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North American Free Trade Agreement
GROUP 1
Guidotti Chaumont Laura Park Mina Choi Young Hwa Kim So Jeong Kim Tae hee Chung Seung Ah
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History
1982 → 1988 → 1990 → 1991 → 1992 → 1993
Discussion between U.S.&Mexico commenced
U.S.&Canada FTA signed
Negotiation of U.S.-Mexico FTA began
Talks among U.S.,Canada, Mexico following
NAFTA established
NAFTA ratified
A fusion of the separate bilateral
FTA between individual countries
→
A full-fledged trilateral negotiation
→
A gradual process of economic integra
tion
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Level of Integration
Political Union
Economic Union
Common Market
Customs Union
Free Trade Area
X
NAFTA
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Objective of NAFTA
Eliminate economic barriers
Facilitate free trade
Promote fair competition in the free trade area
Pursue an export-led growth strategy
Establish multilateral cooperation
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The Free Trade Commission
Central institution of NAFTA consisting of cabinet-level representatives from United States, Canada and Mexico
Supervises the implementation of policies
Helps to resolve disputes arising from its interpretation
Oversees the work of the NAFTA's Committees, Working Groups and other subsidiary bodies
Organizational Structure
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Dispute Settlement
Equal treatment among investors of the Parties and due process
Arbitral mechanisms: ICSID, ICSID's Additional Facility Rules, UNCITRAL Rules
Chapter 19 Mechanism Request for Panel Review Panel established Extraordinary Challenge Committee (review process)
Organizational Structure
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NAFTA coordinators
Three senior trade department officials
Day-to-day management
Organizational Structure
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Working Groups/Committees
Objective:-Established to facilitate trade and investment-Ensure the effective implementation and administration of the NAFTA
Key Areas:-rules of origin, customs, agricultural trade and subsidies, standards, government procurement etc
Activities:-provide an apolitical arena for the discussion of issues and the possible avoidance of disputes -political direction for the work program decided
Organizational Structure
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NAFTA Secretariat
Comprises the Canadian, U.S. and Mexican Sections
Responsible for the administration of the dispute settlement provisions
Provides assistance to the Commission and various non-dispute-related Committees/Working Groups
Organizational Structure
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Facilitation of free trade and investment
Sensitive industries given long transition periods to prepare for free trade -e.g non-tariff barriers to agricultural trade to be eliminated over a period of 5 to 15 years
Common economic prosperity within this area-Decrease in transaction costs, increase in market access more trade more jobs and higher income
NAFTA’S Priority Issues
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Sustainable development-environmental effects of growth
Points of contention -Lax environmental laws of Mexico
NAFTA side agreements: -North American Agreement on Environmental Cooperation (NAAEC)
NAFTA’S Priority Issues
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Labor standards
Cooperative programs and technical exchanges-e.g industrial relations, occupational safety and health, child labor, gender equality, and protection of migrant workers
Side agreement -North American Agreement for Labor Cooperation (NAALC): for the public to submit a complaint for failure to enforce labor protection regulations and working conditions
NAFTA’S Priority Issues
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Settlement of disputes
Advisory Committee on Private Commercial Disputes -report and make recommendations to the NAFTA Commission on use and effectiveness of arbitration and other procedures for the resolution of private international commercial disputes in the free trade area
Composed of private sector members from each Party, and two representatives of each Party
NAFTA’S Priority Issues
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Performance Evaluation
Success to investors and financiers in all three countries
3 aspects to be considered for the appraisal1) Trade 2) Employment3) Foreign Direct Investment (FDI)
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Performance Evaluation
NAFTA promoters claim that a nation would benefit from increased export from a larger consumer market available and from more jobs and raised incomes in a nation.
In reality, there are always positive effects of exports (jobs increased) and negative effects of imports (jobs reduced).
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1) Trade
U.S.-trade deficit accelerated after NAFTA
Mexico-trade surplus from increased market access for exports to U.S. -trade deficit is growing with the rest of the world.
Canada-increased volume of trade -per capita income actually declined
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2) Employment
U.S.-worsened labor market problems: lower wage for middle and low wage workers and growing income inequality.
Mexico-lower unemployment rate but with deteriorating working conditions
Canada-upward redistribution of income and a decline in stable full-time employment
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3) FDI
U.S.-not much increase in FDI
Mexico-$124 billion, 435% increase (10yrs after NAFTA)
Canada -$202 billion, 354% increase (10yrs after NAFTA)-Bank loans and other types of foreign financing funding in factories for export goods to the U.S.
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Critical Views
Opposite results from NATFA promises on economic and social situation in all three countries
Each case of three countries 1) U.S.2) Mexico3) Canada
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U.S.A
Huge job losses : 766,030 from 1993 to 2000
Resulting from the huge net export deficit while trading with Mexico and Canada⇒ Wage reduction
⇒ Restructure of the composition of workers from manufacturing to the service sector which is lower salary, low quality jobs and insecurity
⇔ Original promise : creating new jobs for the U.S. and improving economic stability
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Job loss in the U.S.Table 1-1 NAFTA job loss by state, 1993-2000
State Net NAFTA job loss* State Net NAFTA job loss*
U.S. total 766,030 Missouri 16,773
Alabama 16,286 New Jersey 19,169
California 82,354 New York 46,210
Florida 27,631 North Carolina 31,909
Georgia 22,918 Ohio 37,694
Illinois 37,422 Pennsylvania 35,262
Indiana 31,110 South Carolina 10,835
Kentucky 13,128 Tennessee 25,419
Massachusetts 16,998 Texas 41,067
Michigan 46,817 Virginia 16,758
Minnesota 13,202 Washington 14,071
Mississippi 11,469 Wisconsin 19,362
*Excluding effects on whole sale and retail trade and advertising
Source: EPI analysis of Bureau of Labor Statistics and Census Bureau data
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U.S. trade deficit with Mexico & Canada
Table 1-2 U.S. trade with Canada and Mexico, 1993-2000,
totals for all commodities (millions of constant 1992 dollars)
Change since 1993
1993 2000 Dollars Percent Jobs loss or gain
Canada
-Domestic exports 90,018 149,214 59,196 66% 563,539
-Imports for consumption
108,087 193,725 85,638 79% 962,376
-Net exports 18,068 44,511 26,443 146 398,837
Mexico
-Domestic exports 39,530 97,509 57,979 147 574,326
-Imports for consumption
38,074 132,439 94,364 248 941,520
-Net exports 1,456 34,930 36,386 n.a 37,193
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Mexico-worse economy
Trade & current account balances worsen in 1998-
2000+
Rising value of the peso
Imports surged although achieve
an improved trade surplus in 2000 due to increase in trade
with the US
Fear that another financial crisis
may occur in the near future
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Mexico-Maquiladora
Contributes to most imports
Only 3% of exported goods in Mexico & 97% of exports occur in maquiladora sector
Hiring unskilled labor force⇒ creating low quality jobs⇒ losing purchasing power of minimum wage⇒ inequality and low wages for the overall industryIllegal migration to the US(3% of Mexico’s national income sent by immigrant worker in the US)
Table 1-3 Wages in Mexico, 1990-99(1990=100)
YearMinimum
wageContractual
wagesWages in
manufacturing
1990 100 100 100
1993 67.5 84.9 110.4
1994 65.8 81.5 105.2
1997 58.9 68.2 82.9
1999 55.4 66.8 88.4
source: 6° Informe de gobierno de Ernesto Zedillo, 2000
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Canada
Overvalued Canada dollar in the mid-1990s & lost its
value after NAFTA
took effect to 2000
Promote FDIby creating a
structural adjustment abiding by US style
High inflow of foreign
investment from the US in the form
of bank loans & projects
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Canada
NAFTA
Helped to promote FD I by
creating a structural
adjustment abiding by the
US style
Trade with the US has
significantly grown but
caused chaos in employment
between import & export sector
Trade with the US has
significantly grown but
caused chaos in employment
between import & export sector
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Canada
NAFTA aggravated the situation with deregulation,
privatization & trade
liberalization
Private company increases part-time jobs, irregular workers & low
wages
Government allows poor condition of Canadian workers & tax-cut
Break down of the social safety net
with insecure employment
Widens the gap of
productivity between
Canada & US
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Q & A