Canada part of NAFTA
Canada part of NAFTA
1.INTRODUCTION
The North American Free Trade Agreement (NAFTA) is an agreement signed byCanada, 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 It superseded the Canada–United States Free Trade Agreement between the U.S. and Canada. In terms of combinedpurchasing power parity GDP of its members, as of 2007 the trade bloc is the largest in the world and second largest by nominal GDP comparison.
NAFTA has two supplements: the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC).
The North American Free Trade Agreement (NAFTA), signed by Prime Minister Brian Mulroney, Mexican President Carlos Salinas, and U.S. President George H.W. Bush, came into effect on January 1, 1994. Since 1993, NAFTA has generated economic growth and rising standards of living for the people of all three member countries. By strengthening the rules and procedures governing trade and investment throughout the continent, NAFTA has proved to be a solid foundation for building Canada’s future prosperity.
Canada's merchandise trade with its NAFTA partners reached nearly $626.3 billion in 2008. Canadian merchandise exports to the United States grew at a compounded annual rate of almost 6.3% between 1993 and 2008. Canada’s bilateral trade with Mexico was close to $23.8 billion in 2008. Approximately eighty percent of Canada’s total merchandise exports were destined to our NAFTA partners in 2008. Total merchandise trade between Canada and the United States more than doubled between 1993 and 2008. Trade between Canada and Mexico has more than quadrupled over the same period.
Trade in services has also increased under NAFTA. Canada's trade in services with the United States and Mexico grew has doubled from $42.9 billion in 1993 to $86.5 billion in 2005. Our trade in services with the United States reached $91.3 billion in 2008, up from $42.3 billion in 1993. Two-way trade in services between Canada and Mexico reached $1.8 billion in 2006.
In turn, the enhanced economic activity and production in the region have contributed to the creation of jobs for Canadians. One in five jobs in Canada is related in part to trade. More than 4.3 million net new jobs have been created in Canada between 1993 and 2008.
For Canadians, it is important that trade and investment liberalization proceed hand in hand with efforts to protect the environment and improve working conditions. Under NAFTA, our three countries have been able to introduce the successful approach of parallel environmental and labour cooperation agreements.
The economic collaboration promoted by NAFTA has spurred better environmental performance across the region. Through the North American Agreement on Environmental Cooperation, the three partners agreed to promote the effective enforcement of environmental laws. Through the North American Agreement on Labour Cooperation, the three partners agreed to work together to protect, enhance and enforce basic workers’ rights.
A strong, modern and flexible NAFTA is important for the continent to maintain its competitiveness in an increasingly complex and connected global marketsplace. Canada and its NAFTA partners will continue to work together to reduce the costs of trading within the region and to improve the competitiveness of North America.
2.ECONOMY OF CANADA
Canada has the eleventh-largest economy in the world (measured in US dollars at market exchange rates), is one of the world's wealthiest nations, and is a member of the Organization for Economic Co-operation and Development (OECD) andGroup of Eight (G8). As with other developed nations, the Canadian economy is dominated by the service industry, which employs about three quarters ofCanadians. Canada is unusual among developed countries in the importance of the primary sector, with the logging and oil industries being two of Canada's most important. Canada also has a sizable manufacturing sector, centred in Central Canada, with the automobile industry and aircraft industry especially important. With a long coastal line, Canada has the 8th largest commercial fishing and seafood industry in the world. The economy of Canada is one of the global leaders of the Entertainment Software Industry. Canada has one of the highest levels of economic freedom in the world. Today Canada closely resembles the U.S. in its market-oriented economic system and pattern of production. As of February 2013, Canada's national unemployment rate stood at 7.0%,as the economy continues its recovery from the effects of the 2007-2010 global financial crisis. In May 2010, provincial unemployment rates varied from a low of 5.0% in Saskatchewan to a high of 13.8% in Newfoundland and Labrador. According to the Forbes Global 2000 list of the world's largest companies in 2008, Canada had 69 companies in the list, ranking 5th next to France.
International trade makes up a large part of the Canadian economy, particularly of its natural resources. In 2009, agricultural, energy, forestry and mining exports accounted for about 58% of Canada's total exports.[21] Machinery, equipment, automotive products and other manufactures accounted for a further 38% of exports in 2009.[21] In 2009, exports accounted for approximately 30% of Canada's GDP. The United States is by far its largest trading partner, accounting for about 73% of exports and 63% of imports as of 2009.[22] Canada's combined exports and imports ranked 8th among all nations in 2006.
Canada has considerable natural resources spread across its varied regions. As an example, in British Columbia the forestry industry is of great importance, while the oil and gas industry is important in Alberta, Saskatchewan and Newfoundland and Labrador. Mining is the principal industry of Northern Ontario, while fishing has long been central to the character of the Atlantic provinces, though it has recently been in steep decline. Canada has mineral resources of coal, copper, iron ore, and gold.
These primary industries are increasingly becoming less important to the overall economy. Only some 4% of Canadians are employed in these fields, and they account for 6.2% of GDP.[24] They are still paramount in many parts of the country. Many, if not most, towns in northern Canada, where agriculture is difficult, exist because of a nearby mine or source of timber. Canada is a world leader in the production of many natural resources such as gold, nickel, uranium, diamondsand lead. Several of Canada's largest companies are based in natural resource industries, such as EnCana, Cameco, Goldcorp, and Barrick Gold. The vast majority of these products are exported, mainly to the United States. There are also many secondary and service industries that are directly linked to primary ones. For instance one of Canada's largest manufacturing industries is the pulp and paper sector, which is directly linked to the logging industry.
The reliance on natural resources has several effects on the Canadian economy and Canadian society. While manufacturing and service industries are easy to standardize, natural resources vary greatly by region. This ensures that differing economic structures developed in each region of Canada, contributing to Canada's strong regionalism. At the same time the vast majority of these resources are exported, integrating Canada closely into the international economy. Howlett and Ramesh argue that the inherent instability of such industries also contributes to greater government intervention in the economy, to reduce the social impact of market changes.
Such industries also raise important questions of sustainability. Despite many decades as a leading producer, there is little risk of depletion. Large discoveries continue to be made, such as the massive nickel find at Voisey's Bay. Moreover the far north remains largely undeveloped as producers await higher prices or new technologies as many operations in this region are not yet cost effective. In recent decades Canadians have become less willing to accept the environmental destruction associated with exploiting natural resources. High wages and Aboriginal land claims have also curbed expansion. Instead many Canadian companies have focused their exploration and expansion activities overseas where prices are lower and governments more accommodating. Canadian companies are increasingly playing important roles in Latin America, Southeast Asia, and Africa.
The exploitation of renewable resources have raised concerns in recent years. After decades of escalating overexploitation the cod fishery all but collapsed in the 1990s, and the Pacific salmon industry also suffered greatly. The logging industry, after many years of activism, has in recent years moved to a more sustainable model.
3.HISORY AND PURPOSE OF NAFTA
NAFTA is short for the North American Free Trade Agreement. NAFTA covers Canada, the U.S. and Mexico making it the world’s largest free trade area (in terms of GDP). NAFTA was launched 20 years ago to reduce trading costs, increase business investment, and help North America be more competitive in the global marketplace.
All tariffs between the three countries were eliminated in January 2008. Between 1993-2009, trade tripled from $297 billion to $1.6 trillion.
When Was NAFTA Started?
NAFTA was signed by President George H.W. Bush, Mexican President Salinas, and Canadian Prime Minister Brian Mulroney in 1992. It was ratified by the legislatures of the three countries in 1993. The U.S. House of Representatives approved it by 234 to 200 on November 17, 1993. The U.S. Senate approved it by 60 to 38 on November 20, three days later.
NAFTA was signed into law by President Bill Clinton on December 8, 1993 and entered force January 1, 1994. Although it was signed by President Bush, it was a priority of President Clinton's, and its passage is considered one of his first successes.
How Was NAFTA Started?
The impetus for NAFTA actually began with President Ronald Reagan, who campaigned on a North American common market. In 1984, Congress passed the Trade and Tariff Act. This is important because it gave the President "fast-track" authority to negotiate free trade agreements, while only allowing Congress the ability to approve or disapprove, not change negotiating points. Canadian Prime Minister Mulroney agreed with Reagan to begin negotiations for the Canada-U.S. Free Trade Agreement, which was signed in 1988, went into effect in 1989 and is now suspended due to NAFTA.
Meanwhile, Mexican President Salinas and President Bush began negotiations for a liberalized trade between the two countries. Prior to NAFTA, Mexican tariffs on U.S. imports were 250% higher than U.S. tariffs on Mexican imports. In 1991, Canada requested a trilateral agreement, which then led to NAFTA. In 1993, concerns about liberalization of labor and environmental regulations led to the adoption of two addendums to NAFTA.
Why Was NAFTA Formed?
Article 102 of the NAFTA agreement outlines its purpose:
Grant the signatories Most Favored Nation status.
Eliminate barriers to trade and facilitate the cross-border movement of goods and services.
Promote conditions of fair competition.
Increase investment opportunities.
Provide protection and enforcement of intellectual property rights.
Create procedures for the resolution of trade disputes.
Establish a framework for further trilateral, regional and multilateral cooperation to expand NAFTA's benefits.
Has NAFTA Fulfilled Its Purpose?
NAFTA has eliminated trade barriers, increased investment opportunities, and established procedures for resolution of trade disputes. Most important, it has increased the competitiveness of the three countries involved on the global marketplace. This has become especially important with the launch of the European Union and the economic growth of China and other emerging market countries. In 2007, the EU replaced the U.S. as the world's largest economy.
NAFTA and Ross Perot:
Despite NAFTA's benefits, it has remained highly controversial. NAFTA's disadvantages are usually pointed out during Presidential campaigns. In 1992, before NAFTA was even ratified, Independent Presidential candidate Ross Perot famously warned that "You're going to hear a giant sucking sound of jobs being pulled out of this country." Ross predicted that the U.S. would lose 5 million jobs -- a whopping 4% of total U.S. employment -- to lower-cost Mexican workers. In fact, this never happened as Mexico entered a recession and the U.S. entered a period of prosperity. True, American workers were displaced by low-cost Mexican imports. But research showed it was more like 2,000 per month.
NAFTA and the 2008 Presidential Campaign:
NAFTA was attacked from all sides during the 2008 Presidential campaign. Barack Obama blamed NAFTA for growing unemployment. 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 NAFTA in her pledge to strictly enforce all existing trade agreements, as well as halt any new ones. Both candidates promised to either amend or back out of NAFTA all together. However, Obama hasn't done anything about NAFTA since becoming President.
In 2008, Republican candidate Ron Paul said he would abolish NAFTA. He said it was responsible for a NAFTA Superhighway and compared it to the European Union. However, unlike the EU, NAFTA does not enforce a single currency among its signatories. Paul has maintained this position in his 2012 campaign.
Republican nominee John McCain supported NAFTA, as he did all free trade agreements. In fact, he wanted to enforce an existing section within NAFTA that promised to open up the U.S. to the Mexican trucking industry.
4.NAFTA RULES OF ORIGIN
Each NAFTA country retains its external tariffs vis-à-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. The NAFTA rules of origin are included in Chapter Four of the Agreement. The product-specific rules of origin for NAFTA are contained in Annex 401.
Amendments
The product-specific rules of origin of the NAFTA are periodically amended to reflect changes in industry production practices and sourcing patterns as well as to ensure their consistency following periodic amendments to the World Customs Organizations’ Harmonized Commodity Description and Coding System (HS).
Amendments to Annex 401 (Track 3)
On September 1, 2009 Canada implemented measures to amend some of the product specific NAFTA rules of origin. Mexico implemented these same amendments on October 1, 2009, and the United States on October 2, 2009. The amendments liberalize the rules of origin applicable to agricultural, consumer, industrial, mineral fuel and oil products, representing over US$140 billion in annual trilateral trade.
Annex 401 (amended September 1, 2009)
Amendments to Appendix 6, Annex 300-B (July 1, 2009)
On July 1, 2009, Canada and the United States implemented measures to liberalize the NAFTA rules of origin applicable to certain textile goods which are made from acrylic staple fibres, that are not available from domestic producers in commercial quantities – the so-called “short-supply” goods.
List of Amendments to Annex 401 (July 1, 2006)
On July 1, 2006, Canada and the U.S. implemented measures to liberalize some of the product specific NAFTA rules of origin. On July 5, 2006, Mexico implemented these same measures.The amendments liberalize the rules of origin applicable to cocoa preparations, cranberry juice, ores, slag and ash, leather, cork, certain textile products, feathers, glass and glassware, copper and other metals, televisions and automatic regulating or controlling instruments.
5.NEGOTIATION AND U.S. RATIFICATION
Following diplomatic negotiations dating back to 1986 among the three nations, the leaders met in 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 signed 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 Chrétien 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 tradeProgressive 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 Chrétien, who had campaigned on a promise to renegotiate or abrogate NAFTA; however, Chrétien 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 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."
6.PROVISIONS
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, foreshadowing the Uruguay Round Agreements Act of 1994 by restoring copyright (within NAFTA) on certain motion pictures which had entered the public domain.
7.MECHANISMS
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 1994–95 economic crisis. 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.
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 in 2009 (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.
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 region from 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 metropolitan areas, such as Toluca, León and Puebla; all three larger in population than Tijuana, Ciudad Juárez, and Reynosa.
Environment
Securing U.S. congressional approval for NAFTA would have been impossible without addressing public concerns about NAFTA’s 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.
In response to this mandate, the CEC created a framework for conducting environmental analysis of NAFTA, one of the first ex postframeworks 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 CEC’s overall strategy of transparency and public involvement, the CEC commissioned these papers from leading independent experts.
Overall, none of the initial hypotheses were confirmed. NAFTA did not inherently present a systemic threat to the North American environment, as was originally feared. 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] 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, 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.
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 Canada–U.S. agreement contains significant restrictions and tariff quotas on agricultural products (mainly sugar, dairy, and poultry products), whereas the Mexico–U.S. pact allows for a wider liberalization within a framework of phase-out periods (it was the first North–South FTA on agriculture to be signed).
The overall effect of the Mexico–U.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.
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.
Production of corn in Mexico has increased since NAFTA's implementation. However, internal corn demand has increased beyond Mexico's sufficiency, and imports have become necessary, far beyond the quotas Mexico had originally negotiated. 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.
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.
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. 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 statusto TN or TD, or extend TN status granted earlier).
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. New entries of foreign workers in 2006 were 16,841 (U.S. citizens) and 13,933 (Mexicans).
8.CRITICISM AND CONTROVERSIES
Canadian disputes
There is much concern in Canada over the provision that if something is sold even once as acommodity, the government cannot stop its sale in the future. This applies to the water from Canada's lakes and rivers, fueling fears over the possible destruction of Canadianecosystems 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, 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, the Canadian federal government repealed the ban and settled with the American company for US$13 million. 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.
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 Minister Stephen Harper compromised with the United States and reached a settlement on July 1, 2006. 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. 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.
Change in income trust taxation
On October 30, 2007, American citizens Marvin and Elaine Gottlieb filed a Notice of Intent to Submit a Claim to Arbitration under NAFTA, claiming thousands of U.S. investors lost a total of $5 billion in the fall-out from the Conservative Government's decision the previous year to change the tax rate on income trusts in the energy sector. On April 29, 2009, a determination was made that this change in tax law was not expropriation.
Further criticism in Canada
A book written by Mel Hurtig published in 2002 called The Vanishing Country charged that since NAFTA's ratification more than 10,000 Canadian companies had been taken over by foreigners, and that 98% of all foreign direct investments in Canada were for foreign takeovers.
The term "the Double Yu(c)k Alliance aka NAFTA from Yukon to Yucatán" was first used in 1994 by Miodrag Kojadinović in his article "Friends and Neighbours: Dear Prime Minister of Canada, Kindly Join the EU Next Thursday".
Impact of NAFTA on Canada
Like Mexico and the U.S., Canada received a modest positive economic benefit as measured by GDP. Many feared declines failed to materialize, and some industries, like the furniture industry, were expected to suffer but grew instead. Canadian manufacturing employment held steady despite an international downward trend in developed countries. Ontario benefited greatly from the manufacturing opportunities of NAFTA. One of NAFTA's biggest economic effects on U.S.-Canada trade has been to boost bilateral agricultural flows. In the year 2008 alone, Canada exports to the United States and Mexico was at CAN$381.3 Billion Dollars and imports from NAFTA was at CAN$245.1 Billion Dollars.
9.CANADA RELATION WITH THE U.S
Canada and the United States share a common trading relationship. Canada's job market continues to perform well along with the US, reaching a 30 year low in the unemployment rate in December 2006, following 14 consecutive years of employment growth.
Flags of Canada and the United States
The United States is by far Canada's largest trading partner, with more than $1.7 billionCAD in trade per day in 2005. In 2009 73% of Canada's exports went to the United States, and 63% of Canada's imports were from the United States. Trade with Canada makes up 23% of the United States' exports and 17% of its imports. By comparison, in 2005 this was more than U.S. trade with all countries in the European Union combined, and well over twice U.S. trade with all the countries of Latin America combined. Just the two-way trade that crosses the Ambassador Bridge between Michigan and Ontario equals all U.S. exports to Japan. Canada's importance to the United States is not just a border-state phenomenon: Canada is the leading export market for 35 of 50 U.S. states, and is the United States' largest foreign supplier of energy.
Bilateral trade increased by 52% between 1989, when the U.S.-Canada Free Trade Agreement (FTA) went into effect, and 1994, when the North American Free Trade Agreement (NAFTA) superseded it. Trade has since increased by 40%. NAFTA continues the FTA's moves toward reducing trade barriers and establishing agreed-upon trade rules. It also resolves some long-standing bilateral irritants and liberalizes rules in several areas, including agriculture, services, energy, financial services, investment, and government procurement. NAFTA forms the largest trading area in the world, embracing the 405 million people of the three North American countries.
The largest component of U.S.-Canada trade is in the commodity sector.
The U.S. is Canada's largest agricultural export market, taking well over half of all Canadian food exports. Similarly, Canada is the largest market for U.S. agricultural goods, with nearly 20% of American food exports going to its northern neighbour. Nearly two-thirds of Canada's forest products, including pulp and paper, are exported to the United States; 72% of Canada's total newsprint production also is exported to the U.S.
At $73.6 billion in 2004, U.S.-Canada trade in energy is the largest U.S. energy trading relationship, with the overwhelming majority ($66.7 billion) being exports from Canada. The primary components of U.S. energy trade with Canada are petroleum, natural gas, andelectricity. Canada is the United States' largest oil supplier and the fifth-largest energy producing country in the world. Canada provides about 16% of U.S. oil imports and 14% of total U.S. consumption of natural gas. The United States and Canada's national electricity grids are linked, and both countries share hydropower facilities on the western borders.
While most of U.S.-Canada trade flows smoothly, there are occasionally bilateral trade disputes, particularly in the agricultural and cultural fields. Usually these issues are resolved through bilateral consultative forums or referral to World Trade Organization (WTO) or NAFTA dispute resolution. In May 1999, the U.S. and Canadian governments negotiated an agreement on magazines that provides increased access for the U.S. publishing industry to the Canadian market. The United States and Canada also have resolved several major issues involving fisheries. By common agreement, the two countries submitted a Gulf of Maine boundary dispute to the International Court of Justice in 1981; both accepted the court's 12 October 1984 ruling which demarcated the territorial sea boundary. A current issue between the United States and Canada is the ongoing softwood lumber dispute, as the U.S. alleges that Canada unfairly subsidizes its forestry industry.
In 1990, the United States and Canada signed a bilateral Fisheries Enforcement Agreement, which has served to deter illegal fishing activity and reduce the risk of injury during fisheries enforcement incidents. The U.S. and Canada signed a Pacific Salmon Agreement in June 1999 that settled differences over implementation of the 1985 Pacific Salmon Treaty for the next decade.
Canada and the United States signed an aviation agreement during Bill Clinton's visit to Canada in February 1995, and air traffic between the two countries has increased dramatically as a result. The two countries also share in operation of the St. Lawrence Seaway, connecting the Great Lakes to the Atlantic Ocean.
The U.S. is Canada's largest foreign investor and the most popular destination for Canadian foreign investments; at the end of 2007, the stock of U.S. direct investment in Canada was estimated at $293 billion, while Canadian direct investment (stock) in the United States was valued at $213 billion. U.S. FDI accounts for 59.5% of total foreign direct investment in Canada while Canadian FDI in the U.S. accounts for 10% (5th largest foreign investor). US investments are primarily directed at Canada's mining and smeltingindustries, petroleum, chemicals, the manufacture of machinery and transportation equipment, and finance, while Canadian investment in the United States is concentrated in manufacturing, wholesale trade, real estate, petroleum, finance, and insurance and other services.
10.ADVANTAGES OF NAFTA
First, it eliminatestariffs. This reduces inflation by decreasing the costs of imports. Second, NAFTA creates agreements on international rights for business investors. This reduces the cost of trade, which spurs investment and growth especially for small businesses. Third, NAFTA provides the ability for firms in member countries to bid on government contracts. Fourth, NAFTA also protects intellectual properties.
NAFTA Increased Trade in All Goods and Services:
Trade between the NAFTA signatories more than quadrupled, from $297 billion in 1993 to $1.6 trillion in 2009 (latest data available). Exports from the U.S. to Canada and Mexico grew from $142 billion to $452 billion in 2007, then declined to $397 billion in 2009, thanks to the 2008 financial crisis. Exports from Canada and Mexico to the U.S. increased from $151 billion to $568 billion in 2007, then down to $438 billion in 2009.
Boosted U.S. Farm Exports:
Thanks to NAFTA, agricultural exports to Canada and Mexico grew from 22% of total U.S. farm exports in 1993 to 30% in 2007. To put this into perspective, 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 to the rest of the world. (Source: U.S. Foreign Agricultural Service, NAFTA)
NAFTA increased farm exports because it eliminated high Mexican tariffs. Mexico is the top export destination for U.S.-grown beef, rice, soybean meal, corn sweeteners, apples and beans. It is the second largest export destination for corn, soybeans and oils.
Created Trade Surplus in Services:
More than 40% of U.S. GDP is services, such as financial services and health care. These aren't easily 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, which dropped to $63.5 billion in 2009 (latest data available). Imports of services from the two countries were only $35 billion.
NAFTA eliminates trade barriers in nearly all service sectors, which are often highly regulated. NAFTA requires governments to publish all regulations, lowering hidden costs of doing business.
Reduced Oil and Grocery Prices:
The U.S. imported $116.2 billion in oil from Mexico and Canada as shale oil (down from $157.8 billion in 2007). This also reduces U.S. reliance on oil imports from the Middle East and Venezuela. It is especially important now that the U.S. no longer imports oil from Iran. Why? Mexico is a friendly country, whereas Venezuela's president often criticizes the U.S. Both Venezuela and Iran have started selling oil in currencies other than the dollar, contributing to the decline in the dollar's value.
Since NAFTA eliminates tariffs, oil prices are lower. The same is true for food imports, which totaled $29.8 billion in 2010 (up from $28.9 billion in 2009). Without NAFTA, prices for fresh vegetables, chocolate, fresh fruit (except bananas) and beef would be higher.
Stepped Up Foreign Direct Investment:
Since NAFTA was enacted, U.S. foreign direct investment (FDI) in Canada and Mexico more than tripled to $357 billion in 2009, up from $348.7 billion in 2007. Canadian and Mexican FDI in the U.S. grew to $237.2 billion, up from $219.2 billion in 2007. That means this much investment poured into U.S. manufacturing, finance/insurance, and banking companies.
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.
11.DISADVANTAGES OF NAFTAT
NAFTA has many disadvantages. First and foremost, is that NAFTA made it possible for many U.S. manufacturers to move jobs to lower-cost Mexico. The manufacturers that remained lowered wages to compete in those industries.
The second disadvantage was that many of Mexico's farmers were put out of business by U.S.-subsidized farm products. NAFTA provisions for Mexican labor and environmental protection were not strong enough to prevent those workers from being exploited.
U.S. Jobs Were Lost:
Since labor is cheaper in Mexico, many manufacturingindustries moved part of their production from high-cost U.S. states. Between 1994 and 2010, the U.S. trade deficits with Mexico totaled $97.2 billion, displacing 682,900 U.S. jobs. (However, 116,400 occurred after 2007, and could have been a result of the financial crisis.)
Nearly 80% of the losses were in manufacturing. California, New York, Michigan and Texas were hit the hardest because they had high concentrations of the industries that moved plants to Mexico. These industries included motor vehicles, textiles, computers, and electrical appliances. (Source: Economic Policy Institute, "The High Cost of Free Trade," May 3, 2011)
U.S. Wages Were Suppressed:
Not all companies in these industries moved to Mexico. The ones that used the threat of moving during union organizing drives. When it became a choice between joining the union or losing the factory, workers chose the factory. Without union support, the workers had little bargaining power. This suppressed wage growth. Between 1993 and 1995, 50% of all companies in the industries that were moving to Mexico used the threat of closing the factory. By 1999, that rate had grown to 65%.
Mexico's Farmers Were Put Out of Business:
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. At the same time, Mexico reduced its subsidies to farmers from 33.2% of total farm income in 1990 to 13.2% in 2001. Most of those subsidies went to Mexico's large farms, anyway.(Source: International Forum on Globalization, Exposing the Myth of Free Trade, February 25, 2003; The Economist, Tariffs and Tortillas, January 24, 2008)
Maquiladora Workers Were Exploited:
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. (Source: Worldpress.org, Lessons of NAFTA, April 20, 2001)
Mexico's Environment Deteriorated:
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. (Source: Carnegie Endowment, NAFTA's Promise and Reality, 2004)
NAFTA Called for Free Access for Mexican Trucks:
Another agreement within NAFTA has not been implemented. NAFTA would have allowed trucks from Mexico to travel within the United States beyond the current 20-mile commercial zone limit. A demonstration project by the Department of Transportation (DoT) was set up to review the practicality of this. In 2008, the House of Representatives terminated this project, and prohibited the DoT from allowing this provision of NAFTA to ever be implemented without Congressional approval.
Congress was concerned that Mexican trucks would have presented a road hazard. They are not subject to the same safety standards as U.S. trucks. In addition, this portion of NAFTA was opposed by the U.S. truckers' organizations and companies, who would have lost business. Currently, Mexican trucks must stop at the 20-mile limit and have their goods transferred to U.S. trucks.
There was also a question of reciprocity. The NAFTA agreement would also have allowed unlimited access for U.S. trucks throughout Mexico. A similar agreement works well between the other NAFTA partner, Canada. However, U.S. trucks are larger and carry heavier loads. This violates size and weight restrictions imposed by the Mexican government.
CONCLUSION
NAFTA, or the North American Free Trade Agreement, was created 20 years ago to expand trade between the U.S., Canada and Mexico. It's secondary purpose was to make these countries more competitive in the global marketplace. It has been wildly successful in achieving this. NAFTA is now the largest free trade agreement in the world.
Why, then, is NAFTA so severely criticized? This success has come with a cost. One of the problems with NAFTA is that it's reduced U.S. jobs. A second disadvantage is that it has exploited Mexico's farmers and its environment? Find out more about the how and why was NAFTA created, and whether it has successfully fulfilled its purpose.
1.INTRODUCTION
The North American Free Trade Agreement (NAFTA) is an agreement signed byCanada, 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 Canada–United States Free Trade Agreement between the U.S. and Canada. In terms of combinedpurchasing power parity GDP of its members, as of 2007 the trade bloc is the largest in the world and second largest by nominal GDP comparison.
NAFTA has two supplements: the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC).
The North American Free Trade Agreement (NAFTA), signed by Prime Minister Brian Mulroney, Mexican President Carlos Salinas, and U.S. President George H.W. Bush, came into effect on January 1, 1994. Since 1993, NAFTA has generated economic growth and rising standards of living for the people of all three member countries. By strengthening the rules and procedures governing trade and investment throughout the continent, NAFTA has proved to be a solid foundation for building Canada’s future prosperity.
Canada's merchandise trade with its NAFTA partners reached nearly $626.3 billion in 2008. Canadian merchandise exports to the United States grew at a compounded annual rate of almost 6.3% between 1993 and 2008. Canada’s bilateral trade with Mexico was close to $23.8 billion in 2008. Approximately eighty percent of Canada’s total merchandise exports were destined to our NAFTA partners in 2008. Total merchandise trade between Canada and the United States more than doubled between 1993 and 2008. Trade between Canada and Mexico has more than quadrupled over the same period.
Trade in services has also increased under NAFTA. Canada's trade in services with the United States and Mexico grew has doubled from $42.9 billion in 1993 to $86.5 billion in 2005. Our trade in services with the United States reached $91.3 billion in 2008, up from $42.3 billion in 1993. Two-way trade in services between Canada and Mexico reached $1.8 billion in 2006.
In turn, the enhanced economic activity and production in the region have contributed to the creation of jobs for Canadians. One in five jobs in Canada is related in part to trade. More than 4.3 million net new jobs have been created in Canada between 1993 and 2008.
For Canadians, it is important that trade and investment liberalization proceed hand in hand with efforts to protect the environment and improve working conditions. Under NAFTA, our three countries have been able to introduce the successful approach of parallel environmental and labour cooperation agreements.
The economic collaboration promoted by NAFTA has spurred better environmental performance across the region. Through the North American Agreement on Environmental Cooperation, the three partners agreed to promote the effective enforcement of environmental laws. Through the North American Agreement on Labour Cooperation, the three partners agreed to work together to protect, enhance and enforce basic workers’ rights.
A strong, modern and flexible NAFTA is important for the continent to maintain its competitiveness in an increasingly complex and connected global marketsplace. Canada and its NAFTA partners will continue to work together to reduce the costs of trading within the region and to improve the competitiveness of North America.
2.ECONOMY OF CANADA
Canada has the eleventh-largest economy in the world (measured in US dollars at market exchange rates), is one of the world's wealthiest nations, and is a member of the Organization for Economic Co-operation and Development (OECD) andGroup of Eight (G8). As with other developed nations, the Canadian economy is dominated by the service industry, which employs about three quarters ofCanadians. Canada is unusual among developed countries in the importance of the primary sector, with the logging and oil industries being two of Canada's most important. Canada also has a sizable manufacturing sector, centred in Central Canada, with the automobile industry and aircraft industry especially important. With a long coastal line, Canada has the 8th largest commercial fishing and seafood industry in the world. The economy of Canada is one of the global leaders of the Entertainment Software Industry. Canada has one of the highest levels of economic freedom in the world. Today Canada closely resembles the U.S. in its market-oriented economic system and pattern of production. As of February 2013, Canada's national unemployment rate stood at 7.0%,as the economy continues its recovery from the effects of the 2007-2010 global financial crisis. In May 2010, provincial unemployment rates varied from a low of 5.0% in Saskatchewan to a high of 13.8% in Newfoundland and Labrador. According to the Forbes Global 2000 list of the world's largest companies in 2008, Canada had 69 companies in the list, ranking 5th next to France.
International trade makes up a large part of the Canadian economy, particularly of its natural resources. In 2009, agricultural, energy, forestry and mining exports accounted for about 58% of Canada's total exports.[21] Machinery, equipment, automotive products and other manufactures accounted for a further 38% of exports in 2009.[21] In 2009, exports accounted for approximately 30% of Canada's GDP. The United States is by far its largest trading partner, accounting for about 73% of exports and 63% of imports as of 2009.[22] Canada's combined exports and imports ranked 8th among all nations in 2006.
Canada has considerable natural resources spread across its varied regions. As an example, in British Columbia the forestry industry is of great importance, while the oil and gas industry is important in Alberta, Saskatchewan and Newfoundland and Labrador. Mining is the principal industry of Northern Ontario, while fishing has long been central to the character of the Atlantic provinces, though it has recently been in steep decline. Canada has mineral resources of coal, copper, iron ore, and gold.
These primary industries are increasingly becoming less important to the overall economy. Only some 4% of Canadians are employed in these fields, and they account for 6.2% of GDP.[24] They are still paramount in many parts of the country. Many, if not most, towns in northern Canada, where agriculture is difficult, exist because of a nearby mine or source of timber. Canada is a world leader in the production of many natural resources such as gold, nickel, uranium, diamondsand lead. Several of Canada's largest companies are based in natural resource industries, such as EnCana, Cameco, Goldcorp, and Barrick Gold. The vast majority of these products are exported, mainly to the United States. There are also many secondary and service industries that are directly linked to primary ones. For instance one of Canada's largest manufacturing industries is the pulp and paper sector, which is directly linked to the logging industry.
The reliance on natural resources has several effects on the Canadian economy and Canadian society. While manufacturing and service industries are easy to standardize, natural resources vary greatly by region. This ensures that differing economic structures developed in each region of Canada, contributing to Canada's strong regionalism. At the same time the vast majority of these resources are exported, integrating Canada closely into the international economy. Howlett and Ramesh argue that the inherent instability of such industries also contributes to greater government intervention in the economy, to reduce the social impact of market changes.
Such industries also raise important questions of sustainability. Despite many decades as a leading producer, there is little risk of depletion. Large discoveries continue to be made, such as the massive nickel find at Voisey's Bay. Moreover the far north remains largely undeveloped as producers await higher prices or new technologies as many operations in this region are not yet cost effective. In recent decades Canadians have become less willing to accept the environmental destruction associated with exploiting natural resources. High wages and Aboriginal land claims have also curbed expansion. Instead many Canadian companies have focused their exploration and expansion activities overseas where prices are lower and governments more accommodating. Canadian companies are increasingly playing important roles in Latin America, Southeast Asia, and Africa.
The exploitation of renewable resources have raised concerns in recent years. After decades of escalating overexploitation the cod fishery all but collapsed in the 1990s, and the Pacific salmon industry also suffered greatly. The logging industry, after many years of activism, has in recent years moved to a more sustainable model.
3.HISORY AND PURPOSE OF NAFTA
NAFTA is short for the North American Free Trade Agreement. NAFTA covers Canada, the U.S. and Mexico making it the world’s largest free trade area (in terms of GDP). NAFTA was launched 20 years ago to reduce trading costs, increase business investment, and help North America be more competitive in the global marketplace.
All tariffs between the three countries were eliminated in January 2008. Between 1993-2009, trade tripled from $297 billion to $1.6 trillion.
When Was NAFTA Started?
NAFTA was signed by President George H.W. Bush, Mexican President Salinas, and Canadian Prime Minister Brian Mulroney in 1992. It was ratified by the legislatures of the three countries in 1993. The U.S. House of Representatives approved it by 234 to 200 on November 17, 1993. The U.S. Senate approved it by 60 to 38 on November 20, three days later.
NAFTA was signed into law by President Bill Clinton on December 8, 1993 and entered force January 1, 1994. Although it was signed by President Bush, it was a priority of President Clinton's, and its passage is considered one of his first successes.
How Was NAFTA Started?
The impetus for NAFTA actually began with President Ronald Reagan, who campaigned on a North American common market. In 1984, Congress passed the Trade and Tariff Act. This is important because it gave the President "fast-track" authority to negotiate free trade agreements, while only allowing Congress the ability to approve or disapprove, not change negotiating points. Canadian Prime Minister Mulroney agreed with Reagan to begin negotiations for the Canada-U.S. Free Trade Agreement, which was signed in 1988, went into effect in 1989 and is now suspended due to NAFTA.
Meanwhile, Mexican President Salinas and President Bush began negotiations for a liberalized trade between the two countries. Prior to NAFTA, Mexican tariffs on U.S. imports were 250% higher than U.S. tariffs on Mexican imports. In 1991, Canada requested a trilateral agreement, which then led to NAFTA. In 1993, concerns about liberalization of labor and environmental regulations led to the adoption of two addendums to NAFTA.
Why Was NAFTA Formed?
Article 102 of the NAFTA agreement outlines its purpose:
Grant the signatories Most Favored Nation status.
Eliminate barriers to trade and facilitate the cross-border movement of goods and services.
Promote conditions of fair competition.
Increase investment opportunities.
Provide protection and enforcement of intellectual property rights.
Create procedures for the resolution of trade disputes.
Establish a framework for further trilateral, regional and multilateral cooperation to expand NAFTA's benefits.
Has NAFTA Fulfilled Its Purpose?
NAFTA has eliminated trade barriers, increased investment opportunities, and established procedures for resolution of trade disputes. Most important, it has increased the competitiveness of the three countries involved on the global marketplace. This has become especially important with the launch of the European Union and the economic growth of China and other emerging market countries. In 2007, the EU replaced the U.S. as the world's largest economy.
NAFTA and Ross Perot:
Despite NAFTA's benefits, it has remained highly controversial. NAFTA's disadvantages are usually pointed out during Presidential campaigns. In 1992, before NAFTA was even ratified, Independent Presidential candidate Ross Perot famously warned that "You're going to hear a giant sucking sound of jobs being pulled out of this country." Ross predicted that the U.S. would lose 5 million jobs -- a whopping 4% of total U.S. employment -- to lower-cost Mexican workers. In fact, this never happened as Mexico entered a recession and the U.S. entered a period of prosperity. True, American workers were displaced by low-cost Mexican imports. But research showed it was more like 2,000 per month.
NAFTA and the 2008 Presidential Campaign:
NAFTA was attacked from all sides during the 2008 Presidential campaign. Barack Obama blamed NAFTA for growing unemployment. 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 NAFTA in her pledge to strictly enforce all existing trade agreements, as well as halt any new ones. Both candidates promised to either amend or back out of NAFTA all together. However, Obama hasn't done anything about NAFTA since becoming President.
In 2008, Republican candidate Ron Paul said he would abolish NAFTA. He said it was responsible for a NAFTA Superhighway and compared it to the European Union. However, unlike the EU, NAFTA does not enforce a single currency among its signatories. Paul has maintained this position in his 2012 campaign.
Republican nominee John McCain supported NAFTA, as he did all free trade agreements. In fact, he wanted to enforce an existing section within NAFTA that promised to open up the U.S. to the Mexican trucking industry.
4.NAFTA RULES OF ORIGIN
Each NAFTA country retains its external tariffs vis-à-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. The NAFTA rules of origin are included in Chapter Four of the Agreement. The product-specific rules of origin for NAFTA are contained in Annex 401.
Amendments
The product-specific rules of origin of the NAFTA are periodically amended to reflect changes in industry production practices and sourcing patterns as well as to ensure their consistency following periodic amendments to the World Customs Organizations’ Harmonized Commodity Description and Coding System (HS).
Amendments to Annex 401 (Track 3)
On September 1, 2009 Canada implemented measures to amend some of the product specific NAFTA rules of origin. Mexico implemented these same amendments on October 1, 2009, and the United States on October 2, 2009. The amendments liberalize the rules of origin applicable to agricultural, consumer, industrial, mineral fuel and oil products, representing over US$140 billion in annual trilateral trade.
Annex 401 (amended September 1, 2009)
Amendments to Appendix 6, Annex 300-B (July 1, 2009)
On July 1, 2009, Canada and the United States implemented measures to liberalize the NAFTA rules of origin applicable to certain textile goods which are made from acrylic staple fibres, that are not available from domestic producers in commercial quantities – the so-called “short-supply” goods.
List of Amendments to Annex 401 (July 1, 2006)
On July 1, 2006, Canada and the U.S. implemented measures to liberalize some of the product specific NAFTA rules of origin. On July 5, 2006, Mexico implemented these same measures.The amendments liberalize the rules of origin applicable to cocoa preparations, cranberry juice, ores, slag and ash, leather, cork, certain textile products, feathers, glass and glassware, copper and other metals, televisions and automatic regulating or controlling instruments.
5.NEGOTIATION AND U.S. RATIFICATION
Following diplomatic negotiations dating back to 1986 among the three nations, the leaders met in 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 signed 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 Chrétien 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 tradeProgressive 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 Chrétien, who had campaigned on a promise to renegotiate or abrogate NAFTA; however, Chrétien 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 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."
6.PROVISIONS
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, foreshadowing the Uruguay Round Agreements Act of 1994 by restoring copyright (within NAFTA) on certain motion pictures which had entered the public domain.
7.MECHANISMS
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 1994–95 economic crisis. 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.
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 in 2009 (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.
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 region from 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 metropolitan areas, such as Toluca, León and Puebla; all three larger in population than Tijuana, Ciudad Juárez, and Reynosa.
Environment
Securing U.S. congressional approval for NAFTA would have been impossible without addressing public concerns about NAFTA’s 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.
In response to this mandate, the CEC created a framework for conducting environmental analysis of NAFTA, one of the first ex postframeworks 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 CEC’s overall strategy of transparency and public involvement, the CEC commissioned these papers from leading independent experts.
Overall, none of the initial hypotheses were confirmed. NAFTA did not inherently present a systemic threat to the North American environment, as was originally feared. 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] 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, 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.
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 Canada–U.S. agreement contains significant restrictions and tariff quotas on agricultural products (mainly sugar, dairy, and poultry products), whereas the Mexico–U.S. pact allows for a wider liberalization within a framework of phase-out periods (it was the first North–South FTA on agriculture to be signed).
The overall effect of the Mexico–U.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.
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.
Production of corn in Mexico has increased since NAFTA's implementation. However, internal corn demand has increased beyond Mexico's sufficiency, and imports have become necessary, far beyond the quotas Mexico had originally negotiated. 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.
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.
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. 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 statusto TN or TD, or extend TN status granted earlier).
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. New entries of foreign workers in 2006 were 16,841 (U.S. citizens) and 13,933 (Mexicans).
8.CRITICISM AND CONTROVERSIES
Canadian disputes
There is much concern in Canada over the provision that if something is sold even once as acommodity, the government cannot stop its sale in the future. This applies to the water from Canada's lakes and rivers, fueling fears over the possible destruction of Canadianecosystems 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, 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, the Canadian federal government repealed the ban and settled with the American company for US$13 million. 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.
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 Minister Stephen Harper compromised with the United States and reached a settlement on July 1, 2006. 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. 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.
Change in income trust taxation
On October 30, 2007, American citizens Marvin and Elaine Gottlieb filed a Notice of Intent to Submit a Claim to Arbitration under NAFTA, claiming thousands of U.S. investors lost a total of $5 billion in the fall-out from the Conservative Government's decision the previous year to change the tax rate on income trusts in the energy sector. On April 29, 2009, a determination was made that this change in tax law was not expropriation.
Further criticism in Canada
A book written by Mel Hurtig published in 2002 called The Vanishing Country charged that since NAFTA's ratification more than 10,000 Canadian companies had been taken over by foreigners, and that 98% of all foreign direct investments in Canada were for foreign takeovers.
The term "the Double Yu(c)k Alliance aka NAFTA from Yukon to Yucatán" was first used in 1994 by Miodrag Kojadinović in his article "Friends and Neighbours: Dear Prime Minister of Canada, Kindly Join the EU Next Thursday".
Impact of NAFTA on Canada
Like Mexico and the U.S., Canada received a modest positive economic benefit as measured by GDP. Many feared declines failed to materialize, and some industries, like the furniture industry, were expected to suffer but grew instead. Canadian manufacturing employment held steady despite an international downward trend in developed countries. Ontario benefited greatly from the manufacturing opportunities of NAFTA. One of NAFTA's biggest economic effects on U.S.-Canada trade has been to boost bilateral agricultural flows. In the year 2008 alone, Canada exports to the United States and Mexico was at CAN$381.3 Billion Dollars and imports from NAFTA was at CAN$245.1 Billion Dollars.
9.CANADA RELATION WITH THE U.S
Canada and the United States share a common trading relationship. Canada's job market continues to perform well along with the US, reaching a 30 year low in the unemployment rate in December 2006, following 14 consecutive years of employment growth.
Flags of Canada and the United States
The United States is by far Canada's largest trading partner, with more than $1.7 billionCAD in trade per day in 2005. In 2009 73% of Canada's exports went to the United States, and 63% of Canada's imports were from the United States. Trade with Canada makes up 23% of the United States' exports and 17% of its imports. By comparison, in 2005 this was more than U.S. trade with all countries in the European Union combined, and well over twice U.S. trade with all the countries of Latin America combined. Just the two-way trade that crosses the Ambassador Bridge between Michigan and Ontario equals all U.S. exports to Japan. Canada's importance to the United States is not just a border-state phenomenon: Canada is the leading export market for 35 of 50 U.S. states, and is the United States' largest foreign supplier of energy.
Bilateral trade increased by 52% between 1989, when the U.S.-Canada Free Trade Agreement (FTA) went into effect, and 1994, when the North American Free Trade Agreement (NAFTA) superseded it. Trade has since increased by 40%. NAFTA continues the FTA's moves toward reducing trade barriers and establishing agreed-upon trade rules. It also resolves some long-standing bilateral irritants and liberalizes rules in several areas, including agriculture, services, energy, financial services, investment, and government procurement. NAFTA forms the largest trading area in the world, embracing the 405 million people of the three North American countries.
The largest component of U.S.-Canada trade is in the commodity sector.
The U.S. is Canada's largest agricultural export market, taking well over half of all Canadian food exports. Similarly, Canada is the largest market for U.S. agricultural goods, with nearly 20% of American food exports going to its northern neighbour. Nearly two-thirds of Canada's forest products, including pulp and paper, are exported to the United States; 72% of Canada's total newsprint production also is exported to the U.S.
At $73.6 billion in 2004, U.S.-Canada trade in energy is the largest U.S. energy trading relationship, with the overwhelming majority ($66.7 billion) being exports from Canada. The primary components of U.S. energy trade with Canada are petroleum, natural gas, andelectricity. Canada is the United States' largest oil supplier and the fifth-largest energy producing country in the world. Canada provides about 16% of U.S. oil imports and 14% of total U.S. consumption of natural gas. The United States and Canada's national electricity grids are linked, and both countries share hydropower facilities on the western borders.
While most of U.S.-Canada trade flows smoothly, there are occasionally bilateral trade disputes, particularly in the agricultural and cultural fields. Usually these issues are resolved through bilateral consultative forums or referral to World Trade Organization (WTO) or NAFTA dispute resolution. In May 1999, the U.S. and Canadian governments negotiated an agreement on magazines that provides increased access for the U.S. publishing industry to the Canadian market. The United States and Canada also have resolved several major issues involving fisheries. By common agreement, the two countries submitted a Gulf of Maine boundary dispute to the International Court of Justice in 1981; both accepted the court's 12 October 1984 ruling which demarcated the territorial sea boundary. A current issue between the United States and Canada is the ongoing softwood lumber dispute, as the U.S. alleges that Canada unfairly subsidizes its forestry industry.
In 1990, the United States and Canada signed a bilateral Fisheries Enforcement Agreement, which has served to deter illegal fishing activity and reduce the risk of injury during fisheries enforcement incidents. The U.S. and Canada signed a Pacific Salmon Agreement in June 1999 that settled differences over implementation of the 1985 Pacific Salmon Treaty for the next decade.
Canada and the United States signed an aviation agreement during Bill Clinton's visit to Canada in February 1995, and air traffic between the two countries has increased dramatically as a result. The two countries also share in operation of the St. Lawrence Seaway, connecting the Great Lakes to the Atlantic Ocean.
The U.S. is Canada's largest foreign investor and the most popular destination for Canadian foreign investments; at the end of 2007, the stock of U.S. direct investment in Canada was estimated at $293 billion, while Canadian direct investment (stock) in the United States was valued at $213 billion. U.S. FDI accounts for 59.5% of total foreign direct investment in Canada while Canadian FDI in the U.S. accounts for 10% (5th largest foreign investor). US investments are primarily directed at Canada's mining and smeltingindustries, petroleum, chemicals, the manufacture of machinery and transportation equipment, and finance, while Canadian investment in the United States is concentrated in manufacturing, wholesale trade, real estate, petroleum, finance, and insurance and other services.
10.ADVANTAGES OF NAFTA
First, it eliminatestariffs. This reduces inflation by decreasing the costs of imports. Second, NAFTA creates agreements on international rights for business investors. This reduces the cost of trade, which spurs investment and growth especially for small businesses. Third, NAFTA provides the ability for firms in member countries to bid on government contracts. Fourth, NAFTA also protects intellectual properties.
NAFTA Increased Trade in All Goods and Services:
Trade between the NAFTA signatories more than quadrupled, from $297 billion in 1993 to $1.6 trillion in 2009 (latest data available). Exports from the U.S. to Canada and Mexico grew from $142 billion to $452 billion in 2007, then declined to $397 billion in 2009, thanks to the 2008 financial crisis. Exports from Canada and Mexico to the U.S. increased from $151 billion to $568 billion in 2007, then down to $438 billion in 2009.
Boosted U.S. Farm Exports:
Thanks to NAFTA, agricultural exports to Canada and Mexico grew from 22% of total U.S. farm exports in 1993 to 30% in 2007. To put this into perspective, 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 to the rest of the world. (Source: U.S. Foreign Agricultural Service, NAFTA)
NAFTA increased farm exports because it eliminated high Mexican tariffs. Mexico is the top export destination for U.S.-grown beef, rice, soybean meal, corn sweeteners, apples and beans. It is the second largest export destination for corn, soybeans and oils.
Created Trade Surplus in Services:
More than 40% of U.S. GDP is services, such as financial services and health care. These aren't easily 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, which dropped to $63.5 billion in 2009 (latest data available). Imports of services from the two countries were only $35 billion.
NAFTA eliminates trade barriers in nearly all service sectors, which are often highly regulated. NAFTA requires governments to publish all regulations, lowering hidden costs of doing business.
Reduced Oil and Grocery Prices:
The U.S. imported $116.2 billion in oil from Mexico and Canada as shale oil (down from $157.8 billion in 2007). This also reduces U.S. reliance on oil imports from the Middle East and Venezuela. It is especially important now that the U.S. no longer imports oil from Iran. Why? Mexico is a friendly country, whereas Venezuela's president often criticizes the U.S. Both Venezuela and Iran have started selling oil in currencies other than the dollar, contributing to the decline in the dollar's value.
Since NAFTA eliminates tariffs, oil prices are lower. The same is true for food imports, which totaled $29.8 billion in 2010 (up from $28.9 billion in 2009). Without NAFTA, prices for fresh vegetables, chocolate, fresh fruit (except bananas) and beef would be higher.
Stepped Up Foreign Direct Investment:
Since NAFTA was enacted, U.S. foreign direct investment (FDI) in Canada and Mexico more than tripled to $357 billion in 2009, up from $348.7 billion in 2007. Canadian and Mexican FDI in the U.S. grew to $237.2 billion, up from $219.2 billion in 2007. That means this much investment poured into U.S. manufacturing, finance/insurance, and banking companies.
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.
11.DISADVANTAGES OF NAFTAT
NAFTA has many disadvantages. First and foremost, is that NAFTA made it possible for many U.S. manufacturers to move jobs to lower-cost Mexico. The manufacturers that remained lowered wages to compete in those industries.
The second disadvantage was that many of Mexico's farmers were put out of business by U.S.-subsidized farm products. NAFTA provisions for Mexican labor and environmental protection were not strong enough to prevent those workers from being exploited.
U.S. Jobs Were Lost:
Since labor is cheaper in Mexico, many manufacturingindustries moved part of their production from high-cost U.S. states. Between 1994 and 2010, the U.S. trade deficits with Mexico totaled $97.2 billion, displacing 682,900 U.S. jobs. (However, 116,400 occurred after 2007, and could have been a result of the financial crisis.)
Nearly 80% of the losses were in manufacturing. California, New York, Michigan and Texas were hit the hardest because they had high concentrations of the industries that moved plants to Mexico. These industries included motor vehicles, textiles, computers, and electrical appliances. (Source: Economic Policy Institute, "The High Cost of Free Trade," May 3, 2011)
U.S. Wages Were Suppressed:
Not all companies in these industries moved to Mexico. The ones that used the threat of moving during union organizing drives. When it became a choice between joining the union or losing the factory, workers chose the factory. Without union support, the workers had little bargaining power. This suppressed wage growth. Between 1993 and 1995, 50% of all companies in the industries that were moving to Mexico used the threat of closing the factory. By 1999, that rate had grown to 65%.
Mexico's Farmers Were Put Out of Business:
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. At the same time, Mexico reduced its subsidies to farmers from 33.2% of total farm income in 1990 to 13.2% in 2001. Most of those subsidies went to Mexico's large farms, anyway.(Source: International Forum on Globalization, Exposing the Myth of Free Trade, February 25, 2003; The Economist, Tariffs and Tortillas, January 24, 2008)
Maquiladora Workers Were Exploited:
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. (Source: Worldpress.org, Lessons of NAFTA, April 20, 2001)
Mexico's Environment Deteriorated:
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. (Source: Carnegie Endowment, NAFTA's Promise and Reality, 2004)
NAFTA Called for Free Access for Mexican Trucks:
Another agreement within NAFTA has not been implemented. NAFTA would have allowed trucks from Mexico to travel within the United States beyond the current 20-mile commercial zone limit. A demonstration project by the Department of Transportation (DoT) was set up to review the practicality of this. In 2008, the House of Representatives terminated this project, and prohibited the DoT from allowing this provision of NAFTA to ever be implemented without Congressional approval.
Congress was concerned that Mexican trucks would have presented a road hazard. They are not subject to the same safety standards as U.S. trucks. In addition, this portion of NAFTA was opposed by the U.S. truckers' organizations and companies, who would have lost business. Currently, Mexican trucks must stop at the 20-mile limit and have their goods transferred to U.S. trucks.
There was also a question of reciprocity. The NAFTA agreement would also have allowed unlimited access for U.S. trucks throughout Mexico. A similar agreement works well between the other NAFTA partner, Canada. However, U.S. trucks are larger and carry heavier loads. This violates size and weight restrictions imposed by the Mexican government.
CONCLUSION
NAFTA, or the North American Free Trade Agreement, was created 20 years ago to expand trade between the U.S., Canada and Mexico. It's secondary purpose was to make these countries more competitive in the global marketplace. It has been wildly successful in achieving this. NAFTA is now the largest free trade agreement in the world.
Why, then, is NAFTA so severely criticized? This success has come with a cost. One of the problems with NAFTA is that it's reduced U.S. jobs. A second disadvantage is that it has exploited Mexico's farmers and its environment? Find out more about the how and why was NAFTA created, and whether it has successfully fulfilled its purpose.
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