Question

Explain the implications of the NAFTA agreement today given the changes in the political environment

Answer 1

The North American Free Trade Agreement (NAFTA) was inspired by the success of the European Economic Community (1957–93) in eliminating tariffs in order to stimulate trade among its members. Proponents argued that establishing a free-trade area in North America would bring prosperity through increased trade and production, resulting in the creation of millions of well-paying jobs in all participating countries.

NAFTA’s main provisions called for the gradual reduction of tariffs, customs duties, and other trade barriers between the three members, with some tariffs being removed immediately and others over periods of as long as 15 years. The agreement ensured eventual duty-free access for a vast range of manufactured goods and commodities traded between the signatories. “National goods” status was provided to products imported from other NAFTA countries, banning any state, local, or provincial government from imposing taxes or tariffs on such goods. Other provisions instituted formal rules for resolving disputes between investors and participating countries. Among other things, such rules permitted corporations or individual investors to sue for compensation any signatory country that violated the rules of the treaty.

Further provisions of NAFTA were designed to give U.S. and Canadian companies greater access to Mexican markets in banking, insurance, advertising, telecommunications, and trucking. But Many critics of NAFTA viewed the agreement as a radical experiment engineered by influential multinational corporations seeking to increase their profits at the expense of the ordinary citizens of the countries involved. Opposition groups argued that overarching rules imposed by NAFTA could undermine local governments by preventing them from issuing laws or regulations designed to protect the public interest. Critics also argued that the treaty would bring about a major degradation in environmental and health standards, promote the privatization and deregulation of key public services, and displace family farmers in signatory countries.

NAFTA produced mixed results. The surge in exports was accompanied by an explosion in imports asSome of the most prominent terms of the new agreement related to automobile manufacture. Under the USMCA, in order for a car or truck to be exempt from tariffs, 75 percent of its components would have to be manufactured in North America. Under NAFTA, the corresponding requirement had been only 62.5 percent. The agreement also required that at least 30 percent of work on tariff-exempt vehicles must have been done by workers earning at least $16 per hour (significantly more than Mexican laborers received). well, resulting in an influx of better-quality and lower-priced goods for Mexican consumers. Economic growth during the post-NAFTA period was not impressive in any of the countries involved.

At the end of August 2018 Mexico and the United States announced that they had come to terms on a new trade agreement that preserved much of NAFTA but introduced a number of significant changes. Under the pressure of being the odd country out, Canada, in the waning hours of September 30, also agreed to join the new trade accord, which was branded the United States-Mexico-Canada Agreement (USMCA).  

The USMCA is essentially NAFTA 2.0, with a few updates. The pact has been tweaked to include changes for automakers, stricter labor and environmental standards, intellectual property protections, and digital trade provisions, changes as an effect may include:

• Country of origin rules: Automobiles must have 75 percent of their components manufactured in Mexico, the US, or Canada to qualify for zero tariffs (up from 62.5 percent under NAFTA).
• Labor provisions: 40 to 45 percent of automobile parts must be made by workers who earn at least $16 an hour by 2023. Mexico passed new labor laws to give greater protections to workers. Democrats still want tougher enforcement, though.
• US farmers get more access to the Canadian dairy market: The US got Canada to open up its dairy market to US farmers.
• Intellectual property and digital trade: The deal extends the terms of copyright to 70 years beyond the life of the author (up from 50). It also extends the period that a pharmaceutical drug can be protected from generic competition, and includes new provisions to deal with the digital economy, such as prohibiting duties on things like music and e-books, and protections for internet companies so they’re not liable for content their users produce.