NAFTA and its impact on Canada
NAFTA refers to the North America free trade area. It was an agreement which sought to reduce the trade barriers among the member states. This trade agreement was between America, Canada and Mexico. Though negotiations were completed on December 1992, the agreement took effect as from 1st of January 1994. Before the formation of this agreement, America had established trade relationship with Canada under the name of Canada and United States free trade agreement. The growth of trade between these two countries led to the inclusion of Mexico so as to enlarge the trading area thus the implementation of NAFTA.
NAFTA had several goals which included the removal or reduction of trade tariffs and to enhance cross border movement of goods and people between the member states. Another agenda of this treaty was to ensure larger markets for their commodities in the region and even internationally. The countries also sought to increase their investment opportunities among the states. As a member of this coalition, the impacts of this agreement on Canada are noticeable. Some of the effects of this agreement are to its advantage while others are detrimental to its economic growth and prosperity (Gianaris, 1998).
Impact of the NAFTA agreement on Canada’s economy The main goal of this agreement was to encourage trade relationship among the three states. With the elimination of the trade barriers, Canada’s export rose with almost a 100%. Most of its commodities were exported to America which now created new markets for Canada. Due to this arrangement, Canada was able to venture to areas it had not earlier managed to reach in American markets. This saw the rise in export and hence the gross income of the country.
Expansion of markets to Mexico was also an added advantage to Canada’s exports. Mexico created new openings for Canada’s products. Among the commodities that Canada exports to these countries are agricultural products and energy (Gianaris, 1998). Another aim of NAFTA was to encourage investment in the region. This provision allowed the member countries to invest anywhere within the region at subsidized cost. This was meant to encourage foreign investment. This agreement therefore opened avenues for Canada to invest in Mexico and even to set up enterprises there.
At the formation of the treaty, the service industry which was the pillar for Canada’s economy was fairing well and the agreement only served to ensure its growth. Canada through the agreement was able to enter and trade in Mexico’s financial markets and also to establish its own financial institutions in Mexico at a reduced cost. The incompetence of Mexico on financial markets and their operations also led to the rapid growth of Canada’s financial markets in this country. Mexico sought financial advice from Canada thus strengthening their trade bonds.
Apart from the financial market, Canada also invested in insurance and security industries as well as the trust companies. These are also considered as the backbone or the pillars behind the success of Canada’s economy (Bustillo, 2000). Employment was another benefit Canada has derived from this agreement. The agreements aim was to reduce unemployment levels in the whole region. After it was introduced in 1994, this paved way for foreign investment as well as local investment in Canada. Mexican and American citizens and their governments invested in Canada thus creating job opportunities for the Canadians.
Expansion of the markets necessitated an increase in production levels. The manufacturing companies thus had to employ more people to meet this high demand created by the markets. More people have ever since gotten employed in the industries. This raised the per capita of the individuals thus the economy of the country. Studies reveal that since the introduction of NAFTA, the unemployment level in Canada reduced by 6. 6% between the year 1994 and 2005. Enlargement of markets in the region led to high competition and also emergence of new products in the market.
This demanded for production of higher standard goods by Canada to stand the competition. This has led to improved technology in Canada and also has encouraged invention and innovation in the country. Varieties of products have been invented in Canada thus improving its competitive edge in the region. Growth in both the domestic and international markets translates to a better economic position for Canada. Foreign investment in Canada has also ensured that the citizens acquire goods at relatively low prices than it was before the trade agreement (Gianaris, 1998).
Another major economic boost that Canada obtained due to the formation of the NAFTA agreement was in its telecommunications sector. For effective implementation of the treaty, telecommunication was vital and Canada offered it to the entire region. This led to its growth and expansion and also higher returns. Apart from the telecommunication network, the agreement also opened up the borders of the three states for cross border transactions and movement. The labor tests and market tests which earlier used to be there were removed.
Cross border movements were thus made easier and foreigners from the three member states were treated fairly. This opened up a channel for Canadians to look for employment in either America or Mexico thus raising the living standards of these Canadians (Gianaris, 1998). The energy sector in Canada also benefited from this trade agreement. Canada being the leading supplier of energy and gas was at an advantage compared to the other two states. This was because the expansion of markets led to an increase in the demand for energy in this region.
Oil is also another commodity that Canada exports and this has placed it far ahead of Mexico and America. The expanded markets for these commodities have led to the growth of Canada’s economy (Bustillo, 2000). Despite the advantages brought about by NAFTA, has its own weakness which of late has raised concern especially with the Canadians. They argue that the agreement was meant to benefit the Americans and that it is a mechanism meant to gain control over the Canadian state. Since the introduction of this trade treaty, American investors moved to Canada in large numbers.
The growth of the trade and industry sector has necessitated more production to cater for the rising demand caused by increasing world population. This has led to increased strain on Canada’s natural resources and the agreement has no provision to control this. The agreement is thus criticized on the basis that it does not regulate such exploitation of resources and this could be detrimental for Canada and its inhabitants. This may have long term effects to the lives and the livelihood Canadians hence the economy (Schwartz, 1998).
While purporting to be environmental sensitive, America has continually imposed high tariffs on wood and other lumbering materials from Canada. This in turn has a negative effect to the farmers in the business of logging this wood. The high tariffs are meant to discourage logging and cutting down of trees. On the other hand, America for example is allowed to purchase wheat from farmers at low prices as stipulated in the agreement. This ends up benefiting the importers while the exporters suffer. This has a negative effect on the economy as well as the living standards of these individuals (Duchesne, 2007).
Canada is well endowed with natural resources like water and oil fields. The clause in the agreement which states that once a country has sold a commodity it cannot refuse to sell it at a later date is seen to be erroneous by the Canadians. Strict implementation of this clause would lead to exploitation of these resources which forms a strong base for the economy of Canada. This may also lead to destruction of the ecosystem and this may lead to negative effects of the country’s productivity in the future. The Canadians are also arguing that the agreement is interfering with their cultural heritage in which they adore.
Forming part of their culture is the environment which is being exploited day after day. This has led to calls for re-negotiation of the agreement with even some calling for it being discarded (Bustillo, 2000). The issue of deregulation contained in the trade agreement has led to heated debates on its effect to the long run economic activities of Canada. This article minimizes the extent to which a state can control its environment. Thus, environment is left to be controlled by actions of the member states. Canada’s environment is being said to be under threat of over utilization and over exploitation by America and Mexico.
This would lead to adverse outcomes on the economy as well as the citizens. The arrangement in this sense is not beneficial to the Canadians and is not environmental friendly (Schwartz, 1998). The agreement is also criticized on the basis that it has served to benefit America and Mexico and not Canada. This is notable by the increase in productivity of these two states. The Canadian argue that their dollar has continued to lose value as compared to the American dollar. This has made the Canadian exports to be cheap as compared to those of the other two states.
NAFTA has not addressed the issue of currency fluctuations and this has made America in particular to benefit more than Canada, thus the agreement has not lived to its goals of development for the whole region. The weakening of the Canadian dollar against the American dollar has led to uncertainness and delays in production of goods in Canada as the producers wait for the opportune moment to produce. This in turn has contributed highly to the low production rates experienced in Canada (Bustillo, 2000). Criticism has also arisen from the heath care systems of Canada.
Before introduction of NAFTA, the Canadian government was able to regulate and even fund public health care medical facilities. In 1999, the then government opened up this sector to private institution which included the regional investors. These investors offered night care for profit. This is detrimental to the citizens of the country. This has since been impossible to reverse due to the high penalties imposed by NAFTA for such an action. NAFTA agreement argues that retaliation of an earlier arrangement makes the other state to lose their business revenues and future inflows thus calling for a heavy compensation.
This elimination of barriers in all sectors by the trade agreements diminishes the government’s ability to control some of the vital sectors like the health sector. This has a negative effect to the Canadian citizens’ healthy in the long run (Dutta, n. d). Another sector which has been adversely affected by the agreement is the manufacturing industry. Traditionally, this sector was not highly regarded by the Canadian government since it did not contribute significantly to the country’s income. Lately, this sector has attracted attention especially with the continually increasing population.
With the formation of the agreement, this opened the sector to international investors from the region. The Americans took advantage of the highly educated Canadians to provide for cheap labor while the government only owned subsidiary branches of these companies. This has raised issues about the future of this industry in Canada (Schwartz, 1998). Those against this agreement argue that the long run economy of the country is at stake due to overdependence on this foreign investment. Also, the increase of foreign investment in manufacturing industry has hindered Canadian investors who wish to invest in this industry.
This is due to the high competition posed by products from these already established companies. The government has no power to protect these young industries from such countries. This has raised questions on the ability of the government to protect its citizens and their welfare (White, 1994). While exports increased when the agreement was implemented, imports also increased. There are negative impacts caused by an influx of imports in a country. An increased import reduces the gross national income of a country thus weakening its economy.
The opening of the borders and the reduction or elimination of trade tariffs also led to dumping of good in Canada. An increase of foreign goods in the country increased competition for the locally produced goods thus reducing their sales which has negative effects for local producers. Also, NAFTA is criticized on the basis that it failed to separate the state and politics. Different political interests and methods exercised by these three states have caused the tension and strain to this trade (Schwartz, 1998). Conclusion
NAFTA can be credited for the growth which has been experienced by Canada for the past years. Canada export to America for example is estimated to be more than 50% of its total exports. This has led to the tremendous growth in the country’s economy and its expansion in different sectors. However, with the growing of the population in this region, the negative effects which have been as a result of the agreement cannot be overlooked. Necessary amendments should be made to ensure that the negative impacts are reduced while strengthening the relationship of these three states.
The most notable of the negative effects which have erupted is its effect on the ecosystem of the three states. Canada for example argues that continued implementation of this agreement would lead to extinction of its major water catchments areas. This could lead to devastating effects on the economy of Canada. Reference: Bustillo I. (2000): Overview of Economy-Wide NAFTA Models Journal article of International Journal of Public Administration Duchesne E. (2007): Lumbering on: the State of the Canada-U. S. Trade Relationship Journal article of American Review of Canadian Studies, Vol.
37 Dutta G. (n. d): NAFTA and GATS Undermine Canada’s Health Care System http://home. earthlink. net/~twoeyesmagazine/issue3/healthside. htm. Gianaris N. V. (1998): The North American Free Trade Agreement and the European Union. ISBN 0275961672. Published by Greenwood Publishing Group Schwartz M. A. (1998): NAFTA and the Fragmentation of Canada Journal article of American Review of Canadian Studies, Vol. 28 White W. R. (1994): The Implications of the FTA and NAFTA for Canada and Mexico http://dsp-psd. pwgsc. gc. ca/Collection/FB3-1-70E. pdf.
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