Question

1. A case study of NAFTA, with regard to the benefits for Canada from U.S. trade, found that:

   1. (A) Canada was not able to increase its exports due to barriers still remaining.

   2. (B) Canada had modest gains but was harmed by immigration into the United States from Mexico.

   3. (C) Canada had more trade diversion than trade creation and so was harmed overall.

   4. (D) Canada had more trade creation than trade diversion and so benefited overall.

Answer 1

NAFTA stands for North American Free Trade Agreement signed by three countries Canada, U.S. and Mexico on January 1,1994. It has generated economic growth and raised the standard of living of all the countries. It threatens national laws on hazardous waste and food labelling and considered as trade barriers and eiiminated by challenges of co-operations. Canada has sued US to permit the import of asbestos. The goal of NAFTA was to eliminate barriers to trade and investment between U.S., Canada and Mexico. It was modified in 1992 and 1993 due to oppositions from the countries. It has benefited the economies of these countries and average income people but it harmed small minority of workers in Industries exposed to trade competition. It was the most comprehensive free trade agreement. It led to job losses, factory closures and trade deficits in U.S. because trade had been moved to Mexico because the costs and expenses were less in Mexico to run a business. It had made a huge harm to U.S. There were some shortcomings in this agreement which was modified later. After this it has boosted economic growth, profits and jobs for all the countries. It removed the barriers on exports in all the countries. It reduced costs of import and inflation rate. It has increased economic growth. It has created new jobs also. It has also reduced the spending of the government. It create now jobs in Mexico because the labour was cheaper in Mexico but it was become the reason of loss of jobs in U.S. It has reduced the wage rate also. Mexico rural farmers expanded into marginal land resulting in deforestation. Because of the disadvantages of this agreement, a new agreement came into effect i.e. USMCA that stands for United States-Mexico-Canada Agreement. It was made to eliminate the weaknesses and shortcomings in previous agreement and make the trade fully barrier less.

Answer is option (d) that Canada had more trade creation than trade diversion so benefited overall.