NAFTA

Index
• Why Enter a Free Trade Agreement?

• What is NAFTA?
• Background of NAFTA
• Reaction after Implementation
• The Mexican Peso Crisis
• What about America’s Farmers?
• Impact on:
– Employment
– Immigration “Mexico is the most
– Environment
important country to the
• Trucking industry
• Missouri’s role
United States in the 21st
• NAFTA’s future century”
• Conclusion
--President George W. Bush
Sept. 5, 2001
NAFTA
• North America Free trade Agreement
– Free trade area among the U.S., Canada and Mexico
– The largest trading bloc in terms of GNP
– A good example of trade diversion (production shifted
from Asia to Mexico)
• History
– Automotive products Trade Agreement (1965) between
the U.S. and Canada
– Canada-U.S. Free Trade Agreement (1989)
– NAFTA (1994)
Provisions of NAFTA
• Elimination of tariffs
– Most tariffs will be eliminated by 2004
– The remaining by 2008
• Elimination of nontariff barriers
• Harmonization of trade rules (subsidies, antidumping,
safety standards)
• Liberalization of capital movement (FDI)
• Protection of intellectual properties
• Dispute settlement
• Provisions on labor and environmental standards
Economic Effects of NAFTA
• Trade
– Trade among members increased faster than trade with the
rest of world
• Investment
– Mexico is the main beneficiary (FDI not only from the U.S.
and Canada, but also from other countries)
• Employment
– Difficult to measure because of too many confounding
variables
– Overall employment effect in the area including the U.S.
has been positive
Issues related to NAFTA
• Rule of origin and local content
– Rule of origin: products must originate from North America to
get preferential treatment.
– Local content: the percentage of value of a product that must be
from North America to be considered as North American origin
– Currently 50% for most products and 62.5% for autos.
Political pressure to increase this percentage
• Expansion of membership
– Potential entry by Chile, and some central and south American
countries
– FTAA (Free Trade Area of America) proposal in 2001
What is NAFTA?
Effective as of January 1, 1994
A trade agreement between

CANADA, MEXICO, and the
UNITED STATES which
provides for the elimination of
tariffs on North American goods
shipped among the three
countries.
Background of NAFTA
An Introduction
Salinas Clinton Zedillo Marcos

Expectations and Goals
MEXICO: Lower inflation and foreign debt; create more well-
paying jobs for Mexicans, thus producing less incentive for
Mexicans to work illegally in the U.S.; Mexico would become
a richer market for American exporters.
UNITED STATES: Would solidify an expanding trade

relationship, which would spur job creation at home and help to
continue the revolutionary shift throughout Latin America
away from state controlled markets toward freer markets.
Would exert presidential authority, improve inter-American

relations and advance the cause of global trade liberalization.
Reaction After Implementation
How the Countries

Were Affected
Immediately
How They Are

Affected Now
Top U.S.
and
1. Motor Vehicles 1. Aircraft

2. Oil/Natural Gas 2. Electronic Computing Equipment
3. Motor Vehicle Parts 3. Motor Vehicle Parts
4. Semiconductors 4. Motor Vehicles
5. Electronic Parts 5. Semiconductors
6. Aircraft/Space/Missile Parts
7. Chemicals
8. Plastics
9. Airplane Engines/Parts
10. Refined Petroleum Products
NAFTA Pros
+ Goods/Services at lower cost
+ Most underdeveloped countries gain the
most (i.e. standards of trade increased)
+ Tariffs reduced
+ Jobs created
+ Mexico’s economy is growing again
NAFTA Cons
– Fuel for peso crisis
– Benefits Mexico more than the U.S.
– U.S. deficit with trading partners
– Loss of low-wage American jobs to Mexico
– Environmental problems
– Traffic congestion and delays along the borders
The Mexican Peso Crisis
Was NAFTA to Blame?
Wages in United States and Mexico

What about America’s
Farmers?
BENEFITS: More export opportunities. Since
NAFTA was approved in 1993, U.S. agricultural
exports to Mexico have nearly doubled.
DISADVANTAGES: Face regulations that

increase the costs of production while foreign
competitors gain from cheap production and
labor.
Impact on:
Employment
• Was U.S. workers’ loss Mexican workers’
gain?
• Maquiladora - Primarily foreign-owned
assembly plants
• Jobs lost to Mexico vs. Jobs supported by
exports to Mexico and Canada
Impact on:
Immigration
• In the 1990s, U.S. population grew 13.2%, with
60% growth of Mexican immigrants.
• Among Latinos nationwide, 26% are between the
ages of 25-40.
• Remittances from Mexicans working in the U.S.:
$6.65 billion (for 2001 through 3rd quarter)
• Increase in Mexican migrants led to increase in
Border Patrol staff
Impact on:
Environment
NAFTA Environmental Agreements:
North American Agreement on Environmental

Cooperation (NAAEC) - commission to enforce
environmental law.
Border Environment Cooperation Commission
and the North American Development Bank -
commission to address pollution problems along
the U.S.-Mexican border
Trucking Industry
The areas of concern
include: vehicle safety,
driver training,
environmental issues and
possible illegal drug
trafficking.
A recent investigation determined that the average 18-wheeler in

Mexico is 40% overloaded, carrying a gross vehicle weight of
more than 120,000 pounds. If U.S. truckers operated at a
similar overcapacity, interstate highways would have a life span
of 14 years, as opposed to their 40-year design life.
Missouri’s Role
Missouri's Exports Under NAFTA
3500
3000
Millions of
Dollars
2500
2000
1500
1000
500
0
1993 1994 1995 1996 1997 1998 1999
Mexico Canada
Missouri’s Role (continued)
Between 1994 and 1999, Missouri exports to NAFTA

partners increased 63.4%.
Canada and Mexico are Missouri’s first- and second-

largest export markets, respectively, accounting for
50.5% of Missouri’s total exports 1999.
Mid-Continent
International
Trade
Corridor
1. A trade pattern
2. A system of connecting
highways and rail
routes
3. An opportunity to
strengthen economic
development in a
region
Missouri and Employment
Unemployment Rate in Missouri,

1993-1999
8 6.5
7
6 4.9 4.8
Percent
4.6 4.2 4.2

5 3.4
4
3
2
1
0
1993 1994 1995 1996 1997 1998 1999
The Missouri-Mexico
Partnership
• The Missouri Department of Economic
Development moved its hub to Monterrey
• Branch office in Guadalajara
• For the past 12 years, the Missouri
Department of Agriculture’s headquarters
has been in Guadalajara
NAFTA’s Future
Where is it going and what effects will it have?
U.S.-Central American Free

Trade Agreement
Free Trade Area of the Americas
(FTAA)

NAFTA

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Index

• Why Enter a Free Trade Agreement?

A trade agreement between

Salinas Clinton Zedillo Marcos

UNITED STATES: Would solidify an expanding trade

Would exert presidential authority, improve inter-American

How the Countries

How They Are

1. Motor Vehicles 1. Aircraft

Was NAFTA to Blame?

Wages in United States and Mexico

DISADVANTAGES: Face regulations that

North American Agreement on Environmental

A recent investigation determined that the average 18-wheeler in

Missouri's Exports Under NAFTA

Between 1994 and 1999, Missouri exports to NAFTA

Canada and Mexico are Missouri’s first- and second-

Unemployment Rate in Missouri,

4.6 4.2 4.2

U.S.-Central American Free

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