NAFTA

North American Free Trade

Agreement
Joseph Najar, Daniel Stanworth, Scott Smoot,
Jessica Hatch, Marcus Cardon

Agenda
1. Background
2. Current Situation
3. International Aspects
4. Special Problems
5. The Future

NAFTA Background

Adam Smith
Wealth of Nations

One of the first to

argue free trade.
Even though it has
been accepted on a
national level in
many places,
international free
trade struggles

NAFTA Background

Free Trade

Currently being sought after in

several different forms of
economic unions:
Trade

Areas
Customs Unions
Common Markets
Economic Unions

NAFTA Background
NAFTA stands for North America
Free Trade Agreement and is a
Trade Area
Trade Areas

Unrestricted trade among Member

nations
Does not allow free movement of
factors of production
No common external tariffs
No economic unity (monetary and
fiscal)

NAFTA Background

Canada
Partly joined because America was
going whether or not Canada was
Didnt want to lose investment
capital
Isolate themselves from US
Protectionism
Mexico spent more than they
thought!

US

$325, while Japanese spend $300,

and Europe spends $200

NAFTA Background

Canadas goals in negotiation:

1. Isolation

from US protectionism
2. Gain further freedom of trade in
the US
3. Maintain protection from Canadian
cultural industries
4. Provide some insulation from US
trade remedy laws

NAFTA Background

Mexico

Joined mostly hoping for additional

investment capital
Hoped

year

for up to $15 billion in the first

Joined fearing exclusion from

trade agreements

NAFTA Background

Now why the US?

Gives them more power in relation
to EU and other economic unions
Opens economic opportunities in
Mexico
Even though US is strongest, free
trade is beneficial for all member
nations
Warmer political relations

The Current Situation

Marcus Cardon

Trilateral Agreements/Organizations

North American Agreement on

Environmental Cooperation
(NAAEC)

Commission for Environmental

Cooperation (CEC)

North American Agreement on

Labor Cooperation (NAALC)

Commission for Labor Cooperation

(CLC)

Responsibilities of the FTC

Supervising the implementation of

NAFTA
Resolving disputes that may arise
regarding NAFTAs interpretation or
application
Supervising the work of the NAFTA
Secretariat and NAFTA committees
and working groups
Establishing additional committees
and working groups as needed

Secretariat Secretaries
Rafael SerranoSecretary General of
the Mexico Secretariat
Franoy Raynauld, Ph.DSecretary of
the Canada Secretariat
Caratina L. AlstonSecretary
Secretariat of the U.S., U.S.
Department of Commerce

We only deal with the administration

of one very small portion of NAFTA.
The treatys impact on anything,
whether its the economy or
Constitution or trade or anything like
thatI dont deal with that. Any
comments on such things would
have to come from the policy side,
which would be the USTR or
someone here at the Department of
Commerce, but its certainly not my
role.
Caratina Ashton

International Aspects
Jessica Hatch

International Aspects

Dispute resolution process

Current disputes

Success of NAFTA

Dispute Settlement

Initial disputes are directed to

Committees and Working
Groups for resolution

If necessary, problems are

escalated to panel procedures

Dispute Classifications

Chapter Nineteen

Chapter Twenty

Interpretation or application of
NAFTA

Chapter Eleven

Countervailing duty and antidumping

Investment

Chapter Fourteen

Financial services

Chapter Nineteen

Countervailing duty and anti-dumping

Appeals of decisions made by
government officials to apply
national laws

Binational panel review

Most active sector of dispute structure

Currently over 25 active disputes

Chapter Twenty
Interpretation and application of
NAFTA principles
Steps intended to resolve
disputes by agreement, if
possible

Begin with government-togovernment consultations

If unresolved, a meeting of Free
Trade Commission may be
requested
If still unresolved, an arbitral panel
may be selected

Panel Rosters

Rosters of possible individuals

exist for each country

Selected based on objectivity,

reliability, and sound judgment

A roster exists for each dispute

classification

Panel Selection

Chapter Nineteen
Each party selects two members
from their own country
The fifth member is from one of
the two countries and generally
alternates

Chapter Twenty
Each party selects two members
from the opposing country
The panel chair is selected by both
parties and may be from any of
the countries

Rules of Procedure

Very clear, stringent timelines

and rules are set for both
chapters

Chapter Nineteen lasts no more

than 315 days

Chapter Twenty may take

longer depending on hearing
date set

Chapter Nineteen Example:

Softwood Lumber

Countervailing Duty
Remanded to US Department of
Commerce for changes in methodology
Anti-dumping
Remanded to US Department of
Commerce for changes in methodology
Threat of Injury
Remanded to International Trade
Commission
Threat of injury required to establish
CVD and AD policies

Chapter Twenty Example:

Broom Corn Brooms

Dispute over interpretation of a

single clause:

producers . . . of the like or

directly competitive products

Panel recommended that the

U.S. bring its conduct into
compliance with the NAFTA at
the earliest possible time.

Success as of 2005

Real GDP Growth 1994 to

2005:
U.S.: 48%
Canada: 49%
Mexico: 40%

$2.2 billion in trilateral trade

daily
Trade among the nations
increased 173%

From $297 billion to $810 billion

Benefits to the U.S.

Exports to NAFTA partners grew

113%
NAFTA partners account for 55% of
increase in agricultural exports
Industrial production rose 49%

28% in prior period

36.2% increase in business sector

productivity
20.1% growth in jobs
Average unemployment rate dropped
from 7.1% to 5.1%

Benefits to Canada
More than half of exports go to
the U.S.
Exports now account for over
40% of GDP
Exports to U.S. increased by
250%
86.6% of total exports go to
NAFTA partners
17.5% increase in jobs from
pre-NAFTA levels

Benefits to Mexico
37% difference between wages
in export-related sectors and
others
Agricultural exports to U.S.
increased by $5.7 billion
Exports to Canada grew almost
227%
Two-way trade with the U.S.
has grown more than 125%
Productivity increased 55%

Important Note

The official sites for NAFTA list

all positive reviews for the past
12 years.

Others claim these benefits may

have come from other changes
in the economy

Plenty of information exists to

argue both sides

Special Problems
Daniel Stanworth

Special Problems or Debates

1.

2.
3.

Employment effects
Mexicos Suffering Agriculture
Sector
Environmental problems and
decreased standard of living

Like any multinational treaty, NAFTA

has its pros and cons, its
cheerleaders and detractors. More
than 10 years after the treaty was
signed, protests continue, especially
by citizenry "south of the border."
NAFTA seems to favor North
America's big business over the
needs of Latin America's indigenous
peoples. While jobs may have been
created in Latin America, the pay is
generally low and available jobs are
far from home. The benefits appear
to go to governments, rich land
owners, and large businesses.

United States Employment

United States

Overall, 28 million
new jobs created
since 1994

Very small amount,

if any, can be
directly attributed
to the creation of
NAFTA

United States Employment

Heavy Debates on this issue

Clinton administration
claimed an increase of
300,000 new jobs in because
of NAFTA in 1999.
EPI estimated that creation
of NAFTA has resulted in net
loss of 440,000 US Jobs
Their reasoning is because
others are only looking at
new exports and
disregarding new imports.
Ross Perot and the Giant
Sucking Sound

Canadian Employment

2.3 million jobs

created in Canada
since NAFTA
Increase of
17.5%
Very little debate
on the
employment
effects of NAFTA
in Canada

Mexican Employment

Mexico

Employment increased
directly following
NAFTA introduction,
but has recently
decreased.

Many new jobs were in

the Maquiladora areas

Agriculture sector
specifically hit hard
Estimated 28,000
small and med sized
businesses eliminated
due to low cost
producers.

Environmental/Standard of living Effects

Maquiladora -

is a factory that imports

materials and equipment on a duty-free and tarifffree basis for assembly or manufacturing and then
re-exports the assembled product usually back to
the originating country.

Maquiladora firms have approx.

doubled since NAFTA

2,143 to over 3,703 currently

This is a problem for NAFTA

because Maquiladoras are
notorious for having terrible
low-pay working conditions.

A town about a mile from a

Maquiladora factory

Maquiladora Working conditions

Women especially discriminated
against
Average wage is $1.00 per hour
Work 10-12 hours a day
Compared to sweat shops of
China
Many are working to improve
rights of Maquiladora workers.

Environmental Conditions

Special side agreement in NAFTA to

calm environmentalists about toxic
waste around Maquiladoras.
Did side agreement work

No enforcing power
Different views of environmental quality.
Many argue the pollution has worsened.
"NAFTA has intensified severe problems
of water and air pollution, hazardous
wastes dumping and increased the
incidence rates of certain diseases and
birth defects in the border region."

Environmental Effects

"We have no way to provide

water, sewage, and sanitation
workers. Every year, we get
poorer and poorer even though we
create more and more wealth."
Ciudad Juarez, Mayor Gustavo
Elizondo

Mexicos Agriculture

US farmers are being

subsidized.
Mexico farmers do not
receive subsidies, this

Puts downward pressure

on Mexican Farmers
Results in Dumping

US Farmers selling below cost

in Mexico because they have
already received subsidies.
Results in Unemployment and
Immigration to United States
Some claim as many as 2
million Mexican farmers are
out of business

Mexicos Agriculture

Many claim dumping

is evident due to
Mexicos imports of
U.S. agriculture
products

$3.6 billion in 1993

$7.9 billion in 2003
$8.5 billion in 2004

U.S. farmers are

better at the expense
of Mexican farmers

Mexicos Agriculture

Immigration from
Mexican Farmers has
increased since
NAFTA.

At least 4 million
Mexican immigrants in
the United States.

150,000+ per year

Many due to population
growth

A problem because
this goes directly
against one of the
original claims of
NAFTA.

The Future
Joseph Najar

The future

Reforms needed for NAFTA to

meet its goals

Solving NAFTAs most difficult

problems

The prospects of NAFTA surviving

another decade

Meeting goals

GOAL: Enhance the economic

well-being of its members
Main problem: Cross-border trade (noneconomic)
Transportation routes
Investment opportunities

Solving problems

International trades vs. local institutions

Rules and procedures for handling disputes

Surviving another decade

Maybe

Bridging the gap

Security and Prosperity Partnership of
North America (SPP)
Blueprint for a further North American
Community