Free trade agreements
Abstract The purpose of this study is to review the Canada-US free trade agreement together with the North American Free Trade Agreement (NAFTA) that replaced it. We have commenced our report with a brief explanation of Free Trade Agreements and the reason such treaties are enacted and then studied both of the treaties mentioned above for the purpose of evaluating the main differences between them. Our studies have included of how each of the treaties have worked in practice and concluded with recommendations of changes that could assist in improving the operation of the treaties.
Free Trade Agreements. Canada-US and North American Free Trade Agreements What has been the purpose of the introduction of the Canada-US and North American Free Trade Agreements and how do the two treaties compare? Have they been successful and if not, what action or improvements could be made to enhance their operation? Within this report it is our intention, with the aid of research material, to investigate and resolve these questions. A free trade agreement is a treaty made between participant nations, the intention of which is to allow a free flow of goods and services between the parties, irrespective of their national borders.
There are a number of such agreements operating throughout the world and involving a variety of nation partners. However we intend to concentrate on the two agreements mentioned in the title of this document. Although historically there had been several attempts to forge trading agreements between the U. S. and Canada, as early as 1855 (Wikipedia 2006) though this only lasted for eleven years, no serious attempt was made on the trade issue until the 1960’s when an automotive agreement was reached between the two countries.
Resulting from the success of this agreement, the two countries finally reached a more widespread agreement in late 1987. Canada-US Free Trade Agreement (1989) The agreement of 1987 was formulated into the Canada-U. S. Free Trade Agreement on 1 January 1989. Initially there was a lot of unrest and disagreement regarding the treaty, in particular from the Canadian aspect. So much so that the issue dominated the 1988 Canadian elections. Even ten years on there was still debate regarding the subject, as can be seen from the broadcast on CBC (Carol Off 1997).
Whilst Brian Mulroney argued that the treaty had been beneficial, and the statistics do tend to support this to a large extent as will be seen later, his opponents argue that, in certain areas of business, it has caused the loss of up to 25% of Canada’s industry capability. The treaty itself consisted of twenty-one chapters and over one thousand, four hundred articles. The main purpose of this agreement was to eradicate the pre-existing trade barriers between the two countries in respect of trade in products and services.
There were specific exclusions to the trade aspect of the agreement, in particular lumber and fish. Other resources, such as water, were also omitted from the agreement. A part of this agreement also sought to create a climate of fair competition, allowing cross investment within the treaty area. The services portion of the agreement extended to the procurement of government services, the intention of which was for both parties to work towards a system whereby they could tender for such contracts in the others domain, although in the event this did not transpire.
This part of the agreement also included a range of services including agricultural, mining, insurance, real estate, commercial and information Technology. Chapters sixteen and seventeen deal separately with investment and financial services. Although this agreement was perceived to be about the issue of trade tariffs, in reality this was not the case as these were already very low. The real reason was that Canada wanted access to the US commercial economy and America in turn wish to avail itself of the opportunities that existed in the Canadian cultural and energy industries.
In the event the Canadians retained protection rights over the majority of these areas. In the final analysis some of the core reasons for the agreement, as mentioned above, were not met. However, in other areas the agreement was a success. Trade between the two countries did increase. Canada’s exports rose from 25% of GDP prior to 1990 to 40% of GDP in subsequent years. In fact, since 2000 this figure has risen to over 50%. Despite this apparent success, there have been some drawbacks, in particular with relation to the Lumber industry. Canada has consistently complained that the U.
S. has violated the agreement in this area. This dispute has finally been settled in April 2006 (Foreign Affairs and International Trade Canada 2006). North American Free Trade Agreement (1994) The North American Free Trade Agreement, (Foreign Affairs and International Trade Canada 2006), came into effect on the 1 January 1994, replacing the previous Canada-US Free Trade Agreement. This new agreement was between Canada, the United States and Mexico, and is sometimes referred to as the “tripartite trading bloc of North American countries.
” (Wikpedia 2006). Partially as a result of the inclusion of a third country, but also resulting from the increase in its provisions, this agreement was substantially more extensive than its predecessor, consisting of over two thousand two hundred articles in twenty two chapters. This agreement did call for the eradication of all duties within a set timeframe. In addition to covering a wide range of trades and services including investment, motor vehicles, agriculture, computer and textiles, the treaty also sought to protect intellectual rights.
Included within the treaty is also a freedom of travel between the countries. This allows nationals to travel between the respective countries with relative ease. In a similar move to that of the European Union, the parties also agreed to operate a more open border control between the three countries. In 2000 and 2001 the Presidents of the U. S. and Mexico even went as far as to arrange a meeting, with the intention of promotion a major agreement to allow for their citizens to move freely between the two countries for work purposes.
However, post 9/11, as a result of the increasing problem with drugs and the dramatic rise in the fear of terrorism, this initiative was not pursued. The treaty is the most wide-ranging Free Trade Agreement in force globally, and has been further enhance by the attachment of provisions for the protection of workers and the environment. This latter attachment was included to appease the environment lobby. Their main concern was that if there were not to be unilateral regulation applicable to all parties, there would be a reduction in standards, the lowest common denominator prevailing, which would adversely affect the environment.
Whilst it is difficult to evaluate the effect of the agreement, most economists and economic studies suggest that the result is a redirection of, rather than an expansion, of trade. (Wikpedia 2006). The net result appears to be that the three parties are importing an increased level from each other at the expense of other countries throughout the world. To this extent is a more insular reaction, somewhat at odds with the increase in globalization. In this respect it is also one of the most successful treaties. Where the treaty did have a parallel likeness to the Canada-US Free Trade Agreement is in the controversy it caused.
Whilst most businesses have supported it, workers organizations in the States and Canada are against it, fearing that there would be job losses resulting from the lower labor costs available in Mexico. The concerns were not confined to Canada and the U. S. either. Mexican farmers also disliked the agreement. Their reasoning was that, because US farmers were entitled to subsidies, it pushed down the prices of Mexican agricultural products. Farmers saw a significant reduction in their income, with the result that a number were forced into bankruptcy.
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