Essay, Research Paper: Canada, Mexico And The United States

Economics

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On January 1, 1994, Canada, Mexico and the United States passed the North
American Free Trade Agreement (NAFTA). Promoted to Congress by the Clinton
administration, with the assurance that it would give rise to more jobs -
exactly how many though, is not precisely known. Yet, according to the Journal
of Commerce, the U.S. went from having a $5.5 billion trade surplus with Mexico
before NAFTA, to having a massive $16 billion trade deficit today. At the same
time, it is estimated that 400,000 Americans have lost manufacturing jobs
because of NAFTA within the treaty's first three years, that's about the same
number of jobs which have been created in the Mexican maquiladoras. Instead of
sharing of the wealth and profit, one might think that there has been a big
transfer of wealth from north to south of the border and that Mexican laborers
have profited at the expense and torment of their American counterparts. The
reality is that working conditions, wage, health and safety standards in Mexico
have deteriorated. One American employee for a steering-wheel plan made
approximately $10.46 per hour, compared to his Mexican counterpart, who makes
about $0.75 per hour. Within the agreement, it stated "the government of
Canada, the government of the United Mexican States and the government of the
United States of America resolved to establish a free trade area." In
addition, NAFTA also determined to: Strengthen the special bonds of
friendship and cooperation among the nations; Contribute to the harmonious
development and expansion of world trade and provide a catalyst to broader
international cooperation; Create an expanded and secure market for the goods
and services produced in their territories; Establish clear and mutually
beneficial rules governing their trade; Create new employment opportunities,
improve working conditions and living standards in their respective territories;
Ensure a predictable commercial framework for business planning and
investment. A very important section of NAFTA is the elimination of tariffs,
which are charged for imports and exports within the three nations. Along with
the eradication of tariffs, the agreement opened up enormous opportunities,
creating a $6.3 billion GNP for the three countries. As mentioned in the
agreement objective, NAFTA will and should, "create economic
opportunities". The three nations, following the agreement, will move more
and more into the liberalization of trade, at the expense of American and
international workers. Under the agreement, the goods and services must be
produced within the NAFTA territory to be considered tariff free. Not all
tariffs are going to be eliminated at once, the agreement follows staging
categories, which are as follows: Immediate elimination of tariffs on 1/1/94:
Cattle Computers Jewelry Microwave ovens Passenger cars
Telephones Televisions Elimination of tariffs within five years, beginning on
1/1/94: Baseball Caps Cotton Yarns Men's Pajamas Table Cloths
Women's Cotton Dresses Elimination of tariffs within ten years, beginning on
1/1/94: Cigarettes Cotton Footwear Glassware Luggage Rum
Elimination of tariffs after fifteen years, beginning on 1/1/94: Dry Beans
Most Fresh Vegetables Orange Juice Peanuts Sugar With this in mind,
critics present the problem that Mexican companies may take advantage of tariff
free goods, resulting in the switching to low Mexican wages. As a result, United
States workers may lose their jobs to Mexican citizens that can be paid less.
When President Clinton was one of the Chief Proponents of NAFTA his Council of
Economic Advisors brought forward this issue, "...Although wages are lower
in Mexico than in the United States, the productivity of Mexican workers is also
lower than the U.S. workers. Moreover, companies make plant location decisions
based on a variety of factors in addition to wages, including telecommunications
and transportation's infrastructure and business services, all of which are more
sophisticated in the United States" (Arnold, 296). But the latter has not
slowed down American companies from going south of the border for cheaper labor
and less demanding working conditions from government agencies. So far,
companies like Thompson Consumer Electronics, Jay Garment, Magne Tek, Uniroyal
Goodrich and Breed Technologies have moved at least 107 plants in Indiana alone.
To attempt mutual acceptance, NAFTA has presented readers with their goods and
service overview. The following are short assessments that NAFTA provides:
Agriculture: The food everyone eats is very important to every country, thus
being our main source of consumption, NAFTA makes it easier for goods to be
exported and imported with limited quotas throughout the years of operation.
When NAFTA entered into force at least one half of the agricultural exports in
Mexico became duty free. This is a great advantage to the United States because
it will be able to export as many goods into Mexico, gaining in not only trade,
but in economics as well. Now, within the five years of NAFTA operation, the
agreement states that most of the remaining tariffs will be eliminated. As the
success continues the goal for NAFTA is to disintegrate nearly ninety five
percent of the United States agricultural exports with Mexico. This is what is
agreed on by the tenth year, and as a result many of Mexico's import licenses
will also be eliminated. Automotive: Increasing competitiveness, creating
employment opportunities and reducing prices for consumers is what NAFTA will
integrate for the automotive sector. This is not the only advantage NAFTA is
creating; it is also taking part in the termination of Mexican Auto Decree.
Which is leading to the elimination of the limits of sales from vehicles
imported from the United States or Canada into Mexico. This makes stolen
vehicles harder to sell to Mexican civilians. The Amendment to Trade Balancing
will also contribute in reducing not only fifty percent on tariffs, but on auto
parts from the United States. Thus, Mexico will also allow Canada and the United
States to invest in Mexican "national suppliers" of parts as well as
in enterprises (Mexico Business, NAFTA). There is a problem, however, companies
only wish to establish firms in the US or Canada but not in Mexico. Energy: With
the North American Free Trade Agreement in effect, the United States and Canada
have greater access to electricity, gas, petrochemical, energy services and
equipment markets from Mexico. This allows for these three Northern countries to
share and rely on each other for products that are essential to the everyday
lives of their citizens. Through open rules the United States and Canada have
the opportunity to sell to PEMEX, the Mexican owned oil company. This gives the
United States and Canada a chance to sell their product while also allowing
Mexico to buy from its North American neighbors without any hassle or problems.
All three nations will benefit from the free trade, which would have been a
problem before. For Mexico, in particular the North American Free Trade
Agreement will also reduce investments restrictions lifting previous restricted
basic petrochemicals. Overall the program provides performance incentives, which
are used on activities such as oil drilling. Environment: On September of 1992,
the United States, Mexico and Canada established the North American Commission
on Environmental Cooperation. The main objective is, "to set in motion a
process for sustained long term effective trilateral environmental
cooperation" (Mexico Business, NAFTA). NAFTA does not support substances
that deplete the Ozone Layer, such as Montreal Protocol. As presented in the
agreement, investment requires the maintenance of stringent health, safety and
environmental standards; in which, NAFTA plans to open up numerous opportunities
for environmental equipment, firms and services. The plan is to provide
companies which will increase environmental protection such as: solid waste
disposal technology, sewage treatment, wastewater treatment, hazardous and
non-hazardous waste engineering consulting, water treatment, specialized
monitoring services and overall environmental rehabilitation. If these companies
are not provided, it could mean harm for our ecology and democracy. Financial
Services: The United States, Canada and Mexico have all been benefiting through
the agreement of the North American Free Trade Agreement. In Financial Services,
the agreement has helped each member of the party acquire help with different
companies, which in return make possible many consumer activities. An advantage
to many of the Mexican consumers that cross the border everyday for goods and
services is having the security of being able to rely on Mexican banks in
operation here in the United States. In Return, Mexico will permit Canada and
the United States to establish subsidiaries to engage in consumer opportunities
for example, commercial lending, mortgage lending and the provision of credit
cards. This will not only establish a market share, but will emphasize on
national treatment. Another key element from the North American Free Trade
Agreement is that the United States and Canada, which are involved in trade with
Mexico, will be able to take advantage of "one stop shopping," both
domestic and international operations. (Mexico Business, NAFTA)
Insurance/Pharmaceuticals NAFTA enables the United States and Canadian firms to
squeeze into Mexico's billion dollar insurance markets. On the other hand the
agreement between these three parties also states that market sharing will
enable Mexico to form subsidiaries without ownership. United States exports on
pharmaceutical products to Mexico and Canada reached, six hundred and forty five
billion and one hundred and twenty one million in 1991. With these growing
numbers every year, NAFTA has allowed Mexico to remove import licenses,
eliminating tariffs on these products. Today these pharmaceutical products play
a big role on the everyday lives of many citizens of the three parities;
therefore along with the elimination of tariffs, NAFTA is also increasing patent
protection. According to the agreement Mexico should open up to receive these
products with open arms. Sanitary and Photo sanitary measures: Under the
agreement, each country is entitled to establish its own measures as long as
they are based on scientific principle and risk assessment. Rules may not be
established to exercise unfair discrimination, or to serve distinguished
restriction on trade. Overall the establishment must focus on protection of
human, animal, and plant life, as well as standards for health risks due to
animal pest or plant diseases, food additives, or food contaminants. Services/
Telecommunications: Canada's two hundred and fifty billion and Mexico's one
hundred and forty six billion service markets are now within easier access to
the United States, liberalizing trade related services. The elimination of a
provider establishing a local presence is also vanished with NAFTA.
Nevertheless, although NAFTA does not focus on basic telephone services, it does
focus on advanced data processing while keeping the desire to maintain open
international shipping markets. It is expected that by the year 2000
telecommunication products will be expected to grow to forty two percent, for
this reason Mexico is expected to remove all tariffs on telecommunication
equipment imports into their country. These changes also increase the quantity
of United States exports on telecommunications equipment and enhanced services.
With the movement toward future compatibility, incorporate telecommunication
services can be operated in the United States, Mexico, and Canada without
transport networks or services from other parties. Textiles and Apparel: Fibers,
yarns, textiles and clothing are all covered under the North American Free Trade
Agreement. Under the agreement, the United States, Mexico and Canada, have
focused on the rules of origin. One of them in particular states that yarns as
well as fabrics in a garment must be produced in one of the three countries,
United States, Mexico, or Canada. This is done in order to take advantage of
removing import quotas on textile, apparel goods, and also on goods produced in
Mexico. In 1991 the six point four billion Mexican textile and apparel market is
introduced with the North American Free Trade Agreement, which also takes part
in the United States exports of one point one billion. With this change the
North American Free Trade Agreement immediately vanished Mexican barriers up to
twenty percent allowing the movement of exports into countries to be a huge
success. With this in mind over the years both Canada and Mexico will also begin
to eliminate quotas keeping safeguards. These safeguards will help in actions
taken in increasing tariffs when damage caused by greater volumes of imports are
resulting; overall keeping the industry of imports and exports to a limit of
balance, while satisfying the industries but not damaging the economy.
Transportation: Everyday buses are the main transportation devices used by
Mexican and United States civilians. Now with the North American Trade Agreement
in full effect, barriers to various land transportation services have been
eliminated. Thus bringing forward new establishments of land transport with new
safety standards. By the end of this year Mexico will permit buses to and from
any part of the country; this advantage, will also benefit service trucks.
Another important factor in the transportation service is that NAFTA will focus
on safety. This means drivers with valid licenses, and placing equipment
standards to prevent the transportation of dangerous goods. The North American
Free Trade Agreement has been criticized by almost everyone including those who
do not know a lot about its existence. In reference towards jobs created or
lost, NAFTA plays an important role. According to the United States Library of
Congress, more than twice as many jobs have been created since NAFTA went into
effect in 1994. On the other hand one economist in El Paso, TX, states that an
estimate of 440 thousand net jobs have been lost in the United States. On a
recent meeting economists from the United States, Mexico and Canada, all met in
a conference to reveal job loss and gain. Harvey Rosenblum, senior vice
president of the Federal Reserve Bank of Dallas stated, " All three
countries are better off for having NAFTA, consumers are benefiting from more
efficient operations" (electric library: Library of Congress: Experts
disagree on NAFTA and Jobs). In the conference the three parties agreed that
many job cuts have been a result of many factories moving across the border for
cheaper labor. To prove this, economist Jesse Rothstein estimated that 1.1
million jobs have been created in the United States while 1.6 have been lost
because of increase of imports. Furthermore, Mary Jane Bolle, a specialist in
international trade states that, "Overall, NAFTA's first five years have
resulted in one and a half times as many job gains as losses" (electric
library: Library of Congress). Though experts cannot agree on whether NAFTA has
been good or bad for the economy, it is certain that it has benefited many
areas. In 1997, the Heritage Foundation, a research and educational institute,
and the Wall Street Journal published the 1997 Index of Economic Freedom. The
main focus was to find the relationships among countries with freedom and
wealth. "Specifically, countries with low tariffs and insignificant
non-tariff barriers were said to have freer trade policy than countries with
high tariffs and significant non-tariff barriers to trade" (The Wall Street
Journal; Economics: Arnold 298). During the research many countries were
analyzed and given a rank of 1 through 5. Countries ranking in the range of 1 or
2 were said to be the richer countries. "Notice, once again that the trade
scores indicate that the relatively rich countries have freer trade than the
poor countries" [see figure 1-1] (The Wall Street Journal: Index of
Economic Freedom: Arnold 298). According to the Economic Report of the
President, NAFTA has been successful throughout these beginning years. As for
United States, Mexico and Canada, they too have grown tremendously under the
agreement. As the success continues, NAFTA will head toward new challenges
including the goal of wanting the free trade area to consist of thirty four
Western Hemisphere countries by the year 2005.

Bibliography
Bureau of Labor Statistics, 1996-1997 Jobs Outlook. See Chicago Tribune,
NAFTA at 5, Promises & Realities, November 29, 1998. U.S. Census Bureau,
http://www.census.gov/foreign-trade/www/deficit.html Rothstein, Jesse and Rob
Scott. "NAFTA's Casualties," Economic Policy Institute: September 19,
1997. Dailey, Rickey. "NAFTA Gets Mixed Reviews," The Brownsville
Herald, August 22, 1998. "Border Counties Poorest in Nation," The
Brownsville Herald, July 23, 1998. "NAFTA Increases Brussels Sprouts
Woes," Financial Times, 11/30/98.

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