NAFTA

Question 1

Before NAFTA

Answer 1

In 1990, Mexico’s economy was less than 5% the size of those of the US and Canada combined

Question 2

Before NAFTA

Answer 2

Unique trade bloc: the first to include members of both the developed and developing worlds

Question 3

NAFTA

Answer 3

Established in 1994

Question 4

NAFTA

Answer 4

Became the world’s largest trade bloc:
• 390 million consumers
• combined GDP over $7.6 trillion

Question 5

NAFTA - Aims

Answer 5

All tariffs on goods to be phased out within 10 years, although special rules are applied to key sectors

(eg: textiles, clothing, energy, agriculture)

Question 6

NAFTA - Aims

Answer 6

Trade in services would be facilitated

Question 7

NAFTA - Aims

Answer 7

Relief and protection given to ‘sensitive industries’

eg: US sugar were given protection for 15 years

Question 8

NAFTA - Guidelines

Answer 8

There was an annual review of any suspected examples of dumping of cheap products by one member into another’s country –> imposition of penalty

(eg: In 2001, USA suspected Canada of subsiding their own timber industry, thus imposed a 19% duty on imports to protect its own timber industry)

Question 9

NAFTA - Guidelines

Answer 9

If regulations are breached, fines up to $20 million - environmental standards, min wages, child labour, health safety

Question 10

Impact of NAFTA - USA

Answer 10

SOCIAL - unemployment

Many trade unions feared that free trade with Mexico would result in wage and benefit reductions when competing with cheap Mexican labour

eg: In 1999, the average factory worker in the US earned 8x more than his Mexican counterpart

Question 11

Impact of NAFTA - USA

Answer 11

SOCIAL - unemployment

Although overall unemployment rate remained low, many higher paid workers have been forced into lower paid jobs as US companies have transferred manufacturing operations south of the border

Question 12

Impact of NAFTA - USA

Answer 12

ENVIRONMENTAL

Many US companies moved to Mexico to take direct advantage of the less demanding environmental legislation

Question 13

Impact of NAFTA - USA

Answer 13

ENVIRONMENTAL

Powerful environmental groups such as Sierra Club have been strong critics of NAFTA.

They envisaged more severe environmental degradation in Mexico, and predicted that US environmental legislation would be watered down in order to stay competitive with Mexico.

Question 14

Impact of NAFTA - USA

Answer 14

ECONOMIC

MNCs that have moved operations to Mexico have, as expected, reaped higher profits.

Question 15

Impact of NAFTA - USA

Answer 15

ECONOMIC - predictions vs reality

(A) predictions of an almost immediate adverse impact on the US economy as a whole did not materialise, as growth remained strong in the USA throughout the 1990s

(B) critics of NAFTA within the US frequency cite the growth of visible trade deficit. however, NAFTA trade only accounts for 16% of the overall visible trade deficit.

Question 16

Impact of NAFTA - Canada

Answer 16

Most organisations and individuals in Canada generally hold favourable views about NAFTA ; very clear benefits

Question 17

Impact of NAFTA - Canada

Answer 17

ECONOMIC - trade

Canadian exports to the US and Mexico increased 80% and 65% respectively in the first five years of NAFTA, reaching $271.5billion and $1.4billion

Question 18

Impact of NAFTA - Canada

Answer 18

ECONOMIC - trade

From 1993 to 1998, US investment in Canada +63% and Mexico investment in Canada +300%

Question 19

Definition of Trade Bloc

Answer 19

A trade bloc is a group of countries that share trade agreements between each other

Question 19

Impact of NAFTA - Canada

Answer 19

SOCIO-ECONOMIC - employment

More than one million new jobs have been created in Canada since the start of 1994.

Question 20

Impact of NAFTA - Canada

Answer 20

ENVIRONMENTAL

Environmental groups in Canada have voiced similar concerns to those raised in the US.

Question 21

Impact of NAFTA - Canada

Answer 21

OVERALL

Although Mexico’s trade surplus with Canada rose considerably through the 1990s, Canada’s surplus with the US is on a much larger scale

Question 22

Impact of NAFTA - Mexico

Answer 22

ECONOMIC - trade

In the early 1980s, oil accounted for 2/3 of the exports and dominated the country’s economy.

But now, Mexico had achieved significant market penetration in food and live animals, beverages, tobacco, machinery and transport equipment.

Question 23

Impact of NAFTA - Mexico

Answer 23

ECONOMIC - trade

Mexico’s gain in market share in the US’ imports during the 1990s is equivalent to $44billion in exports.

This is contributed by the decline in barriers to trade and the improved quality of Mexican goods.

Question 24

Impact of NAFTA - Mexico

Answer 24

ECONOMIC - Do FDIs really help?

The Mexican government promotes maquiladoras extensively (factories that import materials or parts to make goods for re-export) and this encourages employment. Employment in the maquiladoras is now 1.3 million compared with 546,000 when NAFTA began.

However, less than 3% of the maquiladoras’ inputs are produced locally. Thus, although rising exports may have been helpful in reducing the trade deficit, output for the domestic market has risen by an average of only 3.5% throughout the 1990s.

Question 25

Impact of NAFTA - Mexico

Answer 25

SOCIAL - Agricultural Practices

Mexican farmers generally have few hectares and operate with very modest equipment. Thus, they face difficulty in competing with large-scale high technology American and Canadian agribusiness.

Previously, wheat dominated Mexico’s agricultural production. But the cheap wheat found in the US and Canada forced them to grow other crops such as cucumber, watermelon and jalapeno chilli to stay competitive.

Question 26

Impact of NAFTA - Mexico

Answer 26

OVERALL

While in many ways Mexico’s success in the US market is good news, this also means that any downturn in the US economy is bound to have an adverse knock-on effect on them as well.

Question 27

Conclusion

Answer 27

Opinions about NAFTA remain divided, especially in the US. Trade agreements are directly influenced by economic changes un individual countries and globally, such as changes in income and exchange rate. Many of the provisions have yet to take effect, thus making it hard to judge.