International Business

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Free Trade Agreement
• Definition- FTA & Customs Union

• Purpose

• Custom unions:
 Central American Common Market (CACM)
 Caribbean Community (CARICOM)
 European Union Customs Union
 Gulf Cooperation Council

• Free Trade Agreements:

• ASEAN Free Trade Area (AFTA)
• Central European Free Trade Agreement (CEFTA)
• Greater Arab Free Trade Area (GAFTA)
• Pacific Island Countries Trade Agreement (PICTA)
• South Asia Free Trade Agreement (SAFTA)
NAFTA

It is a tri-lateral trade agreement between Canada, Mexico &

United States which provides for elimination of tariff on
North American goods shipped among the three countries &
sets rules for trade & investment.
When & How was NAFTA formed?
• 1989: US- Canada FTA

• US-Mexico negotiation for liberalized trade

• 1991: Canada joins US- Mexico negotiation

• 1992: NAFTA is signed by leaders from Canada, the U.S., and

Mexico.

• January 1, 1994: NAFTA enters into force

Why NAFTA was formed?
• Promote conditions of fair competition

• Increase investment opportunities

• Provide protection and enforcement of intellectual property

rights

• Create procedures for the resolution of trade disputes

• Establish a framework for further trilateral, regional and

multilateral cooperation to expand NAFTA's benefits
 Canada
• US – Mexico deal will draw investment away from Canada.
• Mexican consumer was buying more Canadian products
• There was also fear that a soaring US dollar and an ever
increasing US trade deficit

 Mexico
• To attract much needed American investment capital (around
$US 15bn)
• Fear of exclusion from existing FTA between US & Canada

 USA
• Access to Mexico's newly open and growing economy.
• New opportunities in the services sector and for contracts with
government projects
• Make North America more powerful
How does NAFTA operate ?
Institutions
Free Trade Commission
Coordinators
Working groups & Committees
Secretariat
Commission for Labor Co-operation
Commission for Environmental Co-
operation
Constituent
Ministerial representatives from
NAFTA partners
Senior trade dept officials designated
by each country
30-Working groups & Committees
National section from each country
Council of ministers (Labor ministers
of each country) & a secretariat
Council (Environment ministers
from each country), Joint public
advisory committee ( 15 independent
volunteers) & a secretariat
Duty
• Supervises implementation&
elaboration of the agreement
• Oversees work of NAFTA
committees
• Day to day management of NAFTA
implementation
• Effective implementation &
administration of NAFTA in areas of:
• Trade in goods
• Rules of origin
• Cross border movement of
business people
Administers
• Dispute settlement provisions of the
agreement
• Dispute resolution process
• Co-operation of labor matters
• enforcement of domestic law
• address environmental issues
Current Facts
Progress made by Countries

• Spanning 1992 to 2007, agricultural exports grew from the US to

Canada and Mexico at 156%

• From 1993 to 2007, there was percentage increment of goods

exports by 231% to the U.S from Canada and Mexico

• Minimum standard of IPR for all the three nations

Positives & Negatives of NAFTA
POSITIVES :

US

 INCREASED GDP
• 0.5% increase per year
• Reduced cost & lower inflation

 BOOSTED FARM EXPORTS

• Restrictions removed & subsidies continue

 CREATED TRADE SURPLUS IN SERVICES

 REDUCED OIL & PRODUCT PRICES

• Reduction in reliance on imports from Venezuela & Iran
MEXICO

 INCREASED MANUFACTURING BASE

• Cheap labor
• Relaxed environment regulations

 INCREASED EMPLOYMENT

CANADA

 INCREASED GDP GROWTH

 STEADY INCREASE IN EMPLOYMENT LEVELS

 BIGGEST BILATERAL TRADE WITH US

NEGATIVES:

US

 JOBS WERE LOST

• Labor cheaper in Mexico

 ILLEGAL MEXICAN IMMIGRANTS

• Wages high in US
• Farmers lost jobs in Mexico

 DEPRECIATION OF DOLLAR
• Venezuela & Iran selling oil in different currencies

MEXICO

 FARMERS WERE PUT OUT OF BUSINESS

• US exports cheaper as subsidized rates & no tariff
 MAQUILADORA WORKERS WERE EXPLOITED
• Increased jobs with no labor rights & health protection

 SHIFT TO ASIAN COUNTRIES

• MaquiladoraProgramme removed
• Asian countries cheaper
• Globalization not accounted by NAFTA

 ENVIRONMENTAL ISSUES
• farmers used fertilizer to stay competitive
• increase in manufacturing units

CANADA

 TAKEOVERS
• 98% FDI for takeover
Effects on India

• Position as major supplier of textiles and clothing items has slided since
1995 ( 7th to 11th )

• The two main group affected are cotton yarn and woven apparel group

• Other trade not affected much

Conclusion

NAFTA partners have experienced strong economic growth &

rising prosperity. Manufacturers, farmers, ranchers, & service
providers have greater export opportunities, while consumers
have enjoyed lower prices and more choices
Thank You!