Introduction – NAFTA

In today competitive business environment, economic integration is a widely adopted approach to form closer businesses collaboration between several parties for mutual benefits. The main objective of such economic integration is to form both political and economic agreements among the different parties or countries that provide preferences or privilege benefits to the member participating in the agreement. Generally speaking, there are three approaches in which economic integration can be planned or formed, namely: (a) global integration, bilateral integration between two countries, and regional integration by a group of countries in a particular region (Daniels et. al., 2008).

NAFTA is a form of regional economic integration initiatives formed by three main countries in the North America, namely: Canada, the United States as well as Mexico. NAFTA is the abbreviation used to refer to the North American Trade Agreement. Since its inception on 1 January 1994, it has become one of the very successful economic integration examples around the world (Cherie, 1996). It is formed to promote free trade among the members’ countries, in which the free trade nature includes the trading of goods, services and investment (i.e., financial capital). In fact, the formation of NAFTA is not surprising, as before NAFTA is formed, the bilateral trade between United States as well as the Canada is the biggest in the world at that particular time. Not only is that, from both Mexico and Canada perspectives, the United States their biggest trading partners. Thus, it is reasonable and indeed rationale to form a stronger economic integration between the three countries for mutual benefits (Cherie, 1996).

In this writing, the success and the mutual benefits gained by the member countries of NAFTA is discussed. The topic on how NAFTA contributes to the regional economic integration is also being discussed. Nonetheless, this article also takes on a critical view on the often argued side effects caused by NAFTA to some of the unfortunate parties in the regions. The impacts of NAFTA will be discussed as well. Lastly, a short conclusion to summarize the contribution of NAFTA and how businesses or corporations can achieve better performance under such a free trade agreement is also provided.

The Success of NAFTA

The degree of success on NAFTA is a complicated subject, as for any trade agreement; there are pros and cons associated with it. It can be hard to measure the degree of success for NAFTA and depending on the perspective in which the NAFTA is evaluated, researchers may yield different conclusion on how successful NAFTA is.

However, it is generally agreed that NAFTA is successful in promoting trade among the member countries. This is not hard to understand, as the objective of any free trade is to increase the trading activities between the members. It is widely believed that when the free trade is possible, the movement of goods, services, and financial capital is allowed to move towards the most efficient direction and ultimately results in a better business environment and cheaper prices for the consumers. From this perspective, NAFTA is successful because it is obvious that both trading activities and cross-borders investment between the three countries had increased tremendously. Statistics are available to prove these. First of all, it is researched and cited that the United States and Canada is the largest bilateral flow of goods in the year 2006. Excluding the European Union, Canada is the largest export market for the products and services from United States while Mexico is the number two largest export market for United States. Statistically speaking, Canada is exporting roughly 86% of its merchandize to the United States, while Mexico exported roughly 89% of its merchandize to the United State (Gruben & Welch, 1994; Feils & Rahman, 2008).

From another perception, the degree of success of NAFTA can also be evaluated from economic benefits it brings to the member countries. NAFTA can be considered as highly successful if perhaps the business environment between the regions is becoming more efficient and create new jobs as well as increasing the living standard between the population staying in the member countries. From such a perspective, the degree of success of NAFTA is hard to be determined. Perhaps it is best to mention that NAFTA is scoring mixed results from such a perspective. From the positive perspective, it is obvious that the standards of living among population in Mexico had increased tremendously. Besides, the consumers in Canada and the United State are also enjoying cheaper agricultural products (Gruben & Welch, 1994; Feils & Rahman, 2008). Not only that, various businesses in the United States are also able to tap into a bigger market shares with lesser costs as the tariff in Mexico and Canada is eliminated or reduced significantly. The businesses in Mexico are also thriving as they can now export more goods to the United States and Canada. On the other side, there are negative side effects of NAFTA as well. Firstly, many of the agricultural firms and other businesses in United States and Canada suffer badly if the pricing is not competitive enough to compete with cheaper product or services pricing from Mexico businesses. Besides, many people in United States as well as Canada are losing job or employment opportunities when the many corporations are moving to Mexico to tap into a cheaper labor costs. Not only that, it is also argued by some researchers that NAFTA had not effectively moving job or business opportunity from United States or Canada to Mexico, as the labor costs in Asia, such as in countries like China and India is much cheaper compared to the labor cost in Mexico. It is argued that firms are still moving to China and India to tap into the cheaper labor costs instead of investing in Mexico (Ros, 1995; Daniels et. al., 2008).

Not only that, there are also people arguing that NAFTA has only been benefiting the corporate owner as well as the rich people in all of the three countries, but has exerted negative impacts towards the poor people. For example, there are some portion of farmers from Mexico suffer badly when the food prices is falling due to imports of agribusiness related products and services from the United States. Similarly, the lower level workers in United States also suffer as their jobs are moved to Mexico. Many workers in the manufacturing and assembly line have not choices but to lost their job when business owners decided to move the entire manufacturing plant to Mexico. All of these are contributing to the ever huge gap in terms of standard of living between the wealthy and poor people; causing inequality between the rich and poor to become more significant over the years (Cherie, 1996).

Last but not least, the question if NAFTA is successful or not is also dependent on from which countries perspective to evaluate the impacts due to the free trade agreement. From the Mexico perspective, NAFTA is indeed a successful agreement favoring the development of the country. However, whether NAFTA can be considered successful or welcome by United States and Canada is having more mixed results (although generally, researcher seemingly pointing out that NAFTA is benefiting both the countries in the long term). Thus, is should be empathized that it is complicated to judge if NAFTA is successful or not. Nonetheless, there are more evidences pointing towards the fact that NAFTA is indeed a reasonably successful free trade agreement benefiting the member countries (despite there are some disputes and challenges throughout the economic integration process). As such, it is safe to conclude that NAFTA is satisfactory successful in achieving its goals – which is to enhance free trade and to deliver various economic benefits to the member countries (Gruben & Welch, 1994).

NAFTA and its Contributions towards Regional Integration in Americas

Although it may be hard to determined if NAFTA is indeed highly successful in delivering economic benefits to the people from Canada, United States as well as Mexico, it cannot be denied that NAFTA indeed has successfully enhance economic integration between the regions in a massive manner. Through NAFTA, both static and dynamic economic integration between the member countries are achieved. To explain, it is noted by researchers that a regional economic integration can affect the member countries in various dimensions, such as from the following dimensions: social, cultural, political and economic. By having a free trade agreement, the various tariffs and related trade protection measures are eliminated, allowing free flow of goods and resources allocation. As the barriers to free trade of goods and services as well as financial capital are lifted, two major effects can happen: static effects and dynamic effects. Static effects refer to the shifting of resources from inefficient corporations to efficient corporation when trade barriers fall. In contrast, dynamic effects refer to the overall growth of the market size, economy and the impacts to the various corporations due to increase productivity and economies of scale (Gruben & Welch, 1994).

Under NAFTA, due to the tariff reduction, all the member countries had reduced the tariff level significantly. Due to the tariff reduction, the trade between the countries increased significantly, giving better integration between the member countries. For example, it is cited that consumers from both Canadian and the United States are benefited due to the lower priced agricultural products from Mexico, due to the constant economic liberalization process and increasing free trade between the countries (Griffin & Pustay, 2007). As the tariff is decreased or eliminated, the cheaper priced agricultural products from Mexico can be exported to the other countries such as Canada and the United States. The border or tariff restriction is effectively lifted, and the businesses apparently can export and import goods and services from each countries under NAFTA as if they are doing it under a same country – giving rise to the greater economic integration between the three countries. Besides, the workers from Mexico are also benefited significantly, as the agricultural businesses in Mexico are growing due to the higher demand from the consumers in the United States as well as the Canada (Daniels et. al., 2008). The demand ultimately ensures the profitability of the agricultural businesses in Mexico and ultimately put upward pressure to the workers’ salary involved in the agricultural industry. Not only that, the businesses from the United States and Canada may be benefited as well. As now the tariff is reduced, the businesses from United States as well as Canada now have access to a larger pool of consumers, or simply a bigger market share. Previously, the firms in both of these countries must face significant barriers in trading with the firms from Mexico (Griffin & Pustay, 2007).

Besides, the increased economic integration between the countries due to the increased economic activities between the member countries, economic integration is also happening and caused by the trade diversion phenomenon. To clearly illustrate this, it is important for us to review the changes between flows of capital and investment between the member countries after NAFTA is started (Griffin & Pustay, 2007). Before NAFTA is started; many of the multinational companies in Canada as well as Mexico are establishing manufacturing and production factories in Asia to take advantage of the cheaper labor cost in the region. With the inception of NAFTA, the various companies from the United States as well as Canada have more choices, and soon starting to establish manufacturing facilities in Mexico in order to take advantage of the cheap labor in the country as well. One example of the multinational companies from the United States taking advantage on the cheaper costs of doing business in Mexico is IBM (Daniels et. al., 2008).

Overall, it is obvious that since the inception of NAFTA, the economic activities between the member countries have been increasing tremendously. There are many reasons to such a trend. Among the obvious reasons include: the elimination of tariff, the cheaper costs of doing business in Mexico and etc. The increased economic activities are contributing to the enhanced economic integration in the region, whereby the businesses, firms and consumers are becoming more interdependent and more frequent in interacting with each others. The trade of goods, services and movement of financial capital is also becoming more often, and all these are exerting big influences towards the economic landscape in the member countries.

Impacts of NAFTA

The formation of NAFTA had exerted a great deal of impacts to the people, business, and organizations in the member countries. Some of these impacts are good, and some are bad. In fact, the advantages or disadvantages of these impacts are debatable as depending on which perspectives the researchers are investigating. Nonetheless, in the following paragraphs, the various impacts of NAFTA to the United States, Mexico and Canada will be outlined.

Impacts of NAFTA to the United States

The associated economic impacts, be it positive or negative, from NAFTA have been huge towards United States. Overall, NAFTA has been able to increase the trading of goods, services and movement of financial capital from United States to Canada and Mexico. It is true that the productivity of multinational businesses in the United States had increased and that the return to shareholders are boosted as now the corporations able to tap into the cheaper labor rate in the other countries. Besides, it is also found that successful corporations in the United State are able to tap into a larger market shares with lesser barriers in Canada and Mexico (Daniels et. al., 2008).

However, that positive and encouraging observation is just part of the story. IAs discussed previously, NAFTA apparently had been benefiting the various corporations as well as the business owners more than the poor lower level workers. There are many workers losing their jobs as the manufacturing plants are moved towards Mexico (Feils & Rahman, 2008).

Impacts of NAFTA to Canada

Canada is arguably the county gaining most from the inception of NAFTA. This is true when it is observed that the GDP growth rate of Canada is growing at 3.6% per annum, when compared to the GDP growth rate of other countries: United States at 3.3% and Mexico at 2.7%. Not only that, as the economic in Canada is growing, many career opportunities are also created. Specifically, the Canadian employment levels have also exhibit strong improvement in the years 2000 to 2007, with the total amount of employment increasing from 14.9 million to 15.7 million (Daniels et. al., 2008).

From the other view points, the bilateral agricultural flows between the United States and Canada are also rising significantly. It is recorded that in the year 2008, Canada exports to the United States and Mexico was at CAN$381.3 Billion and imports from NAFTA was at CAN$245.1 Billion. The many business owners and government representatives from Canada seemingly are happy and satisfy with the huge economic benefits NAFTA bring for the country (Feils & Rahman, 2008).

Impacts of NAFTA to Mexico

Perhaps it can be safe to conclude that NAFTA has brought many advantages to Mexico. Statistically speaking, over the then years in which NAFTA is implemented, corporations from United State had invested an average of USD 12 billion per annum in the country (Feils & Rahman, 2008). Besides, it is also pointed out that Mexico per capital income had rose to approximately USD 6000 in 2003 – the highest if compared to other countries in Latin America (excluding Brazil). Perhaps such a fact is more revealing on how NAFTA had benefited Mexico significantly: in the year 2008, Mexico had become the ninth largest economy in the world, while the country is being ranked the number fifteen at the time when NAFTA is signed. Not only that, some had also cited that NAFTA had successfully decrease the poverty rate in Mexico, and the real incomes of the Mexico citizen had also rises according (as the food prices dropped due to more competitive business landscape after inception of NAFTA).

Apart from that, it is also reported that the inception of NAFTA had also changed the population mobility in Mexico to other countries (to the extent where many of the existing Mexico farmers are migrating to the developed countries for better salary and pay). Research estimated that about 1.3 million job in the farming disappear in Mexico due to the better job offers from the United State. Many of the farmers do not mind to become illegal immigrant to work in the developed countries (Daniels et. al., 2008).

Perhaps the most obvious impacts to Mexico are the rise of new industry in Mexico. The various industries booming in Mexico due to NAFTA include the manufacturing, automotive and the textile industry. For instances, due to NAFTA rules on apparel, the Mexican textile industry prosper at the initial stage as many jobs are brought back from Asia to Mexico, when more and more corporations related to textile from United States are setting up factory operation in Mexico. The investment from the United States had been successfully divested to Mexico (Feils & Rahman, 2008). However, such a situation turn when the joining of China to WTO causing the many corporations from United States to venture into China for better profitability. Not only that, it is also observed that more and more Mexican factories are set up to take imported raw materials to produce goods for exporting purposes. Such forms of businesses are called the maquiladoras in Mexico. There are statistics showing that income in the maquiladora sector has increased 15.5% since the implementation of NAFTA. This is creating many job and economic improvement for various cities in Mexican. For example, such a trend is giving rise to the rapid growth of non-border metropolitan areas, such as Toluca, León and Puebla in Mexico (Feils & Rahman, 2008).

Conclusion

In this writing, we have review the success of NAFTA and its contribution towards greater economic integration between the member countries, namely the United States, Canada and Mexico. It is found that it is hard to determine on the degree of success of NAFTA in achieving its intended goals. From different perspectives, researchers can yield different conclusion if NAFTA is successful or beneficial to the people in the member countries. However, on an overall view, it is reasonable to conclude that NAFTA is pretty successful in enhancing trading activities between the countries, increasing the businesses profitability for the already successful multinational companies from these countries and to generally enhance the standard of living for people staying in these countries. However, there are also some criticisms against NAFTA. We had also discussed the various impacts NAFTA bring towards each of its member countries. It is obvious that each country benefited in a different way due to NAFTA, and there are pro and cons to the policies brought forward by NAFTA. Nonetheless, in the long term, NAFTA can be considered as reasonable successful and beneficial in enhancing economic integration between the member countries.

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