Introduction to International Business

Professor Natalie M. Leonard

NAFTA’s Today & Tommorow


Sema Kaya
Richard Hushion
Chuck Lundy
Vui Loong Tsui
Joab Magara
Abdul Jahadhmy
Table of Contents
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