North American Free Trade Agreement 

INTRODUCTION

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. As of January 1, 2008, all tariffs between the three countries have have

been eliminated. Between 1993-2007, trade tripled from $297 billion to $930 billion.

The North American Free Trade Agreement or NAFTA , French is an

agreement signed by the governments of the United States, Canada,

andMexico 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 It superseded the Canada-United States Free Trade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 combined purchasing power

parity GDP of its members, as of 2007 the trade block is the largest in the world and

second largest by nominal GDP comparison.

The North American Free Trade Agreement (NAFTA) has two supplements,

the North American Agreement on Environmental Cooperation (NAAEC) and

the North American Agreement on Labor Cooperation (NAALC).

NAFTA'S NAMING

American intellectual Noam Chomsky has argued that the only true words in the

phrase "North American Free Trade Agreement" seem to be "North America", as

what is called trade is in reality mostly restricted intra-corporate transfers of products

and services. Agreement is lacking as NAFTA was passed with a lack of democratic

oversight protocols and widespread public opposition. 

Adam Smith, states in The Wealth of Nations that free trade includes the labor

component as a factor of production:

"By obstructing the free circulation of labour and stock both from employment

to employment, and from place to place, occasions in some cases a very inconvenient

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inequality in the whole of the advantages and disadvantages of their different

employments."

Within NAFTA official law and agreements the movement of labor is

temporary and very restrictive, especially for unskilled workers.Mexican (legal and

illegal) migration to the USA is surging, but not due to NAFTA provisions. NAFTA

provisions for freedom of movement of workers are very restrictive compared to one

of the economic freedoms of the European Union, the freedom of movement for

workers.

WHEN WAS NAFTA STARTED?

NAFTA was signed by U.S. 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 approved it by 234 to 200

on November 17 and the Senate by 60 to 38 on November 20. It was signed into law

by President Bill Clinton on December 8, 1993 and entered force January 1,1994.

Although it was started by President Bush, it was a priority of President Clinton's, and

its passage is considered one of his first successes. (Source: History.com, NAFTA

Signed into Law, December 8, 1993.

HOW WAS NAFTA STARTED?

The impetus for NAFTA actually began with President Ronald Regan, 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 while only allowing Congress the

ability to approve or disapprove, not change negotiating points. Canadian Prime

Minister Mulroney agrees 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. (Source: NaFina, NAFTA Timeline)

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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 requests 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.

BACKGROUND

In 1988 Canada and the United States signed the Canada-United States Free

Trade Agreement. The American government then entered into negotiations with the

Mexican government for a similar treaty, and Canada asked to join the negotiations in

order to preserve its perceived gains under the 1988 deal. The international climate at

the time favoured expanding trade blocs, and the Maastricht Treaty which created

theEuropean Union was signed in 1992.

Following diplomatic negotiations dating back to 1991 between the three

nations, the leaders met in San Antonio, Texas, on December 17, 1992, to sign

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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 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 extremely 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 more seats in parliament were won

by the pro-free trade Progressive Conservatives (PCs). Mulroney and the PCs had

a parliamentary majority and were able to easily pass the Canada-U.S. FTA and

NAFTA bills. However Mulroney himself had become deeply unpopular and resigned

on June 25, 1993. He was replaced as Conservative leader and prime minister by Kim

Campbell, who then led the PC party into the 1993 election where they were

decimated by the Liberals under Jean Chrétien. Chrétien had campaigned on a

promise to renegotiate or abrogate NAFTA, but instead negotiated the two

supplemental agreements with the new U.S. Democratic president, and ideological

ally, Bill Clinton.

FACTS ABOUT NAFTA

1. HISTORY 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. Three U.S. Presidents were involved in creating it over a decade. Find

out how it was created, what its purpose was and how large it is today.

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2. ADVANTAGES OF NAFTA

NAFTA created the world’s largest free trade area, linking 439 million people

and producing $15.3 trillion in goods and services annually. Estimates are that

NAFTA will increase U.S. GDP by between .1% - .5%. Trade between the NAFTA

signatories tripled, from $297 billion in 1993 to $903 billion in 2007. Find out what

industries benefited, and how NAFTA specifically supported this increase in trade.

NAFTA created the world’s largest free trade area, linking 439 million people

and producing $15.3 trillion in goods and services annually. Estimates are that

NAFTA increases U.S. GDP by as much as .5% a year.

That's because its elimination of tariffs and agreements on international rights

for business investors increases trade and capital, spurring business growth.

Elimination of tariffs also reduces inflation, by decreasing costs of imports.

INCREASE IN TRADE:

Trade between the NAFTA signatories tripled, from $297 billion in 1993 to

$903 billion in 2007. Specifically,U.S. goods exports to Canada and Mexico grew

157%, from $142 billion to $364.6 billion.Exports from Canada and Mexico to the

U.S. grew 231%, from $151 billion in to $501 billion.NAFTA provides the ability for

firms in member countries to bid on government contracts. It also protect intellectual

properties.

INCREASE IN U.S. AGRICULTURAL EXPORTS:

NAFTA is especially helpful for agricultural exports because it reduces high

Mexican tariffs. Mexico is the top export destination for beef, rice, soybean meal,

corn sweeteners, apples and beans. It is the second largest for corn, soybeans and oils.

As a result of NAFTA, the percent of U.S. agricultural exports to Canada and Mexico

has grown from 22% in 1993 to 30% in 2007. (Source: USTR, NAFTA Facts, March

2008)

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INCREASE IN TRADE OF SERVICES:

More than 40% of U.S. GDP is services, including financial services and

health care. These aren't as easily transported as are goods, so being able to expand

services to nearby countries is important. Thanks to NAFTA, U.S. services exports to

Canada and Mexico grew 125%, from $25 billion to $62 billion in 2006. Services

exports from Canada and Mexico grew to $37 billion.NAFTA eliminates trade

barriers in nearly all service sectors. Service industries are often highly regulated, and

the regulations aren't always apparent. NAFTA requires authorities to use open

administrative procedures and publish all regulations.

INCREASE IN FOREIGN DIRECT INVESTMENT:

Since NAFTA was enacted, U.S. foreign direct investment (FDI) in Canada

and Mexico tripled to $331 billion (as of 2006, latest data available). Canadian and

Mexican FDI in the U.S. was $165 billion.NAFTA reduces risk for investors by

guaranteeing they will have the same legal rights as local investors. It also guarantees

they will receive fair market value for their investments in case the government

decides to nationalize the industry or take the property by eminent domain. NAFTA

provides a legal mechanism for investors to make claims against a government, if

needed.

3. DISADVANTAGES OF NAFTA

NAFTA has been criticized for both displacing American workers and

decreasing wage levels for those that remain. Mexican workers have also suffered, as

have Mexican farmers and its environment. Find out the facts behind these

accusations, and how NAFTA contributed to these problems. NAFTA has many

disadvantages. NAFTA allowed U.S. manufacturers to move jobs to lower-cost

Mexico. Those manufacturers that remained had to decrease wages to compete.

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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, allowing for exploitation.

LOSS OF U.S. JOBS:

Since the cost of labor is cheaper in Mexico, many manufacturing industries

moved part of their production from high-cost U.S. states. Between 1994 and 2002,

the U.S. lost 1.7 million jobs, gaining only 794,00, for a net loss of 879,000 jobs.

Most of these jobs(78%) were in manufacturing. States hit hard included California,

New York, Michigan and Texas. These states 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, November 17, 2003)

LOWER U.S. WAGES:

Employers in industries that could move to Mexico used that as a threat during

union organizing drives, thus suppressing wage growth. Between 1993 and 1995, 50%

of all companies used the threat; by 1999, that rate had grown to 65%.

MEXICO'S FARMERS ARE BEING PUT OUT OF BUSINESS:

Thanks to the 2002 Farm Bill, U.S. agribusiness is heavily subsidized - as

much as 40% of net farm income. As tariffs are removed, corn and other food is

exported to Mexico below cost. This benefits consumers, who pay less for food, but

makes it impossible for rural Mexican farmers to compete. In contrast, between 1990-

2001, Mexico decreased its subsidies to farmers from 33.2% to 13.2% of total farm

income. Most of those subsidies go to Mexico's large farms. (Source: International

Forum on Globalization, Exposing the Myth of Free Trade, February 25, 2003; The

Economist, Tariffs and Tortillas, January 24, 2008)

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MAQUILADORA WORKERS ARE EXPLOITED:

NAFTA caused an increase of the maquiladora program, in which U.S. owned

companies employ Mexican workers near the border to cheaply assemble products for

"export" to the U.S. This now comprises 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)

DEGRADATION OF MEXICO'S ENVIRONMENT HAS INCREASED:

In response to NAFTA competitive pressure, Mexico agribusiness has

increased its use of fertilizers and other chemicals, costing $36 billion per year in

pollution. Rural farmers have expanded into more marginal land, resulting in

deforestation at a rate of 630,000 hectares per year.

4. U.S. REGIONAL TRADE AGREEMENTS

How does NAFTA fit within the context of other U.S. regional trade

agreements, such as CAFTA, FTAA, and MEFTI?

WHAT ARE EXCHANGE RATES?

The dollar's exchange rate tells you how much a dollar is worth in a foreign

currency, and vice versa. For example, on March 3, 2008, a dollar was worth $.98

Canadian dollars, 7.01 Chinese yuan, and 103.57 Japanese yen. The Euro is normally

quoted in terms of its dollar value, for some reason, so one Euro was worth $1.52.

PROVISIONS

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The goal of NAFTA was to eliminate monkeys 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.

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NAFTA OR NORTH AMERICAN FREE TRADE

AGREEMENT

NAFTA covers Canada, the U.S. and Mexico making it the world's largest free

trade area. By 2008 almost all tariffs will have been eliminated. From 1993 (the

initiation of NAFTA) to 2005, trade increased from $297 billion to $810 billion.

The North America Free Trade Agreement, also known as NAFTA, is a trade

agreement between the United States, Canada, and Mexico. NAFTA eliminated the

majority of tariffs on products traded among the United States, Canada, and Mexico,

and gradually phased out other tariffs over a 15-year period. The treaty also protects

intellectual property rights (patents, copyrights, and trademarks), and outlines the

removal of investment restrictions among the three countries. There have been

positive and negative outcomes from the NAFTA agreement. Some argue that

NAFTA has been positive for Mexico, which has seen its poverty rates fall and real

income rise, even after accounting for the 1994–1995 economic crisis. Others argue

that NAFTA has been beneficial to business owners and elites in all three countries,

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but has had negative impacts on farmers in Mexico who saw food prices fall based on

cheap imports from U.S. 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 U.S. and Mexico. Some

economists believe that NAFTA has not been 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. Overall, NAFTA has not caused

any trade diversion aside from the textiles and apparel industry.

TIMELINE:

1988 : Canada and the US signed the Canada-U.S. Free Trade Agreement.

January 1, 1994: NAFTA was made as an expansion on the earlier US-

Canada trade agreement.

2001: After the attacks on September 11, the United States signed the Security

and Prosperity Partnership of North America.

2001: Mexico’s percentage of exports ousted its percentage of imports.

2006: Foreign officials were admitted into the US because of the NAFTA

agreement.

2006: Canadian Government estimates that 24,830 US citizens and 15,219

Mexican citizens were present in Canada as "foreign workers".

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EFFECTS

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

itspoverty rates fall and real income rise (in the form of lower prices, especially food),

even after accounting for the 1994–1995 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 U.S. agribusiness, and 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. 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.

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TRADE

According to Issac (2005), overall, NAFTA has not caused trade diversion,

aside from a few industries such as textiles and apparel, in whichrules of

origin negotiated in the agreement were specifically designed to make U.S. firms

prefer Mexican manufacturers. The World Bank also showed that the combined

percentage growth of NAFTA imports was accompanied by an almost similar

increase of non-NAFTA exports.

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. This has allowed for the rapid growth of

non-border metropolitan areas, such as Toluca, Leónand Puebla; all three larger in

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population than Tijuana, Ciudad Juárez, and Reynosa. The main non-maquiladora

industry that has suffered from NAFTA is the automobile industry.

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 post environmental assessment of NAFTA.

In response to this mandate, the CEC created a framework for conducting

environmental analysis of NAFTA, one of the first ex post frameworks 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. 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 was confirmed. NAFTA did not

inherently present a systemic threat to the North American environment, as was

originally feared, but 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

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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, creating more difficult living conditions for the

country's poor. Still, the causes of rural poverty cannot be directly attributed to

NAFTA; in fact, 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.

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.

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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),

74,098 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. [22]Because

DHS counts the number of the new I-94 arrival records filled at the border, and the

TN-1 admission is valid for one year, 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 one-year admission period expired,

while other immigrants admitted earlier may change their status to TN or TD, or

extend earlier granted TN status).

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Canadian authorities estimated that, as of December 1, 2006, the 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).

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CRITICISM AND CONTROVERSIES

CANADIAN DISPUTES

There is much concern in Canada over the provision that if something is sold

even once as a commodity, the government cannot stop its sale in the future. [25] This

applies to the water from Canada's lakes and rivers, fueling fears over the possible

destruction of Canadian ecosystems 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. Sun Belt maintains a website where

many documents concerning the Arbitration are posted www.sunbeltwater.com. 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 additiveMMT 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, and by 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.

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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 Harpercompromised 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 andcountervailing duty orders." (Nick Lifton, spokesman for U.S. Trade

Representative Rob Portman) On July 21, 2006, the U.S. Court of International

Trade found that imposition of the duties was contrary to U.S. law.

CANADIAN GOVERNMENT CHALLENGED ON 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. The couple claims

thousands of U.S. investors lost a total of $5 billion dollars 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 29 April 2009, a determination was made that

this change in tax law was not expropriation. 

U.S. DEINDUSTRIALIZATION

An increase in domestic manufacturing output and a proportionally greater

domestic investment in manufacturing does not necessarily mean an increase in

domestic manufacturing jobs; this increase may simply reflect greater automation and

higher productivity. Although the U.S. total civilian employment may have grown by

almost 15 million in between 1993 and 2001, manufacturing jobs only increased by

476,000 in the same time period. 

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Furthermore from 1994 to 2007, net manufacturing employment has declined

by 3,654,000, and during this period several other free trade agreements have been

concluded or expanded.

IMPACT ON MEXICAN FARMERS

CRITICS OF NAFTA CITE NEGATIVE AFFECTS ON MEXICO'S

CORN FARMERS

In 2000, U.S. government subsidies to the corn sector totaled $10.1 billion, a

figure ten times greater than the total Mexican agricultural budget that year.These

subsidies have lead to charges of de factodumping which jeopardizes Mexican farms

and the country's food self-sufficiency.

Other studies reject NAFTA as the force responsible for depressing the

incomes of poor corn farmers, citing the trend's existence more than a decade before

NAFTA's existence, an increase in maize production after NAFTA went into effect in

1994, and the lack of a measurable impact on the price of Mexican corn due to

subsidized corn coming into Mexico from the United States, though they agree that

the abolition of U.S. agricultural subsidies would benefit Mexican farmers.

According to Graham Purchase in Anarchism and Environmental Survival,

NAFTA could cause "the destruction of the ejidos (peasant cooperative village

holdings) by corporate interests, and threatens to completely reverse the gains made

by rural peoples in the Mexican Revolution." 

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CERTIFICATE OF ORIGIN OF NAFTA

Canada, Mexico and the United States established a uniform Certificate of Origin to

certify that goods imported into their territories qualify for the preferential tariff

treatment accorded by the NAFTA. Only importers who possess a valid Certificate of

Origin may claim preferential tariff treatment for originating goods.

LANGUAGE

A uniform Certificate of Origin is used in all three countries and is printed in English,

French or Spanish. The Certificate shall be completed in the language of the country

of export or the language of the importing country, at the exporter's discretion.

Importers shall submit a translation of the Certificate to their own customs

administration when requested.

SCOPE

A Certificate of Origin may cover a single importation of goods or multiple

importations of identical goods. Certificates that cover multiple shipments are called

blanket certificates and may apply to goods imported within any twelve-month period

specified on the Certificate. Although a Certificate of Origin may cover goods

imported over not more than a twelve-month period, it remains valid for NAFTA

preference claims made up to four years from the date upon which it was signed.

A machine made in Canada qualifies for NAFTA tariff treatment and is exported with

a Certificate of Origin signed on January 1, 1995. The U.S. importer does not enter the

machine for consumption but instead places it in a customs bonded warehouse. He

overlooks the Certificate of Origin and fails to claim NAFTA treatment for the

machine upon entry into the warehouse. If the U.S. importer withdraws the machine

from the warehouse for consumption on January 17, 1999, he will be barred from

claiming NAFTA treatment upon withdrawal because the Certificate is over four years

old and is no longer valid.

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COMPLETION OF CERTIFICATE

The Certificate of Origin must be completed and signed by the exporter of the

goods. Where the exporter is not the producer, the exporter may complete the

Certificate on the basis of:

knowledge that the good originates;

reasonable reliance on the producer's written representation that the good

originates; or

a completed and signed Certificate of Origin for the good voluntarily provided

to the exporter by the producer.

IMPORTERS' OBLIGATIONS

Importers claiming NAFTA preferential tariff treatment shall make a

declaration, based on a valid Certificate of Origin in their possession, on the import

documentation. Where no claim for preferential tariff treatment is made at the time of

importation, importers may request preferential tariff treatment no later than one year

after the date on which the good was imported, provided a Certificate of Origin for the

goods is obtained.

Importers must provide the Certificate to the importing country's customs

administration upon request, and must submit a corrected declaration and pay the

corresponding duties whenever there is reason to believe that the Certificate contained

inaccurate information.

The customs administration of the importing country may deny preferential

tariff treatment to the goods if the importer fails to comply with any of the customs

procedures set out in Chapter Five of the NAFTA.

Importers must maintain records pertaining to the importation for five years or such

longer period as may be specified by their country.

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EXPORTERS' AND PRODUCERS' OBLIGATIONS

Exporters or producers that prepare Certificates of Origin shall provide copies

to their own customs administration upon request.

Exporters or producers that provide a Certificate of Origin must maintain records

pertaining to the exportation for five years or such longer period as may be specified

by their countries.

Exporters or producers that complete a Certificate of Origin shall notify all

parties to whom the Certificate was given of any change that could affect its accuracy

or validity.

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DIAGRAMATIC RECORDS

NAFTA 2001

The most significant thing about this

2000 chart is that fact that despite lots

of encouragement from federal and

provincial governments for Canadian

exporters to seek out markets in Asia,

Europe and Latin America - we still

do more than 87% of our business

with the U.S.

Mexico - highly touted as an

opportunity for us in 2001 and

beyond, is the tiny slice of green in

the chart to the left.

 

NAFTA 2006

In the later years of the 1990's it appeared

that NAFTA was responsible for Canada

doing more and more trade with the U.S. -

and therefore increasing our vulnerability

to swings in the U.S. economy and

reducing our business with the ROW (rest

of the world).

However, as the U.S. economy began to

slow in the "Bush" administration,

Canadian companies have sought more

business with the rest of the world, which

is reflected in an updated chart showing

Canadian exports to the U.S.

 

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How

NAFTA

was in

1996?

.

How

NAFTA

was in

2006?

 

since 2001, we have done much better diversifying away from exporting mostly

to the U.S. and are improving our exports to Asia-Pacific and Europe

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U.S. NAFTA TRADE DEFICIT SURGING IN 2003

U.S. NAFTA trade deficit surging in 2003. Since the U.S. entered into the

North American Free Trade Agreement (NAFTA) with Mexico and Canada, the trade

deficit with these countries has grown rapidly (see chart below). U.S. firms moved

plants to Mexico and Canada to take advantage of lower wages and new rules

providing unheard of levels of protection for foreign investors. The combined U.S.

trade balance with the other two NAFTA countries (the difference between U.S.

exports and imports) was a small, stable deficit prior to NAFTA. Since NAFTA that

combined deficit has grown rapidly. U.S. imports have been growing more rapidly

than exports, so the trade deficit has expanded. When the growth of this deficit eased

in 2002, some claimed that U.S. trade with China and other lower-wage countries was

displacing NAFTA trade. Contrary to this view, the U.S. NAFTA deficit has

increased 12.2% so far this year, evidence that deficits with Mexico and Canada are a

continuing drag on U.S. growth and job creation.

Exports, which expand domestic production, increase the number of U.S.

industrial jobs, while imports, which replace goods that could have been produced in

the United States, eliminate jobs.

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The rise in the U.S. deficit with Canada and Mexico from 1993 to 2000

displaced production supported by 766,000 U.S. jobs. Most of those jobs would have

been high-wage positions in manufacturing industries. The sustained growth of this

deficit suggests that NAFTA continues to eliminate more jobs in the United States,

which worsens the current economic downturn.

Further study of NAFTA by researchers in Canada and Mexico has shown that

workers in all three countries have been hurt, but for different reasons. In Mexico, real

wages have fallen sharply and there has been a sharp drop in the number of people

holding regular jobs in paid positions.

Many workers have been shifted into subsistence-level work in the "informal

sector," frequently unpaid work in family retail trade or restaurant businesses. In

Canada, a decade of heightened competition with the U.S. is eroding social

investment in public spending on education, health care, unemployment

compensation, and a wide range of other public services. This experience suggests

that workers have good reasons to be concerned as we enter NAFTA's second decade.

WHAT IS BARACK OBAMA'S POSITION ON FREE TRADE?

Overall, Obama opposes many current trade agreements, which he says are bad for

the economy because they provide perks for businesses but don't protect workers.

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OBAMA HAS THREE MAIN PROPOSALS:

1. Amend NAFTA - He would re-open NAFTA to beef up protection for labor

and the environment.

2. Fight for Fair Trade - He opposes pending Free Trade Agreements (FTA's)

with Colombia because it allows violence against labor leaders and South

Korea because it restricts U.S. auto imports. He also wants to pressure the

World Trade Organization to enforce current agreements and stop unfair

subsidies.

3. Improve Transition Assistance - He supports Federal funding for retraining

displace U.S. workers.

HOW WOULD OBAMA'S FREE TRADE POSITION IMPACT

THE ECONOMY?

Putting more job protection for U.S. workers in NAFTA and other FTA's may

not help American workers because it doesn't get at the source. Job outsourcing is a

result of declining U.S. competitiveness, which is itself a result of decades of the U.S.

not investing in education. This is particularly true for high tech, engineering, and

science.

Opposing FTA's for two of America's closest allies, Colombia and South

Korea, may damage our relationship with them while hurting the U.S. economy. In

fact, Colombia's homicide rate against union members, and the public as a whole, has

dropped 40% since 2002 thanks to a government protection program.

Rejection of the South Korean FTA could cause newly-elected South Korean

President Lee Myung-bak to further lose support among a population who are already

upset that he agreed to allow U.S. beef to be imported as part of the agreement. South

Koreans remember the cases of mad cow disease found in U.S. beef four years ago.

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The agreement actually levels the playing field for the auto industry. Current South

Korean tariffs of 8% would be removed, as would current U.S. tariffs, which are

lower at 3.5%.

NAFTA's open new markets for businesses by removing trade barriers. For

example, NAFTA increased trade from $297 billion to $810 billion. The Peterson

Institute for International Economics estimates that ending all trade barriers would

increase U.S. income by $500 billion.

Opening NAFTA to renegotiation would allow Mexico to address it

complaints, including immigration reform, U.S. farm subsidies and an unfulfilled

NAFTA promise to allow Mexican commercial trucks further into the U.S.

Free trade creates more jobs than it outsources. For example, the formation of

the European Union free trade area created 300,000–900,000 net new jobs. In the U.S,

1.3 million export-related jobs were created between 1994 and 1998.

Increasing U.S. protectionism will further slow economic growth and cause

more layoffs, not less. If the U.S. regresses and closes its borders, other countries will

do the same. This could cause layoffs among the 12 million U.S. workers who owe

their jobs to exports.

WHAT FREE TRADE ISSUES IS OBAMA MISSING?

One of the key obstacles to the Doha round of the World Trade Organization

agreement was U.S. agricultural subsidies. Developing countries are afraid of low-

cost, subsidized U.S. farm products flooding their markets, essentially putting family

farmers out of business. Until the U.S. significantly reduces these subsidies, further

progress on this multi-lateral trade agreement is effectively dead in its tracks.

Contrary to popular opinion, agricultural subsidies no longer go to U.S. family

farms. Instead, tax programs that were designed to help Depression-era families keep

their farms are now effectively subsidizing huge corporations who have, in turn, put

these family farms out of business.

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In fact, Obama's renewed pressure on the WTO to enforce other countries'

subsidies could then bring into question the subject of U.S. agricultural subsidies -

still a sore point in the international trade community. The failure of the Doha round

has led to a fresh wave of bilateral trade agreements between China, the Middle East,

Latin America and Africa. Further U.S. protectionism at this time will only increase

this activity, thus pushing the U.S. economy further out of the trade loop, and further

into economic decline.

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BIBLIOGRAPHY

- www.google.com

-www.wikipedia.org

-www.yahoo.com

NAFTA’s OFFICIAL SITE

NAFTA’S HITORY

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