1

NAFTA AND ITS IMPACT

ON INDIA








2

INDEX



NAME OF THE TOPIC PAGE
NUMBER
1. Introduction to North American Free Trade Agreement
3
2.NAFTA Background and Chronology of Events 6
3.Objectives of NAFTA 12
4.NAFTA Supplements 13
5.NAFTA Pros 14
6.NAFTA Cons 19
7.Impact of NAFTA on US, Canada and Mexico 21
8.NAFTA and India 27
9.Future and Conclusion 30
3

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 It superseded the CanadaUnited States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 Labour 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.
4

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.
5

Maintains a tri-national website containing up-to-date information on
past and current disputes.
Commission for Labour Cooperation
Created to promote cooperation on labour matters among NAFTA
members and the effective enforcement of domestic labour law.
Consists of a Council of Ministers (comprising the labour 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 labour 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 continent-wide 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).

6

NAFTA Background
In 1994, the North American Free Trade Agreement (NAFTA), a
state-of-the-art market-opening 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.
August 1993: Additional side agreements on labour and the
environment are negotiated.
January 1, 1994: NAFTA enters into force
The Canada-U.S. Free Trade Agreement
7

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 bi national 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 Canada-U.S. Free Trade Agreement.
8

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.
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.
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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.

10

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 Labour 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
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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.
















12

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;
Promote pollution prevention policies and practices

13

NAFTA Supplements
North American Agreement on Labour 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 labour 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











14

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

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.
Exchange rate over-valuation and the current account
deficit were the two major problems in the Mexican economy in
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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 was set up as part of the agreement.
The structure of the CEC is composed of the Council, which is
16

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.


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).
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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).

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.
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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.





















19

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).
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 labour is so cheap
down there. This above statement is at least half true. What is true
is that Mexican labour is cheaper than American labour. 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
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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.



















21

Impact of NAFTA
Impact of NAFTA on USA
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
22

Increases in shipment of beef, agricultural, wood and paper
products to the U.S
Export of mineral and mining products to US and Mexico.
Impact of NAFTA on Mexico
Huge FDI in Mexico by US
Maquiladoras industry
A maquiladora the Mexican name for manufacturing operations
in a free trade zone (FTZ), where factories import material and
equipment on a duty-free and tariff-free 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
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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
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
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Foster Grant Corporation
General Electric Company
JVC
GM
Hasbro
Hewlett Packard
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.
25

GDP Growth Rates of NAFTA members


Impact of NAFTA on Trade (NAFTA members)





-10
-5
0
5
10
%

GDP Growth Rates NAFTA members
CAN
USA
MEX
26

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












27

NAFTA and India
Current Statistics : Trade between India and NAFTA countries
Exports



S.
No
Name of
Country
April-2010-
March-2011
April-2011-
March-2012
%G
row
th
in
IN
R
%Growth in
US$ Value in
INR Lacs
Value
in US$
Millio
n
Value in
INR
Lacs
Value
in US$
Millio
n
1
India
Export to
CANAD
A
613,988.5
5
1,348.8
2
992,373.
57
2,053.5
4
61.
63
52.25
2
India
Export to
U S A
11,519,45
0.49
25,291.
91
16,645,5
41.98
34,741.
60
44.
5
37.36

Total
12,133,43
9.04
26,640.
73
17,637,9
15.55
36,795.
14
45.
37
38.12
28

Imports



S.No.
Name of
Country
April-2010- March-
2011
April-2011- March-
2012
%Growth
in INR
%Growth
in US$

Value in INR
Lacs
Value in
US$
Million
Value in INR
Lacs
Value in
US$
Million
1
India
Import
from
CANADA
924,330.56 2,029.98 1,402,307.43 2,897.82 51.71 42.75
2
India
Import
from
MEXICO
526,882.57 1,163.45 1,239,702.81 2,577.65 135.29 121.55
3
India
Import
from U S
A
9,135,850.32 20,050.72 11,729,331.20 24,470.16 28.39 22.04

Total 10,587,063.45 23,244.15 14,371,341.45 29,945.63 35.74 28.83
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Impact on Indias Trade








Balance of Trade








Future of NAFTA

30

Future of NAFTA
Clearly not about cheap labour
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
31