Group Project

Reshmi Raveendran

INDIA’S TRADE WITH NORTH AMERICAN FREE TRADE AGREEMENT

(NAFTA)

Video

INTRODUCTION

NAFTA is an agreement signed by the governments of the United states, Canada and Mexico creating a trilateral trade bloc in North America.

Members: Canada, Mexico & United StatesOfficial languages: English, French and SpanishSecretariats: Mexico city, Ottawa, Washington

D.C.Establishment: 1 January 1994GDP of NAFTA alliance: USD 12 trillionNAFTA supplements: NAAEC & NAALC

Why was NAFTA formed?• The impetus for NAFTA actually began

with President, Ronald Regaon, who campaigned on a North American common market. In 1984, Congress passed the Trade and Tariff Act.

• Canadian Prime Minister Mulroney agreed 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 since it's no longer needed

• Canada asked to join the negotiations in order to preserve its perceived gains under the 1988 deal

Objectives of NAFTATo eliminate trade barriers & facilitate

the cross-border movements.To promote conditions of fair

competition.To substantially increase investment

opportunities. To provide adequate and effective

protection & enforcement of intellectual property rights

To create effective procedures for the implementation and application of this agreement.

To establish a framework for further trilateral, regional and multilateral co-operation.

NAFTA: Progress over the yearsNorth American trade supports tens of

thousands of jobs in every single state. NAFTA has raised the competitiveness of

U.S. manufacturers.U.S. unemployment rate was sharply lower

in the years following NAFTA implementation.

At the time that NAFTA went into effect, about 40% of U.S. imports from Mexico entered duty -free and the remainder faced duties of up to 35.

Effect on IndustriesTextiles and Apparel Industries. NAFTA phased out all

duties on textile and apparel goods within North America meeting specific NAFTA rules of origin over a 10-year period

Automotive Industry. NAFTA phased out Mexico’s restrictive auto decree. It phased out all U.S. tariffs imports from Mexico and Mexican tariffs on U.S. and Canadian products as long as they met the rules of origin requirements of 62.5% North American content for autos, light trucks, engines and transmissions; and 60% for other vehicles and automotive parts.

Agriculture. NAFTA set out separate bilateral undertakings on cross-border trade in agriculture, one between Canada and Mexico, and the other between Mexico and the United States. As a general matter, U.S.-Canada FTA provisions continued to apply on trade with Canada

Effect on Industries

Foreign Investment. NAFTA removed significant investment barriers, ensured basic protections for NAFTA investors, and provided a mechanism for the settlement of disputes between investors and a NAFTA country.

Dispute Settlement Procedures. NAFTA’s provisions for preventing and settling disputes were built upon provisions in the U.S.-Canada FTA. NAFTA created a system of arbitration for resolving disputes that included initial consultations, taking the issue to the NAFTA Trade Commission, or going through arbitral panel proceedings.

Why Mexico joined the agreement?

Foreign direct investment (FDI); boosting exports; creating industrial jobs; and giving the Mexican economy a growth stimulus.

Mexico established a policy of import substitution in the 1930s, consisting of a broad, general protection of the entire industrial sector.

The 1982 debt crisis in which the Mexican government was unable to meet its foreign debt obligations was a primary cause of the economic challenges the country faced in the early to mid-1980’s.

Cont….Then President Miguel de la Madrid

took steps to open and liberalize the Mexican economy.

In 1986, General Agreement on Tariffs and Trade (GATT).

In November 1987, Framework of Principles and Procedures for Consultation Regarding Trade and Investment Relations.

In October 1989, The Understanding Regarding Trade and Investment Facilitation Talks.

Mexico’s gains from NAFTANAFTA has brought economic and social benefits

to the Mexican economy as a whole.NAFTA helped Mexican manufacturers to adopt to

U.S. technological innovations.NAFTA went into effect, the overall

macroeconomic volatility, or wide variations in the GDP growth rate, has declined in Mexico.

NAFTA may have supported the resolve of the Mexican government to continue economic reforms.

Mexico’s trade with the United States has growntrade balance shifted to a surplus

Cont… MORE EXPORTS• The value of Mexican goods exported

to the United States an increase of 437 percent.

• The United States exported $136.5 billion worth of goods to Mexico in 2007

MORE INVESTMENT• The United States is the largest

source of foreign direct investment (FDI) in Mexico,

Trade graph 1985-2007

Maquiladora plants are generally foreign-owned firms, many of which are subsidiaries of U.S.-headquartered multinational enterprises.

Maquiladora

History•  The Mexican maquiladora program,

implemented in 1965.• Free trade agreement for foreign

companies to bring materials into the country for manufacturing.

• The maquiladora program allowed foreign companies to enter Mexico with 100% of their own capital.

HistoryWhy were they created?Response to unemployment in

Mexico’s northern border region.The failure of the Bracero program in

1964.Maquiladora operations were

dedicated principally to the simple assembly of parts and components.

History• The program, initially started as an

emergency measure to reduce unemployment, transformed into a necessary program.

During the 1980s, the maquiladora a industry grew rapidly and became the main source of new jobs in Mexico and one of the leading generators of foreign exchange.

What attracted Maquiladoras?

Cheap labor Weak enforcement of environmental and labor laws

Maquiladora Facts

Working ConditionsWomen and child Exploitation.Environment: loosely enforced

Mexican environmental laws.

Maquiladora Facts

The minimum wage in Mexico is only $3.40 per day compared to $5.75 per hour in the U.S.

Maquiladora Benefits - Mexico• Maquiladoras create employment

opportunities and additional income in the border region.

• Exportation of maquiladora products brings needed foreign exchange into Mexico.

• Commercial deficit with the United States is reduced.

• Plants in Mexico that manufacture for export can temporarily import foreign components without payment of customs duties.

Win-Win Situation for USLaws of Maquiladora and NAFTA- favoring US.Mexico offers lower wage rates than many Asian countries.Low Cost production.More competitive in world market.No Import Duty.No environment pollution.

As far as NAFTA is concerned, it was more of a trade between India and US than other NAFTA members.

India’s trade with NAFTA

India Trade Continental Statistics-2013 (APPENDIX 1)

Source: http://www.infodriveindia.com/export-import/trade-statistics/commodities-group.aspx

India’s Export to US is 91 % and that of Canada and Mexico is less than 5 %

India’s Export to Export %

Canada 5%

USA 91%

Mexico 4%

India’s Import to

Import %

Canada 9%

USA 79%

Mexico 13%

India’s trade with US

India is currently 11th largest goods trading partner of USExports

India was the United States' 18th largest goods export market in 2013.

Top exports categories in 2013 were: Precious Stones (diamonds and gold) Aircraft , Machinery , Electrical Machinery, and Optic and Medical Instruments

Imports

India was the United States' 10th largest supplier of goods imports in 2013.

U.S. goods imports from India totaled $41.8 billion in 2013, up 3.2% ($1.3 billion) from 2012, and up 220% from 2003. U.S. imports from India account for 1.8% of overall U.S. imports in 2013.

The five largest import categories in 2013 were: Precious Stones (diamonds) Pharmaceutical Products Mineral Fuel (oil) Organic Chemicals and Miscellaneous Textile Articles

U.S. imports of agricultural products from India totaled $3.5 billion in 2013, the 5th largest supplier of Ag imports. 

India - Mexico

Crude oil is the major Mexican export to India besides fertilizers, iron & steel and engineering goods.

Besides Mexico’s own sizable market and investment-friendly policies, it is eminently placed in the region, with 44 FTAs, offering the strategic advantage of the world’s largest NAFTA market. Already Latin America’s largest trading nation, it is increasingly drawing large amounts of FDI from USA and elsewhere, and is fast emerging as a major manufacturing hub.

Mexico’s Per capita income is roughly one-third that of the US; income distribution remains highly unequal.

Items of Indian Export to MexicoMetalworking machines, steel mill

products, agricultural machinery, electrical equipment, car parts for assembly, repair parts for motor vehicle

Items of Import from Mexico to IndiaManufactured goods, oil and oil products,

silver, fruits, vegetables, coffee, cotton

Eighty percent of Mexico's exports go to US and Canada, with which Mexico is bound in NAFTA.

Latest DevelopmentThe growth of India's trade with Mexico(second

largest market of Latin America) is very steady.

India's exports were 2.95 billion dollars in 2012 increasing by 24% from 2.38bn in 2011

Crude oil imports in 2012 were 2.83 billion dollars (accounting for 88% of India's imports from Mexico) followed by electrical machinery and equipments, 242 m.

India was the eighth largest export destination of Mexico in 2012. Reliance was the importer of Mexican crude oil, as in the past several years.

The manufacturing sector is growing with a new vibrancy after having overcome the Chinese competition.

Many American and foreign companies have started production of manufactured goods in Mexico for the markets of US and Canada.

Mexico has become the fourth largest exporter of cars in the world after Germany, Japan and South Korea.

Given the positive prospects of Mexico in the coming years, India's trade with Mexico could reach 10 billion dollars by 2015.

ConclusionNAFTA has played an important role in the overall development of the three nations but is more of a Win-Win situation for US than Mexico and Canada. There is a need to revise policies under NAFTA so that Mexico as an Economy benefits, as currently they are being exploited by the US. NAFTA has also led to causalities like loss of jobs, migration, rising level of inequality and many others.

The Mexican economy did not grow as much as expected. Inequality and poverty have persisted. Slow wage growth for workers continues to harm domestic consumption and overall domestic growth.

Both labor and environmental standards are largely missing from NAFTA:

Unsafe working conditions in factories US-Mexico border ,environmental degradation in border towns where large populations have settled.

Mexican agricultural exports have grown more slowly than anticipated, largely due to competition from large agricultural enterprises located inside the United States and protected by US government subsidies.

Many had hoped that NAFTA would decrease immigration from Mexico to the United States by creating Mexican jobs. This has not been the case, with over 500,000 Mexican immigrants entering the US every year.

Technological advances have come slowly to Mexico thus sophisticated parts are manufactured elsewhere and shipped to Mexico for assembly only. This results in only a small part of the profit from these goods remaining in Mexico.

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