Nafta Expansion Essay, Research Paper

Should the United States Pursue the Expansion of NAFTA?

Statement of the Problem

The North American Free Trade Agreement (NAFTA) entered into force on January 1, 1994. It created the world’s largest free trade area: 380 million people producing nearly $8 trillion worth of goods and services. One of NAFTA’s primary objectives is to, “contribute to the harmonious development and expansion of world trade and provide a catalyst to broader international cooperation” (US Trade Rep.). To ensure its role in advancing world trade NAFTA must expand its boundaries to the Caribbean as well as Central and South America.

Assumptions

The NSS claims that enhancing access to foreign markets is necessary for promoting prosperity. It states, “Our prosperity as a nation in the twenty-first century also depends upon our ability to compete and win in international markets”(NSS). The expansion of NAFTA into Central and South America will benefit US trade by reducing tariffs in one of the fastest growing regions in the world. The reduction of tariffs will improve the US’ ability to access foreign markets by virtually eliminating the costs to enter the markets. This will enable US corporations to sell their goods at lower prices, therefore allowing the people of the region to purchase US goods. This ability to access such markets will eventually increase the number of capital intensive jobs available in the US. The institutions and mechanisms that NAFTA created have smoothed the path to allow North American businesses to trade, invest and position themselves for better productivity and comparative advantage, thus making our economies stronger against shocks, such as Mexico’s 1994 peso crises. NAFTA does not just safeguard US businesses, it protects the markets that provide employment for our workers.

Internationally, the advancement of NAFTA will help create new employment opportunities, and improve working conditions and living standards abroad by opening up the US marketplace to their major industries. Opening up trade will also enable the countries of the region to sustain economic development. Improved economic conditions have become an important political stabilizer, as it has effectively increased the cost of instability (Harvard Int. Review, Fall 97; pg. 28). The expansion of NAFTA will have as much of an impact on political advancement as it does on economic advancement. Free trade is a necessary ingredient in creating sustainable development, which is important in the consolidation of democracies. In order to assist in the transformation to stable democracies, the countries of Central and South America need access to the North American free market (H.I.R., Fall 97; pg. 28). Free trade increases economic competitiveness. This will aid in establishing the norms of political competitiveness, a key factor in stabilizing a democracy.

The NSS states that, “our prosperity at home depends on our leadership in the global economy” (NSS). The US’s involvement in future agreements will enable it to maintain its leadership role in the globalized market. An agreement with Chile and MERCOSUR (Southern Common Market) will strengthen the US’s presence in the region.

Facts

In relation to the size of the economies, US trade with Canada and Mexico has become much larger than that with any other trading partners. In 1996, almost one-third of the US two-way trade in goods with the world was with Canada and Mexico, at $412 billion. Two-way trade with our NAFTA partners has grown 44 percent since NAFTA was signed, compared with 33 percent for the rest of the world (Democratic Leadership Council, 9/97). Mexico and Canada accounted for 53 percent of the growth in total US exports in the first four months of 1997. Canada remains our largest trading partner, and Mexico has recently surpassed Japan as the US’s second largest export destination in 1997 (Tracking US Trade, 2/98). In 1996 trade with these regions supported an estimated 2.3 million US jobs. This is an increase of 311,000 jobs, 189,000 because of exports to Canada, and 122,000 from exports to Mexico (Tracking US Trade, 2/98). In contrast according to The Economist only 117,000 Americans have signed up for benefits offered to workers displaced by NAFTA.

The US must look to the Western Hemisphere for further economic prosperity. Within the last five years, the Western Hemisphere has become the largest regional destination for US exports, accounting for almost 40 percent of US trade in 1996. Goods exported to the Hemisphere in 1996 totaled $242 billion (Tracking US trade, 2/98). Latin America, including Mexico and the Caribbean Basin has a large consumer market, with a population estimated at more than 470 million. The total gross domestic product of Latin America and the Caribbean Basin was about $1.5 trillion in 1995, with growth expected to average 5 percent or more through the year 2000 (Dem. Leadership Council). The US supplies over two-fifths of the region’s imports. There is no other part of the world where the United States is so competitively positioned.

Twenty trade agreements have been negotiated within the hemisphere without US participation. The EU has agreed to sign a free trade agreement with the nations of MERCOSUR. MERCOSUR is the largest preferential trade agreement in Latin America. It consists of Argentina, Brazil, Paraguay, and Uruguay. The MERCOSUR countries alone represent a market of 220 million consumers with a combined GDP of more than $1 trillion. Two-way trade between the US and MERCOSUR was about $30 billion in 1996 (US Trade Rep). Brazil is the eighth largest economy in the world and is the single largest economy among the US export markets in the Latin America and Caribbean region, with a GDP of $472.5 billion in 1994. US goods accounted for 21.1 percent of Brazil’s total imports in 1995. Argentina is the second largest economy of the Latin American and Caribbean nations with a GDP of $227.4 billion in 1994, while in 1994 Paraguay and Uruguay have a combined GDP of $22.5 billion and are the thirteenth and seventh biggest economies in those regions (US Trade Rep). The EU has also agreed upon having negotiations with Chile on creating a reciprocal agreement with them. Chile is the fifth largest economy among the US’ major export markets in the Latin America and the Caribbean region, with a GDP of $49.3 billion in 1994. Chile also posted 6 percent growth in 1996 (US Trade Rep).

Discussion

The heads of 34 American and Caribbean countries, all except Cuba, met in Miami where they agreed to aim for a Free-Trade Agreement of the Americas (FTAA) by 2005. This agreement would consolidate the already existing agreements of NAFTA, MERCOSUR, CARICOM (Caribbean Common Market), and the Andean Region (Bolivia, Colombia, Ecuador, Peru and Venezuela). It would be a great failure for the US not to take the lead in negotiating this trade pact. Canada and Brazil have already stated their proposals for an FTAA. It is time for the US to do the same. With the US as the most important player in the negotiations, opponents of the expansion of NAFTA such as Dick Gephardt can play an active role in establishing firm environmental and labor laws within the region. With the opponents out of the way it is possible to imagine a prosperous trade union with powerful markets such as Brazil and Chile. Brazil alone has already reduced its tariffs on US goods to 13.6 percent in 1996, from 45 percent in 1986 (US Trade Rep.). During this time US exports to Brazil have tripled. Brazil, Chile, and Argentina are considered by Corporate Locations annual investment survey as the 2nd, 3rd, and 4th most attractive regions in the world for investment (H.I.R., Fall 97, pg. 21). By joining an FTAA and in turn reducing trade restrictions we can expect even higher levels of growth in the future.

The expansion of NAFTA will positively affect the US’ labor force. Through the creation of a free trade arena with Mexico and Canada, the US labor force has benefited more than it has been hurt. The high skill worker has profited greatly, while the low skilled worker has somewhat struggled. Today, export related jobs pay on average 15 percent higher wages. While, those without the necessary skills to compete in the global market may find themselves with even lower wages or possibly job displacement. For the prospect of further market integration, it is important that the US increases investment in its labor force. This requires increased funding for quality education and training programs. Although it is true that approximately 117,000 Americans have lost their jobs due to NAFTA, this is not a large number in comparison to the 1.5 million Americans who lose their jobs each year from factory closures and corporate restructuring, and the 2.8 million new jobs created each year in the US (When Neighbors Embrace). It is estimated that the US economy now creates in one month the total number of jobs lost due to NAFTA in three years (Democratic Leadership Council). From this it may be concluded that market integration has produced more jobs than lost, and that further integration may expect to produce similar results.

Enlargement of NAFTA will stimulate democratic advancements in Latin America and the Caribbean, an area where 19 of 20 nations have recently established the institutions of democracy. NAFTA has already assisted Mexico in its first transition of political power. The Mexican democracy took a large step in redistributing power among the three leading political parties. After 60 years of control, the PRI, no longer controls a majority in the Mexican Congress. This change reveals that the economic reforms made by NAFTA have been accompanied by a process of significant political reform in Mexico (Democratic Leadership Council). A widened open market will have similar effects on the rest of the Western Hemisphere.

Conclusion

NAFTA was created with the intention of expansion. Canada and Mexico are both willing to take on new members, it is the US’ lack of direction that has halted such advancements. It is time for the US to end a tiresome debate and step forward to lead the Western Hemisphere to global economic prosperity in the 21 century. If the US fails to do so, other trade areas may surpass the US’ regional hegemony.

Recommendations

By 2005, the 34 nations of Latin America and the Caribbean have agreed to join in the FTAA. It is possible to draft an entirely new trade agreement, or merge the existing ones. It is recommended that the US takes part in leading the Western Hemisphere into agreement in the FTAA by merging NAFTA, MERCOSUR, CARICOM, and the Andean Region. This will be made possible by first getting Congress to renew Fast Track, and second, informing the public of the continuous benefits of free trade.

“Ah, Pan American Free trade” 1997, http://www.economist.com/archive, April 10. 1998.

Clinton, Bill. “Clinton Asks Congress to Renew Fast Track Authority” Harvard International Review, Harvard University Press. Fall 1997. Pgs 82-84.

Herman, Alexis. “Sharing Prosperity: Us Workers In the Global Economy.” Harvard International Review, Harvard Universtiy Press, Winter 97/98 pgs. 78-80.

King, Robin and Maises Naim. “Free Trade Express? The Future of Hemisheric Intergration” Harvard International Review. Harvaed Universtity Press, Fall 1997-1998. Pgs. 20-59.

LevinsonMcPhail,Brenda. NAFTA Now! The Changing Political Economy of North America. University Press of America, Inc. 1995.

National Security Strategy. 1997. Washington, D.C.: US Government Publishing.

Office of the US Trade Representative, “Future Free Trade Area Negotiations.” May 1,1997.

Solis, Luis. “Peace Equation: The need for Further Regional Cooperation.” Harvard International Review. Harvard University Press. Fall 1997, pgs. 16-19.

“Trumka on NAFTA”, 1997, http://www.aflcio.org/publ/press97/pr05053.htm.April 13, 1998.

“Toward a New Trade Policy”1996, http://www.house.gov/democrats/speech.trade.htm.March 17,1998.

“Tracking US Trade.” 1997, http://www.lanic.utexas.edu/cswht/tradeindex/html. March 17, 1998.

“The Democratic Leadership Council” 1997, http://www.dlcppi.org/releases/970911.htm. March 17, 1998.

“When Neighbours embrace.” 1997. Http;//www.economist.com/archive. April 10, 1998

Works Cited

Office of the US Trade Representative, Future Free Trade Area Negotiations, May 1, 1997.

National Security Strategy. 1997. Washington, D.C.: Us Government Publishing.

Solis, Luis. “Peace Equation: The need for further regional cooperation.” Harvard International Review; Harvard University Press. Spring 1995. Pg. 28.

Solis.

National Security Strategy.

Democratic Leadership Council, 1997, http://www.dlcppi.org/releases/970911.htm., March 17, 1997.

Tracking US Trade, 1997, http://www.lanic.utexas.edu/ cswht/tradeindex.html, March 17, 1997.

Tracking US Trade.

Tracking US Trade.

Tracking US Trade.

Democratic Leadership Council.

Office of US Trade Rep.

Office of US Trade Rep.

Office of US Trade Rep.

King, Robin and Maises Naim. “Free Trade Express? The Future of Hemisheric Intergration” Harvard International Review. Harvard University Press, Fall 1997. Pg 21.

“When Neighbours embrace.” 1997. Http;//www.economist.com/archive. April 10, 1998.

Democratic Leadership Council.

Democratic Leadership Council.