Purpose Of The Nafta Politics
Although the name is North American Free Trade Agreement (NAFTA) the primary purpose of the was not to facilitate trade among the member countries. It was really to promote an integrated continental economy and establish the rules to govern it. Canada and the United States signed the Free Trade Agreement in 1987. The North American Free Trade Agreement, successor to the Free Trade Agreement, was signed with Mexico, in 1994 to give access to Latin America. Since then the amount of trade among the three partner countries has tripled, economic growth has raised substantially, businesses have become more competitive as well as profitable, millions of jobs have been created, wages have increased and governments have reaped the benefit of higher revenues. It has linked over 444 million people and it has produced annual trade of goods and services of $17.1 trillion (ustr.gov, 2006). Statistics Canada's estimates from 2009 show that NAFTA has increased the Canadian Gross Domestic Product (GDP) by as much as 0.6% per year, making it higher than the GDP in the United States or Mexico. Between 1994 and 2003, Canada's economy showed average annual growth rates of 3.6%, compared to 3.3% in the United States and 2.7% in Mexico (Statistics Canada, 2009). This is all due to the elimination of tariffs and agreements created for international rights for business investors. What this does is reduce the cost of trade, which spurs investment and growth and this is especially so for small businesses. Eliminating tariffs also can reduce inflation by decreasing the costs of imports. What this all really comes down to is Comparative Advantage and that is the idea that everyone benefits when countries produce and sell freely what they do most efficiently. In other words, everyone should specialize in what they do best and governments should intervene as little as possible in the process. As Adam Smith demonstrated in his Magnus opus, "The Wealth of Nations," back in he stated "1776 that individuals would be better off if they specialize, instead of trying to be economically self-sufficient. He also suggested that the same principle should be applied to international trade so countries can exchange the products and services that they are relatively good at producing for those things that other countries are relatively better at producing for mutual benefit". David Ricardo, British economist and businessman around the late 1700s, went a step further in with his interests in the virtues of International trade through his theory of "Comparative Advantage" by suggesting that it can be beneficial for two countries to trade, even if one of them is able to produce each item more cheaply than the other. These facts are all undeniable and wherever it has taken place, free trade has created jobs, boosted incomes, raised standards of living and, the greatest of all, increased globalization. This is an unassailable and indisputable fact, which makes North America the most lucrative market in the world and with NAFTA it will maintain and even expand these standards for years to come.
On December 17, 1992, the official signing of NAFTA by Canadian Prime Minister Brian Mulroney, American president George Bush, and Mexican president Carlos Salinas de Gortari, took place. Nearly a year later, then American President Bill Clinton signed the agreement into law, making it official. NAFTA then swiftly took effect on January 1, 1994, making it the world's largest free trade area in terms of GDP, although several years later the European Union (EU) took over that spot. Of course, the deal was not perfect; as most negotiated agreements never are. It was the best deal possible at that time. There have even been threats by American Senator Hillary Clinton and now American President Barack Obama to re-open or to withdraw from NAFTA. These threats were appropriately met with now Canadian Prime Minister Stephen Harper's reply that Canada also would look for some improvements and modifications if renegotiation of the agreement was on the table. Canada's Industry Minister, David Emerson, also gave a timely reminder that Canada is America's largest supplier of energy for which NAFTA protects both price and supply. The reason for these intentions by the American government is due to many Americans thinking that the United States got the "short end of the stick" and they mainly blame NAFTA for job losses. The truth is some jobs have been lost and that is undeniable, as industries weeded out inefficiency and bloat to improve their competitiveness at the same time as manufacturers were outsourcing menial assembly operations to lower wage countries, such as China and India. However, the fact is that the United States generated 25 million new jobs and the unemployment rate has been, on average, two percentage points lower in the NAFTA era than in the previous decade (Bendull, 2008), thus, amassing a huge trading bloc which represents an unparalleled success. Many Canadians have been unanimous in their recognition of NAFTA's advantages, regardless of a few naysayers. Even former NDP Gary Doer, Premier of Manitoba, openly praises the benefits of NAFTA and, while our American partners still have their minds on changing the agreement, they will be making changes at their own risk, as well as ours.
Everything in the economy has been increasing steadily over the years, due in part to NAFTA. For example, Canada has seen huge benefits with the increased trade that has been generated. In 1993, before NAFTA came into effect, trade between the NAFTA member countries was at $297 billion per year. After NAFTA was ratified the benefits were seen immediately and continuously and by 2007 trade between the partners had tripled to nearly $1 trillion per year. Exports from the United States to Canada and Mexico grew from $142 billion to $452 billion. Exports from Canada and Mexico to the United States increased from $151 billion to $568 billion (Statistics Canada, 2007). One reason trade grew is because NAFTA provided the ability for firms in member countries to bid on government contracts, which will generate more opportunities and can help attract business. The agreement does this by reducing foreign investors' risk by guaranteeing they will have the same protection and legal rights as domestic investors. Through NAFTA, investors can make legal claims against the government if it nationalizes their industry or takes their property by eminent domain. It also protects intellectual properties and has reduced grocery and oil prices (USTR, NAFTA Section Index, 2009). Canada and Mexico have exported over $157.8 billion in shale oil to the United States. This also reduces the United States' reliance on oil imports from the Middle East and Venezuela. Since NAFTA eliminates tariffs, food prices are lower for imports, which totaled $28.9 billion in 2008. Canadian employment levels have also shown steady gains in recent years, with overall employment rising from 14.9 million to 15.7 million in the early 2000s (Statistics Canada, 2008). Not only has Canada seen employment levels increase but the United States and Mexico have had an increase as well. The reason for the increases in the employment rate is that the partner countries in NAFTA have recognized that, ever since the document has come into effect, the standards of living have steadily been rising. This is an extremely valuable benefit from the agreement. The improvements in living conditions are essentially due to the generation of jobs. Under NAFTA, businesses have become more profitable and competitive leading to more new jobs in Canada and the other partner countries. The increased economic activity due to trade is another way that jobs are generated from the trade activity. This all breaks down to roughly one in five Canadian jobs gained are at least in part related to trade from the agreement (kwintessential.com, 2007). One of NAFTA's biggest economic effects on United States-Canada trade has been to boost bilateral agricultural flows. Canada is the leading importer of American agricultural products. American agricultural exports to Canada roughly doubled between 1994 and 2003 and statistics show broad increases in trade in several different sectors. In the year 2008 alone, Canadian exports to the United States and Mexico were $381.3 billion and imports from NAFTA were $245.1 billion. There have even been steps up in Foreign Direct Investment. Since NAFTA was enacted, United States Foreign Direct Investment (FDI) in Canada and Mexico more than tripled to $348.7 billion. Canadian and Mexican FDI in the U.S. grew to $219.2 billion (Statistics Canada, 2007). There is also the fact that NAFTA has provided annual tax cuts and income gains. Households may experience higher income from both an increase in the national income as well as a reduction in taxes, all due to NAFTA. Here are the following annual benefits:
NAFTA increases annual benefits by $350 to $930 and annual income per average family of four increases by $170 to $720 (Statistics Canada, 2007).
Here are the main reasons for the formation of NAFTA, as article 102 of NAFTA (NAFTA Secretariat 2008) outlines its purpose:
Grant the signatories Most Favored Nation status.
Eliminate barriers to trade and facilitate the cross-border movement of goods and services.
Promote conditions of fair competition.
Increase investment opportunities.
Provide protection and enforcement of intellectual property rights.
Create procedures for the resolution of trade disputes.
Establish a framework for further trilateral, regional and multilateral cooperation to expand NAFTA's benefits.
What this outlines is really all summed up to one word - globalization. Globalization has improved greatly due to NAFTA. Globalization is the process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology. This process has effects on the environment, culture, political systems, economic development, prosperity and human physical well being in societies around the world. Some people think of it as a borderless world but globalization is, more importantly, about the free flow of ideas, the exchange of culture and values, the greater attention now being given to issues such as human rights, environmental protection and technological advances. All of these things have brought people closer together than ever before.
NAFTA is one of the world's largest trade blocs, with a gross domestic product of $17.1 trillion, almost one-third of the world's GDP. Also, each day, NAFTA member countries conduct nearly $2.2 billion in trilateral trade (NAFTA Secretariat, 2007). It is obvious that the NAFTA member countries have benefited from this agreement. It may not be obvious to some, but Canada has seen the strongest gains of the NAFTA member countries. Most of the success Canada has had from NAFTA has been with the trade relationship with the United States. Canada and the United States have the world's largest and most comprehensive bilateral trading relationship. In 2006 total merchandise trade between the two countries consisted of $303.4 billion in imports and $230.3 billion in exports. By 2008 the trade had gone up to $740 billion, translating into more than $1.5 billion in goods crossing the border each day and around $1.4 million per minute. To size up and fully understand the trade between these two countries, you just have to look at the figures. Canada ships 87% of its merchandise trade exports to the United States, and receives 63% of the goods it imports from the United States. On the flip side, 23% of American merchandise exports go to Canada, and 18% of the goods the United States imports come from Canada. Canadian exports to the United States have increased by 80% in NAFTA's first five years, rising from $151 billion in 1993 to $271 billion in 1998. Since 1993, Canada's two-way trade with the United States has gone up 80% to $475 billion in 1998 (Stats Canada, 1998).
The fact is many Canadian production plants are actually closer to target American markets than American production sites. Out of Canada's 20 largest cities, there are 17 within an hour and a half drive of the United States border and many are much closer. Some cities, such as Vancouver and Montréal, are merely minutes away. Even production locations in Quebec and the industrial parts of southwestern Ontario happen to be closer to the huge American markets around New York, Boston, and Chicago than popular American production hubs like Atlanta, GA, and Raleigh, NC. Also to do with logistics, improvements have been made in trucking, railroads, ocean shipping and air services linking the two countries in a more timely and efficient manner. To accommodate the growth in trade and commerce, Canada and the United States have signed a pact to work together to create a Smart Border. The Declaration outlined a 30-Point Action Plan, which provides for ongoing collaboration in identifying and addressing security risks, while efficiently expediting the legitimate flow of people and goods across the Canada-United States border.
So as not to discredit Mexico's contributions to Canada, Mexico has been an important factor to Canada's growth through NAFTA by means of the greatly improved access to the Mexican market and being able to tap into Latin America. Canadian firms have been able to expand sales in sectors that were previously very limited, things such as automotive products, financial services, trucking, energy and fishing. Also, Canadian exports have become increasingly more diversified, with the added value from manufactured products accounting for the largest share of total exports to Mexico in 1998. Mexico is now Canada's 13th largest export market and fourth largest import source with Canada being Mexico's second largest export market. Despite the economic adjustments required in Mexico as a result of the financial crisis of December 1994 and its aftermath, Canadian exports to Mexico have been rising consistently since the implementation of the NAFTA, reaching $1.4 billion in 1998, an increase of 65% over the agreement's first five years. Canadian imports from Mexico have more than doubled since 1993, increasing to $7.6 billion by 1998. Overall, two-way trade between Canada and Mexico has shown notable growth over NAFTA's first five years, doubling to $9 billion in 1998 (Statistics Canada, 1998). It is said that the current statistics are believed to significantly under-report the true size of Canadian exports to Mexico given the high estimated volume of transshipment coming from the United States. This, in turn, results in considerable variance in our respective national trade statistics (with Mexican figures showing bilateral trade at $11 billion and Canadian exports to Mexico at more than $3 billion in 1998). The statistical agencies in the three NAFTA member companies are cooperating with a view to reconciling discrepancies between them, and this work is continued on into 1999. Ongoing market liberalization efforts in Mexico, particularly in the energy, banking, telecommunications and transportation sectors, continue to create opportunities for Canadian exporters. As the Mexican economy evolves and strengthens, its demand for Canadian goods and services will continue to increase. Agricultural trade with Canada has continued to flourish under NAFTA. As noted previously, Canada is the number one market for United States agricultural exports, purchasing $8.7 billion worth in 2002, and exports were forecast to reach $9.4 billion in 2003. Since 1994, American agricultural products to Canada have accounted for almost half of the total growth in American agricultural exports worldwide, and the growth rate has significantly outpaced that of sales to the rest of the world. The average annual growth rate of American agricultural product exports to Canada since implementation of NAFTA is 5.1%, while that for the rest of the world is only 1% (http://www.fas.usda.gov, 2005).
Ever since the signing of NAFTA there have been a few modifications and refinements to the agreement. This also led to various parallel agreements between the three countries. The agricultural provisions of the CFTA (U.S.-Canada Free Trade Agreement), which began taking effect in 1989, were incorporated into NAFTA. All tariffs affecting agricultural trade between the United States and Canada, except for a few items covered by tariff-rate quotas, were removed by January 1998. Originally, NAFTA didn't actually eliminate all tariffs on everything; it was only as of January 1, 2008, that all tariffs between the three countries were removed. There were also things like Canada and Mexico signing a cooperation of peaceful use of nuclear energy. There have been several situations where one of the partner countries is in need and the other countries coming to their aid, such as the Mexican Peso crisis. United States Senator Clinton and United States president Obama, along with other leading Democrats, call for the amendment of NAFTA to include additional labor and environmental standards. They say that there should be a set up periodic reviews of NAFTA, and also saying that they will use the leverage of a United States opt out to press Canada and Mexico to renegotiate the terms of the agreement. Canadian officials have noted they also hold a major negotiating card in the fact that United States economic interests could face severe problems if Canada uses a renegotiation to stiffen conditions on energy exports (Globe and Mail). Mexico has made similar threats (IBT), saying it might not be as accommodating about accepting U.S. agricultural exports the second time around. Some United States politicians, including Senator John Edwards, have even called for the more radical change of abolishing NAFTA altogether. Although NAFTA being a great benefit, Canadian's should potentially refining the agreement to become a even more valuable agreement.
So, in conclusion, NAFTA has been a great benefit for Canada. According to Canada's Department of Foreign Affairs and International Trade, NAFTA has brought economic growth and increased standards of living for people in Canada, the United States and Mexico. The Canadian department claims that NAFTA has established a strong foundation for future growth and set a valuable example of the benefits of trade liberalization. Statistics show that all three of the member countries have seen gains from NAFTA, but most especially in Canada. This all comes back to Comparative Advantage from Adam Smith and David Ricardo and just how countries should be able to trade freely amongst themselves in order to get things done more efficiently. All of this has greatly reinforced Canada's economy and has made it possible to reach out to other countries and in turn expanding globalization. Canada has been a very successful partner in NAFTA since the initial signing of the agreement and will continue to prosper in the indefinite future years of the relationship of the NAFTA members. Thanks largely to NAFTA. North America is one of the most competitive, prosperous and economically integrated regions in the world.
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