Introduction free trade area. It has enhanced the
Economic integration has been achieved by Canada, Mexico and United Sates of America through international trade activities. The countries involved have made it possible by removing barriers for the movement of goods and services.
The trading environment is characterized by “trade agreements, trade policies and trade barriers” (Bergstrand, 1989). “The North American Free Trade Agreement is an extension of free trade agreement that existed between the US and Canada in 1988. The United States law is considered as a congressional-executive agreement under international law” (Bergstrand, 1989).
NAFTA is the world’s biggest free trade area. It has enhanced the economic growth for the citizens and improved their living standards. Furthermore, this trading block is recognized by the world as a stable foundation that enhances the prospect development of the countries involved (Arndt & Alex, 2001).
There were doubts as to the effect NAFTA had on the level of employment in the United States. Due to the level of globalization achieved, the American companies would gain by moving the production units to Mexico, which has plenty of cheap labor. “This would encourage movement of capital from the United States to Mexico and Canada” (Arndt & Alex, 2001). Canada was seen to offer new market for American goods and vice versa (Arndt & Alex, 2001).
Effects of economic Integration
The integration has both positive and negative impacts on the environment. It has brought up reduced poverty levels in some parts of Canada and strengthened competitive capacity of the member states. There has also been a notable increase in the Gross Domestic Product of both the countries, especially after the economic crisis of 1994-1995. This activity has further given birth to a breed of elite business leaders (Arndt & Alex, 2001).
Even though Canada was not severely affected by the integration, Mexican farmers felt reduction in food prices. This is attributed to cheap imports from United Sates. The workers found themselves unemployed after termination of their duties in the manufacturing industries as well as assembly lines. In addition to this NAFTA has led to the high level of inequality in Canada, United States and Mexico (Arndt & Alex 2001).
Economists argue that such integration has not been able to reduce poverty substantially in Mexico and they operate on an economic roundabout. “In order to benefit from this integration, Canada has had to provide tax breaks to Americans, fewer environmental regulations and reduced social security payments” (Arndt & Alex 2001). The situation was quite tough in Mexico as the employees would not be allowed to form or join unions (Arndt & Alex 2001).
“The globalization of activities between the three countries did not lead to change of trade, except from the few industries that included textile and apparel; in this case, the laws were formulated to favor the United States firms which preferred the Mexican manufacturer to Canadians” (Bergstrand, 1989).
“The World Bank report indicated that NAFTA imports were of roughly the same amount to non-NAFTA exports” (Bergstrand, 1989).
The three nations did not negotiate on how to handle agricultural matters. They only signed separate agreements. “Canada signed an agricultural agreement with the United States, putting in tariff quotas and noteworthy restraints on their products” (Bergstrand, 1989).
Mobility of persons
“According to the Department of Homeland Security Yearbook, in fiscal year 2006, 64,633 Canadians got access to work in the United States courtesy of NAFTA” (Burfisher, Sherman & Karen, 2001). Canadian authorities estimated that 24,830 United States citizens had been given permission to work in Canada as at December, 2006. Most of them had gained access through NAFTA (Bergstrand, 1989).
Controversies and Criticism
Some of the controversies in the North American Trade Agreement include:
Dispute in Canada
The Canadian government cannot cap the sale of Mexican and American products in the country at any one given moment. This implies that the government can control its trade even in the future. This provision is applicable to Canada’s natural resources like rivers and lakes. “This creates fears as to the possibility of damaging Canadian ecosystem and water supply” (Bergstrand, 1989). Other doubts originated from the negative effects NAFTA has on the law making process in Canada.
Additive import was barred by the federal government of Canada. Under the NAFTA agreements, an American Company filed a suit arguing its additive was not a danger to the health of human beings and animals. It argued that the ban was causing huge damages to their company.
“Furthermore, an argument on Canada’s resolution to enforce a duty of 27 percent on lumber imports on Canadian softwood, was to end being resolved Stephen Harper, the new Prime Minister of Canada who negotiated with the United States” (Burfisher, Sherman & Karen, 2001). A resolution was achieved July 1, 2006. In addition, domestic resistance in Canada led to shelving the settlement policy (Burfisher, Sherman & Karen, 2001).
Canada introduced numerous motions with the view to removing the duty. The US responded to their loss of the plea from NAFTA panel, arguing they were not satisfied by the decision. “This had no effect on the countervailing anti-dumping and duty orders” (Helpman & Paul, 1985).
It was a challenge to enjoy the mutual gains among the three states because of war for the first four years. At the end, the huge differences arose in the worldviews towards NAFTA.
Some of the difficulties faced by the governments before rational talk of NAFTA could be made possible include:
“The level of understanding the United States had with the world; the governments had to wait for normalization with one another, with much attention to United States change in foreign policy agenda. Secondly, the view of the population on Canada and Mexico enabled countries were to be terms with the change in order to connect with the United States. Finally, economic dissimilarity posed another major challenge as all the three nations had their own share of economic inequalities” (Burfisher, Sherman & Karen, 2001).
As globalization process took its guided shape, NAFTA presented win-win conditions to the three nations with its own problems too. It has enhanced international trade and ensured business and market integration is achieved. Bilateral alternatives between Mexico and Canada indicated that massive cooperation resulted between the south and north of NAFTA (James & Masaru, 2000).
Recently, they have shown significant cooperation and progress. The mention of Fox government also builds up tension among the member states. Problems arose especially in Unite States as it sought to match its foreign policy with that of other countries. This finally gave rise to mutual understanding among NAFTA members.
It is worth noting that such activity concern the two countries, America and Canada. In the year 2006, they both held their federal elections. This creates two aspects of difficulties. “The triumph by Canada’s conservative party can be interpreted as a swing backs to the United States of America, hence a failure to the Mexicans. If Mexico won, the North America’s interest could decrease drastically” (James & Masaru, 2000).
The US and Canada have enhanced their cultural accommodation for the past two decades. This has been a daunting task but finally it is boring fruits as more employees freely move to work from one country to another.
Market integration is defined as trade between different countries. “It arises when the flow of goods and services, factors of production outside the country or between the trading countries is founded on same terms and conditions as within the countries” (Helpman & Paul, 1985). Canada is able to take advantages of economies of scale, competition and trade allowing the customers to benefit from reduced prices of various products (Helpman & Paul, 1985).
The international market in NAFTA countries has changed since its inception. It has mapped the economic, social and political growth of the Mexican, American and Canadian people. According to Helpman & Paul (1985), the triumph in the agriculture trade between Canada and US can now be measured, which is beneficial in building the relationship between the two countries and their neighbors in the future (Bergstrand, 1989).
Arndt, S., & Alex, H. (2001). North American Trade after NAFTA: Part I, Part II, and Part III. Claremont Policy Briefs .
Bergstrand, J. H. (1989). The Generalized Gravity Equation, Monopolistic Competition, and the Factor Proportions Theory of International Trade. Review of Economics and Statistics .
Burfisher, M. E., Sherman, R., & Karen, T. (2001). The Impact of NAFTA on the United States. Journal of Economic Perspectives , 15:125-44.
Helpman, E., & Paul, K. (1985). Market Structure and Foreign Trade. Cambridge: MIT Press.
James, W. E., & Masaru, U. (2000). NAFTA Trade with East Asia: Rules of Origin and Market Access in Textiles, Apparel, Footwear, and Electrical Machinery. ASEAN Economic Bulletin .