North American Free Trade Agreement [NAFTA]

Objective

An increase of welfare has been recognized as a main objective of economic

integration. The increase of trade between member states of economic unions is meant
to lead to the increase of the GDP of its members, and hence, to better welfare - a goal
of any state around the world. This is one of the reasons for the global scale
development of economic integration, a phenomenon now realized in continental
(ASEAN, the North American Free Trade Agreement (NAFTA), SACN, European
Union (EU), Eurasian Economic Community (EurAsEC) and proposed for
intercontinental (Comprehensive Economic Partnership for East Asia (CEPEA),
Transatlantic Free Trade Area (TAFTA)) economic blocks.

The North American Free Trade Agreement or NAFTA is an agreement signed by

the governments of 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superseded the Canada-United States Free Trade Agreement between the U.S. and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.

The North American Free Trade Agreement (NAFTA) has two supplements, the
North American Agreement on Environmental Cooperation (NAAEC) and the North
American Agreement on Labor Cooperation (NAALC).

Background

In 1988 Canada and the United States signed the Canada-United States Free Trade
Agreement after which the U.S. Congress approved implementing legislation. The
American government then entered into negotiations with the Mexican government
for a similar treaty, and Canada asked to join the negotiations in order to preserve its
perceived gains under the 1988 deal.[1] The climate at the time favored expanding
trade blocs, such as the Maastricht Treaty, which created the European Union in 1992.

Provisions

The goal of NAFTA was to eliminate barriers of trade and investment between the
US, Canada and Mexico. The implementation of NAFTA on January 1, 1994, brought
the immediate elimination of tariffs on more than one half of U.S. imports from
Mexico and more than one third of U.S. exports to Mexico. Within 10 years of the
implementation of the agreement, all US-Mexico tariffs would be eliminated except
for some U.S. agricultural exports to Mexico that were to be phased out in 15 years.
Most US-Canada trade was already duty free. NAFTA also seeks to eliminate non-
tariff trade barriers.
Mechanisms

Chapter 20 provides a procedure for the interstate resolution of disputes over the
application and interpretation of the NAFTA. It was modeled after Chapter 18 of the
Canada-United States Free Trade Agreement.[4]

NAFTA's effects, both positive and negative, have been quantified by several
economists, whose findings have been reported in publications such as the World
Bank's Lessons from NAFTA for Latin America and the Caribbean,[5] NAFTA's
Impact on North America,[6] and NAFTA Revisited by the Institute for International
Economics.[7] Some[who?] argue that NAFTA has been positive for Mexico, which has
seen its poverty rates fall and real income rise (in the form of lower prices, especially
food), even after accounting for the 1994–1995 economic crisis.[8] Others argue that
NAFTA has been beneficial to business owners and elites in all three countries, but
has had negative impacts on farmers in Mexico who saw food prices fall based on
cheap imports from U.S. agribusiness, and negative impacts on U.S. workers in
manufacturing and assembly industries who lost jobs. Critics also argue that NAFTA
has contributed to the rising levels of inequality in both the U.S. and Mexico. Some
economists believe that NAFTA has not been enough (or worked fast enough) to
produce an economic convergence,[9] nor to substantially reduce poverty rates. Some
have suggested that in order to fully benefit from the agreement, Mexico must invest
more in education and promote innovation in infrastructure and agriculture.

Trade

According to Issac (2005), overall, NAFTA has not caused trade diversion, aside
from a few industries such as textiles and apparel, in which rules of origin negotiated
in the agreement were specifically designed to make U.S. firms prefer Mexican
manufacturers. The World Bank also showed that the combined percentage growth of
NAFTA imports was accompanied by an almost similar increase of non-NAFTA
exports.

Industry

Maquiladoras (Mexican factories that take in imported raw materials and produce
goods for export) have become the landmark of trade in Mexico. These are plants that
moved to this region from the United States, hence the debate over the loss of
American jobs. Hufbauer's (2005) book shows that income in the maquiladora sector
has increased 15.5% since the implementation of NAFTA in 1994. Other sectors now
benefit from the free trade agreement, and the share of exports from non-border states
has increased in the last five years while the share of exports from maquiladora-
border states has decreased. This has allowed for the rapid growth of non-border
metropolitan areas, such as Toluca, León and Puebla; all three larger in population
than Tijuana, Ciudad Juarez, and Reynosa.
Environment

Securing U.S. congressional approval for NAFTA would have been impossible
without addressing public concerns about NAFTA’s environmental impact. The
Clinton administration negotiated a side agreement on the environment with Canada
and Mexico, the North American Agreement on Environmental Cooperation
(NAAEC), which led to the creation of the Commission for Environmental
Cooperation (CEC) in 1994. To alleviate concerns that NAFTA, the first regional
trade agreement between a developing country and two developed countries, would
have negative environmental impacts, the CEC was given a mandate to conduct
ongoing ex post environmental assessment of NAFTA.

Agriculture

From the earliest negotiation, agriculture was (and still remains) a controversial topic
within NAFTA, as it has been with almost all free trade agreements that have been
signed within the WTO framework. Agriculture is the only section that was not
negotiated trilaterally; instead, three separate agreements were signed between each
pair of parties. The Canada–U.S. agreement contains significant restrictions and tariff
quotas on agricultural products (mainly sugar, dairy, and poultry products), whereas
the Mexico–U.S. pact allows for a wider liberalization within a framework of phase-
out periods (it was the first North–South FTA on agriculture to be signed).

Production of corn in Mexico has increased since NAFTA's implementation.

However, internal corn demand has increased beyond Mexico's sufficiency, and
imports have become necessary, far beyond the quotas Mexico had originally
negotiated.[17] Zahniser & Coyle have also pointed out that corn prices in Mexico,
adjusted for international prices, have drastically decreased, yet through a program of
subsidies expanded by former president Vicente Fox, production has remained stable
since 2000.

Criticism and controversies

There is much 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 lakes and rivers, fueling fears over the possible destruction of
Canadian ecosystems and water supply.

In 1999, Sun Belt Water Inc., a company out of Santa Barbara, California, filed an
Arbitration Claim under Chapter 11 of the NAFTA claiming $105 million as a result
of Canada's prohibition on the export of bulk water by marine tanker, a move that
destroyed the Sun Belt business venture. The claim sent shock waves through
Canadian governments that scrambled to update water legislation and remains
unresolved.
Change in income trust taxation

On October 30, 2007, American citizens Marvin and Elaine Gottlieb filed a Notice of
Intent to Submit a Claim to Arbitration under NAFTA. The couple claims thousands
of U.S. investors lost a total of $5 billion dollars in the fall-out from the Conservative
Government's decision the previous year to change the tax rate on income trusts in the
energy sector. On April 29, 2009, a determination was made that this change in tax
law was not expropriation.

Further criticism in Canada

A book written by Mel Hurtig published in 2002 called The Vanishing Country
charged that since NAFTA's ratification more than 10,000 Canadian companies had
been taken over by foreigners, and that 98% of all foreign direct investments in
Canada were for foreign takeovers.

Impact on Mexican farmers

In 2000, U.S. government subsidies to the corn sector totaled $10.1 billion. These
subsidies have led to charges of dumping, which jeopardizes Mexican farms and the
country's food self-sufficiency.

Other studies reject NAFTA as the force responsible for depressing the incomes of
poor corn farmers, citing the trend's existence more than a decade before NAFTA's
existence, an increase in maize production after NAFTA went into effect in 1994, and
the lack of a measurable impact on the price of Mexican corn due to subsidized corn
coming into Mexico from the United States, though they agree that the abolition of
U.S. agricultural subsidies would benefit Mexican farmers.[37] According to Graham
Purchase in Anarchism and Environmental Survival, NAFTA could cause "the
destruction of the ejidos (peasant cooperative village holdings) by corporate interests,
and threatens to completely reverse the gains made by rural peoples in the Mexican
Revolution."

Impact of NAFTA on Canada

Canada gained the most from NAFTA with Canada's GDP rate at 3.6%, growing
faster than the United States at 3.3% and Mexico at 2.7%. Canadian employment
levels have also shown steady gains in recent years, with overall employment rising
from 14.9 million to 15.7 million in the early 2000s. Even Canadian manufacturing
employment held steady. One of NAFTA's biggest economic effects on U.S.-Canada
trade has been to boost bilateral agricultural flows.[39] In the year 2008 alone, Canada
exports to the United States and Mexico was at CAN$381.3 Billion Dollars and
imports from NAFTA was at CAN$245.1 Billion Dollars.[40] The Canadian
mainstream has been so unanimous in its recognition of NAFTA's advantages despite
a few odd detractors that even former NDP Gary Doer of Manitoba openly praises the
benefits of NAFTA.
 European Union
The European Union (EU) is an economic and political union of 27 member states
which are located primarily in Europe.[7] The EU traces its origins from the European
Coal and Steel Community (ECSC) and the European Economic Community (EEC)
formed by six countries in the 1950s. In the intervening years the EU has grown, in
size, by the accession of new member states and, in power, by the addition of policy
areas to its remit. The Maastricht Treaty established the European Union under its
current name in 1993.[8] The last amendment to the constitutional basis of the EU, the
Treaty of Lisbon, came into force in 2009.

The EU has developed a single market through a standardized system of laws which
apply in all member states including the abolition of passport controls within the
Schengen area. It ensures the free movement of people, goods, services, and capital,
enacts legislation in justice and home affairs, and maintains common policies on trade
agriculture, fisheries and regional development.[16] A monetary union, the eurozone,
was established in 1999 and is currently composed of seventeen member states.
Through the Common Foreign and Security Policy the EU has developed a limited
role in external relations and defence. Permanent diplomatic missions have been
established around the world and the EU is represented at the United Nations, the
WTO, the G8 and the G-20.

As a trading bloc the History

History of the European Union

Outline

1945–1958
History of the European Coal and Steel Community (1945–1957)

After World War II, moves towards European integration were seen by many as an
escape from the extreme forms of nationalism which had devastated the continent.[19]
One such attempt to unite Europeans was the European Coal and Steel Community
which, while having the modest aim of centralized control of the previously national
coal and steel industries of its member states, was declared to be "a first step in the
federation of Europe".[20]

The originators and supporters of the Community include Jean Monnet, Robert
Schuman, Paul Henri Spaak, and Alcide De Gasperi. The founding members of the
Community were Belgium, France, Italy, Luxembourg, the Netherlands, and West
Germany.[21]

In 1957, six countries signed the Treaties of Rome, which extended the earlier
cooperation within the European Coal and Steel Community (ECSC) and created the
European Economic Community, (EEC) establishing a customs union and the
European Atomic Energy Community (Euratom) for cooperation in developing
nuclear energy. The treaty came into force in 1958.[21]
1958–1972

Main article: History of the European Communities (1958–1972)

The Rome Treaty was signed in 1957 and came into force in 1958. It created two
additional European Communities, most notably the European Economic Community.

The two new communities were created separately from ECSC, although they shared
the same courts and the Common Assembly. The executives of the new communities
were called Commissions, as opposed to the "High Authority". The EEC was headed
by Walter Hallstein (Hallstein Commission) and Euratom was headed by Louis
Armand (Armand Commission) and then Etienne Hirsch. Euratom would integrate
sectors in nuclear energy while the EEC would develop a customs union between
members.

1973–1993
History of the European Communities (1973–1993)

In 1973 the Communities enlarged to include Denmark (including Greenland which

later left the Community in 1985), Ireland, and the United Kingdom.[28] Norway had
negotiated to join at the same time but Norwegian voters rejected membership in a
referendum and so Norway remained outside. In 1979, the first direct, democratic
elections to the European Parliament were held.[29]

Greece joined in 1981, and Spain with Portugal in 1986.[30] In 1985, the Schengen
Agreement led the way toward the creation of open borders without passport controls
between most member states and some non-member states.[31] In 1986, the European
flag began to be used by the Community and the Single European Act was signed.

In 1990, after the fall of the Iron Curtain, the former East Germany became part of the
Community as part of a newly united Germany.[33] With enlargement towards Eastern
and Central Europe on the agenda, the Copenhagen criteria for candidate members to
join the European Union were agreed.

1993–2010
Main articles: History of the European Union (1993–2004) and History of the
European Union (2004 onwards)
The European Union was formally established when the Maastricht Treaty came into
force on 1 November 1993,[8] and in 1995 Austria, Sweden, and Finland joined the
newly established EU. In 2002, Euro notes and coins replaced national currencies in
12 of the member states. Since then, the eurozone has increased to encompass
seventeen countries. In 2004, the EU saw its biggest enlargement to date when Malta,
Cyprus, Slovenia, Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia,
and Hungary joined the Union.[34]

On 1 January 2007, Romania and Bulgaria became the EU's newest members. In the
same year Slovenia adopted the Euro, followed in 2008 by Cyprus and Malta, by
Slovakia in 2009 and by Estonia in 2011. In June 2009, the 2009 Parliament elections
were held leading to a renewal of Barroso's Commission Presidency, and in July 2009
Iceland formally applied for EU membership.

On 1 December 2009, the Lisbon Treaty entered into force and reformed many
aspects of the EU. In particular it changed the legal structure of the European Union,
merging the EU three pillars system into a single legal entity provisioned with legal
personality, and it created a permanent President of the European Council, the first of
which is Herman Van Rompuy, and a strengthened High Representative, Catherine
Ashton.[35]

Member states

Main article: Member State of the European Union

See also: Special Member State territories and the European Union, Enlargement of
the European Union, Future enlargement of the European Union, and Withdrawal
from the European Union.The European Union is composed of 27 sovereign Member
States: Austria, Belgium, Bulgaria, Cyprus, the Czech Republic, Denmark, Estonia,
Finland, France, Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg,
Malta, the Netherlands, Poland, Portugal, Republic of Ireland, Romania, Slovakia,
Slovenia, Spain, Sweden, and the United Kingdom.[44] The Union's membership has
grown from the original six founding states—Belgium, France, (then-West) Germany,
Italy, Luxembourg and the Netherlands—to the present day 27 by successive
enlargements as countries acceded to the treaties and by doing so, pooled their
sovereignty in exchange for representation in the institutions.

There are five official candidate countries, Croatia, Iceland, Macedonia, Montenegro
and Turkey. Albania, Bosnia and Herzegovina and Serbia are officially recognized as
potential candidates.[50] Kosovo is also listed as a potential candidate but the European
Commission does not list it as an independent country because not all member states
recognize it as an independent country separate from Serbia.[51]

Four Western European countries that are not EU members have partly committed to
the EU's economy and regulations:
Politics

Politics of the European Union

The ordinary legislative procedure of the European Union.

The EU operates solely within those competencies conferred on it upon the treaties
and according to the principle of subsidiary (which dictates that action by the EU
should only be taken where an objective cannot be sufficiently achieved by the
member states alone). Laws made by the EU institutions are passed in a variety of
forms; generally speaking they can be classified into two groups: those which come
into force without the necessity for national implementation measures, and those
which specifically require national implementation measures.[55]

Fundamental rights

Article 1 and 2 of the Charter of Fundamental Rights of the European Union:

"Human dignity is inviolable. It must be respected and protected.
Everyone has the right to life. No one shall be condemned to death penalty, or
executed."

The treaties declare that the EU itself is "founded on the values of respect for human
dignity, freedom, democracy, equality, the rule of law and respect for human rights,
including the rights of persons belonging to minorities ... in a society in which
pluralism, non-discrimination, tolerance, justice, solidarity and equality between
women and men prevail."

EU Member States have a standardized passport design with the name of the member
state, Coat of Arms and with the words "European Union" given in their official
language(s). (Ireland model)

Competition

Further information: European Union competition law and European Commissioner

for Competition

The EU operates a competition policy intended to ensure undistorted competition

within the single market The Commission as the competition regulator for the single
market is responsible for antitrust issues, approving mergers, breaking up cartels,
working for economic liberalization and preventing state aid.[143]
The Competition Commissioner, currently Joaquin Alumina, is one of the most
powerful positions in the Commission, notable for the ability to affect the commercial
interests of trans-national corporations.[144] For example, in 2001 the Commission for
the first time prevented a merger between two companies based in the United States
(GE and Honeywell) which had already been approved by their national authority.[145]
Another high profile case against Microsoft, resulted in the Commission fining
Microsoft over €777 million following nine years of legal action.[146]

Infrastructure

Further information: European Commissioner for Transport and European

Commissioner for Industry and Entrepreneurship

The Öresund Bridge between Denmark and Sweden is part of the Trans-European
Networks.

The EU is working to improve cross-border infrastructure within the EU, for example
through the Trans-European Networks (TEN). Projects under TEN include the
Channel Tunnel, LGV Est, the Fréjus Rail Tunnel, the Öresund Bridge, the Brenner
Base Tunnel and the Strait of Messina Bridge. In 2001 it was estimated that by 2010
the network would cover: 75,200 kilometres (46,700 mi) of roads; 78,000 kilometres
(48,000 mi) of railways; 330 airports; 270 maritime harbours; and 210 internal
harbours.[152][153]

The developing European transport policies will increase the pressure on the
environment in many regions by the increased transport network. In the pre-2004 EU
members, the major problem in transport deals with congestion and pollution. After
the recent enlargement, the new states that joined since 2004 added the problem of
solving accessibility to the transport agenda.] The Polish road network in particular
was in poor condition: at Poland's accession to the EU, 4,600 roads needed to be
upgraded to EU standards, demanding approximately €17 billion.[155]

Development

Agriculture

Main article: Common Agricultural Policy

EU farms are supported by the CAP, the largest budgetary expenditure. (Vineyard in
Spain)
The Common Agricultural Policy (CAP) is one of the oldest policies of the European
Community, and was one of its core aims.[158] The policy has the objectives of
increasing agricultural production, providing certainty in food supplies, ensuring a
high quality of life for farmers, stabilizing markets, and ensuring reasonable prices for
consumers. It was, until recently, operated by a system of subsidies and market
intervention. Until the 1990s, the policy accounted for over 60% of the then European
Community's annual budget, and still accounts for around 35%

Regional development

Further information: Regional policy of the European Union

EU funds finance such infrastructure projects as the Prague–Berlin motorway

(D8/A17) (pictured here near Lovosice in the Czech Republic).

There are substantial economical disparities across the EU. Even corrected for
purchasing power, the difference between the richest and poorest regions (271 NUTS-
2 regions of the Nomenclature of Territorial Units for Statistics) ranged, in 2007, from
26% of the EU27 average in the region of Severozapaden in Bulgaria, to 334% of the
average in Inner London in the United Kingdom. On the high end, Inner London has
€83,200 PPP per capita, Luxembourg €68,500, and Bruxelles-Cap €55,000, while the
poorest regions, are Severozapaden with €6,400 PPP per capita, Nord-East and
Severen tsentralen with €6,600 and Yuzhen tsentralen with €6,800.[161] Compared to
the EU average, the United States GDP per capita is 35% higher and the Japanese
GDP per capita is approximately 15% higher.[162]

Environment

Further information: European Commissioner for the Environment and European

Climate Change Programme

The first environmental policy of the European Community was launched in 1972.
Since then it has addressed issues such as acid rain, the thinning of the ozone layer, air
quality, noise pollution, waste and water pollution. The Water Framework Directive is
an example of a water policy, aiming for rivers, lakes, ground and coastal waters to be
of "good quality" by 2015. Wildlife is protected through the Natura 2000 programme
and covers 30,000 sites throughout Europe.[165] In 2007, the Polish government sought
to build a motorway through the Rospuda valley, but the Commission has been
blocking construction as the valley is a wildlife area covered by the programme

In 2007, member states agreed that the EU is to use 20% renewable energy in the
future and that it has to reduce carbon dioxide emissions in 2020 by at least 20%
compared to 1990 levels. This includes measures that in 2020, 10% of the overall fuel
quantity used by cars and trucks in EU 27 should be running on renewable energy
such as biofuels. This is considered to be one of the most ambitious moves of an
important industrialized region to fight global warming.

Education and science

Main articles: Educational policies and initiatives of the European Union and
Framework Programmes for Research and Technological Development

Erasmus students from five countries in the Netherlands.

Education and science are areas where the EU's role is limited to supporting national
governments. In education, the policy was mainly developed in the 1980s in
programmes supporting exchanges and mobility. The most visible of these has been
the Erasmus Programme, a university exchange programme which began in 1987. In
its first 20 years it has supported international exchange opportunities for well over
1.5 million university and college students and has become a symbol of European
student life

Scientific development is facilitated through the EU's Framework Programmes, the

first of which started in 1984. The aims of EU policy in this area are to co-ordinate
and stimulate research. The independent European Research Council allocates EU
funds to European or national research projects. The Seventh Framework Programme
(FP7) deals in a number of areas, for example energy where it aims to develop a
diverse mix of renewable energy for the environment and to reduce dependence on
imported fuels.

Languages

European official languages report (EU-

251)
Native
Language Total
Speakers
English 13% 51%
German 18% 32%
French 12% 26%
Italian 13% 16%
Spanish 9% 15%
Polish 9% 10%
 Dutch 5% 6%
Greek 3% 3%
Czech 2% 3%
Swedish 2% 3%
Hungarian 2% 2%
Portuguese 2% 2%
Slovak 1% 2%
Danish 1% 1%
Finnish 1% 1%
Lithuanian 1% 1%
Slovenian 1% 1%
Estonian <1% <1%
Irish/Gaelic <1% <1%
Latvian <1% <1%
Maltese <1% <1%

Religion

The EU is a secular body with no formal connection with any religion, but Article 17
of the Treaty on the Functioning of the European Union recognizes the "status under
national law of churches and religious associations" as well as that of "philosophical
and non-confessional organizations"

Christians in the EU are divided among followers of Roman Catholicism, numerous

Protestant denominations (especially in northern Europe), and Eastern Orthodox and
Eastern Catholic (in south eastern Europe). Other religions, such as Islam and
Judaism, are also represented in the EU population. As of 2009, the EU had an
estimated Muslim population of 13 million,[191] and an estimated Jewish population of
over a million.[192]

Culture and sport

Main articles: Cultural policies of the European Union and Sport policies of the
European Union

Cultural co-operation between member states has been a concern of the EU since its
inclusion as a community competency in the Maastricht Treaty.[194] Actions taken in
the cultural area by the EU include the Culture 2000 7-year programme,[194] the
European Cultural Month event,[195] the Media Plus programme,[196] orchestras such as
the European Union Youth Orchestra[197] and the European Capital of Culture
programme – where one or more cities in the EU are selected for one year to assist the
cultural development of that city.[198]