North American Free Trade Agreement is one of the most important and influential international relationship formed between the U.S., Canada and Mexico, creating the largest free trade region in the world. The following pages analyze NAFTA's influence on member countries while focusing on the trade relationship between the U.S. And Mexico. The most important facts about U.S. -- Mexico trade are presented, with details on the imports, exports, and trade balance situation. In addition to this, the paper identifies and analyzes the advantages and disadvantages of this free trade agreement, revealing how benefits for one country can become negative effects for another. This refers to effects on national economy, companies, and individuals in these countries.
NAFTA Historical Background
U.S. -- Mexico Trade Relationships
U.S. Exports to Mexico
U.S. Imports from Mexico
U.S. -- Mexico Trade Balance
Investments between the U.S. And Mexico
8. NAFTA Advantages
9. NAFTA Disadvantages
The evolution of modern society has determined countries to collaborate in their attempt to improve develop national economies and to protect themselves from foreign attacks. Their lack of certain resources and abundance of other resources needed by other countries represents the basis on international trade. The international trade activity started at a reduced scale between neighboring countries, and developed into a worldwide network of international relationships.
Among the most powerful international trade agreements we can find free trade agreements between the U.S. And Australia, Bahrain, Chile, Colombia, Israel, Jordan, Korea, Morocco, Oman, Panama, Peru, and Singapore. The Dominican Republic -- Central America -- United States Free Trade Agreement is a rather new trade agreement formed in 2006 between the U.S., El Salvador, Guatemala, Honduras, and Nicaragua. It seems that this region is U.S.' 14th largest exports market in the world, providing $29.5 billion. The most exported products within this free trade agreement are petroleum products, machinery, electrical and electronic products, textile fabrics, cotton yarns, cereals, plastics, motor vehicles, paper products, and medical instruments. In addition to significantly liberalizing trade, the member countries of this agreement also focus on improving customs administration, trade facilitation, technical barriers to trade, government procurement, investments, telecommunications, electronic commerce, intellectual property rights, transparency, but also manifest great interest in labor and environmental protection (ITA, 2014). The advantage of such a complex agreement is that it influences regional stability, economic integration and development of the member countries.
Another important trade agreement is represented by the North American Free Trade Agreement. This agreement is formed between the U.S., Canada and Mexico. NAFTA is the world's largest free trade area, and it involves 454 million people that have produced $17.2 trillion worth of products in 2010. The total merchandise trade between the U.S., Canada, and Mexico has significantly increased since the agreement's establishment in 1994, determining economic growth and prosperity.
Free trade agreements with numerous countries strategically located have allowed the U.S. To address foreign markets by its companies developing their business on international level. The reduced barriers to exports from U.S. companies and the protection of the country's interests has developed a trading and investment environment from which the U.S. And trade partner countries can benefit while reducing costs.
1. NAFTA Historical Background
The North American Free Trade Agreement is a comprehensive trade agreement that was established in 1994 between the U.S., Canada, and Mexico. The basis of this agreement relies on reducing and eliminating most tariff and non-tariff barriers to free trade and investments between the member countries. The complexity of this agreement is also reflected by the institutions that monitor and control its application. The Free Trade Commission involves ministerial representatives from all NAFTA countries. The objective of this commission is to supervise the implementation of the agreement and to help resolve disputes.
NAFTA coordinators are represented by senior trade department officials designated by each country. NAFTA working groups and committees focus on ensuring trade and investments regarding goods, rules of origin, customs, agricultural trade and subsidies, standards, government procurement, investments and services, the labor market, and others. In addition to this, the agreement is monitored by a Secretariat, Commission for labor Cooperation, and Commission for Environmental Cooperation.
NAFTA is based on negotiations on free trade agreement between the U.S. And Canada. The most important points of this agreement are represented by reducing many tariff and non-tariffs barriers to trade, and included a dispute settlement mechanism in order to resolve trade disagreements. The categories of products affected by this agreement are mostly represented by meats, fruits, vegetables, beverages, processed foods, textiles, fuels, electrical goods, machinery, and others.
2. NAFTA Results
The statistics on trade and other economic indicators provided by the U.S. Department of Commerce reveal some interesting facts about how NAFTA has affected the country's economy. In addition to this, they reflect the evolution of trade, investments and employment due to NAFTA establishment. These indicators reveal the fact that trade and investments liberalization has allowed companies in the U.S. To improve their efficiency and competitiveness, and to increase the level of exports while addressing the international business environment.
The effects that NAFTA has on the economy of the U.S., Canada and Mexico are significant. The most important effect of this agreement is that it is stimulating trade and investments between the U.S., Canada, and Mexico. The interesting fact in this case is that U.S. exports towards NAFTA partners have increased 279% since its establishment, while U.S. exports towards the rest of the world have increased 260%. Economic indicators reveal the fact that U.S. companies have attracted 50% of Mexican imported products, and 51% of Canadian imports.
Another important effect of NAFTA's establishment is that the agreement determined surplus markets of partner countries for U.S. products. This can be observed in the $20.9 billion trade surplus in manufactured goods, and in the $43.7 billion trade surplus in services, while agricultural products reported a $3 billion surplus. These values refer to exports to Canada and Mexico.
Combined NAFTA markets also represent the largest foreign crude oil suppliers to the U.S. The crude oil imports -- exports balance within NAFTA registered a deficit. However, this deficit can be attributed to the U.S. that imported $72 billion worth of crude oil from Canada and $37 billion worth of crude oil from Mexico. This represents one third of total U.S. crude oil imports.
Canadian and Mexican markets represent the most important exports regions for U.S. companies (ITF, 2014). This mostly refers to small and medium sized companies. It seems that 96% of companies that export their products to NAFA partners are small and medium sized. These types of companies are strongly advantaged by a free trade partnership with Canada and Mexico. This is because the short distance between companies in the U.S. And their markets in these countries determine reduced transportation costs, which also reduces their investments level while increasing profits. In addition to this, the reduced tariff and non-tariff barriers to these countries allow U.S. companies to expand their business on international level.
This free trade agreement has also determined Mexico to relax investment restrictions. This refers to local content, trade balancing, market share, and market access requirements. Therefore, such measures have increased U.S. investments in Mexico by 495% since the trade agreement was established. This situation can be considered reciprocal, since U.S. investments by Mexico have increased 819%, while investments by non-NAFTA countries have increased by 448% in the U.S.
The North American Free Trade Agreement has also affected patent provisions. These provisions are intended to support Mexico's high class patent regime and to increase U.S., competitiveness in the region. The business sectors that benefit the most from this situation are represented by pharmaceuticals, scientific equipment, and information communication technology. These strengthened patent provisions are also important for Canada and Mexico.
Another important benefit of NAFTA is that it has significantly reduced numerous market entry barriers. These barriers mostly influence goods markets. The advantage of this situation on U.S. companies is that they have greater market access in order to export their products, and they can also offer smaller prices in comparison with companies in South Korea and China.
The importance of NAFTA can also be observed in U.S. companies' relationship with their competitors in Europe and Mexico. This is because the Mexico-European Free Trade Agreement and other of Mexico's free trade agreements allow companies in these countries to receive duty free access for numerous products. In addition to this, the agreement ensures preferential market access for certain business sectors. This represents a problem for U.S. companies that must develop complex strategies in order to counteract the effects of free trade agreements between Mexico and other countries. The Mexican market is very important to U.S. companies because of several advantages it provides, and it must be carefully addressed by these companies. Therefore, NAFTA represents an important factor that can help U.S. companies improve their competitiveness on the Mexican market.
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