NAFTANAFTANorth American Free Trade North American Free Trade AgreementAgreement

Joseph Najar, Daniel Stanworth, Scott Smoot, Jessica Hatch, Marcus Cardon

AgendaAgenda

1. Background 1. Background

2. Current Situation 2. Current Situation

3. International Aspects 3. International Aspects

4. Special Problems 4. Special Problems

5. The Future 5. The Future

NAFTA BackgroundNAFTA Background

Adam Smith Adam Smith Wealth of NationsWealth of Nations One of the first to One of the first to

argue free trade. argue free trade. Even though it has Even though it has been accepted on a been accepted on a national level in national level in many places, many places, international free international free trade strugglestrade struggles

NAFTA BackgroundNAFTA Background

Free TradeFree Trade Currently being sought after in Currently being sought after in

several different forms of several different forms of economic unions:economic unions: Trade AreasTrade Areas Customs UnionsCustoms Unions Common MarketsCommon Markets Economic UnionsEconomic Unions

NAFTA BackgroundNAFTA Background

NAFTA stands for North America NAFTA stands for North America Free Trade Agreement and is a Free Trade Agreement and is a Trade AreaTrade Area

Trade AreasTrade Areas Unrestricted trade among Member Unrestricted trade among Member

nationsnations Does not allow free movement of Does not allow free movement of

factors of productionfactors of production No common external tariffsNo common external tariffs No economic unity (monetary and No economic unity (monetary and

fiscal)fiscal)

NAFTA BackgroundNAFTA Background

CanadaCanada Partly joined because America was Partly joined because America was

going whether or not Canada wasgoing whether or not Canada was Didn’t want to lose investment Didn’t want to lose investment

capitalcapital Isolate themselves from US Isolate themselves from US

ProtectionismProtectionism Mexico spent more than they Mexico spent more than they

thought!thought! US $325, while Japanese spend $300, US $325, while Japanese spend $300,

and Europe spends $200and Europe spends $200

NAFTA BackgroundNAFTA Background

Canada’s goals in negotiation:Canada’s goals in negotiation:1.1. Isolation from US protectionismIsolation from US protectionism

2.2.Gain further freedom of trade in Gain further freedom of trade in the USthe US

3.3.Maintain protection from Canadian Maintain protection from Canadian cultural industriescultural industries

4.4.Provide some insulation from US Provide some insulation from US trade remedy lawstrade remedy laws

NAFTA BackgroundNAFTA Background

MexicoMexico Joined mostly hoping for additional Joined mostly hoping for additional

investment capitalinvestment capital Hoped for up to $15 billion in the first Hoped for up to $15 billion in the first

yearyear Joined fearing exclusion from trade Joined fearing exclusion from trade

agreementsagreements

NAFTA BackgroundNAFTA Background

Now why the US?Now why the US? Gives them more power in relation Gives them more power in relation

to EU and other economic unionsto EU and other economic unions Opens economic opportunities in Opens economic opportunities in

MexicoMexico Even though US is strongest, free Even though US is strongest, free

trade is beneficial for all member trade is beneficial for all member nationsnations

Warmer political relationsWarmer political relations

The Current SituationThe Current SituationMarcus CardonMarcus Cardon

Trilateral Agreements/OrganizationsTrilateral Agreements/Organizations

North American Agreement on North American Agreement on Environmental Cooperation Environmental Cooperation (NAAEC)(NAAEC) Commission for Environmental Commission for Environmental

Cooperation (CEC)Cooperation (CEC)

North American Agreement on North American Agreement on Labor Cooperation (NAALC)Labor Cooperation (NAALC) Commission for Labor Cooperation Commission for Labor Cooperation

(CLC)(CLC)

Responsibilities of the FTCResponsibilities of the FTC

Supervising the implementation of Supervising the implementation of NAFTA NAFTA

Resolving disputes that may arise Resolving disputes that may arise regarding NAFTA’s interpretation or regarding NAFTA’s interpretation or applicationapplication

Supervising the work of the NAFTA Supervising the work of the NAFTA Secretariat and NAFTA committees Secretariat and NAFTA committees and working groups and working groups

Establishing additional committees Establishing additional committees and working groups as needed and working groups as needed

Secretariat SecretariesSecretariat Secretaries

Rafael Serrano—Secretary General of Rafael Serrano—Secretary General of the Mexico Secretariatthe Mexico Secretariat

Françoy Raynauld, Ph.D—Secretary of Françoy Raynauld, Ph.D—Secretary of the Canada Secretariatthe Canada Secretariat

Caratina L. Alston—Secretary Caratina L. Alston—Secretary Secretariat of the U.S., U.S. Secretariat of the U.S., U.S. Department of CommerceDepartment of Commerce

““We only deal with the administration We only deal with the administration of one very small portion of NAFTA. of one very small portion of NAFTA. The treaty’s impact on anything, The treaty’s impact on anything, whether it’s the economy or whether it’s the economy or Constitution or trade or anything like Constitution or trade or anything like that—I don’t deal with that. Any that—I don’t deal with that. Any comments on such things would comments on such things would have to come from the policy side, have to come from the policy side, which would be the USTR or which would be the USTR or someone here at the Department of someone here at the Department of Commerce, but it’s certainly not my Commerce, but it’s certainly not my role.”role.” Caratina AshtonCaratina Ashton

International AspectsInternational AspectsJessica HatchJessica Hatch

International AspectsInternational Aspects

Dispute resolution processDispute resolution process

Current disputesCurrent disputes

Success of NAFTASuccess of NAFTA

Dispute SettlementDispute Settlement

Initial disputes are directed to Initial disputes are directed to Committees and Working Committees and Working Groups for resolutionGroups for resolution

If necessary, problems are If necessary, problems are escalated to panel proceduresescalated to panel procedures

Dispute ClassificationsDispute Classifications

Chapter NineteenChapter Nineteen Countervailing duty and anti-Countervailing duty and anti-

dumpingdumping Chapter TwentyChapter Twenty

Interpretation or application of Interpretation or application of NAFTANAFTA

Chapter ElevenChapter Eleven InvestmentInvestment

Chapter FourteenChapter Fourteen Financial servicesFinancial services

Chapter NineteenChapter Nineteen

Countervailing duty and anti-dumpingCountervailing duty and anti-dumping Appeals of decisions made by Appeals of decisions made by

government officials to apply government officials to apply national lawsnational laws

Binational panel reviewBinational panel review

Most active sector of dispute structureMost active sector of dispute structure Currently over 25 active disputesCurrently over 25 active disputes

Chapter TwentyChapter Twenty Interpretation and application of Interpretation and application of

NAFTA principlesNAFTA principles Steps intended to resolve Steps intended to resolve

disputes by agreement, if disputes by agreement, if possiblepossible Begin with government-to-Begin with government-to-

government consultationsgovernment consultations If unresolved, a meeting of Free If unresolved, a meeting of Free

Trade Commission may be Trade Commission may be requestedrequested

If still unresolved, an arbitral panel If still unresolved, an arbitral panel may be selectedmay be selected

Panel RostersPanel Rosters

Rosters of possible individuals Rosters of possible individuals exist for each countryexist for each country Selected based on objectivity, Selected based on objectivity,

reliability, and sound judgmentreliability, and sound judgment

A roster exists for each dispute A roster exists for each dispute classificationclassification

Panel SelectionPanel Selection

Chapter NineteenChapter Nineteen Each party selects two members Each party selects two members

from their own countryfrom their own country The fifth member is from one of The fifth member is from one of

the two countries and generally the two countries and generally alternatesalternates

Chapter TwentyChapter Twenty Each party selects two members Each party selects two members

from the opposing countryfrom the opposing country The panel chair is selected by both The panel chair is selected by both

parties and may be from any of parties and may be from any of the countriesthe countries

Rules of ProcedureRules of Procedure

Very clear, stringent timelines Very clear, stringent timelines and rules are set for both and rules are set for both chapterschapters

Chapter Nineteen lasts no more Chapter Nineteen lasts no more than 315 daysthan 315 days

Chapter Twenty may take longer Chapter Twenty may take longer depending on hearing date setdepending on hearing date set

Chapter Nineteen Example: Chapter Nineteen Example: Softwood LumberSoftwood Lumber

Countervailing DutyCountervailing Duty Remanded to US Department of Remanded to US Department of

Commerce for changes in methodologyCommerce for changes in methodology Anti-dumpingAnti-dumping

Remanded to US Department of Remanded to US Department of Commerce for changes in methodologyCommerce for changes in methodology

Threat of InjuryThreat of Injury Remanded to International Trade Remanded to International Trade

CommissionCommission Threat of injury required to establish Threat of injury required to establish

CVD and AD policiesCVD and AD policies

Chapter Twenty Example:Chapter Twenty Example:Broom Corn BroomsBroom Corn Brooms

Dispute over interpretation of a Dispute over interpretation of a single clause:single clause: ““producers . . . of the like or producers . . . of the like or

directly competitive products”directly competitive products”

Panel recommended that the Panel recommended that the U.S. “bring its conduct into U.S. “bring its conduct into compliance with the NAFTA at compliance with the NAFTA at the earliest possible time.”the earliest possible time.”

Success as of 2005Success as of 2005

Real GDP Growth – 1994 to Real GDP Growth – 1994 to 2005:2005: U.S.: 48%U.S.: 48% Canada: 49%Canada: 49% Mexico: 40%Mexico: 40%

$2.2 billion in trilateral trade $2.2 billion in trilateral trade dailydaily

Trade among the nations Trade among the nations increased 173% increased 173% From $297 billion to $810 billionFrom $297 billion to $810 billion

Benefits to the U.S.Benefits to the U.S.

Exports to NAFTA partners grew Exports to NAFTA partners grew 113%113%

NAFTA partners account for 55% of NAFTA partners account for 55% of increase in agricultural exportsincrease in agricultural exports

Industrial production rose 49%Industrial production rose 49% 28% in prior period28% in prior period

36.2% increase in business sector 36.2% increase in business sector productivityproductivity

20.1% growth in jobs20.1% growth in jobs Average unemployment rate Average unemployment rate

dropped from 7.1% to 5.1%dropped from 7.1% to 5.1%

Benefits to CanadaBenefits to Canada

More than half of exports go to More than half of exports go to the U.S.the U.S.

Exports now account for over Exports now account for over 40% of GDP40% of GDP

Exports to U.S. increased by Exports to U.S. increased by 250%250%

86.6% of total exports go to 86.6% of total exports go to NAFTA partnersNAFTA partners

17.5% increase in jobs from pre-17.5% increase in jobs from pre-NAFTA levelsNAFTA levels

Benefits to MexicoBenefits to Mexico

37% difference between wages 37% difference between wages in export-related sectors and in export-related sectors and othersothers

Agricultural exports to U.S. Agricultural exports to U.S. increased by $5.7 billionincreased by $5.7 billion

Exports to Canada grew almost Exports to Canada grew almost 227%227%

Two-way trade with the U.S. has Two-way trade with the U.S. has grown more than 125%grown more than 125%

Productivity increased 55%Productivity increased 55%

Important NoteImportant Note

The official sites for NAFTA list all The official sites for NAFTA list all positive reviews for the past 12 positive reviews for the past 12 years.years.

Others claim these benefits may Others claim these benefits may have come from other changes in have come from other changes in the economythe economy

Plenty of information exists to Plenty of information exists to argue both sidesargue both sides

Special ProblemsSpecial ProblemsDaniel Stanworth  Daniel Stanworth 

Special Problems or DebatesSpecial Problems or Debates

1.1. Employment effectsEmployment effects

2.2. Mexico’s Suffering Agriculture Mexico’s Suffering Agriculture SectorSector

3.3. Environmental problems and Environmental problems and decreased standard of livingdecreased standard of living

Like any multinational treaty, NAFTA Like any multinational treaty, NAFTA has its pros and cons, its has its pros and cons, its cheerleaders and detractors. More cheerleaders and detractors. More than 10 years after the treaty was than 10 years after the treaty was signed, protests continue, especially signed, protests continue, especially by citizenry "south of the border." by citizenry "south of the border." NAFTA seems to favor North NAFTA seems to favor North America's big business over the America's big business over the needs of Latin America's indigenous needs of Latin America's indigenous peoples. While jobs may have been peoples. While jobs may have been created in Latin America, the pay is created in Latin America, the pay is generally low and available jobs are generally low and available jobs are far from home. The benefits appear far from home. The benefits appear to go to governments, rich land to go to governments, rich land owners, and large businesses. owners, and large businesses.

United States EmploymentUnited States Employment

United StatesUnited States Overall, 28 million Overall, 28 million

new jobs created new jobs created since 1994since 1994

Very small amount, Very small amount, if any, can be if any, can be directly attributed directly attributed to the creation of to the creation of NAFTANAFTA

United States EmploymentUnited States Employment

Heavy Debates on this issueHeavy Debates on this issue Clinton administration claimed Clinton administration claimed

an increase of 300,000 new an increase of 300,000 new jobs in because of NAFTA in jobs in because of NAFTA in 1999.1999.

EPI estimated that creation of EPI estimated that creation of NAFTA has resulted in net loss NAFTA has resulted in net loss of 440,000 US Jobsof 440,000 US Jobs

Their reasoning is because Their reasoning is because others are only looking at others are only looking at new exports and new exports and disregarding new imports.disregarding new imports.

Ross Perot and the “Giant Ross Perot and the “Giant Sucking Sound”Sucking Sound”

Canadian EmploymentCanadian Employment

2.3 million jobs 2.3 million jobs created in Canada created in Canada since NAFTAsince NAFTA

Increase of 17.5%Increase of 17.5% Very little debate Very little debate

on the on the employment employment effects of NAFTA effects of NAFTA in Canadain Canada

Mexican EmploymentMexican Employment

MexicoMexico Employment Employment

increased directly increased directly following NAFTA following NAFTA introduction, but has introduction, but has recently decreased. recently decreased.

Many new jobs were in Many new jobs were in the Maquiladora area’sthe Maquiladora area’s

Agriculture sector Agriculture sector specifically hit hardspecifically hit hard

Estimated 28,000 Estimated 28,000 small and med sized small and med sized businesses eliminated businesses eliminated due to low cost due to low cost producers. producers.

Environmental/Standard of living EffectsEnvironmental/Standard of living Effects

MaquiladoraMaquiladora - - is a factory that imports is a factory that imports materials and equipment on a duty-free and tariff-materials and equipment on a duty-free and tariff-free basis for assembly or manufacturing and then free basis for assembly or manufacturing and then re-exports the assembled product usually back to re-exports the assembled product usually back to

the originating country.the originating country. Maquiladora firms have approx. Maquiladora firms have approx.

doubled since NAFTAdoubled since NAFTA 2,143 to over 3,703 currently2,143 to over 3,703 currently

This is a problem for NAFTA This is a problem for NAFTA because Maquiladora’s are because Maquiladora’s are notorious for having terrible low-notorious for having terrible low-pay working conditions.pay working conditions.

A town about a mile from a A town about a mile from a

Maquiladora factoryMaquiladora factory

Maquiladora Working conditionsMaquiladora Working conditions

Women especially discriminated Women especially discriminated againstagainst

Average wage is $1.00 per hourAverage wage is $1.00 per hour Work 10-12 hours a dayWork 10-12 hours a day Compared to sweat shops of Compared to sweat shops of

ChinaChina Many are working to improve Many are working to improve

rights of Maquiladora workers.rights of Maquiladora workers.

Environmental ConditionsEnvironmental Conditions

Special side agreement in NAFTA to Special side agreement in NAFTA to calm environmentalists about toxic calm environmentalists about toxic waste around Maquiladora’s. waste around Maquiladora’s.

Did side agreement workDid side agreement work No enforcing powerNo enforcing power Different views of environmental quality.Different views of environmental quality. Many argue the pollution has worsened.Many argue the pollution has worsened. "NAFTA has intensified severe problems "NAFTA has intensified severe problems

of water and air pollution, hazardous of water and air pollution, hazardous wastes dumping and increased the wastes dumping and increased the incidence rates of certain diseases and incidence rates of certain diseases and birth defects in the border region." birth defects in the border region."

Environmental EffectsEnvironmental Effects

"We have no way to provide "We have no way to provide water, sewage, and sanitation water, sewage, and sanitation workers. Every year, we get workers. Every year, we get poorer and poorer even though we poorer and poorer even though we create more and more wealth." create more and more wealth." Ciudad Juarez, Mayor Gustavo Ciudad Juarez, Mayor Gustavo

Elizondo Elizondo

Mexico’s AgricultureMexico’s Agriculture US farmers are being US farmers are being

subsidized.subsidized. Mexico farmers do not Mexico farmers do not

receive subsidies, this…receive subsidies, this… Puts downward pressure on Puts downward pressure on

Mexican FarmersMexican Farmers Results in Dumping Results in Dumping

US Farmers selling below cost in US Farmers selling below cost in Mexico because they have already Mexico because they have already received subsidies. received subsidies.

Results in Unemployment and Results in Unemployment and Immigration to United StatesImmigration to United States

Some claim as many as 2 million Some claim as many as 2 million Mexican farmers are out of Mexican farmers are out of businessbusiness

Mexico’s AgricultureMexico’s Agriculture

Many claim dumping Many claim dumping is evident due to is evident due to Mexico’s imports of Mexico’s imports of U.S. agriculture U.S. agriculture productsproducts $3.6 billion in 1993$3.6 billion in 1993 $7.9 billion in 2003$7.9 billion in 2003 $8.5 billion in 2004$8.5 billion in 2004

U.S. farmers are U.S. farmers are better at the expense better at the expense of Mexican farmersof Mexican farmers

Mexico’s AgricultureMexico’s Agriculture Immigration from Immigration from

Mexican Farmers has Mexican Farmers has increased since increased since NAFTA.NAFTA. At least 4 million At least 4 million

Mexican immigrants in Mexican immigrants in the United States. the United States.

150,000+ per year150,000+ per year Many due to population Many due to population

growthgrowth A problem because A problem because

this goes directly this goes directly against one of the against one of the original claims of original claims of NAFTA. NAFTA.

The FutureThe FutureJoseph NajarJoseph Najar

The futureThe future

Reforms needed for NAFTA to Reforms needed for NAFTA to meet its goalsmeet its goals

Solving NAFTA’s most difficult Solving NAFTA’s most difficult problemsproblems

The prospects of NAFTA surviving The prospects of NAFTA surviving another decadeanother decade

Meeting goalsMeeting goals

GOAL: Enhance the economic GOAL: Enhance the economic well-being of its memberswell-being of its members

Main problem: Cross-border trade (non-Main problem: Cross-border trade (non-economic)economic)

Transportation routesTransportation routes Investment opportunitiesInvestment opportunities

Solving problemsSolving problems

International trades vs. local institutionsInternational trades vs. local institutions Rules and procedures for handling disputesRules and procedures for handling disputes

Surviving another decadeSurviving another decade

MaybeMaybe Bridging the gapBridging the gap Security and Prosperity Partnership of Security and Prosperity Partnership of

North America (SPP)North America (SPP) Blueprint for a further North American Blueprint for a further North American

CommunityCommunity