North American Free Trade (NAFTA) Essay

North American Free Trade Agreement (NAFTA) is one of the most influential international agreement between the US, Canada and Mexico that defined the economic, social and political development of the three countries and North American region. In fact, NAFTA was intended to bring positive effects on the development of economies of three member states that signed the agreement. However, the development of their economies after the implementation of NAFTA has revealed the fact that NAFTA has not only positive but also negative effects. Moreover, initially, NAFTA was a sheer economic agreement between the US, Canada and Mexico that intended to facilitate the trade between the member states and economic cooperation between the countries. However, after the promulgation of the agreement by the member states, NAFTA has started to influence not only economic development of member states but also their social and political development, while effects of the introduction of NAFTA have turned out not only positive but also negative. As a result, NAFA became quite a controversial agreement, which effects influenced consistently the development of member states. On the one hand, NAFTA accelerated the economic cooperation between countries and stimulated the rise of certain industries but, on the other hand, NAFTA provoked a steep decline of others. In such a situation, large multinational corporations turned out to be in the advantageous position and benefited the most from the free trade agreement between the US, Canada and Mexico.
Genuine essence of North American Free Trade is not a simple trade union or agreement, but a global institution that shapes the future not only for the countries who accepted this agreement but it also has an influence over the free trade and economic relations worldwide, in other words its setting is setting global precedents.
North American Free Trade Agreement (NAFTA) consists of Canada, Mexico and the United State, who are also the members of two well known free trade unions: the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO), therefore the governments of all three countries are subject to the obligations of both agreements. (Condon, 2002)
NAFTA is often perceived as a reflection and kind of rediscovery of the common experience and interrelated interests of its members have had over many years. For instance, Von Bertrab (1997) claims that NAFTA members are deeply connected from their origins and therefore the development of any founding member of NAFTA is influenced or somehow related to the other two members. But these countries are also divided by their interests and social norms, for instance Mexico is more traditional and native while the US have more connections with the EU countries.
Before analyzing the negative economic and social effects of the NAFTA regulations I need to draw your attention to the fact that NAFTA may be considered a rediscovery in a very broad sense, not only in economic, or political, but in social-cultural meaning as well. That’s why this agreement is so important for these counties, because they rediscover and accept each other as partners, as support; besides it they adopt the new concept of America consisting of the countries with strong and tenuous links. The process of the development of these new relations needs some time and can’t happen immediately, it needs to progress and may be followed by complications, conflicts, in other words it’s not the easiest way but the final result may be worth it. It’s obvious, these interrelations between NAFTA members should mature, and the trade and other international economic relations may even cause serious conflicts and public concern. Therefore in order to meet these challenges more effectively, NAFTA framework is being updated from time to time, this allows the agreement to suite the actual issues and also old problems. Thus, the controversies in the interstate relations may be corrected when they arise, and it even concerns these controversies that aren’t directly should be managed by NAFTA (for instance, the indirect consequences of the free trade regulations may be jobs cuts, etc.)
NAFTA regulations not only concern trade in goods and services, foreign investment and intellectual property rights but they also affect global business strategy. It’s clear that there is a number of advantages and disadvantages of the NAFTA regulations.
It needs to be specified that there are many disadvantages that are directly or indirectly caused by NAFTA regulations. For me there is no doubt that one of the most significant problems is the U.S. jobs cuts, because the production bases of many companies previously based in the US were moved to Mexico where the wages are much lower and its allows companies to keep their competitive positions in the industries.
In fact, NAFTA eliminated fiscal barriers between countries that signed the agreement and stimulated their economic cooperation. The creation of NAFTA was a logical step in response to the growing cooperation between member states because existing fiscal barriers and regulations prevented companies operating in the US, Canada and Mexico from free trade in each other’s market. As a result, the creation of NAFTA opened the way for the free trade and companies could develop their business on the territory of member states without any substantial obstacles from the part of local governments.
At the same time, the development of NAFTA raised the question concerning the extent to which the agreement was beneficial for member states. In fact, the main question was the question of who benefits the most from NAFTA. Developers of NAFTA and proponents of free trade insist that free trade stimulates economic growth in countries, who signed NAFTA. The trade between the US, Canada and Mexico increased substantially. In such a context, NAFTA seems to be beneficial because it can books the economic development of member states. The economy growth, in its turn, creates new jobs and businesses that improve the socioeconomic situation in each country, member of NAFTA.
However, benefits of NAFTA are not so significant compared to risks and threats associated with the development of NAFTA and consequences of the emergence of free trade between the US, Canada and Mexico (Farber, 2004). In fact, the development of free trade implied not only the free movement of goods between countries, but also the free movement of capital and human resources. In such a way, the development of free trade stimulated the further integration of countries. However, such integration raised a number of problems. For instance, the US faced the problem of the growing immigration from Mexico and such immigration was the natural consequence of the elimination of barriers between countries. Mexico faced the problem of the replacement of national companies by strong American and Canadian corporations. Local companies have proved to be unable to compete with large multinational corporations and stronger companies from the US and Canada. Canada also faced substantial difficulties associated with the expansion of American companies.
Hence, there are many disadvantages that are created by NAFTA regulations and there is no doubt that one of the most significant problems is the U.S. jobs loss. The movement of the US and Canadian companies production to Mexico makes the workforce cost much cheaper than the high cost of the US. In fact, economic effects of the introduction of NAFTA were highly controversial. On the one hand, member states benefited from the acceleration of the economic cooperation between countries that stimulated the rise of business activities in the US, Canada and Mexico. On the other hand, many companies ran bankrupt, while free trade between member states resulted in the consistent deterioration of the position of local communities, when many employees in the US, for instance, lost their jobs as American companies used outsourcing and moved production facilities to Mexico, where costs of the labor force are consistently lower compared to the US or Canada.
In addition, NAFTA paved the way to the debate on the closer integration of countries to the extent that there were debates concerning the introduction of common currency. This policy would make NAFTA member states similar to the EU united by common currency. In fact, the common currency would facilitate the free trade. On the other hand, the idea of the introduction of the common currency for member states of NAFTA was rejected for now because it could deteriorate the financial position of the US and it could raise a number of financial and economic problems. The introduction of the common currency would raise not only economic but also political issues because the national currency is viewed by many as a symbol of independence. Moreover, such initiatives apparently threaten to the independence of national economies and such close integration eliminates national frontiers and makes member states too dependent on each other.
As a result, the implementation of NAFTA regulations had not only economic but also social effects. In this regard, the rise of unemployment was closely intertwined with NAFTA. As it has been already mentioned above, outsourcing contributed to the rise of the unemployment rate in the US. The growing unemployment in the US was not the only effect of the implementation of NAFTA. If Americans suffered from outsourcing that provoked unemployment than Mexico and partially Canada faced the problem of the inability of their small and medium companies to compete with large multinational corporations based in the US. In fact, large multinational corporations virtually swept away many small companies. As a result, many businesses in Mexico and Canada ran bankrupt that also increased the social tension for former businessmen had to look for new jobs but there were a few offers that met their qualifications and ambitions.
The flow of immigrants from Mexico to the US and partially to Canada was another effect of NAFTA. The growing flow of immigrants from Mexico to the US and Canada is one of the main effects of NAFTA because the agreement encouraged the free movement of goods, capital and people between member states. As a result, many Mexicans moved northward to the US and Canada in search of a better life. Immigrants increased the competition in the local labor market that aggravated the economic situation and increased the social tension. In response to the growing immigration many Americans insisted on the change of immigration laws to stop the flow of immigrants from Mexico. The tension between the local population and immigrants became the direct effect of NAFTA.
In such a situation, the controversy of NAFTA is obvious, while the introduction of consistent changes in economic policies conducted by member states in terms of NAFTA is obvious. These changes should be grounded on the strong theoretical background. The gradual evolution of economic theories of the international trade over the previous centuries has resulted in the creation of different international unions. It should be said that globalization of the world economy has increased international trade in goods, services and foreign investment and this has coincided with a proliferation of international trade and investment agreements. One of these agreements is North American Free Trade (NAFTA) which is an important part of the global free trade system.
Neoliberalism supports the development of free trade and NAFTA contributes to the development of free trade and liberalization of economic relations. In fact, the emergence of NAFTA was closely intertwined with the emergence of Neoliberalism in the late 20th century. Neoliberalism stands on the ground of the minimal intervention of the government in the economic development and business activities. In such a context, the development of international trade is beneficial for the economic development of countries. However, Neoliberalist approach to the development of free international trade and such agreements as NAFTA will not work because they fail to prevent negative effects of NAFTA and similar agreements. In stark contrast, the further economic integration that is supported by Neoliberals may aggravate the economic development of countries and the position of a larger part of the society in member states. What is meant here is the fact that the further integration of member states would be a reasonable step in terms of the Neoliberal approach to economy. The further economic integration would mean the aggravation of existing problems, such as growing unemployment and high immigration rate that would lead to the depopulation of Mexico, removal of hazardous production facilities to Mexico, the replacement of local small business by large American and Canadian multinational corporations. On the other hand, the US and Canada would face the growing flow of immigrants from Mexico and outsourcing of many productions from the US and Canada to Mexico.
Instead, the Social Conflict theory could explain the current development of NAFTA’s member states. To put it more precisely, the free trade is the natural part of the capitalist economic development, when the accumulation of capital leads to the further expansion of large companies and severe exploitation of employees. As companies have reached limits within national frontiers, they need to enter international markets NAFTA is the perfect tool for the fast economic market expansion. Large multinational corporations penetrate new markets and establish their control taking the leading position and striving for the monopolization of the market. As a result, large multinational corporations take control over a larger part of the economy of member states that is the case of large corporation in the US, Canada and Mexico after the implementation of NAFTA. In such a situation, the introduction of restrictions in terms of NAFTA is essential for the prevention of the further growth of control of large corporations over national economies.
The supporters of the idea of diminishing the NAFTA agreement indicate that the jobs losses caused serious harm for the US and therefore this and other free trade agreements are rather negative factors for the country: “U.S. Jobs Were Lost: Since labor is cheaper in Mexico, many manufacturing industries moved part of their production from high-cost U.S. states. Between 1994 and 2010, the U.S. trade deficits with Mexico totaled $97.2 billion, displacing 682,900 U.S. jobs. (However, 116,400 occurred after 2007, and could have been a result of the financial crisis.) Nearly 80% of the losses were in manufacturing. California, New York, Michigan and Texas were hit the hardest because they had high concentrations of the industries that moved plants to Mexico. These industries included motor vehicles, textiles, computers, and electrical appliances.” (“The High Cost of Free Trade”, 2011). On the other hand, restrictions in terms of NAFTA would change the essence of the agreement and lead to the consistent change of the agreement.
Thus, it is obvious that NAFTA needs changes to prevent its negative socioeconomic effects. In this regard, policy makers should conduct socially responsible policies and decrease the tension between the rich and the poor. Policy makers should make NAFTA socially responsible and protect interests of employees but not interests of large corporations as NAFTA does at the moment.