North American Free Trade Agreement

"NAFTA" is also an abbreviation for the New Zealand Australia Free Trade Agreement; see also Nafta (disambiguation).

President Clinton signs the agreement.

The North American Free Trade Agreement, known usually as NAFTA, is a free trade agreement among Canada, the United States, and Mexico. NAFTA went into effect on January 1, 1994. NAFTA is also used to refer to the tripartite trading bloc of North American countries.

Purpose and scope

Trade components

Official Emblem

NAFTA called for immediately eliminating duties on half of all U.S. goods shipped to Mexico and Canada, and gradually phasing out other tariffs over a period of about 14 years. Restrictions were to be removed from many categories, including, but not limited to, motor vehicles and automotive parts, computers, textiles, and agriculture. The treaty also protected intellectual property rights (patents, copyrights, and trademarks) and outlined the removal of restrictions on investment among the three countries. Provisions regarding worker and environmental protection were added later as a result of supplemental agreements signed in 1993.

This agreement was an expansion of the earlier Canada-U.S. Free Trade Agreement of 1989. Unlike the European Union, NAFTA does not create a set of supernational governmental bodies, nor does it create a body of law which is superior to national law. NAFTA is a treaty under international law. (Under United States law it is classed as a congressional-executive agreement rather than a treaty, reflecting a peculiar sense of the term "treaty" in United States constitutional law that is not followed by international law or the laws of other states.)

Supplements

Unlike other Free Trade Agreements in the world, NAFTA is more comprehensive in its scope and was complemented by the North American Agreement for Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC).

The NAAEC agreement was a response to environmentalists' concerns that companies would relocate to Mexico or the United States would lower its standards if the three countries did not achieve a unanimous regulation on the environment. The NAAEC, in an aim to be more than a set of environmental regulations, established the North American Commission for Environmental Cooperation (NACEC), a mechanism for addressing trade and environmental issues, the North American Development Bank (NADBank) for assisting and financing investments in pollution reduction and the Border Environmental Cooperation Commission (BECC). The NADBank and the BECC have provided economic benefits to Mexico by financing 36 projects, mostly in the water sector. By complementing NAFTA with the NAAEC, it has been labeled the "greenest" trade agreement; though, being a pioneer in this area, it was not hard for the agreement to be labeled "green".

The NAALC supplement to NAFTA aimed to create a foundation for cooperation among the three members for the resolution of labor problems, as well as to promote greater cooperation among trade unions and social organizations in order to fight for the improvement of labor conditions. Though most economist agree that it is difficult to assess the direct impact of the NAALC, it is agreed that there has been a convergence of labor standards in North America. Given its limitations, however, NAALC has not produced (and in fact was not intended to achieve) convergence in employment, productivity and salary trend in North America.

Further integration

While different groups advocate for a further integration into a North American Community, sensitive issues have hindered that process. The three countries have pursued different trade policies with non-members (for example, Mexico has signed FTAs with more than 40 countries in 12 agreements) making the possibility of creating a customs union hard to attain. Security issues and sovereignty are also a controversial topic. Nonetheless the three countries have complemented NAFTA with the Security and Prosperity Partnership of North America.

History of the implementation

The agreement was initially pursued by free-trade conservative governments in the United States and Canada, led by Canadian Prime Minister Brian Mulroney, and U.S. President George H. W. Bush. There was considerable opposition on both sides of the border, but in the United States it was able to secure passage after President Bill Clinton made its passage a major legislative initiative in 1993. Vice President Al Gore attempted to build support for the bill by debating the issue with H. Ross Perot on the Larry King Live talk show. Perot was an outspoken critic of NAFTA during his 1992 presidential campaign, claiming that passage would cause a "giant sucking sound" of jobs leaving the United States for Mexico.

After intense political debate and the negotiation of several side agreements, the U.S. House passed NAFTA by 234-200 (132 Republicans and 102 Democrats voting in favor) and the U.S. Senate passed it by 61-38. Some opposition persists to the present day, primarily directed towards specific clauses within the agreement.

Effects

Economics

Since NAFTA was signed, it has been difficult to analyze its macroeconomic effects due to the large number of other factors in the global economy. Various economic studies have generally indicated that rather than creating an actual increased trade, NAFTA has caused trade diversion, in which the NAFTA members now import more from each other at the expense of other countries worldwide. Some economists argue that NAFTA has increased concentration of wealth in both Mexico and the United States.

The Organization for Economic Co-operation and Development, or OECD, publishes annual economic statistics. The results of data mining research concerning NAFTA have been published on Centrerion Canadian Politics' NAFTA pages, the data having been mined from OECD sources.See also: Economy of Mexico

Controversy

NAFTA has been controversial since it was first proposed. Transnational corporations have tended to support NAFTA in the belief that lower tariffs would increase their profits. Labor unions in Canada and the United States have opposed NAFTA for fear that jobs would move out of the country due to lower labor costs in Mexico. Some politicians have opposed free trade for fear that it will turn countries, such as Canada, into permanent branch plant economies. Farmers in Mexico have opposed and still oppose NAFTA because the heavy agriculture subsidies for farmers in the United States have put a great deal of downward pressure on Mexican agricultural prices, forcing many farmers out of business. Wages there have decreased by as much as 20 percent in some sectors. NAFTA's approval was quickly followed by an uprising amongst Zapatista revolutionaries, and tension between them and the Mexican government remains a major issue. Furthermore, NAFTA was accompanied by dramatic reduction of the influence of trade unions in Mexico's urban areas. NAFTA has been accompanied by a dramatic increase of illegal immigration from Mexico to the United States; A huge fraction of these people are farmers forced off their land by bankruptcy in response of the disproportionate agreement in favor of the USA and Canada, leaving Mexico's main exports sinking year after year. Opposition to NAFTA also comes from environmental, social justice, and other advocacy organizations that believe NAFTA has detrimental non-economic impacts to public health, the environment, etc.

Chapter 11

Another contentious issue is the impact of the investment obligations contained in Chapter 11 of the NAFTA [1]. Chapter 11 allows corporations or individuals to sue Mexico, Canada, or the U.S. for compensation when actions taken by those governments (or by those for whom they are responsible at international law, such as provincial, state, or municipal governments) have adversely affected their investments.

This chapter has been invoked in cases where governments have passed laws or regulations with intent to protect their constiuents, that also impact a corporation's bottom line. Language in the chapter defining its scope states that it cannot be used to "prevent a Party from providing a service or performing a function such as law enforcement, correctional services, income security or insurance, social security or insurance, social welfare, public education, public training, health, and child care, in a manner that is not inconsistent with this Chapter.[2]"

This chapter has been criticized by groups in the U.S. (see for example [3]), Mexico (see for example [4]) and Canada (see for example [5]) for a variety of reasons, including not taking into account important social considerations, notably environmental matters. In Canada, several groups, including the Council of Canadians, challenged the constitutionality of Chapter 11. They lost at the trial level [6],and have subsequently appealed.

Methanex, a Canadian corporation, filed a US$970 million suit against the United States, claiming that a Californian ban on MTBE, a substance that had found its way into many wells in the state, was hurtful to the corporation's sales of methanol. However, the claim was rejected, and the company was ordered to pay US$3 million to the U.S. government in costs (See final Award of August 9, 2005 at[7])

In another case Metalclad, an American corporation, was awarded US$15.6 million from Mexico after a Mexican municipality refused a construction permit for the hazardous waste landfill it intended to construct in El Llano, Aguascalientes. The construction had already been approved by the federal government, and various environmental requirements imposed (see paragraph 48 of the tribunal decision). The NAFTA panel found that the municipality did not have the authority to ban construction on the basis of the alleged environmental concerns. (See final Award of September 2, 2000 at[8])

Further, it has been argued that the chapter benefits the interests of Canadian and American corporations disproportionately more than Mexican businesses, which often lack the resources to pursue a suit against the much wealthier states .

It has been a longtime fear of some Canadians that this provision gives large U.S. companies too much power . There was one case where a natural gas company in Nova Scotia which pumped from Sable Island wanted to sell cheaper gas to residents in the neighboring New Brunswick (both Canadian provinces), but threats of a lawsuit over Chapter 11 stopped these plans in their tracks .

Chapter 19

Also contentious is NAFTA's Chapter 19, which subjects antidumping and countervailing duty determinations with binational panel review instead of or in addition to conventional judicial review. For example, in the United States, review of agency decisions imposing antidumping and countervailing duties are normally heard before the U.S. Court of International Trade, an Article III court. NAFTA parties, however, have the option of appealing the decisions to binational panels composed of five citizens from the two relevant NAFTA countries. The panelists are generally lawyers experienced in international trade law. The panel is charged with determining whether agency determinations involving antidumping and countervailing duties comport with the NAFTA country's domestic law. Chapter 19 is unique in international dispute settlement in that it applies a country's own law rather than international law.

In the case of determinations involving the United States, a Chapter 19 panel is expected to examine whether the agency's determination is supported by "substantial evidence." This standard assumes significant deferrence to the domestic agency.

Some of the most controversial trade disputes in recent years such as the U.S.-Canada softwood lumber dispute have been litigated before Chapter 19 panels.

Decisions by Chapter 19 panels can be challenged before a NAFTA extraordinary challenge committee. However, an extraordinary challenge committee does not function as an ordinary appeal. Under the NAFTA, it will only vacate or remand a decision if the decision involves a significant and material error that threatens the integrity of the NAFTA dispute settlement system. As of January 2006, no NAFTA party has successfully challenged a Chapter 19 panel's decision before an extraordinary challenge committee.

Canada

There is some concern in Canada over the provision that if something is sold even once as a commodity, the government cannot stop its sale in the future. This applies to the water from Canada's Great Lakes and rivers, fueling fears over the possible destruction of Canadian ecosystems and water supply.

Other fears come from the effects NAFTA has had on Canadian law making. In 1996, MMT, a chemical additive that some studies had linked to nerve damage, was brought into Canada by an American company. The Canadian federal government banned the importation of the additive. The American company brought a claim under NAFTA Chapter 11 seeking US $201 million (See Notice of Arbitration at[9]), and by Canadian Provinces under the Agreement on Internal Trade ("AIT"). The American company argued that their additive had not been conclusively linked to any health dangers, and that the prohibition was damaging to their company. Following a finding that the ban was a violation of the AIT (See [10]), the Canadian federal government repealed the ban, and settled with the American company for US$13 million (See [11]) .

The United States and Canada had been arguing for years over the United States' decision to impose a 27% duty on Canadian softwood lumber imports, until new Canadian PM Stephen Harper compromised with the United States and reached a settlement on July 1, 2006 (U.S. government statement), though the settlement has not yet been ratified by either country, in part due to domestic opposition in Canada. Canada had filed numerous motions to have the duty eliminated and the collected duties returned to Canada(Canadian Government softwood lumber site.) On losing on appeal from a NAFTA panel, the United States responded by saying "We are, of course, disappointed with the [NAFTA panel's] decision, but it will have no impact on the anti-dumping and countervailing duty orders," (Neena Moorjani, spokeswoman for U.S. Trade Representative Rob Portman[12]). Most recently, on July 21, 2006, the U.S. Court of International Trade found that imposition of the duties was contary to U.S. law (See Court decision, and U.S. government commentary)The U.S.'s apparent failure to comply with various rulings against it in this case has generated widespread political debate in Canada.

Language

From the perspective of North American consumers, one of the effects of NAFTA has been the significant increase in bilingual or even trilingual labeling on products, for simultaneous distribution through retailers in Canada, the U.S., and Mexico in French, English, and Spanish.

Travel and migration

United States and Canada

The U.S-Canadian border is controlled with checkpoints, but American and Canadian nationals are generally allowed to cross without advance arrangements, visa, or passport. Picture identification and proof of citizenship, however, is usually required. (See [13] and [14]) Citizens of other countries may face more stringent requirements. About 6 million crossings are made each month between the U.S-Canadian border. {[15])

The relatively open border facilitates tourism and cross-border shopping. It has also permitted motorists and railway passengers to disregard the border and use the shortest possible route, subject to border-crossing delays and documentation. Passengers on airplanes crossing the border to optimize travel time are not subject to customs control if they do not land.

The U.S.-Canadian border is one of the longest international borders in the world, but others allow greater freedom of movement. For example, the Schengen Agreement has resulted in the removal of border checkpoints between many countries in the European Union.

This freedom of mobility has had important qualifications, however. It can be suspended or terminated by either government at will. Security was increased after September 11, 2001, and the U.S. presently plans to tighten documentation requirements, including requiring Canadians and others to have passports for air travel by the end of December 2006, and land travel by the end of 2007 ([16]

These restrictions were largely unaffected by the 1988 Free Trade Agreement and the 1993 NAFTA agreement gave mobility rights to only listed professionals (Set out in Annex 1603.D.1 to the NAFTA - see [17]). As well, the border has been tightened in recent decades in response to concerns about drugs and then terrorism.

Mexican-American

In year 2000, Vicente Fox advocated the idea of free flow of people across the U.S.-Mexico border as a second phase of NAFTA, which would be completed in ten years.

On September 6, 2001, Fox and Bush met as newly elected presidents and agreed to work "matching willing workers with willing employers" and "ensuring migration takes place through safe and legal channels, but the events of September 11 stopped the negotiations and shifted the debate in the United States towards a migration policy where security is the main goal.

Developments in early 2006 brought the Mexican-American border issue to center stage in American politics. In May of 2006, the US Congress considered several proposals to build a 400-700 mile fence along the US-Mexico border to help stanch the flow of illegal immigration. As of July, 2006, this and other hard-line measures such as cracking down on the use of Spanish and deporting some of the 12 million illegal immigrants have reached a stalemate. The Congress has funded a beefed up border patrol [18].

Legislation that would create a "guest-worker" program is under consideration in the U.S. Congress.

Comparison with other regional blocs

Note: It must be noted that The European Union (EU) is not simply a regional bloc in the common sense. The EU is a Union of sovereign States with the deepest connections in the political, economical and executive fields. Thus, it is a far more integrated bloc than any other regional bloc or cooperative association of sovereign States in the world.

References

* Greider, William (1997). One World, Ready or Not. Penguin Press. ISBN 0-713-99211-5.
* House Roll Call Vote.
* Senate Roll Call Vote.

External links

* NAFTA, 13 Years Later (Yale Economic Review)
*Immigration Flood Unleashed by NAFTA's Disastrous Impact on Mexican Economy
* Vicki Been, Does an International "Regulatory Takings" Doctrine Make Sense?, 11 New York University Environmental Law Journal (2003) (arguing that NAFTA Chapter 11 has more expansive compensation criteria than U.S. takings law, which has the potential to impact and threaten domestic environmental regulation and impact federalism issues)
* David Bacon. The Children of NAFTA: Labor wars on the U.S./Mexico Border. Berkeley: University of California Press. 2004. ISBN 0520237781.
* NAFTA at Ten: The Recount (Center for Economic and Policy Research)
* Denise Grab, Expropriation clauses: a natural extension of domestic takings law or much more?
* Public Citizen's Report on NAFTA
* NAFTA Secretariat website
* Border Trade Alliance
* Free ebook of North American Free Trade Agreement, 1992 Oct. 7 at Project Gutenberg
* Details of investor-state cases under NAFTA
* How Has NAFTA Affected Trade and Employment? from Dollars & Sense magazine, January/February 2003

North American Free Trade Agreement: Encyclopedia BETA

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