Page 99 - Introduction to Business

CHAPTER 2 The Environment of Business 73

EXHIBIT 2.8
NAFTA

ALASKA

CANADA

PACIFIC OCEAN
UNITED STATES
ATLANTIC
OCEAN
Gulf of
Mexico
MEXICO
HAWAII

governments in December 1992, ratified by the legislatures of the three countries,
and came into effect on January 1, 1994. The idea of integrating the economies of
North America gained strength with the success of the Canada-U.S. Free Trade
Agreement, which was signed in 1988 and took effect in 1989. NAFTA has three
major objectives. First is the expansion of trade in goods and services through
the phased elimination of barriers to trade, including tariffs, quotas, and licens-
ing restrictions, among the parties. Second is the protection of intellectual prop-
erty rights (enforcement of patent and copyright laws for software, music record-
ings, etc.). Third is the creation of institutions to deal with potential problems
(unfair trade practices, disputes between firms or governments, environmental
protection, worker’s rights, competition policies, and the implementation of
NAFTA rules and regulations). Two side agreements dealing with Mexican labor
laws and environmental quality were signed by the United States and Mexico to
make sure that Mexico did not practice unfair labor laws and enforced agreed-on
environmental quality standards.
While the structure of NAFTA is relatively complex, its institutions are not as far
reaching as those of the European Union, which include institutions set up to coor-
dinate political, legal, foreign, and defense policies. Because of its close economic
4
ties with the United States, Mexico’s economic prospects are heavily influenced by
the performance of its northern neighbor. When the U.S. economy slides into a
recession, the impact on Mexico is severe, as can be seen by the volume of Mexican
exports to the United States. Mexico has tried to deal with this problem by signing
a free trade agreement with the European Union in 1999. Since then Mexican trade
with the EU has been steadily increasing and bilateral trade with Spain, in particu-
lar, has surged from some $2.3 billion in 1999 to almost $4.5 billion in 2002.
Although the United States remains Mexico’s largest trade partner, trade and for-
eign investment diversification (especially with the EU) will be necessary for
Mexico to maintain economic growth as low-cost manufacturing gets diverted to
China by the United States.

ASSOCIATION OF SOUTH EAST ASIAN NATIONS (ASEAN). ASEAN (www.aseansec.org),
headquartered in Jakarta, Indonesia, was established in August 1967 by the five
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