Question

What is NAFTA and how does  NAFTA contributed to the decline of manufacturing industries in Canada?

Answer 1

What is NAFTA and how does NAFTA contributed to the decline of manufacturing industries in Canada?

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Part 1 - NAFTA -

• NAFTA is North American Free Trade Agreement, a treat that was entered by USA, Canada & Mexico.
• It came into effect on Jan 1, 1994, & the free trade had existed between the countries since 1989.
• The NAFTA treaty broadened the entire agreement & it became the largest free market in the world.
• The combined economies measured $6terillion impacting 365 million people.
• NAFTA was created to remove the trade barriers in agriculture, manufacturing & services to remove investment restriction & also helped to protect intellectual property rights.
• It was supposed to take into account environment & labour concerns and help the small businesses to grow further.

It involved the following features -

• Tariff reduction for automobiles & auto parts
• Telecom trade was supposed to be expanded
• Textile & apparel barriers to be further reduced
• More free trade in agriculture sector & Mexican imports licenses were removed.
• Trade expansion in financial services
• Insurance markets being opened up.
• Investment opportunities to increase.
• Intellectual property right to have more protection. NAFTA made Mexico provide high level of protection for intellectual property rights.

NAFTA gave national goods status to products imported from the associated counties & no state or local government/authority could impose any form of taxes.

Part 2 - Here is how NAFTA contributed to the decline of manufacturing industries in Canada -

• Overall Canada had a modest increase in trade as compared with the US & Mexico had more results.
• The trade surplus with the US wasn't enjoyed by Canada.
• More goods were sold to the US & the trade deficit increased leading to -$11.9 billion in the year 2015.
• The automobile industry of Canada faced many issues and had complaints that low wages paid to Mexican workers have siphoned jobs out of the country & impacted their sector.
• The appreciation value of the Canadian dollar over the time period impacted the competitiveness of the overall products as compared to US & Mexico. This has consequences for the manufacturing & the automobile sector.
• The vehicle production rose during initial periods but fell gradually between 2000-2007 and the numbers were around 2.5 million because of the soaring exchange rate of the Canadian dollar.

NAFTA was supposed to bring major benefits to industries & larger access to markers, reduction on costs because of the overall scale of economies. But the non-durables shared contracted.

Overall NAFTA made Canada more dependent on trade with the US which accounts for 75% of exports. The automobile and associated employment was the worst affected due to NAFTA.

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