Nafta Essay, Research Paper
The Impact of NAFTA in the U.S. and Mexico
The North American Free Trade Agreement, often referred to as NAFTA, is an agreement between the U.S., Canada and Mexico. The purpose of NAFTA is to reduce and eventually erase trade barriers, which would make it easier for the three countries to import and export goods and services more freely between each other. NAFTA had started as an agreement between the United States and Canada, then in 1992, Mexico joined the venture. The union of these countries made sense, mainly because of their proximity to each other and the benefits that each would soon come to realize.
Some of the key contents in the NAFTA agreement was that in a ten year period, most all of the tariffs on the goods would be removed, it provided for the protection of intellectual property, easier access to invest in foreign industries, that is with a few exceptions which would exclude key markets for that country. For example, Mexico was not willing to open the door to its energy and railway industries. NAFTA also meant freer flow of services, which would allow unrestricted access to some of the country’s markets. Even more importantly, NAFTA made sure that environmental and ethical standards were in place. Two parties were commissioned to ensure that there was no abuse of the environment, wages or child labor to name a few
How did such an agreement come about? NAFTA was formed as an offspring of the World Trade Organization (WTO), an organization that aimed at promoting freer trade between countries. The WTO was preceded by the General Agreement on Tariffs and Trade (GATT). GATT was started more than fifty years ago, so these types are agreements have been around for some time. The WTO has not been as successful in reducing trade barriers as quickly as have the regional trade agreement. It has been slow in progress because of the number of countries involved in such an organization and the considerations that has to be given to satisfy all parties. The WTO has been successful at influencing countries within the same geographic region to establish their own trade agreements. Not in a vocal way, but merely from the complexity and time it has taken the WTO to implement a trade agreement between so many countries.
As a result there has been over 100 regional free trade agreements developed. Though all of these agreements are not currently in force. Those that have active agreements, all of its members have benefited positively in some way. Each member has the opportunity to take advantage of producing and exporting goods and services in which they have proven to be most efficient.
Before NAFTA became law in 1994, both supporters and opposers have had much to say about what NAFTA would mean to various industries and stakeholders. Supporters of NAFTA argued that each country would become more efficient and that the demand for goods between these countries would increase. Thereby opening markets that each country would not have realized prior to the agreement. Mexico was the country that would take the biggest risk in this agreement. Either Mexico’s economy would thrive or they would see the effects of being the inferior party.
Now on the other hand, there is the opposition, primarily on the U.S. side. They argued that NAFTA would exit an enormous amount of jobs into Mexico. Leaving displaced workers in the U.S. They also argued that industrial firms would exploit the less restrictive labor and environmental. Opposing groups have been very vocal in their fight against NAFTA. Some of the attacks against NAFTA claim that U.S. companies going into Mexico has abandoned communities leaving vacant buildings and suffering families. Other claims have been that middle class Mexicans have been pushed into poverty and Mexican wages have fallen by 60%. There are also claims that the goods that were promised to be made available to Mexican consumers, never reach them. U.S. workers were not the only one who had concerns. Some Mexican citizens also feared that their country would become a low-cost assembly site, and that there would be no real investment from foreign firms.
What has really happened since the inception of NAFTA? Has there been a mass movement of jobs into Mexico? Has Mexico seen any benefits? Based on reports from various political and economic sources, there has not been any substantiated proof that NAFTA has created high gains or losses to the U.S. or Mexico. Many of the jobs that U.S. companies have transferred into Mexico have been low-skilled, manufacturing jobs. Mainly in the areas of textile and apparel assembly. The movement of these types of jobs into Mexico is because of the inexpensive labor and the composition of the workforce. Mexico’s workforce tend to be less skilled than the American workforce. This is due to the slow development of technology or lack of, and slow economic growth. It is more logical to move jobs into Mexico that requires less knowledge and training. With the export of these types of jobs into Mexico, the demand from Mexico grew sharply for raw and ready to sew materials, and various equipment necessary for them to perform their jobs. So with this new demand, opened up new opportunities for U.S. workers in more skilled, higher paying jobs. Another benefit of NAFTA has been realized by U.S consumers. The savings that producers of the many goods we consume, are passed on to the consumer. The average cost of some goods have decreased.
Reports declare that Mexico has seen some benefits as a partner of NAFTA. These benefits have come in the form of jobs, environmental clean ups and access to a wider variety of goods. In spite of the 1994 financial crisis that caused a great economic set back for Mexico, the country now seems to be making some progress to overcome the situation. Mexico’s gross domestic product is declining at a lesser rate than in previous years for the same period. Even though Mexico is still climbing out of hard time, the country is managing to purchase some U.S. manufactured goods.
U.S. companies pursuing profits in Mexico will not have the same level of success. It all depends on the business their in. Through the efforts of some U.S. companies, they have been able to establish profitable relationships with Mexican businesses and assist in the environmental clean up. One example of this comes from a company named Metalclad. This is a company based out of Newport Beach, California. Metalclad has been doing business in Mexico before NAFTA, investing millions of dollars in waste recycling and disposal. With the inception of NAFTA, Metalclad has seen its investment in Mexico increase at a phenomenal rate. With hopes of making its presence felt even more, Metalclad has partnered with a Mexican company. Another company that has been able to assist in the environmental clean up and yet take advantage of the investment opportunity is a company named U.S. Filer Corp. In 1992 U.S. Filter’s leader, Richard Heckmann, heard about the needs of Mexico’s diseased sewage system. He decided that his company was capable of assisting Mexico improve its sewage system with treatment plants that they had in existence in two Mexico cities. U.S. Filer Corp. has helped improve the health of the communities and provide nutrient-rich sludge for fertilizing to local farmers by treating the sewage instead of discharging it raw into the rivers. This is an example of how both countries can benefit from the establishment of an agreement such as NAFTA. It protects the company who take the risk of investing and still provides protection for the country that could be exposed to unfair practices.
In conclusion, what has been the effects of NAFTA on the U.S. and Mexico? Some believe it is too soon to tell. Though many observations have been made. In summary these observations are that the net gains for the U.S. has been very small, NAFTA has had little effect on what was already transpiring between the U.S and Mexico, that is the increased trade between the two. Also, agreements such as NAFTA have proved to enhance political relations between the countries. It seems the real losers in regional trade agreements are non-members of the agreement.