North American Free Trade Agreement: NAFTA
I believe that the North American Free Trade Agreement was an inevitable
step in the evolution of the United States economic policy. The globilization
of the world economy due to technological advances in computers and
communications have shrunk the world to the point where no single country acting
alone can effectively compete on the foreign market. Even the United States,
with its vast resources, can not have an absolute advantage in all thing that it
produces. It does not have unlimited factors of endowments and must do its best
to make these available to the companies within its borders.
There are two basic sides to the argument over the North American Free
Trade Agreement. The Pro-NAFTA side views the treaty as a way to provide a
large, efficient production base for the entire geopolitical area. This would
result in lower cost to consumers and an increase in exports to Mexico and
Canada. The multiplier effect would then take place producing growth in all
areas. The Anti-NAFTA group feels that Mexico will be an unequal partner due
to the lower wage rates of the Mexican populace, causing the loss of
thousands of jobs in the United States and Canada. Environmentalist fear that
pollution will spread across the continent. Farmers fear that produce grown in
Mexico will be contaminated from pesticides banned in the United States. These
are but a few of the arguments for and against NAFTA.
What does NAFTA mean
A Free Trade Area is, by definition, an area where all barriers to trade
are lifted. This is not the case with regards to NAFTA at this point.
Currently most of the trade barriers between the United States and Canada are
lifted but those with Mexico have largely been kept in place. This is an
obvious disparity on the part of the Mexican government but is due largely to
the proportional loss of income to the governments in each country. The Gross
Domestic Product per individual in Mexico is one seventh of the other two
countries. Therefore, the loss of revenue would have a major impact on the
daily life of its population and the operation of the government . Never before
has a major economic power like the United States considered a free trade area
with an under-developed third world country.
The major difference between a Free Trade Area and Common Market is
that a Free Trade Area primarily deals with trade, while a Common Market has
this in addition to no barriers on factors of production and a common external
While on the surface it seems that a free trade area would always be a
good thing, it is easier said then done. The majority of people that oppose
NAFTA do so because of the potential for loss of employment. Mexico with its
cheap work force, will tend to make manufactures requiring extensive manual
labor more likely to move to the lower cost area. A loss of sovereignty may...