North American Free Trade Agreement (nafta)

 

The North American Free Trade Agreement includes Canada, Mexico and the United States of America. Because of the size of the United States’ market, this grouping is a trading block of global scope.

This economic space was created with the 1) ______ of the North American Free Trade Agreement in 1992. This space groups 50.9% of the entire Western Hemisphere’s population and territory 54% of its territory. According to 1997 figures, these countries’ GDPs total 87% of the hemisphere’s total GDP.

NAFTA’s objective is to perfect a Free Trade Area for goods, services and capital by 2005. It provides for asymmetric, progressive tariff 2) ______. It also regulates environmental concerns and labour issues.

NAFTA was signed in 1992 and entered into force on 1 January 1994. Previously, in 1989, a Free Trade Agreement had been signed between Canada and the United States.

Negotiations leading up to the signing of this free trade agreement lasted fourteen months, fuelling 3) ______ in all the participating countries. Some sectors of the US argued that the lower salaries in Mexico could lead to US workers’ loss of employment and the disappearance of the more traditional industries. On the other hand, it was alleged that with the increase in trade, the flow of illegal Mexican immigrants to the United States would drop and that the opening of this new market would create labour opportunities in less traditional, more innovative sectors.

The agreement’s ratification process was also the subject of great 4) ______. A change of direction in the balance of trade following the devaluation of the Mexican peso in December 1994 prolonged the debate.

NAFTA progressively eliminates customs tariffs. It provides for a fifteen-year transition period for especially sensitive goods, such as corn, beans and powdered milk. The general principles of the trade regime include: universal 5)______ of openness; gradualness; and differences in the tariff rate reduction to lower taxes taking into consideration the development levels of its three members.

The following principles govern investment matters in NAFTA: national and most- favored-nation 6) ______, elimination of performance requisites; freedom to transfer funds; expropriation providing it is for public benefit and market value compensation is provided; graduality; and the difference in the rate tariff reduction rate to ask for the international arbitrage in investor-state disputes.

NAFTA cannot be evaluated yet from a full perspective considering the short time that has elapsed since its entry into force.

In fact, it is a "sui-generis" agreement because of the very different development levels of its member countries and the fact it has a global scope. Perhaps it should be treated more often in an international context rather than the hemispheric for reasons stemming from both the importance of its trade 7)______ as well as because its practices and procedures may provide the background for trade organization and related issues at global level.

Nonetheless, NAFTA’s 8) ______ also needs to be acknowledged; trade and investment were propelled and new prospects and alternatives for action are now open for economic agents. Expectations were exaggerated as regards both the positive and the negative aspects. It could well be that these pessimistic and optimistic features coupled with the fact that its implementation is still quite recent represent a difficult 9) ______ to deal with in order to evaluate NAFTA objectively.

Ex. 5 Make the summary of the text.

Latin America–Russia: Similarities and Differences by Victor Krassilchtchikov

A few years ago the "Latin Americanization of Russia" was a comparison fraught with menace, but the steep decline in the former superpower’s economic and social status changed the meaning of this metaphor. Russia needs to progress in several areas if it is to overtake some developed Latin American countries.

Since the end of 1991, when Russia embarked on its shock therapy reforms, it has lost about half of its industrial capacity. To examine the causes of the current Latin Americanization of Russia let us review some major similarities between Russia and the large Latin American countries that existed for many decades before both regions underwent economic transformation in the 1990s.

Historical Similarities

At the beginning of the 20th century neither the tsarist regime in Russia nor the Latin American oligarch-ruled countries were able to face the challenges of modernization. The inertia of the ruling elites resulted in crises that gave birth to ideologies that shaped the countries’ future economic development: bolshevism in Russia and populism in Latin America.

In both cases the policies of modernization were based not just on social mobilization, but also on a focus on internal resources, that is, development from within. Latin America’s industrialization under the populist regimes aimed at substituting imports with domestic products to be manufactured either by the state or by private enterprises protected from external competition, expanding internal markets, and loosening dependence on the world economy. In the Soviet Union economic growth was subordinated to the strategic interests of the military-industrial complex.

By the 1980s in both Latin America and the Soviet Union the inertia of import substitution and the command economy—based on energy – and natural resource-guzzling economic growth—became incompatible with the task of creating innovative economic systems. In both regions the state bureaucracy attempt to stimulate technological innovation; however, in both regions structural imbalances and neglect of human capital further hampered the shift toward a new, postindustrial age.

In Latin America the debt crisis of the early 1980s was aggravated by the accelerated outflow of capital and the weakening competitiveness of goods and services. The 1980s was also a period of lost opportunities for the Soviet Union, as the country’s leadership missed its last chance for real transformation. The deep crises of their respective economic systems led to radical changes in both Latin America and the Soviet Union. Once the crises deepened, the alternative to overwhelming state control seemed be a dismantling of the state’s role in economic and social life through a radical version of economic liberalism. Such a transformation took place in Latin America and Russia.

Comparing Development

In the 1970s and 1980s inflation was one of Latin America’s gravest problems, but the stabilization measures undertaken in the 1990s succeeded in containing it almost everywhere. In Russia the inflation rate was permanently in two digits between 1991 and 2001, reaching its lowest level of 11 percent in 1997, and might remain at two digits through 2002. The Russian economy only started to grow after 1998, while growth had resumed in the Latin American countries by the early 1990s, although average per capita GDP returned to its 1980 level only in 1997 (table 2).

The structure of Latin American external trade improved in the 1990s: the share of primary goods in total exports declined from 66.9 percent in 1990 to 41.7 percent in 2000, while the share of manufactured goods increased from 33.1 percent to 58.3 percent. While Latin America attracted and used new technologies to modernize its industry, Russia could not even maintain the level of industrial production achieved during Soviet times. Russia’s adjustment to global trade was not accompanied by genuine technological renewal of the economy except in a few industries, in particular, telecommunications in large cities and financial services.

In Latin America the excess labor supply was mostly absorbed by the informal, and even the illegal, economy. In the 1990s urban employment in the informal sector grew by 4.2 percent per year, more than triple the rate in the formal sector. In Russia too the rise of the informal economy helped the poor and unemployed survive. About 70 to 75 percent of all employees in both regions earn low salaries. Income differentiation trends are similar in Russia and Latin America.

In Latin America the lack of a good education, and consequently the inability to get a higher-paying job, has been a key determinant of poverty. In Russia, by contrast, many college graduates, including teachers, physicians, engineers, and scientists, have been pushed below the poverty line. This degradation of human potential is expressed in the human development index, which in Russia has fallen below its 1980 level. Only three other countries have fared as badly on the human development index: Romania, Zambia, and Zimbabwe.

Economic course correction has recently been put on the agenda in both Russia and Latin America. It assumes further development of market institutions, but also recognizes that the state can play a useful role in several areas, including strengthening the rule of law, improving corporate governance, enabling fair competition, developing human capital, and stimulating wealth creation.

Ex.6 Try to explain the meaning of the following phrases in English:

1. to be fraught with smth

2. the shock therapy reforms

3. industrial capacity

4. populist regime

5. one’s adjustment to global trade

6. informal economy