Mexico and the United States along with Canada have entered into a trilateral
free trade agreement called the North American Free Trade Agreement otherwise
known as NAFTA. NAFTA has got to be the largest trading agreement in history;
the agreement creates a single market of 370 million consumers. The people of

NAFTA talk about potential gains from increased free trade between Mexico and
the U.S. as the two countries remove tariffs, other trade barriers and
restrictions on investment so that businesses would have access for goods,
service and investment. They argue that the U.S. stands to gain from the
agreement as Mexico offers trade potential in a growing market, more investment
opportunities, low cost labor, abundant natural resources, and geographical
prospects and growing markets for American goods. On the other hand, outsiders
argue that the agreement would further encourage American businesses to move
their production facilities to Mexico in search of low cost labor so that the

U.S. would lose a lot of jobs along with money. They also claim that the
pollution in the environment, which is already bad to begin with, will be
worsened by the agreement. These opposing arguments need to be sorted out so
that the potential benefits and costs of the agreement can be identified. A free
trade area is formed when countries remove tariffs and other barriers to trade
among them while maintaining tariffs and other commercial policies against
non-member nations. This selective trading arrangement would appear to be a
movement toward freer trade and therefore, greater economic efficiency. The
trade barriers among the member countries are removed while others remain. There
are other potential benefits to members of a free trade area. Successful
businesses within the trade agreement can take advantage of the economy as their
market expands. Another source of benefits comes from increased competition.

Competition increases managerial efficiency, worker productivity, and higher
rate of investment by low-cost firms. The development of more efficient
economies, in turn, creates more jobs and increases standards of living in the
member countries. In addition, reduced tensions and an increased likelihood of
peace may be another benefit from a trade agreement. There are several
components in the agreement. One component deals with market access. Issues such
as tariffs, non-tariffs barriers, rules of origin and governemnt procurement are
addressed under this category. Trade rule components deal with issues such as
subsidies and health and safety standards. The agreement also deals with issues
facing specific industries such as the automobile, textile, energy and
agriculture. The financial and telecommunications industries are the two areas
of conflict. The other components include investment, intellectual property, and
dispute settlement. There are four major issues in NAFTA: rules of origin,
labor, agriculture and environment. Rules of Origin. Any regional free trade
agreement is subject to a "transshipment problem." Without a Rules of

Origin clause, a business from a non-member country could import unfinished
products into the member country with the lowest tariff rates. The foreign
company could then assemble its products in the member country and ship them to
the remaining member countries, avoiding their higher tariffs. The Rules of

Origin, also known as local content requirement, can be defined as ‘the
minimum percentage of a country\'s exported product the must be produced or
substantially transformed within the border of the exporting country"
(Aguilar 1993). Labor. Among those who are strongly against NAFTA are labor
unions who fear that American workers will suffer as U.S. businesses move their
business to Mexico in search of lower labor cost. In 1991, the average
manufacturing wage rate in the U.S. was $15.45 per hour while that of Mexico was
only $2.17. Agriculture. Currently the majority of agricultural products traded
between the U.S. and Mexico consist of grains, livestock and oilseeds. Mexico
also exports sugar for refining and cattle for feed lots, which are re-exported
for sale. The U.S. has tariffs on fruits and vegetables. Overall, the average
tariff on Mexican farm products to the U.S. is about 6 percent. Environment. The
environmental issue has taken a backseat to many of the economic concerns Mexico
has had to address in the past. In the 1980\'s Mexico faced a debt crisis. In
order to revitalize the Mexican economy the Mexican government allowed an
increase in foreign investment within its borders. However, this investment also
meant increased pollution. The pollution that has been allowed for so long has
escalated into a serious problem that Mexico must address as they face
increasing free trade with the U.S. and Canada . NAFTA introduced a major
breakthrough in the history of trade among the three North American countries.

Supporters of the agreement argue that NAFTA