The Definition of Free Trade Agreement

Free trade agreements such as NAFTA impact areas like international agricultural trade.

According to businessdictionary.com, a free trade agreement is a treaty between two or more countries that do not impose tariffs for commerce conducted across their borders. This doesn't mean capital and labor moves freely between them, and tariffs are still imposed upon non-member countries. The idea is to open markets and provide opportunities for businesses to compete globally.

NAFTA

NAFTA stands for North American Free Trade Agreement. It was enacted in 1994 to open trade between the United States, Mexico and Canada. This lifted all non-tariff barriers to agricultural trade between the United States and Mexico, with other tariffs being eliminated entirely or phased out over several years. There was a previous trade agreement between the U.S. and Canada, and NAFTA served to remove--with a few exceptions--tariffs affecting agricultural trade.

FTAA

The FTAA, or Free Trade Area of the Americas, was meant to expand NAFTA to Central and South America as well as the Caribbean, with the exception of Cuba. Negotiations began after NAFTA was implemented, and it was supposed to be signed by 2005. Due to opposition from countries like Venezuela, Argentina and Brazil, the deadline passed without implementation.

Pros

The goal of free trade agreements is to serve the global marketplace, to expand opportunities for business as well as encourage competition. Provisions for enhancing labor rights, improving customs and ensuring environmental standards may also be Included in free trade agreements.

Because different regions have different production capabilities foreign trade can provide specific goods to regions that do not have them. Trade also allows countries to concentrate their production energies on those goods it manufactures best. This increases the variety of goods available throughout a free trade region, which in turn benefits the area's economy.

Cons

According to the Almanac of Policy Issues, the net effect of free trade agreements on the United States is relatively small. Smaller countries see much more of an impact due to their smaller economies. Free trade agreements, in these instances, do more for foreign policy than international commerce.

Another drawback to free trade agreements, according to consumer advocate Ralph Nader, is that jobs are exported as well. These include high-paying technical jobs. Factcheck.org disagreed with this claim, stating that 25,000 jobs had been gained in the U.S., making NAFTA's effect on jobs negligible. Nader also worried that NAFTA regulations superseded national and state laws, including consumer protection laws.

Per the Wall Street Cheat Sheet, Mexican jobs expanded under NAFTA, but the jobs were in low wage American-run factories. Mexico's agricultural sector was hit the hardest, and the jobs provided offered no security or benefits. Likewise, Canada also was negatively impacted by NAFTA. Income growth suffered while income equality expanded and Canada's dependence on the United States grew.

Public Perception

According to a CBS report, most Americans agree that foreign trade is beneficial to the U.S. economy. This perception is widely held among those who are college educated and make more than $100,000 per year. Conversely, a majority also believes that trade restrictions protect American businesses.

References

• BusinessDictionary.com: Definition of Free Trade Agreement
• USDA Foreign Agricultural Service: North American Free Trade Agreement (NAFTA)
• Global Exchange: Free Trade Area of the Americas
• Export.gov: U.S. Free Trade Agreements
• Almanac of Policy Issues: The Pros and Cons of Pursuing Free-Trade Agreements

Resources

• On the Issues: Ralph Nader on Free Trade
• How many U.S. jobs have been lost since the inception of the North American Free Trade Agreement?
• CBS News: Foreign Trade and the U.S. Ecomony
• Wall Street Cheat Sheet: Winners and Losers: The Costs and Benefits of NAFTA