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NAFTA

The North American Free Trade Agreement or as its most commonly known NAFTA is a comprehensive rules-based agreement between the United States, Canada, and Mexico, that came into effect on January 1,1994. All three countries signed it in December of 1992; later on November of 1993 it was ratified by the United States congress. NAFTA was not only used in cutting down on tariffs between both countries but it also help deal with issues such as Transportation, Border Issues, and Environmental Issues between these two countries. NAFTA changed some tariffs immediately and within fifteen years other tariffs will fall to zero. NAFTA was not created to just lower tariffs it was also created to open protected sectors in agriculture, energy, automotive trade, and most importantly textiles. It also opened up the U.S. Mexico border to previously restricted areas of trade. It set rules on government procurement and intellectual property.
Now after its fourth year of existence it is apparent that it is good for Mexico and the United States. Because of NAFTA Mexico has been able to make significant changes in their economy, far more than the U.S. The Mexican overall trade balance went from a $18.5 billion deficit it 1994 to a $7 billion surplus in 1995. Even though American exports slipped $4 billion in 1995, the recovery of the Mexican economy in 1996, when the GDP grew 5.1%, American exports came round and grew to 20%, later to 35% thanks to NAFTA. Also because of NAFTA two way trade between the United States and Mexico has grown to 60% from 1993.
Although Mexicos economy is making its first boom in sixteen years, it is still economically small compared to the U.S. Mexicos economy has been compared to that of the size of Florida. Because of this all the hype about the loss of jobs to the U.S., especially California, have been taken over the top. According to the most recent information it was proved that NAFTA has had almost no effect on U.S. employment levels. At first when NAFTA came into effect U.S. employment levels did decrease, but within three years all employment went back up to normal. Some say that this in fact is not due to NAFTA, but to the continuing expansion of the U.S. economy.


Another aspect that has made Mexicos economy boost is the Maquiladoras program. It began in 1995 as a side program of NAFTA, and set up a special customs regime in Mexico. It allows certain corporations duty-free imports of raw materials, equipment, machinery, and replacement parts, into Mexico. This is done to attract manufacturing of goods in Mexico. The U.S. tariff schedule provision known as 9802, formerly known as 806/807, greatly assisted the development of the Maquiladoras industry. This permitted U.S. goods to be exported to Mexico and face a duty only on the value added when the finished product is imported back into the United States. In 1996 40% of all Mexican exports to the U.S. were from the Maquiladora program. Also the U.S.-Mexico Chamber of Commerce conceived a group named Transformation 2000, whom would inform and educate all manufactures on the Maquiladora programs by the year 2001.
The Maquiladora program has also been an integral part in the rapid growth of the Mexico-U.S. border region. The U.S.-Mexico border separates four U.S. states (California, Arizona, New Mexico, Texas) and six Mexican states (Baja California, Sonora, Chihuahua, Coahuila, Nuevo Leon, and Tamaulipas). These are all called the twin cities, although the border politically separates them they share common air sheds and drainage basins. Seventy percent of all Maquiladoras are located in the border region of Mexico. Over 1,600 Maquiladora plants in the border area employ over 510,000 workers, about half of which are located in the two biggest Mexican border cities of Tijuana and Ciudad Juarez. There was a 13% growth in Maquiladora employment in the border region, within the interior of Mexico it was actually 28 %. At first most of the Maquiladora plants used very low skilled assembly workers but in the most recent years these plants have become more sophisticated and technologically advanced that a large number of Mexican engineers are being employed. Much of the growth in the U.s. twin cities is directly related to the growth on the Mexican side of the border. Not only have retail sales boomed with many Mexicans doing much of their shopping on the U.S. side of the border, but many firms have been established to supply the growing Maquiladoras across the border.

The rapid growth in the border region has significantly outpaced the development of the infrastructure. The twin cities in the border region share common pollutants, drinking water and diseases. About 20% of the population on the U.S. side of the border lives at or below the poverty line compared with a national average of 12.4%. The growth of the border cities has been so quick that both governments have not been able to handle the increase in infrastructure to meet environmental regulations. Both governments have also not been able to speed up Transportation Infrastructure. Physical trade of goods between the U.S. and Mexico has doubled since 1990. Most officials and border residents feel that transportation infrastructure is o.k. But there needs to be some additional construction in order to fully utilize existing facilities. Although transportation can be moved by train, ship or air, truck still remains the most important means of transporting goods across the border. Normally trucks are forced to wait in long lines for several hours; this is due to the lack of adequate infrastructure. This also causes polluting exhaust to escape into the air causing an even greater problem in the border air; this causes 20% of all air pollution. The 2,000-mile border separates two regions with totally different economical levels as well as environmental concerns. The North American Agreement on Environmental Cooperation (NAAEC) was approved as a side agreement to NAFTA to insure that all parties enforce national and international environmental laws. It was also created to address any environmental problems due to NAFTA implementation. Because of this two environmental agencies have been set up to tackle these issues, they are the Border Environment Cooperation Commission (BECC) and the North American Development Bank (NADBank). They have set up mechanisms that allow community participation as well as allocated and approved funds for infrastructure projects. This in turn has created an upswing in the battle against environmental pollution along the U.S.-Mexico Border, may they be directly related to NAFTA or not.


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