A North American Free-Trade Agreement: The First Step toward One America

By Kujawa, Duane; Kim, Suk H. et al. | Multinational Business Review, Fall 1993 | Go to article overview

A North American Free-Trade Agreement: The First Step toward One America


Kujawa, Duane, Kim, Suk H., Kim, Hang-Joe, Multinational Business Review


The world is moving swiftly toward three trading blocs distinguished by the dollar, the mark, and the yen. Analysts describe the formation of a free-trade zone around the dollar as a practice run for turning the North and South Americas into a patchwork of a unified regional trade group. Hence, there is no wonder why many consider the North American Free Trade Agreement the first step toward One America.

In 1990 President George Bush identified a free-trade zone, tying all the nations of the Americas into one America, as one of the ultimate goals of his trade policy by the Americas. Its proponents argued that free trade throughout the Americas would channel investment and technology to Latin nations, radically restructure their economies, and give U.S. companies a head start in capturing business there. And free trade would gradually lift millions of people from poverty. The movement toward One America has already begun with a proposed North American Free Trade Agreement (NAFTA). In this paper, we discuss the nature of trading blocs, the major elements of NAFTA, concerns of some U.S. interest groups about NAFTA, lessons from the EC, Asia's reaction to NAFTA, and issues related to the movement toward One America.

REGIONAL ECONOMIC INTEGRATION

Regional groupings based primarily on economic cooperation have become the most debated topic in world trade (Ronkainen, 1999). While world leaders try to suppress national interests in favor of regional ones, those groupings may be also considered to be evidence of the difficulties in preserving the present global trading system under the General Agreement on Tariffs and Trade (GATT).

TYPES OF ECONOMIC INTEGRATION

People have cooperated economically for centuries because they recognized the advantages of working together. Still, recent events of the past forty years have taken two different turns. First, new intergovernment cooperation is intended to make member countries a single economic union. Second, successful trading blocs have historically consisted of member countries with similar levels of per capital income, geographic proximity, compatible trading regimes, and political commitment to reorganization (Schott 1991). However, a united political will has tried to overcome the consequences of most dissimilarities. Thus, five forms of economic integration have developed among countries: free trade agreement, customs union, common market, economic union, and political union.

Free trade agreements require member countries to remove all tariffs among themselves while allowing member countries to have tariff arrangements with non-member countries. Under the customs-union arrangement, member nations not only abolish internal tariffs among themselves but also establish common external tariffs. In common market agreements, member countries abolish internal tariffs among themselves and levy common external tariffs. Furthermore, they allow the free flow of all factors of production--capital, labor, and technology. An economic union combines common-market characteristics with harmonization of economic policy. A political union combines economic-union characteristics with political harmony among member countries. In whatever form it may take, economic integration has been increased among more developed economies relative to economic integration between more developed and developing economies.

A TRIPOLAR ECONOMIC SYSTEM

Geography controls the organization of most current agreements. Economists say that the global economy will become increasingly tripolar in the 1990s and beyond. They caution that this tripolarity, most likely, will lead to less trade among the three groups-Europe, North America, and Asia--in favor of increased trade within individual blocs and regions. Moreover, they argue that this coming emergence of three giant trading blocs will make the GATT irrelevant. Most issues may have to be negotiated bilaterally between these blocs. …

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