NAFTA refers to the North America free trade agreement which was effected in 1994. It is a trade agreement between Canada, the united states of Mexico and the United States of America. This agreement sought to improve trade relations among these three states by eliminating or reducing the trade barriers which were in place. One of the trade barriers which existed included the imposition of trade tariffs on exports. NAFTA also sought to expand the markets for the three states as well as increasing innovation and economic growth for the states. Its other aim was to encourage foreign investment as well as domestic investment in these three countries. Employment was another issue it sought to address (Burfisher page 11).
This was solved by eliminating cross border barriers thus allowing the citizens to obtain employment in any of the three states. Another aim was to encourage growth and development for these three states to provide a competitive edge in the international market for the products of the member states. This agreement has led to both positive changes as well as negative impacts to this region. Those in favor of the agreement have been calling for its enforcement while those against it call for dismissal of it or rectification of the agreement in some areas (Office of the United States Trade Representative para 2, 3).
Impact of NAFTA on the member states
The export sector was the first beneficiary of this agreement. With the introduction of NAFTA, exports of these three countries doubled. This is due to the opening of new markets and the reduction of tariffs in these three nations. Mexico particularly provided new markets for Canada and America thus increasing their exports. This is because prior to the introduction of NAFTA, Canada and America were having trade agreement and so introduction of Mexico only expanded their markets (Burfisher pp. 34- 37). Also the removal of trade tariffs also led to increased export since the countries could export more goods at a lesser cost than before. Before introduction of NAFTA, Canada was unable to penetrate to Mexican financial markets. This agreement thus opened the barriers which existed which now enabled the member states to venture to new markets. The opening on this new markets led to increased production of good thus NAFTA is credited for increased productivity in the region and thus increased exports.
Another benefit brought about by NAFTA is increase in foreign investment as well as domestic investment. After implementation of the agreement, some of the American industries relocated to Canada and Mexico where they were operating at a subsidized cost as well as obtaining cheaper labor. This ensured they were producing profitably and at the same time reducing costs associated with exports (Burfisher pp. 52). Canada also benefited largely from foreign investment. Before the agreement, it was hard and costly for Canada to invest in the financial markets in Mexico. This is due to the high tariffs that were being imposed to it by Mexico. Canada was fairing well in this area and thus with expanded regional market, this sector grew very fast. Mexico on the other benefited from this arrangement as it was getting financial advice from Canada. Apart from foreign investment, internal investment was also boosted by this agreement. Increased market led to higher demand for goods within the region (Burfisher pp. 9). High production was thus required thus encouraging domestic investment. The living standards of the citizens in these three countries also increased.
NAFTA also led to creation of job opportunities thus eliminating the problem of unemployment. Both the domestic and the foreign investment provided employment opportunities for the citizens of these three states. Also, manufacturing industries recorded high rate of employment due to increased production (Burfisher et al pp. 48). Employment was also available for the citizens in the whole region. This was made possible by the opening of the borders and the elimination of market and labor test. Foreign citizens were also treated fairly and non-discriminatory. This led to improved living conditions of these individuals as well as the economy of the member states. These jobs were created mostly in the export industries which pay higher in America than other sectors. The implementation of the agreement also led to the creation of higher wages jobs which in these states. With the expansion of markets and the increased production, this led to high competition amongst the member states. High competition necessitated the countries to improve their products so as to gain a competitive edge in the market. This competition also led to increased innovation and invention of new manufacturing techniques to reduce cost while at the same time increasing the output. NAFTA thus led to the production of high quality goods which were much cheaper. Also, due to the expanded markets the citizens could acquire more variety goods from the imports at a cheaper rate than before the introduction of NAFTA agreement. This agreement also led to the idea of consumer sovereignty. Price fluctuations became more minimal than before due to the variety of similar goods brought about by the increase in exports (DeLong, et al para 4).
Growth in the telecommunication network was also hastened by the implementation of the NAFTA agreement. For successful operation and implementation of the agreement, telecommunication was necessary which led to the growth and expansion of this sector. NAFTA also led to the introduction of new methods to improve this area through continuous invention and innovation. The agricultural sector also grew with the implementation of NAFTA agreement. This agreement has also led to better allocation of resources in the member states. Foreign investment ensures that a country is operating at its maximum capacity and also that the resources are directed to more important sectors. This leads to increased efficiency as well as effectiveness. Also increased competition led to implementation of new and cheaper methods of production as each country tries to minimize cost while at the same time remaining competitive in the market Office of the (United States Trade Representative para 5).
Though NAFTA agreement has led to significant beneficial changes in the region, it has its own negative effects. It has been argued that since its implementation, it had led to a decrease in employment contrary to its agenda of creating employment. Critics argue that since its implementation, more than 400000 jobs have been lost. This is attributed to the diminishing demand of some commodities in the region thus the collapse of these industries. Also, due to the increase in regional competition and the inability of the government to protect the up coming industries, they end up collapsing thus instead of creating more jobs, the agreement has led to loss of jobs by the citizens. The agreement has also led to the exploitation of the citizens by foreign investors in terms of remuneration (Burfisher et al pp. 94). Foreign investors aim is to maximize profit and to reduce costs associated with production. They thus invest in a member state so as to obtain cheap labor while enjoying the benefits of subsidized operation cost as provided by the agreement. The citizens are thus the ones who suffer due to this agreement. This agreement is thus seen to benefit the investor at the expense of the citizens.
The main aspect and achievement of the agreement is the expansion of the international markets. Those in favor of increased exports overlook the imports effects to a country. Since the introduction of this agreement, the imports of the member states increased tremendously which has negative effects to a countries gross national income. Imports are costly and the country under the agreement has no power to ban imports of goods from other member states if they are not harmful to the country or to its citizens. This may also lead to dumping substandard goods in the country which are usually sold at lower prices than a country’s locally produced goods. This in turn leads to losses to local producers. An increase in importation of goods may lead to a decrease in a country’s production thus leading to over dependence on imports. This is detrimental to a country’s economy at large as well as the manufacturers in such a country (DeLong, et al para 6).
The provision on the NAFTA agreement stating that once a country sells something as a commodity, it cannot later refuse to sell it at a later date is detrimental. This eliminates the powers of a country to protect its resources thus undermining a country’s sovereignty. This clause is mostly dangerous if it involves the natural resources in a country. Exploitation of these resources would lead to devastating effects to the citizens of a country and also affect the long term productivity of a country. As such the agreement is seen to be erroneous and insensitive to the preservation of the ecosystem. Environmental degradation is also another main drawback of this agreement. This agreement did not cater or provide for environmental abuse by the three states. this is attributed to the massive expansion in industrial and economic growth in the region. Foreign multinational companies in a country are only interested in the profitability of their companies rather than the environmental effects they have on the environment. This has raised concern especially with Mexico and Canada. Environmental pollution is detrimental to the health of the citizens and also to the productivity of the country. Controlling and reducing the impact of this pollution with the rising industrialization is not only impossible but also very costly to a country. Laws to enforce and correct this situation are vital but with the NAFTA agreement, it is impossible to enforce such laws in any of the member states (Burfisher et al pp. 112).
Another failure of NAFTA is that it failed to separate politics from trade arrangements. This has led to political interference in the running of the states trade affairs leading to strained relationships. This is mostly seen in the America-Canada relation where the issue of softwood lumber has been disputed and is politically geared. Also this agreement led to large economic differences among these three states which have led to the straining of the trade relations. The cultural diversity of the member countries have been adversely affected due to the NAFTA agreement. Since its introduction, countries like Canada who depend and have a long history of cultural attachment have lost resources brought about by this sector due to over exploitation by the other member states. This agreement has also been criticized on the ground that it has failed to protect some of the most sensitive sectors in the country. It also stripped the countries power to protect their citizens from interference of other states in these sectors. In Canada for example the member states were allowed to offer night catering services for the sick at a profit. This has been criticized on the ground that the government has been unable to reverse this due to the high penalties imposed by NAFTA. The government under NAFTA thus has no power to provide and protect its citizens from such acts. This is a major failure of the agreement.
Brain drain is another problem experienced in America. Since the implementation of NAFTA, most of the educated Americans left the Canada and Mexico to look for better employment terms and opportunities. This has led to a decrease in the manpower in the industries thus a drop in the countries productivity. This has also led to higher costs for the government as manpower is outsourced from other countries. Migration has also been on the rise in these three countries since introduction of this agreement. Agricultural sector also have suffered negatively since the agreement was formulated. The farmers are forced to sell their produce at lower costs than they would have without the agreement. The foreign investors in this sector are only concerned with maximizing production without considering the effects their production methods may cause to the ecosystem. This has led to over exploitation of land leading to bareness of the land. NAFTA has also been seen to benefit only the larger agribusiness companies while at the expense of small farms. Studies show that since the introduction of NAFTA, many small farms went bankrupt and also the income fell with a big percentage. This in turn led to higher food prices in the United States (DeLong, et al para 3).
NAFTA also is criticized on the basis that it eliminated the benefit that accrue from managed trade. Managed trade ensures that imports to a country are regulated and also the exports. With managed trade, a country is able to protect its infant industries as well as restrict importation on similar locally produced goods. This balance ensures that the balance of payments deficit is eliminated and thus increasing the countries gross income. This is not possible under the agreement thus calls for its removal. Also, these three states operate at different levels of economic prosperity. The issue of price equalization is thus unfair to country like Mexico whose economic progress is different from that of America or Canada. This exposes the Mexican citizens to higher prices due to their living standards as compared to American citizens (DeLong, et al para 3).
Since the introduction of the agreement, maquiladora programs also increased. These programs which are mostly practiced by the American companies employ workers at the borders of the other states. This is more common along the Mexican borders. The workers are employed to assemble Americans export products and they are cheaply paid. These kinds of workers are not granted any labor rights as well as health protection. Their working hours are also over stretched and require high procedures to before one is being employed. This amounts to exploitation of these workers and thus NAFTA does not cater for the citizens but only for the state as a whole (DeLong, et al para 3).
NAFTA as mentioned above was founded with an aim to increase the productivity and growth of the three member states. It also sought to create employment opportunities and development of the states. To some extent, these objectives have been met. It led to increased export in the three states thus raising their gross national income. However, the negative effects should not be overlooked and should be acted upon to rectify them. NAFTA agreement has undermined the states sovereignty as well as reducing their powers to protect their citizens. It has also led to detrimental effects on the environment and the ecosystem. Due to this agreement, the countries trade deficit increased thus increasing their debt ratio. Dumping of goods was also accelerated by this agreement. A trade agreement is supposed to bring growth to all the member states while at the same time ensuring that the citizens are incorporated or benefit from the arrangement. It should also be environmental friendly and should protect the ecosystem and not exploit it. NAFTA agreement is insufficient in these areas and thus should be done away with. Continued implementation of this agreement would only cause more harm to the member states as well as their citizens.
Burfisher Mary E., Robinson Sherman and Thierfelder Karen: The Impact of NAFTA on the United States; Journal of Economic Perspectives—Vol. 15 Number 1—Winter 2001. Retrieved on 3rd December 2008 from: http://220.127.116.11/faculty/webpages/dtaylor/impact%25of%25nafta.pdf
DeLong C., DeLong B., and Robinson S.: NAFTA and Jobs (1996). Retrieved on 3rd December 2008 from; http://www.j-bradford-delong.net/OpEd/naftaandjobs.html
Office of the United States Trade Representative: State Sovereignty and Trade Agreements (April 14, 2005). Retrieved on 3rdDecember 2008 from; http://www.ustr.gov/assets/Document_Library/Fact_Sheets/2005/asset_upload_file870_7578.pdf