![]() ![]() In other words, free trade areas tend to be very complex to manage. At the border between Canada and the United States that examines, where the good came from, and in this case, it would have come from Japan. So in other words, there needs to be a customs administration. So in other words, if a Japanese company would like to sell something in the United States, and it realizes that a tariff on that good is lower if it enters through the Canadian border, then that would defeat the purpose of the trade bloc. The tariffs or the roles that they impose on third countries. So, what this means is that then, you need to have in place a very complicated administrative structure and you need to establish origin and content rules to make sure that all of the relevant taxes are paid because remember that neither Canada nor the United States nor Mexico coordinate with one another. And it also includes the free movement of capital but not a free moment of labor. Now, let's remember that the NAFTA is a free trade area where goods can move freely from Canada to the United States to Mexico, and vice versa. That is to say, that companies would race to the bottom and move to Mexico looking for not only lower wages than in either Canada or the United States, but also more liberal regulations regarding the environment, or regarding worker rights, and especially less enforcement of whatever regulations exist. ![]() Now the NAFTA has been particularly controversial, because of its critics accusing the agreement of promoting social dumping. And this president was actually very much pro free trade, but he recognized that the relationship between the United States and Mexico would always be an unequal one. There was a Mexican president more than a 100 years ago Porfirio Diaz who famously said, poor Mexico, so far away from God, and so close to the United States. The United States, of course, is the richest economy in the world and is generally the most technologically advanced. As you know, Mexico is far less developed than Canada and the United States. This is the only large trade bloc in the world that includes both rich and developing economies. So, let us start by looking a little bit more in depth at the North American Free Trade Agreement, the NAFTA. In other words, trade blocs always privilege, always benefit, insiders relative to outsiders. And, at the end of the day, let's all not forget either that trade blocs invariably are an attempt to privilege the countries that are members of the bloc relative to the countries that are not members of the bloc. ![]() So, by definition, they distort normal economic exchange in the world. They don't include every country in the world. And the reason for that, is that remember, trade blocs include only a handful of countries. Trade blocs destroy, divert, and create trade in very complex ways. Officially, trade blocs are always an attempt to enhance, to promote trade, but in reality, let's not fool ourselves. First of all, let me just say that people get often, very excited about trade blocs, they believe that they're going to bring many benefits. So I would like to share with you some thoughts and some analysis as to why exactly have trade blocs become so controversial. What has also happened over the last five or ten years is that trade blocs, both in Europe and in North America have become extremely controversial. And we've seen that there are many different kinds of trade blocs around the world. We've just seen that the frequency, the prevalence of trade blocs around the world has grown very, very quickly over the last 30 years. ![]()
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