Once NAFTA was established, aims of the organisation were laid down, the main aim was to phase out restrictions of goods, movements and capital by 2008 (although recently this deadline was increased to 2010). It was hoped that by crating an area of free movement and a larger market economic growth in all the countries could occur. It was also hoped to eliminate trade barriers, increase investment opportunities and to promote economic competition. So far NAFTA has become a strong contender in the world trade market and is now the second largest trading bloc in the world.
The consequences of NAFTA have been seen in it’s fourteen years of existence. The three countries have all benefited, but the agreement has not been without it’s problems. The largest country involved in NAFTA is of course the USA, and in terms of the world it is the most powerful. The country has moved a lot of it’s firms into Mexico where labour is cheaper, especially along the US-Mexican border. However this has had a knock on effect in the US itself as many American workers have been left without work due to firms relocating. These workers have had to take lower paid jobs within the US to make up for the fact their job is being done for eight times less money in Mexico. An advantage of being linked with Mexico however is that Mexico has a lot of ties with other South American countries, opening the market even further.
A smaller disadvantage is the difference in regulations for Mexican truck drivers, a case first bought to the public eye by a pressure group called ‘public citizen’. They stated that due to Mexico having no policies as to how long drivers stay behind the wheel and a much more relaxed hazardous waste control system, Mexican trucks could be dangerous to drivers who share the same roads. At present Mexican truck drivers are restricted to a 20 mile area north of the border, however this is expected to change.
Canada has really benefited from the agreement due to it’s size and location. Within five years of the creation of NAFTA trade with the US rose by 80% and trade with Mexico doubled. One million new jobs have been created since 1994 and trade between the other two NAFTA members has grown much faster than it’s trade with countries outside of the bloc. It’s links with Mexico has also opened trading opportunities with countries Mexico is affiliated with, further increasing economic growth for the country. There has however been issues with smaller firms closing due to competition in the US and factories relocating to cheaper land south of the border. This along with companies merging and being taken over has lead to some unemployment in Canada despite the new jobs which have been created.
When NAFTA was first created Mexico was a developing countries with hopes of becoming an Newly Industrialised Country (NIC). It has probably had the most interesting outcome from the agreement as both the USA and Canada were already developed countries. Mexico got it’s wish and became an NIC when it joined the trading bloc. There were many factors contributing to this, mainly the adoption of higher foreign standards and business factors that it had previously. This has increased Mexico’s competitiveness within the world market and has enabled to create links with other Latin countries and the EU, it is the only country to have links with both the US and the EU apart from Israel. Mexico trades at a reduced or zero tariff with 60% of the world, which is a good sign of economic growth from the country.
Joining a developing country with two developed ones was never going to run smoothly. Many people are unconvinced by NAFTA, stating that they are swapping one trading evidence for another. Mexico was an oil dominated country in the early 1980s, which made up 2/3rds of it’s exports. The oil became in short supply soon after and Mexico had to rely more heavily on it’s other exports. The most important current export is corn, which covers half of it’s cultivated areas. Mexican farmers are finding it hard to keep up with the USA and Canada due to their high-tech and higher-yielding faming methods, meaning that the farmers lose out. Prior to Mexico becoming a member farmers relied on import tariffs and government protection. NAFTA, however, does not offer this protection, leaving the farmers to lose out.
Industry has also been a problem for Mexico, as it has been criticised for having no industrial policy other than promoting ‘maquiladoras’, factories which import components to create goods for export. These exports have helped to reduce the trade deficit but the local area does not gain from this as less than 3% of the maquiladora’s input is produced locally.
An issue which spans all three members is that Mexico has relaxed environmental laws, attracting companies who are restricted by the laws in the US and Canada. This is exploitation of Mexico’s land space and impacts the environment all over.
Perhaps the most important downfall where Mexico is concerned is the fact that it is extremely dependent on the USA and it’s economy. A widely used phrase is ‘if the US gets a cold, Mexico gets pneumonia’. This is a very real and current concern since the USA is currently experiencing a recession. What the impact of the recession will be on Mexico still remains to be seen, but it is likely to be severe.
In conclusion, the consequences of NAFTA have mainly been positive, however recent economical problems and the imminent environmental issues are going to cause problems over years to come. The availability of cheap labour is an issue which should be investigated further to make sure exploitation isn’t happening.
