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    Costs of Compliance & Non-Compliance with Regional Trading Blocs

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    A. Identify advantages and disadvantages of being a member of the North American Free Trade Agreement (NAFTA) and the Latin-American Integration Association (ALADI) regional trading blocs. Identify membership conditions for NAFTA and ALADI regional trading blocs and determine whether these will have a positive or negative impact on the bilateral or multilateral relations with the United States.

    b. Assess the costs of compliance and non-compliance with regional trading bloc rules and regulations.

    c. Analyze the impact of trade transactions among member countries, non-member countries, and other trade blocs.

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    Solution Preview

    Please see the attached file.

    a) NAFTA:
    The North American Free Trade Agreement (NAFTA) is a great milestone in international trade for the United States, Mexico and Canada. It has liberalized trade among the three countries and had an overall positive impact on each country's economies. NAFTA especially impacted the agricultural sectors of each country. Although there have been several trade disputes and controversial issues, the agricultural economies of each country benefited. The main objective of NAFTA was to eliminate barriers to trade and investment between the United States, Mexico and Canada. Other objectives were to promote fair competition, protect intellectual property rights and increase investment opportunities.

    Advantages:

    As with any trade liberalization initiative or other economic change, NAFTA affected some U.S. sectors positively and others adversely, but there is little doubt that on the whole, the agreement produced real net benefits for U.S. workers and consumers. It has also served as a model for a number of subsequent bilateral and multilateral free trade agreements that will further extend the benefits of free trade while enhancing political and economic reforms that are fostering stronger democracies and civil societies throughout the world.

    1) Each of the three member countries derives significant benefit from their agreement to reduce trade barriers. The United States needs resources from both Canada and Mexico, and it needs a large market for its export sector. Canada is a large industrialized country, rich in both resources and literacy, but with a small population and domestic market. Mexico has an abundance of oil and natural gas. It also has a rapidly expanding population and a relatively large semi-skilled and unskilled labor force. It needs the US and Canadian markets to help expand its exports and create more jobs in Mexico.

    2) NAFTA's success has encouraged the United States to promote U.S. interests by negotiating a variety of free trade agreements with countries around the world. The Administration seeks to secure the benefits of open markets for American consumers, farmers, workers and businesses by pursuing trade initiatives globally, regionally and bilaterally. In doing so, the United States hopes to foster conditions that will help energize the economies of our trading partners and develop new markets for American goods and services.

    3) Consumers are the biggest beneficiaries of a free trade agreement, because they get better products for lower prices.

    4) By any measure, NAFTA has promoted export-led growth in North America writ large, and the benefits have been directly felt here in the United States. Greater, more open markets allow American companies to compete better in the world economy, creating new, higher wage jobs at home. Lower barriers to trade improve the quality of life by reducing consumer and producer costs and improving economic efficiencies.

    5) The movement of goods and people creates stronger international linkages amongst our three countries, facilitating travel, tourism, and greater understanding through the constant exchange of ideas and cultures. As with the "Great Melting Pot" concept, all NAFTA countries benefit from the increased diversity in people, languages, ideas and energy generated by an expanding international society.

    6) A major social dimension was added to NAFTA via the North American Agreement on Labor Cooperation (NAALC, i.e., NAFTA's supplemental labor agreement), which seeks to improve working conditions and living standards by committing the three countries to accept eleven labor principles to protect, enhance and enforce basic workers' rights.

    7) Another positive impact of NAFTA has been an improved transportation system among the member countries. Better transportation became necessary because of the high growth rate in agricultural products. Mexico has benefited most in this area. NAFTA became the first trade agreement in the history of the world to include environmental policies.

    Disadvantages:

    NAFTA is not without its problems, of course.

    1) One of the fears is that jobs will be lost in the home country to (more efficient) producers in the other member countries. This was an especially large issue in the United States when Mexico joined NAFTA. Many people were opposed to Mexico's entry out of concern that American jobs would be lost to Mexican workers who work for lower wages.

    2) There was also a concern that Mexico's lower environmental standards gave Mexican firms an unfair comparative advantage.

    3) Another problem with free trade areas called the trade diversion effect. When a country enters into a free trade agreement with its associate members, it diverts trade from outside the region to more trade within its ...

    Solution Summary

    This post lists advantages and disadvantages of being a member of the North American Free Trade Agreement (NAFTA).

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