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Should NAFTA expand?: An analysis of expansion.

Article Excerpt
ABSTRACT

The emerging global economy differs from the international economy in that resources are becoming more mobile and intra-industry trade is becoming more important. Evidence is presented that these developments require compatibility and harmonization of technical and policy standards. It is easier to harmonize standards on a regional level than globally; thus the rise of regional integration movements (Atkinson, 1998). This idea has led many to support the expansion of NAFTA to include other regions, such as South America. There are potential advantages and disadvantages to expanding free trade agreements. Therefore, several considerations must be taken into account before the U.S. enters such agreements. However, the U.S. must actively seek to expand its trade agreements with other countries or risk losing influence over decision-making processes in achieving globalization.

INTRODUCTION

The North American Free Trade Agreement (NAFTA) has raised several questions, since discussions began to establish the agreement. One heavily debated question was whether NAFTA would lead to the expansion of free trade agreements in other regions across the globe, and if this would be a viable prospect for the U.S. There are several reasons for establishing free trade agreements but several issues must be addressed before such agreements can be implemented.

The rationale for developing international trade is focused on economic developments and politics. The globalization of the world's economy establishes the need to form trade agreements with other countries. Today, economies are interdependent therefore; events in one country affect other countries in the world. For this reason, globalization is a desirable goal. NAFTA is a prime example of an integration technique used to achieve globalization. Proponents contend that regional trade agreements (RTAs) will enable a smoother transition into the globalization of trade policies. This argument has forced the U.S. to evaluate the expansion of its current trade agreements, such as NAFTA.

Developing free trade agreements involves numerous factors that must be taken into consideration. The understanding and identification of two specific factors is crucial for the success of expanding NAFTA and free trade agreements in general. First, the U.S. must gain an understanding of the economy and political environment of the country or region where expansion is proposed. Understanding these factors allows the U.S. to only enter into productive agreements. Identifying distinctive competencies is another element in target regions or countries and in the establishment of successful agreements. The distinctive competencies of a country's are the natural resources and/or processes that distinguish the country from others with the same resources or products available. Identifying these competencies helps the U.S determine how to best utilize strengths and implement successful strategies.

A major concern associated with expanding NAFTA arises from differences in economic, social, and political policies. These policies dictate the way countries conduct business operations, which alters the way partner countries conduct their business operations. NAFTA negotiations were prolonged because of these issues. During NAFTA negotiations, labor and environmental policy differences were addressed at great lengths. U.S. labor unions were concerned that labor policies in Mexico would eliminate jobs for Americans, and environmentalists were concerned that lower environmental standards and lack of enforcement of such policies would cause corporations to relocate. Another consideration the U.S. must take into account are existing trade agreements in a region. Stipulations in existing agreements can make it difficult for the U.S. to expand its trade agreements.

The objective of this study is to determine if the expansion of NAFTA would be a viable prospect for the United States. This study will also provide a detailed investigation of factors associated with the level of success attained by such agreements.

LITERATURE REVIEW

The United States is one of the strongest economies in the world. Therefore, other countries often try to emulate the decisions made by the U.S. By expanding regional trade agreements, the U.S. sets the standard for such agreements and is viewed as a leader in globalization. Globalization can be achieved more efficiently through expansion of regional trade agreements such as NAFTA (Pasquero, 2000).

Proponents of international trade contend that nations should specialize in production and trade to take advantage of their different resource bases. The existence of an emerging global economy differs from the international economy for two main reasons. First, resources are becoming more mobile. Second, intra-industry trade is becoming more important. Furthermore, evidence suggests that harmonization of technical and policy standards are crucial to successful...

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