North American Free Trade Agreement - 1776 Words

North American Free Trade Agreement The North American Free Trade Agreement is a regulation between Mexico, Canada, and the United States which eliminates most tariffs on trade among them. This agreement was implemented January 1, 1994 with the purpose to encourage economic activity among the member countries. At the time, it established the largest free trade region in the world and included the elimination of tariffs, agreements on trades in services, and a dispute settlement mechanism for trade disagreements. NAFTA was highly controversial at the time, with many Canadian and American labor leaders expressing concern that many manufacturing jobs would be relocated to Mexican factories due to the low cost of labor. In the 1992 US†¦show more content†¦Today NAFTA is a $19 trillion market with about 470 million consumers. In 1993 the average GDP growth rate for Canada was 2.6% and in 1994 it was 4.6%, a 2% increase! From 1993-2003 Canada’s economy grew by 30.9% and Canada’s exports to the United States expanded by 250%. But Canada did struggle to reduce high unemployment rates 9% throughout most of the 1990s. Canada did not experience a significant loss in labor jobs during this period, but the Canadian dollar was at historic low levels in relation to the US dollar, which helped to make Canadian goods competitive on the world market. NAFTA has clearly been a benefit to Canada’s economy and continues to have a noticeable effect to this very day. The Mexican Peso Crisis The Mexican Peso Crisis in December 1994 was a currency crisis that was sparked by the Mexican government s devaluation of the peso against the U.S. dollar. In 1994, the government started expansionary fiscal and monetary policy in an attempt to attract more foreign investment dollars into Mexico. It used an odd form of government debt to attract investment. The government issued short-term debt in the local currency, peso, but promised to repay the debt in US dollars. Basically, the government was gambling that the peso would remain strong or even strengthen against the US dollar so the government’s debt would be reduced. I think the logic was that the government believed that new