America’s New Free Trade Agreement Essay Example

America’s New Free Trade Agreement Essay Example America’s New Free Trade Agreement Essay America’s New Free Trade Agreement Essay The North American Free Trade Agreement (NAFTA), implemented in the year 1994, is meant to remove barriers to trade between the United States, Canada, and Mexico. An important component of this free trade agreement is the member countries’ concern for environmental as well as labor issues, which must be worked on and agreed upon by the member countries. Yet another significant component of NAFTA is that of conflict resolution between the member nations. For this, the free trade agreement outlines procedures (Topulos).Since the time that it was first implemented, NAFTA has proved to be a positive experience for all member countries. In Mexico after NAFTA, poverty rates were reduced, and the real income increased, despite the economic crisis that the country went through during 1994-1995. Experts believe that the free trade agreement has the potential to reduce the poverty of Mexico even further. Trade among member nations has already increased tremendously. Goods produced in the United States, Canada or Mexico, are now distributed simultaneously in all three member countries. Moreover, the Mexican factories that process imported raw materials into finished goods for export have seen a dramatic increase in their income. Trade in other sectors of the Mexican economy has also increased. In the area of agriculture, Mexico has witnessed a steady increase in exports every year since the inception of NAFTA (North American Free Trade Agreeme nt). Undoubtedly, NAFTA is expected to benefit Mexico also in the future, just as the benefits of the agreement are being realized more fully today by the United States and Canada. The latter are expected to still increase their benefits of NAFTA with Mexico’s economic development.Given the benefits of NAFTA to the economies of the member countries, and the faith of the United States that it should have firm economic relationships with its neighbors – in December 2003, the United States, El Salvador, Guatemala, Honduras, and Nicaragua completed their negotiations on the newest free trade agreement in the region: the Central American Free Trade Agreement or CAFTA (Promoting Trade With Central America And The Dominican Republic). The United States and Costa Rica agreed on the latter’s participation in the new free trade agreement in January 2004. Two months later, the United States concluded negotiations also with the Dominican Republic to integrate the latter int o the CAFTA. This changed the name of CAFTA to DR-CAFTA, or the Dominican Republic-Central America Free Trade Agreement (Costa Rica).The goal of DR-CAFTA was the establishment of a free trade zone, which would be similar to the NAFTA. Thus, the DR-CAFTA removes tarrifs on approximately 80 percent of the U.S. exports to the other member countries (Dominican Republic-Central America Free Trade Agreement). By so doing, the new free trade agreement makes it especially beneficial for member countries that are economically weak to buy high quality U.S. products and thereby raise their standards of living. What is more, the agreement allows for easy access of goods from member countries into the United States market. Once again, the economically weak member countries are bound to benefit substantially through the new agreement, seeing that they may now have the gigantic U.S. market to sell their products to (Runyon).Other provisions of the DR-CAFTA include: (1) a promise made by the govern ments of all member countries that foreign investment is guaranteed in their respective nations; (2) a gradual removal of all barriers to trade that were initially meant to protect domestic production; (3) no duties on the import of agricultural goods; (4) subsidies on all agricultural goods, except sugar, must be eliminated; (5) intellectual property rights must be maintained; (6) a gradual removal of protectionist barriers in all sectors; (7) national monopolies must be dismantled so as to allow foreign investments to compete equally with the domestic organizations; (8) transnational companies would be given the right to resolve conflicts in private international courts; (9) the environment must be respected, and environmental laws abided by; (10) the major labor standards of the International Labor Organization must be enforced in all member countries; and (11) government corruption must be reduced and eventually eliminated in all member countries, especially the economically wea k ones where corruption is rampant (Dominican Republic).The United States’ economy would benefit by selling tariff-free goods to the member countries of the DR-CAFTA. The DR-CAFTA states would be able to purchase more U.S. goods than before, seeing as the tariffs would have been lifted. It is worthy of note, however, that the combined GDP of the DR-CAFTA states is only 0.5 percent of the GDP of the United States. The quantity of U.S. goods that the DR-CAFTA states would be able to purchase would be limited but naturally. Still, the benefits that these states achieve in the long run through the DR-CAFTA are expected to be greater than the benefits that the United States would be able to realize. This is because the DR-CAFTA states are all economically weaker than the U.S. Thus, positive changes manifested in the economically weak states would appear to be much greater in extent (Runyon).Although the effects of the new free trade agreement between the United States, Dominican R epublic, and five Central American countries, have not been documented as yet, it is believed that once the DR-CAFTA has been fully implemented, the United States would be able to increase its exports to the member countries by approximately 15 percent. U.S. imports are similarly expected to increase by around 12 percent, while the effect on the aggregate output as well as employment in the United States is expected to be little. Hornbeck states: These estimates are in line with expectations made prior to the negotiations that the marginal effects of the DR-CAFTA would be small, but positive for the U.S. economy as a whole, given the DR-CAFTA countries had small and already largely open economies.Once again, the overall benefits of DR-CAFTA would be more clearly visible in the DR-CAFTA states in the long run, just as the case of Mexico and NAFTA reveals greater interest in the benefits of NAFTA to Mexico. Just as NAFTA reduced poverty rates in Mexico, increased trade in the DR-CAFTA nations is expected to reduce poverty rates in these nations. However, it may take a while before the full benefits of DR-CAFTA are realized in these nations. Molly Runyon explains why the full range of benefits of DR-CAFTA would not be immediately visible in the economically weak nations: 1. Costa Rica. Retrieved from ustr.gov/assets/Document_Library/Reports_Publications/2004/2004_National_Trade_Estimate/2004_NTE_Report/asset_upload_file462_4745.pdf. (7 April 2007).2. Dominican Republic-Central America Free Trade Agreement. Wikipedia (2007). Retrieved from http://en.wikipedia.org/. (7 April 2007).3. Hornbeck, J. F. The Dominican Republic-Central America-United States Free Trade Agreement (DR-CAFTA). Congressional Research Service (2005, July 6). Retrieved from http://price.house.gov/UploadedFiles/CAFTA%207.6.05.pdf. (7 April 2007).4. North American Free Trade Agreement. Wikipedia (2007). Retrieved from http://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement. (7 April 2007 ).5. Promoting Trade With Central America And The Dominican Republic. The White House. Retrieved from whitehouse.gov/index.html. (7 April 2007).6. Runyon, Molly. Free Trade in Weak States: The Case of DR-CAFTA in Nicaragua. Retrieved from http://fletcher.tufts.edu/research/2006/Runyon.pdf. (7 April 2007).7. Topulos, Katherine. NAFTA. Duke University School of Law (2007). Retrieved from law.duke.edu/lib/researchguides/pdf/nafta.pdf. (7 April 2007).