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Nafta

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  • 1. s<br />Submitted to:- Submitted by:<br />Prof. Uddeepan Chatterjee Mohit Malviya<br />Anup Vijayan <br />Abhishek Pratap Singh<br />
    • HISTORY OF REGIONAL BLOC
    • 2. NAFTA - North American Free Trade Agreement, NAFTA Trade, NAFTA Import, NAFTA export
    • 3. The NAFTA was framed on January, 1994. The three countries, namely, Mexico, Canada and the United States of America entered into the NAFTA or the North American Free Trade Agreement to form the biggest free trade zone in the world. NAFTA or North American Free Trade Agreement has propelled growth in the economy of the three member nations since the year 1994. NAFTA has also led to the increase in the standards of living of the people of its member nations.
    • 4. Implementing NAFTA has ensured removal of several obstacles with regard to investment and trade in the Canada, Mexico and United States of America.
    • 5. Effects of implementing the NAFTA:
    • 6. Agriculture sector:
    • 7. •Non tariff obstacles pertaining to trade in agriculture between Mexico and United States of America were dissolved. In addition to this, there were other tariffs, which faced removal soon after its implementation.
    • 8. •It has also been anticipated that majority of the agricultural provisions are likely to be brought into force by the year 2008.
    • 9. •Agricultural provisions of United States-Canada Free Trade Agreement, which was in force since the year 1989, was included in NAFTA.
    • 10. Effect of NAFTA on investment:
    • 11. Implementation of NAFTA influenced investments in a positive manner. The data given below shows the investment trend with regard to Canada. The other two member partners also registered a healthy growth in investment.
    • 12. Since the year 1994, stock of FDI or foreign direct investment in Canada has been approximately, USD279 billion (yearly). In the year 2005, the overall foreign direct investment in Canada was USD415 billion. Foreign direct investment by United States of America in Canada escalated to approximately, USD266 billion in the year 2005. Conversely, direct investment by Canada in other NAFTA member nations also showed an increase and attained the USD$213.7 billion mark in USA and USD3.14 billion in its other member nation- Mexico
    • 13. OBJECTIVES OF FORMATION
    • 14. Significance of NAFTA
    • 15. As the world's largest trilateral trade relationship, NAFTA is of profound economic and social consequence. It is a trading bloc of a size, wealth, and potential heretofore unknown in the world. The NAFTA countries are a massive combined market of 370 million people, with an estimated Gross Domestic Product of U.S.$6.2 trillion, compared to the European Community's 325 million people and estimated Gross Domestic Product of U.S.$4 trillion. 6 The agreement elevates Mexico from a developing economy toward the level of a first-world economy and has implications for exports and job creation in the U.S.
    • 16. The increase in exports and the number of jobs to be created by NAFTA was variously estimated. John Negroponte, a career foreign service officer, arguing that a first-world economy in Mexico was important for the U.S. wrote, "... nothing could be more desirable. A first-world market in Mexico signifies an exponential increase in U.S. exports and job creation. For every additional billion dollars the U.S. exports, 25,000 jobs are created." 7Dornbusch reported, "Trade with Mexico in the past five years created almost 150,000 jobs that would not be there otherwise. An FTA (with Mexico) will bring more of the same." 8 This view was confirmed in a prediction by the Institute for International Economics that NAFTA would bring a net gain of between 130,000 to 150,000 jobs over a five year period following its passage. 9Fortune magazine estimated NAFTA would bring the U.S. a net gain of "325,000 well-paying jobs by 1999." 10
    • 17. Beyond its economic significance, NAFTA has great social consequence. It demonstrates that the northern and southern hemispheres can "coexist in prosperity on the planet." 11 This is particularly important for such cooperation will ensure that the gap between rich and poor nations in the Americas does not widen.
    • 18. Provisions of NAFTA
    • 19. NAFTA combines the U.S. with its largest (Canada) and third largest (Mexico) trading partners. Trade between the three countries was well established prior to NAFTA and was embellished by the U.S./Canada Free Trade Agreement and an openness in Mexico that produced a near doubling of U.S./Mexican trade since 1988 "to $76 billion a year, with booming US exports accounting for much of the increase." 12
    • 20. NAFTA's provisions liberalize trade in the following ways: 13
    • 21. Tariffs are either eliminated or phased out over periods of up to fifteen years. As much as 50% of U.S. exports to Mexico and 70% of Mexican exports to the U.S. became tariff/quota free on NAFTA's passage.
    • 22. Limits on investments are removed. Investors from any of the three countries are treated equally, currency is freely transferred at market rates, and performance requirements such as maintaining export levels and trade balancing are eliminated. Additionally, over the next seven to fifteen years, financial services institutions will be permitted to establish foreign-owned institutions and to invest in Mexican banks, insurance, and brokerage firms. Mexico will, however, continue to restrict certain land ownership by foreign nationals.
    • 23. Trade in services is liberalized and equal treatment is expected for service providers and professionals in each country. The countries are to facilitate the licensing of professionals and, by 1996, to eliminate citizenship and permanent residency requirements for professionals.
    • 24. Transportation regulations are liberalized. By the end of the decade, truck and bus operators will have almost unlimited access to the NAFTA countries.
    • 25. Protection of intellectual properties is strengthened. This includes protection of literary works, recordings, computer programs, and product and process patents.
    • 26. NAFTA also provides various provisions to enhance the flow of trade among the three countries. Included is a trilateral trade commission to resolve disputes, provisions to review and prevent dumping of products across national markets, and procedures to allow a country to reinstate pre-NAFTA duties for a period up to three years, on a one-time only basis, if domestic industries are injured as a result of an import surge from another NAFTA country. While these safeguarding provisions are important, there may be little need to enact protection because much of the trade among the three countries is already tariff/quota free due to the U.S./Canada Free Trade Agreement and the trade reform and liberalization policies of former Mexican President Salinas. 14
    • 27. NAFTA: The Problems
    • 28. It has been said that, "for a nation to prosper in the 21st century, it must be an active participant in the global economy and an open market for the world's goods. But with the lowering of trade restrictions comes economic hardship for some working Americans." 15
    • 29. Economic hardship and concomitant anxiety because NAFTA engenders a feeling among some people that "the U.S. is losing control over its economic destiny. NAFTA joined a big Third World country to the U.S. at a time when many Americans were losing their jobs and factories heading south of the border already. At the same time, companies that have been forced by U.S. environmental rules to spend millions on cleanup worry about competing with Mexico, with its hit or miss environmental regulations." 16 All of these uncertainties, coupled with defence downsizing and economic restructuring accompanying the end of the cold war, exacerbates such potential economic hardships as worker displacement, the loss of jobs, the elimination of entire industries, as well as the environmental differences between the countries.
    • 30. Problems Affecting Employment
    • 31. At the root of NAFTA's potential negative impact on U.S. employment is the disparate wage rates between the U.S. and Mexico. Wages in Mexico are as low as U.S. 57 cents per hour for unskilled labor and an average of U.S. $3.80 per hour for skilled labor. 17 Given these relatively low wages compared to U.S. standards, there is concern that jobs may flood to Mexico as the result of NAFTA and cause the following problems:
    • 32. Worker Displacement - Displacement occurs when a worker must acquire different, enhanced, or new skills in order to maintain a present job, or must secure a different job in his or her company. This may require retraining, sometimes at the worker's expense, extended periods of time between jobs, and possibly entering the new job at a level lower than the worker occupied at the previous job.
    • 33. Loss of Job - Job loss occurs when the employer is unable to compete in the international marketplace or enhances plant and equipment to compete more effectively, thereby necessitating fewer employees for the same productive operations. In short, the employee is discharged from the enterprise. This scenario may occur in those firms and industries that are labor intensive rather than capital intensive. Labor intensive enterprises may experience increasing difficulty competing against the relatively lower Mexican wage rates. Given this generalization, it is reasonable to conclude that firms in such labor-intensive industries as furniture, glass products, shoes, and textiles may experience loss of jobs to Mexico, while such capital intensive industries as chemicals, plastics, metals, pharmaceuticals, and telecommunications may be expected to fare well in the NAFTA era.
    • 34. Loss of Industry - Industry loss occurs when firms are unable to compete with foreign competitors because of the lower cost structures of those competitors. In such situations, management may decide to close a firm or to relocate it from its home country to a foreign country and consider the investment in plant and equipment in the home country a sunk cost to be abandoned. That decision is made easier when the wage rates are lower in the foreign country; when health care cost and pensions are lower; the cost of capital is low; the foreign government provides a welcoming environment that may include favourable tax treatment or government arranged financing; the labor force in the foreign country is attractive, eager to work, well educated, or amenable to training; the foreign country offers a pleasant climate and an improving infrastructure; the foreign country's political and economic structures are stable; and the foreign country offers access, as in the case of Mexico, to a large and unsaturated market, and from Mexico, a gateway to the rest of Latin America. All of these things encourage the loss of industry and are the very real concerns for workers and unions in the United States.
    • 35. Overlaid on the factors affecting employment are the effects of firm size and firm location. The smaller and the less advanced technologically a business, the less is its ability to compete in the NAFTA world. Likewise, geographic location may affect an enterprise's ability to compete under NAFTA. 19 An assessment by the International Trade Commission found that the states in the U.S. southwest would benefit the most from NAFTA, while the midwest, the south, and parts of the west might experience economic disruption in the short run. This conclusion is supported by a Economic Policy Institute study predicting significant job losses in the midwest. The state of Ohio, for example, is predicted to lose 406,667 jobs, 9.3% of jobs in the state, due to NAFTA. 21
    • 36. Problems Concerning the Environment
    • 37. During the NAFTA debate, the U.S./Mexican border was called a "two-thousand mile Love Canal" because of the horrendous environmental conditions in the maquiladoras industrial zone along the border. 22There, open burning, open sewers, industrial runoff, and toxic dumping are the rule rather than the exception. Concomitant with these environmental abuses is the reported use of outdated technologies by the Mexican electric power industry in order to contain cost. 23
    • 38. The lax environmental conditions along the U.S./Mexican border, coupled with lax environmental standards throughout Mexico, stimulated U.S. environmental groups to seek legal redress against NAFTA. 24 The result was a court order in June 1993 requiring the U.S. government to file an environmental impact statement on the potential effects of NAFTA. 25 The order was appealed by the Clinton administration on grounds of the environmental groups' legal standing to file the suite and on grounds that the ruling was an unconstitutional interference with the authority of the President. In reply, a U.S. Circuit Court of Appeals ruled that the NAFTA agreement was a Presidential action not reviewable by the courts, thereby voiding the order for an environmental impact statement and enabling the eventual passage of NAFTA. 26
    • 39. NAFTA - The Promise
    • 40. There is much that has been and is yet to be written about the promise of NAFTA. Hyperbolic may be a word to describe the arguments for and against NAFTA prior to its passage. Arguments that were reminiscent of the debate surrounding the formation of the European Community. That debate is as yet ongoing in Europe. Arguably, even with the passage of NAFTA, the debate is still ongoing in the United States, especially given the recent economic and political problems in Mexico.
    • 41. Increase in Jobs/Growth of Industries
    • 42. The strongest, if not the most histrionic, hyperbole in the NAFTA debate was the issue of the potential loss of jobs and industries due to NAFTA. Some jobs have been lost and will undoubtedly be lost because of NAFTA in both the U.S. and Mexico, particularly in labor-intensive industries. But, on balance, NAFTA is expected to produce a net gain in jobs.
    • 43. One of the better analyses of the impact of NAFTA on U.S. industry is a study by Fortune magazine. That study presents a forecast for twelve U.S. industries following the passage of NAFTA and predicts an increase in exports by all twelve industries. 28 An increase in exports may be expected to bring an increase in jobs because "trade is a positive-sum game in which all parties stand to gain, and there is no natural limit to the number of jobs that can be created by it." 29 This does not, however, imply that there will be no loss of jobs in some companies and in some industries as the result of NAFTA.
    • 44. Stability and Growth in Mexico
    • 45. Passage of NAFTA was important for Mexico. It facilitated the continuation of economic and political reforms in Mexico. It was "America's best assurance that its large neighbour to the south will continue to develop into a stable and prosperous nation."
    • 46. But, what would have happened to Mexico if NAFTA had not been adopted? Scenarios included a potential collapse of the Mexican economy, a reversal of economic and structural reforms, a run on the Mexican currency, a drying up of foreign investment in Mexico, and a nationalist backlash by the people of Mexico. Castaneda discounts the seriousness of these scenarios and suggests that the only downside to a defeat of NAFTA would have been damage to the prestige of former Mexican President Salinas. 31 Interestingly, while NAFTA was passed, it has not prevented the recent damage to Salinas' prestige. Now, the new Mexican President, Ernesto Zedillo Ponce de Leon, needs a successful NAFTA to persuade voters that the pain of Salinas' economic reform program will have a payoff. 32
    • 47. Protect and Stimulate U.S. Investment
    • 48. Passage of NAFTA was important for the United States because U.S. firms had significant investments in Mexico. In August 1993, U.S. firms invested $615 million in Mexico; 72% of all foreign investment that month. In total, foreign investment in Mexico from 1989 through August 1993 was $33.09 billion, of which an estimated $24 billion was by U.S. firms. 33 The passage of NAFTA protected this investment, is expected to stimulate additional U.S. investment in Mexico, to provide additional markets for U.S. products, to increase jobs, and to enhance the standards of living in both the U.S. and Mexico.
    • 49. Success with NAFTA will stimulate further investment in Mexico and provide a doorway to the rest of Latin America. That doorway may open toward an even larger trade agreement in the Americas, foreshadowing the mega-trading blocs that are likely to emerge throughout the world in the 21st century. 34 Theorists refer to a "triad concept" of the Americas, the Asia Pacific region, and Europe forming trading groups of the future. 35
    • 50. MEMBERS OF REGIONAL BLOC
    • 51. The North American Free Trade Agreement or NAFTA is an agreement signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America
    • 52. TRADE WITHIN THE GROUP
    • 53. 1. The motivation to establish regional trading blocs: competing with the outside world looking through the world since the 1960s, we can see that an important motivation of the formation and development of regional trading blocs is to compete with the outside world.
    • 54. After the World War II, the Western European countries had once been very dependent on the United States (the U.S.), which charged something else from them. Therefore, since their economy recovery after the 1960s, they began to search for economic and political independence. Another important fact that stimulated the process of their cooperation is Japan’s fast economic development. In order to compete with the U.S. and Japan and some other developed countries, the Western European countries started to search for ways of cooperation in many fields in the early 1960s.
    • 55. Since the 1980s, there have been plenty of changes of the strengths of the main economically strong countries. These changes, especially Japan’s fast development, made some other developed countries search for the protection of regional trading blocs, which could preserve their economic interest and prevent the loss of their competitive edge. At the same time, more and more developing countries also had to do the same thing out of their dissatisfaction with the unfair and unbalanced economic situation.
    • 56. On 12 April 1989, “The Delors Committee presented the report on the economic and monetary union.” (The History of the European Union 2008) On 2 October 1997, “The Ministers for Foreign Affairs of the Member States of the European Union signed the Treaty of Amsterdam” (The History of the European Union 2008), which cleared away the last obstacle to the euro and provided it with a legal guarantee.
    • 57. The fast development of the European Union (EU) and Japan reminded the U.S. of its relative falling position in the world economy. According to Mason and Turay, “business and political leaders saw that the USA was becoming less and less competitive with Japan and the EC…. in the 1970s and 1980s US manufacturers lost their strong market positions in several key sectors, including consumer electronics, commercial aircraft, apparel, machine tools, semi-conductors and automobiles.” (Mason and Turay, 1994, p. 17) Finding that its role in the multilateral talks in the General Agreement on Tariffs and Trade ( the GATT) less important than before, the U.S. began to think about Canada and Mexico, two of its closest countries. At the same time, Canada and Mexico also hoped that their products could enter the American market and that they could attract more of the American investment. “Both Canada and Mexico have had difficult economic and political relations with the USA, but each wants NAFTA more than the USA itself.” (Mason and Turay, 1994, p.18) Therefore, in 1992, the three countries formed the North American Free Trade Agreement (the NAFTA). This was the first time a regional trading bloc made up of countries with a considerable disparity between them came into being.
    • 58. On 8 August, 1967, Thailand, Indonesia, Malaysia, Singapore and the Philippines formed an organization called the Association of Southeast Asian Nations (the ASEAN). Later, other states Brunei, Vietnam, Laos, Myanmar and Cambodia joined. Being faced with the keen competition among the U.S., Japan, China and some other big countries, these relative small countries found that the only way to ensure their security and competitiveness is to unite and cooperate.
    • 59. 2. Regional trading blocs’ effect on globalization
    • 60. 2.1 Regionalization is changing the pattern of world economy In recent years, regionalization has been more and more popular and common in the world. For America, the NAFTA has achieved a positive result. For Europe, “one in eight numbers of the United Nations (UN) is the member of the EU. Europe is an equal partner to the United States in trade negotiations.” (the Foreign & Commonwealth Office, 2005, p.15) And the launching of euro has an epoch-making significance to the world economy. For Asia-Pacific region, the Asia-Pacific Economic cooperation has become one of the most influential forums. In Southeast Asia, the ASEAN member countries have obviously strengthened their cooperation in economic fields. The formation of the NAFTA, the EU, the Asia-Pacific Economic Cooperation (the APEC), the ASEAN and other regional trading blocs have to some extent changed the pattern of world economy and trade. There is no doubt that the increase of the dependence of the member countries on the regional trade blocs and their negotiating abilities towards the outside world will bring keener competition to the world, which proves to be harmful to globalization.
    • 61. 2.2 Regionalization has created new trade barriers
    • 62. One of the purposes of the establishment of trading blocs is to arrange easier trade within the regions, and to increase the economic efficiency and the competitiveness of their productions. The free trade or relative free trade among the member states will surely increase their dependence on each other, which will promote regionalization. For example, since the establishment of the NAFTA, the trade among the U.S., Canada and Mexico has been more than doubled, and the economic cooperation in this region will be increased in the future. While the World Trade Organization (the WTO) is trying to eliminate trade barriers throughout the world, trading blocs are maintaining and even increasing them under the name of regional cooperation. While trading blocs are giving their member states more interest, they are building trade barriers to the outside world and preventing other countries’ and regions’ productions from importing. When they have satisfied their member states, they have also damaged the foundation of global cooperation and increased the difficulties of negotiations between countries, thus blocking the real “globalization”.
    • 63. Certainly, there are other effects of trading blocs on globalization except the above two, such as causing international political confrontation, speeding the readjustment of each country’s industrial setup, promoting direct investment and arranging keener competitiveness in international trade. Regional trading blocs do have a wide and far-reaching influence.
    • 64. 3. The definitions of “trading blocs” and “globalization”
    • 65. According to what is stated above, it seems that regional trading blocs are bound to be a barrier to globalization. However, there are other things which have not been viewed. What was talked above was all temporary fact. Now it is necessary to look at some intrinsic and basic things. First of all, the relationship between trading blocs and globalization will be looked into from their definitions. “A trade bloc is alarge free trade zone or near-free trade zone formed by one or more tax, tariff and trade agreements.” (Trade bloc, 2008)“Globalization describes the changes in societies and the world economy that result from dramatically increased international trade and cultural exchange. It describes the increase of trade and investing due to the falling of barriers and the interdependence of countries. In specifically economic contexts, the term refers almost exclusively to the effects of trade, particularly trade liberalization or "free trade".” (Globalization, 2008) From their definitions, there seems no difference in their natures. Both of them pursue “free trade” between countries while the main difference lies in their scopes. To be more precise, the former one is regional and the latter is global. Virtually, as what is discussed above, “free trade” is much more practiced in regional trading blocs than on the global level. e.g. The EU as the most famous regional trading bloc has not only formed a market in which essential factors of production can be traded freely, but also launched a common currency called euro, which is of great significance to regionalization. But the WTO has only reduced tariffs and restricted some non tariff barriers. Obviously, the global free trade is not as developed as the regional free trade. However, it cannot be deduced that trading blocs are a barrier to globalization from the above facts. Because the trading blocs which first appeared as early as fifty years ago did not stop or even slow the process of globalization. The multilateral talks of the WTO and its predecessor, the GATT, constantly reached many agreements. Though there were difficulties and contradictions in these talks, the results proved to be good. The GATT has become the WTO and the world free trade has been achieved better than ever in many fields. Since the 1990s, the world market which based upon market mechanism has been formed as well as a global financial market.
    • 66. 4. The interest of countries
    • 67. Generally, when the relationship between trading blocs and globalization is discussed, countries are the very basic members and factors of international trade organizations and are of great importance. No matter what a country does, should it be joining regional trading blocs or multilateral talks, its ultimate purpose is to get as much economic interest as possible from it. This purpose is beyond all others, e.g. the so-called regional economic interest and global economic interest.
    • 68. A country joins a regional trading bloc not because of the abstract supranational “regional interest”, but because it wants to reach its economic, political and other purposes with the power of the bloc. It cannot be denied that in order to compete with the EU and Japan, the U.S. formed the NAFTA with Canada and Mexico. Under the pressure brought by the EU and the NAFTA, Japan also strongly promotes the economic cooperation among the East Asian countries. Another good example is the ASEAN, which consists of smaller countries, because each of them does not have sufficient strength to compete with big countries, they hope that they will have it by getting together. On the contrary, if the regional trading blocs cannot give what their member countries want, there would most probably be problems that will slow the process of regionalization. For instance, the reason why Germany and France compete for the regional economic leadership and the UK is out of the euro system, is that the above three countries’ interests conflict with the whole region’s interest.
    • 69. Many countries join regional trading blocs with the hope that the power of the blocs would help them to speak louder in multilateral talks. They want the blocs to be their “speakers”. To achieve this, all the member states in one trading bloc have to speak in “one voice”, which represents their common economic interest. And if one of the member countries’ interests are out of the whole, it will surely speak in a different voice. And what the country would do next is probably to seek other cooperation, such as bilateral and other multilateral talks, which could help them with their economic development. Again a good example of this is the formation of NATFA. Why does the U.S. need NAFTA? One of the important reasons is that it found “the GATT was unable to eliminate the competitive advantage that Japan’s industrial structure and distribution system and the EC’s agricultural and high-technology subsidies provided.” (Mason and Turay, 1994, p. 17) In other words, no matter what means a country uses, it is always oriented by its interest, especially the economic interest.
    • 70. 5. Conclusion
    • 71. By looking at the direct motivation to form a regional trading bloc, namely, competing with other regions and countries, one conclusion that can be framed is that trading blocs do hamper globalization to some extent. Also the fact that they have divided the world into trading areas and changed the pattern of the world economy proves this conclusion. However, we cannot say that trading blocs and globalization are completely contradictive as there is no contradiction or difference in their natures. Both of them pursue “free trade”. For a single nation, its purpose to join a regional trading bloc and the WTO is to get more interest from them. Both trading blocs and globalization require their membercountries to overstep their boundaries and transfer some of their economic sovereignties. The difference is that the former one is within a region while the latter one is on global level. Therefore, their contradiction lies in their scopes but not their natures. It is natural and reasonable that trading blocs and globalization coexist in the same period. In the future, regional trade will expand the global level, which means, trading blocs are a necessary stage of globalization.
    • 72. 5.    Trade with rest of the world
    Arguments<br />ProsCons<br />NAFTA is a giant free trade block which importantly includes the USA. NAFTA will ensure maximum trade advantages for a sizeable part of the economy of the world. Productivity will be high as growth and jobs are created in the region. Mexico as the least developed member of NAFTA has particularly benefited, but its increasingly prosperous consumers have become in turn a much larger market for US and Canadian companies.The key feature of NAFTA is asymmetric power. Wage disparity between the US and Mexico is 8:1 as opposed to 4:1 within the European Union. The US does only 7% of its trade with Mexico and 20% with Canada, whilst they do over 75% of their trade with the USA. Asymmetry is further shown by the USA’s ability to exploit non-tariff barriers as a continuing protection for domestic industries. NAFTA is not therefore a meaningful trade bloc.All three countries benefit from the arrangement. The US ensures access to its largest single market (Canada) and this also allows them to lock in the Mexican economic reforms. It has also secured a better political relationship with Mexico and more progress in dealing with cross-border issues such as drug trafficking and illegal immigration. Canada and Mexico can stop the US going protectionist and ensure access to the world’s largest economy.There is massive opposition to NAFTA in all three countries, which shows the potential danger. The US is worried about being swamped with Mexican goods through comparative advantage. The Trade Unions are against it and there are serious environmental concerns. Canadians fear they will lose cultural diversity. Canada’s influence in NAFTA has not stopped the US using protectionism over their largest single export, softwood lumber. Mexico may get swamped by US goods. Multinational companies may relocate and crush Mexican industry. There is the possibility of exploitation of land and labour which are cheaper in MexicoIf the US sneezes, then the rest of the world catches a cold. Similarly, if the US economy is buoyant, then the rest of the world benefits. Free Trade is the means whereby the US has secured a strong boom throughout the 1990s and NAFTA has helped to secure that. Consumers have gained from cheaper goods, and companies have benefited from being forced to exploit comparative advantage.The USA does not depend on trade from within NAFTA to survive. Only 27% of its visible exports and even fewer invisible exports come from the NAFTA area. Moreover, its buoyancy is determined by trade that can be established without any formal agreement, due to the sheer size of the US economy. NAFTA has therefore made little difference overall.NAFTA acts as an economic security arrangement and a strategic message to Europe and Asia. This message is that if they want to stay serious players in the world economy, then they need to liberalise their regional markets to compete.The emergence of rival economic blocs is, if anything, likely to encourage protectionism and rivalry. This can be seen by examples such as the Banana wars and disputes over hormone-treated beef. NAFTA won’t liberalise the US market that still uses protectionism in cases such as the steel industry? Why should Europe and Asia liberalise?NAFTA’s success shows the US public, politicians and trade unions the advantages of freer trade. This will encourage them to pursue this further by committing themselves to wider liberalisation, such as the Doha round of the WTO and the creation of a Free Trade Area of the Americas.NAFTA’s economic benefits are still being debated, so no clear lessons can be drawn yet for wider application. The political battles fought to negotiate and pass the agreement were so bruising in all three countries that its politicians have come to fear any future battles over trade liberalisation, making this less likely. The more the world divides up into rival economic blocs (EU, NAFTA, Mercosur, ASEAN, etc.), the harder it will be to cut global deals which benefit everyone, but particularly the developing world.The success of such a bloc, combining the effectiveness of free trade with the maintenance of national sovereignty and diversity shows that the European model can work elsewhere, and is worthy of adoption in other regions.NAFTA is fundamentally nothing like the European Union. It is a large confederation of states with no central structure. NAFTA is purely a free market. It has no commitment to closer union and no political ties.<br />Statistics of trade blocs<br />Comparison between regional trade blocs<br />