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NAFTA at 20: Overview and Trade Effects

M. Angeles Villarreal

Specialist in International Trade and Finance

Ian F. Fergusson

Specialist in International Trade and Finance

April 28, 2014

Congressional ResearchService

7-5700

w w w . c r s . g o v

R42965

http://www.crs.gov/http://www.crs.gov/

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N AF T A at 2 0 : Ov e rv iew and T ra d e Eff e cts

Congressional Research Service

Summary

The North American Free Trade Agreement (NAFTA) entered into force on January 1, 1994.The agreement was signed by resident !eorge ".#. $ush on %ecember 1&, 199', and aroed

by *ongress on Noember '+, 199. The NAFTA -mementation Act was signed into aw byresident #iiam J. *inton on %ecember /, 199 (.0. 1+1/'). The oera economic imactof NAFTA is difficut to measure since trade and inestment trends are infuenced by numerousother economic ariabes, such as economic growth, infation, and currency fuctuations. Theagreement may hae acceerated the trade iberai2ation that was aready ta3ing ace, but manyof these changes may hae ta3en ace with or without an agreement. Neertheess, NAFTA issignificant because it was the most comrehensie free trade agreement (FTA) negotiated at thetime and contained seera groundbrea3ing roisions. A egacy of the agreement is that it hassered as a temate or mode for the new generation of FTAs that the nited 5tates aternegotiated and it aso sered as a temate for certain roisions in mutiatera tradenegotiations as art of the ruguay 6ound.

The 11

th

*ongress faces numerous issues reated to internationa trade. *anada and 7e8ico arethe first and third argest .5. trading artners, resectiey. #ith the two countries articiatingin the negotiations to concude a Transacific artnershi (T) free trade agreement among thenited 5tates and 11 other countries, oicy issues reated to NAFTA continue to be of interestfor *ongress. -f an agreement is concuded, it coud affect the rues and mar3et accesscommitments goerning North American trade and inestment since NAFTA entered into force.A reated trade oicy issue in which the effects of NAFTA may be e8ored is the ossiberenewa of Trade romotion Authority (TA formery 3nown as :fasttrac3 authority;) toroide e8edited rocedures for the consideration of bis to imement trade agreements.

NAFTA was controersia when first roosed, mosty because it was the first FTA inoingtwo weathy, deeoed countries and a deeoing country. The oitica debate surrounding theagreement was diisie with roonents arguing that the agreement woud he generatethousands of

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Contents

-ntroduction...................................................................................................................................... 1

7ar3et =ening rior to NAFTA .................................................................................................... '

The .5.*anada Free Trade Agreement of 19/9...................................................................... '7e8ico>s reNAFTA Trade 0iberai2ation ?fforts ..................................................................

=eriew of NAFTA roisions...................................................................................................... @

6emoa of Trade $arriers ........................................................................................................ @5erices Trade 0iberai2ation .................................................................................................... &=ther roisions ........................................................................................................................ &NAFTA 5ide Agreements on 0abor and the ?nironment ........................................................ /

Trade Trends and ?conomic ?ffects ................................................................................................ 9

.5. Trade Trends with NAFTA artners ................................................................................ 1+=era Trade..................................................................................................................... 1+?nergy Trade -mications ................................................................................................ 11

Trade with *anada............................................................................................................. 1Trade with 7e8ico ............................................................................................................ 14NAFTA>s ?ffect on the .5. ?conomy .................................................................................... 14

.5. -ndustries and 5uy *hains .................................................................................... 1@.5.7e8ico Trade 7ar3et 5hares .................................................................................... 1/.5. and 7e8ican Foreign %irect -nestment ................................................................... 1/-ncome %isarity ............................................................................................................... 19

?ffect on *anada ..................................................................................................................... '+.5.*anada Trade 7ar3et 5hares .................................................................................... '+.5. and *anadian Foreign %irect -nestment .................................................................. ''

-ssues for *ongress ........................................................................................................................ ''

Transacific artnershi (T) .............................................................................................. '

6eguatory *ooeration........................................................................................................... '4roosas for %eeer 6egiona -ntegration ............................................................................. '@

Figures

Figure 1. .5. 7erchandise Trade with NAFTA artners 199'+1 .......................................... 11

Figure '. Nonetroeum Trade with NAFTA artners 199'+1 .............................................. 1'

Figure . To Fie -mort -tems from NAFTA artners ............................................................... 1

Figure 4. 7ar3et 5hare as ercentage of Tota Trade 7e8ico and the nited 5tates ................... 1/

Figure @. 7ar3et 5hare as ercentage of Tota Trade *anada and the nited 5tates ................... '1

Tables

Tabe 1. .5. Trade in Behices and Auto arts 199 and '+1.................................................... 1C

Tabe A1. .5. 7erchandise Trade with NAFTA artners ........................................................... '&

Tabe A'. .5. riate 5erices Trade with NAFTA artners...................................................... '/

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Tabe A. .5. Trade with NAFTA artners by 7a

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Congressional Research Service 1

Introduction

The North American Free Trade Agreement (NAFTA) has been in effect since January 1, 1994.5igned by resident !eorge ".#. $ush on %ecember 1&, 199', and aroed by *ongress on

Noember '+, 199, the NAFTA -mementation Act was signed into aw by resident #iiam J.*inton on %ecember /, 199 (.0. 1+1/'). NAFTA continues to be of interest to *ongressbecause of the imortance of *anada and 7e8ico as .5. trading artners, and aso because of theimications NAFTA has for .5. trade oicy. This reort roides an oeriew of NorthAmerican trade iberai2ation before NAFTA, an oeriew of NAFTA roisions, the economiceffects of NAFTA, and oicy considerations.

The 11th

*ongress, in both its egisatie and oersight caacities, faces numerous issues reatedto internationa trade. The =bama Administration has made the roosed Transacific

artnershi (T) free trade agreement one of its to trade riorities.1

The nited 5tates, *anada,and 7e8ico, aong with nine other countries, are articiating in the T negotiations. -fnegotiations continue to moe forward, it may affect the rues and mar3et access commitments

goerning North American trade since NAFTA entered into force. A reated trade oicy issue inwhich the effects of NAFTA may be e8ored is the ossibe renewa of Trade romotionAuthority (TA formery 3nown as :fasttrac3 authority;) to roide e8edited rocedures for

the consideration of bis to imement trade agreements.'

7any trade oicy e8erts gie credit to free trade agreements (FTAs) for enhancing economicin3ages between countries, creating more efficient roduction rocesses, increasing theaaiabiity of owerriced consumer goods, and imroing iing standards and wor3ing

conditions.

=thers hae bamed FTAs for disaointing emoyment trends and for not haing

done enough to imroe cometitieness, abor standards, and enironmenta conditions abroad.4

A egacy of NAFTA is that it has sered as a mode for other FTAs that the nited 5tates aternegotiated and aso for mutiatera negotiations. NAFTA initiated a new generation of trade

agreements in the #estern "emishere and other arts of the word, infuencing negotiations inareas such as mar3et access, rues of origin, inteectua roerty rights, foreign inestment,disute resoution, wor3er rights, and enironmenta rotection. The nited 5tates currenty hasFTAs with '+ countries. As with NAFTA, these trade agreements hae often been suorted orcritici2ed on simiar arguments reated to

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Market Opening Prior to NAFTA

The concet of economic integration in North America was not a new one at the time NAFTAnegotiations started. -n 1911, resident #iiam "oward Taft signed a reciroca trade agreement

with *anadian rime 7inister 5ir #ifred 0aurier. After a bitter eection, *anadians re

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E ?8anded the si2e of federa goernment rocurement mar3ets aaiabe forcometitie bidding from suiers of the other country. -t did not incude subfedera goernment rocurement.

E roided for a binding binationa ane to resoe disutes arising from theagreement (a *anadian insistence).

E rohibited most imort and e8ort restrictions on energy roducts, incudingminimum e8ort rices. This was carried forth in NAFTA ony with regard to*anada.5. energy trade.

7any of these roisions were incororated into, or e8anded in, NAFTA. "oweer, the FTAdid not incude, or secificay e8emted, some issues that woud aear in NAFTA for the firsttime. These incude

E Intellectual property rights (IPR). The FTA did not contain anguage oninteectua roerty rights. NAFTA was the first FTA to incudemeaningfu disciines on -6.

E

Cultural exemption. -t e8emted the broadcasting, fim, and ubishing sectors.This e8emtion continues in NAFTA.

E Transportation services and investment in the *anadian energy sector weree8cuded from the FTA. These e8cusions were imited in NAFTA.

E Trade remedies. Neither the FTA nor NAFTA ended the use of trade remedyactions (antiduming, counteraiing duty, or safeguards) against the other.This was a 3ey *anadian goa of the FTA. NAFTA did create a searate disutesettement mechanism to ad

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measures that began in the mid19/+s shifted 7e8ico from one of the word>s most rotectedeconomies into one of the most oen. 7e8ico now has 1' FTAs inoing 44 countries.

/

7e8ico>s first stes in oening its cosed economy focused on reforming its imort substitutionoicies in the mid19/+s. Further reforms were made in 19/C when 7e8ico became a member of

the !enera Agreement on Tariffs and Trade (!ATT). As a condition of becoming a !ATTmember, for e8ame, 7e8ico agreed to ower its ma8imum tariff rates to @+G. 7e8ico wentfurther by reducing its highest tariff rate from 1++G to '+G. 7e8ico>s tradeweighted aerage

tariff fe from '@G in 19/@ to about 19G in 19/9.9

Athough 7e8ico had been owering trade and inestment restrictions since 19/C, the number ofremaining barriers for .5. e8orts remained high at the time of the NAFTA negotiations.7e8ico reuired imort icenses on '+ roducts from the nited 5tates, affecting about &G ofthe aue of .5. e8orts to 7e8ico. rior to its entry into !ATT, 7e8ico reuired imorticenses on a imorts. At the time of the NAFTA negotiations, about C+G of .5. agricuturae8orts to7e8ico reuired imort icenses. 7e8ico aso had numerous other nontariff barriers, such as:officia imort rices,; an arbitrary customs auation system that raised duty assessments.

1+

For 7e8ico, an FTA with the nited 5tates reresented a way to oc3 in the reforms of its mar3etoening measures from the mid19/+s to transform 7e8ico>s formery statist economy after the

deastating debt crisis of the 19/+s.11

The combination of the seere economic imact of the debtcrisis, ow domestic saings, and an increasingy oeraued eso, ut ressure on the 7e8icangoernment to adot mar3etoening economic reforms and boost imorts of goods and caita toencourage more cometition in the 7e8ican mar3et. An FTA with the nited 5tates was a way ofboc3ing domestic efforts to ro bac3 7e8ican reforms, eseciay in the oiticay sensitieagricuture sector. NAFTA heed defect rotectionist demands of industria grous and secia

interest grous in 7e8ico.1'

=ne of the main goas of the 7e8ican goernment was to increaseinestment confidence in order to attract greater fows of foreign inestment and sur economicgrowth. 5ince the entry into force of NAFTA, 7e8ico has used the agreement as a basic mode

for other FTAs 7e8ico has signed with other countries.1

For the nited 5tates, NAFTA reresented an oortunity to e8and the growing e8ort mar3et tothe south, but it aso reresented a oitica oortunity for the nited 5tates and 7e8ico to wor3

together in resoing some of the tensions in the biatera reationshi.14

An FTA with 7e8icowoud he .5. businesses e8and e8orts to a growing mar3et of amost 1++ miion eoe..5. officias aso recogni2ed that imorts from 7e8ico woud i3ey incude higher .5. contentthan imorts from Asian countries. -n addition to the trade and inestment oortunities that

/5ee *65 6eort 64+&/4,#e$ico%s Free Trade Agreements, by 7. Angees Biarrea.

9nited 5tates -nternationa Trade *ommission (5-T*), The "i&ely Impact on the 'nited tates of a Free Trade

Agreement ith #e$ico! ubication '@, February 1991.1+

-bid., . 1'.11!ary *yde "ufbauer and Jeffrey J. 5chott,NAFTA Revisited Achievements and Challenges! -nstitute for

-nternationa ?conomics, =ctober '++@.1'

-bid.1

7e8ico has a tota of 1' free trade agreements inoing 44 countries. These incude agreements with mostcountries in the #estern "emishere incuding the nited 5tates, *anada, *hie, *oombia, *osta 6ica, Nicaragua,eru, !uatemaa, ? 5aador, and "onduras. -n addition, 7e8ico has negotiated FTAs outside of the #estern"emishere and entered into agreements with -srae, Jaan, and the ?uroean nion.14

"ufbauer and 5chott,NAFTA Revisited Achievements and Challenges, . '.

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NAFTA reresented, an agreement with 7e8ico woud be a way to suort the growth of oiticauraism and a deeening of democratic rocesses in 7e8ico. NAFTA aso resented anoortunity for the nited 5tates to sur the sow rogress on the ruguay 6ound of mutiatera

trade negotiations.1@

Overview of NAFTA Provisions

At the time that NAFTA was imemented, the .5.*anada FTA was aready in effect and .5.tariffs on most 7e8ican goods were ow. NAFTA oened u the .5. mar3et to increased7e8ican imorts and the 7e8ican mar3et to the nited 5tates and *anada, creating a singemar3et with 4++ miion eoe and accounting for onethird of the word>s outut of

aro8imatey H1 triion er year.1C

5ome of the 3ey NAFTA roisions incuded tariff andnon tariff trade iberai2ation, rues of origin, serices trade, foreign inestment, inteectuaroerty rights rotection, goernment rocurement, and disute resoution. 0abor andenironmenta roisions were incuded in searate NAFTA side agreements.

Removal of Trade Barriers

The mar3et oening roisions of the agreement graduay eiminated a tariffs and most nontariff barriers on goods roduced and traded within North America oer a eriod of fifteen yearsafter it entered into force. 5ome tariffs were eiminated immediatey, whie others were hasedout in arious schedues of fie to fifteen years. .5. imortsensitie sectors, such as gassware,

footwear, and ceramic tie, receied onger haseout schedues.1&

NAFTA roided the otion

of acceerating tariff reductions if the countries inoed agreed.1/

The agreement incudedsafeguard roisions in which the imorting country coud increase tariffs, or imose uotas insome cases, on imorts during a transition eriod if domestic roducers faced serious in

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5ome of the more significant changes too3 ace in the te8ties, aare, automotie, andagricutura industries. ?imination of trade barriers in these 3ey industries are summari2ed beow.

E Textiles and !pparel Industries.NAFTA hased out a duties on te8tie and

aare goods within North America meeting secific NAFTA rues of origin'1

oer a 1+year eriod. rior to NAFTA, C@G of .5. aare imorts from7e8ico entered dutyfree and uotafree, and the remaining @G faced anaerage tariff rate of 1&.9G. 7e8ico>s aerage tariff on .5. te8tie and aare

roducts was 1CG, with duties as high as '+G on some roducts.''

E !utomotive Industry.NAFTA hased out 7e8ico>s restrictie auto decree. -thased out a .5. tariffs imorts from 7e8ico and 7e8ican tariffs on .5. and*anadian roducts as ong as they met the rues of origin reuirements of C'.@GNorth American content for autos, ight truc3s, engines and transmissions andC+G for other ehices and automotie arts. 5ome tariffs were eiminatedimmediatey, whie others were hased out in eriods of @ to 1+ years. rior toNAFTA, the nited 5tates assessed the foowing tariffs on imorts from7e8ico '.@G on automobies, '@G on ightduty truc3s, and a tradeweighted

aerage of .1G for automotie arts. 7e8ican tariffs on .5. and *anadianautomotie roducts were as foows '+G on automobies and ight truc3s, and1+'+G on auto arts.

'

E !griculture.NAFTA set out searate biatera underta3ings on crossbordertrade in agricuture, one between *anada and 7e8ico, and the other between7e8ico and the nited 5tates. As a genera matter, .5.*anada FTA roisions

continued to ay on trade with *anada.'4

6egarding .5.7e8ico agricuturetrade, NAFTA eiminated most nontariff barriers in agricutura trade, either

through their conersion to tariffrate uotas (T6I>s)'@

or ordinary tariffs.Tariffs were hased out oer a eriod of 1@ years with sensitie roducts such assugar and corn receiing the ongest haseout eriods. Aro8imatey onehafof

.5.7e8ico agricutura trade became dutyfree when the agreement went intoeffect. rior to NAFTA, most tariffs, on aerage, in agricutura trade between thenited 5tates and 7e8ico were fairy ow though some .5. e8orts to 7e8icofaced tariffs as high as 1'G. "oweer, aro8imatey onefourth of .5.agricutura e8orts to 7e8ico (by aue) were sub

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Services Trade Liberalization

NAFTA serices roisions estabished a set of basic rues and obigations in serices tradeamong artner countries. The agreement e8anded on initiaties in the .5.*anada FTA and theruguay 6ound of mutiatera trade negotiations to create internationayagreed disciines on

goernment reguation of trade in serices.'& The agreement granted serices roiders certainrights concerning nondiscriminatory treatment, crossborder saes and entry, inestment, andaccess to information. "oweer, there were certain e8cusions and reserations by each country.These incuded maritime shiing (nited 5tates), fim and ubishing (*anada), and oi and gas

driing (7e8ico).'/

Athough NAFTA iberai2ed certain serice sectors in 7e8ico, articuaryfinancia serices, which rofoundy atered its ban3ing sector, other sectors were barey

affected.'9

-n teecommunications serices, NAFTA artners agreed to e8cude roision of, butnot the use of, basic teecommunications serices. NAFTA granted a :bi of rights; for theroiders and users of teecommunications serices, incuding access to ubicteecommunications serices connection to riate ines that refect economic costs and aaiabeon a fatrate ricing basis and the right to choose, urchase, or ease termina euiment best

suited to their needs.+

"oweer, NAFTA did not reuire arties to authori2e a erson of another

NAFTA country to roide or oerate teecommunications transort networ3s or serices.NAFTA did not bar a arty from maintaining a monooy roider of ubic networ3s or serices,such as Teme8, 7e8ico>s dominant teecommunications comany.

1

Other Provisions

-n addition to mar3et oening measures through the eimination of tariff and nontariff barriers,NAFTA incororated numerous other roisions, incuding foreign inestment, inteectuaroerty rights (-6), disute resoution, and goernment rocurement.

E #oreign Investment.NAFTA remoed significant inestment barriers, ensuredbasic rotections for NAFTA inestors, and roided a mechanism for the

settement of disutes between inestors and a NAFTA country. NAFTAroided for :nondiscriminatory treatment; for foreign inestment by NAFTA

arties in certain sectors of other NAFTA countries.'

The agreement incudede8icit countrysecific iberai2ation commitments and e8cetions to nationatreatment. ?8emtions from NAFTA inestment roisions incude the energysector in 7e8ico in which the 7e8ican goernment resered the right to rohibitforeign inestment. -t aso incuded e8cetions reated to nationa security and to

*anada>s cutura industries.

'&The !oernments of *anada, the nited 7e8ican 5tates, and the nited 5tates of America,,escription of the

Proposed North American Free Trade Agreement, August 1', 199', . ''4.

'/ nited 5tates !enera Accounting =ffice (!A=), :North American Free Trade Agreement Assessment of 7a

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E IPR.NAFTA buit uon the thenongoing ruguay 6ound negotiations thatwoud create the Trade 6eated Asects of -nteectua roerty 6ights (T6-5)agreement in the #ord Trade =rgani2ation and on arious e8istinginternationa inteectua roerty treaties. The agreement set out secificenforceabe commitments by NAFTA arties regarding the rotection of

coyrights, atents, trademar3s, and trade secrets, among other roisions.

E $ispute Settlement Procedures.NAFTA>s roisions for reenting andsetting disutes were buit uon roisions in the .5.*anada FTA. NAFTAcreated a system of arbitration for resoing disutes that incuded initiaconsutations, ta3ing the issue to the NAFTA Trade *ommission, or goingthrough arbitraane roceedings.

4NAFTA incuded searate disute settement roisions for

addressing disutes oer antiduming and counteraiing duty determinations.

E %overnment Procurement. NAFTA oened u a significant ortion of federagoernment rocurement in each country on a nondiscriminatory basis tosuiers from other NAFTA countries for goods and serices. -t contains some

imitations for rocurement by stateowned enterrises.

@

NAFTA Side Agreements on Labor and the Environment

The NAFTA te8t did not incude abor or enironmenta roisions, which was a mas consideration. 5ome oicy ma3ers caed foradditiona roisions to address numerous concerns about abor and enironmenta issues,secificay in 7e8ico. =ther oicy ma3ers argued that the economic growth generated by theFTA woud increase 7e8ico>s resources aaiabe for enironmenta and wor3er rightsrotection. "oweer, congressiona concerns from oicy ma3ers, as we as concerns from aborand enironmenta grous, remained strong.

5horty after he began his residency, resident *inton addressed abor and enironmentaconcerns by

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rocesses that, as a ast resort, may imose monetary assessments and sanctions to address a

arty>s faiure to enforce its aws.&

NAFTA mar3ed the first time that abor and enironmentaroisions were associated with an FTA. For many, it reresented an oortunity for cooeratingon enironmenta and abor matters across borders and for estabishing a new tye of reationshi

among NAFTA artners./

-n addition to the two triatera side agreements, the nited 5tates and 7e8ico entered into a

biatera side agreement to NAFTA on border enironmenta cooeration.9

-n this agreement,the two goernments committed to cooerate on deeoing enironmenta infrastructurero

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?stimating the economic imact of trade agreements is a daunting tas3 due to a ac3 of data andimortant theoretica and ractica matters associated with generating resuts from economicmodes. -n addition, such estimates roide an incomete accounting of the tota economic

effects of trade agreements.4

Numerous studies suggest that NAFTA achieed many of the

intended trade and economic benefits.44

=ther studies suggest that NAFTA has come at a cost to

.5. wor3ers.4@

This has been in 3eeing with what most economists maintain, that tradeiberai2ation romotes oera economic growth among trading artners, but that there are bothwinners and osers from ad

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The economic downturns in '++1 and '++9, for e8ame, i3ey ayed a roe in the decine inboth .5. e8orts to and imorts from *anada and 7e8ico, as shown in #igure &.

#igure &. '.S. (erchandise Trade with !#T! Partners*&++,-

/&,

(biions of nomina.5. doars)

700

600

500

400

300

200

100

0

-100

-200 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

U.S. Expors U.S. !"pors #ra$e %alance

Source**omied by *65 using trade data fromthe .5. -n

terna

tionaTrade *ommission>s-n

teractieTa

riffand Trade %ata #eb, at httMMdatawe b.us itc .go.

Energy Trade Implications

Trade in etroeum roducts is a centra comonent of .5. trade with both *anada and 7e8ico.Aro8imatey 1CG of tota trade with NAFTA artners is in etroeum roducts. *anada and7e8ico accounted for 4+G (H1+/.' biion) of tota .5. crude oi imorts (H'&.@ biion) in'+1. *anada is the eading suier of crude etroeum oi to the nited 5tates, foowed by5audi Arabia and 7e8ico. -f etroeum roducts are e8cuded from trade statistics, the nited5tates has had a trade surus with NAFTA artners in merchandise trade since '+11, as shown in#igure . -n '+1, the trade surus in nonetroeum roducts was an estimated H9.' biion.

U.S.

$in

Billions

http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/

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#igure ,.Top #ive Import Items from !#T!

Partners

("T5 4digitee)

120

100 Crude petroleum oil

80

Motor vehicles

60

Motor vehicle parts

40 Non-crude

petroleum oilproducts

20 Motor vehicles forthe transport ofgoods

0

2007 2008 2009 2010 2011 2012 201

Source**omied by *65 using trade data fromthe 5-T* at httMMdatawe b.us itc .go.

otes* 5tatisticsin this figureare deriedfrom the "armoni2ed Tariff5chedue ("T5) of the nited 5tates atthe 4digitee. The "T5 comrisesa hierarchicastructure fordescribinga goods in trade forduty, uota, andstatisticauroses. This structure is based uon the internationa"armoni2ed *ommodity %escritionand*oding 5ystem ("5), administeredby the #ord*ustoms =rgani2ationin $russes. 5ee httMMdataweb.u sitc.go.

Trade with Canada

.5. trade with *anada more than doubed in the first decade of the FTAMNAFTA (19/91999)from H1CC.@ biion to HC'.' biion. .5. e8orts to *anada increased from H1++.' biion in199 to H++.' biion in '+1, an increase of '++G. .5. imorts from *anada increased fromH11+.9 biion in 199 to H'.1 biion in '+1, aso a '++G increase (see Tale !-&). Afterfaing off during the recession of '++1, tota trade with *anada reached a new high of H@9C.@biion in '++/, ony to fa ictim to the financia crisis in '++9 when it fe to H4'9.C biion. -n

'+11, tota trade had returned to '++/ ees at H@9&. biion. The nited 5tates has run a trade

deficit with *anada since the FTAMNAFTA era, increasing from H9.9 biion in 19/9 to H&4.Cbiion in '++/, before faing bac3 during the '++9 recession. -n '+1, the trade deficit with*anada was H1.9 biion. #hie the increase in the trade deficit with *anada has been attributedto the FTAMNAFTA, the increase has been uneen and may aso be attributed to other economic

factors, such as energy rices.4/

4/Trade statistics in this aragrah are deried from data from the .5. -nternationa Trade *ommission>s -nteractie

Tariff and Trade %ata #eb, atht tMMd a ta w e b.usit c . g o.

Billions

US$

http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/

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Trade with Mexico

The nited 5tates is, by far, 7e8ico>s eading artner in merchandise trade. .5. e8orts to7e8ico increased raidy since NAFTA, increasing from H41.C biion in 199 to H''C.' biionin '+1, an increase of 444G (see Tale !-& in !ppendix !). .5. imorts from 7e8ico

increased from H9.9 biion in 199 to H'/+.@ biion in '+1, an increase of C+G. The tradebaance with 7e8ico went from a surus of H1.& biion in 199 to a deficit of HC1.4 biion in

'+1'. -n '+1, the trade deficit with 7e8ico decreased to H@4. biion. Fourteen ercent of tota.5. merchandise e8orts were destined for 7e8ico and 1'G of .5. merchandise imorts came

from 7e8ico.49

-n serices, the nited 5tates had a surus of H1'. biion in '+1' in trade with7e8ico. .5. riate serices e8orts to 7e8ico increased from H1+.4 biion in 199 to H'&.4biion in '+1'. .5. riate serices imorts from 7e8ico increased from H&.4 biion in 199 toH1@.1 biion in '+1', as shown in Tale !-.

@+

NAFTAs Effect on the U.S. Economy

The oera net effect of NAFTA on the .5. economy has been reatiey sma, rimariy

because tota trade with both 7e8ico and *anada was eua to ess than @G of .5. !% at thetime NAFTA went into effect. $ecause many, if not most, of the economic effects came as aresut of .5.7e8ico trade iberai2ation, it is aso imortant to ta3e into account that twowaytrade with 7e8ico was eua to an een smaer ercentage of !% (1.4G) in 1994. Thus, anychanges in trade atterns woud not be e8ected to be significant in reation to the oera .5.economy. A ma

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economy. 5ome of the findings incude the foowing data inadeuacies at the industry eemade it difficut to isoate the effects of NAFTA on absoute trade fows .5. trade withNAFTA artners increased more raidy than .5. trade with the rest of the word the share of.5. e8orts in the 7e8ican mar3et increased by a higher ercentage than the share of totaimorts from other countries industries such as autos, chemicas, te8ties, and eectronics

benefitted by achieing synergies across the North American mar3et.

@4

U.S. Industries and Supply Chains

7any economists and other obserers hae credited NAFTA with heing .5. manufacturingindustries, eseciay the .5. auto industry, become more gobay cometitie through the

deeoment of suy chains.@@

7uch of the increase in .5.7e8ico trade, for e8ame, can beattributed to seciai2ation as manufacturing and assemby ants hae reoriented to ta3eadantage of economies of scae. As a resut, suy chains hae been increasingy crossing

nationa boundaries as manufacturing wor3 is erformed whereer it is most efficient.@C

Areduction in tariffs in a gien sector not ony affects rices in that sector but aso in industries thaturchase intermediate inuts from that sector. The imortance of these direct and indirect effects

is often oeroo3ed, according to one study. The study suggests that these in3ages offerimortant trade and wefare gains from free trade agreements and that ignoring these inutoututin3ages coud underestimate otentia trade gains.

@&

7uch of the trade between the nited 5tates and its NAFTA artners occurs in the conte8t ofroduction sharing as manufacturers in each country wor3 together to create goods. Thee8ansion of trade has resuted in the creation of ertica suy reationshis, eseciay aongthe .5.7e8ico border. The fow of intermediate inuts roduced in the nited 5tates ande8orted to 7e8ico and the return fow of finished roducts greaty increased the imortance of

the .5.7e8ico border region as a roduction site.@/

.5. manufacturing industries, incudingautomotie, eectronics, aiances, and machinery, a rey on the assistance of 7e8icanmanufacturers. =ne reort estimates that 4+G of the content of .5. imorts from 7e8ico and'@G of the content of .5. imorts from *anada are of .5. origin. -n comarison, .5. imortsfrom *hina are said to hae ony 4G .5. content. Ta3en together, goods from 7e8ico and*anada reresent about &@G of a the .5. domestic content that returns to the nited 5tates asimorts.

@9

NAFTA was instrumenta in the integration of the North American auto industry, whiche8erienced some of the most significant changes in trade foowing the agreement. .5. autoarts roducers may use inuts and comonents roduced by another NAFTA artner to assembe

(...continued)

Kear 6eiew,; ubication +4@, June 199&.@4

-bid.@@

"ufbauer and 5chott,NAFTA Revisited!. '+'1.@C -bid., . '1.@&

0oren2o *aiendo and Fernando arro,0stimates of the Trade and 5elfare 0ffects of NAFTA!Nationa $ureau of

?conomic 6esearch, Noember '+1', . 1@.@/

!ordon ". "anson,North American 0conomic Integration and Industry "ocation!Nationa $ureau of ?conomic6esearch, June 199/.@9

*hristoher ?. #ison, 5or&ing Together 0conomic Ties 1eteen the 'nited tates and #e$ico! #oodrow #ison-nternationa *enter for 5choars, Noember '+11, . 1@.

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arts, which are then shied to another NAFTA country where they are assembed into a ehice

that is sod in any of the three NAFTA countries.C+

NAFTA roisions consisted of a hasedeimination of tariffs and the gradua remoa of many nontariff barriers to trade. -t roided foruniform country of origin roisions, enhanced rotection of inteectua roerty rights, adotedess restrictie goernment rocurement ractices, and eiminated erformance reuirements on

inestors from other NAFTA countries. NAFTA estabished the remoa of 7e8ico>s restrictietrade and inestment oicies and the eimination of .5. tariffs on autos and auto arts.

After NAFTA>s entry into force, .5. trade in ehices and auto arts increased raidy. 7e8icobecame a more significant trading artner in the .5. motor ehice mar3et as .5. auto e8ortsto 7e8ico increased '4@G whie imorts increased @/&G (see Tale &). 7e8ico>s share in .5.tota trade in motor ehices increased from @G to 1/G between 199 and '+1, whie the sharefrom *anada and other countries decreased. -n auto arts, 7e8ico>s share increased from '1G to

CG oer the same eriod. -n '+1, 7e8ico was the eading suier of automotie goods for thenited 5tates, accounting for '/G (H&C. biion) of tota .5. motor ehice and auto arts

imorts. *anada ran3ed second with '1G (H@/.+ biion) of the .5. mar3et share in '+1.C1

Tale &. '.S.Trade in0ehicles and !uto Parts*&++, and/&,

(biions of .5. doars)

&++, /&,1 Change

&++,-/&&

2xports Imports Total 2xports Imports Total 2xports Imports

(exico

Behices +.' .& .9 4./ 4+.1 44.9 '++G 9/4G

arts &. &.4 14.& '1.1 C.' @&. 1/9G /9G

Tota &.@ 11.1 1/.C '@.9 &C. 1+'.' '4@G @/&G

Canada

Behices /.' 'C.& 4.9 'C.' 44.@ &+.& ''+G C&G

arts 1/.' 1+. '/.@ 'C.@ 1.@ 4+.+ 4CG 1G

Tota 'C.4 &.+ C.4 @'.& @/.+ 11+.& 1++G @&G

3orld

Behices 1/.9 C.+ /1.9 &.1 1&@.& '4/./ '/&G 1&9G

arts .4 /. &1.& C+.C 1++.4 1C1.+ /1G 1C'G

Tota @'. 1+1. 1@.C 1.& '&C.1 4+9./ 1@CG 1&G

Source**omiedby *65 using trade data from the 5-T* at h ttMM dataweb.us itc.go.For '+1, :ehices;consistsofitemsunder the North American -ndustria*assification 5ystem (NA-*5)number C1 and :arts; consists of

itemsunder NA-* number C.

ote* TheNA-*5is the standard used by Federastatisticaagencies in cassifying businessestabishments fortheurose of coecting, anay2ing, andubishing statisticadata reated to the .5.business economy.

C+$usiness 6oundtabe,NAFTA A ,ecade of roth!. /.

C17erchandise trade statistics in this aragrah are deried from data from the .5. -nternationa Trade *ommission>s

-nteractie Tariff and Trade %ata #eb, athtt MMd a ta w e b.usit c . g o.

http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/

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A number of studies hae found that NAFTA has brought economic and socia benefits to the7e8ican economy as a whoe, but that the benefits hae not been eeny distributed throughout

the country.C'

The agreement aso had a ositie imact on 7e8ican roductiity. A '+11 #ord$an3 study found that the increase in trade integration after NAFTA had a ositie effect on

stimuating the roductiity of 7e8ican ants.C

7ost ostNAFTA studies on economic effects

hae found that the net oera effects on the 7e8ican economy tended to be ositie but modest.#hie there hae been eriods of ositie and negatie economic growth in 7e8ico after theagreement was imemented, it is difficut to measure recisey how much of these economicchanges were attributed to NAFTA. A #ord $an3 study assessing some of the economic imactsfrom NAFTA on 7e8ico concuded that NAFTA heed 7e8ico get coser to the ees ofdeeoment in the nited 5tates and *anada. The study states that NAFTA heed 7e8icanmanufacturers adat to .5. technoogica innoations more uic3y i3ey had ositie imactson the number and uaity of

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suorts and subsidies.C/

These reforms coincided with NAFTA negotiations and continuedbeyond the imementation of NAFTA in 1994. The uniatera reforms in the agricuturasector ma3e it difficut to searate those effects from the effects of NAFTA.

U.S.-Mexico Trade Market Shares7e8ico reies heaiy on the nited 5tates as an e8ort mar3et this reiance has diminished erysighty oer the years. The ercentage of 7e8ico>s tota e8orts going to the nited 5tatesdecreased from /G in 199 to &/G in '+1' (see #igure 4). -n addition, its share of the .5.mar3et has ost ground since '++ when *hina surassed 7e8ico as the secondeading suierof .5. imorts. The nited 5tates is osing mar3et share of 7e8ico>s imort mar3et. $etween199 and '+1', the .5. share of 7e8ico>s imorts decreased from &/G to @@G. *hina is7e8ico>s secondeading source of imorts.

#igure 4. ar5et Share as Percentage of Total Trade*exico and the 'nitedStates

(199'+1')

Source*?conomist-nteigence nit, from-7F -nternationaFinancia 5tatistics.

otes* 6eresents e8orts to and imortsfrom other country as ercentage ofcountry>s tota trade. 5tatisticsrior to 199 are not aaiabe.

U.S. and Mexican Foreign Direct Investment

Foreign direct inestment (F%-) has been an integra art of the economic reationshi betweenthe nited 5tates and 7e8ico for many years, eseciay after NAFTA. Twoway inestment

C/7e8ico>s uniatera agricutura reform measures remoed goernment subsidies and rice contros in the

agricutura sector that resuted in rising rices for tortias. Tortias are the basic stae for the 7e8ican diet and anecessity of the oor. For this reason, higher rices had a greater effect on the oor than on midde and higherincome7e8icans. 7e8ico aso reformed its Agrarian 0aw. 0ands that had been distributed to e:idos or community ruragrous foowing the 191+ reoution gained the right to riati2e. This ed to more efficient roduction rocesses,eseciay in Northern states.

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increased raidy after the agreement went into effect. The nited 5tates is the argest source ofF%- in 7e8ico. The stoc3 of .5. F%- in 7e8ico increased from H1@.' biion in 199 to H1+1.+biion in '+1', a @C4G increase (see Tale !-4 in !ppendix !). The fows of F%- hae beenaffected by other factors oer the years, with higher growth during the eriod of economice8ansion during the ate 199+s, and sower growth in recent years, ossiby due to the economic

downturn caused by the '++/ goba financia crisis andMor the increased ioence in 7e8ico.7e8ican F%- in the nited 5tates, whie substantiay ower than .5. inestment in 7e8ico, hasaso increased raidy, from H1.' biion in 199 to H14.9 biion in '+1', an increase of oer1+++G (5ee Tale !-4).

C9

#hie 7e8ico>s uniatera trade and inestment iberai2ation measures in the 19/+s and eary199+s contributed to the increase of .5. F%- in 7e8ico, NAFTA roisions on foreigninestment may hae heed to oc3 in 7e8ico>s reforms and increase inestor confidence.NAFTA heed gie .5. and *anadian inestors nondiscriminatory treatment of theirinestments as we as inestor rotection in 7e8ico. Neary haf of tota F%- inestment in7e8ico is in the manufacturing industry.

Income Disparity

=ne of the main arguments in faor of NAFTA at the time it was being roosed by oicyma3ers was that the agreement woud imroe economic conditions in 7e8ico and narrow theincome disarity between 7e8ico and the nited 5tates and *anada. 5tudies that hae addressed

the issue of economic conergence&+

hae noted that economic conergence in North America hasfaied to materiai2e. =ne study states that NAFTA faied to fufi the romise of cosing the7e8ico.5. deeoment ga and that this was artiay due to the ac3 of deeer forms of

regiona integration or cooeration between 7e8ico and the nited 5tates.&1

The study contendsthat domestic oicies in both countries, aong with underying geograhic and demograhicreaities, contribute to the continuing disarities in income. The authors argue that neither 7e8iconor the nited 5tates adoted comementary oicies after NAFTA that coud hae romoted amore successfu regiona integration effort. These oicies coud incude education, industriaoicies, and more inestment in border and transortation infrastructure. The authors aso notethat other deeoments, such as increased security aong the .5.7e8ico border after the5etember 11 terrorist attac3s, hae made it much more difficut for the moement of goods andserices across the border and for imroing regiona integration. They argue that the twocountries coud cooerate on oicies that foster conergence and economic deeoment in

7e8ico instead of increasing security and :buiding was.;&'

A #ord $an3 study states that NAFTA brought economic and socia benefits to the 7e8icaneconomy, but that it is not enough to he narrow the disarities in economic conditions between

C9Foreign direct inestment data in this section is deried from data from the $ureau of ?conomic Anaysis

onine database at htt MM w w w .b ea . g o .&+

?conomic conergence can be broady defined as a narrowing of the disarities in the economic ees and themanufacturing erformances of articuar countries or their regions. The goa of the theory of economic conergence isto research and anay2e the factors infuencing the rates of economic growth and rea er caita income in countries.&1

6obert A. $ec3er and !erardo ?suie,NAFTA! Trade! and ,evelopment! #or3ing aer 1++, *enter for .5.7e8ican 5tudies (5an %iego), the 7e8ico -nstitute of the #oodrow #ison *enter (#ashington %*), ? *oegio dea Frontera Norte (Ti

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7e8ico and the nited 5tates.&

-t contends that 7e8ico needs to inest more in education,innoation and infrastructure, and in the uaity of nationa institutions. The study aso states thatincome conergence between a 0atin American country and the nited 5tates is imited by thewide differences in the uaity of domestic institutions, in the innoation dynamics of domesticfirms, and in the s3is of the abor force. #hie NAFTA had a ositie effect on wages and

emoyment in some 7e8ican states, the wage differentia within the country increased as a resutof trade iberai2ation.&4

Another study aso notes that the abiity of 7e8ico to imroe economicconditions deends on its caacity to imroe its nationa institutions, adding that 7e8icaninstitutions did not imroe significanty more than those of other 0atin American countries since

NAFTA went into effect.&@

Effect on Canada

As noted earier, the .5.*anada FTA came into effect on January 1, 19/9. Thus, tradeiberai2ation between the two countries was we underwayDor aready cometedDby the timeof the imementation of NAFTA. This section summari2es the effect of trade iberai2ation fromboth agreements on *anada.

From the *anadian ersectie, the imortant conseuence of the FTA may hae been what didnot haen, that is, that many of the fears of oening u trade with the nited 5tates did not come

to ass. *anada did not become an economic aendage or :@1st

state; as many had feared. -t didnot ose contro oer its water or energy resources its manufacturing sector was not gutted.6ather, as one *anadian commentator remar3ed, :free trade heed *anada to grow u, to turn itsface out to the word, to embrace its future as a trading nation, RandS to get oer its chronic sense

of inferiority.;&C

"oweer, some hoes for the FTA, for e8ame, that it woud be a catayst forgreater roductiity in *anadian industry, aso hae not come to ass.

U.S.-Canada Trade Market Shares

The nited 5tates is the number one urchaser of *anadian goods and suier of imorts to*anada. *anada>s share of its e8orts going to the nited 5tates steadiy increased during the19/+s, from C+.CG in 19/+ to &+.&G in 19/9, the first year of the FTA. *anada>s ercentage oftota e8orts to the nited 5tates continued to increase, reaching /&.&G in '++'. The reatieimortance of the aue of .5. and *anadian trade with each other, howeer, has been faing inrecent years. 5ince '++', this ercentage has steadiy faen bac3 to &4.@G in '+1'. The .5.share of *anada>s tota imorts, which reached a ea3 of &+.+G in 19/, toed out at C/.&Gduring the free trade era and has been steadiy droing eer since to a ow of @+.CG in '+1' (see#igure 6).

&0ederman, 7aoney, and 5erOn,"essons from NAFTA for "atin America and the Cari//ean! The #ord $an3,

'++@.&4

-bid.&@

#iiam ?astery, Norbert Fiess, and %anie 0ederman, :NAFTA and *onergence in North America "igh?8ectations, $ig ?ents, 0itte Time,;0conom;a! Fa '++.&C

John -bbitson, :After '@ Kears, FreeTrade %ea with .5. "as "eed *anada !row ,; The lo/e and #ail,5etember '9, '+1'.

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Traditionay, *anada was the argest urchaser of .5. e8orts and suier of .5. imortshoweer, shares of both ea3ed before the free trade era. *anada urchased '.@G of .5.e8orts in 19/& and euaed that figure in '++@, but it has since faen off to 1/.9G in '+1'.*anada traditionay was the argest suier of .5. imorts, ea3ing at '+.CG in 19/4, reachinga NAFTA high of '+.1G in 199C, but has decined thereafter to 14.4G in '+1'. *hina disaced

*anada as the argest suier of .5. imorts in '++&.

#igure 6. ar5et Share as Percentage of Total Trade*Canada and the 'nitedStates

(19/+'+1')

Source*?conomic -nteigence nit, from-7F -nternationaFinancia 5tatistics.

ote* 6eresents e8orts to and imorts from other country as ercentage ofcountry>stotatrade.

The comosition of trade has aso changed. *anada initiay entered a manufacturing recessionafter the concusion of the FTA as branch ants of .5. comanies set u behind the *anadiantariff wa were abandoned. "oweer, more internationay cometitie manufacturing sectorsthried as ong as the *anadian doar (nic3named the oonie for the soaring oon ictured on itsreerse) was reatiey chea. From a ow oint of a *anadian doar worth 5H+.C@ in '++', theoonie reached arity in '++&, and has hoered around the arity oint unti '+1 before siding toa recent 5H+.9'. The areciation has been attributed to the boom in *anada>s natura resourcesDoi and gas disaced motor ehices as *anada>s argest e8ort to the nited 5tates in'++@. The :great recession; and the woes of the integrated North American auto sector aso too3

a to on *anadian manufacturing.

For some adocates in *anada, free trade was meant to aeiate the ongterm abor roductiityga between the nited 5tates and *anada. =en cometition was seen as forcing *anadianindustry to be more roductie. -n much of the free trade era, this ga coud be accounted for bythe ow aue of the *anadian doar. As adding caita euiment (often urchased from thenited 5tates) was reatiey more e8ensie than hiring e8tra wor3ers, the atter was often

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emoyed. The areciation of the *anadian doar has made additiona caitai2ation more

attractie, but abor roductiity recenty remained ony at &'G of .5. ees.&&

The reatieyow roductiity ees of *anadian industry, as we as its reatiey ow inestments in researchand deeoment (6%), and reatiey ower e8enditures on information technoogy, are seenas threatening to *anadian ongterm cometitieness, and remain of concern to *anadian oicy

ma3ers, desite eading the organi2ation of ?conomic *ooeration and %eeoment>s ran3ing ofthe ouation with ostsecondary education.&/

U.S. and Canadian Foreign Direct Investment

Twoway inestment has aso increased mar3edy during the free trade era, both in terms of stoc3and fow of inestment. The nited 5tates is the argest singe inestor in *anada with a stoc3 ofF%- into *anada reaching H@1.@ biion in '+1', u from a stoc3 of HC9.9 biion in 199 (seeTale !-4). .5. inestment reresents neary @1.@G of the tota stoc3 of F%- in *anada fromgoba inestors. .5. F%- fows into *anada aeraged H.'/ biion in the fie years rior to theFTA, and actuay fe to an aerage of H1.& biion in the first si8 years of the FTA, mainyattributed to diestments of .5.owned branch ants in *anada. "oweer, .5. fows into

*anada increased mar3edy to an aerage of H14.9 biion during the years 199@ to '+1'.&9

Thestoc3 of .5. F%- is now euiaent to 1/G of the aue of *anadian !%, in contrast to 1G atthe beginning of the FTA.

#hie *anada is not the argest inestor in the nited 5tates, the nited 5tates was the argestdestination for *anadian F%- in '+1' with a stoc3 of H''@. biion, an increase from H'C.C

biion in 19//./+

Aro8imatey 4+.&G of *anadian F%- was inested in the nited 5tates in'+1'. *anadian F%- fows into the nited 5tates annuay aeraged H'. biion in fie yearsrior to the FTA, and an annua aerage of H1./ biion during the FTA years, but increased to

an annua aerage of H9.9 biion from 199@ to '+1'./1

These trends highight the changing iewof F%- among *anadians, from one that coud be considered fearfu or hostie to F%- as ehicesof foreign contro oer the *anadian economy, to one that is more wecoming of new

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negotiated, such as those with *oombia, anama, eru, and 5outh Lorea, incude commitmentsthat go beyond NAFTA. -f agreement is reached on a T, *anada and 7e8ico may hae toadhere to stronger and more enforceabe abor and enironmenta roisions, stronger -6roisions, as we as some issues that were not addressed in detai in the NAFTA, such asdisciines on stateowned enterrises.

Regulatory Cooperation

oicy ma3ers may consider issues on how the nited 5tates can imroe cooeration with itsNorth American neighbors in the areas of trade, transortation, cometitieness, economicgrowth, and security enhancement. The nited 5tates, *anada, and 7e8ico hae made effortssince '++@ to increase cooeration on these issues through arious endeaors, most notaby byarticiating in triatera summits 3nown as the North American 0eaders 5ummits. The mostrecent 5ummit too3 ace on February 19, '+14, in Touca, 7e8ico. resident $arac3 =bama metwith 7e8ican resident ?nriue eVa Nieto and *anadian rime 7inister 5tehen "arer todiscuss the economic webeing of the region education initiaties energy and cimate change

citi2en security and regiona, goba, and sta3ehoder outreach./4

After the first North American 0eaders> 5ummit on 7arch ', '++@ in #aco, TP, the threecountries agreed on enhancing reguatory cooeration through the former initiatie 3nown as the5ecurity and roserity artnershi of North America (5). The main goa was to increase and

enhance roserity in the nited 5tates, *anada, and 7e8ico through reguatory cooeration./@

The =bama Administration has affirmed its commitment to continue ast efforts on NorthAmerican cooeration but under a different aroach from the 5 initiatie. #hie these effortshae sered as mechanisms to increase communications on issues of mutua interest, their roehas been imited because there are no binding agreements.

The former 5 initiatie eoed to other efforts ursued by the =bama Administration forreguatory cooeration, which hae incuded searate biatera endeaors. For e8ame, in 7ay

'+1+, the nited 5tates and 7e8ico reeased the %ecaration *oncerning Twentyfirst *entury$order 7anagement and, in %ecember '+11, the nited 5tates and *anada announced the$eyond the $order Action an A 5hared Bision for erimeter 5ecurity and ?conomic*ometieness. -n February '+1', the nited 5tates and 7e8ico announced the "igh0ee6eguatory *ooeration *ounci ("06**) to he aign reguatory rincies, an effort simiar tothe .5.*anada 6eguatory *ooeration *ounci. -n 7arch '+1', the %efense 7inisters of thethree countries met in =ttawa, *anada, for the first eer :Triatera 7eetings of North American%efense 7inisters; to increase cooeration on nationa security issues.

5ome critics of North American triatera cooeration contend that the efforts are an attemt tocreate a common mar3et or economic union in North America. =thers contend that ast effortsunder the 5 were contributing to the creation of a socaed :NAFTA 5uerhighway; that

woud in3 the nited 5tates, *anada, and 7e8ico with a :suercorridor.;

/C

roonents of North

/4The #hite "ouse, =ffice of the ress 5ecretary, Fact heet 8ey ,elivera/les for the 2+*< North American "eaders

ummit! February 19, '+14./@

The 5 was endorsed by a three countries, but it was not a signed agreement or treaty and contained no egaybinding commitments or obigations. Athough the 5 buit uon the e8isting trade and economic reationshi ofthe three countries, it was distinct and searate from NAFTA./C

5ee for e8ame, ociety for American overeignty, atht t MMw w w . a m e ri ca n so . org.

http://www.americansov.org/http://www.americansov.org/http://www.americansov.org/http://www.americansov.org/

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about such otions based on the increasing interdeendence among NAFTA artners and commoninterests concerning the future of the region.

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Appendix A. U.S. Merchandise Trade with

NAFTA Partners

Tale !-&. '.S. (erchandise Trade with !#T!Partners

(biions of nomina.5. doars)

Canada (exico Total !#T!

7ear 2xports Imports

Trade

"alance 2xports Imports

Trade

"alance 2xports Imports

Trade

"alance

199 1++.' 11+.9 1+.& 41.C 9.9 1.& 141./ 1@+./ 9.+

1994 114. 1'/.9 14.C @+./ 49.@ 1. 1C@.1 1&/.4 1.

199@ 1'C.+ 14@.1 19.1 4C. C1.& 1@.4 1&'. '+C./ 4.@

199C 1'.C 1@C.@ '.9 @C./ &.+ 1C.' 1/9.4 ''9.@ 4+.1

199& 1@+.1 1C/.1 1/ &1.4 /@.9 14.@ ''1.@ '@4.+ '.@

199/ 1@4.' 1&4./ '+.C &9.+ 94.& 1@.& '.' 'C9.@ C.

1999 1C.9 19/. 4.4 /&.+ 1+9.& ''.& '@+.9 +/.+ @&.1

'+++ 1&C.4 ''9.' @'./ 111.& 1@.9 '4.' '//.1 C@.1 &&.+

'++1 1C.& '1&.+ @. 1+1.@ 11.4 '9.9 'C@.' 4/.4 /.'

'++' 1C+./ '1+.C 49./ 9&.@ 14.& &.' '@/. 4@. /&.+

'++ 1C9.@ ''4.' @4.& 9&.@ 1/.1 4+.C 'C&.+ C'. 9@.

'++4 1/&.& '@@.9 C/.' 11+./ 1@@./ 4@ '9/.@ 411.& 11.'

'++@ '11.4 '/&.9 &C.@ 1'+.+ 1&+.' @+.' 1.4 4@/.1 1'C.&

'++C '+. +.4 &.1 14.' 19/. C4.1 C4.@ @+1.& 1&.'

'++& '4/.4 1.1 C4.& 1C.@ '1+./ &4. /4.9 @'.9 19.+

'++/ 'C+.9 @.C &4.& 1@1.@ '1@.9 C4.4 41'.4 @@1.@ 19.1

'++9 '+4.& ''4.9 '+.' 1'9.+ 1&C.@ 4&.@ .& 4+1.4 C&.&

'+1+ '4/.' '&C.@ '/. 1C4. ''9.& C@.4 41'.@ @+C.' 9.&

'+11 '/+./ 1C.@ @.& 19&.@ 'C.1 C@.C 4&/. @&9.C 1+1.

'+1' '91./ '4.' '.4 '1C. '&&.& C1.4 @+/.1 C+1.9 9./

'+1 ++.' '.1 1.9 ''C.' '/+.@ @4. @'C.4 C1'.@ /C.1

Source**omied by *65 using trade data fromthe .5. -nternationaTrade *ommission>s-nteractieTariffand Trade %ata #eb, at httMMdatawe b.us itc .go.

http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/

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Tale !-. '.S. Private Services Trade with !#T!Partners

(biions of nomina.5. doars)

Canada exico Total !#T!

7ear 2xports Imports

ServicesTrade

"alance 2xports Imports

ServicesTrade

"alance 2xports Imports

ServicesTrade

"alance

199 1&.+ 9.1 &.9 1+.4 &.4 .+ '&.4 1C.@ 1+.9

1994 1&.' 9.9 &. 11. &.9 .4 '/.@ 1&./ 1+.&

199@ 1&.9 11.+ C.9 /.& &.9 +./ 'C.C 1/.9 &.&

199C 19.@ 1'.4 &.1 9.4 /.9 +.@ '/.9 '1. &.C

199& '+.@ 1.& C./ 1+./ 9.9 +.9 1. '.C &.&

199/ 19.4 1@.+ 4.4 11.& 9./ 1.9 1.1 '4./ C.

1999 ''.& 1C.' C.@ 14.1 9.4 4.& C./ '@.C 11.'

'+++ '4.C 1&.9 C.& 1@.@ 1+./ 4.& 4+.1 '/.& 11.4

'++1 '4.4 1&.4 &.+ 1C.4 1+.4 C.+ 4+./ '&./ 1.+

'++' '@.+ 1/.+ &.+ 1&.4 11.C @./ 4'.4 '9.C 1'./

'++ '&. 19.C &.& 1/.' 1'.1 C.1 4@.@ 1.& 1./

'++4 '9.@ '+.& /./ 19.' 1.C @.C 4/.& 4. 14.4

'++@ '.C ''.+ 1+.C ''.4 14.' /.' @@.+ C.' 1/./

'++C &.C '.' 14.4 '.& 14.C 9.1 C1. &./ '.@

'++& 4'.@ '@.+ 1&.@ '4.9 1@.' 9.& C&.4 4+.' '&.'

'++/ 44.9 '@.1 19./ '@.9 1@.@ 1+.4 &+./ 4+.C +.'

'++9 4.1 ''.9 '+.' ''.C 1.C 9.+ C@.& C.@ '9.'

'+1+ @'.@ 'C.@ 'C.+ '4.4 1.C 1+./ &C.9 4+.1 C./

'+11 @/.4 '/.4 +.+ '@.C 1.9 11.& /4.+ 4'. 41.&

'+1' C1.' '9./ 1.4 '&.4 1@.1 1'. //.C 44.9 4.&

Source**omied by *65 using data fromthe $ureau of ?conomicAnaysis onine database athtt MMwww .bea .g o.

http://www.bea.gov/http://www.bea.gov/http://www.bea.gov/http://www.bea.gov/http://www.bea.gov/http://www.bea.gov/http://www.bea.gov/http://www.bea.gov/http://www.bea.gov/http://www.bea.gov/

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Tale !-,. '.S.Trade with !#T! Partners y (a8orProduct Category*

/&,

(biions of nomina.5. doars)

'.S. 2xports '.S. Imports

!#T!Partner

9eading Items(!IC 4-digit level) 0alue

9eading Items(!IC 4-digit level) 0alue

*anada 7otor ehicearts 'C.@ =iand gas /&.C

7otor ehices 'C.' 7otor ehices 44.@

etroeumand coaroducts 14.9 etroeumand coaroducts 1/.&

Agricuture and constructionmachinery

11.9 7otor ehicearts 1.@

=ther generaurose machinery 9.@ Nonferrous metaand rocessing 1+./

A =ther '11.' A =ther 1@&.+

Totae8orts to *anada ++.' Totaimortsfrom *anada '.1

7e8ico 7otor ehicearts '1.1 7otor ehices 4+.1

etroeumand coaroducts 19. 7otor ehicearts C.'

*omuter euiment 14./ =iand gas '.+

5emiconductorsand othereectroniccomonents

1.+ *omuter euiment 14./

$asic chemicas 1+.1 Audioand ideo euiment 1./

A other 14&.9 A other 14.C

Tota?8orts to 7e8ico ''C.' Tota-morts from 7e8ico '/+.@

Source**omied by *65 using trade data fromthe .5. -nternationaTrade *ommission>s-nteractieTariffand Trade %ata #eb, at httMMdatawe b.us itc .go.

otes* The North American -ndustria *assification 5ystem (NA-*5)is the standard used by federastatisticaagencies in cassifying businessestabishments for the urose of coecting, anay2ing, andubishing statisticadata reated to the .5. businesseconomy.

http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/http://dataweb.usitc.gov/

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Tale !-4. '.S. #oreign $irect Investment Positions with Canada and

(exico

(199'+1' historicacost basisRmiions of .5. doarsS)

7ear

Canadian #$I

in the '.S.

'.S. #$I in

Canada

exican #$I

in the '.S.

'.S. #$I in

(exico

199 4+,& C9,9'' 1,'44 1@,''1

1994 41,'19 &4,''1 ',+C9 1C,9C/

199@ 4@,C1/ /,49/ 1,/@+ 1C,/&

199C @4,/C /9,@9' 1,C41 19,@1

199& C@,1&@ 9C,C'C ,1++ '4,+@+

199/ &',C9C 9/,'++ ',+@@ 'C,C@&

1999 9+,@@9 119,@9+ 1,999 &,1@1

'+++ 114,+9 1',4&' &,4C' 9,@'

'++1 9',4'+ 1@',C+1 C,C4@ @',@44

'++' 9',@'9 1CC,4& &,/'9 @C,+

'++ 9@,&+& 1/&,9@ 9,+'' @C,/@1

'++4 1'@,'&C '14,91 &,@9' C,/4

'++@ 1C@,CC& '1,/C ,@9@ &,C/&

'++C 1C@,'/1 '+@,14 @,1+ /',9C@

'++& '+1,9'4 '@+,C4' /,4&/ 91,+4C

'++/ 1C/,&4C '4C,4/ /,4'+ /&,44

'++9 1//,94 'C@,'C 11,111 /','/C

'+1+ 1//,94 '/9,@@ 11,'C& /4,'//

'+11 '1+,/C4 1/,9C4 1,&C 91,4+'

'+1' ''@,1 @1,4C+ 14,// 1+1,++

Source**omied by *65 using data fromthe $ureau of ?conomicAnaysis onine database athtt MMwww .bea .g o.

http://www.bea.gov/http://www.bea.gov/http://www.bea.gov/http://www.bea.gov/http://www.bea.gov/http://www.bea.gov/http://www.bea.gov/http://www.bea.gov/http://www.bea.gov/http://www.bea.gov/

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Appendix B. Mexicos Protectionist Trade Policies

Prior to NAFTA

Summary of exico:s Protectionist Policies Prior to !#T!

For decades rior to NAFTA 7e8icoreied on imort substitutionoicies, restrictionson foreign inestment, and acontroed e8change rate to he fosterdomestic growth and to rotect itseffroma erceiedris3of foreigndomination.

State-;wned 2nterprises (S;2s). 7e8ico had a strong state resence riorto NAFTA. %uring the ate19@+sand 19C+s, the number of stateowned enterrises in 7e8ico amostdoubed from 144 to '&'. $y 19/', the numberof5=?5had increased to 1,1@@. 7e8ico>seconomic reforms and diestitureof the state owned sector that occurredduring the eriod of19/ to 199 decreased the number of5=?s to '@/. $y the end of'++, the number of5=?sdroed to '1+.

Import 9icenses. 7e8ico had imorticense reuirements on most, if not a, 7e8ican imorts.The goernmentbegan to hase these out in the mid19/+s. $y the timeNAFTA negotiationsstarted, imorticenseswere reuiredon ony'+ roducts ofthe neary1',+++ itemsin the 7e8ican tariffschedue.-n agricuturagoods, C+G of.5.e8orts to 7e8ico reuiredimorticensesor faced other nontariffbarriers.There was asoa ac3 oftransarency

ofrocedures through which e8orters to 7e8ico coud ay for the roer icense,cert

ificate,or

test.

#oreign Investment Restrictions. 7e8ico>srestrictie0aw to romote 7e8ican -nestmentand 6eguateForeign-nestmentwas in effectat the timeof NAFTA negotiations,though 7e8icohad started iberai2ingsome restrictionsin the mid19/+s. -n 1991, &G of7e8ican economicactiitywas not oen to 1++G foreign inestmentownershi.

!uto Industry Import Sustitution Policy (!uto $ecrees). 7e8ico had a restrictieimortsubstitutionoicythat began in the 19C+s through a series of7e8ican Auto %ecrees in which the goernment sought to suy theentire7e8ican mar3et through domesticayroducedautomotiegoods. The decrees estabishedimorttariffsashigh as '@G on automotiegoods and had high restrictionson foreign auto roduction in 7e8ico. The decrees

rohibitedimortsoffinishedehices imosedhigh domesticcontentreuirementson foreign manufacturersroducing cars in 7e8ico issuede8ort reuirementsin which a certain amount ofe8orts was reuired for eerydoarof imorts. The goernment issued the fina decree in 19/9, after

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Author Contact Information

7. Angees Biarrea5eciaist in -nternationa Trade and Financea ia rrea X c r s . oc.g o, &+'1

-an F. Fergusson5eciaist in -nternationa Trade and Financeif erg u s s on X cr s . oc.g o , &499&

mailto:avillarreal@crs.loc.govmailto:avillarreal@crs.loc.govmailto:ifergusson@crs.loc.govmailto:ifergusson@crs.loc.govmailto:avillarreal@crs.loc.govmailto:ifergusson@crs.loc.govmailto:ifergusson@crs.loc.gov