The North American Free Trade Agreement (NAFTA) was created as a free trade area which came into effect on January 1st 1994, which was signed by the three North American nations which are committed to free trade. There are both positive and negative issues and outcomes that this agreement has created, which will be looked at in detail. There are both advantages and disadvantages of regional integration in this way, through the creation of a free trade zone, along with a freedom of employment zone, and a freedom of migration between all nations involved.
There are also potential business opportunities which can be exploited depending on the stages of economic development of the nations involved, all of which will be examined during the course of the paper. The reasons for the implementation along with the advantages and disadvantages that this agreement have been created because they governments of these countries want to make a “deliberate attempt over an extended period to foster the conditions for deep integration and to create the political institutions for their management” (Wallace, 1994, p. ), which has lead to the expansion of the economies along with the trade deficits of the participating nations.
Regional integration, and the development of the world economy is based around trade between nations, and this issue is at the heart of why NAFTA was created. International trade between countries is based around expertise in certain areas by certain countries, called the theory of competitive advantage, and this theory has been based around consolidating the relationships between businesses and governments for centuries.
Integration between the corporations which want to trade as much as they can, and the governments who want their companies to trade as much as they can means that integration is an economic outcome of international relations and international trade. Under NAFTA, these nations, USA, Canada and Mexico have consolidated their economies into a central trade block, under the control of the agreement, which is able to fix trade agreements, tariffs and production quotas and subsidies.
This has enabled the countries to benefit from being able to trade freely amongst themselves, based on this theory of competitive advantage. Those countries benefit by trading with each other with lower costs, increased quality and expertise, as well as benefiting from lower import tariffs when trading with their neighbors. However, a free trade area can also be a problem, and there are certain issues in NAFTA which offset some of the benefits which can be seen above. The size and scale of the daily management operation which is required for NAFTA to operate successfully is enormous.
The integration of national governments into a central free trade zone agreement, and the lack of cooperation between all groups involved can be seen on a regular basis. Another major problem facing NAFTA is the financial management of the poorer countries participating in the free trade area. This is a very simple view of the situation however, and the integration process is not an easy one to define as being successful or not in a single evaluation. The integration of nations into a free trade area, with all the political and economic issues is a very organic one, which is affected by many different factors.
There are sociological issues to consider, cultural differences, economic issues of comparative advantage or other economic theories which need to be analyzed and interpreted. To merely state the pros and cons of a situation does not give the reader a full picture of the multidimensional aspect of international relations. The major drivers of globalization are numerous organizations and government policies which aim to promote and control the expansion of globalization.
These organizations such as the World Trade Organization (WTO) promote the development of free trade areas, and trade agreements being signed to facilitate globalization and make international trade regulations more relaxed to incorporate some of the smaller and less economically powerful nations. Some of these include governments, financial institutions, and major corporations, which work in tandem with the WTO to develop trade between nations. The government always wants to increase trade, and therefore increase taxable revenue for corporations which are resident in their country.
Therefore government policy is set up to promote corporate globalization. Free trade is another example of a policy designed to promote globalization. The World Trade Organization is another, set up to facilitate communication between every country about increased co-operation on trade and finance issues. Financial institutions, the central bank and other banking corporations, want to drive globalization, so they can increase their own profits by being able to lend more money to borrowers, whether they are corporate or private, in order to maximize the amount of interest payments they will receive.
Finally the corporations want to drive globalization to increase the size of the markets in which they sell goods and services. The reason for this is the same as the other two major leaders of globalization, and this is to increase their own profits. Some effects of globalization that affect communities and organizations which can be seen as a direct result of the implementation of NAFTA and other free trade agreements around the world are things such as decreased costs, which can be seen in any major store where the goods are imported from China at a lower price than the equivalent goods produced locally.
Increased exports and imports are another effect of globalization, due to fewer restrictions on what can be exported where, under the current pro-globalization legislation. Labor is another factor which is affected by globalization, due to relaxed immigration and work control legislation it is now possible to migrate labor from one place to another, for example under NAFTA, which has freedom of labor for all member states providing work can be gained legally and ethically..
Finally the last effect of globalization is that wherever you go these days, everything is more culturally diverse: people, food, cultures, consumable items, all of which used to be produced locally to the community are now outsourced in one way or another, and everything we do or buy now has been affected by globalization. Therefore in conclusion the adoption of this policy of mercantilism inside the free trade areas of the world means that organizations will always find opportunities to do business with each other in under a free trade agreement.
Mercantilism is a form of economic thinking that promotes national economic development and exports over imports to facilitate the development and prosperity of the national economy, and the countries in this free trade agreement, and their cooperation goes “well beyond free trade in goods and services; they call for a high degree of integration, extending into political and monetary domains” (Devos, 1995, p. 4), which will be seen by the adoption of a central currency along the lines of the Euro, and further governmental integration.
The countries working together under NAFTA have adopted such a policy to curb the rising amount of imports from Asia and falling number of exports to other countries into the region. This policy tries to generate wealth and capital for an economy, which is seen as essential in developing the theory of increasing exports and acquiring more of the global wealth and currencies whilst limiting the imports that prevent the national currency from being exported. This policy will therefore always allow potential business opportunities to be exploited by any company which is willing to do business inside the NAFTA region.