NAFTA
North American Free Trade
Agreement
Joseph Najar, Daniel Stanworth, Scott Smoot,
Jessica Hatch, Marcus Cardon
Agenda
1. Background
2. Current Situation
3. International Aspects
4. Special Problems
5. The Future
NAFTA Background

Adam Smith
Wealth of Nations

One of the first to
argue free trade.
Even though it has
been accepted on a
national level in
many places,
international free
trade struggles
NAFTA Background

Free Trade

Currently being sought after in
several different forms of
economic unions:
 Trade
Areas
 Customs Unions
 Common Markets
 Economic Unions
NAFTA Background
NAFTA stands for North America
Free Trade Agreement and is a
Trade Area
 Trade Areas

Unrestricted trade among Member
nations
 Does not allow free movement of
factors of production
 No common external tariffs
 No economic unity (monetary and
fiscal)

NAFTA Background

Canada
Partly joined because America was
going whether or not Canada was
 Didn’t want to lose investment
capital
 Isolate themselves from US
Protectionism
 Mexico spent more than they
thought!

 US
$325, while Japanese spend $300,
and Europe spends $200
NAFTA Background

Canada’s goals in negotiation:
1. Isolation
from US protectionism
2. Gain further freedom of trade in
the US
3. Maintain protection from Canadian
cultural industries
4. Provide some insulation from US
trade remedy laws
NAFTA Background

Mexico

Joined mostly hoping for additional
investment capital
 Hoped
year

for up to $15 billion in the first
Joined fearing exclusion from trade
agreements
NAFTA Background

Now why the US?
Gives them more power in relation
to EU and other economic unions
 Opens economic opportunities in
Mexico
 Even though US is strongest, free
trade is beneficial for all member
nations
 Warmer political relations

The Current Situation
Marcus Cardon
Trilateral Agreements/Organizations

North American Agreement on
Environmental Cooperation
(NAAEC)


Commission for Environmental
Cooperation (CEC)
North American Agreement on
Labor Cooperation (NAALC)

Commission for Labor Cooperation
(CLC)
Responsibilities of the FTC




Supervising the implementation of
NAFTA
Resolving disputes that may arise
regarding NAFTA’s interpretation or
application
Supervising the work of the NAFTA
Secretariat and NAFTA committees
and working groups
Establishing additional committees
and working groups as needed
Secretariat Secretaries
Rafael Serrano—Secretary General of
the Mexico Secretariat
Françoy Raynauld, Ph.D—Secretary of
the Canada Secretariat
Caratina L. Alston—Secretary
Secretariat of the U.S., U.S.
Department of Commerce
“We only deal with the administration
of one very small portion of NAFTA.
The treaty’s impact on anything,
whether it’s the economy or
Constitution or trade or anything like
that—I don’t deal with that. Any
comments on such things would
have to come from the policy side,
which would be the USTR or
someone here at the Department of
Commerce, but it’s certainly not my
role.”
Caratina Ashton
International Aspects
Jessica Hatch
International Aspects

Dispute resolution process

Current disputes

Success of NAFTA
Dispute Settlement

Initial disputes are directed to
Committees and Working
Groups for resolution

If necessary, problems are
escalated to panel procedures
Dispute Classifications

Chapter Nineteen


Chapter Twenty


Interpretation or application of
NAFTA
Chapter Eleven


Countervailing duty and antidumping
Investment
Chapter Fourteen

Financial services
Chapter Nineteen

Countervailing duty and anti-dumping
 Appeals of decisions made by
government officials to apply
national laws

Binational panel review

Most active sector of dispute structure
 Currently over 25 active disputes
Chapter Twenty
Interpretation and application of
NAFTA principles
 Steps intended to resolve
disputes by agreement, if
possible

Begin with government-togovernment consultations
 If unresolved, a meeting of Free
Trade Commission may be
requested
 If still unresolved, an arbitral panel
may be selected

Panel Rosters

Rosters of possible individuals
exist for each country


Selected based on objectivity,
reliability, and sound judgment
A roster exists for each dispute
classification
Panel Selection

Chapter Nineteen
Each party selects two members
from their own country
 The fifth member is from one of
the two countries and generally
alternates


Chapter Twenty
Each party selects two members
from the opposing country
 The panel chair is selected by both
parties and may be from any of
the countries

Rules of Procedure

Very clear, stringent timelines
and rules are set for both
chapters

Chapter Nineteen lasts no more
than 315 days

Chapter Twenty may take longer
depending on hearing date set
Chapter Nineteen Example:
Softwood Lumber



Countervailing Duty
 Remanded to US Department of
Commerce for changes in methodology
Anti-dumping
 Remanded to US Department of
Commerce for changes in methodology
Threat of Injury
 Remanded to International Trade
Commission
 Threat of injury required to establish
CVD and AD policies
Chapter Twenty Example:
Broom Corn Brooms

Dispute over interpretation of a
single clause:


“producers . . . of the like or
directly competitive products”
Panel recommended that the
U.S. “bring its conduct into
compliance with the NAFTA at
the earliest possible time.”
Success as of 2005

Real GDP Growth – 1994 to
2005:
U.S.: 48%
 Canada: 49%
 Mexico: 40%

$2.2 billion in trilateral trade
daily
 Trade among the nations
increased 173%


From $297 billion to $810 billion
Benefits to the U.S.



Exports to NAFTA partners grew
113%
NAFTA partners account for 55% of
increase in agricultural exports
Industrial production rose 49%




28% in prior period
36.2% increase in business sector
productivity
20.1% growth in jobs
Average unemployment rate dropped
from 7.1% to 5.1%
Benefits to Canada
More than half of exports go to
the U.S.
 Exports now account for over
40% of GDP
 Exports to U.S. increased by
250%
 86.6% of total exports go to
NAFTA partners
 17.5% increase in jobs from
pre-NAFTA levels

Benefits to Mexico
37% difference between wages
in export-related sectors and
others
 Agricultural exports to U.S.
increased by $5.7 billion
 Exports to Canada grew almost
227%
 Two-way trade with the U.S. has
grown more than 125%
 Productivity increased 55%

Important Note

The official sites for NAFTA list
all positive reviews for the past
12 years.

Others claim these benefits may
have come from other changes
in the economy

Plenty of information exists to
argue both sides
Special Problems
Daniel Stanworth
Special Problems or Debates
1.
2.
3.
Employment effects
Mexico’s Suffering Agriculture
Sector
Environmental problems and
decreased standard of living

Like any multinational treaty, NAFTA
has its pros and cons, its
cheerleaders and detractors. More
than 10 years after the treaty was
signed, protests continue, especially
by citizenry "south of the border."
NAFTA seems to favor North
America's big business over the
needs of Latin America's indigenous
peoples. While jobs may have been
created in Latin America, the pay is
generally low and available jobs are
far from home. The benefits appear
to go to governments, rich land
owners, and large businesses.
United States Employment

United States

Overall, 28 million
new jobs created
since 1994

Very small amount,
if any, can be
directly attributed
to the creation of
NAFTA
United States Employment

Heavy Debates on this issue
 Clinton administration
claimed an increase of
300,000 new jobs in because
of NAFTA in 1999.
 EPI estimated that creation
of NAFTA has resulted in net
loss of 440,000 US Jobs
 Their reasoning is because
others are only looking at
new exports and
disregarding new imports.
 Ross Perot and the “Giant
Sucking Sound”
Canadian Employment



2.3 million jobs
created in Canada
since NAFTA
Increase of
17.5%
Very little debate
on the
employment
effects of NAFTA
in Canada
Mexican Employment

Mexico

Employment increased
directly following
NAFTA introduction,
but has recently
decreased.



Many new jobs were in
the Maquiladora area’s
Agriculture sector
specifically hit hard
Estimated 28,000
small and med sized
businesses eliminated
due to low cost
producers.
Environmental/Standard of living Effects

Maquiladora -
is a factory that imports
materials and equipment on a duty-free and tarifffree basis for assembly or manufacturing and then
re-exports the assembled product usually back to
the originating country.

Maquiladora firms have approx.
doubled since NAFTA


2,143 to over 3,703 currently
This is a problem for NAFTA
because Maquiladora’s are
notorious for having terrible
low-pay working conditions.
A town about a mile from a
Maquiladora factory
Maquiladora Working conditions
Women especially discriminated
against
 Average wage is $1.00 per hour
 Work 10-12 hours a day
 Compared to sweat shops of
China
 Many are working to improve
rights of Maquiladora workers.

Environmental Conditions


Special side agreement in NAFTA to
calm environmentalists about toxic
waste around Maquiladora’s.
Did side agreement work




No enforcing power
Different views of environmental quality.
Many argue the pollution has worsened.
"NAFTA has intensified severe problems
of water and air pollution, hazardous
wastes dumping and increased the
incidence rates of certain diseases and
birth defects in the border region."
Environmental Effects

"We have no way to provide water,
sewage, and sanitation workers.
Every year, we get poorer and
poorer even though we create
more and more wealth."
 Ciudad Juarez, Mayor Gustavo
Elizondo
Mexico’s Agriculture


US farmers are being
subsidized.
Mexico farmers do not
receive subsidies, this…


Puts downward pressure on
Mexican Farmers
Results in Dumping



US Farmers selling below cost
in Mexico because they have
already received subsidies.
Results in Unemployment and
Immigration to United States
Some claim as many as 2
million Mexican farmers are
out of business
Mexico’s Agriculture

Many claim dumping
is evident due to
Mexico’s imports of
U.S. agriculture
products




$3.6 billion in 1993
$7.9 billion in 2003
$8.5 billion in 2004
U.S. farmers are
better at the expense
of Mexican farmers
Mexico’s Agriculture

Immigration from
Mexican Farmers has
increased since
NAFTA.

At least 4 million
Mexican immigrants in
the United States.



150,000+ per year
Many due to population
growth
A problem because
this goes directly
against one of the
original claims of
NAFTA.
The Future
Joseph Najar
The future

Reforms needed for NAFTA to
meet its goals

Solving NAFTA’s most difficult
problems

The prospects of NAFTA surviving
another decade
Meeting goals


GOAL: Enhance the economic
well-being of its members
Main problem: Cross-border trade (noneconomic)
 Transportation routes
 Investment opportunities
Solving problems


International trades vs. local institutions
Rules and procedures for handling disputes
Surviving another decade

Maybe



Bridging the gap
Security and Prosperity Partnership of
North America (SPP)
Blueprint for a further North American
Community
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