The Analysis of the North American Trade Agreements - Essay Sample

Published: 2023-01-08
The Analysis of the North American Trade Agreements - Essay Sample
Type of paper:  Essay
Categories:  International relations Foreign policy
Pages: 7
Wordcount: 1755 words
15 min read


Business activities determine economic growth and prosperity of every nation in the world. Trading agreements contribute to business success and the realization of desired goals. This paper analyses the information about the two trade agreements signed by the northern American countries. The two deals are; the North America Free Trade Agreement. NAFTA was established in 1992 to eliminate trade barriers that existed in the region and allow free passage of goods and services with United States, Mexico, and Canada. The successes and achievements of the European Economic Community inspired leaders from the three countries to sign the NAFTA agreement. Trade tariffs were eliminated after the contract to boost trading activities among the member countries. The reduction of trading barriers taxes increased the production of different type of commodities and created many job opportunities for young people (Abbott, Cottier & Gurry, 2019). Initially, NAFTA was created by Canada and United States but later included Mexico. The agreement was initiated by the then US president George Bush, Mexican president Carlos Salinas de Gortari and Canadian Prime Minister Brian Mulroney. Legislatures of the three countries ratified the agreement in 1993, and in January 1994, the association came into effect.

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In 2018, President Donald Trump initiated the signing of another agreement to replace the old NAFTA. The deal was then called United States- Mexico- Canada Agreement (USMCA). The agreement was initiated and signed in the November 30th, 2018. In this agreement, all tariffs on goods and services passing through the three nations were eliminated to promote trade and prosperity. USMCA came up with various opportunities; therefore, creating equality and understanding among the member countries (Dumberry, 2015).

Differences Between NAFTA and USMCA

The establishment of the new NAFTA (USMCA) resulted in various disparities from the old NAFTA. The policies introduced by the current leaders resulted in the differences. Negotiations took long to be terminated due to the difference to be brought by the new agreement. The main differences are based on the transaction rates between the member countries and the requirements to be attained by each member to influence the operations of the other members. There are many differences between NAFTA and USMCA (Burfisher, Lambert & Matheson, 2019). The first disparity is the requirement for cars produced in the region. For instance, NAFTA required that 62.5 percent of the vehicles were created in the trade region be manufactured in North America, while USMCA requires that 75 percent of the cars to be delivered in North America. The increase in the percentage of cars made in the trading zone created prosperity and unity among the member nations.

Secondly, USMCA required that 40 percent of the cars produced in the zone should come from the companies/factories in which the average hourly wage is $16.00.this minimum requirement reduced the tariffs to impose on the goods produced in the member countries. On the other hand, NAFTA did not provide the minimum hourly wage required for the production of cars. Thirdly, in the USMCA United states was allowed to sell more dairy products to Canada while in the old NAFTA, the dairy deal was not the primary consideration of the agreement. In the old NAFTA, United States of America was complaining that the system of Canada is protecting its dairy farmers from stiff foreign competition (Dumberry, 2015). The fourth difference is level of tariff elimination in the region. The old NAFTA was not able to eliminate all trade tariffs from the zone while the new USMCA has removed all barriers. In this case, old NAFTA did not achieve its business goals and objectives as compared to USMCA, which focuses on creating unity and conducive environment to attract merchants people; therefore, leading to business success.

The fifth difference arises from the systems used to settle disputes. In this case, chapter 19 remained intact in USMCA because it provides for guidelines used in resolving disputes. Section 19 allowed for mediation between the member countries when they clash over subsidy or dumping cases. The old NAFTA did not provide for a precise mechanism used in conflict resolution. USMCA has a currency chapter that enables the member nations to ensure Market-determined transaction rates and desist from undesired competitions and currency devaluations (Chepeliev, Tyner & van der Mensbrugghe, 2018). This pledge will not have an impact on the policy-making procedures but will serve as a guideline future business deals.

On the other hand, the old NAFTA did not contain any currency chapter in its documentation; therefore, experiencing currency manipulation. Lastly, USMCA does not have ant sunset clause because any of the three member countries can withdraw from the group after writing a notice six months before the actual termination of membership. On the other hand, the old NAFTA had an automatic sunset clause that would terminate a member form the group if it has not attained the minimum requirements.

Advantages of the New NAFTA (USMCA)

The signing of the new NAFTA focused on eliminating all tariffs that the old NAFTA could not do remove (Chepeliev, Tyner & van der Mensbrugghe, 2018). The old agreement had different disadvantages; therefore, USMCA was created to minimize the negative impacts of its predecessor. The differences between the two protocols provide the advantages of USMCA over the old NAFTA. First, USMCA removed all taxes imposed on goods and services transacted in the three-member nation. The minimized in the tariffs imposed on all transactions creates equality and unity among all member. The old NAFTA created political and economic disparities because taxes on the commodities had different rates depending on the currency of each nation.

The use of a common currency in the transaction also improved equality unity since economic disparities were eliminated. Integration promotes teamwork and achievement of business goals. The new deal uses the US dollar as the common currency in trading activities; therefore, rates apply equally to all members. The agreement also encourages free trading activities among the associates. America can export its dairy products to Canada (Dumberry, 2015). In the initial deal, the Canadian government protected its dairy farmers from unfavorable competition caused by the products exported by the US dairy farmers. The agreement promoted both agricultural and business operation. Farmers from United States of America can sell their agricultural products in Canada without facing any strict regulations from the Canadian government. The agrarian exports from United States of America will increase by approximately $70 million. The increase in the amount of revenue gained from the shipping boosted the economy of United States; therefore increasing the percentage of national GDP.

USMCA increased the percentage of the automobiles to be sold in the three member countries without any taxation. The old NAFTA proposed that 62.5% of the vehicles manufactured within the jurisdiction of the members should be marketed without any imposed taxes. USMCA increased the minimum requirement to 75%; therefore, creating economic balance and unity (Chepeliev, Tyner & van der Mensbrugghe, 2018). The main reason for this increment was to allow the three countries to incentivize the production of cars and other automobiles in North America. The policy on automobile manufacturing also provided for the minimum wages for people working in automobile companies. The minimum salary for the vehicle manufacturing process was stipulated such that 30% of the tasks performed on eligible vehicles should be completed by workers receiving an hourly payment of $16. The policy comes into effect in 2020, and the wage will also increase in the subsequent years to allow economic growth.

USMCA provides for digital trade and intellectual property. This provision gives it an advantage over its predecessor NAFTA. The copyright was extended to 70 years from the establishment time. This new deal also addresses new products that were not included in the old NAFTA. The inclusion of new products in the new NAFTA deal resulted in diversification of the economy; therefore, promoting growth in all the three member countries (Dumberry, 2015). Another advantage of the USMCA is the presence of chapter 19 that provides for appropriate ways of solving conflicts between the member countries. This section recommends an effective mediation to offer amicable solutions to disputes that may arise from the clashing of either country in trading activities.

USMCA does not have section 232 that protects trade tariffs. Chapter 232 has been used a trade loophole to impose taxation of aluminium and steel exportation to Canada and Mexico; therefore, making the United States of America exploit the other two members (Chepeliev, Tyner & van der Mensbrugghe, 2018). The new NAFTA (USMCA) excludes this section to promote equality and unity in the North America region. Lastly, USMCA provides for a "sunset" clause that extends the lifespan of the deal. The agreement is set to expire after 16 years after which United States of America, Canada and Mexico may decide to review the organization after every six years of operation. Under the new reviews, USMCA may be extended to allow more time of action in the region.

Disadvantages of USMCA

Despite the numerous advantages provided by USMCA to the member countries, there are some drawbacks of the agreement (Collins, 2010). First, the members signed the deal and agreed to ensure social responsibility. In many cases, countries fail to protect the environment because many trading activities lead to environmental pollution. The provision for the protection of the ecosystem may become challenging to achieve because each country focuses on attaining economic prosperity without considering some of the negative implications caused by the business activities. Secondly, USMCA does not protect the interests of the workers. The labor policies have no significant influences in the agreement; therefore, the fundamental rights and freedoms of the workers are not considered in the new deal (Collins, 2010). Some of the fundamental liberties neglected in USMCA include the freedom of association and forced labor. Inappropriate reference on gender identity and sexual orientation also affects the efficacy of the USMCA.

The provision of Rules of Origin challenges business operations in North America. Policies resulting from the Rule of Origin became regulatory barriers; therefore, dictating the production of activities and supply chains (Collins, 2010). The regulations resulted in compliance on money tracking and time wastages. The increment in the origin percentages disrupted businesses and the management of trade flow in the region since most of the operations were managed by respective government authorities. For example, the automakers encounter with issues concerning the rules representing the compliance cost manufacturing cars and heavy trucks. The percentage of the taxes imposed on the assembling of the vehicles vary depending on the automotive (Losari, Rojid & Rincon, 2012). For instance, 2.5% is the compliance cost for cars and light vehicles, while the manufacture of heavy trucks requires a compliance cost of up to 25%. The difference in the minimum acquiescence cost creates a state of economic disparity among the countries.

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