NAFTA AND ITS IMPACT ON INDIA

Presented By:
1) Sumit Dev 36 2) Anil Visave - 38 3) Nihar Manjrekar - 93 4) Kapil Thakkar - 112

INDEX
NAME OF THE TOPIC PAGE NUMBER

1. Introduction to North American Free Trade Agreement 2.NAFTA Background and Chronology of Events 3.Objectives of NAFTA 4.NAFTA Supplements 5.NAFTA Pros 6.NAFTA Cons 7.Impact of NAFTA on US, Canada and Mexico 8.NAFTA and India 9.Future and Conclusion

3
5 10 10 11 16 18 24 26

Introduction to North American Free Trade Agreement

A number of NAFTA institutions work to ensure smooth implementation and day-to-day oversight of the Agreements provisions. The North American Free Trade Agreement (NAFTA) is an agreement signed by Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the CanadaUnited States Free Trade Agreement between the U.S. and Canada. In terms of combined purchasing power parity GDP of its members, as of 2007 the trade bloc is the largest in the world and second largest by nominal GDP comparison. NAFTA has two supplements: the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC). Free Trade Commission Made up of ministerial representatives from the NAFTA partners. Supervises the implementation and further elaboration of the Agreement and helps resolve disputes arising from its interpretation. Oversees the work of the NAFTA committees, working groups, and other subsidiary bodies. NAFTA Coordinators Senior trade department officials designated by each country. Responsible for the day-to-day management of NAFTA implementation.

NAFTA Working Groups and Committees Over 30 working groups and committees have been established to facilitate trade and investment and to ensure the effective implementation and administration of NAFTA. Key areas of work include trade in goods, rules of origin, customs, agricultural trade and subsidies, standards, government procurement, investment and services, cross-border movement of business people, and alternative dispute resolution.

NAFTA Secretariat Made up of a national section from each member country. Responsible for administering the dispute settlement provisions of the Agreement and for administering dispute resolution processes under Chapter 14, Chapter 19 and Chapter 20. Also has certain responsibilities related to the Chapter 11 dispute settlement provisions concerning investment. Maintains a court-like registry relating to panel, committee, and tribunal proceedings. Maintains a tri-national website containing up-to-date information on past and current disputes. Commission for Labor Cooperation Created to promote cooperation on labor matters among NAFTA members and the effective enforcement of domestic labor law. Consists of a Council of Ministers (comprising the labor ministers from each country) and a Secretariat, which provides administrative, technical, and operational support to the Council and implements an annual work program. Departments responsible for labor in each of the three countries serve as domestic implementation points.

Commission for Environmental Cooperation Established to further cooperation among NAFTA partners in implementing the environmental side accord to NAFTA and to address environmental issues of continental concern, with particular attention to the environmental challenges and opportunities presented by continentwide free trade. Consists of a Council (comprising the environment ministers from each country), a Joint Public Advisory Committee (a 15-member, independent volunteer body that provides advice and public input to Council on any matter within the scope of the environmental accord), and a Secretariat (which provides administrative, technical, and operational support).

NAFTA Background In 1994, the North American Free Trade Agreement (NAFTA), a state-of-the-art marketopening agreement, came into force. Since then, NAFTA has systematically eliminated most tariff and non-tariff barriers to trade and investment between Canada, the United States, and Mexico. By establishing a strong and reliable framework for investment, NAFTA has also helped create the environment of confidence and stability required for long-term investment. NAFTA was preceded by the Canada-U.S. Free Trade Agreement. . NAFTA - Chronology of Events June 10, 1990: Canada, the U.S., and Mexico agree to pursue a free trade agreement February 5, 1991: NAFTA negotiations begin. December 17, 1992: NAFTA is signed by leaders from Canada, the U.S., and Mexico.
5

August 1993: Additional side agreements on labor and the environment are negotiated. January 1, 1994: NAFTA enters into force The Canada-U.S. Free Trade Agreement Negotiations toward a free trade agreement between the United States and Canada began in 1985. Sixteen months later, the two nations came together and agreed to the Canada-U.S. Free Trade Agreement (FTA). It was a historic agreement that placed Canada and the United States at the forefront of trade liberalization. Key elements of the Agreement included the elimination of tariffs and the reduction of many non-tariff barriers to trade. The FTA was also among the first trade agreements to address trade in services. It also included a dispute settlement mechanism for the fair and expeditious resolution of trade disagreements, and established a ground-breaking system for the binational review of trade remedy determinations, thereby providing an alternative to domestic judicial review. In practical terms, Canada and the United States agreed to remove bilateral border measures on traded goods, which included the removal of tariffs on goods such as meat products, fruits and vegetables, beverages, processed foods, live animals, wine, clothing and textiles, fuels, electrical goods and machinery. Canada-U.S. FTA ~ Chronology of Events September 26, 1985: Canada proposes a free trade agreement with the United States. October 4, 1987: Substantive negotiations conclude and agreement is reached on the CanadaU.S. Free Trade Agreement. January 2 1988: The Agreement is signed by leaders from Canada and the United States. January 1, 1989: The Canada-U.S. Free Trade Agreement enters into force.
6

North American Free Trade Agreement 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. Some of the most important provisions are highlighted below. 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 NAFTAs rules. Protection for Foreign Investment Commitment to treat each others investors and their investments in the territory of the host NAFTA country no less favorably 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. Side Agreements The NAFTA partners also negotiated two side agreements: the North American Agreement on Environmental Cooperation and the North American Agreement on Labor Cooperation.

Commitment to the Environment The NAFTA partners signed a parallel agreement addressing environmental issues, the North American Agreement on Environmental Cooperation (NAAEC). Under the NAAEC, the United States, Canada and Mexico have committed to take certain steps to protect the environment, including the obligation that each of the parties will not fail to effectively enforce its environmental laws. A partys failure to meet this environmental obligation is subject to the same type of dispute resolution mechanism that is included in the NAFTA for commercial obligations. In addition, the NAAEC has created a mechanism that allows any citizen or non-governmental organization to make a submission concerning whether a party is failing to effectively enforce its environmental law. In contrast, commercial obligations are not subject to this type of independent review.

Objectives of NAFTA To eliminate trade barriers & facilitate the cross-border movements of goods and services between the parties To promote conditions of fair competition To substantially increase investment opportunities To provide adequate and effective protection & enforcement of intellectual property rights in each territory For joint administration and to create effective procedures for resolution of trade related disputes To establish a framework for further trilateral, regional and multilateral co-operation to expand and enhance benefits of this agreement

NAAEC created Commission for Environmental Co-operation (CEC) on 1st January, 1994 Objectives Foster the protection and improvement of the environment in the territories of the Parties for the well-being of present and future generations Promote sustainable development based on cooperation and mutually supportive environmental and economic policies; Increase cooperation between the members to better conserve, protect, and enhance the environment, including wild flora and fauna; Support the environmental goals and objectives of the NAFTA; Avoid creating trade distortions or new trade barriers;
10

 Promote pollution prevention policies and practices

North American Agreement on Labor Co-operation (NAALC) NAALC members work together to protect, enhance and enforce the basic rights of workers. Establishment of institutions & creation of formal process to raise concerns related to labor law enforcement directly with government Undertaken a wide range of co-operative programs and technical exchanges on 1) Industrial relations, 2) Occupational safety and health, 3) Child labour, 4) Gender equality, 5) Protection of migrant workers

NAFTA - PROS
Benefits the importers by reduced or duty free goods.

11

The trade tariff from 1989 to 2001 has reduced considerably. From 3.25% the average trade tariff has reduced to 0.25%. Increase in trade NAFTA countries trade from 93 to 2005 grew from 297 $ to 810$ Real GDP growth The growth in real GDP of US was 48%, Mexico was 40% and Canada was 49% in the year 2005. Great increase in agriculture trade among the three countries and market access within each country also increased considerably. First agreement to include agriculture as well as other industries. Mexicos poverty rate decreased and real income increased, even after economic crisis 1994-1995.

12

Exchange rate over-valuation and the current account deficit were the two major problems in

the Mexican economy in 1994. Given these problems, several additional factors helped to trigger the crisis: 1) elections, which are traditionally associated with devaluation, 2) the rise in U.S. interest rates, 3) loss of investor confidence due to politically linked assassinations, 4) loose monetary policy in response to the reduction in foreign capital flows Intangible Benefits Intellectual property (IP) is a legal concept which refers to creations of the mind for which exclusive rights are recognized. Under intellectual property law, owners are granted certain exclusive rights to a variety of intangible assets, such as musical, literary, and artistic works; discoveries and inventions; and words, phrases, symbols, and designs. Common types of intellectual property rights include copyright, trademarks, patents, industrial design rights, trade dress, and in some jurisdictions trade secrets. Environmental Provisions (NAAEC) The North American Agreement on Environmental Cooperation (NAAEC) is an environmental agreement between the United States of America, Canada and Mexico as a side-treaty of the North American Free Trade Agreement. The agreement came into effect January 1, 1994. The agreement consists of a declaration of principles and objectives concerning conservation and the protection of the environment as well as concrete measures to further cooperation on these matters between the three countries. Part Three of the NAAEC establishes the Commission for Environmental Cooperation (CEC), which
13

was set up as part of the agreement. The structure of the CEC is composed of the Council, which is the governing body, a Secretariat based in Montreal and the Joint Public Advisory Committee. Exports The NAFTA countries (Canada and Mexico), were the top two purchasers of U.S. exports in 2010. (Canada $248.2 billion and Mexico $163.3 billion). U.S. 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). U.S. exports to NAFTA accounted for 32.2% of overall U.S. 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). U.S. exports of agricultural products to NAFTA countries totaled $31.4 billion in 2010. Leading categories include: 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). U.S. exports of private commercial services* (i.e., excluding military and government) to NAFTA were $63.8 billion in 2009 (latest data available), down 7% ($4.6 billion) from 2008, but up 125% since 1994.

14

Imports The NAFTA countries were the second and third largest suppliers of goods imports to the United States in 2010. (Canada $276.5 billon, and Mexico $229.7 billion). U.S. goods imports from NAFTA totaled $506.1 billion in 2010, up 25.6% ($103 billion), from 2009, and up 184% from 1994, and up 235% from 1993. U.S. 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). U.S. 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). U.S. imports of private commercial services* (i.e., 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 U.S. goods trade deficit with NAFTA was $94.6 billion in 2010, a 36.4% increase ($25 billion) over 2009. The U.S. goods trade deficit with NAFTA accounted for 26.8% of the overall U.S. goods trade deficit in 2010. The United States had a services trade surplus of $28.3 billion with NAFTA countries in 2009 (latest data available).

15

Investment U.S. foreign direct investment (FDI) in NAFTA Countries (stock) was $357.7 billion in 2009 (latest data available), up 8.8% from 2008. U.S. direct investment in NAFTA Countries is in nonbank holding companies, and in the manufacturing, finance/insurance, and mining sectors. NAFTA Countries FDI in the United States (stock) was $237.2 billion in 2009 (latest data available), up 16.5% from 2008. NAFTA countries direct investment in the U.S. is in the manufacturing, finance/insurance, and banking sectors.

NAFTA - Cons
Benefits Mexico an Canada more than the U.S. It has also been argued that the way NAFTA was written benefits Canada and Mexico more than the United States. For example, Canada and especially Mexico have a longer time to change their tariffs and restrictions than the U.S. does. Plus, the mandatory restriction for the purchase of only American-made goods by certain U.S. Government agencies has been abolished in order to provide an atmosphere of competition from both Mexico and Canada in this market. U.S. deficit with trading partners One problem frequently brought up is that of the American deficit with it's trading partners. In fact, the U.S. has its 4th highest deficit with Canada ($1.4 billion for July 1995, $18.10 billion for fiscal year 1994) and 5th highest with Mexico ($1.2 billion for July 1995, $8.21 billion for fiscal year 1994).
16

 Loss of low-wage American jobs to Mexico The biggest complaint about NAFTA is how jobs, mainly blue-collar jobs, will all be lost to Mexico because labor is so cheap down there. This above statement is at least half true. What is true is that Mexican labor is cheaper than American labor. The average U.S. worker makes $10.97/hour while the average Mexican worker makes $1.85/hour. And in the FTZ (Free Trade Zone) in Northern Mexico, the worker makes $0.75/hour. The pact has destroyed Mexico's small farmers, and bringing in an influx of subsidized U.S. food imports Traffic congestion and delays along the borders. Mainly Laredo Border of Mexico Laredo had already emerged as the busiest point of entry along the US-Mexico border with freight truck crossings exceeding 3,900 per day Mexicos dependency on U.S. imports Mexico depended solely on U.S imports as major auto parts were exported from U.S to Mexico and major of the automotive industries were set up in Mexico.

17

Impact of NAFTA on U.S

Agriculture exports to Canada and Mexico blossomed

Manufacturing sector production increased Textiles and Apparel trade increased

Impact of NAFTA on Canada

U.S. investment in automotive production Increases in oil exports Increases in shipment of beef, agricultural, wood and paper products to the U.S Export of mineral and mining products to US and Mexico.
18

Impact of NAFTA on Mexico

Huge FDI in Mexico by US Maquiladoras industry A maquiladora is the Mexican name for manufacturing operations in afree trade zone (FTZ), where factories import material and equipment on a duty-free and tarifffree basis for assembly, processing, or manufacturing and then export the assembled, processed and/or manufactured products, sometimes back to the raw materials' country of origin. Currently about 1.3 million Mexicans are employed in one or more of approximately 3,000 maquiladoras. The term maquiladora, in the Spanish language, refers to the practice of millers charging a maquila, or "miller's portion" for processing other people's grain. Rapid structural reforms Better roads were built in Mexico for carrying out trade in neighboring NAFTA countries of U.S and Canada. Economic and political stabilization There was political stabilization in Mexico post PESO crisis as there was huge investment in Mexico by U.S and Canada.

Maquiladoras industries 3 Day Blinds 20th Century Plastics

19

 Acer Peripherals Bali Company, Inc. Bayer Corp./Medsep BMW Canon Business Machines Casio Manufacturing Chrysler Daewoo Eastman Kodak/Verbatim Eberhard-Faber Eli Lilly Corporation Ericsson Fisher Price Ford Foster Grant Corporation General Electric Company JVC GM Hasbro Hewlett Packard
20

 Honda Hyundai Precision America IBM Matsushita Mattel Maxell Corporation Mercedes Benz Mitsubishi Electronics Corp. Motorola Nissan Philips These industries were shifted from U.S to Mexico as there was cheap labour available in Mexico and it was good to produce goods at a lower cost.

21

GDP Growth Rates of NAFTA members

GDP Growth Rates NAFTA members

10 5 % 0 -5 -10 CAN USA MEX

Impact of NAFTA on Trade (NAFTA members)

22

Public Opinion About NAFTA Public opinion toward NAFTA in the United States, Canada, and Mexico was mixed. A survey conducted by CIDE and COMEXI in Mexico showed that 64 percent of the Mexican public favored NAFTA. The Program on International Policy Attitudes reported in a poll that 47 percent of Americans thought that NAFTA has been good for the United States, while 39 percent thought it had been bad for the country

23

NAFTA and India

Current Statistics : Trade between India and NAFTA countries Exports
April-2010-March-2011 April-2011-March-2012 %Gro S.No Name of Country Value in INR Value in Value in INR Value in wth in %Growth in US$ Lacs US$ Million Lacs US$ Million INR
1 2 India Export CANADA to 613,988.55 1,348.82 25,291.91 26,640.73 992,373.57 16,645,541.98 17,637,915.55 2,053.54 34,741.60 36,795.14 61.63 44.5 45.37 52.25 37.36 38.12

India Export to U S A 11,519,450.49 Total 12,133,439.04

Imports

S.No. Name of Country

1 2 3 India Import CANADA from

April-2010- March-2011 Value in INR Value in US$ Lacs Million

924,330.56 2,029.98 1,163.45 20,050.72 23,244.15

April-2011- March-2012 Value in INR Value in US$ Lacs Million

1,402,307.43 1,239,702.81 11,729,331.20 14,371,341.45 2,897.82 2,577.65 24,470.16 29,945.63

%Growth in %Growth INR in US$

51.71 135.29 28.39 35.74 42.75 121.55 22.04 28.83

India Import from MEXICO 526,882.57 India Import from U S A Total 9,135,850.32 10,587,063.45

24

Impact on Indias Trade

Balance of Trade

Future of NAFTA

25

Future of NAFTA
Clearly not about cheap labor It is about integration of the North American marketplace It is about moving up the value-added chain It is about maintaining and increasing competitiveness and productivity Mexico, like the U.S., fears losing its manufacturing sector to other countries why? Over the last 5 years: Chinas exports to the U.S. grew 300% Mexicos exports to the U.S. grew 30%

Conclusion
NAFTA has played an important role in the overall development of the three nations - The progressive elimination of tariffs & trade barriers, - Dispute resolution - Commitment to intellectual property & environment legislation - Mutual entry into governmental bidding & the financial and other service sector

26