(Mt) – TU The results of NAFTA Discussion

1 Free trade area Bwana Overview “In a free trade area, all barriers to the trade of goods and services among member countries are removed. In the theoretically ideal free trade area, no discriminatory tariffs, quotas, subsidies, or administrative impediments are allowed to distort trade between members”(Hill, 2022). This paper will investigate the fact that for the use and management of a free trade area, each nation has its own set of regulations. 2 Purpose of research The purpose of this research is to look at the fact that the main objectives of a free trade area are to promote employment growth, utilize regional goods and services, and simplify customs procedures. “Free trade agreements are the most popular form of regional economic integration, ac- counting for almost 90 percent of regional agreements”(Hill, 2022). Literature Review “Free trade agreements have proliferated in recent years. Some observers welcome them as the building blocks of global free trade; others condemn them as stumbling blocks likely to obstruct multilateral trade liberalization”(Kono, 2002). A free trade area is a particular location where a collection of nations have a trade agreement in place to cement their economic cooperation. The major objectives of the free trade area are to promote free trade of products and services among its member nations and to remove trade barriers, notably tariffs and import quotas. For the use and management of a free trade area, each nation has its own set of regulations. The main objectives of a free trade area are to promote employment growth, utilize regional goods and services, and simplify customs procedures. A free trade zone is also used by businesses to lessen their exposure to tariffs and taxes. Benefits of its applications include duty exemption and deferral, inverted tariff relief, and customs entrance. Free trade areas have agreements that are called free trade agreements. If two or more nations desire to formally cement their economic cooperation and reach a trading agreement. Member nations clearly specify in the agreement the import and export levies and tariffs that shall be applied to member nations. The foundation of free trade zones is the exchange of products: import and export goods. Import goods are items that are made elsewhere, transported to another nation, and consumed there by the local populace. In contrast to imports, exports are things that a manufacturer in one 3 nation sells to customers in another. The most significant concern of the free trade area is to remove tariffs and the countries that have these regulations between them are not subject to tariffs or any other restrictions. Members decide on a set of shared rules that govern quotas, tariffs, and trading conditions. A free trade area also prohibits imports from outside the region from taking use of its benefits. For instance, let’s say two countries that are part of a free trade area, refrain from levying taxes on one another. “In a Free Trade Area (FTA) tariff rates among members are zero, although tariff rates set by members on non-members are not necessarily equalized”(Ju & Krishna, 2005). The degree to which free-trade zones qualify as public benefits can be assessed. The system of embedded tribunals, which serve as arbitrators in disputes involving international trade, is the fundamental component of free-trade zones. As stated in the trade treaties, this system serves as a force of clarity for current laws and global economic policies. The additional categories of structural policy that a free-trade area covers are referred to as its depth. Older trade agreements emphasized topics like quotas and tariffs, but more recently, trade agreements have expanded to cover e-commerce and data localization as well. Free-trade areas are typically thought to be excludable since trade between parties one are generally cheaper than trade with non-parties. The new generation of free-trade zones is now acquiring critical attributes of public goods. Practical Implications “Selecting FTA member tariffs to freeze each member’s trade flows with the rest of the world, coupled with rules of origin that any good may move duty free within the FTA if it contains internal value added, implies that the FTA is necessarily welfare-enhancing”(Grinols & Silva, 2006). The use of free trade regions between two or more countries has a number of benefits. One of the first things that come to mind is that a free trade area promotes competition, 4 which leads to a rise in a country’s efficiency so that it can compete with its rivals. As a result, goods and services are of higher quality at a lesser price, increasing the product quality when used properly. Specialization is another significant aspect of this battle. A nation engaged in the fierce competition will often manufacture the items they are best at producing. Utilizing resources effectively means maximizing profit. The most significant aspect of the application of free trade is that it implies the absence of monopolies. Because more companies can enter the market, monopolies will also be eliminated along with tariffs and quotas. Additionally, when there is a global competition, prices will undoubtedly decrease, giving customers more purchasing power. Finally, we can also say that consumers have access to a wider range of affordable goods as imports become more affordable. Conclusion A free trade zone is used by businesses to lessen their exposure to tariffs and taxes. Benefits of its applications include duty exemption and deferral, inverted tariff relief, and customs entrance. One can judge to what extent free-trade zones count as public benefits. The core element of free-trade zones is the system of embedded tribunals, which act as arbitrators in disputes concerning international trade. This system acts as a force of clarity for present legislation and international economic policies, as indicated in the trade treaties. The depth of a free-trade area refers to the additional structural policy areas that it includes. Trade agreements have recently grown to incorporate e-commerce and data localisation in addition to earlier topics like quotas and tariffs. Since trading with parties is frequently cheaper than trade with nonparties, free-trade regions are typically regarded to be excludable. New free-trade zones are now acquiring crucial characteristics of public goods. 5 References Grinols, & Silva, P. (2007). An Enhancement of Modern Free Trade Area Theory. Oxford Economic Papers, 59(2), 219–225. https://doi.org/10.1093/oep/gpl026 Hill, C. W. L. (2022). Global Business Today (12th ed.). New York, NY: McGraw Hill. Ju, & Krishna, K. (2005). Firm behaviour and market access in a Free Trade Area with rules of origin. The Canadian Journal of Economics, 38(1), 290–308. https://doi.org/10.1111/j.0008-4085.2005.00281.x Kono, D. Y. (2002). Are Free Trade Areas Good for multilateralism? evidence from the European Free Trade Association. International Studies Quarterly, 46(4), 507–527. https://doi.org/10.1111/1468-2478.00243 1 Week 5 Discussion – The results of NAFTA Thomás 2 The results of NAFTA NAFTA (North American Free Trade Agreement) was signed by the United States, Canada and Mexico and it came into force in January of 1994. Since NAFTA became effective, overall trade has tripled between those three countries mentioned (Hill, 2022). Such agreement had different effects in each nation, and those effects can be found in welfare, employment, amongst other factors. It was beneficial in some ways and not ideal in other cases, and results show an impact in education, purchasing power, total wages, international competition, operating efficiency, amongst other effects. This paper intends to discuss those overall results in different aspects of NAFTA. Purpose of Research There are multiple cases for and against NAFTA. Regardless of points of view and who specific people think regarding the agreement, it is critical to discuss facts and what the actual results of NAFTA are. This research can be useful as managers study what was positive and what was negative in NAFTA as knowing those results can help managers and authorities when considering regional economic agreements in the future. Review of the Literature Specialists who believe NAFTA had positive impacts argue that Mexico increased jobs as low production costs created a fast economic growth, and USA and Canada had access to a different market (Mexico) and were able to reduce production costs as they were able to build construction sites in Mexico (Hill, 2022). On the other hand, the main arguments against NAFTA involve a potential decline in jobs in the US and Canada, pollution increase in Mexico, and potential loss of sovereignty in Mexico (Hill, 2022). 3 One factor that is often ignored in the NAFTA discussion is education and what type of impact the agreement had in that. Gómez-Ramírez et al. (2022) found in a study that NAFTA increases the overall probability of individuals to ever attend college and earning a degree. It is obviously positive to have a more educated society and see more individuals earning higher education degrees can be extremely important for nations. However, those results can also mask intriguing results. Gómez-Ramírez et al. (2022) also analyzed that in those results, white Americans drive these positive effects, while the overall diversity in minorities attaining education shrank, showing that the probability of those groups of graduating high school diminished. One of the main arguments pro NAFTA is that the agreement could create jobs and therefore increase the purchasing power of different individuals and societies. Vásquez-López (2022) found that in terms of purchasing power, there was a significant increase in wages pid in the US, which certainly increased overall purchasing power in the American society. However, that increase in wages was considerably higher than in Mexico, even though there was a significant increase in hours worked in Mexico (seven times higher). Therefore, such study shows that even though there was an increase in working opportunities in Mexico, that did not necessarily increase the overall purchasing power as wages did not increase as well. Another interesting factor that must be considered as a result of NAFTA is what happens to already existing organizations: what characteristics may change and what might happen with different firms. Gao et al. (2020) found that different companies might have decreased overall innovation levels and improved overall efficiency following NAFTA. As trade barriers decreased and more freedom was given t organizations to go about their businesses, innovations might have lost space as firms were free to do business in more places and could be more conservative by 4 having more options. At the same time, being able to operate more freely can make organizations more efficient as a consequence. Practical Application Knowing the impact on NAFTA on education can prepare managers and authorities when reviewing education bills and projects for the future. Learning more about the increase of jobs and purchasing power in different areas will also help those individuals when structuring economic plans for specific areas. Finally, company owners would be able to make more assertive plans regarding their efficiency and innovation plans. Conclusion Managers and authorities will naturally have different opinions and arguments pro and against NAFTA. However, understanding the results of the agreement can be critical for those individuals as they try to do what is best for their organizations and nations. There were positive and negative results of NAFTA in all three nations, and it is critical that managers and authorities understand each case as they make important decisions for the future of our economic region. 5 References Gao, L., & Zagorchev, A. (2020). Dual-class firms and innovation after NAFTA. Review of Pacific Basin Financial Markets and Policies, 23(01), 2050007. https://doi.org/10.1142/s0219091520500071 Gómez‐Ramírez, L., & Padilla‐Romo, M. (2022). Some benefit, some are left behind: NAFTA and educational attainment in the United States. Economic Inquiry, 60(4), 1581–1606. https://doi.org/10.1111/ecin.13093 Hill, C. W. L. (2022). Global Business Today (12th ed.). New York, NY: McGraw Hill. Vázquez-López, R. (2022). Assessing employment benefits from trade: US-mexico trade under NAFTA. Economic Systems https://doi.org/10.1080/09535314.2022.2091427 Research, 1–25.

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