NAFTA

Introduction
Economic integration is best viewed as a spectrum with the various integrative agreements in effect today lying in the middle of this spectrum The level of integration defines the nature and degree of economic links among countries

Levels of Economic Integration
Trading bloc: preferential economic arrangement among a group of countries Trading blocs may take various forms:
– – – – Free trade area Customs union Common market Economic union

The Free Trade Area and the Customs Union
The free trade area is the least restrictive and loosest form of economic integration among countries In a free trade area, many barriers to trade among member countries are removed Members of a customs union dismantle barriers to trade in goods and services among themselves A customs union establishes a common trade policy with respect to nonmembers

The Common Market and the Economic Union
A common market has no barriers to trade among members and has a common external trade policy Factors of production are mobile among members Members of a common market must be prepared to cooperate closely in monetary, fiscal, and employment policies The creation of a true economic union requires integration of economic policies in addition to the free movement of goods, services, and factors of production Under this union, members would harmonize monetary policies, taxation, and government spending and a common currency would be used by all members

What is NAFTA?
Effective as of January 1, 1994 A trade agreement between CANADA, MEXICO, and the UNITED STATES which provides for the elimination of tariffs on North American goods shipped among the three countries.

The NAFTA originated in October 1992.NAFTA called for immediately eliminating duties on half of all U.S. goods shipped to Mexico and gradually phasing out other tariffs over a period of about 14 years. Restrictions were to be removed from many categories, including motor vehicles and automotive parts, computers, textiles, and agriculture.

Mexico
Mexico was a more important trading partner for the United States than for Canada (the buyer of 9.0 percent of U.S. exports in 1993 versus 0.4 percent of Canadian exports, and the source of 6.8 percent of U.S. imports versus 2.0 percent of Canadian imports).

The treaty also protected intellectual property rights (patents, copyrights, and trademarks) and outlined the removal of restrictions on investment among the three countries. Provisions regarding worker and environmental protection were added later as a result of supplemental agreements signed in 1993.

This agreement was an expansion of the earlier Canada-U.S. Free Trade Agreement of 1989. Unlike the European Union, NAFTA does not create a set of supranational governmental bodies, nor does it create a body of law which is superior to national law.

Effects of NAFTA - North American Free Trade Agreement
NAFTA has been controversial since it was first proposed. Transnational corporations have tended to support NAFTA in the belief that lower tariffs would increase their profits. Labor unions in Canada and the United States have opposed NAFTA for fear that jobs would move out of the country due to lower wage costs in Mexico. Some politicians, economists, and policy experts have opposed free trade for fear that it will turn countries, such as Canada, into permanent branch plant economies.

Effects of NAFTA
Farmers in Mexico have opposed NAFTA because the heavy agriculture subsidies for farmers in the United States have put a great deal of downward pressure on Mexican agricultural prices, forcing many out of business. Opposition to NAFTA also comes from environmental, social justice, and other advocacy organizations that believe NAFTA has detrimental non-economic impacts to health, environment, etc. In Mexico the poverty has risen considerably since the signing of NAFTA. Wages have decreased by 20 percent.

Effects of NAFTA
Wages have decreased by 20 percent. NAFTA's approval was quickly followed by an uprising amongst indigenous people led by the Zapatistas, and tension between them and the Mexican government remains a major issue. Furthermore, NAFTA was accompanied by dramatic reduction of the influence of trade unions in Mexico's urban areas. NAFTA has been accompanied by a dramatic increase of illegal immigration from Mexico to the United States.

Various economic studies have generally indicated that rather than creating an actual increased trade, NAFTA has caused trade diversion, in which the NAFTA members now import more from each other at the expense of other countries worldwide. Some economists argue that NAFTA has increased concentration of wealth in both Mexico and the United States.

Opposition in Canada
In Canada a large amount of the opposition to NAFTA comes from fears over the possible effects of various clauses and articles of the treaty. For example if something is sold even once as a commodity, the government cannot stop its sale in the future. This of course applies to the water from Canada's Great Lakes and rivers, fueling fears over the possible destruction of Canadian ecosystems and Canada's water supply. Other fears come from the effects

Opposition in Canada
NAFTA has had on Canadian law making, in 1996 an American company brought a toxin damaging to the nerve system known as MMT into Canada. The Canadian government sued the company, but was forced to drop the charges due to the agreement which prevents governments from doing harm to foreign companies. Instead the U.S. company charged the elected government of Canada for enforcing a law aimed at protecting Canadians.

Top U.S.
and
1. Motor Vehicles 2. Oil/Natural Gas 3. Motor Vehicle Parts 4. Semiconductors 5. Electronic Parts 1. Aircraft 2. Electronic Computing Equipment 3. Motor Vehicle Parts 4. Motor Vehicles 5. Semiconductors 6. Aircraft/Space/Missile Parts 7. Chemicals 8. Plastics 9. Airplane Engines/Parts 10. Refined Petroleum Products

NAFTA Pros
+ Goods/Services at lower cost

+ Most underdeveloped countries gain the

most (i.e. standards of trade increased) + Tariffs reduced + Jobs created + Mexico’s economy is growing again

NAFTA Cons
– Fuel for peso crisis – Benefits Mexico more than the U.S. – U.S. deficit with trading partners – Loss of low-wage American jobs to

Mexico
– Environmental problems – Traffic congestion and delays along the

borders

The Mexican Peso Crisis

Was NAFTA to Blame? Wages in United States and Mexico

What about America’s Farmers?
BENEFITS: More export opportunities. Since NAFTA was approved in 1993, U.S. agricultural exports to Mexico have nearly doubled. DISADVANTAGES: Face regulations that increase the costs of production while foreign competitors gain from cheap production and labor.

Impact on: Employment
Was U.S. workers’ loss Mexican workers’ gain? Maquiladora - Primarily foreign-owned assembly plants Jobs lost to Mexico vs. Jobs supported by exports to Mexico and Canada

Impact on: Immigration
In the 1990s, U.S. population grew 13.2%, with 60% growth of Mexican immigrants. Among Latinos nationwide, 26% are between the ages of 25-40. Remittances from Mexicans working in the U.S.: $6.65 billion (for 2001 through 3rd quarter) Increase in Mexican migrants led to increase in Border Patrol staff

Impact on: Environment
NAFTA Environmental Agreements:
North American Agreement on Environmental Cooperation (NAAEC) commission to enforce environmental law. Border Environment Cooperation Commission and the North American Development Bank - commission to

Trucking Industry
The areas of concern include: vehicle safety, driver training, environmental issues and possible illegal drug trafficking.
A recent investigation determined that the average 18-wheeler in Mexico is 40% overloaded, carrying a gross vehicle weight of more than 120,000 pounds. If U.S. truckers operated at a similar overcapacity, interstate highways would have a life span of 14 years, as opposed to their 40-year design life.

MidContinent International Trade 1. A trade pattern Corridor 2. A system of connecting
highways and rail routes 3. An opportunity to strengthen economic development in a region

The North American Free Trade Agreement (NAFTA) Impact on Mexico and the United States

Economic and environmental change in North America’s two most populous countries.

NAFTA members are the United States and Mexico (including Canada)

Border Crossing: Our Southern Neighbor
The border region between the US and Mexico is important because of the maquiladoras, foreign-owned companies based in Mexico for the production of inexpensive consumer products. These companies take advantage of Mexico’s huge labor pool and relatively low standard of pay.

US/Mexico Border Zone:
Includes cities like Tijuana, Mexicali, Tecate, Nogales, Cuidad Juarez, Nuevo Laredo, Reynosa, Monterrey, and Matamoros. Each usually has a sister city in the United States.

The United States of America
World’s third most populous country: 282 million in 2002 World’s largest economy: $9.9 trillion dollars GNP in 2001 (the next nearest economy was the European Union at $7.8 trillion) High-tech and service industry jobs bring in large revenue Diminishing role for primary (extractive) and secondary (manufacturing) economic sector jobs results in a need for immigrant labor Per capita GNP in 2002: $29,240

Mexico
Developing world economy with over one hundred million people in 2002 Per capita GNP in 2002: $3,840 High unemployment and low literacy rate Extreme crowding in urban areas, like Mexico City

United States Farms
Highly developed agriculture with extensive use of pesticides, herbicides, fertilizers, and genetically modified organisms (GMOs) Heavily subsidized by the US government; agriculture is dominated by agribusiness companies like Archer Daniels Midland, Monsanto and Cargill Most farms tend to be industrial, that is large and mechanized with few workers; family farms are dwindling US farms provide between 13 and 16 percent of the world’s food annually, but the US population is only 4-5% of the world’s population

Mexican Farms
Lack technology and mechanization Small plots called milpas are tilled by subsistence farmers Many farmers move to cities to find work because their marginal farm fails to feed their inordinately large family (remember that Catholic families in Latin America are usually large because of papal dictum; also machismo is a factor in large families) Large farms called haciendas produce meat and grain for international markets NAFTA will allow farmers to shift from growing low revenue grains to high revenue vegetables and fruits Mexico’s comparative advantage during winter reduces food prices by importing low cost grain from the US and Canada

Good Aspects of NAFTA for Mexico: Economic Development
All people of the world want to have a decent standard of living. Manufacturing sector jobs, like the ones that employ these factory workers, are what developing countries around the world need to raise their level of income and purchasing power.

Good Aspects of NAFTA for the US: Suppresses Illegal Immigration
Hundreds of thousands of illegal Mexican immigrants attempt to make it into the US annually. Many succeed. Having jobs along the border helps in keeping the Mexican peasants at home. NAFTA improves their economy and stabilizes society, keeping families together.

A sign warns drivers to watch out for illegal aliens crossing the border between the US and Mexico.

Bad Aspects of NAFTA for Mexico: Increased Pollution
As Mexico increases its share of industrial plants with the absence of environmental policing agencies, the air, water, and soil is further polluted. There is no Environmental Protection Agency (EPA) in Mexico. In fact, Mexico still uses chemicals like DDT, which has been banned in the United States.

Bad Aspects of NAFTA for the US: Lost Jobs
Many manufacturing jobs have been lost to Mexican workers. Shoe factories, clothing manufacturers, TV assembly plants, auto assembly lines, and more have become maquiladoras in the US/Mexico border region. Unemployment in this sector of our economy is growing as jobs are relocated to regions with cheaper labor.

NAFTA’s Opposition:
The Zapatistas of Chiapas State
The Zapatista National Liberation Army (ZNLA) began their guerilla war on Mexico the day NAFTA went into effect, January 1, 1994. The ZNLA is looking for autonomy and protection from the damaging effects of globalization. Previously agreed upon peace plans have fallen through and the cycle of violence has continued. Vicente Fox, the Mexican president elected in 2000, has renewed the effort to negotiate a peace settlement. Poverty still grips the most isolated Indian communities of Mexico and no agreement has been reached.

Implications for the USA & Mexico
Increased jobs in maquiladora manufacturing plants in Mexico, at a loss of US jobs; increased Mexican trucking jobs that foray into the US, but Mexican trucks rarely meet US emission standards and are dissuaded from entering our highways; growing population in Chihuahua & Sonora Deserts along the border push water resources like aquifers and the Rio Grande to the limits; NAFTA will evolve into the Free Trade Area of the Americas (FTAA) and encompass all of the Western Hemisphere, from the Arctic Circle to Tierra del Fuego, by 2005; the cynical are likely to see big profits for corporations and enslavement of the world’s poor; and economic integration is inevitable and good, but it is not a “one-size-fitsall” stratagem. Globalization must be tailored to meet the needs of every corner and culture in the world. The International Monetary Fund (IMF) and the World Bank (WB) must take a proactive position on loans to economically endangered countries like Mexico. When the Mexican peso was devalued in 1994, the United States had to send billions to buoy their economy. We were rewarded with a renewed economic surge from our southern NAFTA partner – and things continue to improve.

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