The Blank Agreement Ended Many Trade Barriers Among The Us Mexico And Canada

The free trade agreement was concluded in 1988 and NAFTA extended most of the provisions of the free trade agreement to Mexico. NAFTA was negotiated by the governments of U.S. President George H.W. Bush, Canadian Prime Minister Brian Mulroney and Mexican Prime Minister Carlos Salinas de Gortari. An interim agreement on the pact was reached in August 1992 and signed by the three heads of state and government on 17 December. NAFTA was ratified by the national parliaments of the three countries in 1993 and came into force on January 1, 1994. The traditional economic theories, presented by Ricardo and Heckscher-Ohlin, are based on a number of important assumptions, such as perfect competition without artificial barriers imposed by governments. A second hypothesis is that production is done in decreasing or constant economies of scale, i.e. the cost of production of each additional unit is equal to or greater than production. For example, to increase his wheat crop, a farmer may be forced to use less fertile land or pay more for labour crops, thereby increasing the cost of each additional unit produced. The comparative advantage theory starts from a world where trade between countries is balanced or, at the very least, where countries have a trade surplus or trade deficit, whether cyclical and temporary. [29] The easing of the assumption that “international trade between nations is balanced could lead a loss-making nation to import certain raw materials in which it would have a comparative advantage and which would in fact export with balanced trade,” says Dominic Salvatore.

But he doesn`t see it as a major problem, “because most trade imbalances in relation to GNP are generally not very large.” [30] Smith and Ricardo considered only work as a “factor of production.” In the early 1900s, this theory was developed by two Swedish economists, Bertil Heckscher and Eli Ohlin, who took into account several factors of production. [4] The so-called Heckscher-Ohlin theory basically states that a country will export products produced by the factor it has in relative abundance and that it will import products whose factors of production require factors of production where it is relatively less abundant. This situation is often presented in economic manuals as a simplified model of two countries (England and Portugal) and two products (textile and wine). In this simplified presentation, England has relatively abundant capital and Portugal has relatively abundant labour, and the textile is relatively capital-intensive, while wine is labour-intensive.