NAFTA Essay Example | Topics and Well Written Essays - 2000 words

NAFTA - Essay Example Reduction of Tariffs and other Controls Basic economics predicts that the reduction of tariffs and other controls on imported goods will probably lower domestic production and employment in these sectors. There should also be a corresponding increase in activities oriented towards exports (MacArthur 33). In principle, one can investigate the net effect of liberalization on output and employment. Currently, this question has important ramifications in both Canada and Mexico, even though the contexts are quite different--Canada has lowered some barriers as part of the Free Trade Agreement signed with the United States, while Mexico's adhesion to the GATT required a unilateral tariff reduction, much larger than that of Canada. In both these countries, the tariff reduction has been accompanied by a recession, which has been sharper in Mexico. Neither case is an ideal test of liberalization. Canada has been lowering tariffs for some time, while Mexico's recession had begun before the GAIT accord, as a result of the debt crisis. With regard to Canada, the tendency is that more of the coefficients on the liberalization dummy variables in the labor demand equation are large and statistically significant. This is the case for the following sectors; food, leather, textiles, wood, printing, transport equipment, and electrical equipment. This finding is robust to changes in the specification of the equation. Thus, even given the level of production, there still was a strong tendency for labor use to fall.