North American Free Trade Agreement

GROUP 1

Guidotti Chaumont Laura Park Mina Choi Young Hwa Kim So Jeong Kim Tae hee Chung Seung Ah

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

Level of Integration

Political Union

Economic Union

Common Market

Customs Union

Free Trade Area

X

NAFTA

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

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

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

NAFTA coordinators

Three senior trade department officials

Day-to-day management

Organizational Structure

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

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

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

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

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

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

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)

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).

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

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

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.

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

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

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

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

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

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

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

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

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

Q & A