"Is NAFTA Economic Integration?"


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Provides an overview Gruben and Welche's research on NAFTA.

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"Is NAFTA Economic Integration?"

  1. 1. Is NAFTA Economic Integration?
  2. 2. Gruben and Welch’s Argument <ul><li>NAFTA is not really integration but is more of a “Hegelian dialectic” where innovations in trade liberalization are countered by innovations in protectionism and are succeeded by some synthesis that is temporarily acceptable to each of the two competing sides until more innovations in liberalization and protectionism occur as the cycle continuously repeats. </li></ul>
  3. 3. Proposed example of Hegelian dialectic <ul><li>U.S forms regional trade block with Canada and Mexico to further liberalize trade (NAFTA) however certain provisions of the trade agreement such as the requirement for increased domestic content in automobiles and textiles result in protectionism. </li></ul>
  4. 4. Is the authors’ argument correct? <ul><li>History of U.S. trade postures shows that the U.S was the worlds #1 proponent of a multilateral approach to trade liberalization from WWII to 1970 </li></ul><ul><li>U.S. became frustrated with GATT due to the caravan effect, the free-rider problem and rise of trade related issues not covered by GATT (FDI, Intellectual property rights) </li></ul><ul><li>U.S. frustration with GATT and LDC practices led to a policy of “aggressive reciprocity” to promote open trade (and protectionism) </li></ul><ul><li>GATT reduced tariffs so LDC nations wanting to keep home markets closed developed new forms of protectionism to replace them… </li></ul><ul><li>The desire for trade liberalization among the U.S. eventually led to the consideration of NAFTA </li></ul>
  5. 5. NAFTA History and Goals <ul><li>First signed in 1992 </li></ul><ul><li>Implemented January 1, 1994 </li></ul><ul><li>Determined by pro and anti-protectionist efforts (parallel agreements*) </li></ul><ul><li>NAFTA aimed for: </li></ul><ul><li>Gradual transition to free trade (though not completely free trade) between the U.S., Canada and Mexico </li></ul><ul><li>Elimination of barriers to trade and investment over time </li></ul><ul><li>Harmonization of policies on trade in services and intellectual property rights, etc. </li></ul><ul><li>Source of photo: www.finanafi.org/eng/integ/chronologie.asp </li></ul>
  6. 6. NAFTA Realities -Liberalization Innovations- <ul><li>To reduce and eliminate all tariff and most non-tariff barriers between Canada, U.S. and Mexico over a period of 15 years </li></ul><ul><li>No signatories can increase their tariffs on imports from countries within or outside the free trade area </li></ul><ul><li>Ends requirements on domestic sales and restrictions </li></ul><ul><li>Tightens the protection of intellectual property </li></ul><ul><li>Loosens restrictions on expanding operations </li></ul><ul><li>Expands ability to purchase businesses in Mexico </li></ul><ul><li>Removes restrictions on profit remittances </li></ul><ul><li>Extends temporary work permits in Mexico for U.S/CAN workers </li></ul>
  7. 7. Positive aspects of NAFTA <ul><li>NAFTA undoubtedly liberalizes trade in North America </li></ul><ul><li>There is little trade diversion </li></ul><ul><li>Improves transportation, communication and regulation </li></ul><ul><li>Hope for wage equalization and improved migration </li></ul>
  8. 8. NAFTA Realities -Protectionist Innovations- <ul><li>Protects sensitive sectors; ag, minerals, banking textiles, apparel (most of this protection is temporary) </li></ul><ul><li>Contains some types of protection that are permanent and raise trade barriers above pre-NAFTA levels (no examples mentioned and no stats) </li></ul><ul><li>Imposes North American content rules (autos, textiles) </li></ul>
  9. 9. Negative aspects of NAFTA <ul><li>Possible job loss in some U.S. sectors (small) </li></ul><ul><li>More competition for certain sectors; sugar, fruits/veg, apparel, appliances </li></ul><ul><li>Some wage effects </li></ul><ul><li>Pollution </li></ul>
  10. 10. Authors’ Conclusions <ul><li>NAFTA liberalizes but does not free trade </li></ul><ul><li>NAFTA is better described by the Hegelian dialectic </li></ul><ul><li>NAFTA is not economic integration </li></ul>
  11. 11. Critique <ul><li>The authors do not provide a very specific/clear example of the Hegelian dialectic (slide 3) </li></ul><ul><li>Examples of protectionism under NAFTA are weak or lacking (few examples and no stats) </li></ul><ul><li>The authors admit that there is integration and liberalization in the North American region, but this somewhat weakens their argument </li></ul><ul><li>Perhaps the Hegilian dialectic better applies to U.S. trade policy but not that of Canada or Mexico </li></ul><ul><li>There is no evidence that NAFTA was created to keep non NAFTA nations out (international vs. regional integration/protection) </li></ul>
  12. 12. Considerations <ul><li>Would NAFTA have been ratified if more Latin American/Caribbean nations were involved? </li></ul><ul><li>Do regional trade blocks help or hinder free trade? </li></ul><ul><li>Are regional trade blocks more beneficial when they include both developed and developing nations? </li></ul><ul><li>How will the emergence of more trade blocks effect international free trade? </li></ul>
  13. 13. Just for fun….