NAFTA Essay, Research Paper

On January 1, 1994, Canada, Mexico and the United States passed the North

American Free Trade Agreement (NAFTA). Promoted to Congress by the Clinton

administration, with the assurance that it would give rise to more jobs -

exactly how many though, is not precisely known. Yet, according to the Journal

of Commerce, the U.S. went from having a $5.5 billion trade surplus with Mexico

before NAFTA, to having a massive $16 billion trade deficit today. At the same

time, it is estimated that 400,000 Americans have lost manufacturing jobs

because of NAFTA within the treaty’s first three years, that’s about the same

number of jobs which have been created in the Mexican maquiladoras. Instead of

sharing of the wealth and profit, one might think that there has been a big

transfer of wealth from north to south of the border and that Mexican laborers

have profited at the expense and torment of their American counterparts. The

reality is that working conditions, wage, health and safety standards in Mexico

have deteriorated. One American employee for a steering-wheel plan made

approximately $10.46 per hour, compared to his Mexican counterpart, who makes

about $0.75 per hour. Within the agreement, it stated "?the government of

Canada, the government of the United Mexican States and the government of the

United States of America resolved to establish a free trade area." In

addition, NAFTA also determined to: ? Strengthen the special bonds of

friendship and cooperation among the nations; ? Contribute to the harmonious

development and expansion of world trade and provide a catalyst to broader

international cooperation; ? Create an expanded and secure market for the goods

and services produced in their territories; ? Establish clear and mutually

beneficial rules governing their trade; ? Create new employment opportunities,

improve working conditions and living standards in their respective territories;

? Ensure a predictable commercial framework for business planning and

investment. A very important section of NAFTA is the elimination of tariffs,

which are charged for imports and exports within the three nations. Along with

the eradication of tariffs, the agreement opened up enormous opportunities,

creating a $6.3 billion GNP for the three countries. As mentioned in the

agreement objective, NAFTA will and should, "create economic

opportunities". The three nations, following the agreement, will move more

and more into the liberalization of trade, at the expense of American and

international workers. Under the agreement, the goods and services must be

produced within the NAFTA territory to be considered tariff free. Not all

tariffs are going to be eliminated at once, the agreement follows staging

categories, which are as follows: Immediate elimination of tariffs on 1/1/94: ?

Cattle ? Computers ? Jewelry ? Microwave ovens ? Passenger cars ?

Telephones ? Televisions Elimination of tariffs within five years, beginning on

1/1/94: ? Baseball Caps ? Cotton Yarns ? Men’s Pajamas ? Table Cloths ?

Women’s Cotton Dresses Elimination of tariffs within ten years, beginning on

1/1/94: ? Cigarettes ? Cotton ? Footwear ? Glassware ? Luggage ? Rum

Elimination of tariffs after fifteen years, beginning on 1/1/94: ? Dry Beans ?

Most Fresh Vegetables ? Orange Juice ? Peanuts ? Sugar With this in mind,

critics present the problem that Mexican companies may take advantage of tariff

free goods, resulting in the switching to low Mexican wages. As a result, United

States workers may lose their jobs to Mexican citizens that can be paid less.

When President Clinton was one of the Chief Proponents of NAFTA his Council of

Economic Advisors brought forward this issue, "…Although wages are lower

in Mexico than in the United States, the productivity of Mexican workers is also

lower than the U.S. workers. Moreover, companies make plant location decisions

based on a variety of factors in addition to wages, including telecommunications

and transportation’s infrastructure and business services, all of which are more

sophisticated in the United States" (Arnold, 296). But the latter has not

slowed down American companies from going south of the border for cheaper labor

and less demanding working conditions from government agencies. So far,

companies like Thompson Consumer Electronics, Jay Garment, Magne Tek, Uniroyal

Goodrich and Breed Technologies have moved at least 107 plants in Indiana alone.

To attempt mutual acceptance, NAFTA has presented readers with their goods and

service overview. The following are short assessments that NAFTA provides:

Agriculture: The food everyone eats is very important to every country, thus

being our main source of consumption, NAFTA makes it easier for goods to be

exported and imported with limited quotas throughout the years of operation.

When NAFTA entered into force at least one half of the agricultural exports in

Mexico became duty free. This is a great advantage to the United States because

it will be able to export as many goods into Mexico, gaining in not only trade,

but in economics as well. Now, within the five years of NAFTA operation, the

agreement states that most of the remaining tariffs will be eliminated. As the

success continues the goal for NAFTA is to disintegrate nearly ninety five

percent of the United States agricultural exports with Mexico. This is what is

agreed on by the tenth year, and as a result many of Mexico’s import licenses

will also be eliminated. Automotive: Increasing competitiveness, creating

employment opportunities and reducing prices for consumers is what NAFTA will

integrate for the automotive sector. This is not the only advantage NAFTA is

creating; it is also taking part in the termination of Mexican Auto Decree.

Which is leading to the elimination of the limits of sales from vehicles

imported from the United States or Canada into Mexico. This makes stolen

vehicles harder to sell to Mexican civilians. The Amendment to Trade Balancing

will also contribute in reducing not only fifty percent on tariffs, but on auto

parts from the United States. Thus, Mexico will also allow Canada and the United

States to invest in Mexican "national suppliers" of parts as well as

in enterprises (Mexico Business, NAFTA). There is a problem, however, companies

only wish to establish firms in the US or Canada but not in Mexico. Energy: With

the North American Free Trade Agreement in effect, the United States and Canada

have greater access to electricity, gas, petrochemical, energy services and

equipment markets from Mexico. This allows for these three Northern countries to

share and rely on each other for products that are essential to the everyday

lives of their citizens. Through open rules the United States and Canada have

the opportunity to sell to PEMEX, the Mexican owned oil company. This gives the

United States and Canada a chance to sell their product while also allowing

Mexico to buy from its North American neighbors without any hassle or problems.

All three nations will benefit from the free trade, which would have been a

problem before. For Mexico, in particular the North American Free Trade

Agreement will also reduce investments restrictions lifting previous restricted

basic petrochemicals. Overall the program provides performance incentives, which

are used on activities such as oil drilling. Environment: On September of 1992,

the United States, Mexico and Canada established the North American Commission

on Environmental Cooperation. The main objective is, "to set in motion a

process for sustained long term effective trilateral environmental

cooperation" (Mexico Business, NAFTA). NAFTA does not support substances

that deplete the Ozone Layer, such as Montreal Protocol. As presented in the

agreement, investment requires the maintenance of stringent health, safety and

environmental standards; in which, NAFTA plans to open up numerous opportunities

for environmental equipment, firms and services. The plan is to provide

companies which will increase environmental protection such as: solid waste

disposal technology, sewage treatment, wastewater treatment, hazardous and

non-hazardous waste engineering consulting, water treatment, specialized

monitoring services and overall environmental rehabilitation. If these companies

are not provided, it could mean harm for our ecology and democracy. Financial

Services: The United States, Canada and Mexico have all been benefiting through

the agreement of the North American Free Trade Agreement. In Financial Services,

the agreement has helped each member of the party acquire help with different

companies, which in return make possible many consumer activities. An advantage

to many of the Mexican consumers that cross the border everyday for goods and

services is having the security of being able to rely on Mexican banks in

operation here in the United States. In Return, Mexico will permit Canada and

the United States to establish subsidiaries to engage in consumer opportunities

for example, commercial lending, mortgage lending and the provision of credit

cards. This will not only establish a market share, but will emphasize on

national treatment. Another key element from the North American Free Trade

Agreement is that the United States and Canada, which are involved in trade with

Mexico, will be able to take advantage of "one stop shopping," both

domestic and international operations. (Mexico Business, NAFTA)

Insurance/Pharmaceuticals NAFTA enables the United States and Canadian firms to

squeeze into Mexico’s billion dollar insurance markets. On the other hand the

agreement between these three parties also states that market sharing will

enable Mexico to form subsidiaries without ownership. United States exports on

pharmaceutical products to Mexico and Canada reached, six hundred and forty five

billion and one hundred and twenty one million in 1991. With these growing

numbers every year, NAFTA has allowed Mexico to remove import licenses,

eliminating tariffs on these products. Today these pharmaceutical products play

a big role on the everyday lives of many citizens of the three parities;

therefore along with the elimination of tariffs, NAFTA is also increasing patent

protection. According to the agreement Mexico should open up to receive these

products with open arms. Sanitary and Photo sanitary measures: Under the

agreement, each country is entitled to establish its own measures as long as

they are based on scientific principle and risk assessment. Rules may not be

established to exercise unfair discrimination, or to serve distinguished

restriction on trade. Overall the establishment must focus on protection of

human, animal, and plant life, as well as standards for health risks due to

animal pest or plant diseases, food additives, or food contaminants. Services/

Telecommunications: Canada’s two hundred and fifty billion and Mexico’s one

hundred and forty six billion service markets are now within easier access to

the United States, liberalizing trade related services. The elimination of a

provider establishing a local presence is also vanished with NAFTA.

Nevertheless, although NAFTA does not focus on basic telephone services, it does

focus on advanced data processing while keeping the desire to maintain open

international shipping markets. It is expected that by the year 2000

telecommunication products will be expected to grow to forty two percent, for

this reason Mexico is expected to remove all tariffs on telecommunication

equipment imports into their country. These changes also increase the quantity

of United States exports on telecommunications equipment and enhanced services.

With the movement toward future compatibility, incorporate telecommunication

services can be operated in the United States, Mexico, and Canada without

transport networks or services from other parties. Textiles and Apparel: Fibers,

yarns, textiles and clothing are all covered under the North American Free Trade

Agreement. Under the agreement, the United States, Mexico and Canada, have

focused on the rules of origin. One of them in particular states that yarns as

well as fabrics in a garment must be produced in one of the three countries,

United States, Mexico, or Canada. This is done in order to take advantage of

removing import quotas on textile, apparel goods, and also on goods produced in

Mexico. In 1991 the six point four billion Mexican textile and apparel market is

introduced with the North American Free Trade Agreement, which also takes part

in the United States exports of one point one billion. With this change the

North American Free Trade Agreement immediately vanished Mexican barriers up to

twenty percent allowing the movement of exports into countries to be a huge

success. With this in mind over the years both Canada and Mexico will also begin

to eliminate quotas keeping safeguards. These safeguards will help in actions

taken in increasing tariffs when damage caused by greater volumes of imports are

resulting; overall keeping the industry of imports and exports to a limit of

balance, while satisfying the industries but not damaging the economy.

Transportation: Everyday buses are the main transportation devices used by

Mexican and United States civilians. Now with the North American Trade Agreement

in full effect, barriers to various land transportation services have been

eliminated. Thus bringing forward new establishments of land transport with new

safety standards. By the end of this year Mexico will permit buses to and from

any part of the country; this advantage, will also benefit service trucks.

Another important factor in the transportation service is that NAFTA will focus

on safety. This means drivers with valid licenses, and placing equipment

standards to prevent the transportation of dangerous goods. The North American

Free Trade Agreement has been criticized by almost everyone including those who

do not know a lot about its existence. In reference towards jobs created or

lost, NAFTA plays an important role. According to the United States Library of

Congress, more than twice as many jobs have been created since NAFTA went into

effect in 1994. On the other hand one economist in El Paso, TX, states that an

estimate of 440 thousand net jobs have been lost in the United States. On a

recent meeting economists from the United States, Mexico and Canada, all met in

a conference to reveal job loss and gain. Harvey Rosenblum, senior vice

president of the Federal Reserve Bank of Dallas stated, " All three

countries are better off for having NAFTA, consumers are benefiting from more

efficient operations" (electric library: Library of Congress: Experts

disagree on NAFTA and Jobs). In the conference the three parties agreed that

many job cuts have been a result of many factories moving across the border for

cheaper labor. To prove this, economist Jesse Rothstein estimated that 1.1

million jobs have been created in the United States while 1.6 have been lost

because of increase of imports. Furthermore, Mary Jane Bolle, a specialist in

international trade states that, "Overall, NAFTA’s first five years have

resulted in one and a half times as many job gains as losses" (electric

library: Library of Congress). Though experts cannot agree on whether NAFTA has

been good or bad for the economy, it is certain that it has benefited many

areas. In 1997, the Heritage Foundation, a research and educational institute,

and the Wall Street Journal published the 1997 Index of Economic Freedom. The

main focus was to find the relationships among countries with freedom and

wealth. "Specifically, countries with low tariffs and insignificant

non-tariff barriers were said to have freer trade policy than countries with

high tariffs and significant non-tariff barriers to trade" (The Wall Street

Journal; Economics: Arnold 298). During the research many countries were

analyzed and given a rank of 1 through 5. Countries ranking in the range of 1 or

2 were said to be the richer countries. "Notice, once again that the trade

scores indicate that the relatively rich countries have freer trade than the

poor countries" [see figure 1-1] (The Wall Street Journal: Index of

Economic Freedom: Arnold 298). According to the Economic Report of the

President, NAFTA has been successful throughout these beginning years. As for

United States, Mexico and Canada, they too have grown tremendously under the

agreement. As the success continues, NAFTA will head toward new challenges

including the goal of wanting the free trade area to consist of thirty four

Western Hemisphere countries by the year 2005.

Bureau of Labor Statistics, 1996-1997 Jobs Outlook. See Chicago Tribune,

NAFTA at 5, Promises & Realities, November 29, 1998. U.S. Census Bureau,

http://www.census.gov/foreign-trade/www/deficit.html Rothstein, Jesse and Rob

Scott. "NAFTA’s Casualties," Economic Policy Institute: September 19,

1997. Dailey, Rickey. "NAFTA Gets Mixed Reviews," The Brownsville

Herald, August 22, 1998. "Border Counties Poorest in Nation," The

Brownsville Herald, July 23, 1998. "NAFTA Increases Brussels Sprouts

Woes," Financial Times, 11/30/98.