North America Free Trade Agreement (NAFTA ) was signed in 1992 by the then presidents of Canada, Mexico and the United States of America. This free trade area which covers the three large countries is the largest the world in as far as GDP is concerned (About.com:US Economy 1). The NAFTA idea was initiated President Ronald Regan who wished to have a common market within the North American region. The agreement came to be signed President George H.W. Bush of the United States, President Salinas of Mexico, and Brian Mulroney who was the prime minister of Canada. The successful implementation of the agreement was by President Bill Clinton of the United States.
Intentions and Purpose of the Creation of NAFTA
The creation of NAFTA had several intentions and purposes for the three countries. The main intention of its creation was to create a common market for the countries and improve trade. NAFTA was created so as to create and promote competition that was fair amongst the signatories by promoting the required conditions. To create a favourable environment within the three countries that would favour investment hence attract both local and foreign investors (About.com:US Economy 2009a). This was to increase the opportunities for investment in the three countries. NAFTA was to make trade between the three signatories free by eliminating trade barriers such as tariffs and taxes enabling effective movement of goods and services across the border of the three countries.
Amongst the documented rules and regulations of the agreement are the procedures for solving trade disputes between the member states. NAFTA agreement was to make the members Most favoured Nations and also through its operation mechanisms provide protection of intellectual property rights. NAFTA was not just intended for trade purposes, it also was created to enhance further regional cooperation through its framework (About.com:US Economy 2009a). NAFTA like other trade agreements is said to have many benefits for the Signatories. The impact of NAFTA on Mexico has had several critics and supporters, both having their own reasons. But then we have to ask ourselves if the creation of NAFTA has been of any economic significance to Mexico. To answer this question, we have to evaluate both the positive and negative impacts of NAFTA to the Mexican economy (About.com:US Economy 2009a).
Positive Economic Impacts of NAFTA to Mexican Economy
The implementation of NAFTA has brought many advantages to the economy of Mexico. NAFTA has resulted to an increase in the number of foreign investors in the country. This is because Mexico is one of the countries that were formally used for outsourcing. The conducive investment environment created by the government such as low wages, attractive taxation regularities and availability of resources such as energy and other raw materials attracted many foreign companies especially those from the United States. The formation of NAFTA has created a better market environment as it is larger and free. This is because NAFTA has created a free market that connects over 439 million people. This has in turn greatly attracted more foreign companies to come and invest in the country as they have identified the market benefits offered by N AFTO (About.com:US Economy 2009a).
Creation of NAFTO has created and increased employment opportunities for the Mexicans. This is because the growth in trade has resulted to manufacturers, producers and other business people employing more people to help in the marketing of their products. The growth has also called for increase in production so as to meet the market’s demand. This automatically calls for employment of more people to help produce the goods and services that are on demand. Related to this positive impact of NAFTA in Mexico is the increase in wages of Mexican workers. NAFTA has policies that guide on workers wages. Mexican businesses have to comply with the policies in order to benefit from the advantages it offers. This enabled the workers to have increase in their wages as compared to what they earned before (Council on Foreign Relations 1). The increase in Market has also enabled many employers to make huge profits hence have been able to improve the working conditions of their workers which include increase in wages. Creation of NAFTA has also resulted to reduction in the prices of goods and services. This is because of the removal of trade barriers such as taxes and tariffs which enables goods to move freely from one country to another. This is of benefit to the Consumers in Mexico as they pay less for goods and services (Council on Foreign Relations 1).
NAFTA has had a positive impact on the infrastructure of Mexico. It has enabled more roads which are highways and free tolls to be constructed so as to facilitate the movement of the goods and services. There also has been rapid growth in the telecommunication department. The number of cell phone lines and mobile service providers has greatly grown. This is as a result of an attempt to make communication more effective. The quality of education has also improved in the country (Council on Foreign Relations 1).This is as a result growth in the economy which has enabled the government to generate ore revenue hence has channelled some towards the education sector. More schools and colleges have been constructed and learning facilities improved by the government. Other infrastructure improved as a result of NAFTA is the number of power generating stations (Schiff &. Ainters 24).
Negative Economic Impacts and Challenges of NAFTA to Mexican Economy
One of the most significant challenges of creation of NAFTA free market is that it has caused the labour market in the country to be stagnant. Thia implies that sice its creation, there has been no much growth in the country’s labour market. This is a negative impact on the economy of the couyntry as it slows down its growth. NAFTA has also resulted to the Agriculture in Mexico, especially in maize farming. This is attributed to the fact that N AFTA allows farm products from the other two countries particularly corn from the United States whose price is heavily subsudized in the market (Council on Foreign Relations 1). This has rsulted to the Mexican farmers abondoning Agriculture as they were not makingh any profits. Most of them have turned to other forms of earning income. Majority of the mexican farmers now live in poverty and usually cross the border in searh of better opportunities in the other countries (Council on Foreign Relations 1).
NAFTA allows outsourced products manufactured in other countries such as China and India to be sold in oits free market. The outsourced products are always cheaper than the ones that arwe loically manufactured. This has resulted to killing of the local industries as thewy can not compete with tjhe outsourced products in the market. As a result of crippling of farming and killing of local industries, most Mexicans have lost their jobs. There are implications that unemployment has increased in Mexico sine the creation of NAFTA. NAFTA has also resulted to decrease in wages. This is because of the readily available labour from the many people at the borders. The fact that there is an oversupply of workers across the borders m ade employers pay less(Council on Foreign Relations 1).
The Political Impact of NAFTA on Mexico
According to Mara (1), NAFTA which she considers an economic liberalization has greatly enhanced the democratization of Mexico, especially in the political economy arena. She explains that in the 1980’s before the creation of NAFTA, the Mexican political leaders executed their leadership with a lot of control and authority. Democracy did not exist as these leaders gave no audience to the opposition groups. However with the signing and implementation of the NAFTA trade agreement, things changed. One of the reasons for the change was that the United States as one of the signatories is a powerful nation which has always advocated for democracy and used its power to pressurise the leaders to give in more room to for democracy (Hale170). The agreement also required reforms and changes to be made in the market structures which needed the government leaders to consult and cooperate with the unions and the opposition groups in order to get support for this economic strategy (Mara 1).
Political reforms in Mexico are believed to have occurred after the economic liberalization. These changes begun during Salinas rule. He was the one who signed the agreement on behalf of Mexico. In order to gain support for this economic agenda, Salinas needed support. He identified support from the private sector as the most significant and embarked on distribution of power between the coalition and the private sector. This encouraged democracy as it involved inclusion of the trade unions. He also included the major opposition parties in decision making as it was a requirement of the agreement. Real changes however were made by Zedollo who was Salinas’ Successor. Initially, Zedollo had his focus totally on political matters. His lack of attention to the economic issues resulted to an economic crisis which demanded back his focus. The country needed international lending and aid from NAFTO, these two bodies however demanded democracy and transparency before they could give any assistance.
This forced Zedollo to make some political reforms that increased democracy and transparency in the country. He eliminated the PRI mode of choosing presidential leaders and their successors and implemented the process of choosing presidential leader through free and fair election by everyone in the country. This encouraged the participation of everyone in the choosing of their leaders hence a huge step towards democracy. This brought in a meaning of democracy to a country that had never known what democracy meant. He also renounced some of the extra – constitutional powers that the president had. His actions which were mainly channelled by the economic liberalization helped change the traditional Mexican governance that was formerly characterised by dominance of one party and excessive presidential powers ( presidentialism), and clientelism (Mara 1). The democratization of Mexico, especially in the political economy arena was one of the impacts NAFTA. This is because all these changes were as a result of compliance to the NAFTA requirements and influence fro the United States which is one of the members.
How American and Mexican Factories have Been affected by NAFTA.
NAFTO has had both positive and negative effects on the American and Mexican factories. NAFTO greatly supports offshoring and out sourcing. It allows the products from the offshored industries to be traded in its market (Economist Newspaper Ltd). This has hurt the home industries in both countries as they face stiff competition from these products which are usually cheaper as the cost of production in the outsourcing countries such as China and India is less as compared to that incurred when manufacturing in the United States or Mexico (Greaver3). Some of the home countries have been closed down as they could not match the competition in terms of price with the outsourced goods (Click& Duening 54).
NAFTA contributed greatly to contributed to the growth of the Mexican Maquiladoras. This is because it enabled these outsourced industries to have a ready market for their cheaply produced goods. NAFTA has encouraged the foreign investors to offshore their industries and build others to Mexico. This is because of the attractive benefits being offered by the agreement. The agreement has also made labour available at a cheaper cost . Most investors realized that they could increase their profit margins by investing in Mexico hence the increase in the number of the Mexican Maquiladoras. (Bordeianu 1).
President Obama’s Administration and Policy on NAFTA
President Obama does not favour trade agreements. He argues that they do not protect the workers but only work to favour some few selected individuals (About.com:US Economy (2009b). he has cited the high increase in unemployment and low wages that trade agreements sometimes create. He plans to make reforms in NAFTO so that it can be more accommodating to the workers and the environment. The Obama administration which advocates to protect workers seeks to make amendments in the North America Free Trade Agreement (NAFTA). He also wants to ensure that the environment is protected and the United States industries do not get hurt by trade agreements (About.com:US Economy 2009b).
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Council on Foreign Relations (2009). NAFTA’s Economic Impact. 20th April 2009.
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Schiff, M., and L. A. Winters (2003), Regional Integration and Development. Oxford: Oxford University Press.