Nafta pgdm b-(118,134,145)


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  • 110.8 million U.S. jobs in 1993
  • The NAFTA rules of origin for agricultural products were constructed to prevent Mexico from becoming an export platform for processed products made from subsidized raw materials originating in non-NAFTA countries.This is a document certifying that the goods are ORIGINATING products of the U.S., Canada, or Mexico WITHIN THE MEANING OF NAFTA. It is prepared by the exporter to ensure favorable duty treatment for the importer
  • tax administrations' main problem arise when determining which party involved in cross-border transactions has the right to more income, considering the risks, functions, and assets (tangible and intangible) involved in the transaction
  • Some of Canada’s largest multinational firms which do business in US markets, can be seen as models for corporate strategy, in order to access the highly dominant and leading US economy.
  • Nafta pgdm b-(118,134,145)

    1. 1. NAFTA – North American Free Trade Agreement By, K.K. Srinivas (PGDM-B 118) Nishant Jaiswal (PGDM-B 134) V. Sathwik Mohan (PGDM-B 145)
    2. 2. NAFTA – North American Free Trade Agreement• Established/ Formation – January 1st 1994.• Member Countries – 3 (United States of America, Canada, Mexico)• Languages spoken – English, French and Spanish 2
    3. 3. Tracing the History of formation of the Free Trade Agreement:• Free Trade between US and Canada dates back to 1855, under the Reciprocity treaty. (During this time, Canada was under the British rule)• US nationalist opposition: US cancelled treaty in 1866, because of strong opposition from the country’s (US’s) national protectionist elements.• Canadian opposition: The critics of those Canadians, who encouraged closer economic ties with the US, termed it as ‘encouraging political annexation’.• Bilateral agreements: 1935-1980 saw a number of bilateral trade agreements, one of which is the Auto Pact (Automotive Parts Trade Agreement, 1960).• FIR – Foreign Investment review agency in Canada• 1985 – Murloney’s government abolished FIR• On October 4th 1988, US and Canada signed a Free Trade Agreement finally. This was called the Canada-US-FTA.• Later in 1994, Mexico was added to this Trade Agreement and this created the birth of a trilateral agreement, what we now know as NAFTA. 3
    4. 4. Reasons for formation of a Free Trade Agreement:The objectives of this Agreement, mentioned in NAFTA’s Part one, Chapterone, Article 102, as elaborated more specifically through its principles andrules, including national treatment, most-favoured-nation treatment andtransparency, are to:• eliminate barriers to trade in, and facilitate the cross-border movement of, goods and services between the territories of the Parties;• promote conditions of fair competition in the free trade area;• increase substantially, investment opportunities in the territories of the Parties;• provide adequate and effective protection and enforcement of intellectual property rights in each Partys territory;• create effective procedures for the implementation and application of this Agreement, for its joint administration and for the resolution of disputes;• establish a framework for further trilateral, regional and multilateral cooperation to expand and enhance the benefits of this Agreement; 4
    5. 5. NAFTA in 2008 NAFTA Canada U.S. Mexico Combined Partners Languages English, French English Spanish Trade with 570.8 billion 919.9 billion 393.5 billion 946.1 billionNAFTA partners (current US $) Inbound FDI 240.0 billion 229.8 billion 156.0 billion (current US $) Jobs created 4.3 million 25.1 million 9.3 million 39.7 million 1993-2008 National 17.1 million 145.4 million 43.2 million 205.7 million Employment Level 5
    6. 6. Similarities & DifferencesSimilarities: Canada U.S. MexicoInflation rate (2011) 2.90% 3.40% 3.50%Growth rate (2011) 3.40% 1.50% 4.50%Unemployment rate (2011) 7.40% 8.60% 5.16%Interest rate (2011) 1.00% 0.25% 4.50%Industrial production(2011) 0.70% 3.70% 3.30%Differences: Canada U.S. MexicoGDP (absolute, in millionUS$, 2011) 1574.05 14582.4 1039.66Population (millions, 2011) 34.28 311 112.34Exports (million US$, 2011) 38030 179168 31017Imports (million US$, 2011) 38910 222635 31249Balance of trade(million US$, 2011) -880 -43466 -232 6
    7. 7. Similarities & Differences• Similarities – History• Differences – Defence 7
    8. 8. Impact on member countries• Agriculture – Benefits for US – Mexico’s import licensing system – Protection for import sensitive products – Sanitary and Phytosanitary measures (SPS) – Export subsidies – Grade and quality standards – Rules of origin – NAFTA Certificate of Origin 8
    9. 9. Impact on member countries• Maquiladoras• OECD Transfer Pricing Guidelines – Arm’s length• Increase in jobs• Increase in manufacturing output• Increase in wages• Steps to improve environment 9
    10. 10. NAFTA – milestones• North America: The World’s Largest Free Trade Area – NAFTA created the world’s largest free trade area, which today has 457.6 million people and a combined gross domestic product of USD 17.2 trillion.• Expanding Trade – From 1993 to 2006, trade among the NAFTA countries almost tripled, from USD 304 billion to USD 903 billion – Canada’s exports to its NAFTA partners increased by 173 percent in 2006 – U.S. exports to Mexico and Canada grew by 157 percent in 2006 – Mexican exports to the U.S. grew by 392 percent in 2006 10
    11. 11. NAFTA – milestones(Contd..)• Attracting Investment – By establishing a strong, certain, and transparent framework for investment, the NAFTA creates an environment of confidence and stability required to make long-term investments. – In 2006, FDI by each of the NAFTA partners in the other countries reached USD 533 billion, more than triple the USD 138 billion figure registered in 1993. – NAFTA has also stimulated increased investment from countries outside of NAFTA. 11
    12. 12. NAFTA – milestones(Contd..)• Expanding Prosperity While Enhancing Security – To mutually reinforce economic prosperity and security , NAFTA members launched the Security and Prosperity Partnership (SPP) in 2005 – It was meant to enhance cooperation on issues that affect the security and prosperity of North America, and the quality of life of its citizens• Protecting the Environment – green technologies to environmental problems – With Commission for Environmental Cooperation (CEC), promoted policies and actions that provide mutual benefits for the environment, trade, and the economy 12
    13. 13. NAFTA – milestones(Contd..)• Respecting Labor Rights – NAALC • creates mechanisms for cooperative activities • intergovernmental consultations • independent evaluations • dispute settlement – Through NAALC, NAFTA partners seek • to improve working conditions • living standards • to promote a broad set of labor principles • effectively enforce their labor laws. 13
    14. 14. NAFTA – milestones (Contd..)• Trade with non-member countries – Since 1994: • Canada has free trade agreements with Israel, Chile, Costa Rica and Jordan • The United States has free trade agreements with Jordan, Chile, Singapore, Australia, Morocco, Bahrain, the Dominican Republic and five countries in Central America • The United States has recently signed free trade agreements with Peru, Colombia, Panama, and Korea, and is currently negotiating a free trade agreement with Malaysia • Mexico has free trade agreements with Chile, the European Union, EFTA, Israel, Bolivia, Colombia, Nicaragua, Costa Rica, Uruguay and Japan 14
    15. 15. US trade with non member countries US trade for 2011 (million US dollars) Export Import Balance Europe 273,444.0 369,829.5 -96,385.6 China 84,235.4 329,685.1 -245,449.8 India 17,704.9 30,826.6 -13,121.6 Colombia 11,736.4 18,750.1 -7,013.8 Peru 6,822.2 5,096.7 1,725.5 Panama 6,786.2 335.8 6,450.4 15
    16. 16. NAFTA vs EU NAFTA EUPopulation (2008) 0.5 billion 0.5 billionGNI (US $) (2008) 16 trillion 15.5 trillionNumber of 3 27member countriesCommon external NAFTA does not have a EU has a common externaltariff common external tariff tariffCurrency All the three member nations Most of the member countries have different currencies have a common currency i.e. Euro (Exception being UK)Work permit Inhabitants from one member People can live in the member country cannot go and work in countries as long as they want other member country and also work as much as they without passing several want to without passing any bureaucracy barriers criterions 16
    17. 17. NAFTA vs EU NAFTA EULocation North America is close to South It is next to Asia and Russia asadvantage America and East Asia. Thus well close to Africa and the ways for trading products transfers to America are well and services are much longer developed too than for the EUTheory of Absolute These theories cannot be In the European Union, someAdvantage and applied in the NAFTA because countries are more specializedComparative Mexico depends almost %100 in on product and some aren’tAdvantage in the US their imports are 90% even if they are very close in from the US and their exports production they will specialized are 90% to the US and make more of the product 17
    18. 18. NAFTA and further stages of economic integration:NAFTA is currently in the first stage of economic integration, i.e. it isa Free Trade Area.NAFTA faces the following challenges in transcending to higher stagesof economic integration:• NAFTA doesn’t have a common external tariff• Barriers and regulations in terms of different currencies, restrictions for migration/transfer of labor/capital• The illegal immigration of nationals from Mexico into US has drawn strong opposition and disapproval from US protectionist elements• Lack of trust between Canada-US and Mexico-US, as Canada and Mexico feel that US dominates them and restricts their trade. 18
    19. 19. Challenges for NAFTA• Address the issue of 10 million illegal Mexican immigrants in the US• Resolve trade deficit of US with Canada and Mexico• Trade diversion (Especially for Mexico) from non- member countries to member countries• Resolve current trade disputes – Sugar trade between Mexico & US (Mexican Export Quota dispute), Cross- Border trucking (Mexico to US) etc. 19
    20. 20. Implications for MNEs• Rules of origin• High economic risk in US because of the trade deficit• Low growth rates in US, Canada and Mexico• MNEs strategy recommended – Pan American Source: Free trade in the Americas: economic and political issues for governments By Sidney 20 Weintraub, Alan M. Rugman, Gavin Boyd
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