Economic Integration Mcom Eco

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CHAPTER ONE:-ECONOMIC INTEGRATION

1.1) Definition: -An economic arrangement between different regions marked by the reduction or

elimination of trade barriers and the coordination of monetary and fiscal policies. The

aim of economic integration is to reduce costs for both consumers and producers, as well

as to increase trade between the countries taking part in the agreement.

1.2) Meaning Of Economic Integration: -Economic integration means economic alliance or network based on co-operation,

collaboration, flexibility, adaptation, risk and cost reduction, shared interests andobjectives, closeness and a commitment between two countries on an integrating,

ongoing basis. Thus, economic integration means that it is a creation of network of like

minded states together and design economic goals and work together to attain that goal, it

can be accomplished on a case to case basis, or it can be an ongoing collaboration over a

long period of time.

For example the corporation between Tornio in Finland and jacaranda in Sweden.

These two border towns have decided to cooperate on a number of issues to enhance thequality of life and economic activity in the region. Both the cities have been successful

enough in their economic integration that are now talks about integrating the entire region

straddling the sea of Bothnia .The successful economic integration of this region can be

used as a model for other areas both in Scandinavia and throughout the world.

Economic integration is not an easy task. This is clearly evident from its nature

and even more spa a problem in the Baltic region where there have been so many

political changes in recent years. We have seen the formation of three newly independentstates, Estonia Latvia and Lithuania. East and West Germany have been reunited to form

a new nation. Economic integration has been major issues in the new EU .There has been

long lasting effects on the Baltic Sea region.


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1.3) Goals Of Economic Integration: -The goal of economic integration is to create a network of likeminded states taken

together design economic goals and work together to attain these goals. Economic

integration can be accomplished on a case by- case basis or can be ongoing collaboration,

between nation the enhance economic, condition over a long period of time thus; the

following are the objectives of economic integration.

a) To protect domestic industries or certain other sectors of the economy.b) To guards against dumping.c) To promote indigenous research and developments.d) To conserve the foreign exchange resources of the country.e) To make the balance of payment position more favorable.

1.4) Types Of Economic Integration: -Economic cooperation or integration may take any one or a combination of any of

the following forms: These different forms of integration visualise different degrees of

economic cooperation in the descending order.

i) Economic Union: -An Economic Union is a case of absolute integration. It implies complete

economic integration of a group of countries. There is, thus, free mobility of factor

resources and commodities in such a union.

The economic activities and policies (fiscal, monetary and general) of the member

nations are perfectly harmonised, coordinated and collectively operated. Benelux

(Belgium, the Netherlands and Luxembourg) and the European Common Market (ECM)

are such economic unions. An economic union is, therefore, commonly referred to as a

common market.


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ii) Customs Union: -A Customs Union involves a common external tariff against non-member

countries, while within the union it there is unrestricted free trade. From the customs

union gradually, complete economic union is evolved. For instance in the case of ECM,

the Rome Treaty (1958) laid the basis of a customs union of the six member countries,

leading finally to an economic union by 1970.

iii) Free Trade AreaA Free Trade Area involves the abolition of all trade restrictions within the group,

but each individual country in the group is free to maintain any sort of relation with the

non-member countries. Countries in a free trade area have, thus, no common external

tariffs to maintain.

The European Free Trade Association (EFTA), 1959, and the Latin American

Free Trade Association (LAFTA) serve as examples of such free trade areas.

iv) Sectoral or Partial Integration: -A Sectoral of Partial Integration refers to the establishment of a common market

in a given product or products. The European Coal and Steel Community (ECSC), 1952,

is such a sectoral integration by which members of the "Inner Six" have created a

common market in coal and steel products within their territories.

v) Preferential Trading: -Preferential Trading is a sort of trading technique involving various measures for

promoting trade among the members of the group. Generally, agreements may be entered

into to ensure to each contracting party a favoured treatment as compared to others. Such

an agreement is usually referred to as the most-favoured nation agreement. It may relate

to commerce, industry and navigation, or it may relate either to commodities or merely to

customs duties


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vi) Long-term Trade Agreements: -The Long-term Trade Contract is a type of bilateral arrangement, either in a single

product or many products of trade between any two nations. Its minimum duration may

be a year or more. For instance, India had once entered into a trade agreement with Japan

for the supply of iron ore for a period of five years. Such an agreement tends to stabilise

the export of a given product or products of the country concerned.

1.5) Existing: -Not long after NAFTA was signed and ratified, the multilateral trade agreement

under the Uruguay Round was also concluded and implemented, allowing the NAFTA

parties to apply some of terms under that agreement to their own agreement .It is also

important to recognize that the three parties agreed to establish an agricultural trade

dispute settlement body to address any potential disputes that may arise among them.


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CHAPTER TWO: - NAFTA

2.1) Origin of NAFTA: -Each NAFTA country retains its external tariffs vis--vis non-members' goods

and levies a lower tariff on the goods "originating" from the other NAFTA members.

Rules of origin provide the basis for customs officials to make determinations about

which goods are entitled preferential tariff treatment under the NAFTA.

Negotiators of the agreement sought to make the NAFTA's rules of origin very

clear so as to provide certainty and predictability to producers, exporters and importers.

They also sought to ensure that the NAFTA's benefits are not extended to goods exported

from non-NAFTA countries which have undergone only minimal processing in North

America.

2.2) Introduction of NAFTA: -NAFTA stands for NORTH AMERICAN FREE TRADE AGREEMENT,

NAFTA is an extension of CUSTA i.e. the Canada United States trade agreement, United

States of America supported to move to form the regional trading groups like EEC but it

was suspicious about its working, Therefore in 1965 the United States of America andCanada entered into bilateral trade agreement to eliminate tariffs on automobiles and auto

parts.

In 1985 both the country decided to integrates their economies, generally by

reducing trade barrier like tariffs gradually over a period of ten years. In 1989, USA and

Canada formed a free trade area and hence along with goods trade and services among

them was also liberalized .It was also decided that other internal problem like subsidies,

dumping and other trade policy should be settled peacefully and friendly, however theycouldntset up customs union as it was difficult to have a common tariff policy with rest

of the world countries or with non-member countries .Canada joined hands with America

in forming free trade union, because it faced with the disadvantageous situation.


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The United States of America also wanted to see that Mexico should also join the

agreement and ultimately in December 1992, the three countries signed the agreement

leading to the formation of the North American Free Trade Agreement .The operation of

NAFTA commenced from January 1994, as per the provision of NAFTA all tariffs and

quotas on manufactured and agricultural goods are to be eliminated with 5 to 15 years. It

is called as a transnational period.

Restriction on Direct Foreign Investment (DFI) between the NAFTA members

will be lifted. The Intellectual Property Rights (IPRs) are to be protected in the member

countries i.e. in the NAFTA VIZ. U.S.A. Canada and Mexico .It is expected that Chile

and other Latin America countries may join NAFTA in future .It was decided that trade

in financial services will be liberalized by 2000.

NAFTA was controversial when first proposed, mostly because it was the first

FTA involving two wealthy, developed countries and a developing country. The political

debate surrounding the agreement was divisive with proponents arguing that the

agreement would help generate thousands of jobs and reduce income disparity in the

region, while opponents warned that the agreement would cause huge job losses in the

United States as companies moved production to Mexico to lower costs.

In reality, NAFTA did not cause the huge job losses feared by the critics or the

large economic gains predicted by supporters. The net overall effect of NAFTA on the

U.S. economy appears to have been relatively modest, primarily because trade with

Canada and Mexico account for a small percentage of U.S. GDP. However, there were

worker and firm adjustment costs as the three countries adjusted to more open trade and

investment among their economies.

2.3) Overview of NAFTA: -

NAFTA came into effect on January 1, 1994 as a comprehensive trade agreement

among the three North American countries: United States, Canada and Mexico. Its

primary objective was to reduce or eliminate trade barriers among the partner countries,

thereby increasing their total trade with each other over time. This overall objective

should, therefore, be the principal indicator of the performance of NAFTA.


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In addition to establishing international obligations to each other to avoid any

adverse effects of their individual actions on the other partners, the three countries

specifically agreed to implement rules guiding their actions under domestic support,

export subsidies, market access and sanitary and phytosanitary rules.

The agreement on domestic support started with a recognition of the importance

of domestic support measures to the agricultural sectors in the member countries and

their potential trade and production distorting effects. The parties also recognized that the

multilateral agricultural trade negotiations under the Uruguay Round of the General

Agreement on Tariffs and Trade (GATT) that was then ongoing would lead to reductions

in domestic support commitments. Accordingly, they agreed, among other things, to

ensure that their domestic support programs for agricultural producers should have little

or no impact on agricultural trade and production.

NAFTA opened up the U.S. market to increased Mexican imports and the

Mexican market to the United States and Canada, creating a single market with 400

million people and accounting for one-third of the worlds output of approximately $1

trillion per year.16 Some of the key NAFTA provisions included tariff and nontariff trade

liberalization, rules of origin, services trade, foreign investment, intellectual property

rights protection, government procurement, and dispute resolution. Labor and

environmental provisions were included in separate NAFTA side agreements.

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

U.S., Canada and Mexico. The implementation of NAFTA on January 1, 1994 brought

the immediate elimination of tariffs 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 U.S.-Mexico tariffs would be eliminated except for

some U.S. agricultural exports to Mexico that were 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,


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foreshadowing the Uruguay Round Agreements Act of 1994 by restoring copyright

(within NAFTA) on certain motion pictures which had entered the public domain.

2.4) Provision of NAFTA: -The NAFTA contains 22 chapters, several appendices, and two side-

agreements. The Effect of these provisions is summarized under the following sub-

headings;

i) Tariff Elimination: -The tariff reduction schedule provided for under the NAFTA is fully described in

just one section of NAFTAs Chapter 3. Tariffs on bilateral trade between Canada And

the U.S. were already being phased out according to a 10-year timetable prescribed by the

1989 Canada-U.S. FTA; the NAFTA confirmed the continuing elimination of those

residual Tariffs, and virtually all Canada-U.S. merchandise trade now occurs on a duty-

free basiss the NAFTA then set a similar 10-year timetable for the gradual elimination of

tariffs on merchandise Trade between Mexico and the U.S., and between Mexico and

Canada. These tariffs will be fully eliminated by 2003.

ii) Reduction of Non-Tariff Barriers: -The NAFTA prescribes the easing of a wide range of nontariff Barriers to trade in

goods and services within the NAFTA zone. This non-tariff Liberalization initiative

include strong statements of national treatment and market access; the Specification of

acceptable customs and clearing procedures; limits on the application of food Inspection

and health standards that may inhibit trade; limits on the application of other technical

Standards that may limit trade; and restrictions on government procurement practices

iii) Deregulation Of Key Industries: -For the most part, specified government regulations governing Output,

investment, and pricing in particular industries could be grandfathered under the

NAFTA.vi the agreement did, however. Most notable in this case were commitments that


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The Mexican government made under the NAFTA to privatize and/or deregulate sections

of its Energy, banking, insurance, advertising, communications, and trucking industries.

iv) Enshrinement of Investment Rights: -The NAFTA contains provisions to protect the economic Interests and legal

status of foreign investors that is unique in international trade agreements, and which

prefigured similar provisions which were subsequently proposed in multilateral for a

(Such as the failed OECD Multilateral Agreement on Investment, and later investment

initiatives At the World Trade Organization).

v) Dispute Settlement: -The Canada-U.S. FTA had introduced a unique new form of dispute Settlement,

in the form of special tribunals which were empowered to rule on the acceptable use By a

member country of countervail measures and other trade remedies. The operation of this

unique Investor-state dispute settlement mechanism, on top of the generally far-reaching

investor Protections contained in the NAFTA, has fueled the argument of NAFTA critics

that the Agreement actually represents a new corporate constitution for the continent

not just an Agreement to promote more international trade in goods and services.

vi) Mobility For Specialized Forms Of Labour: -In general the NAFTA does not address issues of Migration or freedom of

movement of persons between the member countries, with one Exception. Chapter 16 of

the agreement provides for temporary entry of certain classifications of Business persons

and professionals. Beyond this exception, each countrys existing immigration Laws and

procedures continue to apply.

vii) Side-Agreements on Labour And The Environment: -To support its efforts to have the NAFTA Ratified by Congress, the incoming

U.S. administration of Bill Clinton in 1993 negotiated two Side-agreements to the

NAFTA regarding the protection of labour and environmental standards These side-

agreements contain no measures with legislative force, but rather simply commit each


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government to greater Transparency in reporting on labour and environmental conditions,

and to the enforcement of Existing national labour and environmental laws. With few

exceptions, the side-agreements.

viii) Removal of Trade Barriers: -The market opening provisions of the agreement gradually eliminated all tariffs

and most nontariff barriers on goods produced and traded within North America over a

period of fifteen years after it entered into force. Some tariffs were eliminated

immediately, while others were phased out in various schedules of five to fifteen years.

U.S. import-sensitive sectors, such as glassware, footwear, and ceramic tile, received

longer phase-out schedules.

2.5) Countries Participated in NAFTA agreements: -

i) USA: -The United States of America(USAor U.S.A.), commonly referred to as the

United States(USor U.S.) or America, is afederal republic[10][11]consisting of 50states

and afederal district.The48 contiguous states and the federal district ofWashington,

D.C. are in centralNorth AmericabetweenCanada andMexico.The state ofAlaska is

the northwestern part of North America, west of Canada and east of Russia which is

across theBering Strait inAsia,and the state ofHawaii is an archipelago in the mid-

NorthPacific.The country also has five populated and nine unpopulatedterritories in the

Pacific and theCaribbean.

The United States is adeveloped country and has the world's largest national

economy, with an estimated 2013GDP of $16.2 trillion22% of global GDP at

purchasing-power parity,as of 2011. The per capita GDP of the U.S. was the worlds

sixth-highest as of 2010. Two studies in 2013 ranked the US as having the greatest

income disparity among developed nations, though it has the highest mean and second

highest medianhousehold income in the OECD, as well as the highestaverage employee

compensation
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ii) CANADA: -Canada is a North American country consisting of ten provinces and three

territories.Located in the northern part of the continent, it extends from the Atlantic to

the Pacific and northward into the Arctic Ocean. Canada is the world's second-largest

country by total area,and itscommon border with the United States is the world's longest

land border shared by the same two countries. Canada's advanced economy isone of the

largest in the world, relying chiefly upon its abundant natural resources and well-

developed trade networks, especially with the United States, with which it has had a long

and complex relationship.

Canada is a developed country, with theninth highestper capita income globally,

and the11th highest Human Development Index ranking. Itranks among the highest in

international measurements of education, government transparency, civil liberties, quality

of life, and economic freedom. Canada is a recognized middle power and a member of

many international institutions, including the G7, G8, G20, ICCPR,NATO,NAFTA,

OECD, WTO, Commonwealth of Nations, Francophone, OAS, APEC, and the United

Nations

iii) MEXICO: -Mexico is afederal constitutional republic in North America.It is bordered on the

north by theUnited States;on the south and west by the Pacific Ocean; on the southeast

by Guatemala, Belize, and the Caribbean Sea; and on the east by the Gulf of Mexico.

Mexico is the fifth largest country in the Americas by total area and the 13th largest

independent nation in the world.With an estimated population of over 113 million, it is

theeleventh most populous and themost populous Spanish-speaking country in the world

and the second most populous country inLatin America.

Mexico is a federation comprising thirty-one states and a Federal District, the

capital city.Mexico has one of the world's largest economies, and is considered both a

regional power and middle power In addition, Mexico was the first Latin American

member of theOrganization for Economic Co-operation and Development OECD (since
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1994), and considered an upper-middle income country by the World Bank. Mexico is

considered anewly industrialized country and anemerging power.It has thefourteenth

largest nominal GDP and theeleventh largest GDP bypurchasing power parity.

The economy is strongly linked to those of its North American Free Trade

Agreement (NAFTA) partners, especially the United States of America. Mexico ranks

sixth in the world and first in the Americas by number ofUNESCOWorld Heritage Sites

with32,and in 2010 was the tenth most visited country in the world with 22.5 million

international arrivals per year.
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Imports: -The NAFTA countries were the second and third largest suppliers of goods

imports to the United States in 2010. (Canada $276.5 billon, and Mexico $229.7 billion).

U.S. goods imports from NAFTA totaled $506.1 billion in 2010, up 25.6% ($103

billion), from 2009, and up 184% from 1994, and up 235% from 1993. U.S. 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).

U.S. 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).

U.S. imports of private commercial services* (i.e., 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 U.S. goods trade deficit with NAFTA was $94.6 billion in 2010, a 36.4%

increase ($25 billion) over 2009. The U.S. goods trade deficit with NAFTA accounted

for 26.8% of the overall U.S. goods trade deficit in 2010.

The United States had a services trade surplus of $28.3 billion with NAFTA

countries in 2009 (latest data available).

Investment: -U.S. foreign direct investment (FDI) in NAFTA Countries (stock) was $357.7

billion in 2009 (latest data available), up 8.8% from 2008.


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U.S. direct investment in NAFTA Countries is in nonbank holding companies,

and in the manufacturing, finance/insurance, and mining sectors.

NAFTA Countries FDI in the United States (stock) was $237.2 billion in 2009

(latest data available), up 16.5% from 2008.

NAFTA countries direct investment in the U.S. is in the manufacturing,

finance/insurance, and banking sectors

3.2) Implication on Canada: -

Since NAFTA has been significant economic growth, increased exports, rise in

productivity and prosperity in Canada .Canada exports to NAFTA partners have grown

substantially and have been very successful in high value added sectors such as

automotive equipment machinery and parts and industrial goods. The important benefits

to Canada are:-

i) Increase In Canada Trade: -Canada NAFTA exports have grown substantially and have been particularly

successful in high value added sectors such as automotive equipment (trucks, cars and

parts) machinery and parts and industrial goods. Since the implementation of NAFTA,Canada trade with the United States has risen 80%. While trade with Mexico has

doubled.

ii) Improves access to Mexican markets: -An important benefit of the NAFTA for Canada has been much improved access

to the Mexican market. Canadian firms have been able to expand sales in sectors that

were previously highly restricted. Such as automotive, product, financial services,

trucking, energy and fisheries.also,Canadian export have been steadily more diversified,

with value added manufactured product accounting for the largest share of total exports

to Mexico. Mexico is now Canada 13th largest export market ad fourth largest import

sources.


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iii) Rise In Trade In Services: -The value of two way trade I services (such as travel, freight and sheeping and

commercial fees ) between Canada and the united states has almost doubled since Canada

, US , FTA was concluded in 1988.following NAFTA implementation .Canadian exports

services to the united states and import from the united states has increased. Services

trade with Mexico has been on the rise since the implementation of NAFTA, due in large

parts increased in participation of Canadian firms in the Mexican economy

iv) Rise in investment: -Investment is key to economy growth and since 1993 foreign direct investment in

Canada has risen. The NAFTA has been contributing the enhancing Canadaattractiveness to foreign investors while providing more opportunity for Canadian to

invest in NAFTA partner economy. The NAFTA contribution to increased

competitiveness has also generated greater capital investment in Canada. This investment

has generated job growth and has led to valuable high tech knowledge transfers. A larger

part of foreign direct investment in Canada comes from NAFTA partners.

Since the implementation of the NAFTA, there have been notable investment

gains in Canada in the area of financial services, transportation equipment, automobile

equipment, chemical etc. The United States remains the largest foreign investor in

Canada.

The United States also remains the largest destination for Canadian foreign direct

investment. Canadian companies are increasingly using outward investment (through

merges, acquisitions, partnership, joint ventures, strategic alliance, or new investment) to

strengthen their operation, penetrate new market and acquire new technologies, resources

and skills. Such investment abroad brings concrete benefits to Canada in terms of

research and development activities, growth and exports opportunities, leading to job

creation back in Canada

The implementation of NAFTA also led to significant increase in FDI between

Canada and Mexico. Current Canadian investment in Mexico is concentrated in mining,


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banking and telecomminucations.furtherpotential exists in sectors such as gas and energy.

Mexican investment in Canada is growing, but remains small

3.3) Implication on Mexico: -

The Mexican economy has recently slowed down, but Mexicos growth

performance since the inception of NAFTA has been better than it was before the

agreement.

In particular, Mexican GDP growth rose from an annual average of 2 percent in

198093 to an annual average of roughly 4 percent in 19962002. Compared with several

other emerging market countries, the Mexican economy has performed well in the post-

NAFTA period and, in particular, the period after the 1995 crisis.

i) Increased Bilateral Economic Relationship between MEXICOand US: -

The North American free trade agreement (NAFTA) plays a very strong role in

the bilateral economic relationship between Mexico and the United States. The two

countries are also close tied in area not directly related to trade and investment such as

security, environmental, migration and health issues. Over the last decades the economic

relation between Mexico and the United States has strengthen significantly and the two

countries continue to corporate on issues of mutual concern.

ii) Increase In Trade:-Mexico trade with united states has grown considerably since1994.mexico had a

trade deficit of dollar 1.3billion with the united sustain 1994,the years of NAFTA

implementation .in subsequent years the trade balances shifted to a surplus as exports to

the united states increased while import with united states also increased after

NAFTA.the rate of growth was not high.in 2008,Mexican had trade surplus of dollar

84.18 billion with the united states.US inputs from Mexico totaled dollar 216.3 billion in

2008,while exports to Mexico total dollar 131.5 billion.in 2009,however,US Mexico


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trade declined due to the economic slowdown resulting from global financial crises.in

2008,mexicos exports has a percentage of GDP equally 31 % up from 10% 20 years ago,

and over 80%of Mexico export went to the united states. The value of Mexican goods

exported to the United States grew from 39.9 billion dollar in 1993 -210.8 billion dollar

in 2007, an increase of 437 %.

iii) Increase In Investment: -The united states is the largest sources of foreign direct investment in Mexico,

accounting for the over half of the dollar 19 billion invested their in 2006.in addition, us

companies contributed around 50%of the investment fund for the Mexican factories that

assemble product (such as apparel, auto parts and electronic goods) from imported US

components for export back to united states. These firms accounts for almost half of

Mexican exports. The World Bank studies estimates that FDI in Mexico would have been

approximately 40%lower without NAFTA.

iv) Rise In Employment And Wages: -Mexican employment levels have been more volatile since the implementation of

NAFTA, but as of 2005, the Mexican affiliates of U.S. companies employed nearly

840000 people who contributed 3.3% to Mexican GDP.Wages from Mexican workers

have been grown steadily since 1994 peso crisis, in addition, Mexican industries have

exported goods or the located in the regions with a higher level of foreign investment also

pay higher wages. According to Mexico secretariat of economy, exporting companies pay

salaries 37 % higher than those that dont export.

v) Higher Development:NAFTA help Mexico get closer to the levels of development in the United States

and Canada.NAFTA had helped Mexican manufactures to adopt to US technological

innovations more quickly and this had positive impacts on the number of the quality of

jobs. Since NAFTA went into effect, the overall macro economies volatility, wide

variation in the GDP growth rate, the decline in the Mexico. Business cycles in Mexico,

the united states and Canada have had higher levels of synchronicity since


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NAFTA.NAFTA has rained forced the higher sensitive of Mexican economy sector to

economy development in the United states economy recovery.

NAFTA contributed to Mexico economy recovery directly and indirectly after a

1995 currency crisis. Mexico responded to the crisis by crisis by implementing a strong

economic adjustment programmer but also by fully adherence to its NAFTA obligations

to liberalization trade with the united states and Canada .NAFTA may have supported the

resolve of the Mexican government to continue with the course of market based

economic reform, resulting in the increasing investor confidence in Mexico.


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CHAPTER FOUR:-TRADE PERFORMANCE OF NAFTA

4.1) Trade Performance of USA under NAFTA: -

On January 1, 1994, the North American Free Trade Agreement between the

United States, Canada, and Mexico (NAFTA) entered into force. All remaining duties

and quantitative restrictions were eliminated, as scheduled, on January 1, 2008.NAFTA

created the world's largest free trade area, which now links 450 million people producing

$17 trillion worth of goods and services. Trade between the United States and its NAFTA

partners has soared since the agreement entered into force.

Economic benefits to US1. Created trade surplus in services: -

More than 40% of USA, GDP is services, such as financial services and health

care. These arent easily transported.NAFTA boosted US services exports to Canada and

Mexico from dollar 25 billion in 1993 to dollar 106.8 billion in 2007,which dropped to

dollar 63.5 billion in 2009.imports of services from the two countries were only dollar 35

billion. Thus there were trade surplus services. Trade in services with NAFTA(exports

and imports) totaled dollar 99 billion in 2009.services exports were dollar 63.8

billion.services imports were dollar 35.5 billion. The US services trade surplus with

NAFTA was dollar 28.3 billion in 2009.

2. Reduced oil and grocery prices: -The US imports of oil from Mexico and Canada as shale oil led to reduction in us

reliance on oil imports from the Middle East and venezuelea. The US no longer imports

from Iran. Since is true for food imports. Without NAFTA prices for fresh vegetables,

chocolate, fresh fruit (except bananas) and beef would have been higher.


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3. Boosted US farm exports: -Due to NAFTA, agricultural exports to Canada and Mexico grew from 22 %of

total US farm exports in 1993 to 30% in 2007.agricultural exports to Canada and Mexico

were greater than exports to the next six largest markets combined. Exports to the two

countries nearly doubled, growing 156% compared to a 65% growth of the rest of the

world NAFTA increase US firms export because it eliminated high Mexican tariff

Mexico is the top export destination of US grown beef ,rice, soyabean, meal, corn,

sweetners, apples and beans.it is the second largest export destination for corn ,soybean

and oils. The United States exported 136.5 billion worth of goods to Mexico in 2007, up

242% since 1993.

4. Increase in efficacy: -Investment in Mexico has helped increase the efficency of US domestic

production many manufacturing companies were able to reduced cost by shifting

assembly of their product of the Mexico. This has helped boost US manufacturing output

with rose by almost 60% from 1993 to 2006. By contrast, output increased only 42 % in

the 13years before NAFTA.

5. Increase in jobs: -The greatest opposition to NAFTA came from the believe that foreign

competition hurts US employment. This misconception stream from the fact that the

greater benefits of free trade that often diaper relatively humanly across an economy,

losses terns to be concentrate in a few sector of an industries. But job losses are balanced

by other job created in more productive sector of the economic and the new jobs actually

pay more than the loss once. For instance, US employment rose for 110.8 million in 1993

to 137.6 million in 2007, and increase of 24%.further, the US UNEMPLOYMENT

RATE AVERAGED 5.1% for the first 13 years after NAFTA, compared to 7.1% during

the 13years prior to the agreement


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6. Increase in trade: -Trade between the unites states and its NAFTA partners has risen since the

agreement entered into force.US goods and services trade with NAFTA totaled dollar 1.6

trillion in 2009.exports totaled dollar 397 billion. Imports totaled dollar 438 billion. The

US goods and services trade deficit with NAFTA was dollar 41 billion in 2009.

The US goods trade deficit with NAFTA was dollar 94.6 billion in 2010,a 36.4%

increase over 2009.the US goods trade deficit with NAFTA account noted for 26% of the

overall US goods trade deficit in 2010.the united states had a services trade surplus of

dollar 28.3 billion with NAFTA

7.

Increase in investment: -

Us foreign direct investment (FDI) in NAFTA countries was dollar 357.7 billion

in 2009,up 8.8 % from 2008.US direct investment in NAFTA countries is largely in on

bank holding companies, and in the manufacturing,finanace,insurance,and mining

sectors. NAFTA countries FDI in the United States was dollar 237.2 billion in 2009, up

16.5%from 2008.NAFTA countries direct investment in the US is in the manufacturing,

finance, insurance and banking sectors

4.2) Mechanisms: -

Procedure for the interstate resolution of disputes over the application and

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

Free Trade Agreement.

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's

Lessons from NAFTA for Latin America and the Caribbean, NAFTA's Impact on North

America and NAFTA Revisited by the Institute for International Economics. Some 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 the

199495 economic crisis.


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Others 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, 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.

4.3) Services Trade Liberalization: -

NAFTA services provisions established a set of basic rules and obligations inservices trade among partner countries. The agreement expanded on initiatives in

the U.S.-Canada FTA and the Uruguay Round of multilateral trade negotiations to

create internationally-agreed disciplines on government regulation of trade in

services.

The agreement granted services providers certain rights concerningnondiscriminatory treatment, cross-border sales and entry, investment, and access

to information. However, there were certain exclusions and reservations by each

country. These included maritime shipping (United States), film and publishing

(Canada), and oil and gas drilling (Mexico).

Although NAFTA liberalized certain service sectors in Mexico, particularlyfinancial services, which profoundly altered its banking sector, other sectors were

barely affected.

In telecommunications services, NAFTA partners agreed to exclude provision of,but not the use of, basic telecommunications services. NAFTA granted a bill of

rights for the providers and users of telecommunications services, including

access to public telecommunications services; connection to private lines that

reflect economic costs and available on a flat-rate pricing basis; and the right to

choose, purchase, or lease terminal equipment best suited to their needs.


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However, NAFTA did not require parties to authorize a person of anotherNAFTA country to provide or operate telecommunications transport networks or

services. NAFTA did not bar a party from maintaining a monopoly provider of

public networks or services,

4.4) 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.

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 in2009 (the latest data available).

Investment: -The US foreign direct investment (FDI) in NAFTA Countries (stock) was $327.5

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.


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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).

4.5) Trade Performance of Canada Mexico under NAFTA Merchandise Trade: -

In 2011, CanadaMexico merchandise trade totaled $30.1 billion, comprised of

$5.5 billion in Canadian exports to, and $24.6 billion in imports from, Mexico.

The value of Canadas exports to Mexico increased by 9.3% between 2010 and

2011, while the value of Canadas imports from the country increased by 11.1% over the

period.

Mexico was Canadas fifth largest export destination globally in 2011, after the

United States, the United Kingdom, China and Japan. In that year, Mexico was Canadas

third largest source of imports globally, after the United States and China.

Over the 2006 to 2011 period, the value of Canadas exports to Mexico grew at an

average annual rate of 4.6%, compared to 0.3% worldwide. The value of Canadas

exports to Mexico as a share of the value of Canadas total exports grew from 1.0% in

2006 to 1.2% in 2011.

The value of Canadas imports from Mexico increased at an average annual rate

of 8.9% over the 2006 to 2011 period, compared to an increase of 2.4% worldwide. The

value of Canadas imports from Mexico as a share of the value of Canadas total imports

grew from 4.0% in 2006 to 5.5% in 2011.

At the provincial/territorial level, Ontario, Quebec and Alberta together accounted

for 77.0% of the value of Canadas exports to Mexico in 2011, with exports valued at

$2.3 billion, $1.0 billion and $951.2 million respectively.


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Over the 2006 to 2011 period, the fastest-growing provincial/territorial exporters

to Mexico were New Brunswick, Manitoba and Saskatchewan, which had average annual

growth rates of 22.3%, 13.1% and 12.6% respectively.

Products: -In 2011, manufactured goods accounted for 74.6% of the value of Canadas

exports to Mexico, with resource-based goods accounting for the remaining 25.4%. This

composition had changed since 2006, when manufactured goods and resource-based

goods accounted for 82.8% and 17.2% respectively of the value of Canadas exports to

the country.

Canadas highest-valued exports to Mexico in 2011 were canola seeds, electronicintegrated circuits and cars, which together accounted for 28.3% of the value of Canadas

exports to the country. The value of Canadian canola seed and electronic integrated

circuit exports to Mexico increased from $333.4 million and $110.7 million respectively

in 2006 to $838.9 million and $410.7 million respectively in 2011. The value of Canadian

car exports declined from $336.6 million to $301.8 million over the period.

In 2011, manufactured goods represented 89.6% of the value of Canadas imports

from Mexico, with resource-based goods accounting for the remaining 10.4%. Thiscomposition is almost identical to that of 2006.

Canadas highest-valued imports from Mexico in 2011 were cars, trucks,

telephone sets, and monitors and projectors, which collectively accounted for 33.5% of

the value of Canadas imports from the country. The value of Canadian imports of cars,

trucks, telephone sets, and monitors and projectors from Mexico increased from $1.5

billion, $1.0 billion, $545.6 million and $1.5 billion respectively in 2006 to $2.4 billion,

$2.1 billion, $2.0 billion and $1.7 billion respectively in 2011.

In 2011, Canada was a net exporter to Mexico of agriculture and food products,

and a net importer in every other product category.


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Services and Investment: -In 2009, the most recent year for which data are available, CanadaMexico

services trade totaled $2.5 billion, comprised of $674.0 million in exports to, and $1.8

billion in imports from, Mexico.

The value of Canadas servicesexports to Mexico decreased by 13.9% from 2008

to 2009, while the value of Canadas services imports from the country increased by

13.0% over the period.

In 2009, Canadas trade deficit in services with Mexico was the result of trade in

travel services. In that year, Canada imported $1.5 billion in travel services from Mexico,

compared to $280.0 million in travel services exported to Mexico. During that same year,Canada imported $174.0 million in transportation and government services to Mexico,

compared to exports of $97.0 million. Canada exported $298.0 million in commercial

services to Mexico in 2009, compared to imports of $140.0 million.

The stock of Canadian direct investment in Mexico totaled $4.2 billion in 2011,

making it Canadas 21st largest destination for foreign investment abroad. Canadian

direct investment in the country declined by 13.6% between 2010 and 2011.

In 2011, the stock of Mexican direct investment in Canada totaled $216.0 million,

making it the 29th largest source of foreign investment in Canada. Mexican direct

investment in Canada increased by 13.1% between 2010 and 2011.


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ANALYSIS AND DATA INTERPRETATION

Chat nos one :-NAFTA partners

A unique aspect of the trade agreement covering Canada, the U.S. and Mexico isthe significant differences between the three NAFTA partners. In terms of economic size,

the U.S. is clearly dominant, accounting for 88.4 percent of gross domestic product

(GDP) in the NAFTA area at US$10.4 trillion. Canada, a little less than one-tenth the size

of the U.S., accounts for 6.2 percent while Mexico accounts for 5.4 percent of NAFTA

area GDP.

When measured by population, the U.S. is still the dominant partner, but not to

the same degree as for GDP. The U.S. accounts for just over two-thirds of NAFTA area

population at 68.6 percent, compared to 23.9 percent for Mexico and 7.5 percent for

Canada. Mexico also possesses a much younger and faster growing population than its

two northern neighbors creating a unique set of opportunities and challenges for that

country within North America.


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Chat no three :- Canadian & US trade in goods & services

Canada and the U.S. enjoy the world's largest bilateral trading relationship.

Nearly $1.9 billion in goods and services cross the border each and every day. Canada-

U.S. trade has grown considerably since the Canada-U.S. Free Trade Agreement came

into force in 1989. Between 1989 and 2002, Canadian exports to the U.S. grew at an

average annual rate of 9.3 percent while imports grew at 7.5 percent. Canada's trade

surplus with the U.S. also increased tremendously, from $4.4 billion in 1989 to a peak of

$90.7 billion in 2001 before falling off somewhat to $86.4 billion in 2002.


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Chat No Four :-Canada Mexico Trade In Goods And Services

Canada and the Mexico. Enjoy the world's largest bilateral trading relationship.

Nearly $1.9 billion in goods and services cross the border each and every day. Canada-

Mexico. Trade has grown considerably since the Canada-Mexico Free Trade Agreement

came into force in 1989. Between 1989 and 2002, Canadian exports to the Mexico. Grew

at an average annual rate of 9.3 percent while imports grew at 7.5 percent. Canada's trade

surplus with the Mexico. Also increased tremendously, from $4.4 billion in 1989 to a

peak of $90.7 billion in 2001 before falling off somewhat to $86.4 billion in 2002.


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FINDING

The NAFTA is the world's largest trade bloc with a gross domestic product(GDP), at present, of US$11.4 trillion, about one-third of the world's total and

seven percentage points more than that of the European Union (E.U.).

The U.S. accounts for the lion's share of both population and GDP in the NAFTAregion as well as having the highest GDP per capita. Canada, while having a

slightly lower GDP per capita is only about one-ninth the size in terms of

population and one-eleventh for GDP while Mexico, having a slightly smaller

GDP than Canada, is about three times as populous and posts a standard of living

about one-third that of Canada.

$1.9 billion1 of goods and services crosses the Canada-U.S. border every day,making the Canada-U.S. trade relationship the largest in the world.

Since 1989, Canada-U.S. trade has nearly tripled from $235.2 billion to $677.8billion in 2002. In 2002, the U.S. accounted for 80.8 percent of Canada's total

exports, up from 71.1 percent in 1989.

Merchandise exports to the U.S. expanded by 250 percent since 1989 to reach$345.4 billion in 2002 and account for 87.2 percent of Canada's total merchandise

exports. Imports from the U.S. grew by 150 percent over the same period to reach

$218.3 billion which contributed to Canada's $127.1 billion merchandise trade

surplus with the U.S.

The importance of trade with the U.S. has increased for every Canadian provinceand nearly every industry. Canada now exports more manufacturing production to

the U.S. than it consumes domestically.

There has been a shift in Canada's trade with the U.S. toward the South and Westof that country.

Services are a relatively small and declining share of Canada-U.S. trade; however,this is mostly due to a rapid increase in merchandise trade rather than to poor


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performance of services, which expanded at an average annual rate of 8.8 percent

for exports and 6.5 per-cents for imports between 1989 and 2002.

FDI flows between Canada and the U.S. increased dramatically between 1998 and2001, driven by booming stock markets, and surging merger and acquisition (M &

Amp; A) activity. However, the U.S. share of Canada's inward FDI stock fell

from 65.6 percent in 1989 to 64.2 percent in 2002, and of the outward stock from

63.0 percent to 46.7 percent.

The susceptibility of Canada-U.S. trade to increased security and delays at theborder is one of the most challenging aspects to Canadian trade policy over the

medium term.

The U.S. economy is also heavily dependent on trade and investment linkageswith Canada; this dependence has increased over the past decade as production in

each country has become increasingly interdependent. Canada is the most

important destination for exports from 39 U.S. states and the number one supplier

of energy, including oil, to that country,

Canada- Mexico trade and investment flows remain relatively small with Mexicoaccounting for only 0.7 percent of Canadian exports and 3.1 percent of imports in

2001. Mexico accounted for an even smaller share of Canada's outward FDI

stock, at 0.8 percent, and of its inward FDI stock, at 0.02 percent, in 2002.

However, trade, and especially imports, has exploded in recent years. Between1994 and 2002, Canadian merchandise exports to Mexico rose 10.5 percent per

year while imports increased at a rapid rate of 13.8 percent per year.

On the surface, Canada and Mexico appear to exchange many of the sameproducts: Motor Vehicles, Machinery & Electrical, and Special Instruments. But,

at a more detailed level, the differences become apparent. Canada exports higher

value-added products, such as telecommunications equipment and specialized

technical equipment, while Im-porting from Mexico more labor-intensive

products, such as ignition wiring, television receivers and thermostats.


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CONCLUSION

The North American Free Trade Agreement has contributed to increased trade

among the three partners over its first decade. From that perspective, we can argue that ithas achieved its objectives in its first decade. Our analysis revealed that the US is

importing more agri-food products from its NAFTA partners that it is exporting. More

importantly, its imports of consumer-ready products far exceed its exports, leading to

significant trade deficits in that product category.

This situation creates two major opportunities for US agri-food sector

stakeholders: increase import replacement opportunities by assessing and understanding

the factors that support the increased demand for imports through innovation of products,

processes and protocols; and accelerate exports by scoping for opportunities in the

partner countries to determine which advantages may be seized profitably.

The conclusion of the free-trade agreement with Mexico and Canada will place

the United States in the center of a market of 360 million consumers, with a collective

output of $6 trillion, a market much larger and much richer than the European

Community.

The implementation in 1994 of the NAFTA, building on the earlier framework of

the 1989 Canada-U.S. FTA, marked a watershed in the historical political-economic

evolution of Canada and Mexico. The implementation of the NAFTA was a much less

important event for the U.S. The relatively simple task of eliminating tariffs on intra-

NAFTA merchandise trade constitutes a modest portion of the overall NAFTA package.

More important has been the

NAFTAs attempt to establish a continent-wide regime of deregulated, market-

oriented economic development. Indeed, the Mexican governments primary interest in

the NAFTA may have been precisely to commit itself publicly and permanently to a

broadly neoliberal development strategy, thus winning the confidence and approval of

both international investors and domestic wealth-holders. The NAFTA has had a


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significant impact on the structure of trade flows within North America, but no visible

effect on aggregate economic activity or employment.

The prospects for the expansion of NAFTA to include other countries in the

Western Hemisphere, or for the deepening of the NAFTA to include topics such as

monetary integration or greater freedom of migration, seem relatively dim.

It eliminates tariffs and nontariff barriers on about 65% of U.S. industrial andagricultural exports.

It opens Mexico's $146 billion services market and Canada's $285 billion servicesmarket.

It opens up the North American auto market. NAFTA will cut Mexican tariffs byhalf immediately and phase-out restrictions that have kept U.S. parts and vehicles

out of Mexico's auto market.

It provides fair rules for investors. U.S. companies in Mexico and Canada will begranted equal treatment with nationals, and will no longer face export or 'local

content" requirements.

It strengthens patent, copyright, and trademark protection.


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BIBLIOGRAPHY

Book reference Solow, R. (1956), A Contribution to the Theory of Economic

Growth, Quarterly Journal of Economics

Miles, D. and A. Scott (2004), Macroeconomics and the globalbusiness environment

Johnson ,Mascarenhas, Economics Of Global Trade And Finance

Webliography: www.trade performance of nafta.com www.usa.org.cn www.mexico.org.cn www.canada.org.cn
http://www.usa.org.cn/http://www.mexico.org.cn/http://www.canada.org.cn/http://www.canada.org.cn/http://www.mexico.org.cn/http://www.usa.org.cn/

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