Are free trade agreements a good policy for nations? Given that there are 200 free trade agreements in place globally, there are clearly benefits, but what are the negatives? This paper explores the positives and negatives of free trade agreements, and this paper delves into the NAFTA pact between the U.S., Canada, and Mexico, for the upsides and downsides of that agreement.
What are Free Trade Agreements and why does the U.S. engage in FTAs?
International Trade Administration (ITA) explains on its website that Free Trade Agreements (FTAs) have proved to be “one of the best ways to open up foreign markets to U.S. exporters” (www.trade.gov). Trade agreements “reduce barriers” to United States exports, they “protect U.S. interests,” and they “enhance the rule of law” with the country that is partnering with the U.S. (www.trade.gov).
American companies can export their products less expensively when trade barriers are removed because this relationship with other countries creates a “more stable and transparent trading and investment environment” (www.trade.gov). In fact forty-one percent of the American goods that are exported went to FTA partner nations in 2010, and exports to those countries involved with free trade and the U.S. are growing at a “faster rate than exports to the rest of the world,” the ITA explains.
The main economic FTA the U.S. is involved with is NAFTA, the North American Free Trade Agreement between the U.S., Canada, and Mexico, which went into effect in 2004. That said, the U.S. has three FTAs that are pending approval by Congress; those are a free trade deal with Colombia, with Panama, and with South Korea (Cooper, 2011). As to the potential FTA with Korea, Hyun Chong Kim writes in the peer-reviewed SERI Quarterly that the biggest beneficiaries for Korea will be “consumers whose purchasing power will increase as a result of increased selection, increased competition, and inexpensive commodities that become available in the market” (Kim, 2011, p. 16). For example Kim points out that as of 2011, a kilogram of beer in Korea in 2005 was $43.70; that is the most expensive in the world, and presumably a FTA with the U.S. could lower that price considerably (Kim, 15).
NAFTA Advantages: There are several perspectives as regards the success of NAFTA. According to the Office of the United States Trade Representative (USTR), NAFTA has been a “huge success for the U.S. And its NAFTA partners.” In the first ten years of NAFTA total trade between the three countries more than doubled, “from $306 billion [in 2004] to $621 billion [in 2003) (USTR). An example of the gains for the U.S. is auto sales; at the conclusion of 2002, U.S. exports of passenger cars to Mexico “totaled $3.6 billion, 38 times greater than shipments in 1992” (USTR).
After 15 years, even though exports from Mexico to the U.S. “increased sevenfold, much of it in manufacturing,” and direct foreign into Mexico “jumped to four times pre-NAFTA levels,” NAFTA did not benefit the way it had hoped to (Gallagher, et al., 2009). Yes, Mexico gained 600,000 manufacturing jobs after NAFTA but it lost “at lease two million [jobs] in agriculture as cheap imports of corn and other commodities flooded the newly liberalized market” (Gallagher, p. 2). As for the U.S., Gallagher, writing in the Guardian, asserts that America “did not prosper from its trade agreement.”
In conclusion, while FTAs will never turn out quite like they were expected to work, the U.S. should continue to pursue FTAs whenever the research shows that this kind of arrangement could be helpful to both countries. President Obama, who has been critical of NAFTA and is considering a renegotiation of the particulars of NAFTA, has a very divided Congress to work with and hence, it is not likely that anything will get done any time soon in terms of NAFTA and adjustments. Still this should not deter the U.S. from continuing to pursue FTAs with Colombia, Korea and Panama.
Cooper, William H. (2011). Free Trade Agreements: Impact on U.S. Trade and Implications
for U.S. Trade Policy. Collingdale, PA: DIANE Publishing.
Gallagher, Kevin, and Wise, Timothy. (2009). Nafta’s unhappy anniversary. The Guardian.
Retrieved August 9, 2012, from http://www.guardian.co.uk.
International Trade Administration. (2011). Free Trade Agreements. Retrieved August 9, 2012,
Kim, Hyun Chong. (2011). Dynamics of Free Trade Agreements: Benefits and Strategic
Considerations. SERI Quarterly, 4(3), 10-21.
Office of the United States Trade Representative. (2003). NAFTA at 10: A Success Story.
Retrieved August 8, 2012, from http://www.ustr.gov.
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