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North American Free Trade
Joseph Najar, Daniel Stanworth, Scott Smoot,
Jessica Hatch, Marcus Cardon
1. Background
2. Current Situation
3. International Aspects
4. Special Problems
5. The Future
NAFTA Background
Adam Smith
Wealth of Nations
One of the first to
argue free trade.
Even though it has
been accepted on a
national level in
many places,
international free
trade struggles
NAFTA Background
Free Trade
Currently being sought after in
several different forms of
economic unions:
 Trade
 Customs Unions
 Common Markets
 Economic Unions
NAFTA Background
NAFTA stands for North America
Free Trade Agreement and is a
Trade Area
 Trade Areas
Unrestricted trade among Member
 Does not allow free movement of
factors of production
 No common external tariffs
 No economic unity (monetary and
NAFTA Background
Partly joined because America was
going whether or not Canada was
 Didn’t want to lose investment
 Isolate themselves from US
 Mexico spent more than they
 US
$325, while Japanese spend $300,
and Europe spends $200
NAFTA Background
Canada’s goals in negotiation:
1. Isolation
from US protectionism
2. Gain further freedom of trade in
the US
3. Maintain protection from Canadian
cultural industries
4. Provide some insulation from US
trade remedy laws
NAFTA Background
Joined mostly hoping for additional
investment capital
 Hoped
for up to $15 billion in the first
Joined fearing exclusion from trade
NAFTA Background
Now why the US?
Gives them more power in relation
to EU and other economic unions
 Opens economic opportunities in
 Even though US is strongest, free
trade is beneficial for all member
 Warmer political relations
The Current Situation
Marcus Cardon
Trilateral Agreements/Organizations
North American Agreement on
Environmental Cooperation
Commission for Environmental
Cooperation (CEC)
North American Agreement on
Labor Cooperation (NAALC)
Commission for Labor Cooperation
Responsibilities of the FTC
Supervising the implementation of
Resolving disputes that may arise
regarding NAFTA’s interpretation or
Supervising the work of the NAFTA
Secretariat and NAFTA committees
and working groups
Establishing additional committees
and working groups as needed
Secretariat Secretaries
Rafael Serrano—Secretary General of
the Mexico Secretariat
Françoy Raynauld, Ph.D—Secretary of
the Canada Secretariat
Caratina L. Alston—Secretary
Secretariat of the U.S., U.S.
Department of Commerce
“We only deal with the administration
of one very small portion of NAFTA.
The treaty’s impact on anything,
whether it’s the economy or
Constitution or trade or anything like
that—I don’t deal with that. Any
comments on such things would
have to come from the policy side,
which would be the USTR or
someone here at the Department of
Commerce, but it’s certainly not my
Caratina Ashton
International Aspects
Jessica Hatch
International Aspects
Dispute resolution process
Current disputes
Success of NAFTA
Dispute Settlement
Initial disputes are directed to
Committees and Working
Groups for resolution
If necessary, problems are
escalated to panel procedures
Dispute Classifications
Chapter Nineteen
Chapter Twenty
Interpretation or application of
Chapter Eleven
Countervailing duty and antidumping
Chapter Fourteen
Financial services
Chapter Nineteen
Countervailing duty and anti-dumping
 Appeals of decisions made by
government officials to apply
national laws
Binational panel review
Most active sector of dispute structure
 Currently over 25 active disputes
Chapter Twenty
Interpretation and application of
NAFTA principles
 Steps intended to resolve
disputes by agreement, if
Begin with government-togovernment consultations
 If unresolved, a meeting of Free
Trade Commission may be
 If still unresolved, an arbitral panel
may be selected
Panel Rosters
Rosters of possible individuals
exist for each country
Selected based on objectivity,
reliability, and sound judgment
A roster exists for each dispute
Panel Selection
Chapter Nineteen
Each party selects two members
from their own country
 The fifth member is from one of
the two countries and generally
Chapter Twenty
Each party selects two members
from the opposing country
 The panel chair is selected by both
parties and may be from any of
the countries
Rules of Procedure
Very clear, stringent timelines
and rules are set for both
Chapter Nineteen lasts no more
than 315 days
Chapter Twenty may take longer
depending on hearing date set
Chapter Nineteen Example:
Softwood Lumber
Countervailing Duty
 Remanded to US Department of
Commerce for changes in methodology
 Remanded to US Department of
Commerce for changes in methodology
Threat of Injury
 Remanded to International Trade
 Threat of injury required to establish
CVD and AD policies
Chapter Twenty Example:
Broom Corn Brooms
Dispute over interpretation of a
single clause:
“producers . . . of the like or
directly competitive products”
Panel recommended that the
U.S. “bring its conduct into
compliance with the NAFTA at
the earliest possible time.”
Success as of 2005
Real GDP Growth – 1994 to
U.S.: 48%
 Canada: 49%
 Mexico: 40%
$2.2 billion in trilateral trade
 Trade among the nations
increased 173%
From $297 billion to $810 billion
Benefits to the U.S.
Exports to NAFTA partners grew
NAFTA partners account for 55% of
increase in agricultural exports
Industrial production rose 49%
28% in prior period
36.2% increase in business sector
20.1% growth in jobs
Average unemployment rate dropped
from 7.1% to 5.1%
Benefits to Canada
More than half of exports go to
the U.S.
 Exports now account for over
40% of GDP
 Exports to U.S. increased by
 86.6% of total exports go to
NAFTA partners
 17.5% increase in jobs from
pre-NAFTA levels
Benefits to Mexico
37% difference between wages
in export-related sectors and
 Agricultural exports to U.S.
increased by $5.7 billion
 Exports to Canada grew almost
 Two-way trade with the U.S. has
grown more than 125%
 Productivity increased 55%
Important Note
The official sites for NAFTA list
all positive reviews for the past
12 years.
Others claim these benefits may
have come from other changes
in the economy
Plenty of information exists to
argue both sides
Special Problems
Daniel Stanworth
Special Problems or Debates
Employment effects
Mexico’s Suffering Agriculture
Environmental problems and
decreased standard of living
Like any multinational treaty, NAFTA
has its pros and cons, its
cheerleaders and detractors. More
than 10 years after the treaty was
signed, protests continue, especially
by citizenry "south of the border."
NAFTA seems to favor North
America's big business over the
needs of Latin America's indigenous
peoples. While jobs may have been
created in Latin America, the pay is
generally low and available jobs are
far from home. The benefits appear
to go to governments, rich land
owners, and large businesses.
United States Employment
United States
Overall, 28 million
new jobs created
since 1994
Very small amount,
if any, can be
directly attributed
to the creation of
United States Employment
Heavy Debates on this issue
 Clinton administration
claimed an increase of
300,000 new jobs in because
of NAFTA in 1999.
 EPI estimated that creation
of NAFTA has resulted in net
loss of 440,000 US Jobs
 Their reasoning is because
others are only looking at
new exports and
disregarding new imports.
 Ross Perot and the “Giant
Sucking Sound”
Canadian Employment
2.3 million jobs
created in Canada
since NAFTA
Increase of
Very little debate
on the
effects of NAFTA
in Canada
Mexican Employment
Employment increased
directly following
NAFTA introduction,
but has recently
Many new jobs were in
the Maquiladora area’s
Agriculture sector
specifically hit hard
Estimated 28,000
small and med sized
businesses eliminated
due to low cost
Environmental/Standard of living Effects
Maquiladora -
is a factory that imports
materials and equipment on a duty-free and tarifffree basis for assembly or manufacturing and then
re-exports the assembled product usually back to
the originating country.
Maquiladora firms have approx.
doubled since NAFTA
2,143 to over 3,703 currently
This is a problem for NAFTA
because Maquiladora’s are
notorious for having terrible
low-pay working conditions.
A town about a mile from a
Maquiladora factory
Maquiladora Working conditions
Women especially discriminated
 Average wage is $1.00 per hour
 Work 10-12 hours a day
 Compared to sweat shops of
 Many are working to improve
rights of Maquiladora workers.
Environmental Conditions
Special side agreement in NAFTA to
calm environmentalists about toxic
waste around Maquiladora’s.
Did side agreement work
No enforcing power
Different views of environmental quality.
Many argue the pollution has worsened.
"NAFTA has intensified severe problems
of water and air pollution, hazardous
wastes dumping and increased the
incidence rates of certain diseases and
birth defects in the border region."
Environmental Effects
"We have no way to provide water,
sewage, and sanitation workers.
Every year, we get poorer and
poorer even though we create
more and more wealth."
 Ciudad Juarez, Mayor Gustavo
Mexico’s Agriculture
US farmers are being
Mexico farmers do not
receive subsidies, this…
Puts downward pressure on
Mexican Farmers
Results in Dumping
US Farmers selling below cost
in Mexico because they have
already received subsidies.
Results in Unemployment and
Immigration to United States
Some claim as many as 2
million Mexican farmers are
out of business
Mexico’s Agriculture
Many claim dumping
is evident due to
Mexico’s imports of
U.S. agriculture
$3.6 billion in 1993
$7.9 billion in 2003
$8.5 billion in 2004
U.S. farmers are
better at the expense
of Mexican farmers
Mexico’s Agriculture
Immigration from
Mexican Farmers has
increased since
At least 4 million
Mexican immigrants in
the United States.
150,000+ per year
Many due to population
A problem because
this goes directly
against one of the
original claims of
The Future
Joseph Najar
The future
Reforms needed for NAFTA to
meet its goals
Solving NAFTA’s most difficult
The prospects of NAFTA surviving
another decade
Meeting goals
GOAL: Enhance the economic
well-being of its members
Main problem: Cross-border trade (noneconomic)
 Transportation routes
 Investment opportunities
Solving problems
International trades vs. local institutions
Rules and procedures for handling disputes
Surviving another decade
Bridging the gap
Security and Prosperity Partnership of
North America (SPP)
Blueprint for a further North American