The formulation and implementation of policies have had both adverse and positive implications on the socio-economic and political development of global states. The primary concern for global states or nations today is economic development, and thus, the effects of policies on the same have been prioritized more than anything else. Agreeably, as a result of the formulation and implementation of various policies, power and authority in economics and societal contexts have shifted from the states where supposedly they belong to world markets. Put simply, previously; states were the masters of markets, but with the formulation and implementation of the so-called policies, the markets have become the masters of governments of countries on myriads of crucial issues. It should be noted that throughout the world today, economics based on the numerous economic policies formulated and implemented, is at the forefront and other aspects that were of significance previously such as politics now lag behind economics. In fact, political figures or rather elected representative figures have become people of little influence in the economic world leading to the agreement with the ideology that politics and politicians have become irrelevant and uninteresting.
The inception of the concept of globalization has done little to change the adverse implications of various formulated policies but rather has constrained the same. For instance, globalization is seen to champion for the increase in liquid capital mobility, which although has been associated or linked to an alarming growth in government spending and increase in effective rates of capital taxation, has led to a notable increase in interest rates and capital flights. The latter has had negative implications for the anticipated economic growth for countries such as Canada at the expense of countries that campaign for the formulation and implementation of such policies. Furthermore, for a long time, globalization has championed for the multinationalization of production, which in turn, has seen a significant reduction in the autonomy of macroeconomic policy. In this case, the focus is on the North American Free Trade Agreement (NAFTA) policy, which bearing in mind the globalization model, has resulted in economic problems for Canada at the expense of the US that campaigned for its formulation and implementation.
Part I: Policy Overview and Analysis
As mentioned above, the creation of NAFTA also considered a “Big Idea” is to a large extent associated with the globalization model, and having an understanding of the latter is imperative. The ideology of globalization tends to collapse the policy world into a series of different policy communities with the argument that policy communities can be divided into sub-government and attentive public. It further argues that within sub-governments, there are networks or relations of power between private and public sectors and that the relations play an integral role in the determination of policy outcomes (Shiells, 2008). Other arguments of the globalization model are that different types of relations are in existence between state and societal actors, network relationships, and modes of operation are structured by the rules-structural approach and that the development of rules which structure networks occurs alongside and as a result of other economic and political forces. The globalization model is also of the suggestion that trade and financial liberalization should be managed in part by new supranational organizations, which are international political bodies established by international treaties in possession of certain competencies as delegated by governments of member states. The argument that globalization is a natural process should be ruled out as it results from political negotiations and the construction of new rules of operation, which are upheld by international organizations. One of the international organizations that have been fundamental to the promotion of the globalization is the World Trade Organization. The creation of such organizations has paved the way for policies such as NAFTA, which have failed to achieve their anticipated objectives but rather, have caused problems for various states (Shiells, 2008).
NAFTA was perceived as a ‘Big Idea’ and one of the landmark breakthroughs in Canada’s trade policies. Its formulation and implementation took place on January 1, 1994, after being signed by the then President George H W Bush in December 1992 and its approval by the Congress on November 20, 1993. It was seen as of great significance and interest to not only the economic growth of Canada but also of other countries such as the US and Mexico. Several Canadian economists and trade policy experts have given credit to FTAs notably NAFTA as it has played an integral role in the enhancement of economic linkages between Canada and other North American countries. Also, there are arguments that NAFTA has aided in the creation of more efficient processes of production, increasing the ready availability and accessibility of consumer goods of lower prices, and most importantly, in the improvement of working conditions and living standards of Canadians and other citizens of North American countries (Kong & Wroth, 2015). Despite its positive contributions, NAFTA’s creation has widely been criticized for its disappointment of employment trends, its link to the decline in Canadian wages, and the little or no contribution to the improvement environmental conditions and labor standards not only in Canada but also abroad in countries such as Mexico and the US. Since its creation in 1994, NAFTA has had a hand in the initiation of new generation trade agreements in parts of the world particularly the Western Hemisphere. Being a “Big Idea,” it has influenced negotiations in various areas such as access to markets, intellectual property rights, resolution of disputes, championing the rights of workers, protection of the environment, rules of origin, as well as foreign investment. As such, having come into effect on January 1, 1994, its primary objectives included the liberalization of trade between North American countries of Canada, the United States, and Mexico, stimulating economic growth not only in North America but also other parts of the world, giving NAFTA countries equality in the access to each other’s markets, removal of trade barriers, enhancement of fair trade competition, provision of trade security to NAFTA countries, opening up of more viable economic opportunities, solution of disputes, as well as the exploration of new ways of co-operation (Mumme & Lybecker, 2002).
Other than economic concerns, NAFTA has since its inception sought to address myriads of social problems faced by Canadians, Americans, and Mexicans, who are from the member countries that founded the agreement. NAFTA focuses on addressing environment-related social issues such as whether firms from Canada and the US should migrate to Mexico with the intention of taking advantage of its laxity in the enforcement of environmental standards, whether the laxity exhibited by Mexico in the enforcement of environmental standards would jeopardize the United States and Canada’s enforcement of the same, as well as the immigration of people within NAFTA member countries (Buhr, 2001). Moreover, NAFTA seeks to address the ever increasing number of deaths of individuals from member countries especially in Mexico, where the increase in mortality rates is largely attributed to increased air pollution. Some of the social factors contributing to increased mortality rate that NAFTA seeks to address, include inadequacy of sewage treatment, open-air dumping of waste, and the release of industrial solvents into groundwater and rivers (Buhr, 2001). Furthermore, NAFTA seeks to address the poor working conditions, lack of occupational safety, and insecurity for individuals within Canadian, the US, and Mexican jurisdictions. The fact that it has also been at the forefront of championing for the need to respect the rights of workers cannot be overlooked as this has ensured the improvement of living conditions not only for workers but the human population in entirety.
NAFTA has had major impacts on economic and social perspectives of member countries. Regarding its social implications, it has struggled to ensure that the southern and northern hemispheres coexist in prosperity. In fact, the cooperation among states which it champions for has seen a significant reduction in the gap between the poor and rich nations not only in American continents but also in other parts of the world. However, its economic impacts overshadow the social implications.
NAFTA has had noticeable effects on US-Canada trade market shares, with exports and imports between the two countries increasing significantly since its implementation in 1994. One of the primary aims of the initiative was to bolster trade between the two nations. The US is considered one of the key trading partners of Canada, and in recent years, the share of Canada’s exports to the US has increased steadily since the implementation of NAFTA. Research indicates that the percentage of exports from Canada to the US hit 87.7 percent in 2002. Canada, on the other hand, became the largest purchaser of goods and services from the US, and this is highlighted by the fact that in 2005, Canada purchased approximately 23.5 percent of the exports from the US. These are just but some of the economic impacts of NAFTA, without mentioning the enhancement of trade between Canada and Mexico (Hufbauer & Schott, 2005).
Another economic impact of NAFTA is that it has played an integral role in the alleviation of the long-term labor productivity gap between the US, Mexico, and Canada. This paved the way for open competition that resulted in the increase of productivity for the Canadian industry. The latter was achieved through the hiring of extra skilled and knowledgeable workers from the US and Mexico rather than the addition of capital equipment that proved relatively expensive (Hufbauer & Schott, 2005). With the increase in the productivity of the Canadian industry, an appreciation of the Canadian dollar was experienced elevating its competitiveness not only in the North American market but also the global market.
Moreover, NAFTA has had an influence on the US and Canadian foreign direct investment. During the NAFTA era, there has been a significant increase in the two-way investment both terms of flow and stock of investment (Kong & Wroth, 2015). During the NAFTA era, the US has been the largest single investor in Canada, and this is highlighted nu its stock of foreign direct investment in Canada, which increased from $69.9 billion in 1993 to $368.3 billion in 2013. In fact, during the NAFTA era and that of other FTAs, the investment of the US in Canada has accounted for approximately 51.5 percent global investors’ total stock of foreign direct investment in Canada. After the foreign directed investment flows of the US into Canada had steadied at an average of $1.7 billion during the five years before the implementation of NAFTA, this figure increased remarkably to an average figure of $14.9 billion from 1995 to 2012, which represents the NAFTA era. With the implementation of NAFTA, the stock of foreign direct investment in the US now accounts for 18 percent of the value of Canada’s Growth Domestic Product (GDP), and this contrasts the 1 percent accounted for by the stock of US FDI before the implementation of NAFTA in 1994.
However, there are inherent limitations or weaknesses of NAFTA that led to its criticism as one of the Canadian trade policies. NAFTA is considered a “Big Idea” and individuals promoting it including Tom D’Aquino, of the Canadian Council of Chief Executives, Wendy Dobson, of the C.D, and Mulroney, a former prime minister, have in mind a big “strategic bargain” that would see Canada give the United States one of the strongest North American security parameters. This is inclusive of a close co-ordination of defense as well as immigration policies. Besides, the initiators of NAFTA believe that it would enable the US to have a greater and an indisputable access to energy resources of Canada. Conversely, Canada would gain by obtaining secure access to the US market, which demonstrates that NAFTA benefits the US more than it does to Canada. With these said, one of the weaknesses of NAFTA is that it seeks to strike down the trade and border measures put in place by the US, and this is supposedly through holding negotiations of a customs union (Jackson, 2003). In the same vein, although NAFTA is a big idea, its weakness is evident in the fact that it poses an explicit threat to the expression of Canadian values considered distinctive such as those on international affairs, defense, as well as refugee and immigration issues. Another weakness of NAFTA as one of the Canadian trade policies is that it jeopardizes the ability of Canadians to shape industrial development, take control of their energy sector, and make significant strides towards an environment that is economically sustainable (Jackson, 2003).
The existence of NAFTA has also interfered with the ability of Canadians to levy taxes at an acceptable level with the aim of maintaining a distinctive Canadian social model. Furthermore, it has to a large extent influenced the limitation of the impacts of investment and international trade agreements on the cultural and social policies of Canadians. Being one US-Canada-Mexico trade deals, NAFTA’s weakness is highlighted by the fact that it has failed to achieve its set goals and objectives such as closing the long-standing gap between Canada and the US in terms of the productivity of the manufacturing sector (Jackson, 2003). Additionally, the fact that NAFTA is of a greater benefit to the US than Canada underlines its weakness. For instance, from 1992 and 2001, NAFTA has resulted in an increase in Canada’s manufacturing output per hour by only 16% whereas that of the US has increased by a whopping 42%. Put simply, instead of closing the productivity gap between Canada and the US; NAFTA has resulted in the significant growth of the productivity gap, and this is considered one of its major weaknesses (Jackson, 2003).
Part II: Conceptual Application
Contrary to the expectations of many, it is clear that the achievement of most of NAFTA’s objectives is yet to be achieved, and thus, remain a dream. This is an insinuation that NAFTA’s anticipated development has been put in jeopardy by various forces, one of them being globalization. With this in mind, it should be noted that the globalization model gives an explanation to the nature and development of NAFTA, and why it has become more of a threat to the economic development of countries such as Canada than it is of benefit. The globalization model defines the concept of globalization as the reorganization of capital, production, trade, as well as financial liberalization. Globalization has adverse impacts on the development process of various policies such as NAFTA, and this is highlighted by various factors. First, there is no doubt that globalization narrows the perceived sphere of action within which public authorizes authorities can act, and this can be attributed to the actions of international institutions and policies. As such, the development of NAFTA has been hampered by the fact that international institutions have taken over responsibilities of public and state authorities, undermining issues of national interest at the expense of global or regional interests. On the same note, globalization has to some extent increased focus on competitiveness, a perspective that has seen policy making decisions of states geared toward the enhancement of state competitiveness at the global or regional level. This has seen the interests of citizens at the state level abandoned in preference of regional or global interests leading to the criticism of the inception of trade policies such as NAFTA. The preference of regional or global interests implies that rather than benefiting state countries such as Canada, NAFTA is benefiting trade at the regional level in that significant economic growth is being witnessed in the US and other countries but not in Canada, which played an integral in the initiation of the initiative (Hufbauer & Schott, 2005).
The fact that globalization has impacted negatively on the development of Canadian trade policies such as NAFTA cannot be refuted. Globalization champions for market integration, which has not only resulted in the exit of investors and producers but has also worsened the feelings of economic insecurity among broader segments of society (Garrett, 1998). Market dislocations are on the rise (Garrett, 1998), and these have compromised the achievement of NAFTA’s set goals and objectives thus impacting negatively on its development. In fact, this underscores NAFTA’s weakness where it jeopardizes the ability of Canadians to shape industrial development, take control of their energy sector, and make significant strides towards an environment that is economically sustainable. Globalization focuses on the improvement of state economies, and thus, champions for the formulation and implementation of numerous government programs that result in the generation of economic benefits, which are attractive to production. In fact, with globalization today, arguing that good government entails the protection of property rights and the increase of physical infrastructure and human capital cannot be considered a controversy. However, these perspectives go against NAFTA’s provisions and objectives that focus not on the development of the economy of states but the economic development of the North American region in entirety. Economists believe that it is as a result of globalization that NAFTA member countries such as the US have shifted attention from achieving NAFTA’s objectives to achieving their national objectives. This is why in recent years, the existence of NAFTA notwithstanding, there has been an increase in Canada’s manufacturing output per hour by only 16% whereas that of the US has increased by a whopping 42%, and this highlights how globalization has impacted on the nature and development of NAFTA.
According to the globalization model, globalization has resulted in a significant increase in trade competition, which has rendered governments uncompetitive. In fact, as a result of globalization, government spending tends to crowd out private investment, has become less efficient as compared to the allocation of markets, and it tends to cushion market disciplines when it comes to wages and prices. This has seen government spending such as that of Canada funded by higher taxation and excessive borrowing. With higher taxes and borrowing, the expansion of entrepreneurial activity, which seems to be a primary objective of NAFTA, has been depressed. In fact, trade competition, which is an influence of globalization results in the rolling back of the public economy of countries such as Canada, and this, in turn, impacts on the nature and development of trade policies such as NAFTA. Primarily, if the threat posed to the development of NAFTA, which is one of the Canada’s trade policies is to be addressed, then interventions to solve trade competition are imperative (Folsom, 2014).
Furthermore, the globalization model postulates that globalization has resulted in the multinationalization of production as well as the attendant credibility of the threat of firms to move production from one country to another with the aim of searching for higher return rates. The implementation of NAFTA aimed at achieving the latter although this has been compromised in recent years (Jette, 2004). The multinationalization of production has stiffened competition, which has seen the exit of multinational organizations or firms from the global economic scene, and this has been at the forefront of European debates since the 1990s. In the absence of multinational organizations, the achievement of NAFTA’s set goals and objectives is rather impracticable, and this underlines the negative impact of globalization on its nature and development.
Globalization being a major force has resulted in the international integration of financial markets. This implies that traders operate for approximately 24 hours a day distributing significant amounts of money around the globe with the aim of maximizing profits. However massive capital has adverse effects on economic growth as inflation increases, and this means that the achievement of the objectives of NAFTA such as the liberalization of trade between North American countries of Canada, the United States, and Mexico, stimulating economic growth not only in North America but also other parts of the world, giving NAFTA countries equality in the access to each other’s markets, removal of trade barriers, enhancement of fair trade competition, provision of trade security to NAFTA countries, and opening up of more viable economic opportunities.
According to Skogstad (2000), the adverse implications of globalization for policies such as NAFTA are not new issues, particularly for Canadians. With the inception of globalization, there have been efforts by Canadian politicians to enhance trade with other countries such as the US and Mexico, which saw the signing of NAFTA. However, globalization has made Canada highly vulnerable to developments beyond its borders. In fact, Canada has become more dependent on foreign trade as well as investment than before, the economy of Canada has become more integrated into the US economy than before, and these were not the initial objectives or goals of signing NAFTA into law (Skogstad, 2000). Without a doubt, the aforementioned challenges tend to stand in the way of the development of NAFTA, and the failure to address the challenges could see NAFTA being undermined and ignored in the coming years. In fact, these challenges underscore the weakness of NAFTA where it poses an explicit threat to the expression of Canadian values considered distinctive such as those on international affairs, defense, as well as refugee and immigration issues (Skogstad, 2000).
Summary of comments
Briefly, as discussed above, NAFTA is one of the Canadian trade policies that aimed at the improvement of Canada’s economic perspectives such as trade and foreign direct investment. It was perceived as a ‘Big Idea’ and one of the landmark breakthroughs in Canada’s trade policies with its formulation and implementation taking place on January 1, 1994, after being signed by the then President George H W Bush in December 1992 and its approval by the Congress on November 20, 1993. It has had both economic and social impacts such as ensuring that the southern and northern hemispheres coexist in prosperity. It has also had positive impacts on US-Canada trade market shares, with exports and imports between the two countries increasing significantly since its implementation in 1994 as well as seeing the alleviation of the long-term labor productivity gap among its member countries such as Canada, Mexico, and the US. It is seen that globalization has impacted on the nature and development of NAFTA, resulting in the exhibition of its weaknesses such as seeking to strike down the trade and border measures put in place by the US, and this is supposedly through holding negotiations of a customs union, compromising the ability of Canadians too shape industrial development, take control of their energy sector, make significant strides towards an environment that is economically sustainable, and several other weaknesses.
Nevertheless, the weaknesses or limitations of NAFTA can be addressed by coming up with various improvement strategies. One of the strategies that will see an improvement of NAFTA is by enabling the movement of goods along the corridors of North America that link major production clusters. Through this, some of the challenges that NAFTA faces could be addressed resulting in its subsequent improvement. Moreover, the improvement of NAFTA depends on whether other trade organizations like the Trans-Pacific Partnership will be finalized or not. Finalizing other trade organizations would mean that NAFTA with the support of the organizations would effectively address issues such as services trade liberalization, intellectual property issues, and others. To improve NAFTA, it is imperative for the member countries to come up with small incentive programs that would empower business, and thus, helping achieve some of the set objectives of NAFTA that are yet to be achieved. In fact, the lack of state support in terms of programs is one of the forces, other than globalization, limiting the change of NAFTA’s image.
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