NORTH AMERICAN FREE TRADE AGREEMENT

NAFTA

United States

Canada

Mexico.

MEMBERS OF NAFTA

The North American Free Trade Agreement (NAFTA ) is a trilateral trade bloc in North America created by the governments of the United States, Canada, and Mexico.

The agreements were signed in December 1993 by the leaders of the three countries — Brian Mulroney of Canada, Carlos Salinas de Gortari of Mexico, and Bill Clinton of the United States but did not come into effect until January 1, 1994.

In terms of combined purchasing 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.

It also is one of the most powerful, wide-reaching treaties in the world.

WHAT IS NAFTA?

AN INTRODUCTION

Secretariats-Mexico City, Ottawa , Washington D.C. Languages-French, English, Spanish Membership-Canada, United States and Mexico Establishment- Formation January 1, 1994  Area- Total 21,783,850 km2 Population- 2010 estimate 456,416,628  GDP (PPP)-2008 (IMF) estimate- Total$17,153,462

trillion  GDP (nominal)2008 (IMF) estimate- Total$16,792

trillion

OBJECTIVES OF NAFTA 

• Improve political relationships amongst the member countries

• Help Mexico to earn additional forex to meet its foreign

debt burden • Decrease the flow of emigration from Mexico to the US by

providing them job opportunities.

• Create a stable and predictable environment for investors

PROVISION The goal of NAFTA was to eliminate barriers of trade and

investment between the USA, Canada and Mexico. The implementation of NAFTA on January 1, 1994, brought the immediate elimination of tariffs on more than one half of US imports from Mexico and more than one third of US exports to Mexico.

Within 10 years of the implementation of the agreement all US-Mexico tariffs would be eliminated except for some US agricultural exports to Mexico that were to be phased out in 15 years. Most US-Canada trade was already duty free. NAFTA also seeks to eliminate non-tariff trade barriers and publisher.

NAFTA SUPPLEMENTS The North American Free Trade Agreement (NAFTA) has two

supplements:- North American Agreement on Environmental Cooperation (NAAEC) and

North American Agreement on Labour Cooperation (NAALC).

(NAAEC) was a response to environmentalists' concerns that the United States would lower its standards if the three countries did not achieve consistent environmental regulation.

(NAALC) supplements NAFTA and endeavors to create a foundation for cooperation among the three countries for the resolution of labour problems, as well as to promote greater cooperation among trade unions and social organizations in order to fight for improved labor conditions.

NAFTA IN PERSPECTIVE

U.S. two way trade with Canada and Mexico exceeds U.S. trade with European Union and Japan combined.

In fact, US trades more with Mexico in a month than trade with other countries in a year. US export more to Mexico in a day than with Paraguay in a year.

US export more in a week with Canada than with Central America in a year.

The Future of NAFTA

Clearly not about cheap labor It is about integration of the North American marketplace It is about moving up the value-added chain It is about maintaining and increasing competitiveness and

productivity Mexico, like the U.S., fears losing its manufacturing sector to other

countries – why? Over the last 5 years:

China’s exports to the U.S. grew 300% Mexico’s exports to the U.S. grew 30%

NAFTA slightly increased growth in output and productivity –

The CBO study, which had a limited model for estimating the trade effects on GDP, found that NAFTA increased annual GDP growth in the United States by no more than .04%, and for Mexico, no more than 0.8%.

NAFTA had little or no impact on aggregate employment –

None of the reports attributed changes in aggregate U.S. or Mexican employment levels to NAFTA

The Impact of NAFTA

• World’s largest free trade area: 442.4 million people; $15.4 trillion GDP

• No tariffs on U.S. exports to Mexico; final tariffs eliminated in 2008

• Elimination of Barriers• Institution of Dispute Resolution Process• U.S-Mexico trade increased 377%: from $88

billion in 1993 to $347 billion in 2007

IMPACT OF NAFTA ON INDUSTRY Maquiladoras (Mexican factories which 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.

Trade and Investment Effects

•NAFTA is a broad agreement, but improved market access, including tariff reductions on merchandise trade, was the major U.S. goal.

•After ten years, most tariffs have gone to zero, except for some very sensitive (mostly agricultural) goods that have limited protection for up to 15 years. Clearly, U.S.-Mexico trade and investment have grown sharply over the past decade.

•From 1994 to 2003, U.S. exports to Mexico rose 91%, compared to 41% to the world. U.S. imports increased by 179%, compared to 89% from the world.

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EXPORTS IMPORTS

Impact on Jobs

The study's indicates that the reduction in net exports to Mexico has eliminated 227,663 U.S. job opportunities since 1993, and the reduction in net exports to Canada has eliminated 167,172 job opportunities in the same period. In total, NAFTA resulted in a net loss of 394,835 jobs in its first three years.

The analysis finds that NAFTA has eliminated significant numbers of jobs for women and members of minority groups, as well as white males. Between 1993 and 1996, women lost 141,454 jobs to NAFTA, blacks lost 36,890 jobs, and Hispanics lost 22,520 jobs, numbers closely reflecting these groups' shares in manufacturing industries

BENEFITS

NAFTA eliminates trade barriers. Benefits the importers by reduced or duty

free goods. No MPF from Canada for NAFTA goods. Can make the exporter more competitive then

other non-participating countries. 200% increase in trade among the 3 countries. Increase market access within each country.

LIMITATIONS

It has negative impacts on farmers in Mexico who saw food prices fall based on cheap imports from U.S. agribusiness

It has negative impacts on U.S. 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 U.S. 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

CONCLUSION

NAFTA is one of the most successful treaties of the times in terms of growth in trade i.e. imports & exports , G.D.P etc. but on the other hand it is also responsible for causalities like loss of jobs, migration, rising level of inequality and many others.

Thus it is important that the treaty should be carried forward concerning about taking steps for the problems originated due to NAFTA ,otherwise it will create inequality in many terms which can lead to bad conditions in future for all the three countries.