North American Free Trade Agreement is an agreement signed by Canada, Mexico, and the United States creating a trading bloc in North America. It is the largest free trade agreement in the world. It was created to eliminate trade barriers among Canada, Mexico, and the United States.
It eliminated all the tariffs, established standards, supplemental agreements, expanded telecommunication trade and reduced tariffs for motor vehicles and the spare parts.
Pros of NAFTA
- Reduced and eliminated tariffs
This enabled the member countries to trade freely among themselves hence making the trade move on smoothly among the member countries.
- Low prices of commodities
As the tariffs were reduced and eliminated on the goods, it made it possible for the countries to reduce the prices of the commodities as they were not required to pay any duty on the imported goods.
- Government involvement in the business
The governments of the three countries were involved in the business whereby they assisted the manufacturers and the suppliers by supplementing their expenses hence reducing the prices of the commodities. This also reduced the amount that the government was spending on the investment in the business.
- Foreign direct investment
The nations were able to invest in other nation and this increased their investments which made its economy improve hence becoming a developed nation.
- Employment opportunities
There were a lot of employment opportunities that were created and this enabled people in the nations to improve their living standards.
- Increased economic output
There was high economic output in that there was continuous production of goods and services hence improving the economy of the nations. This led to the growth of the economy of the nations.
- Availability of market
The nations had a ready market hence they were able to make high sales which improved the amount of money they got from trading.
- Growth of small industries
The nations supported each other in the growth of small industries and this made the nations to be industrially developed as it had a lot of industries through the reduction of tariffs.
- The market for the raw materials
As many industries came into existence, this made it possible for the raw materials that are produced in the countries to be completely utilized.
Cons of NAFTA
- Degradation of the Mexican environment
In Mexico, the agribusiness department used more fertilizers in the farms and this resulted in the pollution of water bodies. There was also clearing of forests to use the timber hence contributing to global warming.
- Mexican trucks allowed in the USA
The trucks were allowed in the USA and hence they are not of the required standards in the USA but due to free trade, they were freely allowed to enter the country.
- Working in substandard conditions
This made the Mexican workers who worked in the farms to work in the substandard conditions which made them contract diseases hence affecting their health.
- It affected Mexican farmers
As the prices of commodities were reduced this made the Mexican farmers suffer as they sold their farm produce at low prices to the USA hence not benefiting from the agreement.
- Suppressed wages
As Mexico produced nearly all the raw materials needed in the industries, the companies threatened to move the companies to Mexico hence suppressing the wages of the workers that agreed to work in the USA.
- Loss of jobs
Many people lost jobs as the companies shifted to Mexico so that they may be near the source of raw materials hence most people in the USA and Canada lost their jobs.
- Exploitation of workers
Some workers were exploited in that they did a lot of work but they were paid very little wages hence they did not benefit from the agreement.
The trade agreement was beneficial to the nations but the USA benefited a lot as it utilized Mexico farm produce and the workers in Mexico hence making Mexico not to benefit from the agreement.