North American Free Trade Agreement

In December 1992, Canada, the United States and Mexico signed the North American Free Trade Agreement (NAFTA), the single largest free trade area in our times. When NAFTA was signed, the three countries resolved to “Strengthen the development and enforcement of environmental laws and regulations, Enhance the competitiveness of their firms in global markets, Protect, enhance and enforce basic workers’ rights and Establish clear and mutually advantageous rules governing their trade.

NAFTA provides the three nations with a more enhanced agreement on four major effects of the agreement: the trade effects, investment effects, environmental dimensions, and connecting economic processes with environmental effects. These four areas have been looked into the most and have been evaluated more then any. NAFTA will “make the three economies more capable of taking on broader competition on a global basis. ” 2 Although NAFTA was implemented by the U. S to include Mexico in the agreements, many aspects of the United States-Canada Free Trade Agreement (USCFTA) are used in NAFTA, however now include Mexico.

Throughout the papers developed by Mexico, U. S and Canada, it appears that Canada has been somewhat of an outcast in the discussion and the benefits because of our location. The benefits of NAFTA appear to be scarce; however there are benefits for Canada behind the four main areas. Canada’s involvement in NAFTA has been beneficial due to the increase of trade and environmental concerns. After NAFTA was signed by Brian Mulroney on December 17, 1992, Canada now was involved in the largest area of free trade in history. It was also the first time a developing country joined two developed countries in a trade agreement.

Mulroney was questioned many times about the reasoning behind joining the NAFTA. The main reason was that it now “opens the door to a vast new potential in trade and investment relations among the three countries. “3 NAFTA is an extension of the USCFTA to Mexico, yet contains the same benefits for Mexico that it did originally for Canada. The NAFTA is the most comprehensive and advanced free trade agreement that contains over 2000 pages of tariff schedules and agreements. By not participating in NAFTA, Canada could have lost some of its “preferential right to access in the U. S market. ”

Canada had three basic goals in the negotiations, each of which was achieved in the NAFTA. Canada wanted to gain access to the Mexican market, improve and protect the FTA and ensure that Canada remained an attractive location for investors. Therefore, Mr. Mulroney was smart by signing into NAFTA, and continuing Canada’s trade departments. Trade effects are an important aspect when looking at the benefits of NAFTA. The largest benefit that Canada has witnessed is in the agricultural industry. This positive impact has increased agricultural and agri-food exports to U. S and Mexico by 95%.

The trades to non-NAFTA countries have also been on the rise since the sign of NAFTA. The agricultural trade trends can be broken down into two categories to evaluate easier, the Canada-U. S Agricultural Trade and the Canada-Mexico Agricultural trade. Both are integral in determining the numbers and benefits that have occurred over the years 1993-2000. Since the Canada-U. S is geographically first, we will start with that. Since 1993, the two-way agricultural trade between Canada and the United States increased $25. 1 billion in 2000.

Canada’s agricultural trade surplus with the United States has more then tripled since 1993. The United States is Canada’s largest export market, purchasing close to 61% of our agricultural and agri-food exports. Canada’s agriculture and agri-food industry has benefited from greater and more secure access to the U. S market under the NAFTA. There are five main exports that the United States receives: horticultural crops, oilseeds products, specialty crops, red meats and processed products. “In the horticultural crops, export of tomatoes, peppers, lettuce and cucumbers increased on an average of ten-folds.

In the oilseed products, they increased 44% and in red meats, beef volumes exports more than doubled, while pork increased 87%. “7 The agricultural relationship between Canada and the United States through NAFTA complement the USCFTA and will continue to benefit both Canada and the U. S. Similarly, the two-way trade between Canada and Mexico increased 164%, reaching nearly $1. 1 billion in 2000. 8 Canada and Mexico have agreed to eliminate many of their individual tariffs over the next 5-10 years. Currently, about 85% of imports from Mexico now enter duty-free.

The entities that Mexico imports include red meats, grains and oilseeds and horticultural products. The red meats have increased twenty-five-fold, the grains have increased 65% and the horticultural products have increased ten-fold. 9 In more general terms of trade, Canada has not been immune to the process of globalization. Canada’s prosperity is thus critically dependent on our continuing capacity for change and adjustment to the influences and demands of the global economy. Mexico brings to the table a low-wage economy that is growing rapidly. The U.

S brings a high-wage, high-cost economy, but on that has the largest and most lucrative market in the world. Canada also has a high-wage economy, but has a much smaller domestic market than its North American counterparts. The implications that Canada would have received by not being involved in NAFTA would lower our level of status in international trade. Not only however has it maintained international trade, but it strengthened the North American coalition and created the North American auto-pact between the countries. Currently, close to “90% of Mexican automotive imports already enter Canada duty-free. 10

The Canadian automotive industries health is critical to the welfare of many other sectors, including steel, textiles, electronics and rubber. As a result of the Canada-U. S auto pact in 1965, the industry operated on an integrated basis in Canada and the U. S, greatly benefiting the economy in central Canada. Since the beginning of NAFTA, we have witnessed some major changes in the global economy. These changes are mainly related to the integration of national economies in the world market through liberalization of trade, global mobility of capital and the implementation of international trade agreements.

The implementation of NAFTA has also had significant effects on investment. In considering the relationship between NAFTA and investment one has to be careful in dealing with the origin of the investment, where the investment decision is based, and to what extent the existence of NAFTA affects the investment decisions. Much of the direct investment between the Canada and the United States took place before NAFTA, in 1988 and 1989. Nonetheless, there was also an increase in cross direct investment between Canada and the U.S in the years leading up to, and immediately following, the passage of NAFTA. The greatest investment effect has been led by two main  agents. One is the multi-national corporation, which is already well-represented in trade flows. But there has also been an indirect effect through non-multinational corporations.

The indirect effect has probably been much greater than the direct on, or it is becoming much greater. “Between 1991 and 1994, flows of direct foreign investment into Mexico grew by US $21 billion, but indirect foreign investment into Mexico grew by US $63 billion. 11 NAFTA has had, and will continue to have, three major impacts which encourage investment. The most important impact is it preserves the specialization gains, mainly for North American producers, through the well-known rules of origin, which tend to favors North American producers over non-North American producers. The second is NAFTA created opportunities for joint ventures, particularly for the production of industrial material, including the chemical industries, which have led to an improvement in technological processes.

And the third, which NAFTA facilitate the penetration of brands from on country to another through the national treatment clause, intellectual property protection and the homogenization of standards. The shift of investment and productive capacity to Mexico would be accompanied by rising Mexican demand for machinery and equipment and services. Investment and export-led growth in Mexico and the need for Mexican investment in infrastructure would benefit Canadian producers of industrial products and suppliers of services.

As NAFTA took shape and effect, exports have increased in all directions within the NAFTA region. Investment has followed, increasing significantly in Canada. “Domestic investment has also risen substantially in Canada for the production of standard products and services, many of them focused on the North American export market. “12 The investment regime of NAFTA predictably enhances the opportunities for investment by domestic producers who want to expand in their own sectors and increase their exports and imports.

The effects of increased investment and increased trade are intertwined, and they jointly affect the environment in ways that vary from industry to industry. The economic discussions surrounding NAFTA often relate to the effects of NAFTA on the environment, a decision was made to consider NAFTA in terms of different regimes beginning in 1990. There are three generic levels of analysis when examining environmental issues. The first is to look at the number of sources that are emitting or causing the environmental degradation or enhancement. The second level is measuring the pollution intensity of each of the sources.

The third level of analysis is to integrate these effects into the particular ecosystem from where the pollutants are emitted as well as where they are circulating. There are also three potential types of environmental effects of NAFTA. The first is there are new trade and investment patterns that could have a negative effect by disrupting the stability of different ecosystems. “The second effect is positive effects brought about by the availability of new resources. Such resources are new technology or management systems to help restore or conserve degraded natural ecosystems.

The vast majority of Canadian environmental groups have campaigned for the inclusion of tight environmental rules within the accord, and that stance has been adopted by many unions and political parties. “The agreement provides that no NAFTA country should lower its health, safety or environmental standards for the purpose of attracting investment. “14 The environmental concerns that Canada brought to the table included air pollution, water pollution and wildlife and endangered species. All three have been essentially met, or starting to develop.