NORTH AMERICAN FREE TRADE AGREEMENT

The NAFTA Secretariat, comprised of a Canadian Section, a Mexican Section and a United States Section, is responsible for the administration of the dispute settlement provisions of the North American Free Trade Agreement (NAFTA). Introduction The North American Free Trade Agreement (NAFTA) was signed by Canada, Mexico, and the United States in December 1992, and came into effect on January 1st, 1994. The NAFTA is precedentsetting in that it establishes a free trade area among developed and developing countries. The agreement seeks to promote free trade in goods and services and increase investment not only by eliminating tariff protection and reducing non-tariff barriers, but also by introducing GATT plus trade and investment-related disciplines. The NAFTA builds on the bilateral Canada-U.S. Free Trade Agreement (CUSFTA) which came into effect on January, 1989. Major advances in the NAFTA over the CUSFTA include the substantially expanded coverage of government procurement (to services and construction), intellectual property and investor's rights (introducing binding investor-state arbitration), as well as more stringent rules of origin. Two side agreements signed in 1993 address cooperation on labor (NAALC) and the environment. These side agreements will allow the imposition of fines and trade sanctions to enforce national standards under certain circumstances. Major trade components of the NAFTA include: General:

(a) Tariffs and Quotas: All U.S., Canadian, and Mexican tariffs and quotas will be phased out over 15 years; (b) Rules of Origin: Goods made with materials or labor from outside North America qualify for NAFTA treatment only if they undergo "substantial transformation" within a member country;

Sector-Specific:

(a) Autos: Tariffs will be eliminated after eight years for autos only if a certain percentage of costs are comprised of North American materials or labor. The requirement that U.S. auto manufacturers produce in Mexico in order to sell there will be lifted after 10 years; (b) Textiles and Apparels: Strict rules will eliminate tariffs only for goods made from North American-spun yarn or from fabric made from North American fibers. Quotas can be reimposed temporarily if imports cause "serious damage" to domestic industry;

(c) Agriculture: About half of the existing tariffs and quotas will be eliminated immediately; however those for politically sensitive crops, such as U.S. corn sold to Mexico or Mexican peanuts, sugar and orange juice sold to the U.S., will be gradually phased out over the maximum period of 15 years.

Institutions Various institutions will facilitate the implementation of the agreement. The Free Trade Commission, composed of cabinet-level representatives of each member country, will meet at least once a year to oversee the performance and evolution of NAFTA. In particular, it will supervise dispute resolution and the work of the nearly 40 committees and working groups set up under the NAFTA. At the Commission's first ministerial meeting in January of 1994, it was agreed that an International Coordinating Secretariat be established in Mexico City, with a U.S. Executive Director. This decision has yet to be implemented.

Objectives 1. The objectives of this Agreement, as elaborated more specifically through its principles and rules, including national treatment, most-favored-nation treatment and transparency are to: (a) Eliminate barriers to trade in, and facilitate the cross border movement of goods and services between the territories of the Parties. (b) Promote conditions of fair competition in the free trade area. (c) Increase substantially investment opportunities in their territories. (d) Provide adequate and effective protection and enforcement of intellectual property rights in each Party's territory. (e) Create effective procedures for the implementation and application of this Agreement, and for its joint administration and the resolution of disputes.

Trade The agreement opened the door for open trade, ending tariffs on various goods and services, and implementing equality between Canada, America, and Mexico. NAFTA allowed agriculture goods to be tariff-free such as eggs, poultry and other meats and crops. This allowed corporations to trade freely and import and export various goods on a North American scale. Since the implementation of NAFTA, the countries involved have been able to do the following: Exports At $248.2 billion for Canada and $163.3 billion for Mexico, they were the top two purchasers of US exports in 2010. US goods exports to NAFTA in 2010 were $411.5 billion, up 23.4% ($78 billion) from 2009 and 149% from 1994 (the year prior to Uruguay Round) and up 190% from 1993 (the year prior to NAFTA). US exports to NAFTA accounted for 32.2% of overall US exports in 2010. The top export

categories (2-digit HS) in 2010 were machinery ($63.3 billion), vehicles (parts) ($56.7 billion), electrical machinery ($56.2 billion), mineral fuel and oil ($26.7 billion), and plastic ($22.6 billion). US exports of agricultural products to NAFTA countries totaled $31.4 billion in 2010. Leading categories included red meats, fresh/chilled/frozen ($2.7 billion); coarse grains ($2.2 million); fresh fruit ($1.9 billion); snack foods (excluding nuts) ($1.8 billion); and fresh vegetables ($1.7 billion). US exports of private commercial services, excluding military and government, to NAFTA were $63.8 billion in 2009 (the latest data available), down 7% ($4.6 billion) from 2008, but up 125% since 1994.

IMPORTS At $276.4 billion for Canada and $229.7 billion for Mexico, they were the second and third largest suppliers of goods imports to the United States in 2010. US goods imports from NAFTA totaled $506.1 billion in 2010, up 25.6% ($103 billion), from 2009, up 184% from 1994, and up 235% from 1993. US imports from NAFTA accounted for 26.5% of overall U.S. imports in 2010. The five largest categories in 2010 were mineral fuel and oil (crude oil) ($116.2 billion), vehicles ($86.3 billion), electrical machinery ($61.8 billion), machinery ($51.2 billion), and precious stones (gold) ($13.9 billion). US imports of agricultural products from NAFTA countries totaled $29.8 billion in 2010. Leading categories include fresh vegetables ($4.6 billion); snack foods including chocolate ($4.0 billion); fresh fruit (excluding bananas) ($2.4 billion); live animals ($2.0 billion); and red meats, fresh/chilled/frozen ($2.0 billion). US imports of private commercial services excluding military and government were $35.5 billion in 2009 (latest data available), down 11.2% ($4.5 billion) from 2008 but up 100% since 1994.

TRADE BALANCES
The US goods trade deficit with NAFTA was $94.6 billion in 2010, a 36.4% increase ($25 billion) over 2009. The US goods trade deficit with NAFTA accounted for 26.8% of the overall U.S. goods trade deficit in 2010. The US had a services trade surplus of $28.3 billion with NAFTA countries in 2009 (the latest data available).

INVESTMENT
The US foreign direct investment (FDI) in NAFTA Countries (stock) was $357.7 billion in 2009 (latest data available), up 8.8% from 2008. The US direct investment in NAFTA countries is in nonblank holding companies, and in the manufacturing, finance/insurance, and mining sectors. The foreign direct investment of Canada and Mexico in the United States (stock) was $237.2 billion in 2009 (the latest data available), up 16.5% from 2008.

What impact has it had on trade specifically?

Trade relations among Canada, Mexico, and the United States have broadened substantially since NAFTA's implementation, though experts disagree over the extent to which this expansion is direct result of the deal. According to data from the office of the U.S. Trade Representative(USTR), the United States' chief negotiator in foreign trade and a major booster of NAFTA another free trade accords, the overall value of intra-North American trade has more than tripled(PDF)since the agreement's inception. The USTR adds that regional business investment in the United States rose 117 percent between 1993 and

2007, as compared to a 45 percent rise in the fourteen years prior. Trade with NAFTA partners now accounts for more than 80 percent of Canadian and Mexican trade, and more than a third of U.S. trade

Impact of NAFTA on Mexico

Analysts cite economic growth in Mexico since NAFTA was implemented. Attributing this growth directly to the deal is a fuzzy process, however, and some experts say Mexican growth has underperformed expectations. Since 1994, Mexico's GDP has increased at an average annual rate of 2.7 percent, below the average growth rates of 3.3 percent and 3.6 percent in the United States and Canada, respectively. Mexican exports to the United States have quadrupled since Naphthas implementation, from $60 billion to $280 billion per year. American exports to Mexico have also increased sharply, more than tripling as Mexico's economy has grown. In addition, experts say trade liberalization between Mexico and the United States has brought broad positive consequences for regular Mexicans, not just Mexican business interests. For instance, the deal has led to a dramatic reduction in prices for Mexican consumers. GEA, a Mexico City-based economic consulting firm, estimates that the cost of basic household goods in Mexico has halved since NAFTA's implementation

Impact of NAFTA on Canada

Like Mexico and the U.S., Canada received a modest positive economic benefit as measured by GDP. Canadian manufacturing employment held steady despite an international downward trend in developed countries. One of NAFTA's biggest economic effects on U.S.-Canada trade has been to boost bilateral agricultural flows. In the year 2008 alone, Canada exports to the United States and Mexico was at CAN$381.3 Billion Dollars and imports from NAFTA was at CAN$245.1 Billion Dollars.[42] The Canadian mainstream has been so unanimous in its recognition of NAFTA's advantages despite a few odd detractors that even former NDP Gary Doer of Manitoba openly praises the benefits of NAFTA. Impact of NAFTA on Canada and Mexico Canada experiences huge economic growth NAFTA enacted, and gained the most out of all three parties. Canada reached their highest average annual growth of 3.6%, Mexico having 2.7% and the U.S at 3.3%.

Effect of NAFTA Benefits

NAFTA eliminate trade barrier Benefit the imports by reduce or duty free goods Can make the exporter more competitive than other nor participating countries

200% increase in trade among the three countries increase market access with each country creates emplypoment creates new environment by crossing borders and agreements

Limitations
It has negative impact on farmer in Mexico who saw food prices fall based on cheap imports from US agri-business It has negative impact on US workers in manufacturing and assembling industries who lost jobs Critics also argue that NAFTA has contributed to the rising level of inequality in both US and MEXICO Some economists believe that NAFTA has not been enough (or worked fast enough) to produce an economic convergence nr to substantially reduce poverty rates.