Agreements on International Trade

Agreements on International Trade

The world has seen economic booms in recent decades, resulting in the emergence of new economic superpowers such as Brazil, China, and India. On the basis of their purchasing power parity of GDP indicator, some nations, such as China, have also surpassed economic powerhouses such as the United States. According to the International Monetary Fund (IMF), China dominated about 17 percent of global gross domestic product (GDP) in 2014, while the United States came in second with about 16 percent (Goldstein, Rivers & Tomz 2007, p.3).

The Rise of International Trade Agreements

The rise of new economies capable of influencing global trade has also seen a rise in the number of international trade agreements. International trade agreements regulate how trade between two or more nations is conducted. One such international trade agreement was the General Agreement on Tariffs and Trade (GATT) which was signed in October of 1947. GATT was a multilateral agreement that was signed by 23 nations in 1947, and by 1994, 123 nations had signed the agreement (Grossman & Helpman 1993, p.27). The agreement was signed to liberalize trade and create an organization that was mandated with administering liberal trade agreements as well as resolve trade conflicts.

The Impact on Industries and the Public

However, the increase in international trade agreements has attracted varying levels of concerns by the involved stakeholders. By signing an international trade agreement with another nation, both nations sacrifice certain factors which ultimately affect how the industries and citizens of the involved nations live and run their day to day businesses. This effect can either be viewed as detrimental or progressive depending on the kind of effect that the treaty holds. Of particular interest has been the debate on whether international trade agreements are more favorable for industries compared to the public’s interest. The purpose of this paper will be to analyze how various international trade agreements have impacted on both the industries and the public in a bid to determine who profits more when an international trade agreement is signed. Based on this premise, this analysis shall investigate whether international trade agreements place the interests of the industry above those of the public.

The North American Free Trade Agreement (NAFTA)

The North American Free Trade Agreement (NAFTA) is a treaty that was signed between the United States, Canada, and Mexico (Anderson 2001, p.16). NAFTA took effect in 1994 and only broadened free trade between the U.S and Canada to include Mexico. NAFTA is one of the most discussed treatises in America since it controlled three nations that at the time had combined economies that were estimated to be around $6 trillion. In addition to this, the treaty would impact directly on almost 365 million people giving it even more significance (Wise 2009, p.12). The main purpose of the agreement was to remove trade barrier particularly tariffs on certain key industries such as agriculture, manufacturing, eliminating investment restrictions and protect intellectual property rights between the three countries. When this treaty was being signed, there was particular emphasis on it being able to put into consideration environmental and labor protection (U.S. Dept. of Commerce 2005, p.3). However, through the years, many people have argued that since the treaty came into effect, it has failed in meeting these environmental and labor safeguards.

Positive Impacts on Industries

The most immediate aim of the NAFTA agreement was to reinforce cross-border trade between the three countries. This was to be achieved by lowering tariffs and reducing non-tariff barriers such as local content requirements. After the trade agreement was signed, trade between the U.S and Mexico increased sharply to about $418.5 billion in 2015 alone (Feenstra 2015, p.2). The NAFTA treaty saw tariff on various products such as motor vehicles and textile reduced, telecommunications trade expand, and many other opportunities opened up for the three countries. Analysts acknowledge the fact that the signing of the treaty opened up numerous opportunities for business given that most Mexican consumers spend a lot of money on U.S products (Vaughan 2004, p.9). Hence after the signing of the treaty industries across the entire industry were able to access a bigger market, cheaper and more access to raw material and labor and lower trans-border costs. The signing of this international trade agreement was a huge benefit to industries in North America particularly those from America.

Negative Impacts on the Public

However, even with the surge in growth, NAFTA has faced a lot of criticism for failing to consider the public good. This has mainly been focused on the fear that the treaty has prompted most American firms to move their operations to Mexico in order to access cheaper labor. After Bill Clinton endorsed NAFTA in 1993, he did so under the context of creating more jobs for Americans (Rowe 2004, p.12). However, statistics prove that the opposite has been achieved ever since the treaty was signed. The rate of unemployment has almost remained the same as it was in 1993 at around 6 percent. A study by the Economic Policy Institute shows that in 2014 around 851,700 jobs had been displaced through the signing of the treaty between the three nations. In addition to this, NAFTA’s implementation has seen a thirty percent decline in the number of manufacturing employment. In 1993 the American manufacturing sector provided almost 17.7 million jobs while at the end of 2016 it only provided 12.3 million jobs to Americans (Rose 2001, p.12). This shows that even though the manufacturing industry has remained robust, it employs fewer Americans since Mexicans offer cheaper labor.

The Impact on Mexico

Another factor that has been debated on the impact of NAFTA is the economic impact that the agreement has in Mexico. Before Mexico was allowed to sign the treaty it had to meet a variety of conditions such as reducing consumer subsidies for basic food commodities, privatization of the main state-owned lands and cutbacks on agricultural subsidies, loans, and insurance to peasants (Jette 2004, p.6). The adoption of these drastic conditions dismantled all the public support systems that aided most peasant Mexicans. Under the NAFTA agreement, Mexico permitted foreign ownership of Mexican land which was used by major corporations as a leeway to grab peasants land leaving most of them homeless and jobless. After the agreement had been signed, Mexico’s agricultural sector was destabilized which undermined the livelihoods of most Mexicans who were farmers (Thow 2009, p.17). Prior to the agreement, most peasant Mexicans were small-scale farmers whereas the Treaty necessitated export-oriented farming. This occurred because by removing the tariffs that existed between the U.S and Mexico they opened the Mexican agricultural sector to the large-scale American demand for fresh fruits and vegetables.

Environmental Impacts

The rise in export-oriented farming meant that Mexico needs more pesticides and water to sustain this new type of farming. This saw the amount of revenue spent on pesticides increase from $104 million prior to the agreement to roughly $545 million in 2012 (Trebilcock & Howse 2013, p.7). The excess usage of pesticides had through the years increased environmental pollution particularly water pollution due to nitrogen runoffs. In addition to this, in many parts of Mexico, groundwater levels were noted to have reduced by as much as 50 percent (Hertel 2002, p.8). Hence, even though NAFTA led to an increase in agricultural exports, most Mexicans did not benefit from the treaty. As a matter of fact, most poor Mexicans were left without land to farm or market for their agricultural produce further increasing the levels of poverty in Mexico.

Impact on Local Farmers

This was cemented by the fact that the Mexican market became flooded with American agricultural products displaced local products (Grossman 1993, p.17). The local farmers could not compete with these imports since the government had reduced agricultural subsidies and loans to local farmers. Given that the treaty had undermined the local peasants’ means of living, most Mexicans opted to migrate to America in order to find employment (Hagenbaugh 2002). The high poverty in Mexico has forced most Mexicans to migrate into the U.S mostly illegally where they get exploited for cheap labor. This has seen a continued rise in the level of unemployment amongst Americans as they compete with poorly paid Mexicans for jobs.

Environmental Impact

However, the signing of the NAFTA Agreement was not only detrimental to the economy’s health but also Mexico’s environmental health. First, poor farmers needed to offset the economic shift that had come from the NAFTA treaty (Hufbauer 2005, p.16). To achieve this, they had to increase their production in order to match needed regulation and get need revenue. This necessitated them to clear large tracts of land so as to increase their agricultural lands. After the NAFTA agreement was signed the deforestation rate among Mexican forests has increased to as much as 1.1 million hectares per year (Frankel 2005, p.2). This has also prompted farmer to employ the use of fertilizers to enrich their lands for farming. Statistics show that in order to increase agricultural produce, Mexico has had to employ an additional 77,000 tons of nitrogen and phosphorous mostly polluting the Mississippi River Delta which is a source of water for most people (Esquivel 2003, p.26). The retrogressive environmental impact of the NAFTA Treaty cannot be refuted, which has raised public concern on how well the agreement is being implemented and administered.

Balancing Industrial Growth and Public Interest

International trade agreements have a lot of economic and environmental effects that are usually ignored when signing them. The reason for this is they usually focus on the immediate impact of the treaty without considering the long-term effect of the agreement. On the surface, international agreements may appear to solidify collaboration among nations with the aim of regional growth and development (Barreto 2005, p.). However, it misses to recognize the bigger picture of how negatively it will affect the countries involved, particularly those that are still developing. Given the economic impact that the treaty has had in Mexico and America, it would be rational to agree that international trade agreements put more focus on industrial growth and development compared to public interests. In general, NAFTA aided in removing crucial support for Mexican small-scale farmers, boosted deforestation, depleted water resources, and increased pesticide reliance in farming while on the other hand boosted U.S and Canadian exports, particularly corn (Baier & Bergstrand 2007, p.17). This shows just how much negative effect one international trade agreement can have on the public welfare of the involved countries.

Priority of Industries over Public Interests

Signing an international trade agreement necessitates foregoing certain benefits in order to ensure collaborative efforts between countries towards economic growth and development. This has been one of the core guises under which most international trade agreements are endorsed. However, after carefully analyzing the impact of the NAFTA agreement a decade later on the involved stakeholders, it is clear that industries have benefited more than the public. By weighing the cost-benefit ratio between the industries and public, the industries’ interests have more weight compared to public interests. The concept that international trade agreements strengthen stakeholders’ economies has failed tremendously through the years.

Consideration of Public Interests

The poor economic members are usually the hardest hit when these treaties are adopted, leaving them even more desolate instead of empowering them towards better economic potential. Hence, if international trade agreements are to be properly enforced, various factors must be put into consideration in order to protect the public interest. Negotiation has been one of the most used methods recently and has proved to be particularly efficient since each country is allowed to make its stand both economically and environmentally. This has made it illegal for other involved countries to dump excess products and services onto the rest. Unless such an approach is employed, international trade agreements will continue to erode involved countries both economically and environmentally.

References

Anderson, J.E. and Van Wincoop, E., 2001. Borders, trade and welfare (No. w8515). National Bureau of Economic Research.

Baier, S.L. and Bergstrand, J.H., 2007. Do free trade agreements actually increase members’ international trade? Journal of international Economics.

Barreto, Hector V. “New Trade Opportunities a Boon to Small Biz.” San Diego Business Journal. 13 June 2005.

Esquivel, G. and Rodrıguez-López, J.A., 2003. Technology, trade, and wage inequality in Mexico before and after NAFTA. Journal of Development Economics.

Feenstra, R.C., 2015. Advanced international trade: theory and evidence. Princeton university press.

Frankel, J.A. and Rose, A.K., 2005. Is trade good or bad for the environment? Sorting out the causality. Review of economics and statistics.

Goldstein, J.L., Rivers, D. and Tomz, M., 2007. Institutions in International Relations: Understanding the Effects of the GATT and the WTO on World Trade. International Organization.

Grossman, G.M. and Helpman, E., 1993. The politics of free trade agreements (No. w4597). National Bureau of Economic Research.

Hagenbaugh, Barbara. “U.S. Manufacturing Jobs Fading Away Fast.” USA Today 12 December 2002.

Hertel, T., Hummels, D., Ivanic, M. and Keeney, R., 2007. How confident can we be of CGE-based assessments of Free Trade Agreements? Economic Modelling.

Hufbauer, G.C., 2005. NAFTA revisited: Achievements and challenges. Peterson Institute.

Jette, Julie. “NAFTA at Ten: Did It Work?” Harvard Business School Working Knowledge. 12 April 2004.

Rose, A.K. and Van Wincoop, E., 2001. National money as a barrier to international trade: The real case for currency union. The American Economic Review.

Rowe, Claudia. “Ten Years Later, A Look at NAFTA’s Promise, Flaws.” Seattle Post-Intelligencer. 6 January 2004.

Thow, A.M. and Hawkes, C., 2009. The implications of trade liberalization for diet and health: a case study from Central America. Globalization and health.

Trebilcock, M.J. and Howse, R., 2005. The regulation of international trade. Psychology Press.

U.S. Department of Commerce. Bureau of the Census, Foreign Trade Statistics. “New 2005 Data Updates.” Available from http://www.census.gov/foreign-trade/statistics/. Retrieved on 17 April 2006.

Vaughan, Scott. 2004. “The Greenest Trade Agreement Ever? Measuring the Environmental Impacts of Agricultural Liberalization.” In NAFTA’s Promise and Reality: Lessons from Mexico for the Hemisphere, Washington: Carnegie Endowment for International Peace.

Wise, Timothy. 2009. ”Agricultural Dumping Under NAFTA: Estimating the Costs of U.S. Agricultural Policies to Mexican Producers.” Global Development and Environment Institute Working Paper No. 09-08. Accessible at: http://www.ase.tufts.edu/gdae/Pubs/wp/09-08AgricDumping.pdf