Brief Report on NAFTA[1]

7/29/2019 Brief Report on NAFTA[1]

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Brief Report on North American Free Trade Agreement

The North American Free Trade Agreement (NAFTA) is an agreement signed by the

governments ofCanada, Mexico, and the United States, creating a trilateral trade bloc in North

America. The agreement came into force on January 1, 1994. It superseded the CanadaUnited

States Free Trade Agreementbetween the U.S. and Canada.

NAFTA has two supplements: the North American Agreement on Environmental Cooperation

(NAAEC) and the North American Agreement on Labor Cooperation (NAALC).

Negotiation and U.S. ratification

Following diplomatic negotiations dating back to 1986 among the three nations, the leaders metin San Antonio,Texas, on December 17, 1992, to sign NAFTA. U.S. President George H. W.

Bush, Canadian Prime Minister Brian Mulroney and Mexican President Carlos Salinas, each

responsible for spearheading and promoting the agreement, ceremonially signed it. The

agreement then needed to be ratified by each nation's legislative or parliamentary branch.

Before the negotiations were finalized, Bill Clinton came into office in the U.S. and Kim

Campbell in Canada, and before the agreement became law, Jean Chrtien had taken office in

Canada.

The proposed Canada-U.S.trade agreement had been very controversial and divisive in Canada,

and the 1988 Canadian election was fought almost exclusively on that issue. In that election,

more Canadians voted for anti-free trade parties (the Liberals and the New Democrats) but the

split caused more seats in parliament to be won by the pro-free trade Progressive Conservatives

(PCs). Mulroney and the PCs had a parliamentary majority and were easily able to pass the

Canada-US FTA and NAFTA bills. However, he was replaced as Conservative leader and prime

minister by Kim Campbell. Campbell led the PC party into the 1993 election where they were

decimated by the Liberal Party under Jean Chrtien, who had campaigned on a promise to

renegotiate or abrogate NAFTA; however, Chrtien subsequently negotiated two supplemental

agreements with the new US president. In the US, Bush, who had worked to "fast track" the

signing prior to the end of his term, ran out of time and had to pass the required ratification and
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signing into law to incoming president Bill Clinton. Prior to sending it to the United States

Senate, Clinton introduced clauses to protect American workers and allay the concerns of many

House members. It also required US partners to adhere to environmental practices and

regulations similar to its own.

With much consideration and emotional discussion, the House of Representatives approved

NAFTA on November 17, 1993, 234-200. The agreement's supporters included 132 Republicans

and 102 Democrats. NAFTA passed the Senate 61-38. Senate supporters were 34 Republicans

and 27 Democrats. Clinton signed it into law on December 8, 1993; it went into effect on

January 1, 1994.[3][4] Clinton while signing the NAFTA bill stated that "NAFTA means jobs.

American jobs, and good-paying American jobs. If I didn't believe that, I wouldn't support this

agreement."

Provisions

The goal of NAFTA was to eliminate barriers to trade and investment between the US, Canada

and Mexico. The implementation of NAFTA on January 1, 1994 brought the immediate

elimination oftariffs on more than one-half of Mexico's exports to the U.S. and more than one-

third of U.S. exports to Mexico. Within 10 years of the implementation of the agreement, all US-

Mexico tariffs would be eliminated except for some U.S. agricultural exports to Mexico thatwere to be phased out within 15 years. Most U.S.-Canada trade was already duty free. NAFTA

also seeks to eliminate non-tariff trade barriers and to protect the intellectual property right of the

products.

In the area of intellectual property, the North American Free Trade Agreement Implementation

Act made some changes to the Copyright law of the United States, foreshadowing the Uruguay

Round Agreements Act of 1994 by restoring copyright (within NAFTA) on certain motion

pictures which had entered the public domain.[6]
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Mechanisms

Chapter 52 provides a procedure for the interstate resolution of disputes over the application and

interpretation of NAFTA. It was modeled after Chapter 69of the Canada-United States Free

Trade Agreement.[7]

NAFTA's effects, both positive and negative, have been quantified by several economists, whose

findings have been reported in publications such as the World Bank'sLessons from NAFTA for

Latin America and the Caribbean,[8]NAFTA's Impact on North America,[9]andNAFTA Revisited

by the Institute for International Economics.[10]Some[who?] argue that NAFTA has been positive

for Mexico, which has seen its poverty rates fall and real income rise (in the form of lower

prices, especially food), even after accounting for the 199495 economic crisis.[11]Others[who?]

argue that NAFTA has been beneficial to business owners and elites in all three countries, but

has had negative impacts on farmers in Mexico who saw food prices fall based on cheap imports

from US agribusiness, and negative impacts on US workers in manufacturing and assembly

industries who lost jobs. Critics also argue that NAFTA has contributed to the rising levels of

inequality in both the US and Mexico. Some economists believe that NAFTA has not been

enough (or worked fast enough) to produce an economic convergence,[12] nor to substantially

reduce poverty rates. Some have suggested that in order to fully benefit from the agreement,

Mexico must invest more in education and promote innovation in infrastructure and agriculture.

Trade

The agreement opened the door for open trade, ending tariffs on various goods and services, and

implementing equality between Canada, USA, and Mexico. NAFTA has allowed agricultural

goods such as eggs, corn, and meats to be tariff-free. This allowed corporations to trade freely

and import and export various goods on a North American scale. Since the implementation of

NAFTA, the countries involved have been able to do the following:

Exports

At $248.2 billion for Canada and $163.3 billion for Mexico, they were the top two purchasers of

US exports in 2010.
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US goods exports to NAFTA in 2010 were $411.5 billion, up 23.4% ($78 billion) from 2009 and

149% from 1994 (the year prior to Uruguay Round) and up 190% from 1993 (the year prior to

NAFTA). US exports to NAFTA accounted for 32.2% of overall US exports in 2010.

The top export categories (2-digit HS) in 2010 were machinery ($63.3 billion), vehicles (parts)

($56.7 billion), electrical machinery ($56.2 billion), mineral fuel and oil ($26.7 billion), and

plastic ($22.6 billion).

US exports of agricultural products to NAFTA countries totaled $31.4 billion in 2010. Leading

categories included red meats, fresh/chilled/frozen ($2.7 billion); coarse grains ($2.2 billion);

fresh foods (excluding nuts) ($1.8 billion); and fresh vegetables ($1.7 billion).

US exports of private commercial services, excluding military and government, to NAFTA were

$63.8 billion in 2009 (the latest data available), down 7% ($4.6 billion) from 2008, but up 125%

since 1994.

Imports

At $276.4 billion for Canada and $229.7 billion for Mexico, they were the second and third

largest suppliers of goods imports to the United States in 2010.

US goods imports from NAFTA totaled $506.1 billion in 2010, up 25.6% ($103 billion), from

2009, up 184% from 1994, and up 235% from 1993. US imports from NAFTA accounted for

26.5% of overall U.S. imports in 2010.

The five largest categories in 2010 were mineral fuel and oil (crude oil) ($116.2 billion), vehicles

($86.3 billion), electrical machinery ($61.8 billion), machinery ($51.2 billion), and precious

stones (gold) ($13.9 billion).

US imports of agricultural products from NAFTA countries totaled $29.8 billion in 2010.

Leading categories include fresh vegetables ($4.6 billion); snack foods including chocolate ($4.0

billion); fresh fruit (excluding bananas) ($2.4 billion); live animals ($2.0 billion); and red meats,

fresh/chilled/frozen ($2.0 billion).


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US imports of private commercial services excluding military and government were $35.5

billion in 2009 (latest data available), down 11.2% ($4.5 billion) from 2008 but up 100% since

1994.

Trade balances

The US goods trade deficit with NAFTA was $94.6 billion in 2010, a 36.4% increase ($25

billion) over 2009.

The US goods trade deficit with NAFTA accounted for 26.8% of the overall U.S. goods trade

deficit in 2010.

The US had a services trade surplus of $28.3 billion with NAFTA countries in 2009 (the latestdata available).

Investment

The US foreign direct investment (FDI) in NAFTA Countries (stock) was $357.7 billion in 2009

(latest data available), up 8.8% from 2008.

The US direct investment in NAFTA countries is in nonbank holding companies, and in the

manufacturing, finance/insurance, and mining sectors.

The foreign direct investment, of Canada and Mexico in the United States (stock) was $237.2

billion in 2009 (the latest data available), up 16.5% from 2008.[3][4][5]

Industry

Maquiladoras (Mexican factories that take in imported raw materials and produce goods for

export) have become the landmark of trade in Mexico. These are plants that moved to this regionfrom the United States, hence the debate over the loss of American jobs. Hufbauer's (2005) book

shows that income in the maquiladora sector has increased 15.5% since the implementation of

NAFTA in 1994. Other sectors now benefit from the free trade agreement, and the share of

exports from non-border states has increased in the last five years while the share of exports from

maquiladora-border states has decreased. This has allowed for the rapid growth of non-border
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metropolitan areas, such as Toluca, Len and Puebla; all three larger in population than Tijuana,

Ciudad Jurez, and Reynosa.

Environment

For more details on this topic, see NAFTA's Impact on the Environment.

Securing U.S. congressional approval for NAFTA would have been impossible without

addressing public concerns about NAFTAs environmental impact. The Clinton administration

negotiated a side agreement on the environment with Canada and Mexico, the North American

Agreement on Environmental Cooperation (NAAEC), which led to the creation of the

Commission for Environmental Cooperation (CEC) in 1994. To alleviate concerns that NAFTA,

the first regional trade agreement between a developing country and two developed countries,

would have negative environmental impacts, the CEC was given a mandate to conduct ongoing

ex postenvironmental assessment of NAFTA.[13]

In response to this mandate, the CEC created a framework for conducting environmental analysis

of NAFTA, one of the first ex post frameworks for the environmental assessment of trade

liberalization. The framework was designed to produce a focused and systematic body of

evidence with respect to the initial hypotheses about NAFTA and the environment, such as the

concern that NAFTA would create a "race to the bottom" in environmental regulation among the

three countries, or the hope that NAFTA would pressure governments to increase their

environmental protection mechanisms.[14]The CEC has held four symposia using this framework

to evaluate the environmental impacts of NAFTA and has commissioned 47 papers on this

subject. In keeping with the CECs overall strategy of transparency and public involvement, the

CEC commissioned these papers from leading independent experts.[15]

Overall, none of the initial hypotheses were confirmed.[citation needed] NAFTA did not inherently

present a systemic threat to the North American environment, as was originally feared, apartfrom potentially the ISDS provisions of Ch 11. NAFTA-related environmental threats instead

occurred in specific areas where government environmental policy, infrastructure, or

mechanisms, were unprepared for the increasing scale of production under trade

liberalization.[citation needed] In some cases, environmental policy was neglected in the wake of trade

liberalization; in other cases, NAFTA's measures for investment protection, such as Chapter 11,
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and measures against non-tariff trade barriers, threatened to discourage more vigorous

environmental policy.[16] The most serious overall increases in pollution due to NAFTA were

found in the base metals sector, the Mexican petroleum sector, and the transportation equipment

sector in the United States and Mexico, but not in Canada.[17]

Agriculture

From the earliest negotiation, agriculture was (and still remains) a controversial topic within

NAFTA, as it has been with almost all free trade agreements that have been signed within the

WTO framework. Agriculture is the only section that was not negotiated trilaterally; instead,

three separate agreements were signed between each pair of parties. The CanadaU.S. agreement

contains significant restrictions and tariff quotas on agricultural products (mainly sugar, dairy,

and poultry products), whereas the MexicoU.S. pact allows for a wider liberalization within a

framework of phase-out periods (it was the first NorthSouth FTA on agriculture to be signed).

The overall effect of the MexicoU.S. agricultural agreement is a matter of dispute. Mexico did

not invest in the infrastructure necessary for competition, such as efficient railroads and

highways, which resulted in more difficult living conditions for the country's poor. Mexico's

agricultural exports increased 9.4 percent annually between 1994 and 2001, while imports

increased by only 6.9 percent a year during the same period.[18]

One of the most affected agricultural sectors is the meat industry. Mexico has gone from a small-

key player in the pre-1994 U.S. export market to the 2nd largest importer of U.S. agricultural

products in 2004, and NAFTA may be credited as a major catalyst for this change. The

allowance of free trade removed the hurdles that impeded business between the two countries.

As a result, Mexican farmers have provided a growing meat market for the U.S., leading to an

increase in sales and profits for the U.S. meat industry. This coincides with a noticeable increase

in Mexican per capita GDP that has created large changes in meat consumption patterns,

implying that Mexicans can now afford to buy more meat and thus per capita meat consumption

has grown.[19]

Production ofcorn in Mexico has increased since NAFTA's implementation. However, internal

corn demand has increased beyond Mexico's sufficiency, and imports have become necessary,
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far beyond the quotas Mexico had originally negotiated.[20]Zahniser & Coyle have also pointed

out that corn prices in Mexico, adjusted for international prices, have drastically decreased, yet

through a program of subsidies expanded by former president Vicente Fox, production has

remained stable since 2000.[21]

The logical result of a lower commodity price is that more use of it is made downstream.

Unfortunately, many of the same rural people who would have been likely to produce higher-

margin value-added products in Mexico have instead emigrated. The rise in corn prices due to

increased ethanol demand may improve the situation of corn farmers in Mexico.[citation needed]

In a study published in the August 2008 issue of the American Journal of Agricultural

Economics, NAFTA has increased U.S. agricultural exports to Mexico and Canada even though

most of this increase occurred a decade after its ratification. The study focused on the effects that

gradual "phase-in" periods in regional trade agreements, including NAFTA, have on trade flows.

Most of the increase in members agricultural trade, which was only recently brought under the

purview of the World Trade Organization, was due to very high trade barriers before NAFTA or

other regional trade agreements.[22]

Mobility of persons

According to the Department of Homeland Security Yearbook of Immigration Statistics, during

fiscal year 2006 (i.e., October 2005 through September 2006), 73,880 foreign professionals

(64,633 Canadians and 9,247 Mexicans) were admitted into the United States for temporary

employment under NAFTA (i.e., in the TN status). Additionally, 17,321 of their family members

(13,136 Canadians, 2,904 Mexicans, as well as a number of third-country nationals married to

Canadians and Mexicans) entered the U.S. in the treaty national's dependent (TD) status.[23]

Because DHS counts the number of the new I-94 arrival records filled at the border, and the TN-

1 admission is valid for three years, the number of non-immigrants in TN status present in the

U.S. at the end of the fiscal year is approximately equal to the number of admissions during the

year. (A discrepancy may be caused by some TN entrants leaving the country or changing status

before their three-year admission period has expired, while other immigrants admitted earlier

may change their status to TN or TD, or extend TN status granted earlier).
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9/10

Canadian authorities estimated that, as of December 1, 2006, a total of 24,830 U.S. citizens and

15,219 Mexican citizens were present in Canada as "foreign workers". These numbers include

both entrants under the NAFTA agreement and those who have entered under other provisions of

the Canadian immigration law.[24]New entries of foreign workers in 2006 were 16,841 (U.S.

citizens) and 13,933 (Mexicans).[25]

Criticism and controversies

There is much concern in Canada over the provision that if something is sold even once as a

commodity, the government cannot stop its sale in the future.[26]This applies to the water from

Canada's lakes and rivers, fueling fears over the possible destruction of Canadian ecosystems and

water supply.

In 1999, Sun Belt Water Inc., a company out of Santa Barbara, California, filed an Arbitration

Claim under Chapter 11 of the NAFTA claiming $105 million as a result of Canada's prohibition

on the export of bulk water by marine tanker, a move that destroyed the Sun Belt business

venture. The claim sent shock waves through Canadian governments that scrambled to update

water legislation and remains unresolved.

Other fears come from the effects NAFTA has had on Canadian lawmaking. In 1996, the

gasoline additive MMT was brought into Canada by an American company. At the time, the

Canadian federal government banned the importation of the additive. The American company

brought a claim under NAFTA Chapter 11 seeking US$201 million,[27] from the Canadian

government and the Canadian provinces under the Agreement on Internal Trade ("AIT"). The

American company argued that their additive had not been conclusively linked to any health

dangers, and that the prohibition was damaging to their company. Following a finding that the

ban was a violation of the AIT,[28]the Canadian federal government repealed the ban and settled

with the American company for US$13 million.[29]Studies by Health and Welfare Canada (now

Health Canada) on the health effects of MMT in fuel found no significant health effects

associated with exposure to these exhaust emissions. Other Canadian researchers and the U.S.

Environmental Protection Agency disagree with Health Canada, and cite studies that include

possible nerve damage.[30]
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10/10

Ponderosa Pine logs taken from Malheur National Forest, Grant County, Oregon.

The United States and Canada had been arguing for years over the United States' decision to

impose a 27 percent duty on Canadian softwood lumber imports, until new Canadian Prime

MinisterStephen Harpercompromised with the United States and reached a settlement on July 1,

2006.[31] The settlement has not yet been ratified by either country, in part due to domestic

opposition in Canada.

Canada had filed numerous motions to have the duty eliminated and the collected duties returned

to Canada.[32]After the United States lost an appeal from a NAFTA panel, it responded by saying

"We are, of course, disappointed with the [NAFTA panel's] decision, but it will have no impact

on the anti-dumping and countervailing duty orders." (Nick Lifton, spokesman for U.S. Trade

Representative Rob Portman)[33]On July 21, 2006, the United States Court of International Trade

found that imposition of the duties was contrary to U.S. law.[34][35]
http://en.wikipedia.org/wiki/Malheur_National_Foresthttp://en.wikipedia.org/wiki/Grant_County,_Oregonhttp://en.wikipedia.org/wiki/United_States_%E2%80%93_Canada_softwood_lumber_disputehttp://en.wikipedia.org/wiki/Softwoodhttp://en.wikipedia.org/wiki/Stephen_Harperhttp://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement#cite_note-31http://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement#cite_note-31http://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement#cite_note-31http://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement#cite_note-32http://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement#cite_note-32http://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement#cite_note-32http://en.wikipedia.org/wiki/Appealhttp://en.wikipedia.org/wiki/Dumping_%28pricing_policy%29http://en.wikipedia.org/wiki/Countervailing_dutieshttp://en.wikipedia.org/wiki/United_States_Trade_Representativehttp://en.wikipedia.org/wiki/United_States_Trade_Representativehttp://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement#cite_note-33http://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement#cite_note-33http://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement#cite_note-33http://en.wikipedia.org/wiki/United_States_Court_of_International_Tradehttp://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement#cite_note-34http://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement#cite_note-34http://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement#cite_note-34http://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement#cite_note-34http://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement#cite_note-34http://en.wikipedia.org/wiki/United_States_Court_of_International_Tradehttp://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement#cite_note-33http://en.wikipedia.org/wiki/United_States_Trade_Representativehttp://en.wikipedia.org/wiki/United_States_Trade_Representativehttp://en.wikipedia.org/wiki/Countervailing_dutieshttp://en.wikipedia.org/wiki/Dumping_%28pricing_policy%29http://en.wikipedia.org/wiki/Appealhttp://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement#cite_note-32http://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement#cite_note-31http://en.wikipedia.org/wiki/Stephen_Harperhttp://en.wikipedia.org/wiki/Softwoodhttp://en.wikipedia.org/wiki/United_States_%E2%80%93_Canada_softwood_lumber_disputehttp://en.wikipedia.org/wiki/Grant_County,_Oregonhttp://en.wikipedia.org/wiki/Malheur_National_Forest

Documents

Brief Report on NAFTA[1]