Transcript go 357 nafta - Colby College

GO 357
The Political Economy of
Regionalism
Walter Hatch
Colby College
NAFTA
Free Trade for North America?
Promises
Dire Predictions
A Decade Later

Economists and policy-makers
• Efficiency gains spread throughout all
three economies

Political scientists, labor leaders
• Reallocation costs in U.S. and Canada
• In Mexico, real wages are lower; income
inequality is higher
• Immigration has increased
Who is U.S.’ #1 trading partner?

Canada
• $534 billion (14.7%)

China
• $343 billion (9.4%)

Mexico
• $332 billion (9.1%)

Japan
• $208 billion (5.7%)
Change in Direction of U.S.Exports
Destination
Million $
(1993)
Million $
(2006)
Increase X
(1993-2006)
Canada
100,444
230,580
2.30
Mexico
41,581
134,167
3.23
Rest of the
World
456,943
1,023,728
2.24
Change in Direction of U.S.Imports
Source
Million $
(1993)
Million $
(2006)
Increase X
(1993-2006)
Canada
111,216
303,416
2.73
Mexico
39,918
198,259
4.97
Rest of the
World
589,394
1,859,804
3.16
North American Trade (1990-2001)
120.0
100.0
80.0
Percent
1990
1995
60.0
2001
40.0
20.0
0.0
Oh Canada

Asymmetrical interdependence
• Canada-US trade is 35% of Canadian
GDP
• Bilateral trade is 2.5% of US GDP

Growing US protectionism in 1980s
• Lumber
• Fisheries
U.S.-Canada FTA


Negotiated in 1987
Ratified in 1989
• Removed tariffs and quotas between
two countries in most sectors
• Established international dispute
settlement scheme

Initiated by Canada
Oh Mexico

An economic colony of U.S.?
• Almost 90% of exports go there

Hunger for foreign investment
• Big peso crisis in 1982 (and many
smaller BOP crises scared investors
away
• 67% of FDI from U.S. MNCs
NAFTA



Negotiated in early 1990s
Ratified, with after new side
agreements, in 1993
Expansion of FTA pushed by Mexico
Small States as Catalysts:
A Surprise?

Not to liberals (economists)
• Smaller economies benefit more from
free trade regime
• Canada: 6-10% loss in general welfare
from combined U.S.-Canada tariffs

Yes, for realists
• Through hard bargaining, powerful
states can secure disproportionate
benefits
• U.S.: IPR, “national treatment”
Mexico as Catalyst:
An Even Greater Surprise?

An Illiberal Past
• ISI
• Nationalization of some industries

Since mid-1980s, slow but steady
liberalization
• Jose Lopez Portillo (76-82)

tariffication
• Miguel de la Madrid (82-88)



Tariff reductions
Relaxed export controls
Joined GATT in 1986
Carlos Salinas de Gortari (88-94)
Key Features of NAFTA
Part One: Market access provisions[1]
Energy
A prohibition, except under specified unusual
circumstances such as national security reasons, on
restrictions on energy trade, forecasting export taxes
and other measures used in the past to support
nationalist economic policies.
Automobiles
Tariffs for products that satisfied strict regional
content rules were to be eliminated over a period of
10 years.
Textiles & Apparel
Tariffs for products that satisfied strict regional
content rules were to be eliminated over a period of
10 years.
Agriculture
The immediate elimination of tariffs on 57 per cent of
US-Mexican agricultural trade of US-Mexican
agricultural trade and the phasing out of other tariffs
and quotas over 15 years.
Financial Services
US and Canadian firms obtained expanded rights to
operate within the Mexican market, which at the time
was expected to grow because of the lack of basic
services such as checking.
[1] These provisions varied by sector and were not applied to certain key sensitive industries such as Mexican oil and railways and Canadian culture.
Key Features of NAFTA
Part Two: Special Rules
NAFTA investment rules
Investors from other NAFTA parties
must be treated in the same way as
domestic investors and at least as
well as investors from any other
country (the principle of mostfavoured-nation).
Intellectual property provisions
Governments are obligated to
protect copyrights on computer
programs, to prosecute decoding of
encrypted satellite transmissions
(such as television programs), and to
protect new sound recordings for 50
years, new trademarks for 10 years,
and new patents for 20 years.
Strong dispute resolution
procedures
Important for smaller partners in
trade agreements because they can
offset the ability of the stronger
partner to use its political power to
disregard or interpret the agreement
as it pleases. Adopted FTA rules and
extended them to Mexico. It was
important to prevent US firms from
using anti-dumping and
countervailing duty measures to
gain protection from foreign
competition.
Key Features of NAFTA
Part Three: Side Agreements
Environmental Standards
Established a Commission for
Environmental Co-operation. It
contains a council composed of
relevant ministers from the various
countries, who meet once a year,
and a secretariat, responsible for
ongoing administrative and
technical support for the
commission. The secretariat’s
members are expected to remain
independent of governments. It also
has a 15-member Joint Public
Advisory Committee that can be
composed of scientific experts or
others active on environmental
issues.
Labor Standards
Established a Commission for
Labour Co-operation. It contains a
secretariat and a council as in the
Environmental Commission, and it
also establishes national
administrative offices in each
country that plays an important role
in receiving and initially considering
complaints lodged by either NGOs
or individuals.
NAFTA Institutions




Free Trade Commission
NAFTA Coordinators
Committees/Working Groups
NAFTA Secretariat