Nafta

NAFTA

Since the beginning of civilization, trade has been an important issue. Christopher Columbus sailed to the Americas in search of a faster and safer trade route to India. We as Americans fought for our independence over trade related issues, such as tariffs and rules on with whom we were allowed to export and import goods. Our people have always fought for the rights and ability to buy and sell what they want at a reasonable price. The North American Free Trade Agreement, or NAFTA, is yet another attempt at this. NAFTA was signed on December 17, 1992 and put into effect on January 1, 1994 (SICE). It is a trade agreement between Canada, the United States, and Mexico. This paper will explain all the finer points of the agreement, its affects on our economy, and some predictions to the future. I shall end with my opinion of NAFTA based on what I have learned while researching this paper.

To discuss NAFTA with a greater understanding, it is important to realize why the three major governments on the North American continent would want to form a trade alliance. According to the law library at Southern Methodist University "its purpose was to remove tariff barriers between Canada, the United States and Mexico" (North). Removal of these barriers obviously promotes trade between these countries. It also promotes the buy and selling of goods between these countries by making those goods more easily accessible. Sellers can produce with lower costs and buyer can get the end product cheaper than if the tariffs were included in the price. But NAFTA had much loftier goals then just lowering cost and price. It was established "with the goal of fostering greater economic growth in Canada, the United States, and Mexico" (John). The ways in which NAFTA planned to create this spark in the economies of three different nations, was outlined in the actual NAFTA agreement text, in Article 102: Objectives. It states that the purpose of the agreement is to:

eliminate barriers to trade in, and facilitate the cross-border movement of, goods and services between the territories[...], promote conditions of fair competition[...], increase substantially investment opportunities [...], provide adequate and effective protection and enforcement of intellectual property rights [...], create effective procedures for the implementation and application of [NAFTA], [...] for the resolution of disputes, and, establish a framework for further trilateral, regional and multilateral cooperation to expand and enhance the benefits of [NAFTA]. (SICE)

In layman's terms, NAFTA hoped to encourage trade by eliminating the former obstacles in order to facilitate the ease of goods and services across all borders. It also expected to improve fair competition by making all countries abide by the rules laid out in the agreement.. An example of how NAFTA has improved investment opportunities is evident in Canada, where the "direct investment in the United States and Mexico[...] has increased by 340 percent between 1990 and 2002 from $60 billion to 205 billion. In addition [Canada] benefited from $225 billion in American and Mexican direct investment in Canada" (Further). As far as intellectual property in concerned, everyone knows that it's easy to get foreign, more specifically Mexican made, designer knock-offs. Under NAFTA, these practices would be prohibited and each country would have to respect the other's trademarks, copyrights, etc. NAFTA sets out guild lines to deal with disputes as well as a set of rules that outlines practices and procedures. Through these objectives, NAFTA is tying to improve the relations and the economies of all three nations.

Of course, no one would enter into an agreement on just good faith. There are many rules and conditions of NAFTA. One of these rules is the Rule of Origin, which is a requirement that encourages "the production of goods with in Canada, the U.S. and Mexico by granting them lower tariffs" (Qualifying). However, you can't just slap a "Made in the U.S.A" sticker on you product and say it originated here. For the most part, all of the materials and the labor used to make finished goods must have originated in that country. This ensures that only those countries that are part of the agreement benefit from NAFTA.

But how much are we really benefiting from NAFTA? What are some of the advantages and disadvantages of the agreement? According to the Federal Reserve Bank of St. Louis' website, one "absolute advantage is the ability to do something more efficiently - with less labor or resources - than another country" (Comparative). NAFTA also made the cost of producing lower by lowering the tariffs. Through its implementation "NAFTA provided for immediate tariff reductions on 68 percent of U.S. exports to Mexico, and 49 percent of U.S. imports from Mexico. With respect to U.S.-Canada trade, virtually all tariffs on U.S.-Canadian trade have been eliminated" (Executive). Producing at a lower cost gives a company higher profits and the competitive edge of setting prices below that of their competitors. NAFTA allows us to more cheaply attain labor and other resources from the countries in the pact, giving us the ability to produce goods at a lower cost. However, what may seem good for big business is rarely good for the little guy. The Federal Bank of St. Louis also states that, "international trade does not benefit everyone. In particular, low-skill U.S. workers may lose out" (Key). NAFTA depresses wages of low-skilled U.S. workers because, "trade permits us to import unskilled labor" (Negatives).

An agreement of this magnitude and that spans this large a land mass, will have major impacts on all the countries. Let's keep on the subject of unemployment. According to The John F. Henning Center for International Labor Relations:

While labor and environmental groups argue that while NAFTA has enriched international corporations, it brought little benefit to workers or the environment. The US, for example, has lost an estimated 766,000 jobs due to the agreement, while Mexico, where many American companies relocated their production, has seen a nearly 21% drop in manufacturing wages. (John)

Americans lost 766,000 jobs to Mexico, while Mexican wages dropped. Also says that, "many workers are temporarily (sometimes permanently) unemployed by changes in industry structure" (Negatives). NAFTA has not helped the job market in the U.S. or Mexico. On the environmental side of the coin, " in the name of removing barriers to free trade, corporations have used the system to challenge environmental and public health regulations in all three NAFTA countries" (Deepening). Thee key problems with NAFTA's