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International Business: Nafta, The North American Free Trade Agreement

2358 words - 10 pages

NAFTA, the North American Free Trade AgreementIntroductionThe North American Free Trade Agreement was an inevitable step in the evolution of the United States economic policy. The globalization of the world economy due to technological advances in computers and communications has 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 things 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 ...view middle of the document...

"In Canada and the United States, much of the political opinions against NAFTA have centered on the low wage rates in Mexico and the possibility of jobs being moved south of the Rio Grande River" (Lewis and Margaret 53.) Companies that are labor intensive will tend to move their manufacturing facilities to Mexico. The overall figures for jobs lost as a result of the free trade accord so far total 42,221, according to the U.S. Department of labor. This would clearly create more exports for Mexico, and less export for Canada and the United States.Not only has NAFTA caused a loss in jobs in all three countries, but it has also caused a decrease in job benefits for workers in Canada and the United States. NAFTA claimed that it will improve working conditions by generating economic growth, which will enable all three countries to provide more jobs with higher pay in a better working environment. In actuality, NAFTA has given corporations more power to lower wages and decrease working conditions, or threaten to shift production to Mexico unless workers agreed to concessions.Another thing which NAFTA affects is the environment. NAFTA supporters promised that the agreement would lead to increased investment in environmental cleanup. However, many communities still lack access to both water and sewage systems. Today, only 10 percent of Mexico's yearly output of 7 million tons of hazardous waste receives adequate treatment, with the rest poured into clandestine waste dumps or municipal sewers (Dentzer 62). This has caused an increase in the amount of pollution in Mexico.The Pro-NAFTA viewsUS trade with Canada and Mexico has become much larger than that with any other trading partners. In 1997, almost one-third of the US trade in goods with the world was with Canada and Mexico, at $412 billion. Mexico and Canada accounted for 53 percent of the growth in total US exports in the first four months of 1997. Canada remains our largest trading partner, and Mexico has recently surpassed Japan as the US's second largest export destination in 1997 (Daniels and Radebaugh 252). The United States now has, because of NAFTA, a market 108 million people larger than by itself.No longer having to pay taxes on goods imported into the United States meant larger sales and more profits for all Canadian and Mexican businesses. Not only did removing the tariffs make it possible for companies and manufacturers of Canada and Mexico to increase profits, but it also lowered to price of foreign goods. These new lower prices were now able to compete with the domestic products in the United States. Trade between Canada and the U.S. exploded from "$112.5 billion in 1988 to $384.4 billion in 2001" (Peter 46); this is up by 50% from when they first signed a free trade agreement. In autos, for example, it now costs '20% to 25% less to assemble a car in Canada then in the U.S. says David Adams, director of policy for Canada's Motor Vehicle Manufacture's Association (Harbrecht 48). Ford...

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