North American Free Trade Agreement In December of 1992, President Salinas of the Government of the United Mexican States, President Bush of the Government of the United States of America, and Prime Minister Brian Mulroney of the Government of Canada signed the North American Free Trade Agreement (NAFTA); however, it was not ratified and fully effective until 1 January 1994. NAFTA, which established a free trade area among the aforementioned nations, consistent with the previously instituted General Agreement on Tariffs and Trade (GATT), eliminates tariffs on goods produced by the signatory nations by 2005, removes most barriers to cross-border investment and to the movement of goods and services, and improves intellectual property protection. The specific objectives contained in NAFTA are as follows: a) eliminate barriers to trade in, and facilitate the cross border movement of goods and services between the territories of the Parties; b) promote conditions of fair competition in the free trade area; c) increase substantially investment opportunities in their territories; d) provide adequate and effective protection and enforcement of intellectual property rights in each Party’s territory; e) create effective procedures for the implementation and application of this Agreement, and for its joint administration and the resolution of disputes; and f) establish a framework for further trilateral, regional, and multilateral cooperation to expand and enhance the benefits of this Agreement. Proponents of NAFTA claim that the accord will increase trade throughout the Americas, moderate product prices, and create new jobs in all three countries. Critics claim just as adamantly that the proposed accord will degrade blue-collar employment wages and environmental standards throughout North America. Moreover, they claim that jobs will move to Mexico due in part to the wide disparity in labor market regulations and wages existing between the United States, Canada, and Mexico.
In addition to worker displacement, the prospect of environmental problems stemming from Mexico’s lax enforcement of environmental standards has led critics to disagree with the institution of the NAFTA. The NAFTA agenda is divided into six areas: market access (tariffs and nontariff barriers, rules of origin, government procurement, automobiles, and other industrial sectors); regulations (safeguards, subsidies, trade remedies, and standards); services (principles of services, financial services, insurance, land transportation, telecommunications, and other services); investment; intellectual property; and dispute settlement. A major issue addressed in NAFTA negotiations is whether capital should move between the neighboring countries, and how and under what conditions such increased trade and investment should take place. NAFTA was initiated to promote a climate of fair marketing, improve investment opportunities, protect industrial and intellectual property rights, as well as establish procedures for the resolution of disputes. However, NAFTA has introduced increased bureaucracy in each country and more regulations and rules for businesses to contend with. The move toward NAFTA by the United States Government can be attributed as a response to the decline in U.S. productivity growth.
Since the 1970s, output per worker has slowed in its growth rate dramatically. Due to this decline, the United States had to look for ways to either stimulate growth in the service sector or rely on international trade to further American progress and growth. Prior to NAFTA’s enactment, conducting business and investing in Mexico was a difficult process. Investors needed the Mexican Government’s approval and were also required to meet specific investment guidelines. These requirements forced investors to export a set level of goods and services, utilize domestic goods and services, and transfer technology to competitors. Under NAFTA, investors and business professionals no longer need government approval to invest and are treated as domestic investors. NAFTA has increased intellectual property rights and allowed companies to obtain patents in Mexico and Canada. In the past, companies were hesitant to export research and development intensive goods because of the need of increased intellectual property protection; however, exports of these goods has shown a definite increase.
As a result of better trading conditions, exports and imports of most other goods have increased along with sensitive research and development goods. Another related trade agreement conveying the benefits of international trade is the General Agreement on Trade and Tariffs (GATT). It was created in 1947, and like NAFTA, GATT promotes international trade through the reduction of tariffs. Today, GATT encompasses over one hundred countries and 90% of the world’s trade goods. There have been eight different versions of GATT, each resulting in a new trade agreement.
The most recent is referred to as the Uruguay Round and is one of the largest and most comprehensive trade pacts in history. The Uruguay Round Agreement cut tariffs by one-third, increased coverage for textiles, clothing and agriculture, and created a new World Trade Organization (WTO). The WTO settles disputes, regulates the policies agreed upon, and reviews countries’ trade practices and policies. The Uruguay Round Agreement and WTO make up an important part of GATT. GATT, as a whole, is based on principles that ensure all participating countries receive benefits.
These principles include nondiscrimination, protection of domestic industries, and provisions of a stable basis for trade. With such a solid foundation, the policies of GATT have taken force. Much like NAFTA, GATT proposes to increase trade through the reduction of tariffs. However, GATT is more inclusive of the international economy. The free trade that NAFTA has established among the United States, Mexico, and Canada has greatly benefited the U.S.
economy. Since its inception in 1994 to 1997, U.S. trade with Mexico and Canada rose 44 percent. This extensive growth is accredited primarily to the reduction of tariffs. As tariffs were lowered, U.S. goods became cheaper and more competitive in Mexican and Canadian markets, and at this lower price level, the quantity demanded of U.S.
goods increased. In order to meet the new demand for goods and services, firms must hire new workers and increase investment. Between 1994 and 1997, thousands of jobs were created in the U.S. due to the increase of trade with Mexico, and many jobs were dependent upon trade with Mexico and Canada. This increase in employment and investment leads to increased national income. NAFTA has enabled Volkswagen, IBM, and businesses in the textile industry to seek labor and materials in less-expensive Mexico.
IBM has created plants in Guadalajara that would otherwise have been built in Asia. As a result, the exports of IBM de Mexico have increased and created hundreds of new jobs. In addition, Mexico’s textile industry has grown as a product of NAFTA, and in 1996, Mexico surpassed China to become the largest supplier of textiles to the United States. U.S. firms invest hundreds of millions of dollars to build plants in Mexico and Canada as an effect of the reduced tariffs and lesser shipping time. The only indication of NAFTA that I have personally encountered is the increased traffic flow up and down the Interstate 35 corridor.
I drive to Waco quite frequently, and I am usually slowed behind tractor-trailers and jalopies IN TOW in a six-vehicle caravan, which are heading for the border. In addition to traffic, NAFTA has not stopped, or even slowed Mexican Nationals from illegally entering the Texas border. Shouldn’t life be more livable with the increase in jobs and opportunity? Wasn’t an informal goal of NAFTA to reduce the pressure of illegal immigration? I expect to gain a cultural understanding of Mexico and its people. My previous experience with Mexican Nationals has been very limited. When I first started college, Spanish was my major due to my three years of the language in high school.
It has been many years since I have had the chance to use my skills and knowledge of the Spanish language. Not to say that I am fluent in any way! But I am excited about finally having the opportunity to push my abilities and regain what time has taken away. International business is very critical and necessary here in Texas. Being this close to a NAFTA-affiliated country demands that businesses and professionals in this area expand and use the opportunity of establishing new business in Mexico. Mexico offers many opportunities to Americans and American business professionals that prior to NAFTA were not feasible, nonexistent, or impossible.