Pros And Cons Of North American Free Trade Agreements

Free trade agreements (FTAs) are treaties between nations and aim to reduce barriers to trade. FTAs assist in the protection of local markets and industries and increase the scope of people to which they can sell their products. Additionally, they are designed to increase competition, leading to variety in customer choice and lower prices for products, subsequently benefiting consumers. FTAs can have varied implications for organisations, employers and related stakeholders through both economic and social aspects. Free trade is able to allow for businesses to thrive through a comparative advantage, and allows for businesses to expand through diversity and expertise. Yet they may prove detrimental to nations, hence organisations, involved, due

Agreements with countries such as Japan can help to increase the Australian economy, create more jobs and benefit consumers. It is expected that over the next few years, this agreement will result in the creation of thousands of jobs whilst improving households who will be $4000 better off. The Australia-Japan agreement also meant that tariffs on Australia’s biggest cultural export halved. This meant that Australian consumers benefited from the downward pressure for prices on Japanese cars, car part and various household items. Additionally, the benefits to the agricultural and manufacture sectors will enable businesses to have a comparative advantage. The elimination of tariffs has allowed the participants of The North American Free Trade Agreement (NAFTA) to focus on efforts on natural advantages. While the U.S. has an advantage in producing high-quality goods for low costs, Mexico is able to produce certain foods at a lower cost. Hence both countries are able to purchase one another’s products at a cheaper price and is an intention of FTAs. Consequently, exporters are able to produce more, increasing their nation’s Gross Domestic Product. (GDP). This can also lead to economies of scale for a business. Thus free trade allows for countries to benefit from a comparative advantage they may have in producing goods and services. Coupled with tariff

Further, movement of labour also increases economic status of people through the creation of jobs. As a result, there may be a gradual reduction in poverty, asserting that FTAs may be of benefit to developing countries. For instance, under NAFTA, 200,000 export-related jobs are created annually, providing incomes between 15-20% more than manufacturing jobs that have been outsourced from America. Additionally, developing countries have the ability to transfer their highly skilled labour to developed countries accounting for high performance in domestic industries leading to an increase in productivity and economic growth. Global companies have more expertise to develop local resources more than domestic companies, and is evident in mining, oil drilling and manufacturing companies. In addition, these local companies gain access to technology which is vital to higher growth (Asid and Khalifah, 2016). This economic growth is reflected in an increase of gross domestic product and exports for developing countries such as Africa and East Asia. For example, much of Latin America’s middle income level countries have paired with countries such as China resulting in financial system improvements. (Chen and Emile, 2013). Hence a shift in manufacturing industries is evident due to the attraction of investors to said country.