Crisis Committee Information Update

07.06.14

Written by Chairperson Flora Huang

On behalf of the Crisis Team

TCGSMUN III Crisis Committee Information Update

Case Study One

NAFTA: The origin, pros and cons , and

further proposed amendments

Information Update Case Study One: NAFTA

Briefings

Looking back on history, we can draw lessons from a lot of trade pacts signed between a strong economy body and a relatively weak, developing one. In our Information Update, we will take NAFTA as an example, tracking some of its pros and cons, to offer delegates more thoughts on CSSTA.

What is NAFTA?

NAFTA is a trilateral free-trade deal that came into force in January 1994, signed by U.S. president Bill Clinton, Mexican president Carlos Salinas, and Canadian prime minister Jean Chrétien. The central thrust of the agreement is to eliminate most tariffs on products traded among the United States, Mexico, and Canada. The terms of the agreement called for these tariffs to be phased out gradually, and the final aspects of the deal weren't fully implemented until January 1, 2008. The deal swept away import tariffs in several industries: agriculture was a major focus, but tariffs were also reduced on items like textiles and automobiles. NAFTA also implemented intellectual-property protections, established dispute-resolution mechanisms, and set up regional labor and environmental safeguards, though some critics now lobby for stronger measures on this front.

What was its purpose?

Article 102 of the NAFTA agreement outlines its purpose:• GrantthesignatoriesMostFavoredNationstatus.• Eliminatebarrierstotradeandfacilitatethecross-bordermovementofgoodsand services.• Promoteconditionsoffaircompetition.• Increaseinvestmentopportunities.• Provideprotectionandenforcementofintellectualpropertyrights.• Createproceduresfortheresolutionoftradedisputes.• Establishaframeworkforfurthertrilateral,regionalandmultilateralcooperationto expand the trade agreement's benefits.

Controversy

NAFTAwasattackedfromallsidesduringthe2008PresidentCampaign.NAFTAwasattackedfromallsidesduringthe2008Presidentialcampaign.BarackObamablamedit forgrowingunemployment. He said it helped businesses at the expense of workers in the U.S. It also did not provide enough protection against exploitation of workers and the environment along the border in Mexico. Hillary Clinton included the trade agreement in her pledge to strictly enforce all existing trade agreements, as well as halt any new ones. Both candidates promised to either amend or backoutoftheagreementalltogether.However,Obamahasn'tdoneanythingaboutthesecampaignspromisessincebecomingPresident.

Advantages of NFATA on the U.S

1. Free trade increases sales and profits for U.S. businesses, thus strengthening the economy.> Removal of costly and delaying trade barriers, such as tariffs, quotas and conditions, inherently leads to easier and swifter trade of consumer goods. The result is an increased volume of U.S. sales.

2. Free trade creates U.S. middle-class jobs over the long term> The theory is that as U.S. business grow from greatly increased sales and profits. demand will grow for midd-class higher-wage jobs to facilitate the sales increases. The New York Times wrote in2006:"Economistscanpromotetheveryrealbenefitsofarobustlygrowingworld:whentheysell more overseas, American businesses can employ more people."

3. Free Trade is an opportunity for the U.S. to provide financial help to some of the world’s poorest countries.> U.S. free trade benefits poorer, non-industrialized nations through increased purchases of their materials and labor services by the U.S.

4. It creates trade surplus in services:>Morethan40%ofU.S.GDPisservices,suchasfinancialservicesandhealthcare.Thesearen'teasily transported, so being able to export them to nearby countries is important. NAFTA boosted U.S. service exports to Canada and Mexico from $25 billion in 1993 to $106.8 billion in 2007.

5. ItstepsupForeignDirectInvestment(FDI):> NAFTA reduces investors' risk by guaranteeing they will have the same legal rights as local investors. Through NAFTA, investors can make legal claims against the government if it nationalizes their industry or takes their property by eminent domain. Since NAFTA was enacted, U.S.foreigndirect investment(FDI) inCanadaandMexicomorethantripledto$357billionin2009,upfrom$348.7billionin2007.CanadianandMexicanFDIintheU.S.grewto$237.2billion,up from $219.2 billion in 2007. That means this much investment poured into U.S. manufacturing, finance/insurance, and banking companies.

Advantages of NAFTA on Mexico

1. Farm exports:>TheEconomistnotesthatdespiteincreasedcompetition,MexicanfarmexportstotheUnitedStates have tripled since NAFTA's implementation, in part because of reduced tariffs on maize.

2. Helps offset slow income growth:>GEA,aMexicoCity-basedeconomicconsultingfirm,estimatesthatthecostofbasichouseholdgoods in Mexico has halved since NAFTA's implementation.

3. Urges the country to adopt orthodox economic management practices and is no longer prone to crises.> The government abandoned many protectionist policies and allowed the prices of tradable goods to converge on both sides of the border, which reduced deficits and limited the potential for currency crises.

Disadvantages of NAFTA on the U.S.

1. Free trade has caused more U.S. jobs losses than gains, especially for higher-wage jobs.

>WhenhesignedNAFTAonSeptember14,1993,PresidentBillClintonexulted,"Ibelievethat NAFTA will create a million jobs in the first five years of its impact. And I believe that that ismanymorethanwillbe lost..."But industrialistH.RossPerotfamouslypredicteda"giantsucking sound" of U.S. jobs heading to Mexico if NAFTA was approved. Unfortunately, he was correct.SincetheNorthAmericanFreeTradeAgreement(NAFTA)wassignedin1993,therisein the U.S. trade deficit with Canada and Mexico through 2002 has caused the displacement of production that supported 879,280 U.S. jobs. Most of those lost jobs were high-wage positions in manufacturing industries.The loss of these jobs is just the most visible tip of NAFTA's impact on the U.S. economy. In fact, NAFTA has also contributed to rising income inequality, suppressed real wages for production workers, weakened workers' collective bargaining powers and ability to organize unions, and reduced fringe benefits.

2. The agreement actually harmed other countries.

> Workers in other countries are being exploited and harmed.In Mexico, real wages have fallen sharply and there has been a steep decline in the number of people holding regular jobs in paid positions. Many workers have been shifted into subsistence-level work in the 'informal sector'... Additionally, a flood of subsidized, low-priced corn from the U.S. has decimated farmers and rural economics.

> The environment in other countries is being defiled.Sen.SherrodBrown(D-OH)observesinhisbook"MythsofFreeTrade":"Thelackofinternationallaws for environmental protection, for example, encourages firms to go to the nation with the weakest standards."

Disadvantages of NAFTA on Mexico

1. Unrealized promises> One lofty,unrealizedpromiseofNAFTAwasthat thetreatywouldnarrowthegapbetweenthepercapitaincomesofMexico,theUnitedStates,andCanada.PercapitaincomeinMexico rose at an annual average of 1.2 percent over the past two decades, from $6,932 in 1994 to$8,397in2012,farslowerthanLatinAmericancountriessuchasBrazil,Chile,andPeru.

2. Mexico'sFarmersWerePutOutofBusiness:> Thanks to NAFTA, Mexico lost 1.3 million farm jobs. The 2002 Farm Bill subsidized U.S. agribusiness by as much as 40% of net farm income. When NAFTA removed tariffs, corn and other grains were exported to Mexico below cost. Rural Mexican farmers could not compete.

3. MaquiladoraWorkersWereExploited:> NAFTA expanded the maquiladora program, in which U.S.-owned companies employed Mexican workers near the border to cheaply assemble products for export to the U.S. This grew to 30% of Mexico's labor force. These workers have "no labor rights or health protections, workdays stretch out 12 hours or more, and if you are a woman, you could be forced to take a pregnancy test when applying for a job," according to Continental Social Alliance.

4. Mexico'sEnvironmentDeteriorated:> In response to NAFTA competitive pressure, Mexico agribusiness used more fertilizers and other chemicals, costing $36 billion per year in pollution. Rural farmers expanded into more marginal land, resulting in deforestation at a rate of 630,000 hectares per year.

Amendments proposed

1. Duringthe2008U.S.presidentialelection,manyDemocratscalledforanamendmentofNAFTA to include additional labor and environmental standards.

2. A 2013 Congressional Research Service report on NAFTA notes that some of these policies include strengthening protections for workers and the environment, enhancing regulatory cooperation, investing in border infrastructure, and promoting research and development to improve the competitiveness of North American industries.

TCGSMUN III Crisis Committee Information Update

Case Study Two

ASEAN FTA with New Zealand: Safeguard

Mechanisms

Information Update Case Study Two: ASEAN

Safeguard Mechanisms In Use

TheASEANFTAestablishesanadditionalsafeguardmechanismunderwhichanyPartycaneithertemporarily suspend tariff reductions or increase the tariff rate if there have been increased imports of a product as a result of the tariff reductions being carried out under the FTA and such increases have caused serious injury to a domestic industry.

1.TheASEANFTAprovidesfortheimpositionofasafeguardmeasureonimportsduringtheperiod that tariffs are being phased out or reduced for any particular good, and for up to three yearsbeyondthat.Ameasurecanbe imposedbyanyPartytotheASEANFTAtoaddresssituations of serious injury to a domestic industry caused by increased imports as a result of tariff reductions under the FTA by either suspending further tariff reductions or reverting to higher tariffs for a certain period.

2. To apply a safeguard measure, New Zealand would have to undertake an investigation, publish the findings and only suspend tariff reductions or increase the tariff to the minimum extent necessary to prevent or remedy the injury being caused and to facilitate adjustment to import competition.

3.NewZealandwouldhavetoprovidecompensationtotheotherPartieswhoseexportsaresubject to the measure in the form of either equivalent tariff concessions or offsetting other obligationsundertheASEANFTAequivalenttothemeasureimposed.ButifNewZealandwasunabletoagreeoncompensationwiththeaffectedParties, thosePartieshavetherighttosuspend equivalent tariff concessions on New Zealand's exports, except that this right cannot be exercised for the first two years a measure is in place if it was imposed as a result of an absolute increase in imports.AnyASEANcountrythatproposedtoapplyasafeguardmeasureonimportsfromNewZealandissubject to the same requirements.

4. InNewZealand,theMinistryofEconomicDevelopment isresponsibleforconductinganysafeguardinvestigationspursuanttotheASEANFTA.

TCGSMUN III Crisis Committee Information Update

Case Study Three

Methods and mechanisms used

to protect business interests

Information Update Case Study Three: Methods

Non-Tariff barriers to Trade (NTBs)

Non-tariffbarrierstotrade(NTBs)aretradebarriersthatrestrictimportsbutarenotintheusualform of a tariff. Some common examples of NTB's are anti-dumping measures and countervailing duties, which, although they are called "non-tariff" barriers, have the effect of tariffs once they are enacted.TheirusehasrisensharplyaftertheWTOrulesledtoaverysignificantreductionintariffuse.Some non-tariff trade barriers are expressly permitted in very limited circumstances, when they are deemed necessary to protect health, safety, or sanitation, or to protect depletable natural resources. In other forms, they are criticized as a means to evade free trade rules such as those oftheWorldTradeOrganization(WTO),theEuropeanUnion(EU),orNorthAmericanFreeTradeAgreement(NAFTA)thatrestricttheuseoftariffs.

Types of Non-Tariff Barriers to Trade

Specific Limitation on Trade:

1. Licenses and Quotas:Themostcommon instrumentsofdirectregulationof imports (andsometimesexport)arelicenses and quotas. Almost all industrialized countries apply these non-tariff methods. The license systemrequiresthatastate(throughspeciallyauthorizedoffice)issuespermitsforforeigntradetransactions of import and export commodities included in the lists of licensed merchandises.A quota is a limitation in value or in physical terms, imposed on import and export of certain goods for a certain period of time. Licenses and quotas limit the independence of enterprises with a regard to entering foreign markets, narrowing the range of countries, which may be entered into transaction for certain commodities, regulate the number and range of goods permitted for import and export.

2. Minimum import price limits

3.Embargoes:Embargoisaspecifictypeofquotasprohibitingthetrade.Aswellasquotas,embargoesmaybe imposed on imports or exports of particular goods, regardless of destination, in respect of certain goods supplied to specific countries, or in respect of all goods shipped to certain countries. Although the embargo is usually introduced for political purposes, the consequences, in essence, could be economic.

Customs and Administrative Entry Procedures:

1. Valuation systems

2. Antidumping practices

3.Documentationrequirements

Government Participation in Trade:

1.Governmentprocurementpolicies

2.Determinationofeligibilityofanexportingcountrybytheimportingcountry

3.Determinationofeligibilityofanexportingestablishment(firm,company)bytheimportingcountry.

4.AdditionaltradedocumentslikeCertificateofOrigin,CertificateofAuthenticity

5.Occupationalsafetyandhealthregulation

6.Intellectualpropertylaws(patents,copyrights)

Think Tank

Delegatesshouldfocuson"TheNextStepofCSSTA". Forthedelegationyou'rerepresenting, what is the next step? If you are one of the advocate of signing theCSST,whatkindofprotectivemechanismshouldtheGovernmentestablishto enhance the public's confidence toward it? If your delegation regard CSSTA as deleterious and a tactic from China to accomplish their long goal of political unification, what other trade agreemeents, FTAs or even trade regions can Taiwan look out to, so that we may not only protect ourselves from the threaten of China, but the economic threaten to our dwindling economy from the entire Asia pacific region?

Don'tforgettosubmityourPositionPapertotheChairpersonNOLATERTHAN6/12. Pleaseemailitdirectlytofloradahuang@yahoo.com

Yourcooperation ishighlyappreciatedbythewholeCrisisTeam.Ourwarmestwelcome to your participation in this year's Crisis Committee, and we hope to see you on June 14th!

Best,Flora HuangChairpersonCrisisCommittee|TCGSMUNIII2014ConferenceWritten on behalf of the Crisis Team

References

1. NAFTA Secretariat, "FAQ"2. http://www.cfr.org/trade/naftas-economic-impact/p157903. http://useconomy.about.com/od/tradepolicy/p/NAFTA_Problems.htm4. EconomicPolicyInstitute,"TheHighCostofFreeTrade,"May3,20115. InternationalForumonGlobalization,ExposingtheMythofFreeTrade,February25,2003;TheEconomist,TariffsandTortillas,January24,20086. Worldpress.org, Lessons of NAFTA, April 20, 20017. CarnegieEndowment,NAFTA'sPromiseandReality,20048. Measures to protect businesses from unfair trade and import surges http://www.asean.fta.govt.nz/protection-from-unfair-trade/9. MethodsAndMechanismUsedToProtectBusiness InterestsCommerceEssayhttp://www.ukessays.com/essays/commerce/methods-and-mechanism-used-to-protect-business-interests-commerce-essay.php