International Trade Law

INTERNATIONAL TRADE LAW

‘North American Free Trade Agreement (NAFTA)’

SUBMITTED TO:

SUBMITTED BY:

MS. ALAMDEEP

AMIT GUPTA

UILS

BALLB 8TH SEM.

PU

ROLL NO- 11/12

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ACKNOWLEDGEMENT

I would like to thank my International Trade Law professor Ms. Alamdeep for giving me the opportunity to make this interesting project. Her expert guidance and motivation has helped me a lot in making this project. I would also like to thank my family and friends for helping me and supporting me in making this project. Making this project has been a learning experience for me and it has helped me in gaining my knowledge about the subject and this topic.

Amit Gupta

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CONTENTS

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Introduction History NAFTA Bibliography

pg-4 pg-4 pg-5 pg-13

North American Free Trade Agreement (NAFTA) 3 | Page

The North American Free Trade Agreement (NAFTA) is an agreement signed by Canada, Mexico, and the United States, creating a trilateral rulesbased trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the Canada–United States Free Trade Agreement between the U.S. and Canada.In 1994, the North American Free Trade Agreement (NAFTA) came into effect, creating one of the world’s largest free trade zones and laying the foundations for strong economic growth and rising prosperity for Canada, the United States, and Mexico. Since then, NAFTA has demonstrated how free trade increases wealth and competitiveness, delivering real benefits to families, farmers, workers, manufacturers, and consumers.The North American Free Trade Agreement (NAFTA) is a comprehensive agreement that sets the rules for international trade and investment between Canada, the United States, and Mexico. The Agreement is a complex and lengthy document that includes eight sections, 22 chapters, and some 2,000 pages.

HISTORY- The impetus for NAFTA actually began with President Ronald Reagan, who campaigned on a North American common market. In 1984, Congress passed the Trade and Tariff Act. This is important because it gave the President "fast-track" authority to negotiate free trade agreements, while only allowing Congress the ability to approve or disapprove, not change negotiating points. Canadian Prime Minister Mulroney agreed with Reagan to begin negotiations for the Canada-U.S. Free Trade Agreement, which was signed in 1988, went into effect in 1989 and is now suspended since it's no longer needed. Meanwhile, Mexican President Salinas and President Bush began negotiations for a liberalized trade between the two countries. Prior to NAFTA, Mexican tariffs on U.S. imports were 250% higher than U.S. tariffs on Mexican imports. In 1991, Canada requested a trilateral agreement, which then led to NAFTA. In 1993, concerns about liberalization of labour and environmental regulations led to the adoption of two addendums.NAFTA was signed by President George H.W. Bush, Mexican President Salinas, and Canadian Prime Minister Brian Mulroney in 1992. It was ratified by the legislatures of the three countries in 1993. It was finally signed into law by President Bill Clinton on December 8, 1993 and entered force January 1, 1994. Although it was signed by President Bush, it was a priority of President Clinton's, and its passage is considered one of his first successes. 4 | Page

PURPOSE-

Article 102 of the NAFTA agreement outlines its

purpose:  Grant the signatories Most Favoured Nation status.  Eliminate barriers to trade and facilitate the cross-border movement of goods and services.  Promote conditions of fair competition.  Increase investment opportunities.  Provide protection and enforcement of intellectual property rights.  Create procedures for the resolution of trade disputes.  Establish a framework for further trilateral, regional and multilateral cooperation to expand the trade agreement's benefits.

IMPORTANT PROVISIONS: Market Access for Goods  The elimination of duties on thousands of goods crossing borders within North America.  Phased-in tariff reductions – now complete – and special rules for agricultural, automotive, and textile and apparel products.  Important rights for NAFTA services providers and users across a broad spectrum of sectors.  Special commitments regarding telecommunications and financial services.  Formal dispute resolution processes that help resolve differences that arise in the interpretation or application of NAFTA’s rules.

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Protection for Foreign Investment  Commitment to treat each other’s’ investors and their investments in the territory of the host NAFTA country no less favourably than their own domestic investors.  Commitment to provide NAFTA investors with the best treatment given to foreign investors from beyond North America.  A transparent and binding dispute resolution mechanism specially designed to deal with investment. Protection for Intellectual Property  Adequate and effective protection and enforcement of a broad range of intellectual property rights (including through patents, trademarks, copyrights, and industrial designs), while ensuring that the measures that enforce these rights do not themselves become barriers to legitimate trade. Easier Access for Business Travelers  Easier access for business professionals in hundreds of different professions so that they can travel for business throughout the continent. Access to Government Procurement  Access to government procurement opportunities at the federal levels in Canada, Mexico, and the United States. Rules of Origin  NAFTA rules of origin are used to determine whether a good is eligible for preferential treatment under NAFTA.  At various times since NAFTA came into effect, the partners have implemented measures to liberalize or expand the list of products that qualify for preferential treatment. Since 2005, for example, the NAFTA partners have implemented two sets of changes to make it easier for traders to qualify for duty-free treatment under NAFTA.

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Side Agreements The NAFTA partners also negotiated two side agreements: the North American Agreement on Environmental Cooperation and the North American Agreement on Labour Cooperation.

FACTS ABOUT NAFTA: Canada and the United States implemented a free trade pact in 1989. In 1994, NAFTA broadened the free trade area to include Mexico. NAFTA Economy: Today NAFTA covers a North American economy with a combined output of US$17.0 trillion. NAFTA Population: The NAFTA region is home to 444.1 million people, 33.3 million of whom live in Canada, 304.1 million in the United States, and 106.7 million in Mexico. NAFTA Languages: English, Spanish, and French are languages widely spoken in the NAFTA countries. However, many other languages are spoken across the continent. Canada: One in five jobs in Canada is in part linked to international trade, and Canada’s prosperity is built on its openness to international trade and investment. As such, the North American continental partnership is without a doubt an important competitive advantage for Canada. Canada is using this continental platform as a way to help Canadian business embrace commercial opportunities around the world. The United States: The largest and most diversified economy in the world, the United States is a market economy whose businesses are world leaders in the manufacturing and high-tech sectors, especially computers, medical equipment, and aerospace, and in services, including financial services and telecommunications, and in agriculture. Mexico: Trade liberalization has transformed and modernized Mexico’s vibrant economy by successfully boosting trade and investment flows. Within just a few years, Mexico’s exports have diversified from primarily oil to include an array 7 | Page

of manufactured products, making Mexico one of the largest exporters in the world.

DISPUTE SETTLEMENT: The North American Free Trade Agreement (NAFTA) includes impartial, rulesbased dispute resolution mechanisms to provide the assurance of fairness and predictability that North American businesses need to engage in commercial exchanges. Under NAFTA, our businesses can trade and invest with the knowledge that rules exist to ensure fair treatment and that procedures are in place to settle disputes impartially, on the rare occasions when they occur. Today, the vast majority of trade and investment among the NAFTA partners takes place in accordance with the clear and well-established rules of NAFTA and the World Trade Organization. While disputes rarely emerge, NAFTA directs those concerned to try to resolve their differences through NAFTA committees and working groups or through other consultations. If no mutually acceptable solution is found, NAFTA also provides for specific formal mechanisms as follows: Chapter 19 on Anti-dumping and Countervailing Duties  Chapter 19 offers exporters and domestic producers an effective and direct route to make their case and appeal the results of trade-remedy investigations before an independent and objective binational panel. This process is an alternative to judicial review of such decisions before domestic courts. This mechanism has been effective in providing for the efficient and impartial review of trade remedy determinations made by the investigating authorities of all three NAFTA partners. To date, panels have sustained some decisions made by domestic investigating authorities, but have also remanded others for reconsideration.  The NAFTA Secretariat is responsible for the administration of the Chapter 19 dispute settlement process.

Chapter 20 on General Dispute Settlement

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 Chapter 20 offers a three-step process for resolving disputes regarding the implementation or interpretation of NAFTA provisions:  The first step is the consultation process where the disputing parties formally discuss the disagreement.  If the first step does not resolve the dispute, ministers will try to reach agreement at a Free Trade Commission meeting.  If the second step does not resolve the dispute, the complainant can request that a panel be set up to review the dispute and issue a binding decision. 2 The NAFTA Secretariat is responsible for the administration of the Chapter 20 dispute settlement process. 3

Chapter 11 on foreign investment

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Chapter 11 establishes a mechanism for the settlement of investment disputes between investors and NAFTA partners. This process assures both equal non-discriminatory treatment among NAFTA investors (in accordance with the principle of international reciprocity) and due process before an impartial tribunal.

ADVANTAGES OF NAFTA:  NAFTA created the world’s largest free trade area, which benefits the 450 million people within its borders. It created an economic powerhouse of $20.08 trillion, as measured by Gross Domestic Product (GDP). That's because it linked the economies of the United States ($17.3 trillion), Canada ($1.6 trillion) and Mexico ($2.2 trillion). This trade area is greater than the economic output of the 28 countries in the entire European Union.  NAFTA eliminates all tariffs between the three countries in January 2008. This reduces inflation by decreasing the costs of imports.  NAFTA creates agreements on international rights for business investors. This reduces the cost of trade. That spurs investment and growth, especially for small businesses. 9 | Page

 Between 1993-2015, trade between the three members quadrupled, from $297 billion to $1.14 trillion. This boosts economic growth, profits, and jobs for all three countries. It also allows lower prices for consumers.  U.S. exports of goods grew from $142 billion to $517 billion, making Canada ($280 billion) and Mexico ($236 billion) the top two U.S. export markets in 2015. That means 34% of all U.S. exports of goods went to these two countries alone. Imports from Canada ($295.2 billion) and Mexico ($294.7 billion) increased from $151 billion in 1993 to $590 billion, or 26% of total U.S.goods imports.  U.S. farmers were helped by NAFTA. Food exports to Canada and Mexico grew 156%, compared to an increase of 65% to the rest of the world.  The U.S. imported $144.2 billion in oil from Mexico and Canada. Thanks to greater U.S. shale oil production, this figure was down from $157.8 billion in 2007. Since NAFTA eliminates tariffs, oil prices are lower. This also reduces U.S. reliance on oil imports from the Middle East and Venezuela.  Since NAFTA was enacted, U.S. foreign direct investment (FDI) in Canada and Mexico more than tripled to $452 billion in 2012. This helps boost profits of U.S. businesses by giving them more opportunities to develop, and markets to explore.  NAFTA reduces investors' risk by guaranteeing they will have the same legal rights as local investors. Through NAFTA, investors can make legal claims against the government if it nationalizes their industry or takes their property by eminent domain.

DISADVANTAGES OF NAFTA:  U.S. Jobs Were Lost- Since labour is cheaper in Mexico, many manufacturing industries moved part of their production from high-cost U.S. states. Between 1994 and 2010, the U.S. trade deficits with Mexico totaled $97.2 billion, displacing 682,900 U.S. jobs.  U.S. Wages Were Suppressed  Mexico's Farmers Were Put out of Business- Mexico lost 1.3 million farm jobs. The 2002 Farm Bill subsidized U.S. agribusiness by as much as 40% of net farm income. When NAFTA removed tariffs, corn and other grains were exported to Mexico below cost. Rural Mexican farmers could not compete. At the same time, Mexico reduced its subsidies to farmers from 33.2% of total farm income in 1990 to 13.2% in 2001.

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Mexico's Environment Deteriorated- In response to NAFTA competitive pressure, Mexico agribusiness used more fertilizers and other chemicals, costing $36 billion per year in pollution. Rural farmers expanded into more marginal land, resulting in deforestation at a rate of 630,000 hectares per year.

RESULTS OF NAFTA: The North American Free Trade Agreement (NAFTA) revolutionized trade and investment in North America, helping to unlock our region’s economic potential. Since it came into effect 15 years ago, North Americans have enjoyed an overall extended period of strong economic growth and rising prosperity. NAFTA has helped to stimulate economic growth and create higher-paying jobs across North America. It has also paved the way for greater market competition and enhanced choice and purchasing power for North American consumers, families, farmers, and businesses. Furthermore, NAFTA has provided North American businesses with better access to materials, technologies, investment capital, and talent available across North America. This has helped make our businesses more competitive, both within North America and around the world. With rapidly growing economies in Asia and South America challenging North America’s competitiveness, NAFTA remains key to sustained growth and prosperity in the region.  Since NAFTA came into effect, merchandise trade among the NAFTA partners has more than tripled, reaching US$946.1 billion in 2008. Over that period, Canada-U.S. trade has nearly tripled, while trade between Mexico and the U.S. has more than quadrupled. [C$ figure = $1.0 trillion]  Today, the NAFTA partners exchange about US$2.6 billion in merchandise on a daily basis with each other. That’s about US$108 million per hour. [C$ figures = $2.8 billion and $115 million]  Since NAFTA came into effect, the North American economy has more than doubled in size. The combined gross domestic product (GDP) for Canada, the United States, and Mexico surpassed US$17 trillion in 2008,

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up from US$7.6 trillion in 1993. [C$ figures = $18.2 trillion and $9.8 trillion]  In 2008, Canada and the United States’ inward foreign direct investment stocks from NAFTA partner countries reached US$469.8 billion. Meanwhile, Mexico has become one of the largest recipients of foreign direct investment among emerging markets, and received US$156 billion from its NAFTA partners between 1993 and 2008.  North American employment levels have climbed nearly 23% since 1993, representing a net gain of 39.7 million jobs.

BIBLIOGRAPHY 12 | P a g e

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www.naftanow.org www.useconomy.about.com www.sice.oas.org www.mackinac.org Hufbauer, Gary Clyde, “NAFTA An Assessment”, oxford publication,2015.

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