NAFTA

Unit-5
 North American Free Trade Agreement ( NAFTA )

Definition:
• A trade agreement made between the
governments of Mexico, Canada and the
United States for the purpose of eliminating
trade barriers among them.
• It was signed by United States, Canada, and
Mexico in 1993 and came into effect on
January 1, 1994.
 NAFTA: What?
• NAFTA was written to create a Free Trade Area
in North America.
• “Free Trade” means that countries may freely
trade goods with each other without having to
pay a tariff (tax) on those goods.
• In other words “Free Trade” means no trade
barriers
 NAFTA: Why?
The purpose of agreement is to:
• Allow free movement of goods and services among
the countries.
• Promote competition in the free trade areas.
• Protect the property rights of people and businesses
in each country.
• Be able to resolve problems that arise among the
countries.
• Encourage cooperation among countries.
 Objectives Of NAFTA
• To eliminate trade barriers and facilitate the cross-border
movements of goods and services between the parties.
• To promote conditions of fair competition.
• To substantially increase investment opportunities.
• To promote adequate and effective protection and
enforcement of intellectual property rights in each
territory.
• To create effective procedure for the implementation and
application of this agreement for its joint administration and
for resolution of disputes
 NAFTA: Pros
• Free trade increases sales and profits for Mexico, Canada,
and the U.S.A , thus strengthening their economies.
• Lack of tariffs has allowed Mexico to sell its goods in
USA and Canada at lower prices. This makes Mexican
products more competitive in these markets and increases
Mexico’s profits as it tries to develop its economy.
• Free trade is an opportunity for the U.S to provide
financial help to Mexico by making jobs available in
factories located there.
 North American Agreement On
Environmental Cooperation (NAAEC)
• NAAEC created commission for
environmental cooperation in 1994
• Development of common priorities for
protection of certain species.
• Developing north American Conservation
action plans for three shared marine species.
• Setting out common mechanism for planning
and monitoring bird conservation programs.
 North American Agreement On Labor
Cooperation(NAALC)
• NAALC members work together to protect , enhance and
enforce the basic rights of workers
• Establishment of institutions & creation of formal process to
raise concerns related to labor law enforcement directly with
government.
• Undertaken a wide range of co-operative programs and
technical exchanges on industrial relations,
 Occupational safety and health,
 Child labor,
 Gender equality
 Protection of migrant workers
 Trade And Investment Effects
• NAFTA is a broad agreement , but improved market access
including tariff reductions on merchandise trade, was the
major goal.
• After ten years, most tariffs have gone to zero, except for
some very sensitive (mostly agricultural) goods that have
limited protection for up to 15 years. Clearly, U.S.-Mexico
trade and investment have grown sharply over the past
decade.
• From 1994 to 2003, U.S. exports to Mexico rose 91%
compared to 41% to the world U.S import increased by
179%, compared to 89% from the world.
 Advantages of Membership
• Allows 450 million people to trade with each other at a lower cost
• Reduces inflation (by decreasing cost of imports)
• Creates agreements on international rights for business investors
• Reduces cost of trade (greatly benefit and help growth in small
businesses)
• Increased trade in all goods and services by reducing duties
(responsible for $1.6 trillion in goods and services every year)
• Increases GDP
• Reduced oil and grocery prices
• Can make exporter more competitive than other non-participating
countries
• Mexico’s poverty rate decreased and real income increased, even
after economic crisis 1994-1995
 Disadvantages of membership
-loss of jobs ( U.S. manufacturers sent jobs to Mexico for
cheaper; jobs are lost)
-farmers put out of business (due to subsidized farm
products)
-wages are suppressed (threaten to send jobs away)
-maquiladora workers are exploited
-environment destroyed (pressure to compete use
chemicals)
-Critics also argue that NAFTA has contributed to the rising
levels of inequality in both U.S. and Mexico
 Adverse Effects
• Increase in productivity and growth is not very
high.
• NAFTA resulted in a net loss of 394,834 jobs
in first three years itself.
• Many Canadian and Mexican people migrated
to USA under temporary status & treaty’s
national dependent status.
 International impact-Mexico
-U.S. Jobs are now getting sent to Mexico (cheap labor;
exploitation)
-Local Mexican farmers cannot compete with U.S.
subsidized farm products (lost farms)
-Mexican environment destroyed (due to competitive
pressure); pollution
-trade increase in products and goods (higher growth)
-Mexican oil is imported for less
-GDP growth (46%)
-more foreign investment
 INTERNATIONAL IMPACT-Canada

• -Canada’s trade with U.S. has grown 80%

• -U.S.-Canada and Mexico-Canada trade for $484
billion
• -growth in exports (successful in automotive
equipment, machinery
• and parts and industrial goods)
• -growth in imports
• -contributed to Canada’s attractiveness to foreign
investors
 What does NAFTA mean for
U.S.?
• -increase in GDP (.5% a year)
• -boosted U.S. farm exports (eliminated high Mexican
tariffs)
• -created trade surplus in service (financial services and
healthcare)
• -reduced oil and gas prices
• -increase in foreign direct investment
• -U.S. jobs lost/ U.S. wages suppressed
• -can compete with European Union
• -can compete with China and its’ trade agreements
 Problems
• NAFTA was not really a free and fair trade agreement
– With massive US agricultural subsidies
– With retention of non-tariff barriers
Which were used when Mexico made inroads into America’s market
• NAFTA intruded into basic areas of national sovereignty
– Chapter 11 made environmental regulations more difficult
– Not really intended for basic investor protection
• Trade is important, but trade isn’t everything
• Trade liberalization is important, but it isn’t everything
– Difficulties in competing with China
– Making Mexico more dependent on US
– Significant loss of revenue from loss of tariffs
– Revenue needed for public investments in infrastructure and education
– Major impediment to economic success
 Contribution To NAFTA

MEM BER COUNTRY CONTRIBUTION / SUPPLY

UNITED STATES Technology , Services, and data

processing, medical and space
research and capital

CANADA Mineral, forest products, energy and

technological expertise

MEXICO Labors, Petroleum and agricultural

products
 INDIA’S IMPORT FROM
INDIA’S EXPORT TO NAFTA
NAFTA IN 2005-2006
IN 2005-2006
TOTAL USD 10472,22
TOTAL USD 18,817,71
MILLIONS
MILLIONS

USD(millions) USD(millions)
• USA CANADA MEXICO USA CANADA MEXICO
2% in Mexico 1% in Mexico
6% in Canada 9% in Canada
92% in USA 90% in USA

INDIA’S TRADE WITH NAFTA