs would be generated for the U.S. It was also thought that there would be an increase in exports of U.S. goods and services and make the American workers and companies more competitve. That it would create the largest and richest market in the world was expected to be one of the out comes. In 1992 the Mexican growing demand for American products created a U.S. trade surplus of $5.4 billion dollars. A stronger Mexican economy would create a greater demand for American products and trade would grow. The preferential access to a quickly growing Mexican market was expected to allow for the creation of extraordinary new opportunities for American companies and workers. Tapping these opportunities would lead to greater prosperity in the United States and also show the quality of American leadership in opening markets and promoting democracy in North America. (Fact sheet: summary of principal provisions of NAFTA - North American Free Trade Agreement).

Canada believed that NAFTA would give it better access to the Mexican market. NAFTA also avoided a bi-lateral trade agreement between U.S. And Mexico to the detriment of Canada. The Canadian negotiators were mindful of the possibility that trade reforms between the U.S. And Mexico, similar to the U.S. -- Canada Free Trade Agreement would impact on Canadian share of the North American market, irrespective of whether Canada participated in NAFTA or not. Canada believed that by being a party of NAFTA it would be better of in protecting what it gained through the U.S. -- Canada Free Trade Agreement, as well as be in a position to reap benefits from the closer economic ties in a growing Mexican market. (A dynamic macroeconomic analysis of NAFTA - North Am A dynamic macroeconomic analysis of NAFTA - North American Free Trade Agreement -- Economic Perspectives)

The opportunity to be a part of an extensive market- oriented policy reforms of the late 1980s, provided the motivation for Mexico to join NAFTA. Mexico also expected to gain credibility for its reform process and thereby encourage foreign direct investment in Mexican trade and industry. It also looked at NAFTA as a means to reduce the threat of U.S. protectionism and also create greater opportunities in enhancing its exports to the U.S. And Canadian markets. The possibility of greater access to U.S. And Canadian technology and capital provided additional motivation. (A dynamic macroeconomic analysis of NAFTA - North Am A dynamic macroeconomic analysis of NAFTA - North American Free Trade Agreement -- Economic Perspectives)

In simple terms NAFTA will remove all tariffs and greatly reduce nontariff bariers, like quotas and import livences between the U.S., Canada and Mexico. Over a time span of fifteen years tariff duties are to be phased. A significant part or this tariff reduction is to happen in the first ten years. Besides tariff reform three broad agreements were reached on nontariff barriers. The first is that all countries would remove prohibition and quantitative restrictations applied at the border by the use of quotas and import licenses. Secondly there was agreement not to impose new user fees and to gradually remove existing user fees by the period of June 1999. The third was that NAFTA would allow business people to bring tools of their trade into the country and would include professional samples and other goods, on duty free basis. NAFTA also has investment provisions that lower the barriers on capital flows between the countries.

Limited participation of free trade areas have a limitation in that they have to develop rules of origin, which clearly state the goods that are entitled for preferential treatment. In keeping with this, all goods wholly produced in the U.S., Canada, or Mexico are entitled for preferential treatment under NAFTA. Most goods having nonagricultural components also qualify, if there has been enough transformation in the NAFTA region, such that there is a specified change in the tariff classification of the end product. For some cases set percentages of North American content in addition to the tariff classification requirement have been specified. The worldwide trend towards regional trade agreements is complimented by NAFTA. Without doubt this is impacted by the General Agreement on Tariffs and Trade. (A dynamic macroeconomic analysis of NAFTA - North Am A dynamic macroeconomic analysis of NAFTA - North American Free Trade Agreement -- Economic Perspectives)

Since its creation GATT has encouraged and succeeded in reducing trade barriers across most countries and regions. This has to a large extent been achieved through the efforts of a small number, yet influential participants, which have actively supported free trade. In the recent past, the increase in the number of participants has made it more difficult to come to a consensus that was possible in the early days of GATT. Many accept the fact that regional preferential trading is a natural outgrowth of the GATT process. However, unlike GATT, regional preferential trading groups are smaller and so better placed to handle a narrow, but very difficult trade liberalization program. The samll number of participants also makes the monitoring less expensive, for all the participants. The proponents of regional free trade argue that, in the long run the, objective of regional free trade is that the union of these regions is what will lead to global free trade at the end. (A dynamic macroeconomic analysis of NAFTA - North Am A dynamic macroeconomic analysis of NAFTA - North American Free Trade Agreement -- Economic Perspectives) The stronger rules and procedures governing trade and investment have caused a very large inflow of investment and trade. Figures available with the International Monetary Fund has shown that trade among the three NAFTA countries has more than doubled increasing from $306 billion in 1993 to $621 billion in 2002. (North American Free Trade Agreement-

The historic NAFTA among the three countries Mexico, United States and Canada makes necessary a serious and indepth analysis on its costs and benefits, assessing its premises so far along with the possible alternatives. (The wrong free-trade deal? - North American Free Trade Agreement). Mexico is a minor player making NAFTA a mix of unequals. The GDP of Mexico is only 4% that of the United States and 24% that of Canada's. Therefore there has been opposition in both countries and especially Canada, where a majority of the people are against NAFTA. Support for NAFTA comes from groups that promote business like U.S. Chamber of Commerce and the Conference Board. (Players disagree on how free trade will be played out on U.S., Mexico soil - North American Free Trade Agreement - Cover Story).

A look at the effects of NAFTA across all the three countries may suggest that on the whole it has had a negative effect. The trade surplus in favor of the U.S. over Mexico that was present before NAFTA, has now become a huge trade deficit, totalling $34.5 billion in 2002 alone. The loss of actual and potential jobs…

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