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January 1994, the United States, Mexico, and Canada implemented the North
American Free Trade Agreement (NAFTA). The goal of NAFTA is to create better
trading conditions through tariff reduction, removal of investment barriers, and
improvement of intellectual property protection. NAFTA continues to gradually
reduce tariffs on set dates and aims to eliminate all tariffs by the year 2004.
Before NAFTA was established, investing in Mexico was a difficult process.
Investors needed the Mexican Government's approval and were also required to
meet specific investment guidelines. These requirements necessitated investors
to export a set level of goods and services, utilize domestic goods and
services, and transfer technology to competitors. Under NAFTA, investors no
longer need government approval to invest and are treated as domestic investors.
NAFTA has also increased intellectual property rights and allowed companies to
obtain patents in Mexico and Canada. In the past, companies were hesitant to
export research and development intensive goods; with increased intellectual
property protection, however, exports of these goods has shown a definite
increase. As a result of better trading conditions, exports and imports of most
other goods have increased along with the research and development intensive
goods. In Mexico, the elimination of investment barriers has allowed investment
to expand. Increased trading and investment has then created many jobs, raised
the Gross Domestic Product, and lowered consumer prices. The macroeconomic
principles defined in Economics 103 relate to NAFTA's impact on aggregate supply
and demand, employment, investment, and their effects on national income. The
free trade established by MERCOSUR also involves countries within South America.
MERCOSUR, the Southern Common Market ( Mercado Common del Sur) was established
in 1991 after a series of other free trade treaties failed to meet the standards
of the countries involved. It is set up on the basis of free trade zones and
eventually to lead to a common market. Before MERCOSUR there was ALALC, the
Latin American Free Trade Association. It was formed in 1960 and set up free
trade zones through the periodic negotiations between the members of the
association. ALALC ended in the 1970's due to these negotiations because they
were left to the discretion of the countries involved and unfair practices
started to occur. After ALAC, came ALADI, the Latin American Integration
Association. Founded in 1980, it established economic preference zones instead
of free trade. This encouraged economic growth and increased actions and
agreements between countries that previously had no connections. In 1986
Argentina and Brazil signed a Treaty for Integration, Cooperation, and
Development which was originally set up to remove tariff barriers and tie
together the macroeconomic policies of the two countries. This Treaty is what
led to MERCOSUR. MERCOSUR is a process of integration to form a common market on
the foundations of open regionalism. In March of 1991 Paraguay and Uruguay
joined MERCOSUR and most recently Chile became a part of the market in 1996. The
goals set by the agreement are to create free transit of production goods and
lifting of non-tariff restrictions on transit goods. It was set up to adopt a
common trade policy with nations that are not a part of the market and to set up
a fixed common external tariff for all to follow. There are quite a few other
goals that was set by MERCOSUR including a clause that states that the countries
involved will be able to adjust their laws for the purpose of strengthening the
agreement. The main point of MERCOSUR is to set up free trade among South
American countries and to encourage new countries to join (
Another related trade agreement conveying the benefits of international trade is
the General Agreement on Trade and Tariffs (GATT). A trade agreement that
conveys the positive outcomes of international trade is the General Agreement on
Trade and Tariffs (GATT). It was created in 1947 and like NAFTA promotes
international trade through the reduction of tariffs. Today, GATT encompasses
over one hundred countries and 90% of the world's trade goods (Sabir 1). There
have been eight different versions of GATT, each resulting in a new trade
agreement. The most recent is referred to as the Uruguay Round and is one of the
largest and most comprehensive trade pacts in history (Deng 1). The Uruguay
Round Agreement cuts tariffs by one-third, increases coverage for textiles,
clothing and agriculture and creates a new World Trade Organization
(Congressional Digest 258). The WTO settles dispute settlements, regulates the
policies agreed upon and reviews countries' trade practices and policies. In
addition, the Uruguay round proposes reductions in nontariff protective barriers
to trade (Gottheil 350). The Uruguay