North America Free Trade Agreement (NAFTA)

The North American Free Trade Agreement which went into effect on January 1, 1994, merged United States, Canada and Mexico into the mega market with more than 421 million consumers. The agreement breaks down tariffs and trade restrictions on most agricultural and manufactured products over a 15 year period. The treaty built on the 1989 US – Canada agreement and was intended to spur growth and investment increase exports, and expand jobs in all three nations.

The negotiations resulted in agreements in a number of key areas:

1) Agriculture: Immediate removal of tariffs on half of US farm exports to Mexico with phasing out of remaining tariffs over 15 years.
2) Autos: Immediate 50 percent cut of Mexican tariffs on autos, reaching zero in 10 years. Mandatory 62.5 percent North American content on cars and trucks to quality for duty free status.
3) Transport: U S trucking of international cargo allowed in Mexico border area by mid 1990s, and throughout Mexico by the end of the decade.
4) Intellectual property: Mexico’s protection for pharmaceutical patents boosted to international standards and North American copyrights safeguards.

In the past decade US trade with Mexico increased more than threefold, while trade with Canada also rose dramatically . NAFTA has spurred the entry of small businesses in to the global arena. Jeff Victor general manager of Treatment Products Ltd which makes care cleaners and waxes, credits NAFTA for his surging export volume. Prior to the pact, Mexican tariffs as high as 20 percent made it impossible for the Chicago based company to expand its presence south of the border.

On the tenth anniversary of the agreement in January 2004, opinions over the benefits of NAFTA appeared to be as divided as they were when talks began, with some people calling it a spectacular success and others referring to it as a dismal failure. Although NAFTA has not lived up to its grand expectations experts stress that it has increased trade, investments and income and continues to enable companies in all three countries to compete more effectively with rival Asian and European.

Other trade Alliances:

The creation of trading blocs is an increasingly important aspect of international business. The association of Southeast Asian nations (ASEAN) is a trading alliance of 10 Southeast Asian countries, including Cambodia, Vietnam , Singapore Malaysia, and the Philippines as illustrated in Exhibit. This region will likely be one of the fastest growing economic regions of the world, and the ASEAN could eventually be as powerful as the EU and NAFTA . A free trade block known as Mercosur encompasses Argentina, Brazil, Bolivia, Chile, Paraguay, and Uruguay. And more than 30 countries in Central and South America and the Caribbean region are negotiating to establish a free Trade Area of the Americas ( FTAA) expected to be operational by 2005. These agreements entail a new future for international companies, and both corporation and the managers will be affected by these important trends.

The globalization Backlash:

As the world becomes increasingly interconnected a backlash over globalization is occurring. Perhaps the first highly visible anti-globalization protest occurred at the meting of Word Trade Organization (WTO) in Seattle, Washington in the fall of 1999, where business and political leaders were caught off guard by the strong sentiments. Since then, protester have converged on both the international Monetary Fund ( IMF) and the World Bank. These three organizations are some times referred to as The Iron Triangle of globalization.

A primary concern is the loss of jobs as companies export work to countries with lower wages.

Source: New Era of Management