Trade Bloc: NAFTA (North American Free Trade Agreement)
NAFTA was established in January 1994 to eliminate tariffs and other restrictions on free trade between USA, Canada and Mexico.
The agreement is limited to trade, and so does not allow the free movement of people.
Impacts of NAFTA on its members
On the USA / On Canada / On Mexico+ From US point of view all countries would be better with free trade as they can specialise in what they are good at – comparative advantage / + Visible trade with USA increased by 80% during the first 5 years / + Mexican companies are forced to adopt higher foreign standards and business practices
+ Free trade with Mexico will mean US firms can set up factories there and benefit from lower labour costs (= more profit) / + Visible trade with Mexico doubled to reach $9 billion in 1998 / + Keeps Mexico as politically modern as it is influenced by US and Canadian governments
+ Environmental laws are not as strict so companies do not have to spend $ on clean up / + US investment in Canada grew 63% from 1993 to 1998 / + As a part of membership Mexico has zero or reduced tariffs with 60% of the world
+ TNCs gain higher profits as costs are lower / + More than 1 million new jobs created since 1994 / - Mexico is dependent on USA for 88% of its exports
+ Profits are made in Mexico, returned to US shareholders / + In 1998, 68% of FDI was from US and Mexico / - Many of the jobs created by foreign TNCs are poorly paid (Maquiladoras)
- American manufacturing jobs are lost to Mexicans leading to higher unemployment. / - Environmental groups concerned about damage / - Many of the jobs created by foreign TNCs require employees to live in squalor (Maquiladoras)
- Mexican trucks allowed full access to US roads but are not limited by driving hour limits (more accidents) / - Canadian manufacturing jobs are lost to Mexicans leading to higher unemployment. / - Many of the jobs created by foreign TNCs do not put in high standards of health and safety (Maquiladoras)