FREE ESSAY ON NAFTA

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.