The North American Free Trade Agreement (short for NAFTA by Abbreviationfinder) was signed by the leaders of: Canada, Mexico and the USA on October 7, 1992, but only came into force on January 1, 1994 after a troubled confirmation process by part of the USA, where xenophobia, ethnocentrism and prejudice from certain political sectors offer formidable obstacles.
NAFTA has created a free trade zone in which tariffs and certain other barriers to trade in goods and services and financial resources will be gradually eliminated over a 15-year period, but most liberalizations are expected to occur in the first five years.
The economic reasons for NAFTA are easy to understand, considering that trade with the USA represents about 70% of Canada’s foreign trade, that 80% of Mexican imports originate in the USA and that Canada and Mexico are the first and the third US trading partner.
HOW AND WHY DID NAFTA COME?
According to getzipcodes, NAFTA was not born out of nothing or an unprecedented political will. A free trade regime already existed between the USA and Canada, which had similar economic structures before this agreement. The precursor to NAFTA, the Free Trade Agreement between the United States and Canada, did not cause controversy in the United States, and was passed without difficulty by Congress, coming into force in 1989.
On the other hand, Mexico participated in the general model of the Latin American economy, until the emergence of the external debt crisis in August 1982. The network effect of the political crisis, however, resulted in a change in the models traditionally adopted by the countries of the Americas. region for the concept of open markets, economic integration, and growth driven by the private sector, attracting foreign investment. During the 1992 election campaign, Bill Clinton, former US president, even as a candidate, adopted NAFTA and Free Trade support as his campaign theme. During his first administration the negotiations were concluded and finally approved by Congress after a difficult and slow debate, after November 1993. NAFTA began to take effect in 1994 with the inclusion of Mexico.
The next step in this strategy is the adoption of the “hub and spoke” model , through which the United States will seek to expand the structure of NAFTA to increase the number of countries with a commercial market reserve for their exports, at the same time. preventing any third party (including its NAFTA members) from accessing its markets.
The expansion of the agreement was seen by policymakers in Washington as the most important strategy, if not the strategy, for creating the FTAA . Because of an election year in the USA (1996), NAFTA’s promise to Chile never materialized. In reality, the Clinton administration avoided seeking the necessary authorization to negotiate Chile’s accession. Meanwhile, Chile, which already participated in a free trade agreement with Mexico, has joined another agreement with Canada. In addition to Chile, it was allowed to calculate the expansion of the agreement by including countries with compatible economies. Possibly one Caribbean country would be next, for example, Trinidad and Tobago, which decisively met the most immediate criteria. So far, however, NAFTA has not expanded its boundaries.
Considerable progress has been made in this sector by Mexico. The member countries agreed to grant each other the most favored nation treatment, to remove restrictions on the repatriation of capital and to guarantee the free convertibility of their remittances. This foreign exchange guarantee is extraordinary, when originating in a country like Mexico, historically affected by balance of payments crises. Furthermore, member countries agree to guarantee exemption from expropriation, except in the public interest, on a non-discriminatory basis and through due legal process, with fair compensation. There is also a significant renunciation of sovereignty at this point, in which the NAFTA countries admit to submitting investment issues to international arbitration panels. GATT , its behavior in matters related to NAFTA is awaited with enormous curiosity.
In the area of trade in services, the major concession was made by Mexico, in terms of access to its banking services market, which has been liberalized at a broader level than that of the USA. In fact, in Mexico, the possibility of setting up financial holding companies has been established, which will be able to operate banks, securities brokers, insurance companies, leasing companies and factoring companies. However, Mexico has established a preservation for the financial services area, to preserve the present market situation until 2004. The USA also has a two-year preservation to allow the adaptation of the legislation of the federal states to the GATT commitments.
Still in the area of trade in services, the major disappointment comes from the restrictions, on the part of the USA, in relation to the movement of people, maintained at extremely high levels. It is known that the provision of services requires labor intensive and that today the service industries represent about 60% of world trade. With the current restrictions on the movement of its NAFTA member citizens, Mexico will only be a country that consumes services within the free trade zone.
Illegal immigration is a problem for the United States and an asset for Mexican negotiators, who, as a way to fight it, seek to attract new investments from the rich neighbor to their territory. The concentration of these investments in the north of the country – configured in industrial complexes originated from North American capitals and aimed at the consumer market in the United States – has amplified the profound regional contrasts that characterize Mexico.
HOW TO EVALUATE NAFTA:
The similarity between the documents of Canada and the United States in relation to the strategy to be adopted in relation to the FTAA, clearly reflects their satisfaction with the NAFTA experience. In the same vein, it is worth remembering Mexico’s negotiating practice in free trade agreements taking into account the NAFTA standard. This indicates a preliminary judgment favorable to the agreement.
Mexico’s rapid recovery after the 1994 weight crisis was stunted in a recent interview by the United States Under-Secretary for International Trade, Stuart Eizenstat, as a sign of NAFTA’s presence. In fact, NAFTA has in effect used Mexico’s low-fare structure for the United States. By comparison, Mexico raised tariffs by 100% in the 1982 crisis, he recalled. This time, exports from the United States to Mexico fell to 9% during the year of the peso crisis, although Mexico’s GDP fell by only 7%.
It is obvious that problems still remain in the context of the NAFTA agreement, such as complaints raised by tomato and other vegetable producers in the United States. The agreement for the transport of trucks between borders has not yet been well implemented as a result of protectionist actions by both Mexico and the United States. Despite this, the clearest evidence of success has been the general increase in trade in both directions. An American NAFTA negotiator, still in the government, says that, in terms of implementation, the agreement is still very complicated due to bureaucracy.