Nafta Essays (3799 words) - International Trade, Trade Blocs

Nafta Introduction Summary In January 1994, the United States, Mexico, and Canada implemented the North American Free Trade Agreement (NAFTA). The goal of NAFTA is to create better trading conditions through tariff reduction, removal of investment barriers, and improvement of intellectual property protection. NAFTA continues to gradually reduce tariffs on set dates and aims to eliminate all tariffs by the year 2004. Before NAFTA was established, investing in Mexico was a difficult process. Investors needed the Mexican Government's approval and were also required to meet specific investment guidelines. These requirements necessitated investors to export a set level of goods and services, utilize domestic goods and services, and transfer technology to competitors. Under NAFTA, investors no longer need government approval to invest and are treated as domestic investors. NAFTA has also increased intellectual property rights and allowed companies to obtain patents in Mexico and Canada. In the past, companies were hesitant to export research and development intensive goods; with increased intellectual property protection, however, exports of these goods has shown a definite increase. As a result of better trading conditions, exports and imports of most other goods have increased along with the research and development intensive goods. In Mexico, the elimination of investment barriers has allowed investment to expand. Increased trading and investment has then created many jobs, raised the Gross Domestic Product, and lowered consumer prices. The macroeconomic principles defined in Economics 103 relate to NAFTA's impact on aggregate supply and demand, employment, investment, and their effects on national income. The free trade established by MERCOSUR also involves countries within South America. MERCOSUR, the Southern Common Market ( Mercado Common del Sur) was established in 1991 after a series of other free trade treaties failed to meet the standards of the countries involved. It is set up on the basis of free trade zones and eventually to lead to a common market. Before MERCOSUR there was ALALC, the Latin American Free Trade Association. It was formed in 1960 and set up free trade zones through the periodic negotiations between the members of the association. ALALC ended in the 1970's due to these negotiations because they were left to the discretion of the countries involved and unfair practices started to occur. After ALAC, came ALADI, the Latin American Integration Association. Founded in 1980, it established economic preference zones instead of free trade. This encouraged economic growth and increased actions and agreements between countries that previously had no connections. In 1986 Argentina and Brazil signed a Treaty for Integration, Cooperation, and Development which was originally set up to remove tariff barriers and tie together the macroeconomic policies of the two countries. This Treaty is what led to MERCOSUR. MERCOSUR is a process of integration to form a common market on the foundations of open regionalism. In March of 1991 Paraguay and Uruguay joined MERCOSUR and most recently Chile became a part of the market in 1996. The goals set by the agreement are to create free transit of production goods and lifting of non-tariff restrictions on transit goods. It was set up to adopt a common trade policy with nations that are not a part of the market and to set up a fixed common external tariff for all to follow. There are quite a few other goals that was set by MERCOSUR including a clause that states that the countries involved will be able to adjust their laws for the purpose of strengthening the agreement. The main point of MERCOSUR is to set up free trad e among South American countries and to encourage new countries to join (americasnet.com). Another related trade agreement conveying the benefits of international trade is the General Agreement on Trade and Tariffs (GATT). A trade agreement that conveys the positive outcomes of international trade is the General Agreement on Trade and Tariffs (GATT). It was created in 1947 and like NAFTA promotes international trade through the reduction of tariffs. Today, GATT encompasses over one hundred countries and 90% of the world's trade goods (Sabir 1). There have been eight different versions of GATT, each resulting in a new trade agreement. The most recent is referred to as the Uruguay Round and is one of the largest and most comprehensive trade pacts in history