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North American Free Trade Agreement Review

The development of the world economy in the twentieth century was marked by a rapid process of regional integration, which practically erased national borders and reduced the governments interference into private business to a minimum. The North American Free Trade Agreement (NAFTA) was only a part of this process. This multilateral treaty was signed by the United States, Canada, and Mexico in 1994; since that time its effects have been a subject of heated debate among economists, financiers, and politicians (MacArthur, 2001, p 83). Hence, it is necessary to objectively evaluate its consequences for the countries and ramifications for the global business. On the whole, NAFTA is similar to the model of the European Union (EU); to some extent, it was a response to the policies conducted by Western-European states because their approach proved to be rather efficient (Miller, 2004). Yet, we cannot say that the results of NAFTA are the same because the EU members are more or less equal in terms of their GDP level or degree of industrialization. In turn, the US, Canada, and Mexico are not equally advanced. This controversy gives rise to many disputes and criticism of this agreement.

As far as advantages are concerned, we should first emphasize the increased competition. For instance, at present many Canadian enterprises enter American markets and this compels leading companies to improve their production standards, raise the quality of their goods and services, which works for the benefit of customers (Lederman et al, 2005, p 14). Secondly, the adoption of NAFTA significantly intensifies labor mobility in these countries, which means that employees have to raise their professional level in order to retain their positions. Another positive side is the elimination of bureaucratic obstacles. More flexible taxation policies help many US, Canadian and Mexican firms to strengthen their positions in foreign markets. It should be pointed out that the abolition of regional barriers has immensely contributed to the growth of industrialization in Mexico and alleviated the problem of unemployment among Mexican people. Nonetheless, it has also led to the loss of American jobs, because many manufactures move from Canada or the US to Mexico (Miller, 2004). Finally, many international companies find it easier to establish a supply chain especially when they can freely operate abroad. These are the positive sides of NAFTA. Then the question arises why it is so heavily criticized.

On the whole, it is quite possible for us to argue that many accusations are not quite justified. For example, many scholars, as well as politicians, claim that NAFTA is the root cause of unemployment in the US and Canada (MacArthur, 2001). But it should be taken into account that unemployment may have different origins such as computerization of the workplace, off-shoring practices, and hiring illegal immigrants and this is not necessarily connected with NAFTA (Hill, 2009). But the key limitation of any free trade agreement is that it provides virtually no protection to the countrys national producers. In Mexico, many local firms have gone bankrupt because they could not stand the rivalry of the US-based and Canadian giants which utilize more sophisticated technologies and have more developed infrastructure (MacArthur, 2001). This discussion shows that international free trade agreements can be rather effective if the government of the country pays attention to the practices of private businesses. The state does not have to pursue policy protectionism but it must ensure that the local manufactures are not be destroyed by more advanced foreign companies.

As regards the economic development of each country we may say that the United States and Canada have passed through similar stages during these fifteen years. The period from 1994 to 1997 was not characterized by drastic changes because the key participants were only trying to establish relations with one another. Certainly, even during that time, it became noticeable that the influx of illegal immigration to the US dramatically increased. But at that point, the aftereffects of this agreement were not so conspicuous. However, when the pace of regional integration quickened, it became quite clear that this alliance was not as effective as the EU model. Again we need to emphasize the idea that such free trade agreements can yield fruits only if the parties are economically equal (Dunning, 2002). The true dangers manifested themselves at the beginning of the twentieth century when the United States was practically engulfed by illegal immigration and this problem still remains acute. A similar situation can be observed in Canada. The impact of NAFTA on Mexico is slightly different. Initially, this state experienced economic growth, and many American and Canadian investors were willing to operate in this region due to the cheapness of the labor force. But currently, the countrys heavy industry is also in decline because it cannot withstand foreign competition.

Undoubtedly, NAFTA has brought great changes to the functioning of global business; American, Canadian, and Mexican enterprises have become more closely connected with one another. The distribution of products and services is no longer so time-consuming and expensive. On the whole, this treaty is only a part of the incessant globalization process. At present, there are several international agreements of this kind: the EU, ASEAN, APEC, or CAFTA. The members of these alliances are intent on collaborating with one another and probably, regional integration can result in the merger of these unions in the future. Certainly, there is very little likelihood of event but such a scenario is not impossible because companies throughout the globe try to explore new markets and this can eventually give birth to a larger free-trade union.

References

Dunning J. H (2002). Regions, globalization, and the knowledge-based economy. Oxford: Oxford University Press.

Hill.C (2009). International Business: Competing in the Global Marketplace. New York,: McGraw-Hill/Irwin.

Lederman D. Maloney F. W. Serven L ((2005)). Lessons from NAFTA for Latin America and the Caribbean. Stanford: Stanford University Press.

MacArthur J. R (2001). The selling of “free trade”: NAFTA, Washington, and the subversion of American democracy. LA : University of California Press

Miller R. S (2004). Free trade: current issues and prospects. New York: Nova Publishers.