Over the years, neighboring countries have tried to form trading alliances with the aim of consolidating their ties and assist in exploitation of their potentials before they expand their operations to the rest of the world. As a result of the attempt, two or three countries come together to form a trading block. Trading blocks are highly influential as far as political and economic relations of member states are concerned. Some trading blocks are strongly influential within their regions of operations and beyond, in both political and economic aspects. For example, European Union which forms the largest trading block across the world, has reached the rest of the world and influenced some of their political and economic ideologies. This is because of the power of the trading block particularly due to the control of the west. In this paper, the key focus will be on NAFTA as one of most influential trading block across the world particularly in the northern part of America (United States Trade Representative, 2012).
NAFTA is the short form of North American Free Trade Agreement, which is a trading block of the northern region of American continent. Member states to the trading block include United States, Canada and Mexico. The block was formed in 1994, when former presidents for Mexico and United States and Mexican prime minister signed the agreement for a trading zone among the three states. This was just a continuation of the past relationship which had existed among the three countries. For example, five years before the introduction of NAFTA United States and Canada had already signed an agreement to establish a tariff free agreement. Mexico was also a good trading partner of the two countries and had no cases of conflicts for many years. The formation of NAFTA was just the inclusion of Mexico and consolidation of the good relationship that existed before.
Many trading blocks, across the world are formed with the aim of removing tariffs among the trading partners. NAFTA has a unique feature as far as this issue is concerned. This is because of the fact that the alliance concentrates on phasing out tariffs for 15 years and application of the rule of origin. The tariffs are lowered to favorable levels, but they are not full removed. The concept of origin in this case states that it is only goods from member states will be offered special treatment as far as trading tariffs is concerned. This implies that non-member states will have to pay for normal tariffs which are higher than what is changed, on member states.
As a result of the potential trading issues that may arise, there are some trading regulations established by NAFTA to guide trading parties across the block. These regulations are meant to enhance transparency and remove some misunderstanding among member states when it comes to trade between them. Investment in both the private and public sectors of in the trading block has been set free such that an investor from either country can undertake investment at their own will as long as they observe rule and regulation. This opened up opportunities to investors as their investment portfolio increased significantly. The other focused on during the formation of the trading block is the issue of protection of intellectual properties such as copyright and trademarks to avoid mistreatment or misuse of some of them. To ensure that disputes, misunderstanding and disagreements do not bring to an end the long built relationship, there was a mechanism to resolve critical problems among member states (Ackleson & Kastner, 2006). This is one of the reasons why the trading block has withstood to date despite many disputes.
The following is the map of NAFTA as the trading block involving United States, Canada and Mexico. Canada is the northern part of the trade union United States occupies the central part of the block which Mexico is at the south. The block constitutes of the Northern part of American continent. This implies that United States is at the central point of the trading block and hence plays a significant role (Webmaster, 2011).
As far as member states are concerned, each of them has unique characteristics which make them fit, within the trading block. United States is the world leading economy with stable manufacturing and service industry. Its education system is among the best in the world and hence stands a better position to develop its industries further. In addition, United States has the capacity to accommodate additional human resource, particularly the lower white and blue collar jobs. The America economy is large and hence offers potential market for member states to sell their goods and services. With the largest number of multinational in various sectors, united States stand a better chance to invest in member states. It has the largest geographical coverage (Webmaster, 2011).
Mexico is the smallest state in terms of geographical coverage is concerned. It is at the south of the trading block and exposed to South America. Mexico is a middle class economy and behind United States and Canada as far as development is concerned. It has numerous resources which have not been exploited, and high number of unemployed people. Its export capacity is growing at a promising rate as a result of expanded market particularly among NAFTA members. Mexico is in need of technical knowledge and direct foreign investment. In addition, due to high unemployment in the economy Mexico may take advantage of the labor demanded in United States.
Canada is the second largest country in the regional block. It is a manufacturing driven economy, with huge industries established in various sectors. The aim of these industries is to serve the international market particularly with technical equipments in security and communication. Canada is considered as one of the best countries when it comes to technological application in manufacturing. It has a preferred education system and hence produces high qualified human recourse to serve in its industries. Blue color jobs are readily available and are taken by emigrates from other countries. The country has also a lot of resources which are not exploited, and is in need of direct foreign investment, to expand its industries and enhance economic growth. United States is the key challenger to Canada in the regional economic development and stability. NAFTA offers a ready market for Canada.
The three countries have three elements in common. First, they are rich in natural resources including mineral salts, fertile land, and the ocean which extensive transport and international relations plat form. Secondly, member countries practice the capitalism as their economic policies with both public and private sector working hand in hand to drive their economies. Thirdly, the three countries have the required human resource capacity except in some isolated cases. Their education systems are modernized to offer the required expertise and skills to drive the economies.
NAFTA official statistics are a clear indication of how influential the trading block is in the region economic growth and integration. According to NAFTA.ORG, as per the year 2008 available data, the NAFTA economy had a combination of about $ 17 trillion, which is among the largest figure ever recorded in any other trading block apart from European Union. The whole population of the region within the trading block added up to 444.1 million people, with United States, Mexico and Canada constituting of 304.1 million, 106.7 million and 33.3 million. It is important to state that Canada has a relatively small population size, due to adverse weather condition. This is particularly so in its northern part, which is extremely cold for human occupation for long periods of a normal year. Key languages applied for official functioning and transactions among member states include English, Spanish and French (NAFTA.ORG, 2008). Trading among NAFTA members reached at $ 1.8842 billion, in the year 2008 with Mexico, United States and Canada sharing 393.5 billion, 919.9 billion, and 570.8 billion, respectively. Canada is the largest beneficially as far as foreign direct investment is concerned at $ 240 billion; followed by United States at $ 229.8 billion and Mexico at $ 156 billion. The formation of NAFTA as a trading block resulted into significant employment levels among all member states. Jobs created up to the year 2008 after NAFTA's formation were 4.3 million, 25.1 million, and 9.3 million for Canada, United States and Mexico respectively. These statistics are for sure an indication of the effect of the formation of NAFTA to member countries in terms of the economies and the welfare of the people (NAFTA.ORG, 2008).
Sources: Statistics Canada - Canada; Department of Commerce and Bureau of Labor Statistics – United States; and Mexico.
NAFTA is a beneficial trading block for multinational corporations within the region. The first benefit is the expanded market where multinational can outsource raw material from member states cheaply and sell their goods and services to the expanded market. This will increase their sales and profit amount. Secondly, multinational can no locate their production units in countries where production costs are highly low as they can take advantage and free flow of foreign direct investment and sell their finished products to member states. In addition, NAFTA embarks on infrastructural development among member states in terms of transport and communication which will assist in reducing cost of transport of raw material and finished goods to and from their production units to the market. It is therefore, clear that Multinationals from member states has an added advantage in the trading block when operating in a traditional system of trade (Ackleson & Kastner, 2006).
In conclusion, NAFTA is one of the best trading block across the world build on the basis of mutual benefit among member states. The relationship between the three members is strong and is expected to remain as a result of benefits accrued from their trading block since its formation. The block has assisted the members to overcome some of effect of world economic crisis due to their efforts and support which sealed the region against adverse effects result from European crisis. None of the members can advocate for the end of the agreement as there are future benefits which are not advisable for forego. There are deliberate efforts to resolve challenges facing their economic and political relationships.
Reference
United States Trade Representative (2012). North American Free Trade Agreement
Available at: http://www.ustr.gov/trade-agreements/free-trade-agreements/north-american-free-trade-agreement-nafta
NAFTA.ORG (2008) North American Free Trade Agreement
http://www.naftanow.org/facts/
Bliss, C. J. (1994). Economic Theory and Policy for Trading Blocks. Manchester: Manchester University Press
Webmaster (2011). The role and function of regional trade blocs: What are regional trading blocs?
Available at: http://ucatlas.ucsc.edu/trade/subtheme_trade_blocs.php
Ackleson, J., & Kastner, J. (2006). The Security and Prosperity Partnership of North America. American Review of Canadian Studies, 36(2), 207-232. Retrieved from http://www.informaworld.com/openurl?genre=article&doi=10.1080/02722010609481698&magic=crossref
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