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The impact of regional integration in NAFTA on the member state economies Essay

NAFTA is identified as the largest trade block agreement in the world. It is an agreement between Canada, Mexico and the United States of America which seeks to promote free trade practices by reducing trade barriers between among the three nations. Therefore, the underlying principle of NAFTA is to promote domestic competition as a way of spurring economic development (Schoff & Hufbauer 2005, p. 12). The agreement has also been thanked for promoting investment both domestic and foreign among the three nations.

According to available statistical evidence on the impact of the NAFTA, it is clear that the agreement has no doubt enhanced the free flow of information, innovation and capital across the involved nations (Stern 2007, p. 18). This has had the end result of promoting technical and economic development particularly in Mexico. Still, evidence has it clear that most American corporations are benefit from outsourcing and foreign direct investment practices in Mexico. However, NAFTA has been blamed for opening up domestic investments to unfair competition (Morici 1997, p. 12).

The sustainable realisation of economic development is based on the effectiveness of the government in protecting its internal investments. Nevertheless, this is not the case with the NAFTA which encourages free

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trade of over 90 percent of the locally produced products in the three countries. Another negative implication is reduced employment opportunities especially for the developed nations such as the US. It has been established that most corporations are transferring their assembling and manufacturing as well as non-core business functions to Mexico due to its low operational costs (USTR 2010).

The essay is a discussion on both the negative and positive impacts of regional integration in NAFTA on the member state economies and on businesses in the region. First is a discussion on the positive impacts of NAFTA agreement to the member state economies and on businesses in the region. NAFTA has promoted cross border trade among the member states (Morici 1997, p. 31). Effective and reliable exchange of goods and services across nations is a major boost to the economic development of nations. NAFTA agreement has its sole purpose of dictating for the free flow of locally manufactured products among member nations (Stern 2007, p.

21). According to available statistical evidence on trade, Canada has been the major beneficiary of the agreement in terms of export trade with the United States and Mexico (Schoff & Hufbauer 2005, p. 22). Just to be appreciated is the fact that although Mexico is termed as the least beneficiary of NAFTA, the nation’s economy has significantly improved following the enhanced export and import provisions of the agreement. Therefore, NAFTA has had the impact of promoting trade among member nations, thus triggering economic development.

Another positive impact of NAFTA is that it has promoted free flow of labour across member nations (Taylor 2004, p. 43). The availability of cheap, reliable and skilled labour is quite important for the sustainable economic development of any nation. However, most developed nations like the United States of America are evidently characterised with high cost of labour (Stern 2007, p. 26). Due to this reason, the NAFTA has functioned as a reliable loophole for accessing cheap but highly skilled labour for many corporations.

This is because the agreement provides for the free flow of human resources across the three nations. According to available evidence from a recent research finding, Mexico is identified as a crucial stronghold for providing cheap and reliable labour for big corporations (Morici 1997, p. 61). This has been closely attributed to the fact that the nation is relatively poor developed and with weaker workforce regulations laws. Still, it is worth appreciating the fact that free labour flow is crucial in providing qualified personnel for promoting the innovative economic development of firms in the member nations (USTR 2010).

This gives NAFTA member a competitive advantage in the global market trade, a factor that is vital for sustainable economic development (Taylor 2004, p. 47). NAFTA has the impact of enhancing information and innovation exchange. Innovation is the major driving force of the current global economy. This is because, with the modern trend of globalisation and its effects on increased marketplace competition, innovation is the only sustainable way of realising a large customer base for the assured competitive advantage of firms.

The free exchange of information and skills provided for by the NAFTA is also important in reducing the cost of reinventing products and technologies by firms (Naik 2002, p. 3). True to the letter, research work is found to be among the most expensive investments by organisations. This is not only because of the funding costs but much due to the uncertainty of the outcome (USTR 2010). Indeed, this is the important reason why business alliances are increasingly becoming common in the modern society.

Based on this reasoning NAFTA is to be praised for promoting the easiness of establishing business alliance between organisations from the three member nations (Taylor 2004, p. 49). This gives firms the competitive advantage of exchange knowledge, goods and services. It also reduces the costs of research by encouraging joint funding by organisations. All these have been established as playing a crucial role in reducing the operational costs incurred by investors, a move that safeguards sustainable economic development. The agreement is to be thanked for increased foreign direct investment.

Foreign direct investment is currently a major benefit enjoyed by signatory members of the NAFTA (Taylor 2004, p. 67). The agreement has evident an increase in the number of foreign direct investments among the three nations. According to a recent research finding, Mexico has been a leading beneficiary of foreign direct investments from Canada and the United States. This has been closely attributed to the low operational costs in the developing Mexican nation (Naik 2002, p. 3). The findings have established that the most corporations from America are transferring most of their operations to Mexico.

Some of the common direct investments in Mexico are assembling and manufacturing industries (Schoff & Hufbauer 2005, p. 31). Just to be appreciated is the fact that such are driven not only by the availability of cheap human resources but much due to ready availability of raw resources in the nation. Still, America is benefiting from foreign direct investment particularly on the service industry from both Canada and Mexico. NAFTA has led to establishment of a unified cultural union among members of the three nations.

The realisation of sustainable economic development calls for enhanced communication among involved parties (Naik 2002, p. 4). On this pursuit, the NAFTA has served a crucial role in enhancing socialisation, a factor which greatly promotes interaction and creation of business partnerships. Such a unified business and social culture resulting from the NAFTA has been praised for the evident reduction in racial segregation among individuals from these nations (USTR 2010). It is worth noting that effective conduction of business transactions should be based on concrete understanding and appreciation between the involved parties.

Based on this reasoning, the provisions of the NAFTA on free flow of human resources finds much benefit in enhancing a cross national business culture, an important provision for sustainable economic development for the parties involved in the agreement. Still, NAFTA is closely attributed with increased outsourcing practices across member nations (Naik 2002, p. 5). It has been rightly claimed that man is not an island. This means that the effective functioning of an organisation in the modern competitive market economy calls for contracting of other companies to execute non-core business functions of an organisation.

Such have a number of economic advantages to the outsourcing firm such as channelling its resources in addressing its core business objectives (Rahman & Feils 2007, p. 6). This can also be praised for ensuring that the organisation gains the competitive advantage of staying up to date with the latest technologies as well as business practices. Therefore, since NAFTA promotes outsourcing practices, then it enhances business development among organisations in the three member nations through specialisation and interdependence of organisations (Rahman & Feils 2007, p. 8).

Secondly is a discussion on the negative impacts of regional integration in NAFTA on the member state economies and on businesses in the region (Rahman & Feils 2007, p. 10). NAFTA has received many critics for compromising the sustainable development of domestic industries particularly in the Mexican republic as it introduces unfair competition (Rahman & Feils 2007, p. 11). The future of an economy is defined by its internal investment worthy. Indeed, this is the reason why the North American Free Trade Agreement is seen as a major threat to the sustainable development of the American textile industry (USTR 2010).

On the other hand, Mexico is evidently the main victim of finished goods damping from Canada and the United States of America. Just to be appreciated is the fact that with elimination of business tariffs following the NAFTA agreement, Mexico receives cheap products from other nations, a factor that threatens the sustainable growth of domestic industries (Schoff & Hufbauer 2005, p. 36). As an example is the threat the NAFTA poses on the farming sector of Mexico. According to statistical evidence, in the 2000 financial year, the American government invested an estimated $10.

1 billion as subsidies to its corn sector. Due to this reason, Mexico was marked with increased export of corn products from the US, a factor that poses a major threat not only to its farms but also to its sustainable realisation of secure food supply independence (Taylor 2004, p. 43). Such have received many critics as being unfair to the economic independence of the poor majority Mexicans who depend on corn farming for survival. Still, NAFTA has been accused of compromising the industrial independence of Canada.

It is evidently claimed that since the ratification of the agreement, an estimated over 10,000 Canada owned companies have been brought by foreign investors (Rahman & Feils 2007, p. 11). This is found to threaten the sustainable job security of the Canadian citizens. Another critic of the NAFTA is its provision that once something is sold as a commodity, its trade cannot be negated by the government regardless of its environmental of economic implications to the country. The NAFTA agreement is evidently compromising the future sustainability of its ecosystem.

This is because of the provision of the agreement in chapter 11 which has seen the massive exportation of Canadian waters by American companies. This does not only threaten the ecosystem of Canada but also threatens the future sustainable supply of water to the Canadian population. Still on the same provision, the NAFTA compromises the lawmaking process independence of its member nations. This can be evident from the 1996 exportation into Canada of gasoline additive despite the fact that the law in Canada did not allow for additive importations. The NAFTA has significantly compromised employment job market for the developed nations.

The purpose of any investment is to maximise profits. Based on this reasoning, organisation will always opt for the least expensive production process as a way of cutting down its expenditures. True to the word, there is a great variation between the living standards in the three nations involved in the NAFTA agreement. Indeed, this is the reason why most American corporations are transferring their business to Canada and Mexico. In support of this claim is the fact that over 10,000 Canadian companies have over the last one decade been taken over by foreign investors, mainly Americans.

The some is the case in Mexico were most of the assembling and manufacturing works for American corporations are conducted. All these have the implication of compromising the employment sector of the American citizens as companies seek for cheap and affordable labour. The rule of origin is also claimed to be a major barrier to sustainable benefiting from the NAFTA. Importation packaging and exporting the finished products is increasingly becoming a common business practice by many nations (Taylor 2004, p. 47). Still, some investments are in purpose designed for conducting business with goods originating from other nations.

However, the NAFTA agreement dictates a certificate of origin for goods to ensure that the imported or exported goods are developed in the particular concerned country. This limits business opportunities among nations. Business products should be judged on quality and safety rather than by a mere question of origin. Therefore, NAFTA provisions on the rule of origin compromises the sustainable engagement of nations particularly Mexico in viable trade. This is because they are evidently marked with low capability of producing high quality goods to effectively compete with those from Canada and the US.

The agreement has been a major source of intellectual property rights infringement. Most developed nations boast economic prosperity due to their wide variety of legally protected intellectual properties of its people (Rahman & Feils 2007, p. 9). Still, investments are marked with some level of business secrets which give them a competitive advantage over their competitors. However, with increased free flow of information, innovations and the outsourcing practices promoted by NAFTA, companies are opening up their business secrets to other companies.

This is a real threat to the sustainable competitive advantage of the organisation in the marketplace. Therefore, NAFTA and its potential threat to intellectual property rights and business secrets remains a major issue of concern for many. Still, NAFTA and its provisions for elimination of trade tariffs is a threat to the economy of the less developed member nations. Developing nations are faced with the problem of low levels of industrialisation (Rahman & Feils 2007, p. 11). This means that they mainly depend on the revenue gained from export of their low materials rather than finished goods.

Just to be appreciated is the fact such have the economic implication of gaining low for their resources. This has the implication that by dictating for elimination of trade tariffs, the NAFTA is threatening the sustainable revenue collection of the Mexican republic (Rahman & Feils 2007, p. 12). It has been evidently established that such a move has over time compromised the ability of the nation to effectively fund its public utility as well as engaging in other vital public projects.

The last negative impact of the North America Free Trade Agreement is that it is currently not holding to its perceived long term benefits to the Mexican nation. According to the available statistics, the business between Mexico and Canada as well as with the United States of America received substantial growth over the 1993 and 2000 period (Rahman & Feils 2007, p. 13). However, this trend is steadily changing particularly due to the increasing engagement of the United States of America with other developing economies such as China and India.

This trend has significantly affected lower value added segments of the Mexico economy such as the textile industry which previously formed most of its exports to America (Stern 2007, p. 37). Therefore, with increased formation of new business alliances, the Mexican nation is to lag behind significantly from gaining the claimed economic benefits of NAFTA due to increased unfair export competition from other emerging economies. Third is a review the possibilities for future developments in the region.

The future of the NAFTA on its member state economies and business in the region is dependent the effectiveness of resolving a number of underlying problems with the problems (Weinstraub 1994, p. 4). First the member nations should iron out the contention found in chapter 11 of the agreement. The chapter allows individual investors or organisation to sue government for their actions which result in compromising businesses (Weinstraub 1994, p. 4). According to critics of this provision is that it compromises the control of the independent government on dictating matters of social and environmental importance to the nation.

Therefore, the law should be modified to reflect the sovereignty of individual nations in enacting control laws to protect the social and environmental issues of their citizens. Another issue of consideration for the future development of the region is changing the antidumping and countervailing provisions of chapter 19 to reflect the provisions of the international law (Rahman & Feils 2007, p. 12). As it is now, the convention only allows for the establishment of a panel which serves to examine whether or not a dispute application conforms to the domestic laws of the particular nation (Stern 2007, p. 31).

Although the NAFTA law allows for the establishment of an extraordinary challenge committee with the power to affirm or reverse the decision of the panel, none of the cases heard by the committee have ever been reversed. Therefore, since the various nations involved in the agreement are independent sovereign entities, such disputes on antidumping and countervailing duty should be addressed by the provisions of the international law rather than domestic laws. The aim of North America Free Trade Agreement was to promote domestic competition for the common good of the economic developments of its member countries (Woellert 1997, p.

4). However, despite the successful elimination of trade tariff barriers by the member nations, the agreement has significantly served as a source of unfair competition for Mexico and Canada. As was evident, the implementation of the convention has witnessed the over taking of an estimated 10,000 companies in Canada by foreign investors. On the other side, increased American exporting of subsidised corn to Mexico is blamed for evidently threatening the sustainable realisation of self-sufficiency in terms of food supply in the nation (Woellert 1997, p. 4). America has also fallen victim of employment threats for its citizens.

Therefore, the convention should be modified to allow substantial control by independent governments to safeguard the social and economic good of its present and future generations. In conclusion, the North America Free Trade Agreement has brought significant benefits to its member nations. The agreement has evident the growth of trade both between Mexico and the US and Mexico and Canada (Rahman & Feils 2007, p. 15). The NAFTA can also be attributed to the increased free flow of human resources as well as foreign direct investment capital across the nations. However, there are a number of critics to the NAFTA convention.

Such include the provisions of chapter 11 which negates the ability of individual nations to prohibit business practices that compromise issues of social and environmental importance. Another limitation is the failure of the convention to provide for a dispute resolution panel which is based on the international. Therefore, the future of the NAFTA and the region economies is highly dependent on the effective resolution of these and any other controversial issue in the convention. Bibliography Morici, P. (1997) ‘Assessing the Canada-U. S. free trade agreement’, American Review of Canadian Studies, vol. 26, pp. 12-67.

Naik, B. (2002) ‘Impact if NAFTA on U. S. trade with Latin American countries’, South Dakota Business Review, vol. 13, pp. 1-5. Rahman, M, Feils, D. (2008) ‘Regional economic integration and Foreign Direct Investment: the case of NAFTA’, Management International Review, vol. 48, pp. 3-15. Schott, J, & Hufbauer, G. (2005) NAFTA revisited: achievements and challenges, Peterson Institute, New York. Stern, D. (2007) ‘The effect of NAFTA on energy and environmental Efficiency in Mexico’, Policy Studies Journal, vol. 35, pp. 18-44. Taylor, L (2004) ‘NAFTA in the new millennium’, American Review of Canadian Studies, vol.

34, pp. 43-71. Towe, C, Meredith, G, & Kose, M. (2004) How Has NAFTA affected the Mexican economy? Review and Evidence, viewed 15 May 2010, <http://www. imf. org/external/pubs/ft/wp/2004/wp0459. pdf> United States Trade Representative. (2010) North American Free Trade Agreement (NAFTA), viewed 15 May 2010, <http://www. ustr. gov/trade-agreements/free-trade-agreements/north-american-free-trade-agreement-nafta> Weintraub, S. (1994) NAFTA: What comes next? Praeger, Westport, CT. Woellert, L (1997) ‘NAFTA blamed for lost jobs’, The Washington Times, 29, June, pp. 4-5.

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