North American Free Trade Agreement Economics Essay

North Ameri end Free deal out Agreement Economics EssayThe North American Free mountain Agreement (NAFTA) is an agreement signed by Canada, Mexico, and the joined States of American that came into depression January 1st, 1994. This agreement established the worlds largest free swap region involving over cd million people and 11 trillion dollars in annual production.1It established a late trading relationship based on more secure and more open access to distributively others markets. It was supposed to assume benefits to several sectors of the Canadian economy. everyplaceall, consumers in all three countries were supposed to evisce esteem the benefits of the more efficient distribution of resources and by correcting less for goods and services. NAFTA advocates that roof owners win, workers win, consumers win thitherfore everyone is better off living to a lower place NAFTA. legion(predicate) government officials, businesses, and citizens however, gestate debated whethe r NAFTA has been beneficial to Canada. Proponents of NAFTA claim that because the agreement exit amplification pot throughout North America and moderate product prices, it get out lead to creating new romps in all three countries. NAFTA, while it has brought slightly disadvantages for Canada, as a whole it has had a positive effect. The positive effect of task creation and elevateder takings has been outweighed by the negative effectuate on the manufacturing industry specifically, the auto sector. In addition, Canada has succeeded in maintaining juicy work standards and constabularys comp be to its NAFTA partners due to Canadian legislative environment that alleviate against downwardly(prenominal) harmonization.This musical composition get out examine three aspects of NAFTA and its effects on Canada. First, it will look at task and discuss the effects of NAFTA on practice session and yield. Then it will examine the manufacturing industry, in particular Canadas self-propelled industry. Finally, the paper will look at why Canada has been able to maintain high tire standards and laws comp ar to Mexico and the United States. It will conclude that any impairment for Canada is outweighed by the gains.One of the main issues by labour rights advocates was that growing trade liberalization would jeopardize the Canadian economy to cope with low-wage workers in Mxico and the southern United States.2This was supposed to push investments away from Canada, especially from low-skilled industries, starring(p) to plant closures and cutbacks resulting in job losses. It was further argued that the competitive environment would causes allowance to decrease. Gunderson simulated the possible impact of NAFTA and analyzed the expected wage and function impact of trade liberalization. His guide showed that the overall impacts are likely to be positive but extremely small for both Canada and the United States, as job created associate with export expans ion is slightly high than job destruction associated with sum upd imports. He too found that job gains would be at the high end of the wage spectrum, while job losses, which can be significant in some sectors, would be at the move end.3Opponents may argue that this is not beneficial to the economy as on that point are more people in Canada functional in low-end jobs than there are in high-end jobs. When the low-end job workers are unable to find role they would be strained to go on social welfare such(prenominal) as un involvement insurance. This would cost the government more because the government would lose a source of income due to the elimination of tariffs, less people paying income tax, and encouraging the unemployed through unemployment insurance and other welfare programs. However, this is not the role because studies sire shown NAFTA has had no effect on unemployment, instead since NAFTA came into effect Canadas employment rate has increased.In a recent see co nducted by the chamfer of Montreal involving 109 senior executives in Canada, it concluded that majority of the businesses have either employ more or employed the same sum up of people since NAFTA came into effect. In addition, most employers reported that NAFTA has not affected their labour costs and it has increased their productivity level.4This increase in productivity may have to do with fear of relocation to southern United States or Mexico. In Canada, 50 pct of the senior executives reported that they had hired more workers, 39 percent stated no changed in work force size, and merely 11 percent reported they had lost workers.5This study shows critics that NAFTA has not resulted in unemployment and companies have either hired more or employed the same number of people while increasing productivity levels.A study conducted by Vicario, an economist with the North American Agreement on Labour Cooperation (NAALC), supports the findings of the avow of Montreal. Using Canada Lab our Force statistics, she found that the average growth rate of employment from1994-1998 remained at 1.9 percent per year, or an annual increase of 258,000 jobs. well-nigh of these jobs were full-time, as matters of fact, in 1998, 9 out of 10 jobs created were full-time. What is more affect is that workers salary increased by 2.6 percent between 1994 and 1997 and 0.3 percent in 1998.6This study goes a step further because it proves to NAFTA critics that NAFTA has helped create jobs and increased earnings for the employees. It is safe to say that employers are making a larger profit because they would save increase wages if their profits increased. This research shows that NAFTA has not only created jobs but also increased company profits and employee wages.Kumar and Holmes conducted a study in the auto industry of Canada, a sector that NAFTA critics feared would have jumpy negative impact due to low-wage competition from Mexico and southern United States. Their study concluded that production level and employment in the Canadian automotive parts industry grew significantly between 1991 and 1996. They further claim that there is no evidence to suggest that NAFTA has had any negative effects on the Canadian auto industry.7Regardless of these positive effects, employers and unions have been pressured to reduce wages and cut jobs in the manufacturing sector.8This is a small price to pay because overall Canada has become a richer country since NAFTA came into effect. Overall, Canada has had a higher employment rate, higher company profits, and higher wages.harmonize to Canadian unions, companies would invest where there are reasonably low labour and environment standards. These investment decisions, and the threat to re-invest, would accordingly force governments to lower their labour standards in order to attract new or oblige existing business.9Although these fears are legitimate, studies have shown when investors choose a country to invest, they place th e value of workforce, social, and political steadiness over labour cost.10They do so because high labour standard result into high levels of productivity and economic performance. Satisfied workers are an outcome of high wages and high work place standards that results in a higher look of performance. Higher safety standards have proven to reduce costly study accidents and save on health care bills. Freedom of association and embodied bargaining will result in better cooperation between precaution and workers, thereby reducing if not eliminating costly strikes and improve social stability.11Since Canada has a higher rate of unionization than the United States thanks to Canadas beneficial labour laws, downward harmonization posed a serious threat to Canadian unions.12There are a number of factors that prevent downward harmonization in Canada. First, labour laws fall mainly under provincial jurisdiction and therefore, ideological forces are more influential.13For example, the New Democratic Government in Ontario under the leadership of Bob Rae passed several pieces of pro-labour legislation such as, proscription on the use of replacement workers. The social democratic governments in British Columbia and Saskatchewan have also passed several labour-friendly legislations to protect the interest of workers.14The successful implementation of these legislations proves that NAFTA has change Canadian labour standards and laws.Secondly, labour boards and independent arbitrators have enjoyed greater autonomy in enforcing their decisions though court orders in Canada. Over time, and with relevant court decisions, a significant body of case law15has developed, and it would be tough for pressure from free trade to weaken this base. In the United States, employers often use the means of courts to oppose decisions by the discipline Labour Relations Board (NLRB). This however, is not a problem in Canada.16Third, unions in Canada are often more cautious and political t han in the unions United States. Their constant support from left-leaning New Democratic Party governments has strengthened their agenda on the legislative process. In addition, their vigilance against free trade was in a large part responsible for public dissatisfaction of NAFTA in Canada, as shown in national polls, and making NAFTA an election issue.17These kinds of tactics will most likely continue to prevent anti-labour laws being passed in Canada.According to research conducted by Gunderson, four relationships essential exist for downward harmonization of labour laws and standards to add up because of trade liberalization. First, the labour laws must be employ and actively enforced. Secondly, the laws must lead to an actual or perceived increase in labour costs to business. Third, the higher labour costs must discourage investments and influence plant location decisions. Fourth, jurisdictions must compete against each other for investments and jobs based on decreasing their costly labour laws.18though it is possible for the race to the lowest common denominator, considering the inter-connectivity of these relationships and the political and institutions influence working to prevent downwards harmonization, it is highly unlikely it will ever occur in Canada.Many critics argue that there has been a decline in Canadian social standards, such as cutbacks in employment insurance, pensions, and health insurance since NAFTA came into effect19However, these cuts back are probably due to pecuniary problems facing governments rather than NAFTA. There is also persistent pressure on both provincial and federal governments to cut taxes that may result in less spending on social welfare programs.Thus, the optimistic results of job creating and higher wages have outweighed the negative results on the auto sector. Canada has also been able to maintain its high labour standards and laws compare to Mxico and the United States. Critics have argued that Canada would los e jobs due to re-location to other NAFTA partners this has not been the case as studies have shown NAFTA has not resulted in unemployment. NAFTA has shows to increase company profits, employee wages, crate jobs, and increase productivity levels. Though unions in the auto sector have been forced to reduce wages and cut jobs, it is a small price to pay for higher employment rate, higher company profits, higher wages, and the ability to retain business in Canada. Unions thought Canada would have to lower its labour standards and laws to compete with Mexico and the United States however, studies have shown when investors choose a country to invest, they rank the feeling of workforce, political, and social stability above low labour cost. There are also several institutions and ideological forces in place that work against downward harmonization of labour standards. After 16 years of living under NAFTA, it is safe to assume that Canadian consumers will keep reaping up the benefits for numerous decades to come.