FREE ESSAY ON NAFTA

NAFTA

Introduction to International Business
Professor Natalie M. Leonard
NAFTA's Today & Tommorow
By
Sema Kaya
Richard Hushion
Chuck Lundy
Vui Loong Tsui
Joab Magara
Abdul Jahadhmy
Table of Contents
Page
NAFTA Background and History 2
Positive Effects on NAFTA 2
Growth in Trade 2
Growth in U.S. Exports 2
U.S Compliance with NAFTA 4
U.S.-Mexico Trade Relations 4
Reform Process in Mexico 4
Negative Effects on NAFTA 5 On the Mexican Side 5
On the American Side 6
Environmental Issues 7
Future of NAFTA 8
NAFTA and the Free Trade Area of the Americans 8
The Future of Rules of Origin in NAFTA Trade 8
References 10
NAFTA Background and History
The North American Free Trade Agreement (NAFTA), which built on the 1989 U.S.-Canada Free
Trade Agreement (CFTA), is the most comprehensive regional free trade agreement ever
negotiated. It created the world's largest free trade area: 380 million people producing
nearly $8 trillion dollars worth of goods and services. 
On January 1, 1994 the North American Free Trade Agreement entered into force. One of the
main objectives of the Agreement is the elimination of tariffs between Canada, Mexico and
the United States on qualifying goods by the year 1998 for originating goods from Canada
and for originating goods from Mexico by the year 2008. 
Positive Effects on NAFTA
Growth in Trade: A+ 
Total North American trade increased from $293 billion in 1993 to $420 billion in 1996, a
gain of $127 billion or 43 percent during NAFTA's first three years. Mexico and Canada
purchased $3 of every $10 in U.S. exports and supplied $3 of every $10 in U.S. imports in
1996. 
Growth in U.S. Exports: A+ 
Thanks to NAFTA, Mexican tariffs-which had averaged 10 percent before the trade agreement
was implemented-now average less than 6 percent, while average U.S. tariffs have fallen
from 4 percent to about 2.5 percent. As a result, U.S. exports to Mexico grew by 37
percent from 1993 to 1996, reaching a record $57 billion.3 During this period, U.S.
exports to Canada also increased by 33 percent, to $134 billion. Total two-way trade
between the United States and Canada was $290 billion in 1996, while total two-way trade
between the United States and Mexico was nearly $130 billion. Moreover, U.S. market share
in Mexico increased from 69 percent of total Mexican imports in 1993 to 76 percent in
1996. During NAFTA's first three years, 39 of the 50 states increased their exports to
Mexico; moreover, 44 states reported a growth in exports to Mexico during 1996 as the
pace of U.S. exports to that country accelerated. 
NAFTA has shattered the myth that U.S. trade deficits destroy U.S. jobs. The combined
U.S. trade deficit with Canada and Mexico increased during the first three years of
NAFTA's implementation-from $9 billion in 1992 to $39.9 billion in 1996-because Canada
and Mexico suffered economic recessions. U.S. exports to NAFTA countries currently
support 2.3 million U.S. jobs. 
The largest post-NAFTA gains in U.S. exports to Mexico have been in such high-technology
manufacturing sectors as transportation and electronic equipment, industrial machinery,
plastics and rubber, fabricated metal products, and chemicals. NAFTA has encouraged U.S.
and foreign investors with apparel and footwear factories in Asia to relocate their
production operations to Mexico. 
U.S. Compliance with NAFTA: B 
In December 1995, the Clinton Administration postponed indefinitely the implementation of
a NAFTA deadline to allow Mexican trucks to circulate in the southwest United States.
U.S.-Mexico Trade Relations: B 
President Clinton's first official trip to Mexico this month came at a time in which
relations between the two countries were at their lowest point in years. The trade and
investment growth achieved during NAFTA's first three years has been eclipsed by the peso
crisis and political turmoil in Mexico and by growing bilateral tensions over drug
control policy, immigration, and the Helms-Burton Act's tightening of economic sanctions
against Cuba. These tensions in U.S. Mexico relations have surfaced because the Clinton
Administration did not assign a sufficiently high priority to Mexico during its first
term in office. NAFTA, however, was never intended to be anything other than a free trade
agreement-a three-way pact by the United States, Mexico, and Canada to eliminate all
tariff and non-tariff barriers to trade over a period of 10 to 15 years. NAFTA was
designed to encourage faster growth in North American trade and investment, which it has
been doing successfully since January 1, 1994. 
Reform Process in Mexico: A 
One of NAFTA's important achievements has been to lock in the process of economic and
political reform under way in Mexico for the past decade. Mexico's membership in NAFTA,
the World Trade Organization, the Asia-Pacific Economic Cooperation forum, and the
Organization for Economic Cooperation and Development has created international
commitments and linkages that it cannot ignore. Even though The Heritage Foundation's
1997 Index of Economic Freedom still accords Mexico a ranking of 3.35, or Mostly Not
Free,12 Mexico has become a more democratic country since NAFTA was implemented. 
Negative Effects on NAFTA
On the Mexican Side:
Paul Picard del Prado, president of the Food Board at the National Manufacturing Industry
Chamber (Canacintra), says the first five years of the North American Trade Agreement
(Nafta) have been good for Americans, but not for Mexicans. Meanwhile, assembly plants
that export semi-finished goods (maquiladoras) have seen significant growth under Nafta.
The Border Trade Alliance, however, will focus on Nafta's future at its first
international conference next month in Monterrey, Mexico, entitled The 21st Century:
Planning the Way.
Companies with high import-export volumes do business in dollars, while professionals
like lawyers or accountants bill clients in dollar rates. But that dollarization touches
only a certain upper crust of society some observers contend. A recent poll surprised
many political analysts when it showed that two-thirds of respondents in the industrial
city of Monterrey, and more than half of respondents in Mexico City, were ready to
welcome the dollar as their everyday currency.
On the American Side
The American Coalition for Competitive Trade (known as ACCT) plans this month to file the
first of several legal challenges to the NAFTA and GATT treaties and the $53 million
bailout of Mexico. Two years ago, at an ACCT conference on NAFTA, von Raab predicted that
passage of the trade agreement linking the Mexican and American economies would lead to
chaos on the border, and so it has. Thomas Considine, director of the federal
government's Drug Enforcement Administration, advised a Senate committee in August that
drug gangs in Mexico could eventually rival the ruthless ring now operating in Colombia.
A Congressional Joint Economic Committee reported that Mexican imports to this country
cost the United States 137,000 jobs in the nine months following passage of NAFTA.
Imports from Mexico have soared since then, perhaps tripling the job-loss figure. Trade
with Mexico has been a big factor in the expanding U.S. trade deficit this year, says
trade correspondent Richard Lawrence in the August 18th Journal of Commerce. A study by
Vanderbilt University documents some of the specific consequences of NAFTA: tomato
production down 25 percent in Florida, Scott Paper Company cutting more than 10,000 jobs
worldwide prior to opening multimillion-dollar plants in Mexico, the virtual elimination
of the apparel industry in the United States. 
Environmental Issues
Trade agreements can have negative impacts on efforts to achieve sustainable development
if they do not adequately address environmental issues. Increased wealth as envisaged
within NAFTA, and that this would inevitably lead to better environment was a misnomer
recognized by Canada, USA and Mexico.
Increase trade volumes and general spiral in a population's wealth have environmental
impacts. Environmental regulations by individual countries affect others.
There are several fundamental environmental issues that are currently being addressed by
NAFTA. Permist trade in compliance with or to enforce international conservation or
environmental protection agreements.
The future of NAFTA and the environment is promising. NAFTA will help clean up existing
problems and result in better environmental protection. NAFTA vigorously addresses Mexico
- US cross border issues and will promote public participation and due process. For the
first time in Mexico, NAFTA guarantees public right of access of information about
environmental non-compliance, and improved rights of private
From US perspective, NAFTA works for continued enforcement of the Montreal (CFC)
Protocol, the Convention on International Trade in endangered species, and 36 other
international agreements. It also ensures that countries can continue to enforce
environmental laws.
Future of NAFTA
NAFTA AND THE FREE TRADE AREA OF THE AMERICAS
The NAFTA contains a very simple clause that states that if agreed to by the United
States, Mexico, and Canada, other countries may accede to this agreement. Chile
subsequently negotiated separate bilateral arrangements with Mexico and Canada, leaving
U.S. firms at a relative disadvantage. The CEOs noted that fast track was the key to
winning congressional approval of NAFTA expansion, and added that  without new fast track
authority, there can be no expansion of NAFTA to include Chile or other Central and South
American countries, and America's global trade leadership will be irreparably harmed.(UE
News).
Labor Unions, human-rights groups, protectionists, and some environmental organizations
have debated the issue of benefits of trade and investment to the US by the current NAFTA
agreement, and have strongly opposed the expansion of NAFTA. 
The Future of Rules of Origin in NAFTA Trade 
As tariff rates on goods traded between the three NAFTA countries continue to decline,
NAFTA originating products will gain competitive advantage within the North American
market. This advantage makes compliance with NAFTA rules of origin ever more important. 
At present, however, investors in Mexico may find in- bond duty drawback programs to
offer greater tariff reduction than the NAFTA preferential duties. Pitex and Maquiladora
programs were established years ago to promote the export industry in Mexico and create
desperately needed jobs. These programs allow materials and equipment to enter the
country duty free and the only tariff charge is over the value added to the exported
finished product. Under NAFTA, an increasing proportion of maquiladora output can be sold
in Mexico (currently 80 percent of a firm's prior year output) reaching 100 percent in
2001.
Bibliography
References
T CNN TIME, Expanding NAFTA Needs Congressional Approval. CNN.Com. Feb.26, 1997.
UE NEWS,  New NAFTA Battle Looms. Rankfile-ue.org. Sept. 14, 1999.
CNN World News, In Chile, Clinton seeks patience on free trade. CNN.Com.April 16,1998.
Accession of Chile to NAFTA. Psirus.sfsu.edu. January, 1998.
Nafta and GATT Hurt U.S. Economy. Duplantier, F.R. 11Oct 1999 .
NAFTA AND GATT Undermine Sovereignty. Duplantier, F.R. 11 Author: Title:
Year:1996
3.http://e3-5b.tamiu.edu/cgi-bin/as_web.exe?ftax99.ask+D+606900
Author:LaFranchi, H.
Year:1999
Title:Mexicans start to sing, adiyos peso- hello $$$
4.http://www.mexdirect.com/invest/brief.regulatory.nafta.rulesoforigin.05.html
Title:The future of rules of Origin in NAFTA Trade
Author: Mexico Direct
Year:1998
By the way you can find good graphics in
http://www.usmcoc.org/naftafor.html
I used that reference also but i forgot to write it
above.