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NAFTA: 20 Years later
Richard Tomolilloon 7 May 2013
Transcript of NAFTA: 20 Years later
Economic integration NAFTA Twenty years later:
A perspective Analysis "regional economic integration... agreements among countries in a geographic region to reduce, and ultimately remove, tariff and non-tariff barriers to the free flow of goods, services, and factors of production between each other" By Rick Tomolillo
Kaitlyn Deluca The thought behind economic integration is that by reducing or eliminating tariffs between countries, the combined economies would improve through higher productivity. According to many economists, free trade would be considered as a second best option to economic integration. The school of thought is that
economies of scale come into play with the cost advantages for certain products and services being cheaper to produce in one country over the other. The theory behind this thinking says that there are factors that cause unit prices to decrease as the outputs are increased. Economic Integration Theory Seven degrees
of economic integretation
1. Preferential trading area
2. Free trade area
3. Customs Union
4. Economic union
5. Economic and monetary union
6. Fiscal union
7. Complete economic union Economic Theory cont. On the one side the argument can be made that there is lost revenue in the form of taxes and duties. The offset to this loss of revenue, in theory, is made up through an increase in productivity and through the creation of jobs. Caliendo, L., & Parro, F. (2011). Estimates of the trade and welfare effects of NAFTA. Rochester, Rochester: doi:http://dx.doi.org/10.2139/ssrn.1916287
Carranza, M. E. (2002). Critical debates: Neighbors or partners? NAFTA and the politics of regional economic integration in north america. Latin American Politics and Society, 44(3), 141-157. Retrieved from http://search.proquest.com/docview/200224606?accountid=13215
Grugel, J. (2002). Regional integration in latin america and the caribbean. Journal of Latin American Studies, 34, 990-990. Retrieved from http://search.proquest.com/docview/195903426?accountid=13215 Feils, D. J., & Rahman, M. (2008). Regional economic integration and foreign direct investment: The case of NAFTA. Management International Review, 48(2), 147-163. Retrieved from http://search.proquest.com/docview/202731189?accountid=13215 Regional economic integration has long been a debate over whether it is good or bad for each country’s economy. With the world moving closer toward globalization economies have become more connected and than they ever have been in the past. During the Presidential election year in 1992 integration between the United States, Canada, and Mexico became one of the biggest debates, leaving the country divided over whether it was good for the U.S. economy or not. Sources: Whats The Theory Behind Economic Integration? Congressional Research Service. (2013, May 5). NAFTA and the Mexican Economy. Retrieved from Federation of American Scientists: http://www.fas.org/sgp/crs/row/RL34733.pdf Fontinelle, A. (2013, May 5). Pros and Cons of NAFTA. Retrieved from Investopedia: http://www.investopedia.com/financial-edge/1212/pros-and-cons-of-nafta.aspx NAFTA Soon after NAFTA was signed into action Mexico struggled as the value of their money plummeted nearly 50%. The International Monetary Fund and the U.S. put together a 50 billion dollar bailout package. There continued to be a steady decline in real income. Poverty within Mexico has been a real issue and the government has tried to lessen the levels of poverty. Much of the poverty is due to inequality in the access to healthcare, education, and work opportunities. Although NAFTA has benefited the Mexican economy the effects have not been spread evenly throughout the country. NAFTA has aided Mexico in reaching development levels equal to the U.S. and has helped manufacturers adopt technological innovations. It is the view of many economist NAFTA is the reason for Mexico’s economic recovery. Lessons Learned Debate Questions Case number 1 MEXICO and NAFTA Case number 2 CANADA and NAFTA In 1988 the Canada-United States Free Trade agreement (FTA) went into effect. Canada and the U.S have benefited as trading partners. NAFTA was proposed and adopted in 1994 and since the inception of NAFTA Canadian trade with the U.S. has risen to around 80% and trading with Mexico has nearly doubled. Canadian exports, imports, services have grown significantly. In addition, FDI has increased as well. FDI in Canada has increased a little over 50% since NAFTA was signed into action. Even though it is difficult to determine how much of the increase is due to NAFTA, the fact remains that NAFTA provides an avenue of trade expansion for continued growth. Case Number 3 United States and NAFTA Even though NAFTA was signed into agreement twenty years ago, it was only 5 years ago that all duties and restrictions were eliminated. In 2010, the United States received almost a quarter of its imports from Mexico and Canada. In 2010, U.S. exports rose 23%, imports increased 25%, and FDI in Canada and Mexico rose 8% while Canada and Mexico FDI in the U.S. increased by 16%. The financial crisis in 2007 slowed the economic growth in the U.S.; however, the current outlook for expansion is greatly improving. In addition, the lessons learned from the implementation of NAFTA have paved the way to negotiate a free trade agreement with the EU. Emerging economies like Mexico may struggle in the short term but in the long term free trade agreements are beneficial. - Since NAFTA was implemented 20 years ago there has always been an ongoing debate whether or not it was the right decision. What do you think it would take for Mexico, U.S., and Canada to get rid of NAFTA? NAFTA has become a model for which other countries can turn for developing new agreements especially so for emerging markets and underdeveloped markets as well. Regional economic Integration is an important tool for increaseing trade and improving relations with member countries - Do you think that NAFTA has given Mexico, or Canada a competitive advntage over the U.S. as well as pulling large businesses away from the U.S.? - With globalization being one of the most talked about economic movements of this time will more and more free trade agreements be put into action among other countries? - Has NAFTA had a positive affect on the economy or has it caused more turmoil between the economic beliefs of economists in the U.S.? Henry Ross Perot was against NAFTA U.S. citezens were concerned with losing jobs to Mexico There was an increase in security issues because of Mexico's failing economy President Clinton felt that NAFTA would end up being a boost to the economy. Pros and Cons Mexico cont. One of the main reasons for Mexicos' struggle after NAFTA was signed into action was due to income disparity, lack of education, and the availability of health care. Economic integration can help improve the economy however in order for econonmic integrations like NAFTA to benefit lower and middle class workers there needs to be improvement in areas such as education, and the availability of health care as well as eliminating income disparities.