NAFTA or

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NAFTA or SHAFTA

• A Glimpse of the North American Free Trade
  Agreement and the Geo-Economic effect on the
  United States.
• Keith White, TC
• Peoria Unified

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Vocabulary Trade Basics

• Absolute Advantage (Adam Smith) Specialization
  of Labor Production
• Comparative Advantage (David Ricardo) Lowest
  mathematical opportunity cost
• Import goods/services in Cash out
• Export goods/services out Cash in
• Free Trade unrestricted trade across borders
  allowing lower prices for consumers.
• Protectionist desires restrictions on trade
  (tariffs, trade quotas, licensing regulations,
  etc.) to protect jobs and balance trade.

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History US Trade and Pre-NAFTA

• The impetus for NAFTA actually began with
  President Ronald Regan in 1980, who campaigned
  for a North American common market.
• In 1984, Congress passed the Trade and Tariff
  Act. It gave the President "fast-track" authority
  to negotiate free trade agreements, while only
  allowing Congress the ability to approve or
  disapprove, not change negotiating points.
• Canadian Prime Minister Mulroney agreed with
  Reagan to begin negotiations for the Canada-U.S.
  Free Trade Agreement, which was signed in 1988,
  went into effect in 1989 and is now suspended due
  to NAFTA.
• Mexican President Salinas and President George
  H.W. Bush began negotiations for a liberalized
  trade between the two countries.
• Prior to NAFTA, Mexican tariffs on U.S. imports
  were 250 higher than U.S. tariffs on Mexican
  imports.

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History NAFTA becomes law

• NAFTA was signed by President George H.W. Bush,
  Mexican President Salinas, and Canadian Prime
  Minister Brian Mulroney in 1992.
• It was ratified by the legislatures of the three
  countries in 1993 The US House approved it by
  234 to 200 on November 17 and the US Senate by 60
  to 38 on November 20, 1993.
• It was signed into law by President Bill Clinton
  on December 8, 1993 and entered force January 1,
  1994. (Although it was initially signed by
  President Bush, it was a priority of President
  Clinton's, and its passage is considered one of
  his first successes of his Presidency.)

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NAFTA
orth
N A F T A
merican
ree
The U.S. has 967 billion total trade with NAFTA.
Exports were 412 billion and imports were 555
billion.
rade
greement
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NAFTA Overview

• The North American Free Trade Agreement (January
  1, 1994) is an agreement between Canada, the
  United States and Mexico stipulating that no
  tariffs, import duties, quotas or other
  protectionist trade tactics will be employed
  between the 3-member-nation reducing trade costs,
  increase business investment, and help North
  America be more competitive in the global
  marketplace.
• As of January 1, 2008, all tariffs between the
  three countries were fully eliminated and NAFTAs
  14-year implementation was completed.
• Between 1993-2009, trade tripled from 297
  billion to 1.6 trillion, making it the worlds
  largest free trade area (in terms of GDP).

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NAFTA January 1, 1994
U.S. Canada Mexico GDP 14.6 Tr. 1.5
Trillion 1.1 Trillion 30 live on
less than 2 day Population 310 mil. 33
million 109 million 50 in poverty
Only 28 grad. high school Per
Capita 48,000 40,000 13,500 ave. ed. Level is
6th grade Ave. Hourly 16.00 17.00 2.00
.60 min. wage

NAFTA is a 17 trillion market for 444 million
consumers. 1,000 page document NAFTA rolled
back 20,000 tariffs by Jan. 1, 2008. American
consumers are saving 20 billion per year.
Trade within NAFTA totals over 1 trillion.
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North American Free Trade Agreement

• Costs (Disadvantages)

• Benefits (Advantages)

• A shift of industrial focus in each country
  naturally causes job losses on all sides but is
  increasingly evident in high-wage/benefit union
  labor.
• As each country shifts its demand for a certain
  product from domestic purchase to imports, the
  industry-in-question in the importing country
  loses business, leaving many without a job.
• Entire industries can weaken and possibly
  disappear over time due to free trade agreements
  due to lower wages.
• Governments rely on tariff revenue the same as
  any other tax, and eliminating tariffs can take a
  effect government budgets.
• Countries may be left with crippled industries or
  a lack of labor for certain industries if they
  rely on imports from each other for too long.

• Each country boasts unique natural advantages
  that allows it to produce certain goods or
  services more cost-efficiently than others.
• By eliminating tariffs, NAFTA allows all three
  member countries to focus their productive
  efforts on their natural advantages.
• Consumer prices for imported goods are kept under
  control within NAFTA countries because import
  prices are not artificially inflated by tariffs.
• This allows importers to purchase more goods and
  services, which in turn allows the exporters to
  produce more, increasing their nations Gross
  Domestic Product. (GDP)

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Article 102 of the NAFTA agreement outlines its
purpose

• Grant the signatories Most Favored Nation status.
• Eliminate barriers to trade and facilitate the
  cross-border movement of goods and services.
• Promote conditions of fair competition.
• Increase investment opportunities.
• Provide protection and enforcement of
  intellectual property rights.
• Create procedures for the resolution of trade
  disputes.
• Establish a framework for further trilateral,
  regional and multilateral cooperation to expand
  NAFTA's benefits.

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North American Free Trade Agreement NAFTA
NAFTA, 2009 Population 442 million Combined GDP
16 Trillion 3-Way Trade almost 800 B.
U.S. Canada Trade U.S. exports to
Canada 205 B U.S. imports from Canada
225 B
Canadian-Mexican Trade Canadian exports
to Mexico 8.3 B Canadian imports from
Mexico 16.5 B
U.S. - Mexico Trade U.S. exports to
Mexico 129 B U.S. imports from Mexico
177 B
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Success?

• NAFTA has eliminated trade barriers, increased
  investment opportunities, and established
  procedures for resolution of trade disputes.
• It has increased the competitiveness of the
  member countries involved on the global
  marketplace This has become especially important
  with the launch of the European Union.
• In 2007, the EU replaced the U.S. as the world's
  largest economy but NAFTA remains the largest
  economy world economy.

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Mexico, the U.S., and Canada decided to get rid
of import taxes between one another. They joined
together to create the worlds largest free trade
zone.
Many workers feel that NAFTA is giving them
the Shafta
Labor unions in Canada and the U.S. oppose NAFTA.
They see big companies taking jobs out of the
U.S. Canada because they can do business
cheaper in Mexico.
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Companies can pay employees less in Mexico, since
work is harder to get there.Average factory
wages
United States Mexico China
136 / day factors in medical pension 8 / day 3 / day
(And some companies have even left Mexico to move
to Asia!)
Source Univ. of Wisconsin, http//www.uwec.edu/ge
ography/Ivogeler/w188/border/maquil.htm
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Failure? (That giant sucking sound Ross Perot)

• Since labor is cheaper in Mexico, many
  manufacturing industries moved part of their
  production from high-cost of manufacturing in the
  U.S. states. Between 1994 and 2002, the U.S. lost
  1.7 million jobs, gaining only 794,00, for a net
  loss of 879,000 jobs. Nearly 80 of these jobs
  were in manufacturing. California, New York,
  Michigan and Texas were hit the hardest because
  they had high concentrations of the industries
  that moved plants to Mexico. These industries
  included motor vehicles, textiles, computers, and
  electrical appliances.
• Not all companies in these industries moved to
  Mexico. Many used the threat of moving during
  union organizing drives. When it became a choice
  between joining the union or losing the factory,
  workers chose to keep the factory open. Without
  union support, the workers had little bargaining
  power. This suppressed wage growth. Between 1993
  and 1995, 50 of all companies in the industries
  that were moving to Mexico used the threat of
  closing the factory. By 1999, that rate had grown
  to 65.

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What about NAFTA and Mexico?

• The 2002 Farm Bill subsidized U.S. agribusinesses
  up to 40 of net farm income. When NAFTA removed
  tariffs, U.S. corn and other grains were exported
  to Mexico below cost. At the same time, Mexico
  reduced its subsidies to farmers from 33.2 of
  total farm income in 1990 to 13.2 in 2001. Most
  of those subsidies went to Mexico's large farms.
  Many small Mexican farmers were put out of
  business.
• In response to NAFTA competitive pressure, Mexico
  agribusiness used more fertilizers and other
  chemicals, costing 36 billion per year in
  pollution. Rural farmers expanded into more
  marginal land, resulting in deforestation at a
  rate of 630,000 hectares per year. The cost to
  Mexicos environment is enormous.
• Many Mexican border town workers were exploited
  NAFTA expanded the maquiladora program, in which
  U.S.-owned companies employed Mexican workers
  near the border to cheaply assemble products for
  export to the U.S. This grew to 30 of Mexico's
  labor force. These workers have "no labor rights
  or health protections, workdays stretch out 12
  hours or more, and if you are a woman, you could
  be forced to take a pregnancy test when applying
  for a job," according to Continental Social
  Alliance.

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NAFTAs Benefits for Mexico
Mexico buys 70 of its imports from Texas.
Texass exports to Mexico have increased from
19 billion in 1994 to 62 billion in 2008.
U.S. goods exported to Mexico have gone from
51 billion to 152 billion, supporting
over 1 million jobs in the U.S. Imports from
Mexico have more than tripled to 216 billion.
NAFTA encourages more world-wide investment
in Mexico. This is enhancing their
productivity and income. Some of this
increased income is being used used to buy
U.S. exports. It is believed that a higher
standard of living in Mexico will help stem
the flow of illegal immigrants to the U.S.
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NAFTA and the future?

• NAFTA should not impede industrial
  competitiveness, i.e. selective promotion of
  industries and temporary preferences to national
  entrepreneurs in particular areas. Enhancing
  competitiveness will promote industrial
  development.
• NAFTA should engage in careful liberalization of
  sensitive goods, like the staple-food producing
  sector.
• NAFTA should include funding for development,
  like the EU does when it engages in trade
  agreements with developing countries. It helps
  developing countries to realistically compete
  with stronger trade partners. (expansion to
  Caribbean, Central South American Nations.)
• NAFTA should not be a substitute for coherent
  national economic development strategies.
• NAFTA should pay close attention to how services
  can be used to promote better environment and
  labor standards.
• NAFTA should focus more strongly on job creation,
  including meeting labor and environment standards
  and providing protection for migrants.

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North American Map Activity

• 1-Highlight the borders of US/Canada and
  US/Mexico in yellow marker. (2 pts)
• 2-Draw 2 actual routes for trucks or railroads to
  and from major cities in Mexico and Canada
  through the U.S. Label the highways with their
  numbers. (4 pts)
• 3-Research 4 major industries/products that
  benefit from NAFTA. Use symbols to show where
  these industries/products are located or
  originate. Make a legend for the map showing what
  these symbols mean. (4 pts)
• 4-Research 4 major manufacturing border cities in
  Mexico. Locate and label these cities on the map.
  (4 pts)
• 5-Locate and name 2 ocean ports that would be
  important to NAFTA trade. (2 pts)
• 6-Summarize 2 border obstacles that challenge
  NAFTA on the back of the map. (4 pts)
• Total _________ (20 pts)

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Compare/Contrast The EU

• The European Union (EU) is an economic and
  political union of 27 member states which are
  located primarily in Europe.
• The EU traces its origins from the European Coal
  and Steel Community (ECSC) and the European
  Economic Community (EEC) formed by six countries
  in 1958.
• The Maastricht Treaty established the European
  Union under its current name in 1993. The last
  amendment to the constitutional basis of the EU,
  the Treaty of Lisbon, came into force in 2009.

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European Union - 27 Nations
Started with these 15
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Eurozone 1. Austria 2. Belgium 3. Finland 4.
France 5. Germany 6. Greece 7. Ireland
Eurozone 8. Italy 9. Luxembourg 10. The
Netherlands 11. Portugal 12. Slovenia 13.
Spain
European Union
Eurozone population of 320 M.
27 nations 475 million people Eurozone
includes 13 Euro nations GDPs of 27 total
around 14.5 trillion It's like a "U.S. of
Europe imagine each state in the U.S.
having its own currency. If you wanted to buy
a product in Louisiana, you would have to buy
Louisiana currency and pay a 1-2 fee
for doing so.) After independence, states
printed their own money. Formerly, there
were tariffs and quotas against other European
countries.
The single currency will create
efficiencies leading to faster growth
facilitate the establishment of a kind of U.S.
of Europe. There will be huge benefits from
free trade. The elimination of trade barriers
alone will boost European GDPs an average of 6
lower prices by about 6. About 4-5 million
more jobs will be created all over Europe.


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The EU operates through a hybrid system of
supranational independent institutions and
intergovernmental decisions negotiated by the
member states. Important institutions of the EU
include

• The European Commission
• The Council of the European Union
• The European Council
• The Court of Justice of the European Union
• The European Central Bank.
• The European Parliament is elected every five
  years by EU citizens.
• The political center of the EU is Brussels with
  branches in Luxembourg and Strasbourg.

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The EU has developed a single market through a
standardized system of laws which apply in all
member states.

• Within the Schengen Area (which includes EU and
  non-EU states) passport controls have been
  abolished.
• EU policies aim to ensure 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.
• A monetary union, the Eurozone, was established
  in 1999 and is currently composed of 17 member
  states.
• Through the Common Foreign and Security Policy
  the EU has developed a limited role in external
  relations and defense.
• 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.
• With a combined population of over 500 million
  inhabitants, in 2010 the EU generated an
  estimated 26 (US16.282 trillion) of the global
  economy, larger than the United States.

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European Union
European free trade increases production in
two ways. 1. Lower costs which increase
output. 2. Increase productivity of capital
and labor as those factors are allocated on the
basis of comparative advantage. Incomes will
rise, increasing AD. Europe is more
prosperous. There is a central bank European
Central Bank and a single defense force, or a
kind of national sovereignty. This is the goal.
Each nation still has its own central bank but
they have no authority to conduct monetary
policy. (They operate like regional banks of the
US Fed.)
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The European Union (1993)

• Motto United in Diversity
• Anthem Ode to Joy
• Flag Stars 12 original members of the 15
  adopting the Euro

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Europe Map Activity

• 1-Color (yellow) and label the original 15
  members of the EU. Be sure to indicate what
  yellow means in your map legend. (3 pts)
• 2-Color (orange) and label the rest of the
  current 27 members of the EU. Be sure to indicate
  what orange means in your map legend. (5 pts)
• 3-Of the original 15 EU Nations, which three have
  not adopted the Euro Zone. Put a star on these
  countries. Be sure to indicate what a star means
  in your map legend. (3 pts)
• 4-Based now on your map what four European
  Countries are not in the EU? Color (green) and
  label these countries. Be sure to indicate what
  green means in your map legend (4 pts)
• 5-Based now on your map which five countries
  possibly could be future candidates to join the
  EU? Put a circle on these countries. Be sure to
  indicate what a circle means in your map legend.
  (5 pts)
• 6-At the present time, viewing your map, what are
  two EU members that require seaports to
  facilitate trade? (2 pts)

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References

• Economics Principles and Practices, Clayton,
  Glencoe McGraw-Hill (1999) with on-line updates
• Macroeconomics K Norman, CD licensed to K White
  for classroom educational use only. Slide frames
  used by permission.