A Free Trade Agreement Is Likely To Result In



NAFTA provides for the phasing out of all tariffs on North American products by four staging categories defined as A to D. On 1 January 1994, tariffs on Category A products that experienced the fastest exit from tariffs were completely abolished. According to the U.S. International Trade Commission, this represents 31 percent of U.S. goods exported to Mexico (based on goods traded in 1990). Tariffs on Category B products were abolished from 1 January 1994 in five equal annual tranches. This represents 17.4% of goods exported to Mexico. Tariffs on Category C products will be phased out in ten equal annual tranches, or 31.8%. Tariffs on Category C products are eliminated in 15 equal annual tranches, or 1.4% of U.S. goods exported to Mexico. And tariffs on Category D products will remain duty-free. This represents 17.9% of U.S. exports to Mexico.

In addition, free trade is now an integral part of the financial and investment systems. U.S. investors now have access to most foreign financial markets and a wider range of securities, currencies and other financial products. Over the past decade, Mexico has been an important test for the free trade/free market development model. This model has been envied and widely adopted by developing countries throughout Latin America and the world. But the alternative of protectionism and closed doors sometimes hides in the shadows. Unfortunately, in December 1994, a test of the dangers of economic integration emerged in the new world of volatile international capital markets. Capital, which quickly poured in, showed a worrying predilection for getting out even faster when it was shaken by signs of political and economic difficulties. What resulted in exports growing faster than production, is that companies have evolved from domestic development to a multinational, and now many have developed to a global development.

The first six GATT trade negotiations had reduced tariffs in industrialized countries to less than half that level by the end of the Kennedy round in 1967, down from an average of 40% after the Second World War. In addition, international communications and transportation had improved considerably (the first commercial jet crossed the Atlantic in 1958 and the first commercial telecommunications satellite was launched in 1965. Then Adam Smith challenged this dominant thought in The Wealth of Nations, published in 1776. [2] Smith argued that if one nation is more efficient than another country in manufacturing a product, while the other nation is more efficient in manufacturing another product, then both nations could benefit from trade.


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