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North American Free Trade Agreement and Its Dynamics Essay

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Updated: Jun 12th, 2021

In the context of free trade agreements that North American countries participate in, primarily the North American Free Trade Agreement (NAFTA), there are certain impacts on industries and labor. The primary research question is whether NAFTA resulted in the shift of principal production and labor to cheaper markets such as Mexico the resulting in a globalized status quo seeing benefits flow to capital while the costs and barriers affected labor? This question can be answered by examining the impact of NAFTA on the trade flow between North American countries as well as changes in labor factors and policies.

The working hypothesis is that the free trade agreements such as NAFTA effectively shifted production from highly developed countries such as the United States and Canada into low-development areas such as Mexico. At the same time, it also allowed the flow of low-wage labor in the reverse direction. This had a double-sided effect as U.S. manufacturing industries could become globally competitive and develop complex supply chains but negatively impacted workers as their actual wages, working conditions, and bargaining power decreased without centralized national regulation. Therefore, the essential proposed topic is on the flow of production and labor stimulated by NAFTA which led to the development of supply chains and higher capital gains for corporations while decreasing quality of life for labor elements.

This particular topic was chosen as it explores the long-term and complex dynamics of free trade agreements. In the current political climate, there is avid debate regarding free trade deals and globalization, as the United States and other countries are beginning to practice a more secluded economic approach, often citing the negative impacts of such treaties on domestic production and labor. However, these can be short-term in nature, necessary for industry competitiveness, or not emphasizing long-term benefits. Furthermore, labor is impacted differently across various countries involved in NAFTA, with industries coping differently to economic variations and changes brought on by the trade agreement. It seemed interesting to explore these economic dynamics because there has been a significant shift in theory and practice away from labor towards more globalized aspects such as the importance of supply chains which inadvertently do impact labor force elements and corporate practices as well.

The research question and topic discussion can be answered through a thorough investigation of data, policies, qualitative impact, and socio-economic analysis. The research strategy is to develop a comprehensive structured approach to the topic, shifting from a broad historic analysis since NAFTA has been implemented to specifics in areas such as supply chains and labor, with respective overarching policies. Minor data may be used regarding the flow of goods, labor costs, industry growth, GDP, and other relevant economic and production factors. It is the intent to maintain a broader analysis of NAFTA on the proposed topic but dive into specifics with examples, such as the impacted heavily impacted automotive and steel industries. It is planned to use general research at first with articles on NAFTA and production from government websites, think tanks, scholarly articles, and major news sources. Further, as specific questions arise, it may be necessary to search deeply for literature in books or complex journal publications that may help guide the analysis.

From initial research on the topic, it is evident that the concept of NAFTA, production, and worker’s conditions are complex and highly intertwined. First, there is a concept of trade and labor flow, it is interesting what factors exactly caused this transition beyond the simple economics of production. Second, there are political influences, and it is necessary to explore how NAFTA works alongside local regulations. As was revealed that American companies began forcing workers in the United States into lower-wage positions and giving up certain benefits due to the opening of the Mexican labor market. How was this legal? The concept of politics continues since free trade is commonly seen as a liberal agenda, but NAFTA was conceived by Reagan before implementation by Clinton in the 1990s, and later highly supported by Bush’s Republican administration. As information is being gathered on the evolution of NAFTA through the years and its long-term impacts, it will be valuable to examine various political administration’s approaches to the subject matter as it commonly reflects on policy.

The first concept relevant to this topic is globalization. From an economic standpoint, it is a process through which both private and public organizations develop international connections through either sales or point of production and supply chain to scale internationally and commonly improve profit margins (Munck 224). Globalization is directly intertwined with the labor movement as production is shifted towards the cheapest alternative, to locations where labor costs can be kept minimal while at the same being highly efficient and routinized in the concept of the global supply chain of moving a product from production to consumers.

The second concept is employment liberalization. Commonly part of the general economic liberalization policies, this indicates greater flexibility in employment policies and the staffing industry. Corporate businesses have greater freedom in their employment strategies and negotiations with workers as part of internationalization with reduced pressures from labor regulation (Peck et al. 5). This directly relates to the topic as labor market regulation is key to managing working conditions and workers’ negotiation power. With employment liberalization, a likely occurrence in free trade agreements such as NAFTA, the internationalization of production likely led to significant staffing changes among corporations.

The third concept is what is known as the “Walmart effect” which discusses the impacts of large corporations on local markets and businesses, including the influence on the labor market and low-wage workers. The expansive size and economic power of corporations such as Walmart and many production companies have profound influences over any area they choose to move to. In turn, this gives companies significant bargaining power with labor unions and worker conditions (Gupta 3). Various large corporations have been involved with NAFTA and moving production as part of free trade. The said effect will likely play a role in terms of how it impacted labor negotiations across the NAFTA countries.

The first source selected is a chapter from a book focusing on the impact of globalism and regionalism on the automotive industry. The chapter specifically discusses the comprehensive changes to the auto industry in the decades of 1980-the 2000s when NAFTA was negotiated and implemented. It was helpful as the chapter discussed the trajectories of major car manufactures and their decision-making as the process of regional integration began after the free trade agreement. This source was chosen because of its comprehensive economic and political discussions with points made in understandable non-financial terminology. It can help make the argument by presenting the benefits of supply chain integration in the systems of production and distribution established by the corporations, along with some minor discussions about labor (Carrillo 104).

The second source is a federal publication whitepaper done by a researcher from the Congressional Research Service. It discusses various aspects of labor regulation and enforcement in the context of free trade agreements, including both benefits and challenges of international labor integration. It argues that the trade agreements are economic models which evolve to become more enforceable (Bolle 1). This reading was chosen due to the unique perspective it offers on the labor market in the context of regulatory oversight. It can be helpful to understand the evolution of labor policies and how the government seeks to enforce them while liberalizing trade.

The third reading focuses on labor shocks and changes in the labor market, including shifts in employment dynamics and education after the implementation of NAFTA, particularly between the US and Mexico. The reading was chosen as it offers an in-depth analysis of transitions in the labor market as a direct result of the NAFTA trade agreement. It can be beneficial to arguing impacts on labor conditions and worker’s rights as this is a strong focus on the paper, highlighting aspects of labor productivity and wages among other elements (Mollick and Cabral 190).

The final reading offers a global perspective on the free trade model and investment as a potential to advance labor standards, especially in less developed countries. The reading was chosen for its large-scale analysis of how the free trade agreements have evolved to benefit certain countries and regulatory processes. This can be used to argue that the development of supply chains helped raise global labor standards and protect worker’s rights to an extent as part of international declarations (Brown 2). It is a valuable perspective to approach the topic comprehensively across a variety of industries.

Works Cited

Bolle, Mary Jane. Overview of Labor Enforcement Issues in Free Trade Agreements. 2016, Web.

Brown, Ronald C. “Promoting Labour Rights in The Global Economy: Could the United States’ New Model Trade and Investment Frameworks Advance International Labour Standards in Bangladesh?” International Labour Review, vol. 155, no. 3, 2015, pp. 1-31.

Carrillo, Jorge. “NAFTA: The Process of Regional Integration of Motor Vehicle Production.” Cars, Carriers of Regionalism?, edited by J. Carrillo, Y. Lung, and R. Tulder, Palgrave Macmillan, 2004, pp. 104-117.

Gupta, Arun. “The Walmart Working Class.” Socialist Register, vol. 50, 2014, pp. 1-39.

Mollick, André V., and René Cabral. “Assessing Returns To Education And Labor Shocks In Mexican Regions After NAFTA.” Contemporary Economic Policy, vol. 33, no. 1, 2014, pp. 190-206.

Munck, Ronaldo. “Globalization and the Labour Movement: Challenges and Responses.” Global Labour Movement: Challenges and Responses, vol. 1, no. 2, 2010, pp. 218-232.

Peck, Jamie, et al. “Constructing markets for temporary labour: employment liberalization and the internationalization of the staffing industry.” Global Networks, vol. 5, no. 1, 2005, pp. 3-26.

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