North American Free Trade Agreement: Nafta

North American Free Trade Agreement: NAFTA

Introduction

I believe that the North American Free Trade Agreement was an inevitable step in the evolution of the United States economic policy. The globilization of the world economy due to technological advances in computers and communications have shrunk the world to the point where no single country acting alone can effectively compete on the foreign market. Even the United States, with its vast resources, can not have an absolute advantage in all thing that it produces. It does not have unlimited factors of endowments and must do its best to make these available to the companies within its borders.

There are two basic sides to the argument over the North American Free

Trade Agreement. The Pro-NAFTA side views the treaty as a way to provide a large, efficient production base for the entire geopolitical area. This would result in lower cost to consumers and an increase in exports to Mexico and

Canada. The multiplier effect would then take place producing growth in all areas. The Anti-NAFTA group feels that Mexico will be an unequal partner due to the lower wage rates of the Mexican populace, causing the loss of thousands of jobs in the United States and Canada. Environmentalist fear that pollution will spread across the continent. Farmers fear that produce grown in

Mexico will be contaminated from pesticides banned in the United States. These are but a few of the arguments for and against NAFTA.

What does NAFTA mean

A Free Trade Area is, by definition, an area where all barriers to trade are lifted. This is not the case with regards to NAFTA at this point.

Currently most of the trade barriers between the United States and Canada are lifted but those with Mexico have largely been kept in place. This is an obvious disparity on the part of the Mexican government but is due largely to the proportional loss of income to the governments in each country. The Gross

Domestic Product per individual in Mexico is one seventh of the other two countries. Therefore, the loss of revenue would have a major impact on the daily life of its population and the operation of the government . Never before has a major economic power like the United States considered a free trade area with an under-developed third world country.

The major diffe...

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...n unprecedented $40 billion but United States exports increased $8 billion to $42 billion. This maintained

Mexico's trade gap which is the reason that the peso plunged (Wright AOL).

To the north, trade between Canada and the U.S. hit $260 billion in 1994, this is up by 50% from 1988, when they first signed a free trade agreement.

This is due largely to the relative cheap Canadian dollar. In autos, for example, it now costs "20% to 25% less to assemble a car in Canada then in the

US." says David Adams, director of policy for Canada's Motor Vehicle

Manufacture's Association. Ford Motor Company alone has spent $2.2 billion to upgrade its car and truck manufacturing plants. This surge in auto manufacturing has caused a boon for machinery and equipment manufacturers in the United States. Exports to Canada for this type of equipment has risen 500% in the last decade. Canadian exports to the U.S. grew by 21% in 1994 and are expected to have another double digit increase this year. Ontario alone imported more U.S. goods than our second largest trading partner (Symonds AOL).

More jobs have been created than lost as a result of NAFTA. According to the