INTRODUCTION

The North American Free Trade Agreement (NAFTA) came into effect in the year 1994; it is a huge landmark in the history of international trade. Fifteen years ago, The United States, Mexico and Canada brought forward the world’s biggest free trade area under the North American Free Trade Agreement (NAFTA). It was the first trade agreement to incorporate the issues of the labor adjustment and the environmental policies. The key purpose of NAFTA was to increase the FDI and the Trade by reducing the tariffs and other hindrances for businesses between Canada, Mexico and The United States. These three countries are brought together into a trilateral trade and investment agreement mainly in the field of health, security, migration and environmental issues.

The agricultural industry was one of the most government secluded industries in the olden times. The United States, Mexico and Canada had many trade barriers before NAFTA came into force. Subsides, tariffs and quotas are the most common trade barriers which cuts down the free flow of goods and services across borders. Subsidies are fund providers for the domestic markets which enable the suppliers to produce more which causes a boost in the price and reduction in the demand of quantity. The tariffs are taxes imposed on imported goods which decreases the imports by laying too much of tax on foreign countries on their exports which results in the increase of the domestic supply. The quotas are restrictions made on the quantity of the goods imported. The main purpose of NAFTA was to increase the FDI opportunities.

Effect’s of NAFTA

MEXICO

During the 1980’s the Mexican economy was significantly deepened into poverty but today it has the strongest economy in the whole of Latin America. This improvement is mainly due to the economic policies laid in1998 by President Carlos Salinas in introducing liberalization rules for privatization and FDI. Since then, the GDP of Mexico has grown in spite of the inflation. The country has managed to bring down the inflation rate from 25% to 6% in 2004 making a positive growth rate in its GDP. It has improved its export trade, mainly to the United States which looks upon Mexico for its 25% of all the imported vegetables and fruits. And now, Mexico has become the foremost region for foreign investments. The climate for international investment has grown favorable for Mexico in the recent years. Though there were strict restrictions in the 1970’s for FDI, the rules which were employed in the year 1989 reversed all the strict controls which resulted in the increasing inflow of the foreign investments which paved the way for the MNE’s to invest in Mexico. The country has also made changes in their investment laws which now permit the foreign investors to have the major equity which is one of the main reasons for the increase in the FDI.

Mexico was considered as a country with a large inflow of the international investments and gained the confidence of the foreign investors due to its positive economic growth influenced by NAFTA. Though NAFTA has brought several benefits to Mexico as a whole, they are unevenly distributed throughout the country. Mexico stands closer to United States and Canada in level of its development and NAFTA has brought a positive impact on the Mexican manufacturers in adapting the technical innovations of the United States resulting in the increase of employment. NAFTA’s effect on the agricultural sector increased the amount of workforce more when compared to the other sectors of the economy. Since NAFTA came into effect there was no major intervention by the government on the prices of exported crops and are expected to remain the same. Mexico’s productivity of the irrigated lands increased after the intervention of NAFTA, but the non-irrigated agricultural sector remained the same. A number of foreign companies have also invested and established new factories in order to take benefits and advantage of NAFTA.