NAFTA stands for North American Free Trade Agreement. It is a treaty made between the United States, Canada and Mexico that went into effect on 1 January 1994. Although free trade existed between the US and Canada since 1989, this new treaty broadened the arrangement. After taking effect, the three countries became the largest free market on the planet with combined economies of $6 trillion.
What is NAFTA for?
This agreement was created to eliminate tariff for qualifying products, which could make the prices of exported and imported products significantly high. Before there was NAFTA, tariffs would be at least 30 percent on export goods to Mexico. As for Mexican products exported to the US, companies had to pay an average of 250 percent. Through this treaty, the imbalance in tariffs was addressed by completely phasing it out. In fact, 50 percent of the tariffs were immediately abolished as soon as the agreement was signed and took effect. Among the areas that NAFTA specifically focused on include accounting, construction, advertising, consulting, architecture, management, healthcare, tourism, engineering and education.
NAFTA also eliminated other barriers by 2008, including opening borders and allowing US truckers to interior areas of Mexico. Also, it abolishes licensing requirements and streamlines border processing. In other words, the North American Free Trade Agreement paved the way for businesses coming in and out of Mexico from and into the US to make their lives better. What other advantages and disadvantages does NAFTA offer?
List of Advantages of NAFTA
1. It allows for the establishment of trade standards.
One of the things that three countries agreed to improve was the health, safety and industrial standards to the highest existing standard. National standards no longer apply as a barrier to free trade. Additionally, agreements were made to ensure that industrialization will not increase pollution, as well as have provisions to manage labor and environmental issues.
2. It ensures protection of intellectual property rights.
In one of the stipulations in the treaty, Mexico will need to provide a very high level of protection for their people’s intellectual property rights. This will be especially helpful in fields like chemical production and computer software. Additionally, companies will think twice about stealing intellectual property from other firms.
3. It provides “national goods.”
It was one of the provisions in the treaty for all products imported from the United States, Mexico and Canada to have “national goods” status, eliminating duties on those gods. Custom duties are also to be eliminated.
4. It opens up new opportunities.
NAFTA has opened up new opportunities for small-mid-size businesses to establish a name for themselves, whether in the US or in Mexico. This means that smaller firms can finally build and maintain offices in Mexico. And with the abolishment of tariffs, it has now become less expensive for smaller entities to try their luck in the Latin-speaking nation.
5. It paves the way for real wage increases.
According to a Washington Pose article, a study showed that after this treaty was signed, there was a significant increase in wages across the US by 0.17%, in Canada by 0.96% and 1.3% in Mexico.
6. It increases trade between the US, Mexico and Canada.
The North American agreement helped in significantly increasing trade among the three countries. In 2009 alone, the trade between these nations has amounted to $1.6 trillion in goods and services.
7. It creates jobs for US workers.
According to the US Chamber of Commerce, the increased trade brought about by the agreement has created 5 million jobs in America alone.
List of Disadvantages OF NAFTA
1. It can be a cause for excessive pollution.
There had been several reports of excessive pollution in the past. One of the things that can lead to this problem is the fact that delivery trucks and factories will be more rampant.
2. It can be the reason for people to lose jobs.
Due to cheaper labor costs in Mexico, a lot of manufacturing companies moved a large part of their production from the US. This caused the displacement of around 682,900 jobs in America with California, Texas, New York and Michigan being the places that were hit the hardest.
3. It caused the suppression of wages in the US.
For companies that didn’t move to Mexico, they used the threat of moving to suppress people’s wages. They gave those who organized unions a choice between joining such organized drives or losing their jobs. Of course, workers who had nowhere else to go chose their jobs, but without union support. As a result, they had little to no bargaining power when it comes to wage increase.
4. It lead farmers to go out of business in Mexico.
Around 1.43 million farm jobs were lost when NAFTA took effect. When the 2002 Farm Bill was passed, it subsidized American agribusiness by as much as 40 percent of net income. Then NAFTA removed the tariffs, which has cost Mexico to export corn and other grains that were much cheaper, and Mexican farmers were not able to compete. During this time, Mexico also reduced its subsidies to farmers from 33.2 percent in 1990 to 13.2 percent in 2001.
5. It exploited maquiladora workers.
US-owned companies took in Mexican workers near the border to assemble products for export to the US at a very minimal wage. However, these workers were not given labor rights or health benefits. On top of that, they were made to work for more than 12 hours a day.
6. It caused the deterioration of Mexico’s environment.
Because NAFTA threatened the farmers in Mexico, they had to be more competitive, pushing them to use more fertilizers and other chemicals. This cost the country around $36 billion in pollution every year. Meanwhile, rural farmers had use up marginal lands, which resulted in the deforestation of around 630,000 hectares per year.
Although the North American Free Trade Agreement has immensely improved economies for the countries involved, it has caused other pressing problems, like environmental and employment issues. The key here is to balance out everything to minimize or eliminate any negative effects.