WHITE PAPER
FACILITATING
TRADE:
NAFTA TODAY
AND TOMORROW
Looking back at North America’s most important
free trade agreement.
White paper
Facilitating trade:
NAFTA today and
tomorrow
Looking back at North America’s most
important free trade agreement.
The North American Free Trade Agreement (NAFTA) is
finishing its 21st year, and as governments in Canada and the
United States work to finalize new trade agreements such
as the Trans-Pacific Partnership (TPP), the Comprehensive
Economic and Trade Agreement (CETA) and the Transatlantic
Trade and Investment Partnership (TTIP), it’s a good time to
look back at the impact NAFTA has had on its participating
countries – and to look ahead at what the future holds for
the for the transformative trade agreement.
The much-discussed agreement has been both championed
and condemned often since its inception, but for more than
twenty years, it has provided tax breaks for eligible importers
and exports while facilitating trade between Canada, the
United States and Mexico. NAFTA officially came into effect
on Jan. 1, 1994, meaning it’s now officially legal drinking
resources. Though the Conservative government was
age in the U.S. – but just like any 21-year old, NAFTA’s gone
eventually able to pass the deal, an extension of the
through a lot of ups and downs as it evolved from infancy to
agreement to Mexico was not struck until 1990’s, when Jean
its current state.
Chretien became Prime Minister.
Going back where it all began
NAFTA’s impact: Hard to calculate
NAFTA’s beginnings lie several presidents back, even
It is difficult to determine the direct impact that NAFTA has
before Bill Clinton, who eventually signed the act into law.
had since its implementation. Over the first two decades
Streamlined movement of goods between Mexico, Canada
of the agreement’s existence, intracontinental trade has
and the U.S. is an idea that has its origins in the Reagan
increased significantly. From 1993 to 2012 trade flows grew
administration.
from $290 billion to more than $1.1 trillion. In fact, the U.S.
trades more with Canada and Mexico than with Japan, South
At the time it was signed, Clinton said he hoped NAFTA
Korea, Brazil, Russia, India and China combined. Additionally,
would guide the world toward a broader global trade pact.
travel and investment across borders has also grown notably
The first Democratic presidency in 12 years, the agreement
since the passage of NAFTA.
was one of Clinton’s first triumphs as president, even though
the trade facilitation agreement had emerged from the
In addition, supply chains have been allowed to develop
Republican party.
more freely since the passage of NAFTA. Companies
have spread their auto chains across all three member
In Canada, free trade within North America had become a
countries which has allowed them to become more globally
hot-button issue by the late 1980s. Conservatives fought
competitive while reducing costs. This business strategy
hard to portray the agreement as a positive, working to
would have been much more difficult without the tariff
convince people that its advantages would outweigh
reductions introduced by NAFTA. Much of the increase in
any potential detriment to Canadian identity and natural
trade between the three nations has occurred between
Mexico and the U.S., and the vast majority of that has been
and 2012 merchandise trade between the two nations grew
from the automotive sector.
nearly seven times to more than $30.9 billion. Additionally,
by 2011 services trade between Mexico and Canada had
There has been also been a small-scale transference of
grown fivefold to $2.9 billion. As recently as two years ago
jobs to Mexico, where labor is cheaper. However, Congress
Mexico was Canada’s third largest trade partner, third largest
has examined the effects of NAFTA in the past, and found
supplier and fifth biggest market for export trade.
that the negative impact of the job movement on the U.S.
has been minimal. It concluded that trade with Mexico was
already on the rise, and likely would have continued with or
Measuring NAFTA in Mexico
without NAFTA.
However, as a whole the North American trade deal may
have placed Mexico at a disadvantage. The Center for
Trade between Mexico and Canada has also grown
Economic Policy Research has found that Mexico has
significantly since the agreement was signed. Between 1993
declined in nearly every relevant metric since the agreement
was implemented. The country’s unemployment rate has
increased, its poverty rate has remained virtually flat and in
terms of growth of real GDP per person Mexico ranks 18th
Canada, the U.S. and Mexico will
have to come to the bargaining
table with their own wish lists
if they plan to achieve positive
change within the realm of NAFTA.
out of 20 Latin American countries.
The problem with measuring the impact of the deal
though, is that despite the CEPR’s findings, Mexico has had
improvements in both manufacturing productivity and foreign
direct investment since the agreement’s signing.
In fact, despite the trade advantages NAFTA has brought
to Mexico, Canada and the U.S., the North American share
of the international trade market has actually fallen from 19
percent to 13 percent since the inception of the agreement.
Leaders of the three nations will have to discuss ways to
Like raking leaves: Gathering your
Certificates of Origin
As the leaves start to fall and we head
towards the end of the year, shippers
should make sure their Certificates of
Origin are in order.
The Certificate of Origin is used by the
three NAFTA member countries - Canada,
the U.S. and Mexico - to determine where
products originated and, based on the
originating country, whether imported
products are eligible for reduced or
eliminated duty. Many factors go into the
eligibility decision, including composition,
the percentage of components sourced
from a NAFTA country, and more.
further integrate trade beyond what has been built in the
past two decades. For NAFTA to prove successful 40 years
after its creation, goods co-produced by the three North
American countries will have to become more globally
competitive through the next two decades.
Looking ahead: NAFTA in the future
There have been proposed changes to the trade facilitation
deal in the past, and both critics and proponents alike
continue to float amendments to the agreements. As
recently as the 2008 presidential election, Democrats were
calling for changes on a national stage. The frequency with
which changes are promoted mean that any amendments
should come as no surprise. All three countries will have to
come to the bargaining table with their own wish lists if they
plan to achieve positive change within the realm of NAFTA.
The Brookings Institution recommended that several
priorities that are necessary if the trade facilitation deal is to
be improved. First of which is that congestion at the border
remains an obstruction to streamlined trade between the
U.S., Mexico and Canada. This issue has to be combated in
order to position North America for a more influential future
in global trade.
In order to benefit from the preferential tax
treatment bestowed by the two-decade-old
trade facilitation deal, the certificate must
be legibly completed and in the importer’s
possession when the declaration is made.
Additionally, producers can voluntarily fill
out the document for use by exporters.
As most certificates expire after a year,
and typically go by calendar year, fall is the
season to start updating. Importers should
reach out to their suppliers to ensure
they have the most current certificate to
continue enjoying reduced duties and
smooth border clearance into the new year.
Especially when crossing between Mexico and the U.S.,
delays at the border are brutal. The infrastructure between
the two countries is outdated, and unnecessary measures
like the U.S. insistence upon guards carrying guns south
of the border - against Mexican law - are slowing down
operations.
International expansion: The next logical
step?
Also, the three countries need to push for further
international involvement. While the U.S., Canada and
Mexico have all pushed to liberalize trade with the European
Union separately, the countries should do so in together. The
three nations can also improve NAFTA by pushing for deals
with Latin America and the Caribbean.
If the U.S. and its North American trade partners are able
to reduce congestion as well as expand intra-continental
trade opportunities, the continent will no doubt grow more
competitive on a global scale through the next twenty years
of NAFTA’s existence.
Contact Livingston
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Sources
●●http://content.time.com/time/nation/article/0,8599,1868997,00.html
●●http://www.ustr.gov/about-us/press-office/fact-sheets/2012/april/nafta-certificate-origin-frequently-asked-questions
●●http://www.brookings.edu/blogs/the-avenue/posts/2014/02/12-nafta-20-years-parilla-berube
●●http://www.ustr.gov/trade-agreements/free-trade-agreements/north-american-free-trade-agreement-nafta
●●http://www.history.com/this-day-in-history/nafta-signed-into-law
●●http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/nafta-alena/info.aspx?lang=eng
●●http://www.canadahistory.com/sections/eras/pcs%20in%20power/NAFTA.html
●●http://www.cepr.net/documents/nafta-20-years-2014-02.pdf
●●http://www.economist.com/news/leaders/21592612-north-americas-trade-deal-has-delivered-real-benefits-job-not-done-deeper-better
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