North American Free Trade Agreement (NAFTA): Beauty or the Beast
This section reviews details of the North American Free Trade Agreement and evaluates its merits in an increasing regionalizing trend in global trade. A successful NAFTA could increase market shares of U.S. firms in the global context.
In August 1992, the United States, Mexico, and Canada completed negotiations on the North American Free Trade Agreement. The agreement aims to remove tariff and nontariff trade barriers in goods and services and establish strong rules for the protection of investment and intellectual property rights as well. As a result, NAFTA will create the world's biggest and richest market with over 360 million people producing over $6 trillion in annual output.
The proponents of the agreement feel that trade will increase and that it will create a beneficial situation to all three participating countries. According to an estimate of the U.S. Department of Commerce, each $1 billion of trade creates over 20,000 jobs. As Mexico prospers, it will also provide a market for U.S. and Canadian goods, just as the United States will provide a market for Mexican goods.
Mexico has been carrying out various economic and business reforms to make the country more suitable to forthcoming changes. If we consider Mexico as a corporation, it has made an enormous shift in its corporate culture during the last five years. A key to this change is the solidarity program.
Solidarity is a grassroots development initiative designed to improve the delivery of the basic goods and services to people in Mexico's neediest regions. It creates a way for small business communities to decide what is most important to them, whether it is potable water, electricity, or many other fundamental services. Thus, under solidarity the government provides funding, and the locals put sweat equity into developing the projects. This has been a remarkable agent for managing change in Mexico.