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Submitted to:- Submitted by:

Prof. Uddeepan Chatterjee Mohit Malviya

Anup Vijayan

Abhishek Pratap Singh


1. HISTORY OF REGIONAL BLOC

NAFTA - North American Free Trade Agreement, NAFTA Trade, NAFTA Import, NAFTA
export

The NAFTA was framed on January, 1994. The three countries, namely, Mexico, Canada and
the United States of America entered into the NAFTA or the North American Free Trade
Agreement to form the biggest free trade zone in the world. NAFTA or North American Free
Trade Agreement has propelled growth in the economy of the three member nations since the
year 1994. NAFTA has also led to the increase in the standards of living of the people of its
member nations.

Implementing NAFTA has ensured removal of several obstacles with regard to investment
and trade in the Canada, Mexico and United States of America.

Effects of implementing the NAFTA:

Agriculture sector:

•Non tariff obstacles pertaining to trade in agriculture between Mexico and United States of
America were dissolved. In addition to this, there were other tariffs, which faced removal
soon after its implementation.

•It has also been anticipated that majority of the agricultural provisions are likely to be
brought into force by the year 2008.

•Agricultural provisions of United States-Canada Free Trade Agreement, which was in force
since the year 1989, was included in NAFTA.

Effect of NAFTA on investment:

Implementation of NAFTA influenced investments in a positive manner. The data given


below shows the investment trend with regard to Canada. The other two member partners
also registered a healthy growth in investment.

Since the year 1994, stock of FDI or foreign direct investment in Canada has been
approximately, USD279 billion (yearly). In the year 2005, the overall foreign direct
investment in Canada was USD415 billion. Foreign direct investment by United States of
America in Canada escalated to approximately, USD266 billion in the year 2005. Conversely,
direct investment by Canada in other NAFTA member nations also showed an increase and
attained the USD$213.7 billion mark in USA and USD3.14 billion in its other member
nation- Mexico
2. OBJECTIVES OF FORMATION

Significance of NAFTA

As the world's largest trilateral trade relationship, NAFTA is of profound economic and
social consequence. It is a trading bloc of a size, wealth, and potential heretofore unknown in
the world. The NAFTA countries are a massive combined market of 370 million people, with
an estimated Gross Domestic Product of U.S.$6.2 trillion, compared to the European
Community's 325 million people and estimated Gross Domestic Product of U.S.$4 trillion. 6
The agreement elevates Mexico from a developing economy toward the level of a first-world
economy and has implications for exports and job creation in the U.S.

The increase in exports and the number of jobs to be created by NAFTA was variously
estimated. John Negroponte, a career foreign service officer, arguing that a first-world
economy in Mexico was important for the U.S. wrote, "... nothing could be more desirable. A
first-world market in Mexico signifies an exponential increase in U.S. exports and job
creation. For every additional billion dollars the U.S. exports, 25,000 jobs are created."
7
Dornbusch reported, "Trade with Mexico in the past five years created almost 150,000 jobs
that would not be there otherwise. An FTA (with Mexico) will bring more of the same." 8
This view was confirmed in a prediction by the Institute for International Economics that
NAFTA would bring a net gain of between 130,000 to 150,000 jobs over a five year period
following its passage. 9Fortune magazine estimated NAFTA would bring the U.S. a net gain
of "325,000 well-paying jobs by 1999." 10

Beyond its economic significance, NAFTA has great social consequence. It demonstrates that
the northern and southern hemispheres can "coexist in prosperity on the planet." 11 This is
particularly important for such cooperation will ensure that the gap between rich and poor
nations in the Americas does not widen.

Provisions of NAFTA

NAFTA combines the U.S. with its largest (Canada) and third largest (Mexico) trading
partners. Trade between the three countries was well established prior to NAFTA and was
embellished by the U.S./Canada Free Trade Agreement and an openness in Mexico that
produced a near doubling of U.S./Mexican trade since 1988 "to $76 billion a year, with
booming US exports accounting for much of the increase." 12

NAFTA's provisions liberalize trade in the following ways: 13

 Tariffs are either eliminated or phased out over periods of up to fifteen years. As
much as 50% of U.S. exports to Mexico and 70% of Mexican exports to the U.S.
became tariff/quota free on NAFTA's passage.

 Limits on investments are removed. Investors from any of the three countries are
treated equally, currency is freely transferred at market rates, and performance
requirements such as maintaining export levels and trade balancing are eliminated.
Additionally, over the next seven to fifteen years, financial services institutions will
be permitted to establish foreign-owned institutions and to invest in Mexican banks,
insurance, and brokerage firms. Mexico will, however, continue to restrict certain
land ownership by foreign nationals.
 Trade in services is liberalized and equal treatment is expected for service providers
and professionals in each country. The countries are to facilitate the licensing of
professionals and, by 1996, to eliminate citizenship and permanent residency
requirements for professionals.

 Transportation regulations are liberalized. By the end of the decade, truck and bus
operators will have almost unlimited access to the NAFTA countries.

 Protection of intellectual properties is strengthened. This includes protection of


literary works, recordings, computer programs, and product and process patents.

NAFTA also provides various provisions to enhance the flow of trade among the three
countries. Included is a trilateral trade commission to resolve disputes, provisions to review
and prevent dumping of products across national markets, and procedures to allow a country
to reinstate pre-NAFTA duties for a period up to three years, on a one-time only basis, if
domestic industries are injured as a result of an import surge from another NAFTA country.
While these safeguarding provisions are important, there may be little need to enact
protection because much of the trade among the three countries is already tariff/quota free
due to the U.S./Canada Free Trade Agreement and the trade reform and liberalization policies
of former Mexican President Salinas. 14

NAFTA: The Problems

It has been said that, "for a nation to prosper in the 21st century, it must be an active
participant in the global economy and an open market for the world's goods. But with the
lowering of trade restrictions comes economic hardship for some working Americans." 15

Economic hardship and concomitant anxiety because NAFTA engenders a feeling among
some people that "the U.S. is losing control over its economic destiny. NAFTA joined a big
Third World country to the U.S. at a time when many Americans were losing their jobs and
factories heading south of the border already. At the same time, companies that have been
forced by U.S. environmental rules to spend millions on cleanup worry about competing with
Mexico, with its hit or miss environmental regulations." 16 All of these uncertainties, coupled
with defence downsizing and economic restructuring accompanying the end of the cold war,
exacerbates such potential economic hardships as worker displacement, the loss of jobs, the
elimination of entire industries, as well as the environmental differences between the
countries.

Problems Affecting Employment

At the root of NAFTA's potential negative impact on U.S. employment is the disparate wage
rates between the U.S. and Mexico. Wages in Mexico are as low as U.S. 57 cents per hour for
unskilled labor and an average of U.S. $3.80 per hour for skilled labor. 17 Given these
relatively low wages compared to U.S. standards, there is concern that jobs may flood to
Mexico as the result of NAFTA and cause the following problems:
 Worker Displacement - Displacement occurs when a worker must acquire different,
enhanced, or new skills in order to maintain a present job, or must secure a different
job in his or her company. This may require retraining, sometimes at the worker's
expense, extended periods of time between jobs, and possibly entering the new job at
a level lower than the worker occupied at the previous job.

 Loss of Job - Job loss occurs when the employer is unable to compete in the
international marketplace or enhances plant and equipment to compete more
effectively, thereby necessitating fewer employees for the same productive
operations. In short, the employee is discharged from the enterprise. This scenario
may occur in those firms and industries that are labor intensive rather than capital
intensive. Labor intensive enterprises may experience increasing difficulty competing
against the relatively lower Mexican wage rates. Given this generalization, it is
reasonable to conclude that firms in such labor-intensive industries as furniture, glass
products, shoes, and textiles may experience loss of jobs to Mexico, while such
capital intensive industries as chemicals, plastics, metals, pharmaceuticals, and
telecommunications may be expected to fare well in the NAFTA era.

 Loss of Industry - Industry loss occurs when firms are unable to compete with foreign
competitors because of the lower cost structures of those competitors. In such
situations, management may decide to close a firm or to relocate it from its home
country to a foreign country and consider the investment in plant and equipment in the
home country a sunk cost to be abandoned. That decision is made easier when the
wage rates are lower in the foreign country; when health care cost and pensions are
lower; the cost of capital is low; the foreign government provides a welcoming
environment that may include favourable tax treatment or government arranged
financing; the labor force in the foreign country is attractive, eager to work, well
educated, or amenable to training; the foreign country offers a pleasant climate and an
improving infrastructure; the foreign country's political and economic structures are
stable; and the foreign country offers access, as in the case of Mexico, to a large and
unsaturated market, and from Mexico, a gateway to the rest of Latin America. All of
these things encourage the loss of industry and are the very real concerns for workers
and unions in the United States.

Overlaid on the factors affecting employment are the effects of firm size and firm location.
The smaller and the less advanced technologically a business, the less is its ability to compete
in the NAFTA world. Likewise, geographic location may affect an enterprise's ability to
compete under NAFTA. 19 An assessment by the International Trade Commission found that
the states in the U.S. southwest would benefit the most from NAFTA, while the midwest, the
south, and parts of the west might experience economic disruption in the short run. This
conclusion is supported by a Economic Policy Institute study predicting significant job losses
in the midwest. The state of Ohio, for example, is predicted to lose 406,667 jobs, 9.3% of
jobs in the state, due to NAFTA. 21
Problems Concerning the Environment

During the NAFTA debate, the U.S./Mexican border was called a "two-thousand mile Love
Canal" because of the horrendous environmental conditions in the maquiladoras industrial
zone along the border. 22There, open burning, open sewers, industrial runoff, and toxic
dumping are the rule rather than the exception. Concomitant with these environmental abuses
is the reported use of outdated technologies by the Mexican electric power industry in order
to contain cost. 23

The lax environmental conditions along the U.S./Mexican border, coupled with lax
environmental standards throughout Mexico, stimulated U.S. environmental groups to seek
legal redress against NAFTA. 24 The result was a court order in June 1993 requiring the U.S.
government to file an environmental impact statement on the potential effects of NAFTA. 25
The order was appealed by the Clinton administration on grounds of the environmental
groups' legal standing to file the suite and on grounds that the ruling was an unconstitutional
interference with the authority of the President. In reply, a U.S. Circuit Court of Appeals
ruled that the NAFTA agreement was a Presidential action not reviewable by the courts,
thereby voiding the order for an environmental impact statement and enabling the eventual
passage of NAFTA. 26

NAFTA - The Promise

There is much that has been and is yet to be written about the promise of NAFTA.
Hyperbolic may be a word to describe the arguments for and against NAFTA prior to its
passage. Arguments that were reminiscent of the debate surrounding the formation of the
European Community. That debate is as yet ongoing in Europe. Arguably, even with the
passage of NAFTA, the debate is still ongoing in the United States, especially given the
recent economic and political problems in Mexico.

Increase in Jobs/Growth of Industries

The strongest, if not the most histrionic, hyperbole in the NAFTA debate was the issue of the
potential loss of jobs and industries due to NAFTA. Some jobs have been lost and will
undoubtedly be lost because of NAFTA in both the U.S. and Mexico, particularly in labor-
intensive industries. But, on balance, NAFTA is expected to produce a net gain in jobs.

One of the better analyses of the impact of NAFTA on U.S. industry is a study by Fortune
magazine. That study presents a forecast for twelve U.S. industries following the passage of
NAFTA and predicts an increase in exports by all twelve industries. 28 An increase in exports
may be expected to bring an increase in jobs because "trade is a positive-sum game in which
all parties stand to gain, and there is no natural limit to the number of jobs that can be created
by it." 29 This does not, however, imply that there will be no loss of jobs in some companies
and in some industries as the result of NAFTA.

Stability and Growth in Mexico

Passage of NAFTA was important for Mexico. It facilitated the continuation of economic and
political reforms in Mexico. It was "America's best assurance that its large neighbour to the
south will continue to develop into a stable and prosperous nation."
But, what would have happened to Mexico if NAFTA had not been adopted? Scenarios
included a potential collapse of the Mexican economy, a reversal of economic and structural
reforms, a run on the Mexican currency, a drying up of foreign investment in Mexico, and a
nationalist backlash by the people of Mexico. Castaneda discounts the seriousness of these
scenarios and suggests that the only downside to a defeat of NAFTA would have been
damage to the prestige of former Mexican President Salinas. 31 Interestingly, while NAFTA
was passed, it has not prevented the recent damage to Salinas' prestige. Now, the new
Mexican President, Ernesto Zedillo Ponce de Leon, needs a successful NAFTA to persuade
voters that the pain of Salinas' economic reform program will have a payoff. 32

Protect and Stimulate U.S. Investment

Passage of NAFTA was important for the United States because U.S. firms had significant
investments in Mexico. In August 1993, U.S. firms invested $615 million in Mexico; 72% of
all foreign investment that month. In total, foreign investment in Mexico from 1989 through
August 1993 was $33.09 billion, of which an estimated $24 billion was by U.S. firms. 33 The
passage of NAFTA protected this investment, is expected to stimulate additional U.S.
investment in Mexico, to provide additional markets for U.S. products, to increase jobs, and
to enhance the standards of living in both the U.S. and Mexico.

Success with NAFTA will stimulate further investment in Mexico and provide a doorway to
the rest of Latin America. That doorway may open toward an even larger trade agreement in
the Americas, foreshadowing the mega-trading blocs that are likely to emerge throughout the
world in the 21st century. 34 Theorists refer to a "triad concept" of the Americas, the Asia
Pacific region, and Europe forming trading groups of the future. 35

3. MEMBERS OF REGIONAL BLOC

The North American Free Trade Agreement or NAFTA is an agreement signed by the
governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in
North America

4. TRADE WITHIN THE GROUP

1. The motivation to establish regional trading blocs: competing with the outside world
looking through the world since the 1960s, we can see that an important motivation of the
formation and development of regional trading blocs is to compete with the outside world.

After the World War II, the Western European countries had once been very dependent on
the United States (the U.S.), which charged something else from them. Therefore, since their
economy recovery after the 1960s, they began to search for economic and political
independence. Another important fact that stimulated the process of their cooperation is
Japan’s fast economic development. In order to compete with the U.S. and Japan and some
other developed countries, the Western European countries started to search for ways of
cooperation in many fields in the early 1960s.

Since the 1980s, there have been plenty of changes of the strengths of the main economically
strong countries. These changes, especially Japan’s fast development, made some other
developed countries search for the protection of regional trading blocs, which could preserve
their economic interest and prevent the loss of their competitive edge. At the same time, more
and more developing countries also had to do the same thing out of their dissatisfaction with
the unfair and unbalanced economic situation.

On 12 April 1989, “The Delors Committee presented the report on the economic and
monetary union.” (The History of the European Union 2008) On 2 October 1997, “The
Ministers for Foreign Affairs of the Member States of the European Union signed the Treaty
of Amsterdam” (The History of the European Union 2008), which cleared away the last
obstacle to the euro and provided it with a legal guarantee.

The fast development of the European Union (EU) and Japan reminded the U.S. of its relative
falling position in the world economy. According to Mason and Turay, “business and
political leaders saw that the USA was becoming less and less competitive with Japan and the
EC…. in the 1970s and 1980s US manufacturers lost their strong market positions in several
key sectors, including consumer electronics, commercial aircraft, apparel, machine tools,
semi-conductors and automobiles.” (Mason and Turay, 1994, p. 17) Finding that its role in
the multilateral talks in the General Agreement on Tariffs and Trade ( the GATT) less
important than before, the U.S. began to think about Canada and Mexico, two of its closest
countries. At the same time, Canada and Mexico also hoped that their products could enter
the American market and that they could attract more of the American investment. “Both
Canada and Mexico have had difficult economic and political relations with the USA, but
each wants NAFTA more than the USA itself.” (Mason and Turay, 1994, p.18) Therefore, in
1992, the three countries formed the North American Free Trade Agreement (the NAFTA).
This was the first time a regional trading bloc made up of countries with a considerable
disparity between them came into being.

On 8 August, 1967, Thailand, Indonesia, Malaysia, Singapore and the Philippines formed an
organization called the Association of Southeast Asian Nations (the ASEAN). Later, other
states Brunei, Vietnam, Laos, Myanmar and Cambodia joined. Being faced with the keen
competition among the U.S., Japan, China and some other big countries, these relative small
countries found that the only way to ensure their security and competitiveness is to unite and
cooperate.

2. Regional trading blocs’ effect on globalization

2.1 Regionalization is changing the pattern of world economy In recent years, regionalization
has been more and more popular and common in the world. For America, the NAFTA has
achieved a positive result. For Europe, “one in eight numbers of the United Nations (UN) is
the member of the EU. Europe is an equal partner to the United States in trade negotiations.”
(the Foreign & Commonwealth Office, 2005, p.15) And the launching of euro has an epoch-
making significance to the world economy. For Asia-Pacific region, the Asia-Pacific
Economic cooperation has become one of the most influential forums. In Southeast Asia, the
ASEAN member countries have obviously strengthened their cooperation in economic fields.
The formation of the NAFTA, the EU, the Asia-Pacific Economic Cooperation (the APEC),
the ASEAN and other regional trading blocs have to some extent changed the pattern of
world economy and trade. There is no doubt that the increase of the dependence of the
member countries on the regional trade blocs and their negotiating abilities towards the
outside world will bring keener competition to the world, which proves to be harmful to
globalization.
2.2 Regionalization has created new trade barriers

One of the purposes of the establishment of trading blocs is to arrange easier trade within the
regions, and to increase the economic efficiency and the competitiveness of their productions.
The free trade or relative free trade among the member states will surely increase their
dependence on each other, which will promote regionalization. For example, since the
establishment of the NAFTA, the trade among the U.S., Canada and Mexico has been more
than doubled, and the economic cooperation in this region will be increased in the future.
While the World Trade Organization (the WTO) is trying to eliminate trade barriers
throughout the world, trading blocs are maintaining and even increasing them under the name
of regional cooperation. While trading blocs are giving their member states more interest,
they are building trade barriers to the outside world and preventing other countries’ and
regions’ productions from importing. When they have satisfied their member states, they
have also damaged the foundation of global cooperation and increased the difficulties of
negotiations between countries, thus blocking the real “globalization”.

Certainly, there are other effects of trading blocs on globalization except the above two, such
as causing international political confrontation, speeding the readjustment of each country’s
industrial setup, promoting direct investment and arranging keener competitiveness in
international trade. Regional trading blocs do have a wide and far-reaching influence.

3. The definitions of “trading blocs” and “globalization”

According to what is stated above, it seems that regional trading blocs are bound to be a
barrier to globalization. However, there are other things which have not been viewed. What
was talked above was all temporary fact. Now it is necessary to look at some intrinsic and
basic things. First of all, the relationship between trading blocs and globalization will be
looked into from their definitions. “A trade bloc is alarge free trade zone or near-free trade
zone formed by one or more tax, tariff and trade agreements.” (Trade bloc,
2008)“Globalization describes the changes in societies and the world economy that result
from dramatically increased international trade and cultural exchange. It describes the
increase of trade and investing due to the falling of barriers and the interdependence of
countries. In specifically economic contexts, the term refers almost exclusively to the effects
of trade, particularly trade liberalization or "free trade".” (Globalization, 2008) From their
definitions, there seems no difference in their natures. Both of them pursue “free trade”
between countries while the main difference lies in their scopes. To be more precise, the
former one is regional and the latter is global. Virtually, as what is discussed above, “free
trade” is much more practiced in regional trading blocs than on the global level. e.g. The EU
as the most famous regional trading bloc has not only formed a market in which essential
factors of production can be traded freely, but also launched a common currency called euro,
which is of great significance to regionalization. But the WTO has only reduced tariffs and
restricted some non tariff barriers. Obviously, the global free trade is not as developed as the
regional free trade. However, it cannot be deduced that trading blocs are a barrier to
globalization from the above facts. Because the trading blocs which first appeared as early as
fifty years ago did not stop or even slow the process of globalization. The multilateral talks of
the WTO and its predecessor, the GATT, constantly reached many agreements. Though there
were difficulties and contradictions in these talks, the results proved to be good. The GATT
has become the WTO and the world free trade has been achieved better than ever in many
fields. Since the 1990s, the world market which based upon market mechanism has been
formed as well as a global financial market.
4. The interest of countries

Generally, when the relationship between trading blocs and globalization is discussed,
countries are the very basic members and factors of international trade organizations and are
of great importance. No matter what a country does, should it be joining regional trading
blocs or multilateral talks, its ultimate purpose is to get as much economic interest as possible
from it. This purpose is beyond all others, e.g. the so-called regional economic interest and
global economic interest.

A country joins a regional trading bloc not because of the abstract supranational “regional
interest”, but because it wants to reach its economic, political and other purposes with the
power of the bloc. It cannot be denied that in order to compete with the EU and Japan, the
U.S. formed the NAFTA with Canada and Mexico. Under the pressure brought by the EU
and the NAFTA, Japan also strongly promotes the economic cooperation among the East
Asian countries. Another good example is the ASEAN, which consists of smaller countries,
because each of them does not have sufficient strength to compete with big countries, they
hope that they will have it by getting together. On the contrary, if the regional trading blocs
cannot give what their member countries want, there would most probably be problems that
will slow the process of regionalization. For instance, the reason why Germany and France
compete for the regional economic leadership and the UK is out of the euro system, is that the
above three countries’ interests conflict with the whole region’s interest.

Many countries join regional trading blocs with the hope that the power of the blocs would
help them to speak louder in multilateral talks. They want the blocs to be their “speakers”. To
achieve this, all the member states in one trading bloc have to speak in “one voice”, which
represents their common economic interest. And if one of the member countries’ interests are
out of the whole, it will surely speak in a different voice. And what the country would do next
is probably to seek other cooperation, such as bilateral and other multilateral talks, which
could help them with their economic development. Again a good example of this is the
formation of NATFA. Why does the U.S. need NAFTA? One of the important reasons is that
it found “the GATT was unable to eliminate the competitive advantage that Japan’s industrial
structure and distribution system and the EC’s agricultural and high-technology subsidies
provided.” (Mason and Turay, 1994, p. 17) In other words, no matter what means a country
uses, it is always oriented by its interest, especially the economic interest.

5. Conclusion

By looking at the direct motivation to form a regional trading bloc, namely, competing with
other regions and countries, one conclusion that can be framed is that trading blocs do
hamper globalization to some extent. Also the fact that they have divided the world into
trading areas and changed the pattern of the world economy proves this conclusion. However,
we cannot say that trading blocs and globalization are completely contradictive as there is no
contradiction or difference in their natures. Both of them pursue “free trade”. For a single
nation, its purpose to join a regional trading bloc and the WTO is to get more interest from
them. Both trading blocs and globalization require their membercountries to overstep their
boundaries and transfer some of their economic sovereignties. The difference is that the
former one is within a region while the latter one is on global level. Therefore, their
contradiction lies in their scopes but not their natures. It is natural and reasonable that trading
blocs and globalization coexist in the same period. In the future, regional trade will expand
the global level, which means, trading blocs are a necessary stage of globalization.
5.    Trade with rest of the world

Arguments

Pros Cons

NAFTA is a giant free trade block which The key feature of NAFTA is asymmetric
importantly includes the USA. NAFTA will power. Wage disparity between the US and
ensure maximum trade advantages for a Mexico is 8:1 as opposed to 4:1 within the
sizeable part of the economy of the world. European Union. The US does only 7% of its
Productivity will be high as growth and jobs trade with Mexico and 20% with Canada,
are created in the region. Mexico as the least whilst they do over 75% of their trade with
developed member of NAFTA has the USA. Asymmetry is further shown by the
particularly benefited, but its increasingly USA’s ability to exploit non-tariff barriers as
prosperous consumers have become in turn a a continuing protection for domestic
much larger market for US and Canadian industries. NAFTA is not therefore a
companies. meaningful trade bloc.

All three countries benefit from the There is massive opposition to NAFTA in all
arrangement. The US ensures access to its three countries, which shows the potential
largest single market (Canada) and this also danger. The US is worried about being
allows them to lock in the Mexican economic swamped with Mexican goods through
reforms. It has also secured a better political comparative advantage. The Trade Unions are
relationship with Mexico and more progress against it and there are serious environmental
in dealing with cross-border issues such as concerns. Canadians fear they will lose
drug trafficking and illegal immigration. cultural diversity. Canada’s influence in
Canada and Mexico can stop the US going NAFTA has not stopped the US using
protectionist and ensure access to the world’s protectionism over their largest single export,
largest economy. softwood lumber. Mexico may get swamped
by US goods. Multinational companies may
relocate and crush Mexican industry. There is
the possibility of exploitation of land and
labour which are cheaper in Mexico

If the US sneezes, then the rest of the world The USA does not depend on trade from
catches a cold. Similarly, if the US economy within NAFTA to survive. Only 27% of its
is buoyant, then the rest of the world benefits. visible exports and even fewer invisible
Free Trade is the means whereby the US has exports come from the NAFTA area.
secured a strong boom throughout the 1990s Moreover, its buoyancy is determined by
and NAFTA has helped to secure that. trade that can be established without any
Consumers have gained from cheaper goods, formal agreement, due to the sheer size of the
and companies have benefited from being US economy. NAFTA has therefore made
forced to exploit comparative advantage. little difference overall.

NAFTA acts as an economic security The emergence of rival economic blocs is, if
arrangement and a strategic message to anything, likely to encourage protectionism
Europe and Asia. This message is that if they and rivalry. This can be seen by examples
want to stay serious players in the world such as the Banana wars and disputes over
economy, then they need to liberalise their hormone-treated beef. NAFTA won’t
regional markets to compete. liberalise the US market that still uses
protectionism in cases such as the steel
industry? Why should Europe and Asia
liberalise?

NAFTA’s success shows the US public, NAFTA’s economic benefits are still being
politicians and trade unions the advantages of debated, so no clear lessons can be drawn yet
freer trade. This will encourage them to for wider application. The political battles
pursue this further by committing themselves fought to negotiate and pass the agreement
to wider liberalisation, such as the Doha were so bruising in all three countries that its
round of the WTO and the creation of a Free politicians have come to fear any future
Trade Area of the Americas. battles over trade liberalisation, making this
less likely. The more the world divides up into
rival economic blocs (EU, NAFTA, Mercosur,
ASEAN, etc.), the harder it will be to cut
global deals which benefit everyone, but
particularly the developing world.

The success of such a bloc, combining the NAFTA is fundamentally nothing like the
effectiveness of free trade with the European Union. It is a large confederation of
maintenance of national sovereignty and states with no central structure. NAFTA is
diversity shows that the European model can purely a free market. It has no commitment to
work elsewhere, and is worthy of adoption in closer union and no political ties.
other regions.
Statistics of trade blocs
Comparison between regional trade blocs

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