Question

Why Mexico was interested in proposing and signing the NAFTA? What are the costs for Mexico from being part of the Agreement? Why Canada was interested in proposing and signing the NAFTA? What are the costs for Canada from being part of the Agreement? Cite sources

Answer 1

NAFTA or North American Free Trade Agreement is an agreement signed by the USA, Mexico and Canada in 1992 as a free trade area. It was not well received by all the parties as it removed lower skilled assembly and manufacturing jobs from the US and transplanted them to Mexico where labour costs were much lower.

USA is more developed and advanced in comparison to Mexico. Unemployment and inflation is low in the USA and the severity of social and economic problems and inequalities are less intense in comparison to Mexico. NAFTA has definitely benefitted Mexico at the cost of USA, improving the standards of living of its people. Mexico has comparative advantage in textiles, agricultural products while the United States is fundamentally a capitalist economy with comparative advantage in human and physical capital. Financially, the United States has an upper hand. With the enactment of NAFTA, markets in Mexico continued to be open to foreign competition.

There has been a gradual shift away from the traditional markets of Europe and towards the regions in Canada and Mexico. The reason for this shift may include the growing economies of Asia. This trans-pacific trade now exceeds the trade occurring across the Atlantic.

The progress made in the World Trade Organization in liberating tariffs and non-tariff barriers in many countries is yet another reason. NAFTA was one of the liberalization agreement that has increased trade between its member nations. There are both winners and losers from this side. The increase in the investment made in the economies in Asia has produced rapid increases of trade in capital and intermediate goods. Most of these imports flow back to the US from the plants that are operative along the border. This trade is called maquiladoras wherein these plants are owned by the US.