North American Free Trade Agreement GROUP 1 Guidotti

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 n 1982 → 1988 → 1990 → 1991 → 1992 → 1993 Discussion between U. S. &Mexico commenced U. S. &Canada Negotiation FTA signed of U. S. Mexico FTA began A fusion of the separate bilateral FTA between individual countries → Talks among NAFTA U. S. , Canada, established Mexico following A full-fledged trilateral → negotiation NAFTA ratified A gradual process of economic integration

Level of Integration Political Union Economic Union Common Market Customs Union Free Trade Area X NAFTA

Objective of NAFTA n Eliminate economic barriers n Facilitate free trade n Promote fair competition in the free trade area n Pursue an export-led growth strategy n Establish multilateral cooperation

Organizational Structure 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 n Equal treatment among investors of the Parties and due process n Arbitral mechanisms: ICSID, ICSID's Additional Facility Rules, UNCITRAL Rules n Chapter 19 Mechanism Request for Panel Review Panel established Extraordinary Challenge Committee (review process)

Organizational Structure NAFTA coordinators n Three senior trade department officials n Day-to-day management

Organizational Structure Working Groups/Committees n Objective: -Established to facilitate trade and investment -Ensure the effective implementation and administration of the NAFTA n Key Areas: -rules of origin, customs, agricultural trade and subsidies, standards, government procurement etc n 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 n Comprises the Canadian, U. S. and Mexican Sections n Responsible for the administration of the dispute settlement provisions n Provides assistance to the Commission and various non-dispute-related Committees/Working Groups

NAFTA’S Priority Issues 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 -Decrease in transaction costs, increase in access more trade more jobs and income this area market higher

NAFTA’S Priority Issues Sustainable development -environmental effects of growth n n Points of contention -Lax environmental laws of Mexico NAFTA side agreements: -North American Agreement on Environmental Cooperation (NAAEC)

NAFTA’S Priority Issues Labor standards n Cooperative programs and technical exchanges -e. g industrial relations, occupational safety and health, child labor, gender equality, and protection of migrant workers n 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 n 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 n Composed of private sector members from each Party, and two representatives of each Party

Performance Evaluation n Success to investors and financiers in all three countries n 3 aspects to be considered for the appraisal 1) Trade 2) Employment 3) Foreign Direct Investment (FDI)

Performance Evaluation n 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. n In reality, there always positive effects of exports (jobs increased) and negative effects of imports (jobs reduced).

1) Trade n U. S. -trade deficit accelerated after NAFTA n Mexico -trade surplus from increased market access for exports to U. S. -trade deficit is growing with the rest of the world. n Canada -increased volume of trade -per capita income actually declined

2) Employment n U. S. n Mexico n Canada -worsened labor market problems: lower wage for middle and low wage workers and growing income inequality. -lower unemployment rate but with deteriorating working conditions -upward redistribution of income and a decline in stable full-time employment

3) FDI n U. S. -not much increase in FDI n Mexico -$124 billion, 435% increase (10 yrs after NAFTA) n Canada -$202 billion, 354% increase (10 yrs after NAFTA) -Bank loans and other types of foreign financing funding in factories for export goods to the U. S.

Critical Views n Opposite results from NATFA promises on economic and social situation in all three countries n Each case of three countries 1) U. S. 2) Mexico 3) Canada

U. S. A n Huge job losses : 766, 030 from 1993 to 2000 n 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 U. S. total Net NAFTA job loss* 766, 030 State Net NAFTA job loss* 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 2000 Dollars Percent Jobs loss or gain 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 -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 Canada -Domestic exports Mexico

Mexico-worse economy Imports surged although achieve an improved trade surplus in 2000 due to increase in trade with the US Trade & current account balances worsen in 1998 -2000 + Rising value of the peso Fear that another financial crisis may occur in the near future

Mexico-Maquiladora Table 1 -3 Wages in Mexico, 1990 -99(1990=100) Year 1990 Minimum wage 100 Contractual wages Wages in manufacturing 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 n Contributes to most imports n Only 3% of exported goods in Mexico & 97% of exports occur in maquiladora sector n Hiring unskilled labor force ⇒ creating low quality jobs ⇒ losing purchasing power of minimum wage ⇒ inequality and low wages for the overall industry Illegal migration to the US (3% of Mexico’s national income sent by immigrant worker in the US)

Canada High inflow of foreign investment from the US in the form of bank loans & projects Overvalue d Canada dollar in the mid 1990 s & lost its value after NAFTA took effect to 2000 Promote FDI by creating a structural adjustment abiding by US style

Canada Helped to promote FD I by creating a structural adjustment abiding by the US style NAFTA Trade with the US has significantly grown but caused chaos in employment between import & export sector

Canada Private company increases parttime jobs, irregular workers & low wages Break down of the social safety net with insecure employment NAFTA aggravated the situation with deregulation, privatization & trade liberalization Government allows poor condition of Canadian workers & tax-cut Widens the gap of productivity between Canada & US

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