North American Free Trade Agreement
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Dictionary:
NAFTA (năf'tə) ![]() |
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| Investment Dictionary: North American Free Trade Agreement - NAFTA |
A trade agreement between Canada, the United States and Mexico that encourages free trade between these North American countries.
Investopedia Says:
The agreement, implemented on January 1, 1994, is based on the premise that removing as many tariffs as possible between these North American countries will increase trade within the region and benefit each country's economy.
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| Marketing Dictionary: NAFTA (North American Free Trade Agreement) |
Commitment between Canada, Mexico, and the United States to facilitate cross border movement of goods and services and to protect intellectual property rights. NAFTA became effective January 1, 1994. NAFTA was modeled on "most favored nation" policies. NAFTA was agreed upon to enhance participants' competitiveness in global markets in a manner that protects the environment and labor rights. Presidential candidate Ross Perot, and other opponents of NAFTA, predicted the agreement would send too many U.S. Jobs to Mexico.
| Business Dictionary: North American Free Trade Agreement (Nafta) |
Law passed in 1993. Affects trade, investment, and social conscience (environment, labor abuses, retraining). NAFTA is to completely end U.S. And Mexican tariffs and quotas on imports and agricultural products mostly over the mid-1990s, with some requiring 15 years from 1993 to phase out. Applies only to goods made from labor and materials originated within the countries; other imports are acceptable only if they are substantially transformed within the United States, Mexico, or Canada. Major commodities affected are automobiles, textiles and apparel, and agriculture.
| Insurance Dictionary: North American Free Trade Agreement (Nafta) of 1993 |
Agreement that eliminates tariffs among the United States, Canada, and Mexico over a 15-year period. Approximately 65% of United States agricultural and industrial exports would be eligible for duty-free entry into Mexico and Canada, either on an immediate basis or within five years. This could very well expand insurance operations both south and north of the border.
| Small Business Encyclopedia: North American Free Trade Agreement (NAFTA) |
The North American Free Trade Agreement (NAFTA) is a treaty that was signed on August 12, 1991 by the United States, Canada, and Mexico; it went into effect on January 1, 1994. (Free trade had existed between the U.S. and Canada since 1989; NAFTA broadened that arrangement.) On that day, the three countries became the largest free market in the world—the economies of the three nations at that time was more than $6 trillion and directly affected more than 365 million people. NAFTA was created to eliminate tariff barriers to agricultural, manufacturing, and services trade, remove investment restrictions, and protect intellectual property rights, all while addressing environmental and labor concerns (although many observers charge that the three governments have been lax in ensuring environmental and labor safeguards since the agreement went into effect). Small businesses were among those that were expected to benefit the most from the lowering of trade barriers since it would make doing business in Mexico and Canada less expensive and would reduce the red tape needed to import or export goods.
Highlights of NAFTA included:
One of the key provisions of NAFTA provided "national goods" status to products imported from other NAFTA countries. No state, provincial, or local governments could impose taxes or tariffs on those goods. In addition, customs duties were either eliminated at the time of the agreement or scheduled to be phased out in five or 10 equal stages. The one exception to the phase out was specified sensitive items, for which the phase-out period would be 15 years.
Supporters championed NAFTA because it opened up Mexican markets to U.S. companies like never before. The Mexican market is growing rapidly, which promises more export opportunities, which in turn means more jobs. Supporters, though, had a difficult time convincing the American public that NAFTA would do more good than harm. Their main effort centered on convincing people that all consumers benefit from the widest possible choice of products at the lowest possible price—which means that consumers would be the biggest beneficiaries of lowered trade barriers. The U.S. Chamber of Commerce, which represents the interests of small businesses, was one of the most active supporters of NAFTA, organizing the owners and employees of small and mid-size businesses to support the agreement. This support was key in countering the efforts of organized labor to stop the agreement.
Nafta and Small Business
Analysts agree that NAFTA has opened up new opportunities for small and mid-size businesses. Mexican consumers spend more each year on U.S. products than their counterparts in Japan and Europe, so the stakes for business owners are high. (Most of the studies of NAFTA concentrate on the effects of U.S. business with Mexico. Trade with Canada has also been enhanced, but the passage of the trade agreement did not have as great an impact on the already liberal trade practices that America and its northern neighbor abided by.)
Some small businesses were affected directly by NAFTA. In the past, larger firms always had an advantage over small ones because the large companies could afford to build and maintain offices and/or manufacturing plants in Mexico, thereby avoiding many of the old trade restrictions on exports. In addition, pre-NAFTA laws stipulated that U.S. service providers that wanted to do business in Mexico had to establish a physical presence there, which was simply too expensive for small firms to do. Small firms were stuck—they could not afford to build, nor could they afford the export tariffs. NAFTA leveled the playing field by letting small firms export to Mexico at the same cost as the large firms and by eliminating the requirement that a business establish a physical presence in Mexico in order to do business there. The lifting of these restrictions meant that vast new markets were suddenly open to small businesses that had previously done business only in the United States. This was regarded as especially important for small businesses that produced goods or services that had matured in U.S. markets.
Still, small firms interested in conducting business in Mexico have to recognize that Mexican business regulations, hiring practices, employee benefit requirements, taxation schedules, and accounting principles all include features that are unique to that country. Small businesses, then, should familiarize themselves with Mexico's foundation of business rules and traditions—not to mention the demographics culture of the marketplace—before committing resources to this region.
Opposition to Nafta
Much organized opposition to NAFTA centered on the fear that the abolishment of trade barriers would spur U.S. firms to pack up and move to Mexico to take advantage of cheap labor. This concern remains strong among labor unions and other worker organizations. Opposition to NAFTA was also strong among environmental groups, who contended that the treaty's anti-pollution elements were woefully inadequate. This criticism has not abated since NAFTA's implementation. Indeed, both Mexico and Canada have been repeatedly cited for environmental malfeasance.
Controversy over the treaty's environmental enforcement provisions remained strong in the late 1990s. In fact, North American business interests have sought to weaken a key NAFTA side accord on environmental protections and enforcement. This accord—one of the few provisions welcomed by environmental groups—allows groups and ordinary citizens to accuse member nations of failing to enforce their own environmental laws. A trinational Commission for Environmental Cooperation is charged with investigating these allegations and issuing public reports. "That process is slow, but the embarassment factor has proven surprisingly high," noted Business Week. As of mid-2000, the U.S. government has expressed opposition to revisions in the NAFTA agreement. But the Canadian government and many businesses in all three countries continue to work to change this accord.
The Effects of Nafta
Since NAFTA's passage, American business interests have expressed general satisfaction with the agreement. Employment, productivity, and trade have all surged in the 1990s, although analysts point out that these increases can be attributed to myriad factors, of which NAFTA is only one. Moreover, job losses in the U.S. that can be attributed to NAFTA have been minimal. As of 1997, only 117,000 Americans had signed up for the benefits offered to workers displaced by NAFTA.
Change has been most dramatic in Mexico. U.S. firms are setting up joint ventures in Mexico that, for the first time, use local firms for materials and parts. The quality of goods produced in Mexico has gone up, and the biggest beneficiaries are Mexican consumers. Wages and working conditions have also improved in many areas.
Further Reading:
Allen, Mike. "NAFTA Is a Good Treaty, But Could Be Better." San Diego Business Journal. July 21, 1997.
Edmond Jr., Alfred. "Making the Most of NAFTA: Here's What to Do when the Barriers to Mexico's Markets Come Down." Black Enterprise. February 1994.
"A Green Thumb in NAFTA's Eye?" Business Week. June 12, 2000.
Holzinger, Albert G. "Why Small Firms Back NAFTA." Nation's Business. November 1993.
Krueger, Anne O. "NAFTA's Effects: A Preliminary Assessment." World Economy. June 2000.
Ostroff, Jim. "Report: NAFTA Helped Both U.S. and Mexico." WWD. July 14, 1997.
"Taking the Green Out of NAFTA." Business Week. May 29, 2000.
"What NAFTA Means to Small Businesses: Mexico Is an Important Market for Small and Medium Sized U.S. Businesses." Arkansas Business. November 15, 1993.
"When Neighbours Embrace: the NAFTA Effect." The Economist. July 5, 1997.
| Britannica Concise Encyclopedia: NAFTA |
For more information on NAFTA, visit Britannica.com.
| US History Encyclopedia: North American Free Trade Agreement |
The General Agreement on Tariffs and Trade (GATT), which went into effect in 1948 in the wake of World War II, sought to expand free trade by reducing tariffs between the twenty-three signatory nations. A strong supporter of GATT throughout its history, the United States in 1986 began to urge that GATT move beyond the reduction of trade barriers and that its agenda include foreign investment, services, agriculture, and intellectual property rights.
Increasing competition from Pacific and European countries caused the United States to begin trying to assemble a dollar-dominated block in the American hemisphere. This desire led first to the Free Trade Agreement (FTA) with Canada, effective January 1989, and then to an expanded trilateral agreement with Canada and Mexico, the North American Free Trade Agreement (NAFTA), effective January 1994. Given the earlier agreement between the United States and Canada, NAFTA dealt primarily with restructuring trade between the United States and Mexico and between Mexico and Canada. All tariffs between the United States and Canada would end by the year 1998; those between the United States and Mexico would be eliminated by 2008.
The agreements, however, much like the expanded agenda for GATT, covered more than the elimination of trade barriers and led to divisive debate in all three countries. Concerns among Canadians in 1988 and Mexicans in 1992 reflected a lingering view of the United States as a powerful nation that might yet seek to swallow up or strangle its neighbors. While some critics employed a powerful emotional rhetoric reminiscent of the days when the United States was roundly condemned as the Colossus of the North, others focused on the perceived need to protect Canadian and Mexican sovereignty, which they saw as threatened by expanded U.S. investment in such crucial national resources as oil and in institutions such as banking. Given the unequal status between them and their powerful neighbor, these opponents argued, both Canada and Mexico risked becoming in effect economic colonies of the United States.
In 1988 Canadians voiced many of the same concerns expressed by labor leaders and environmentalists in the United States in the early 1990s. Because Canada was already part of GATT, Canadians questioned the necessity of the FTA and the benefit to Canada of tying itself more closely to the largest debtor nation in the world. They argued that the movement of jobs from Canada to the United States, already a problem because of lower U.S. labor costs, would accelerate and that Canada's higher standards of environmental regulation and social programs would be threatened by U.S. investment and business practices. By far the most emotional issue in all three countries was the effect of NAFTA on employment. While proponents of NAFTA stressed that implementation would create jobs, opponents argued that the accord would lead to job loss. The negotiations commenced and continued during a period of global recession and high unemployment. While the movement of jobs from Canada to the United States and from the United States to Mexico had preceded the FTA and NAFTA negotiations, labor groups in both the United States and Canada were unshakable in their opposition.
As the leaders of both Mexico and the United States sought to assuage the fears of those at home who opposed NAFTA, the fate of the pact had implications beyond the borders of North America in the early 1990s. When President George Bush and Mexican President Carlos Salinas de Gortari announced in June 1990 the possibility of a free trade agreement between Mexico and the United States, Bush also announced the Enterprise for the Americas Initiative, which envisioned a free-trade block stretching from Alaska to Tierra del Fuego. This announcement preceded a dizzying number of new trading alignments within Latin America, including the agreement among Argentina, Brazil, Paraguay, and Uruguay in March 1991 to establish MERCOSUR, which pledged to integrate their economies by 1995, and numerous framework trade agreements between the United States and its southern neighbors.
The creation of a multinational trading bloc was a political and economic project. By the early 1990s, Latin American leaders had come to see the opportunity to move closer to the United States economically as a way to move their countries politically along a modern path of reform. At stake, then, was more than an economic reordering of the relationship among the three North American countries; there was also a foreign policy objective: strengthening political ties throughout the hemisphere. The U.S. Congress approved NAFTA in November 1993. A complicated and cumbersome document largely unread by proponents and opponents alike, it included concessions from all the parties because the United States, Mexico, and Canada saw in it an opportunity to promote their own economies, and protect the frailest components of those economies.
Bibliography
Bowker, Marjorie Montgomery. On Guard for Thee: An Independent Analysis, Based on the Actual Test of the Canada-U.S. Free Trade Agreement. Hull, Quebec: Voyageur, 1988.
Bulmer-Thomas, Victor, Nikki Craske, and Monica Serrano, eds. Mexico and the North American Free Trade Agreement: Who Will Benefit? New York: St. Martin's Press, 1994.
Cavanagh, John, et al., eds. Trading Freedom: How Free Trade Affects Our Lives, Work, and Environment. San Francisco: Institute for Food and Development Policy, 1992.
| Columbia Encyclopedia: North American Free Trade Agreement |
| Law Encyclopedia: North American Free Trade Agreement |
A trade agreement between the United States, Canada, and Mexico, which took effect January 1, 1994. Its purpose is to increase the efficiency and fairness of trade between the three nations.
At the heart of the North American Free Trade Agreement (NAFTA) is a simple goal: the elimination of tariffs — the taxes each nation imposes on the others' imports — and other bureaucratic and legal barriers to trade. In addition to its central terms, the massive, highly detailed agreement also includes so-called side agreements intended to ensure that each nation enforces its own labor and environmental laws. The bulk of its regulations are to be phased in over the course of fifteen years.
The impetus for NAFTA developed in the 1980s. Its roots lie in the United States-Canada Free Trade Agreement of 1988 — implemented by the United States-Canada Free Trade Agreement Implementation Act (19 U.S.C.A. § 2112 note [Supp. 1993]) — which, by the mid-1990s, had already eliminated most trade barriers between the United States and Canada. With the world gradually becoming divided into large regional trading blocs where goods and services move freely, as in the European Union, NAFTA's supporters saw the inclusion of Mexico as necessary for North America to compete internationally.
In the United States, debate over NAFTA threatened to derail it. Proponents saw economic benefits for all three nations in the agreement. But opponents concentrated their attack on the implications for the relationship between the United States and Mexico. They feared two potential outcomes if NAFTA were signed: the loss of U.S. jobs, and damage to the environment as a result of economic growth in Mexico and the likelihood that U.S. safety regulations would be challenged as barriers to free trade.
In 1993 a coalition of consumer and environmental groups brought suit in an attempt to block congressional consideration of the agreement. In Public Citizen v. United States Trade Representative, 5 F.3d 549 (D.C. Cir. 1993), the coalition argued that the administration of President Bill Clinton had failed to comply with the National Environmental Policy Act (42 U.S.C.A. § 4321 et seq. [1977]), which requires all federal agencies to submit environmental impact statements for all legislation or actions that affect the environment. The suit failed when a federal appellate court ruled that it had no authority to review the president's actions.
In response to anti-NAFTA criticisms, the White House negotiated three side agreements that were signed on September 14, 1993. The side agreements attempted to ensure that the three countries comply with their own labor and environmental laws; established fines and limited trade sanctions for violations; and called for consultations by the members if increases in imports from one country appeared to be having a devastating effect on an industry in one of the other countries. Two months later NAFTA won congressional approval. The House of Representatives narrowly passed the implementing legislation (North American Free Trade Implementation Act [19 U.S.C.A. § 3314 et seq., Pub. L. No. 103-182, 107 Stat. 2057]), and the Senate also passed it.
NAFTA specifies a timetable for its changes. When the agreement went into effect on January 1, 1994, the United States eliminated all tariffs on 60 percent of imports from Mexico that previously were subject to tariffs. On January 1, 2003, more U.S. tariffs on Mexico's imports will be removed, with the result that 92 percent of previously taxed Mexican goods will be able to enter the United States without tariffs. Finally, on January 1, 2008, all remaining tariffs on the three countries' goods will be eliminated. Other barriers are to be removed by January 1, 2000. U.S. banks, which have hitherto been shut out of Mexico, will be free to take over as much as 15 percent of the Mexican financial market. At the same time, Mexican and U.S. truck drivers will be allowed to haul goods across the border and deliver them anywhere in either country.
| Abbreviations: NAFTA |
| Meaning | Category |
| Βορειοαερικανική Ζώνη Ελευθέρου Επορίου | International->Greek |
| Never Attack Fighting Tigers Again | Miscellaneous->Funnies |
| No American Factories Taking Applications | Miscellaneous->Funnies |
| No American Farm Trade Anymore | Business->International Business |
| North African Federated Trade Association | Business->International Business |
| North African Free Trade Act | Business->International Business |
| North American Free Trade Agreement | Business->General Governmental->Military Business->International Business Academic & Science->Ocean Science Governmental->Transportation Governmental->US Government Business->Accounting Business->Mortgage |
| North American Free Trade Area | Governmental->US Government |
| North American Frog Throwing Act | Miscellaneous->Funnies |
| North American Future Teachers Association | Academic & Science->Universities |
| Not Actually Fabricated Totally American | Miscellaneous->Funnies |
| Nullified Artisans Federation of Trecherous Adults | Miscellaneous->Funnies |
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| Politics: North American Free Trade Agreement |
An agreement between the United States, Canada, and Mexico to establish free trade. It took effect in 1994 and is designed to eliminate trade barriers between the three nations by 2009.
| Wikipedia: North American Free Trade Agreement |
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North American Free Trade Agreement
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| Secretariats | Mexico City, Ottawa and Washington, D.C. | |||
| Official languages | English, Spanish, French | |||
| Membership | ||||
| Establishment | ||||
| - | Formation | January 1, 1994 | ||
| Area | ||||
| - | Total | 21,783,850 km2 (1st) 8,410,792 sq mi |
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| - | Water (%) | 7.4 | ||
| Population | ||||
| - | 2008 estimate | 445,335,091 (3rd) | ||
| - | Density | 20.4/km2 (195th) 52.9/sq mi |
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| GDP (PPP) | 2008 (IMF) estimate | |||
| - | Total | $17,153 trillion (n/a) | ||
| - | Per capita | $35,491 (n/a) | ||
| GDP (nominal) | 2008 (IMF) estimate | |||
| - | Total | $16,792 trillion (n/a) | ||
| - | Per capita | $35,564 (18th) | ||
| Website http://www.nafta-sec-alena.org |
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The North American Free Trade Agreement or NAFTA (pronounced /næf.tʌ/, naf-tu) (Spanish: Tratado de Libre Comercio de América del Norte [TLCAN], French: Accord de libre-échange nord-américain [ALENA]) is a trilateral trade bloc in North America created by the governments of the United States, Canada, and Mexico. The agreement creating the trade bloc came into force on January 1, 1994. It superseded the Canada-United States Free Trade Agreement between the U.S. and Canada.
In terms of combined purchasing power parity GDP of its members, as of 2007[update] the trade block is the largest in the world and second largest by nominal GDP comparison.
The North American Free Trade Agreement (NAFTA) has two supplements, the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC).
Contents |
In 1988 Canada and the United States signed the Canada-United States Free Trade Agreement. The American government then entered into negotiations with the Mexican government for a similar treaty, and Canada asked to join the negotiations in order to preserve its perceived gains under the 1988 deal.[1] The international climate at the time favoured expanding trade blocs, and the Maastricht Treaty which created the European Union was signed in 1992.
Following diplomatic negotiations dating back to 1991 between the three nations, the leaders met in San Antonio, Texas, on December 17, 1992, to sign NAFTA. U.S. President George H.W. Bush, Canadian Prime Minister Brian Mulroney and Mexican President Carlos Salinas, each responsible for spearheading and promoting the agreement, ceremonially signed it.
Before the negotiations were finalized, Bill Clinton came into office in the U.S. and Kim Campbell in Canada, and before the agreement became law, Jean Chrétien had taken office in Canada.
The agreement needed to be ratified by each nation's legislative or parliamentary branch before it could actually become the law was not approved by the US or Canada and it ended.
The earlier 1988 Canada-U.S.trade agreement had been extremely controversial and divisive in Canada, and the 1988 Canadian election was fought almost exclusively on that issue. In that election more Canadians voted for anti-free trade parties (the Liberals and the New Democrats) but more seats in parliament were won by the pro-free trade Progressive Conservatives (PCs). Mulroney and the PCs had a parliamentary majority and were able to easily pass the Canada-U.S. FTA and NAFTA bills. However Mulroney himself had become deeply unpopular and resigned on June 25, 1993. He was replaced as Conservative leader and prime minister by Kim Campbell, who then led the PC party into the 1993 election where they were decimated by the Liberals under Jean Chrétien. Chrétien had campaigned on a promise to renegotiate or abrogate NAFTA, but instead negotiated the two supplemental agreements with the new U.S. Democratic president, and ideological ally, Bill Clinton.
The goal of NAFTA was to eliminate barriers to trade and investment between the USA, Canada and Mexico. The implementation of NAFTA on January 1, 1994, brought the immediate elimination of tariffs on more than one half of US imports from Mexico and more than one third of US exports to Mexico. Within 10 years of the implementation of the agreement all US-Mexico tariffs would be eliminated except for some US agricultural exports to Mexico that were to be phased out in 15 years. Most US-CANADA trade was already duty free. NAFTA also seeks to eliminate non-tariff trade barriers.
In the U.S., Bush, who had worked to "fast track" the signing prior to the end of his term, ran out of time and had to pass the required ratification and signing into law to incoming president Bill Clinton. Prior to sending it to the House of Representatives, Clinton introduced clauses intended to protect American workers and allay the concerns of many House representatives. It also required U.S. partners to adhere to environmental practices and regulations similar to its own. The ability to enforce these clauses, especially with Mexico, was considered questionable, and with much consternation and emotional discussion the House of Representatives approved NAFTA on November 17, 1993, by a vote of 234 to 200. Remarkably, the agreement's supporters included 132 Republicans and only 102 Democrats. NAFTA did not get the votes needed to pass as a Treaty in the U.S. Senate. That unusual combination reflected the challenges President Clinton faced in convincing Congress that the controversial piece of legislation would truly benefit all Americans. The agreement was signed into law in the U.S. on December 8, 1993, by President Bill Clinton and went into effect on January 1, 1994.[2][3][4][5][6]
NAFTA's effects, both positive and negative, have been quantified by several economists, whose findings have been reported in publications such as the World Bank's Lessons from NAFTA for Latina America and the Caribbean,[7] NAFTA's Impact on North America,[8] and NAFTA Revisited by the Institute for International Economics.[9] Some argue that NAFTA has been positive for Mexico, which has seen its poverty rates fall and real income rise (in the form of lower prices, especially food), even after accounting for the 1994–1995 economic crisis.[10] Others argue that NAFTA has been beneficial to business owners and elites in all three countries, but has had negative impacts on farmers in Mexico who saw food prices fall based on cheap imports from U.S. agribusiness, and negative impacts on U.S. workers in manufacturing and assembly industries who lost jobs. Critics also argue that NAFTA has contributed to the rising levels of inequality in both the U.S. and Mexico. Some economists believe that NAFTA has not been enough (or worked fast enough) to produce an economic convergence,[11] nor to substantially reduce poverty rates. Some have suggested that in order to fully benefit from the agreement, Mexico must invest more in education and promote innovation in infrastructure and agriculture.
According to Issac (2005), overall, NAFTA has not caused trade diversion, aside from a few industries such as textiles and apparel, in which rules of origin negotiated in the agreement were specifically designed to make U.S. firms prefer Mexican manufacturers. The World Bank also showed that the combined percentage growth of NAFTA imports was accompanied by an almost similar increase of non-NAFTA exports.
Maquiladoras (Mexican factories which take in imported raw materials and produce goods for export) have become the landmark of trade in Mexico. These are plants that moved to this region from the United States, hence the debate over the loss of American jobs. Hufbauer's (2005) book shows that income in the maquiladora sector has increased 15.5% since the implementation of NAFTA in 1994. Other sectors now benefit from the free trade agreement, and the share of exports from non-border states has increased in the last five years while the share of exports from maquiladora-border states has decreased. This has allowed for the rapid growth of non-border metropolitan areas, such as Toluca, León and Puebla; all three larger in population than Tijuana, Ciudad Juárez, and Reynosa. The main non-maquiladora industry that has benefited from NAFTA is the automobile industry.
Securing U.S. congressional approval for NAFTA would have been impossible without addressing public concerns about NAFTA’s environmental impact. The Clinton administration negotiated a side agreement on the environment with Canada and Mexico, the North American Agreement on Environmental Cooperation (NAAEC), which led to the creation of the Commission for Environmental Cooperation (CEC) in 1994. To alleviate concerns that NAFTA, the first regional trade agreement between a developing country and two developed countries, would have negative environmental impacts, the CEC was given a mandate to conduct ongoing ex post environmental assessment of NAFTA.[12]
In response to this mandate, the CEC created a framework for conducting environmental analysis of NAFTA, one of the first ex post frameworks for the environmental assessment of trade liberalization. The framework was designed to produce a focused and systematic body of evidence with respect to the initial hypotheses about NAFTA and the environment, such as the concern that NAFTA would create a “race to the bottom” in environmental regulation among the three countries, or the hope that NAFTA would pressure governments to increase their environmental protection mechanisms.[13] The CEC has held four symposia using this framework to evaluate the environmental impacts of NAFTA and has commissioned 47 papers on this subject. In keeping with the CEC’s overall strategy of transparency and public involvement, the CEC commissioned these papers from leading independent experts.[14]
Overall, none of the initial hypotheses was confirmed. NAFTA did not inherently present a systemic threat to the North American environment, as was originally feared, but NAFTA-related environmental threats instead occurred in specific areas where government environmental policy, infrastructure, or mechanisms, were unprepared for the increasing scale of production under trade liberalization. In some cases, environmental policy was neglected in the wake of trade liberalization; in other cases, NAFTA's measures for investment protection, such as Chapter 11, and measures against non-tariff trade barriers, threatened to discourage more vigorous environmental policy.[15] The most serious overall increases in pollution due to NAFTA were found in the base metals sector, the Mexican petroleum sector, and the transportation equipment sector in the United States and Mexico, but not in Canada.[16]
From the earliest negotiation, agriculture was (and still remains) a controversial topic within NAFTA, as it has been with almost all free trade agreements that have been signed within the WTO framework. Agriculture is the only section that was not negotiated trilaterally; instead, three separate agreements were signed between each pair of parties. The Canada–U.S. agreement contains significant restrictions and tariff quotas on agricultural products (mainly sugar, dairy, and poultry products), whereas the Mexico–U.S. pact allows for a wider liberalization within a framework of phase-out periods (it was the first North–South FTA on agriculture to be signed).
The overall effect of the Mexico–U.S. agricultural agreement is a matter of dispute. Mexico did not invest in the infrastructure necessary for competition, such as efficient railroads and highways, creating more difficult living conditions for the country's poor. Still, the causes of rural poverty cannot be directly attributed to NAFTA; in fact, Mexico's agricultural exports increased 9.4 percent annually between 1994 and 2001, while imports increased by only 6.9 percent a year during the same period.[17]
Production of corn in Mexico has increased since NAFTA's implementation. However, internal corn demand has increased beyond Mexico's sufficiency, and imports have become necessary, far beyond the quotas Mexico had originally negotiated.[18] Zahniser & Coyle have also pointed out that corn prices in Mexico, adjusted for international prices, have drastically decreased, yet through a program of subsidies expanded by former president Vicente Fox, production has remained stable since 2000.[19]
The logical result of a lower commodity price is that more use of it is made downstream. Unfortunately, many of the same rural people who would have been likely to produce higher-margin value-added products in Mexico have instead emigrated. The rise in corn prices due to increased ethanol demand may improve the situation of corn farmers in Mexico.
In a study published in the August 2008 issue of the American Journal of Agricultural Economics, NAFTA has increased U.S. agricultural exports to Mexico and Canada even though most of this increase occurred a decade after its ratification. The study focused on the effects that gradual "phase-in" periods in regional trade agreements, including NAFTA, have on trade flows. Most of the increase in members’ agricultural trade, which was only recently brought under the purview of the World Trade Organization, was due to very high trade barriers before NAFTA or other regional trade agreements.[20]
According to the Department of Homeland Security Yearbook of Immigration Statistics, during fiscal year 2006 (i.e., October 2005 through September 2006), 74,098 foreign professionals (64,633 Canadians and 9,247 Mexicans) were admitted into the United States for temporary employment under NAFTA (i.e., in the TN status). Additionally, 17,321 of their family members (13,136 Canadians, 2,904 Mexicans, as well as a number of third-country nationals married to Canadians and Mexicans) entered the U.S. in the treaty national's dependent (TD) status.[21] Because DHS counts the number of the new I-94 arrival records filled at the border, and the TN-1 admission is valid for one year, the number of non-immigrants in TN status present in the U.S. at the end of the fiscal year is approximately equal to the number of admissions during the year. (A discrepancy may be caused by some TN entrants leaving the country or changing status before their one-year admission period expired, while other immigrants admitted earlier may change their status to TN or TD, or extend earlier granted TN status).
Canadian authorities estimated that, as of December 1, 2006, the total of 24,830 U.S. citizens and 15,219 Mexican citizens were present in Canada as "foreign workers". These numbers include both entrants under the NAFTA agreement and those who have entered under other provisions of the Canadian immigration law.[22] New entries of foreign workers in 2006 were 16,841 (U.S. citizens) and 13,933 (Mexicans).[23]
There is much concern in Canada over the provision that if something is sold even once as a commodity, the government cannot stop its sale in the future.[24] This applies to the water from Canada's lakes and rivers, fueling fears over the possible destruction of Canadian ecosystems and water supply.
In 1999, Sun Belt Water Inc., a company out of Santa Barbara, California, filed an Arbitration Claim under Chapter 11 of the NAFTA claiming $10.5 billion as a result of Canada's prohibition on the export of bulk water by marine tanker, a move that destroyed the Sun Belt business venture. Sun Belt maintains a website where many documents concerning the Arbitration are posted www.sunbeltwater.com. The claim sent shock waves through Canadian governments that scrambled to update water legislation and remains unresolved.
Other fears come from the effects NAFTA has had on Canadian lawmaking. In 1996, the gasoline additive MMT was brought into Canada by an American company. At the time, the Canadian federal government banned the importation of the additive. The American company brought a claim under NAFTA Chapter 11 seeking US$201 million,[25] and by Canadian provinces under the Agreement on Internal Trade ("AIT"). The American company argued that their additive had not been conclusively linked to any health dangers, and that the prohibition was damaging to their company. Following a finding that the ban was a violation of the AIT,[26] the Canadian federal government repealed the ban and settled with the American company for US$13 million.[27] Studies by Health and Welfare Canada (now Health Canada) on the health effects of MMT in fuel found no significant health effects associated with exposure to these exhaust emissions. Other Canadian researchers and the U.S. Environmental Protection Agency disagree with Health Canada, and cite studies that include possible nerve damage.[28]
The United States and Canada had been arguing for years over the United States' decision to impose a 27 percent duty on Canadian softwood lumber imports, until new Canadian Prime Minister Stephen Harper compromised with the United States and reached a settlement on July 1, 2006.[29] The settlement has not yet been ratified by either country, in part due to domestic opposition in Canada.
Canada had filed numerous motions to have the duty eliminated and the collected duties returned to Canada.[30] After the United States lost an appeal from a NAFTA panel, it responded by saying "We are, of course, disappointed with the [NAFTA panel's] decision, but it will have no impact on the anti-dumping and countervailing duty orders." (Nick Lifton, spokesman for U.S. Trade Representative Rob Portman)[31] On July 21, 2006, the U.S. Court of International Trade found that imposition of the duties was contrary to U.S. law.[32][33]
On October 30, 2007, American citizens Marvin and Elaine Gottlieb filed a Notice of Intent to Submit a Claim to Arbitration under NAFTA. The couple claims thousands of U.S. investors lost a total of $5 billion dollars in the fall-out from the Conservative Government's decision last year to effectively tax income trusts in the energy sector out of existence.
Under the NAFTA, Canada is not allowed to target other NAFTA citizens when they impose new measures. Canadian Federal Finance Minister Jim Flaherty is on record that energy trusts were included because of their high U.S. ownership, while Real Estate Investment Trusts, owned mostly by Canadians, were excluded. NAFTA also stipulates that Canada must pay compensation for destroying investment by U.S. investors. The Government of Canada's 2006 Halloween tax changes for income trusts were designed to eliminate the income trust model for investment by U.S. citizens. The NAFTA says that U.S. investors are entitled to rely upon Canadian government promises. Harper repeatedly made a public promise that his Government would not tax trusts, as had the previous Liberal Government. Canada's tax treaty with the United States also says that trust income will not be taxed at more than 15 percent.
The Gottliebs maintain a website for American and Mexican citizens interested in filing a NAFTA claim against the Government of Canada.[34]
A book written by Mel Hurtig published in 2002 called "A Vanishing Country" charged that since NAFTA's ratification more then 10,000 Canadian companies had been taken over by foreigners. Furthermore 98% of all foreign direct investments in Canada were for foreign take overs. 32% of all business in Canada was foreign owned and controlled as opposed to 0% in the United States.
An increase in domestic manufacturing output and a proportionally greater domestic investment in manufacturing does not necessarily mean an increase in domestic manufacturing jobs; this increase may simply reflect greater automation and higher productivity. Although the U.S. total civilian employment may have grown by almost 15 million in between 1993 and 2001, manufacturing jobs only increased by 476,000 in the same time period.[35] Furthermore from 1994 to 2007, net manufacturing employment has declined by 3,654,000, and during this period several other free trade agreements have been concluded or expanded.[35]
In 2000, U.S. government subsidies to the corn sector totaled $10.1 billion, a figure ten times greater than the total Mexican agricultural budget that year.[36] Other studies reject NAFTA as the force responsible for depressing the incomes of poor corn farmers, citing the trend's existence more than a decade before NAFTA's existence, an increase in maize production after NAFTA went into effect in 1994, and the lack of a measurable impact on the price of Mexican corn due to subsidized corn coming into Mexico from the United States, though they agree that the abolition of U.S. agricultural subsidies would benefit Mexican farmers.[37] According to Graham Purchase in Anarchism and Environmental Survival, NAFTA could cause "the destruction of the ejidos (peasant cooperative village holdings) by corporate interests, and threatens to completely reverse the gains made by rural peoples in the Mexican Revolution." [38]
The fact remains that the highly subsidized exports from the USA to Mexico constitute a classic case of dumping and may drive out of business many farm operations in Mexico. Mexico's food self-sufficiency and independence is jeopardized.
American intellectual Noam Chomsky has argued that the only true words in the phrase "North American Free Trade Agreement" seem to be "North America", as what is called trade is in reality mostly restricted intra-corporate transfers of products and services. Agreement is lacking as NAFTA was passed with a lack of democratic oversight protocols and widespread public opposition. [39][40]
Adam Smith, states in The Wealth of Nations that free trade includes the labor component as a factor of production, and thus an essential element of free trade:
"... by obstructing the free circulation of labour and stock both from employment to employment, and from place to place, occasions in some cases a very inconvenient inequality in the whole of the advantages and disadvantages of their different employments."[41]
Within NAFTA official law and agreements [42] [43] the movement of labor is temporary and very restrictive, especially for unskilled workers. [44] Mexican (legal and illegal) migration to the USA is surging [45], but not due to NAFTA provisions.[44] NAFTA provisions for freedom of movement of workers are very restrictive compared to one of the economic freedoms of the European Union, the freedom of movement for workers[46]. There are no provisions for free movement of workers in NAFTA, so calling it "free trade" agreement is inaccurate. According to the economic theory espoused by Adam Smith, in free trade all factors of production are mobile, including labour. [41]
Another contentious issue is the impact of the investment obligations contained in Chapter 11 of the NAFTA.[47] Chapter 11 allows corporations or individuals to sue Mexico, Canada or the United States for compensation when actions taken by those governments (or by those for whom they are responsible at international law, such as provincial, state, or municipal governments) have adversely affected their investments.
This chapter has been invoked in cases where governments have passed laws or regulations with intent to protect their constituents and their resident businesses' profits. Language in the chapter defining its scope states that it cannot be used to "prevent a Party from providing a service or performing a function such as law enforcement, correctional services, income security or insurance, social security or insurance, social welfare, public education, public training, health, and child care, in a manner that is not inconsistent with this Chapter."[48]
This chapter has been criticized by groups in the U.S.,[49] Mexico,[50] and Canada[51] for a variety of reasons, including not taking into account important social and environmental[52] considerations. In Canada, several groups, including the Council of Canadians, challenged the constitutionality of Chapter 11. They lost at the trial level,[53] and have subsequently appealed.
Methanex, a Canadian corporation, filed a US$970 million suit against the United States, claiming that a California ban on MTBE, a substance that had found its way into many wells in the state, was hurtful to the corporation's sales of methanol. However, the claim was rejected, and the company was ordered to pay US$3 million to the U.S. government in costs.[54]
In another case, Metalclad, an American corporation, was awarded US$15.6 million from Mexico after a Mexican municipality refused a construction permit for the hazardous waste landfill it intended to construct in Guadalcázar, San Luis Potosí. The construction had already been approved by the federal government with various environmental requirements imposed (see paragraph 48 of the tribunal decision). The NAFTA panel found that the municipality did not have the authority to ban construction on the basis of the alleged environmental concerns.[55]
Also contentious is NAFTA's Chapter 19, which subjects antidumping and countervailing duty (AD/CVD) determinations with binational panel review instead of, or in addition to, conventional judicial review. For example, in the United States, review of agency decisions imposing antidumping and countervailing duties are normally heard before the U.S. Court of International Trade, an Article III court. NAFTA parties, however, have the option of appealing the decisions to binational panels composed of five citizens from the two relevant NAFTA countries. The panelists are generally lawyers experienced in international trade law. Since the NAFTA does not include substantive provisions concerning AD/CVD, the panel is charged with determining whether final agency determinations involving AD/CVD conform with the country's domestic law. Chapter 19 can be considered as somewhat of an anomaly in international dispute settlement since it does not apply international law, but requires a panel composed of individuals from many countries to reexamine the application of one country's domestic law.
A Chapter 19 panel is expected to examine whether the agency's determination is supported by "substantial evidence." This standard assumes significant deference to the domestic agency.
Some of the most controversial trade disputes in recent years, such as the U.S.-Canada softwood lumber dispute, have been litigated before Chapter 19 panels.
Decisions by Chapter 19 panels can be challenged before a NAFTA extraordinary challenge committee. However, an extraordinary challenge committee does not function as an ordinary appeal. Under the NAFTA, it will only vacate or remand a decision if the decision involves a significant and material error that threatens the integrity of the NAFTA dispute settlement system. As of January 2006[update], no NAFTA party has successfully challenged a Chapter 19 panel's decision before an extraordinary challenge committee.
Chapter 20 provides a procedure for the interstate resolution of disputes over the application and interpretation of the NAFTA. It was modeled after Chapter 18 of the Canada-United States Free Trade Agreement.[56]
"This chapter dealing with Financial Services provides for the same procedure as Chapter 20, except that the members of the panel shall be selected from a roster of fifteen persons who "have expertise in financial services law or practice..." The roster has never been made public and no dispute has yet occurred under this chapter."[57]
The provision for maintaining a roster of 15 available people to form a committee for dispute resolution is shown, quite clearly, in Article 1414.[58]
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