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The North American Free Trade Agreement (nafta)

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The North American Free Trade Agreement (NAFTA) is an agreement that took

effect on January 1, 1994, among Canada, Mexico, and the United States. It was preceded

by a previous agreement between the U.S. and Canada, namely the Canada–United States

Free Trade Agreement (CUFTA). NAFTA was signed for the purpose of encouraging

economic activities by eliminating tariffs and duties on trade among the three countries.

The trade barriers were not completely eliminated until January 1, 2008.

When a regulation is implemented, we pay close attention to the effectiveness of this

policy and it is important for us to assess the effect of the implementation. Since the

United States-Canada trade relationship is the biggest in the world, the two countries act

as important trading partners for each other. In addition, the consumption of tomatoes

ranked fourth among fresh market vegetables in the U.S., and the tomato war between the

U.S. and Canada has been heating up in recent years. So in this paper, I would like to use

the tomato trade as a representative to assess the effect of NAFA on the tomato trade

between the U.S. and Canada.

I will use the model of comparative advantage to evaluate the effect of NAFTA on

the tomato trade between Canada and the U.S. Basically, if one country can produce a

good at a lower pre-trade price than another, then we assume this country has the

comparative advantage with this good. When open to trade, the country with a

comparative advantage will produce and export the good to another country, and there


will be an increase in economic welfare. The lower opportunity cost also reveals that this

country has higher labor productivity. In the mid-1990s, the introduction of greenhouse

technologies allowed Canada to generate the highest average national yield and became

the largest producer of greenhouse tomatoes in North America. So there is a great

possibility that Canada has the comparative advantage in producing tomatoes, which will

be proved in the theoretical analysis. According to comparative advantage theory, by

performing regression analysis for related variables such as the exports between Canada

and the U.S., I expect to see an increasing number of exports of tomatoes from Canada

under the implementation of NAFTA.



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