FREE ESSAY ON NAFTA

NAFTA

North American Free Trade Agreement
In December of 1992, President Salinas of the Government of the United Mexican States,
President Bush of the Government of the United States of America, and Prime Minister
Brian Mulroney of the Government of Canada signed the North American Free Trade Agreement
(NAFTA); however, it was not ratified and fully effective until 1 January 1994. NAFTA,
which established a free trade area among the aforementioned nations, consistent with the
previously instituted General Agreement on Tariffs and Trade (GATT), eliminates tariffs
on goods produced by the signatory nations by 2005, removes most barriers to cross-border
investment and to the movement of goods and services, and improves intellectual property
protection. The specific objectives contained in NAFTA are as follows:
a) eliminate barriers to trade in, and facilitate the cross border movement of goods and
services between the territories of the Parties;
b) promote conditions of fair competition in the free trade area;
c) increase substantially investment opportunities in their territories;
d) provide adequate and effective protection and enforcement of intellectual property
rights in each Party's territory;
e) create effective procedures for the implementation and application of this Agreement,
and for its joint administration and the resolution of disputes; and
f) establish a framework for further trilateral, regional, and multilateral cooperation
to expand and enhance the benefits of this Agreement.
Proponents of NAFTA claim that the accord will increase trade throughout the Americas,
moderate product prices, and create new jobs in all three countries. Critics claim just
as adamantly that the proposed accord will degrade blue-collar employment wages and
environmental standards throughout North America. Moreover, they claim that jobs will
move to Mexico due in part to the wide disparity in labor market regulations and wages
existing between the United States, Canada, and Mexico. In addition to worker
displacement, the prospect of environmental problems stemming from Mexico's lax
enforcement of environmental standards has led critics to disagree with the institution
of the NAFTA.
The NAFTA agenda is divided into six areas: market access (tariffs and nontariff
barriers, rules of origin, government procurement, automobiles, and other industrial
sectors); regulations (safeguards, subsidies, trade remedies, and standards); services
(principles of services, financial services, insurance, land transportation,
telecommunications, and other services); investment; intellectual property; and dispute
settlement.
A major issue addressed in NAFTA negotiations is whether capital should move between the
neighboring countries, and how and under what conditions such increased trade and
investment should take place. NAFTA was initiated to promote a climate of fair marketing,
improve investment opportunities, protect industrial and intellectual property rights, as
well as establish procedures for the resolution of disputes. However, NAFTA has
introduced increased bureaucracy in each country and more regulations and rules for
businesses to contend with.
The move toward NAFTA by the United States Government can be attributed as a response to
the decline in U.S. productivity growth. Since the 1970s, output per worker has slowed in
its growth rate dramatically. Due to this decline, the United States had to look for ways
to either stimulate growth in the service sector or rely on international trade to
further American progress and growth.
Prior to NAFTA's enactment, conducting business and investing in Mexico was a difficult
process. Investors needed the Mexican Government's approval and were also required to
meet specific investment guidelines. These requirements forced investors to export a set
level of goods and services, utilize domestic goods and services, and transfer technology
to competitors. Under NAFTA, investors and business professionals no longer need
government approval to invest and are treated as domestic investors.
NAFTA has increased intellectual property rights and allowed companies to obtain patents
in Mexico and Canada. In the past, companies were hesitant to export research and
development intensive goods because of the need of increased intellectual property
protection; however, exports of these goods has shown a definite increase. As a result of
better trading conditions, exports and imports of most other goods have increased along
with sensitive research and development goods.
Another related trade agreement conveying the benefits of international trade is the
General Agreement on Trade and Tariffs (GATT). It was created in 1947, and like NAFTA,
GATT promotes international trade through the reduction of tariffs. Today, GATT
encompasses over one hundred countries and 90% of the world's trade goods. There have
been eight different versions of GATT, each resulting in a new trade agreement. The most
recent is referred to as the Uruguay Round and is one of the largest and most
comprehensive trade pacts in history. The Uruguay Round Agreement cut tariffs by
one-third, increased coverage for textiles, clothing and agriculture, and created a new
World Trade Organization (WTO). The WTO settles disputes, regulates the policies agreed
upon, and reviews countries' trade practices and policies. The Uruguay Round Agreement
and WTO make up an important part of GATT. GATT, as a whole, is based on principles that
ensure all participating countries receive benefits. These principles include
nondiscrimination, protection of domestic industries, and provisions of a stable basis
for trade.
With such a solid foundation, the policies of GATT have taken force. Much like NAFTA,
GATT proposes to increase trade through the reduction of tariffs. However, GATT is more
inclusive of the international economy.
The free trade that NAFTA has established among the United States, Mexico, and Canada has
greatly benefited the U.S. economy. Since its inception in 1994 to 1997, U.S. trade with
Mexico and Canada rose 44 percent. This extensive growth is accredited primarily to the
reduction of tariffs. As tariffs were lowered, U.S. goods became cheaper and more
competitive in Mexican and Canadian markets, and at this lower price level, the quantity
demanded of U.S. goods increased.
In order to meet the new demand for goods and services, firms must hire new workers and
increase investment. Between 1994 and 1997, thousands of jobs were created in the U.S.
due to the increase of trade with Mexico, and many jobs were dependent upon trade with
Mexico and Canada. This increase in employment and investment leads to increased national
income.
NAFTA has enabled Volkswagen, IBM, and businesses in the textile industry to seek labor
and materials in less-expensive Mexico. IBM has created plants in Guadalajara that would
otherwise have been built in Asia. As a result, the exports of IBM de Mexico have
increased and created hundreds of new jobs. In addition, Mexico's textile industry has
grown as a product of NAFTA, and in 1996, Mexico surpassed China to become the largest
supplier of textiles to the United States. U.S. firms invest hundreds of millions of
dollars to build plants in Mexico and Canada as an effect of the reduced tariffs and
lesser shipping time.
The only indication of NAFTA that I have personally encountered is the increased traffic
flow up and down the Interstate 35 corridor. I drive to Waco quite frequently, and I am
usually slowed behind tractor-trailers and jalopies IN TOW in a six-vehicle caravan,
which are heading for the border. In addition to traffic, NAFTA has not stopped, or even
slowed Mexican Nationals from illegally entering the Texas border. Shouldn't life be more
livable with the increase in jobs and opportunity? Wasn't an informal goal of NAFTA to
reduce the pressure of illegal immigration?
I expect to gain a cultural understanding of Mexico and its people. My previous
experience with Mexican Nationals has been very limited. When I first started college,
Spanish was my major due to my three years of the language in high school. It has been
many years since I have had the chance to use my skills and knowledge of the Spanish
language. Not to say that I am fluent in any way! But I am excited about finally having
the opportunity to push my abilities and regain what time has taken away.
International business is very critical and necessary here in Texas. Being this close to
a NAFTA-affiliated country demands that businesses and professionals in this area expand
and use the opportunity of establishing new business in Mexico. Mexico offers many
opportunities to Americans and American business professionals that prior to NAFTA were
not feasible, nonexistent, or impossible.