Economic Advantages for the U.S., Mexico, and

¶ … economic advantages for the U.S., Mexico, and Canada of signing the North American Free Trade Agreement (NAFTA)? The most obvious, direct impact of NAFTA upon the three signatory nations is the liberalization of international trade between them all. By doing away with tariffs and other prohibitive trade restrictions, consumers in all three nations can more easily purchase one another's goods at lower prices. Not only was the U.S.

able to purchase less expensive goods from Mexico: Mexico likewise experienced an increase in international trade, foreign direct investment, and labor productivity (Iyer 11-12). Canada also saw increased labor productivity and a greater free flow of trade between the two nations but both Mexico and Canada lost jobs in their agricultural sectors while they gained jobs in their manufacturing sectors (Iyer 13).

The theory of comparative advantage in trade suggests that when a nation does or makes what it can do 'best,' with maximum profits with minimal expenditures, this is the best possible scenario to increase profitability from its available resources. "Since labor and other resources would be reallocated from less productive to more productive sectors, there would also be an overall gain in productivity for all trading partners" (Iyer 9). However, the evidence indicates that these gains were not uniform, nor were they without some costs.

Q2.Has NAFTA created new trade in goods? NAFTA considerably liberalized and loosened trade in the agricultural sector, particularly between the U.S. And Mexico. "U.S. imports of Mexican fruits and vegetables increased from $1.9 billion in 1993 to $4.8 billion in 2002, while the U.S. exported large quantities of wheat, corn and soybeans to Mexico. To satisfy increasing domestic demand during this period, Mexico allowed imports of corn above the agreed TRQ levels without levying import duties" (Iyer 11).

Trade in transport equipment, metal products and food products similarly increased in both Canada and in Mexico. The agreement generated new forms of trade as well as facilitated older forms of trade between the nations. Q3.Has NAFTA been a success for the participating countries in other respects (i.e. apart from its impact on trade)? Success can best be described as 'mixed.' On one hand, "Mexico's share of U.S.

imports rose from 6.8% in 1993 to 11.6% in 2002…Mexico moved from a net trade deficit with the United States to a substantial trade surplus. However, Mexico's per capita GDP increased at an annual rate of only 1.1% over this period and more than a million jobs had been lost in the Mexican agriculture sector" (Iyer 2). Erasing a trade deficit does not necessarily automatically mean that a country has benefited from the arrangement.

Mexican workers in some sectors have seen jobs lost and the lack of GDP increase suggests that workers are not necessarily seeing a corresponding increase in salary. Q4. Based on the experiences in NAFTA, do you think that North and South America should sign the Free Trade.