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This report provides an analysis of the current and prospective profitability, pros and cons of North America Fee Trade Agreement. The analysis also includes the origins, objectives trend, and the advantages as the comparative advantages, standard living and nation policy, together with the disadvantages such as the deep analysis about the job loss in United State and the human right and nature. Other supporting ideas includes the detail information about the profit that this agreement bring to the people in US, Canada, Mexico and the wide countries, its purposes and goals, or the return from the investment as well as the loss. All the related detail and calculation can be found in the appendices. General earning from this free trading also estimated below industry averages. In particular, comparative performances in the areas of the market’s control as well as the evaluations from NAFTA.
The report finds the prospects of this agreement in its current position are evaluating and developing. The major areas of weakness require further investigation and remedial action by governments. Besides that, because NAFTA has many pros, governments also need to adapt and try to reduce the bad effect to countries which already become the one union.
The report also investigates some limitations that NAFTA had through the analysis of advantages and disadvantages. Some of them are the connection between the government and companies, which lead to the fact that many companies have the disadvantages without the supporting by the union if they choose to stand independently. Furthermore, the lack of attention to the right of human due to the rush and overwhelm working hour and their insurances are low and unfair which develops by the maquiladora programs from NAFTA.
According to Paulette L. Stenzel (2010), The North American Free Trade Agreement (NAFTA) is an agreement signed on January 1, 1994 within the 3 three countries – United States, Canada, and Mexico which become the largest free trade area in the World (GDP). NAFTA’s purposes are reducing the trading costs, increasing the business investment and help North America to achieve a wider position in the global marketplace.
When these three countries signed NAFTA, US and Canada had agreed to sign the United States-Canada Free Trade Agreement (CFTA) and added this agreement into NAFTA. Because of CFTA, there will be a change in place of the agricultural trade before NAFTA. Most of the food in United State and Canada became duty free on January 1, 1998. NAFTA began the implementation on January 1st, 1994 and going to be develop in 15 years.
Some of the objectives from the agreement include the tariffs’ eliminate on the trading between Canada, US and Mexico and prepare a standard’s the provision of “national treatment” for other signatory countries’ foreign investors. Furthermore, to ensure market’s secure access with the improvement on the settlement mechanism of the dispute, this agreement also help the member countries’ companies to have more procurement opportunities to increase the access of the government.
In addition, NAFTA improves the professionals of business people and their cross-border movement within some selected countries to be stronger in protection of intellectual property right.
A vast of new business opportunities had opened up by NAFTA for the three partner countries and other countries that want to enter North American market. Based on this, the investors come from other countries stay at a location in Canada can have the ability to attend the whole area of North American market. Moreover, NAFTA has an entry in force which said that the significant increase’s experienced by the parties a in the goods and services’ trade among them. There also an agreement from the three Customs Administrations about NAFTA Rules of Origin Regulations (the Regulations) and the Rules of Origin of the NAFTA.
In the worsened conditions of the economic in 2008; during the U.S. Presidential campaign, NAFTA became a hot issue again. Senators Hillary Clinton – a democratic candidates and Barack Obama both blamed the loss of American jobs manufacturing to NAFTA and make a suggestion about the renegotiated for this term which will need to include the higher labor cost and the environmental standards.
III. NAFTA pros and cons.
It is no doubt to say the most advantages that NAFTA bring to 450 million people in the U.S., Canada and Mexico is the free entrance in trading not only in their own country zone but also in the worldwide market place. With the national policies which support those countries with lower cost in export and import, it is responsible for $1.6 trillion in goods and services annually. It also decreases the inflation by reducing the cost of import to have more view, let’s look into the figure of United States’ economy via the data of GDP rate which increased steadily 5% a year; it is the clear evidence to show the advantages the NAFTA bring to their countries.
According to David Ingram (2009), NAFTA helps international trade to eliminate the tariffs between members’ countries by boasting the natural advantages that they owned. This means that they can low down the cost of production line and provide to the consumers more reasonable price of product because of cheap materials come from their natural resources advantages. U.S is famous for their high quality consumers good with low cost, while the strength of Mexico is agricultural product such as foods and crops. NAFTA eliminates the tariff between two countries so that US can purchase the crops and poultry with cheap price from Mexican, while Mexican can buy the cheap consumer product with high quality from US also. Thanks to NAFTA, agricultural exports to Canada and Mexico grew from 22% of total U.S. farm exports in 1993 to 30% in 2007.
NAFTA’S goal is to reduce tariffs among Mexico, Canada, and the United States over a period of years, making it easier to trade goods across national borders, and increasing economic efficiency in North America. It clearly deserve the strong support of all those who believe in liberty and free markets. Moreover the standard living of people in those countries has risen day by day together with the demand of high quality produce comes from US (Freedman, 2004). NAFTA provides the free market with high demand of product, which will lead to the risen in the number of jobs needs. 25000 jobs are created for any additional billion dollars the US export. Over 150000 new jobs associated with NAFTA were reported during the last 5 years (Shahabbuhin, 2003).
Free trade innovation will give nation the chance to step closer to each other’s and be more active in coordination. It also helps to reduce the rate of illegal immigration and international smuggling from nation to nation. Moreover, NAFTA protect the intellectual property right of member’s nation with their own policies regulations.
Job loss in United State.
Many manufacturers in United State had to move jobs to lower-cost Mexico with lowered wages, manufacturers still competed in industries. NAFTA did not support enough for Mexican labour and environment protection and caused the lost of manufacturers’ 1.3 million farm jobs in Mexico. The organization exported corn and other grains with low-cost so Mexico’s farms reduced output from 33.2% in 1990 below 13.2% in 2001. So many rural Mexico ‘s farmers refused to cooperate with NAFTA because they could not compete with the other as well. Moreover because Mexico’s labour were cheap, many manufacturers in United State chose to move the place they put all of their production line. It leads to the fact that bbetween 1994 and 2010; Mexico totalled $97.2 billion, were displacing 682,900 by U.S. jobs. About 80% manufacturers were in trouble situation such as: California, New York, Michigan and Texas. Besides, the companies did not move to Mexico they selected one of two options: belonging to the union or losing the factory. And they without supporting by the union so they had so many disadvantages to compete with little bargain power.
Human right and nature.
NAFTA opened many maquiladora programs where employees were paid low salary and exploited with more 12 working hours in a day. These workers have “no labor rights or health protections, workdays stretch out 12 hours or more, and if you are a woman, you could be forced to take a pregnancy test when applying for a job,” according to Continental Social Alliance. On the other hand, with manufacturing products influenced on environment directly in Mexico because of using fertilizers and other chemicals. So enviroment took pollution and they spent more 36 billion each year to deal with environmental consequences. NAFTA are many pros so the union should adapt and reduce bad effects to countries which belong to the one.
From the former paragraph we can see that NAFTA was established for 18 years from 1994. During this period, we can know NAFTA has its own advantages and disadvantages. In 10 years, NAFTA promotes the economy of Mexico, but Mexico still need a long time to catch up with another two countries. And Mexico should catch this chance and invest in education, telecom and innovation, America and Canada should avoid the risks to create the bigger business opportunities. All in all, NATFA should be kept and develop, it will promote the economy in North America.
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