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Advantages & Disadvantages of NAFTA (North American Free Trade Agreement)

Abstract

This article supports a theory that explains the advantages and disadvantages of NAFTA. Nowadays it has become a topic of debate. In this article we will discuss about the effect of NAFTA on Businesses of the United States, Canada, and Mexico. What is NAFTA, What are the advantages of NAFTA and what are the disadvantages of NAFTA, these point mainly are discussed in the following essay. This has become a topic of debate since 1994, when this agreement came into existence.

NAFTA is The North American Free Trade Agreement (NAFTA) that was signed on August 12, 1991 by the United States, Canada, and Mexico.  It came into existence on January 1, 1994. After this agreement the three countries became the largest free market in the world. It is a trade union in North America which is created by the government of three countries United States, Canada, and Mexico.

Two supplements of NAFTA are-

1.      The North American Agreement on Environmental Cooperation (NAAEC)

2.      The North American Agreement on Labour Cooperation (NAALC)

NAFTA (North American Free Trade Agreement) play an important role in eliminating most tariffs between the United States, Canada, and Mexico. To remove tariff difficulty in agricultural, manufacturing, and services trade are the main

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goal of NAFTA.

U.S., Canada, and Mexico Businesses are affected by NAFTA. Some business analyst says that it has created a positive effect for business owners and some says it is not beneficial for U.S. businesses.

Advantages

NAFTA eliminated all non- tariff barriers related with agriculture between the United States and Mexico. The world’s largest market was created by Mexico, the United States, and Canada. In 1993, the best foreign customers of Unites State were Canada and Mexico. Nearly two-third part of export was sent in Canada and Mexico. After the NAFTA agreement the Mexican market opens the door for many other U.S. firms like Pollution Control Exports. These firms were to raise their business into Mexico. After the North American Trade Agreement (NAFTA) U.S. export has been growth nearly two-thirds and it is expected that this growth will be continue. This growth will create strong trade flows within North America North America has become centre of the global trading system after this agreement. Approx 70 percent of Mexico’s imports fully originate in the United States. Mexican consumers have become dependent on U.S. goods. 15 percent of every dollar spent in Mexico goes to the United States. This reflects the importance of U.S. goods in Mexico. On the other hand 30 percent of every dollar spent in Canada goes to the United States.

Without NAFTA the U.S. import and export both can not reach at this stage. It became possible only because of the North American Trade Agreement (NAFTA). Under the NAFTA all tariffs which affect the agricultural trade between the United States and Canada were removed. The main advantage of the NAFTA agreement was the elimination of tariff for qualifying products. Tariff imbalance was removed by NAFTA between United State and Mexico. 50 percent of the tariffs were eliminated at the time when agreement came into existence and remaining was targeted for gradual elimination.

In 2008, Non-tariff barriers are eliminated. Border between Mexico and the United State has opened in 2008. Non-tariff barriers were the biggest obstacle for business activities between Mexico and the United State. Mexico, the United States, and Canada established some standards also. The main standards are-

1.      Health standards

2.      Safety standards

3.      Industrial standards

Labour and environmental issues are also handled by the NAFTA. Commissions are established for this purpose. Telecommunications trade also got expansion after NAFTA. This agreement played an important role in reducing tariff for motor vehicles, auto parts and automobile. It eliminated textile and apparel barriers. Jobs in financial services increased after this agreement. Insurance market has also taken place after the NAFTA. Investment opportunities and protection for intellectual property rights increased after this agreement. These rights are first time fixed by the NAFTA. Rights of American firms are expanded.

According to the NAFTA agreement the goods imported from other NAFTA countries into a NAFTA country will receive the status of “national goods” and local governments can not impose taxes or tariffs on those goods. This thing has become very beneficial for the U.S. Businesses. Mexican markets for United State business were not opened before this agreement. Because of this production became possible at lower rate for American firms. The Mexican market is growing rapidly and this will be beneficial for the United State. More export opportunities will be grown and these opportunities will produce more jobs. Costumers are taking the advantage of lowered trade barriers. They can purchase a good at lower price. Mexican consumers use U.S. products more than their own products. In 2006 U.S. Exports to Canada and Mexico was 364.4 billion USD and it is increasing with time. (“National Trade Data U.S. Department of Commerce”).

NAFTA is very useful for Canada. With the help of this agreement they could provide their services and goods to Mexico and the United States. Canada wanted that investors would invest in Canada. The NAFTA helped Canada in this matter. Economy of Canada became strong with the help of this agreement. This agreement provided a new stage to the Canadian business. Mexican barriers were removed by this agreement. It was a big advantage for Canada. It gave a new market to the Canada. Now Canada can transport their goods into Mexican market. Restrictions, which were there earlier, removed by this agreement.  Import licensing requirements were removed by NAFTA.

Agriculture goods of Canada are mainly exported to other countries because there are very good farming lands in Canada. The excellent crops of Canada are mainly exported. Canada and Mexico signed a separate agreement under NAFTA. On the basis of this agreement Canadian goods can get immediate access to the Mexican market. The tax, on imported goods of Canada, was decreased by NAFTA. This was a great advantage of NAFTA for Canadian farmers.

A big part of Canadian export is related to auto manufacturing industry. NAFTA removed the imbalance between Canada and Mexico in the auto industry. With the help of North American Free Trade Agreement Canada can openly access market of North America auto industry. Service sector plays an important role in Canadian economy.

A temporary entry across the border is allowed under the NAFTA between Canada and United State. Every business of Canada got the advantage of The North American Free Trade Agreement.

Not only Canada and United State got the advantage NAFTA, but Mexico also got the advantage of NAFTA. Mexican economy became stable after this agreement. There is a lack of Employment in Mexico. United State and Canadian firms are serving Mexican market. These firms have increased employment in Mexico and it became possible because of NAFTA.

Disadvantages

Because of The North American Free Trade Agreement (NAFTA) many U.S. workers have lost their jobs in manufacturing and assembly industries. Inequality in the U.S. has been raised by the North American Free Trade Agreement (NAFTA). According to some analyst NAFTA is not sufficient to produce an economic union and it is not enough to reduce poverty rates (Floudas, 2000, p. 371).  The main disadvantage of NAFTA for U.S. Businesses is that after this agreement trade barriers are abolished, that’s why the U.S. firms are trying to take advantage of cheap labour. It is closing the door for the U.S. labours to work in the U.S. firms. United state firms providing job to the Mexican labours because of low cost. That’s why many workers of United State firm have lost their jobs.

This has become the topic of worry for strong among labour unions and other worker organizations. Oppositionist also says that anti-pollution policies of The North American Free Trade Agreement (NAFTA) are not adequate.

Complexity of the international trading system is also increased by the North American Free Trade Agreement (NAFTA). Transaction costs for business are increased after the North American Free Trade Agreement (NAFTA). The NAFTA agreement was more than one thousand pages long. That’s why more than two dozen committees and working groups had to be established.

These are the main advantages and disadvantages of North American Free Trade Agreement. Every thing has two aspects good and bad. On the basis of the above arguments we can say that the North American Free Trade Agreement has more advantages than disadvantages.

References

Amadeo, K. (2008). Disadvantages of NAFTA. Retrieved ?December 2?, 2008,

      from http://useconomy.about.com/od/tradepolicy/p/NAFTA_Problems.htm

Arabe, K. C. (2004). The Pros and Cons of NAFTA. Retrieved ? December 2?, 2008,

     from http://news.thomasnet.com/IMT/archives/2004/01/the_pros_and_co_1.html

Camillo, J. L. (1994). Mexico: NAFTA opens door to U.S. business – North American Free Trade Agreement. Retrieved ? December 2?, 2008,

from http://findarticles.com/p/articles/mi_m1052/is_n3_v115/ai_15350765

Malaga, J. & Lyford C. (1998). Trade Agreements and U.S. Agribusiness: Lessons from Mexican Retailing after NAFTA. Retrieved ? December 2?, 2008,

from http://cnas.tamu.edu/publications/powerpoint/malga1trade.ppt

Scott R. E., Salas C., & Campbell B. (2006). Still not working for North America’s workers. Retrieved ? December 2?, 2008, from http://www.epi.org/content.cfm/bp173

The Effects of NAFTA on U.S.-Mexican Trade and GDP. (2003). Retrieved ? December 2?, 2008, from http://www.cbo.gov/doc.cfm?index=4247&type=0&sequence=4

NAFTA from Canada’s and Mexico’s Viewpoints. Retrieved ? December 2?, 2008, from http://www.essaysample.com/essay/001669.html

 

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