NAFTA (North American Free Trade Agreement)

NAFTA

- Free trade agreement between Canada, Mexico and the US - Established on jan 1st 1994 - Languages english, spanish, french - The worlds largest free trade agreement in terms of GDP - GDP of the 3 countries combined is over $20 trillion - This increased opportunities as it eliminated tariffs - The agreement is 2000 pages, eight sections, 22 chapters -It is the first times that there is a FTA between 2 large developed nations with an emerging market country

What does NAFTA do?

- Grants most favoured nation status ; all countries must give all include parties equal treatment - Eliminates tariffs on imports and exports - Resolve trait disputes (protect businesses from unfair practises)

Consequences of trump leaving NAFTA

- Hurt manufacturers - Affect on the US economy and cost of jobs - Mexico would be more affected by job loss and reduction of economic growth - Raised prices of imports for american consumers - Exports to both Mexico and Canada would increase

Changes Trump wants to make to NAFTA

- Increase the % of NAFTA components that a car must have for it to be exported/imported within the 3 countries. 62% of the parts of cars sold in N-America must come from the continent but this allows too many parts to come from Asia tax free. - American companies should be tied with American courts and implement their own dispute system - Make it easier for US telecom companies and banks to operate in other NAFTA countries

Benefits for members

- Increased the competitiveness of the 3 countries in the global marketplace - Allows members to compete with China and EU - Grocery prices went down (NAFTA lowers the cost of produce imported from Mexico and Canada) - Oil prices went down (US imported much of its oil from Canada and Mexico - Increase in imports of products Canada and Mexico have comparative advantages in. This increased exports in services for US

Two agreements that update the original NAFTA agreement

- The N- American Agreement on Environmental Cooperation : supports the enforcement of environmental laws - The N-American agreement on Labour Cooperation : protects working conditions

Problems

- US jobs were lost : labour is cheaper in Mexico - US wages were suppressed : workers were forced to choose to join a union or loose work, workers choose the plant. Without the union the workers had little or no bargaining power - Mexico farmers were out of business : Mexico lost 1.3 million jobs as companies exported to Mexico to reduce cost -Labour in Mexicos maquiladora program was cheap bc workers had no labour rights or health protection - Mexicos environment deteriorated : agricultural business in the country used more fertilisers and other chemicals due to competition. Rural farmers expanded into marginal land = deforestation

Trump on trade agreements

He is against trade agreements as he wants America to be on top an benefit more than other countries

What Mexico and Canada want

Mexico ; US should allow Mexican trucks on US roads. this was promised in the initial NAFTA agreement but was withdrawn by the US congress. Canada : US should end tariffs on its lumber and dairy products Both : increased access for business travellers. They will ask for inclusion of gender rights in the agreement.

Trump VS NAFTA

-Sept 1, 2017 he instructed aids to withdraw from the US trade - He has threatened to withdraw from NAFTA and hit Mexico with 35% tariff. - March 1st he announced 35% steel tariffs and 10% on aluminium - The deadline of this agreement is aimed to be july this year but the progress is slow with a constantly postponed deadline - March 5th 2018 a new sound of NAFTA negotiations concluded : Trump said that same day that they would exempt Canada and Mexico from steel tariffs if they would agree to a new NAFTA accord. - Trump advocated protectionism that does not work! Other countries would just retaliate. This would reduce US exports and increase import prices. Countries like China would increase trade with former US partners.

Importance of NAFTA to its Members

Canada : NAFTA produced significant net benefit to the country with long term productivity increasing in industries that experienced the deepest tariff cuts. Canada has seen a huge annual growth rates since 1993 Mexico : Agricultural exports increased and imports also. NAFTA brought the country only modest economic growth. Production of corn increased. Internal demand for corn increased beyond supply and imports have been needed. Increase in welfare and poverty fell in most globalisation affected regions in Mexico. US : Agricultural exports went up and trade tripled. While some jobs were lost to Mexico due to NAFTA, more would have been lost to China if not for NAFTA.