NAFTA is a three member nations agreement signed by Canada, Mexico, and the United States to create a North American trilateral trade bloc. The North American Free Trade Agreement (NAFTA) was inspired by the highly successful removal of tariffs by the European Economic Community (1957–93) to stimulate trade between all of the members.
A Canadian-U.S. free-trade agreement was concluded in 1988, and NAFTA basically extended that agreement’s provisions to Mexico. It was established on January 1st, 1994 which is twenty-five years ago from now. The member nations of NAFTA consist of two highly industrialized countries which are the United States and Canada. In addition to a developing country member which is Mexico.
The goal of NAFTA agreement was to advance free evolution of goods, services, and capital across the general boundaries of the three member countries. The implementation of the NAFTA on January 1st resulted in the immediate elimination of tariffs on more than half of Mexico’s exports to the United States and also more than a third of US exports to Mexico. NAFTA agreement also involves labor and environmental safeguards between the member nations.
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SWOT Analysis
Strengths
The agreement provided possible duty-free access between the member countries for a wide range of manufactured goods and commodities traded between them. The status of “national goods” has been given to products imported from other NAFTA countries, prohibiting any state, local or provincial government from taxing such goods or tariffs. One obvious advantage for Mexico when it joined into a free trade agreement with the United States was that, as a developing country, its wages were much lower than the United States and had a competitive advantage in the production of goods requiring relatively more labor-intensive inputs.
NAFTA has profited largely from large US firms that now have access to a massive and cheaper range of inputs in the form of Mexican workers or in specific Mexican skilled labor. NAFTA has also been credited with the rise of the Mexican class. The three member countries’ foreign direct investment (FDI) more than tripled. Since the implementation of NAFTA, U.S. foreign direct investment has more than tripled in Canada and Mexico. U.S. oil imports from Mexico cost less because tariffs have been removed from NAFTA. That reduces America’s dependence on Middle East oil. Low-cost oil lowers gas prices, which lowers the cost of transport.
In 2003, NAFTA produced a significant net benefit for Canada, with long-term productivity rising by up to 15% in industries with the deepest cuts in tariffs. Unemployment in Canada has fallen. The agreement helped with government spending. Manufacturers in all three member countries had access to government contracts for each nation, increasing competition and reducing costs. The trade area of NAFTA produces more than 28 EU countries. NAFTA advanced all three countries ‘ economic growth, advantage, and jobs. It also lowered consumers’ cost.
Weaknesses
NAFTA’s disadvantages are significant. The negative impact of NAFTA has been greater on the U.S manufacturing sector compared to U.S service and agriculture sectors. In other significant ways, US workers have also suffered from NAFTA. Most of the jobs displaced because of trade were high-wage jobs that enabled U.S. workers to attain middle-class status. This has also had the effect of increasing income inequality in the United States, as labor has lost and investors have gained because of the large profits earned by the companies in which they have invested.
Farmers from rural Mexico could not compete. At the same time, Mexico reduced farmers ‘ subsidies. Another NAFTA agreement has never been implemented. NAFTA would have allowed trucks from Mexico to travel beyond the current 20-mile commercial zone within the United States. High levels of industries moving plants to Mexico, including motor vehicles, textiles, computers and electrical appliances in these industries. Yet, not all companies moved to Mexico in these sectors. When workers chose to join the union and lose the factory, workers opted to the option of planting. The workers had little bargaining power without the union’s support to them as members.
Opportunities
NAFTA was renegotiated by the United States, Mexico, and Canada on the 30th of September 2018. Mexico’s economy used to be completely dependent on oil and oil prices. The new deal is called the United States-Mexico-Canada Agreement. It still has to be ratified by the legislature of each country. As a result, it would not actually be implemented until 2020. The Mexican constitution has been amended to allow foreign investments in the exploration of oil and natural gas. Renewables are an absorbing opportunity.
If NAFTA countries could reduce regional energy costs for industry and consumers, the region could have a significant economic advantage over Asia, Europe and other parts of the world. The discovery of San Oil in Western Canada enabled U.S. and Canadian companies to participate in desired results. Pipe and tubular manufacturers in Mexico will be able to export their products to the United States and Canada faster. The United States, Canada and Mexico can compete together far more effectively than in isolation by combining their energy, human capital and technological strengths.
Threats
Environmental degradation in Mexico is a massive threat to the nation. Mexican agricultural industry used more fertilizers and other polluting chemicals in response to NAFTA’s competitive pressure. Rural farmers have expanded into marginal land and deforestation has led to an increase. Canadian fears that manufacturing jobs will be lost to the United States did not materialize with “steady” manufacturing jobs. Canada has strict requirements or quality indicators and language demands. For example, recently U.S. cosmetic exporters are facing stricter rules for sale in Canada. US President Donald Trump is promising to renegotiate existing international trade deals.
President Trump wants to withdraw the United States from NAFTA. If the United States were simply to withdraw from NAFTA without a replacement agreement, the result would be higher duties, but US exports to Canada and Mexico would have the highest duties. NAFTA was damaging to labor unions and workers. There are also actors involved, such as importers or exporters, corporations, industry, service companies’ associations, farmers, financial institutions, NAFTA officials, Congress, state or provincial governors, labor unions, environmental groups, small businesses, farmers, and politicians. Because each of these groups prefers and dislikes many things, NAFTA is facing the challenge of trying to please everyone.
Conclusion
NAFTA has created winners and losers in Mexico in the United States. NAFTA’s winners were U.S. agricultural industries, which used cheap labor in Mexico and American consumers. The biggest losers of NAFTA have been poor Mexican farmers. Because of NAFTA from small businesses to large companies, from a farmer to a manufacturer of heavy machinery, trade has never been so successful before. Companies are now able to sell goods across borders using eliminated or reduced tariffs. But on the other hand, the new replacement agreement should fix or lessen the threats that the member states may face. Any new trade deals are fair and protect workers’ rights, public services, the government’s right to regulate in the public interest and our environment. NAFTA is facing the challenge of trying to please everyone.
References:
- https://www.saintpeters.edu/academics/undergraduate-programs/economics/files/2012/06/StudPaper_Animesh_Singh_Internationaltrade_2011.pdfhttps://www.thebalance.com/nafta-pros-and-cons-3970481
- https://www.thebalance.com/disadvantages-of-nafta-3306273
- https://latambusinessnetwork.ch/news/opportunities-and-challenges-from-the-nafta-renegotiations/
- https://parcelindustry.com/article-3865-NAFTA-2014-Opportunities-&-Challenges.htm
- lhttps://www.mercatus.org/bridge/commentary/why-trumps-threat-withdraw-nafta-would-be-true-disaster
- https://www.ge.com/reports/lets-upgrade-nafta-compete-world/
- http://canadianlabour.ca/nafta-renegotiation-opportunity-more-fairness
- https://www.freshplaza.com/article/10700/exploring-nafta-challenges-and-opportunities/https://ampglobalyouth.org/students/problems-with-nafta/
