NORTH AMERICAN FREE

TRADE AGGREMENT

NAFTA

Introduction Administrative center ,Mexico City, Ottawa and Washington, D.CMembership  Canada                             Mexico                             United States

  Estd- 01 Jan 994• 1988 – Canada & US – Canada & US FTA• 1992 - Mastricht Treaty in Europe- Creation Of

EU• 1994 - CUFTA Incls Mexico – Birth Of NAFTA

Goal : Eliminate trade barriers amongst members•   Immediate-  Tariff eliminated on more than

1/2 of US imports to Mexico & 1/3 of Mexican Imports to US

• All US Mexico tarrifs to be eliminated within 10 yrs (Except Some Agri Exports)

• Mexico to remove all tariffs within next 15 Yrs • US Canada Trade was already duty free.• Seeks to eliminate non tariff barriers.

MECHANISM: Chapter 20 deals with dispute resolution amongst the member states.. Modeled after Ch – 18 of US Canada FTA (5 Part mechanism)• Chapter 19 on antidumping and countervailing duties• Chapter 20 on general disputes.• Chapter 11 on investment• NAAEC ( North Am Agreement On Environmental Co-Operation) Article 14-15 Citizen’s Submission on Environmental Enforcement.•  NAAEC Part 5 Party-to-Party Disputes on Environmental Enforcement

NAFTA- Hopes Promote competition in free trade area International Environment Maastricht

Agreement & EU Huge disparities between US & MexicoMight reduce poverty in Mexico

NAFTA - Fears

• “Giant Sucking Sound” of Jobs & Investment– US workers loss- Mexican workers

gain

• US Trade Deficit

• Environmental problems

Impact of NAFTA

US JOBSTradeEffect on Mexico

Manufactured Goods Deficit didn’t Grow from 2000 to 2009

US JOBS

Only 8 % of US manufactured goods Trade deficit has been with NAFTA

92 % of the trade deficit was with ROW

 Trade Deficit & US JOBS

Does Not Account for 5 mn Lost Jobs

76 % Of Mexican Trade is oriented towards USA

Trade Amongst NAFTA

1990 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 8 9

-8

-6

-4

-2

0

2

4

6

8

GDP  Growth Rates NAFTA members

CANUSAMEX

%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-3

-2

-1

0

1

2

3

4

5

World

World

Effect On GDP

Mexico’s 76 % Trade orientation towards US should have accounted for commensurate growth in Mexico

Macroeconomics - Mexico1994   2004*  

Population (millions)  91  105 

Nominal GDP ($US billions)  422  677 

GDP, PPP** Basis ($US billions) 

671  1,017 

Per Capita GDP ($US)  4,617  6,450 

Per Capita GDP in $PPPs  7,351  9,680 

Total Merchandise Exports (US$ billions) 

71  215 

Exports as % of GDP  17%  32% 

Total Merchandise Imports (US$billions) 

91  216 

Imports as % of GDP  22%  32% 

Public Debt/GDP  32%  23% 

 Poverty levels

No Change in Poverty Levels/ South has remained untouched by NAFTA

Agriculture

Agriculture contributes 8 percent to Mexico’s gross domestic product (GDP) and employs about 22 percent of the labor force (about 8 million workers). For the United States, agriculture comprises only 2 percent of GDP and employs about 2.7 percent of the labor force (a bit under 4 million workers).

Tariffs removal for agricultural produce is Exempt under NAFTA.  Yr 2000 US Corn Subsidies totaled $ 10.1 bn against $ 5 Bn Mexico’s total Agri Export to US

Maquiladoras Effect• Factories, Called Maquiladoras, are built on

Mexican border and workers are hired there to make goods at much lower wages than USA

• Min Wages – USA- $5.15/h- Mexico- $ 3.4 / Day( Global Compensation Watch, The NAFTA Index, 1998)

Most production is Assembly operation rather than independent production

• 3 Day Blinds • 20th Century Plastics • Acer Peripherals • Bali Company, Inc. • Bayer Corp./Medsep • BMW • Canon Business Machines • Casio Manufacturing • Chrysler • Daewoo • Eastman Kodak/Verbatim • Eberhard-Faber • Eli Lilly Corporation • Ericsson • Fisher Price • Ford • Foster Grant Corporation • General Electric Company • JVC • GM • Hasbro • Hewlett Packard • Hitachi Home Electronics

•Honda •Honeywell, Inc. •Hughes Aircraft •Hyundai Precision America •IBM •Matsushita •Mattel •Maxell Corporation •Mercedes Benz •Mitsubishi Electronics Corp. •Motorola •Nissan •Philips •Pioneer Speakers •Samsonite Corporation •Samsung •Sanyo North America •Sony Electronics •Tiffany •Toshiba •VW •Xerox •Zenith

Companies with

Overall Impact NAFTA so far has enhanced Mexico's ability to supply American manufacturing firms with low cost parts• Helped American firms get competitive. ( especially auto industry)• Not helped Mexico turn into independently productive economy.

Disappointing progress in reducing the poverty in Mexico.• Low tax base, Low education investment, High inequality, Compition with china

No “ Giant sucking sound” of jobs and investment. Till 2004 US Mfg in last 10 yrs was up 41% as compared to 34 % in the decade preceding 1994

Other Factors Besides NAFTA That Have Affected U.S. Trade with Mexico• A sudden decline in the value of the peso at the end of 1994 (reduced U.S. exports to

Mexico and increased U.S. imports from Mexico)• Mexican recession in 1995 (lowered Mexico's demand for exports, including those of US)• The long U.S. economic expansion that lasted through most of the 1990s (which increased

U.S. demand for imports from all countries)• Recessions in the US and Mexico 2000-2001 (Reduced Mexican and US demand)

NAFTA EFFECT ON CANADA  Benefited the most. Averaged 3.3% growth rates as compared to US’s 2.7%. Canadian Manufacturing employment held stedy overall employment up to 15.7 mn in early 2000s from 14.9 mn pre NAFTA.