NAFTA Essay Thesis Example For Students

NAFTA Essay Thesis InJanuary 1994, the United States, Mexico, and Canada implemented the NorthAmerican Free Trade Agreement (NAFTA). The goal of NAFTA is to create bettertrading conditions through tariff reduction, removal of investment barriers, andimprovement of intellectual property protection. NAFTA continues to graduallyreduce tariffs on set dates and aims to eliminate all tariffs by the year 2004. Before NAFTA was established, investing in Mexico was a difficult process. Investors needed the Mexican Governments approval and were also required tomeet specific investment guidelines. These requirements necessitated investorsto export a set level of goods and services, utilize domestic goods andservices, and transfer technology to competitors. Under NAFTA, investors nolonger need government approval to invest and are treated as domestic investors. NAFTA has also increased intellectual property rights and allowed companies toobtain patents in Mexico and Canada. In the past, companies were hesitant toexport research and development intensive goods; with increased intellectualproperty protection, however, exports of these goods has shown a definiteincrease. As a result of better trading conditions, exports and imports of mostother goods have increased along with the research and development intensivegoods. In Mexico, the elimination of investment barriers has allowed investmentto expand. Increased trading and investment has then created many jobs, raisedthe Gross Domestic Product, and lowered consumer prices. The macroeconomicprinciples defined in Economics 103 relate to NAFTAs impact on aggregate supplyand demand, employment, investment, and their effects on national income. Thefree trade established by MERCOSUR also involves countries within South America. MERCOSUR, the Southern Common Market ( Mercado Common del Sur) was establishedin 1991 after a series of other free trade treaties failed to meet the standardsof the countries involved. It is set up on the basis of free trade zones andeventually to lead to a common market. Before MERCOSUR there was ALALC, theLatin American Free Trade Association. It was formed in 1960 and set up freetrade zones through the periodic negotiations between the members of theassociation. ALALC ended in the 1970s due to these negotiations because theywere left to the discretion of the countries involved and unfair practicesstarted to occur. After ALAC, came ALADI, the Latin American IntegrationAssociation. Founded in 1980, it established economic preference zones insteadof free trade. This encouraged economic growth and increased actions andagreements between countries that previously had no connections. In 1986Argentina and Brazil signed a Treaty for Integration, Cooperation, andDevelopment which was origi nally set up to remove tariff barriers and tietogether the macroeconomic policies of the two countries. This Treaty is whatled to MERCOSUR. MERCOSUR is a process of integration to form a common market onthe foundations of open regionalism. In March of 1991 Paraguay and Uruguayjoined MERCOSUR and most recently Chile became a part of the market in 1996. Thegoals set by the agreement are to create free transit of production goods andlifting of non-tariff restrictions on transit goods. It was set up to adopt acommon trade policy with nations that are not a part of the market and to set upa fixed common external tariff for all to follow. There are quite a few othergoals that was set by MERCOSUR including a clause that states that the countriesinvolved will be able to adjust their laws for the purpose of strengthening theagreement. The main point of MERCOSUR is to set up free trade among SouthAmerican countries and to encourage new countries to join (americasnet.com). Another related trade agreement conveying the benefits of international trade isthe General Agreement on Trade and Tariffs (GATT). A trade agreement thatconveys the positive outcomes of international trade is the General Agreement onTrade and Tariffs (GATT). It was created in 1947 and like NAFTA promotesinternational trade through the reduction of tariffs. Today, GATT encompassesover one hundred countries and 90% of the worlds trade goods (Sabir 1). Therehave been eight different versions of GATT, each resulting in a new tradeagreement. The most recent is referred to as the Uruguay Round and is one of thelargest and most comprehensive trade pacts in history (Deng 1). The UruguayRound Agreement cuts tariffs by one-third, increases coverage for textiles,clothing and agriculture and creates a new World Trade Organization(Congressional Digest 258). The WTO settles dispute settlements, regulates thepolicies agreed upon and reviews countries trade practices and policies. Inaddition, the Ur uguay round proposes reductions in nontariff protective barriersto trade (Gottheil 350). The Uruguay Round and WTO make up an important part ofGATT. GATT as a whole is based on principles that ensure all participatingcountries receive benefits. These principles include nondiscrimination,protection of domestic industries and provision of stable basis for trade(Congressional Digest 258). With such a solid foundation, the policies of GATThave taken force. Much like NAFTA, GATT proposes to increase trade through thereduction of tariffs. However, GATT is more inclusive of the internationaleconomy. As NAFTA, MERCOSUR, and GATT establish free trade throughout theAmericas and other parts of the world, the European Free Trade Agreement (EFTA)represents countries throughout Western Europe. It was initially formed in 1960by Austria, Denmark, Norway, Portugal, Sweden, Switzerland, and the UK. Theoverall objective of the EFTA and of these founding states was to remove tradebarriers throughout We stern Europe, such as import tariffs and quotas, and touphold open practices in world trade (EFTA Page). The framework of the EFTA haschanged significantly since its initial founding as many member states have comeand gone along the way. In 1972, the existing EFTA countries signed free tradeagreements with the European Union, thus eliminating import tariffs onindustrial products. Since then the EFTA has worked to strengthen itsrelationship with the European Community. The current constituents of the everchanging EFTA include Iceland, Liechtenstein, Norway, and Switzerland (EFTAPage). The free trade agreements established by the EFTA cover intra-EFTA trade,trade with the European Union, and free trade outside of the EFTA or EU. TheEFTA is currently in the midst of procuring free trade agreements with countriesin Central and Eastern Europe and even with other countries around the world(EFTA Page). These free trade agreements serve to promote unified movementwithin the EFTAs economic r elationships and to strengthen Europesinternational trade alliances. According to EFTA web page, free tradeestablished by the EFTA is an, essential process in the continuousbuilding of economic, social, and political ties between the countries of Europeand thus enhancing our common objective of closer European integration(EFTA Page). Agreements with the EFTA reduce tariffs between countries, enhanceand allow for more stable foreign investment, and support the removal of tradebarriers. In establishing all of these rights, the EFTA hopes to create anenvironment that is supportive of entrepreneurship, competition, and economicactivity within its various market structures (EFTA Page). Analysis Free Tradeagreements are prevalent throughout the world, each representing trade within aparticular region. The success of free trade is unique to each individual tradeorganization. NAFTA, MERCOSUR, GATT, and the EFTA, overall, have created foundedmany positive aspects in international trade. The free trade that NAFTA hasestablished among the United States, Mexico, and Canada has greatly benefitedthe U.S. economy. During the years from 1994 to 1997, U.S. trade with Mexico andCanada rose 44 percent. This extensive growth is accredited primarily to thereduction of tariffs. As tariffs were lowered, U.S. goods became cheaper andmore competitive in Mexican and Canadian markets, and at this lower price levelthe quantity demanded of U.S. goods increased. On the attached graph, as theprice level drops from A to B, the quantity demanded increases from C to D; itbecomes less expensive for U.S. firms to supply goods to Canada and Mexico asthe supply curve shifts from AS to AS. In order to meet the new demand, thefirms must hire new workers and increase investment. Between 1994 and 1997, 90to 160 thousand jobs were created in the U.S. due to the increase of trade withMexico, and 2.4 million jobs were dependent upon trade with Mexico and Canada. Animal Cruelty leads to Human EssayThis is seen in graph 2, where the aggregate expenditure curve (AE) shifts tothe right (AE). As shown by the graph, the level of national income increasesfrom 250 billion to 300 billion. Therefore, increasing net exports will increasethe level of national income. By eliminating import taxes, world incomewill increase as much as $5 trillion in the next 10 years. Higher world incomesmean more demand for our commodities (Kleckner 1). With an increase innational income, the standard of living in the United States and otherparticipating economies should increase. More jobs will be created for theunemployed, helping the economy reach the full employment level. At this level,all resources would be in use. Similar to other free trade agreements, thepurpose of those formed through the EFTA is to strengthen European as well asinternational economies. In establishing a strong foundation for free trade, itseems that the EFTA has done much good for economies w ithin Europe. According tothe EFTA web page, Ministers emphasize EFTAs strong credentials as a freetrade organization and underline that free trade and economic integration playan increasingly important role in securing work, welfare, peace, and democracyin Europe (EFTA Page). Its visible effects on international trade provideonly a nominal indication of the many accomplishments of the EFTA; its work canalso be observed in terms of its underlying affect on the economy. Inestablishing strong international relationships, it has expanded the level ofexporting and importing, increased employment, raised consumption, and ineffect, also enhanced the average GDP for countries active in the EFTA(Fortune). Each part of this integration serves a beneficial purpose, andpositive aspects of the EFTAs work are evident in economies throughout Europe. As the EFTA has worked to strengthen relationships not only within its membercountries, but all over Europe and the rest of the world, it has establishedmany alliances, thus creating a solid base for foreign trade. The level ofexporting and importing, particularly among European countries has shown adefinite increase. The expansion of foreign trade creates potential for moreemployment opportunities; it can also be directly related to its aggregatesupply, and in effect, its level of GDP. The increase in exporting, being asignificant expenditure included in the calculation of GDP, is shown in itseffect on GDP growth. Within the free trade of the EFTA, the level of employmentin member countries also has been affected. As the degree of economic activityincreases due to free trade alliances, many areas, including that of employmentalso begin to change direction. The expansion of exporting mentioned beforeplays a role in the variable level of employment. Increased employment will addto the level of human capital as rising imports and exports expand capitalresources, thus contributing to an outward shift in the aggregate supply curve. Any increase in resource availability for land, labor, capital, orentrepreneurship will allow for an outward shift in the production possibilitiescurve, followed by a similar shift in the aggregate supply curve, eventuallyincreasing real GDP. Rising employment can also effectively create a rise inconsumption and in average national income, ultimately adding to real GDP. Consumption can be affected not only by a rise in the employment level, but alsoby the reduction in tariffs provided by the EFTA. When consumers have to payless for their goods, their level of real wealth has the effect of increasing. Lower prices enable them to buy more goods with the same level of income; thereis the illusion of greater income. This feeling of increased wealth, along witha rise in the actual level of employment, contributes to increased consumption. The increasing degree of consumption will, again, lead to greater nationalincome, and to a higher level of real GDP. A rise in trade combined withincreasing levels of employment and consumption allows for potential growth inthe level of GDP. According to Fortune magazine, the average GDP of thosecountries belonging to the EFTA rose an average of 2.1% each year (Fortune 7). As trade, employment, and consumption increase together, GDP has a tendency todo so as well. EFTA countries approaching a level of full employment due tochanges in trade, tariffs, and consumption will eventually experience itsbeneficial effect on the economy. Conclusion In general, it seems that each ofthe researched trade agreements has been successful in promoting overalleconomic growth throughout the regions of the world. NAFTA MERCOSUR The positiveeffects of GATT are numerous and widespread. GATT has proved to be highlysuccessful in removing barriers to trade in goods. In eight consecutive rounds,GATT has lowered tariffs on manufactured products from more than 40% to below 4%among developed nations. In part as a result, world merchandise trade,measured in the tens of billions of dollars at the inception of GATT, now standsat $5 trillion (Break down the barriers). This growth has broughtprosperity to developed countries as well as developing countries. Some of thesebenefits are re sult of the larger scope of world trade rules and the largeproportion of the economy that is covered under GATT. The EFTA has been fairlyeffective in following through with its one underlying goal, the removal oftrade barriers within and outside of the EFTA. It has also been proficient incultivating its relationships with third world countries. Its success in theseareas has allowed for the growth of its member countries in areas of trade,employment, consumption, and eventually also national income and real GDP. Itseems, however, that it needs to do more in order to have a more influentialpresence. Since its initial founding, the number of member-countries in the EFTAhas dwindled from seven to only four. The EFTA is clearly not the most prominentfree trade organization in Europe; it is apparent that the European Union holdsthe position of dominance, as many EFTA countries have defected to the EU overthe years. The EFTAs minority power in Europe and the simple reality of itssize may c ause many countries to brush it aside. While it has united with theEuropean to Union to accomplish many things such as the European Economic Area,it might be more effective if it could handle more significant matters on itsown. Bibliography EFTA Page. EFTA Secretariat EFTA Surveillance Authority EFTA Court. 23 March1999 *http://www.efta.int/structure/main/index.html*. How They AddUp. Fortune 126.13 (14 Dec. 1992): 152 153. http://www.americasnet.com/mauritz/mercosur/english; MERCOSUR Sabkar, Maysoon; http://bmb.net/our_views/Reports/Country/paraguay_1.htm, 1998 http://www.embassy.org/uruguay/econ/mercosur/merc-002.htm ; Embassy ofUruguay, Washington D.C. 1996 http://www.heinlein.com.ar/eco.htm ; ArgentinaBriefGovernment