What next for nafta

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WHAT NEXT FOR NAFTA

Background Mexico and the United States of America (U.S.) have long been politically, economically, and socially intertwined, to a large degree, due to their proximity. According to the U.S. Department of State, the scope of U.S.-Mexican relations entails extensive commercial, cultural, educational ties, as demonstrated by the annual figure of about a million legal bordercrossings a day. In addition, a million U.S. citizens live in Mexico. More than 18,000 companies with U.S. investment have operations in this country, and the U.S. accounts for more than 40% of all foreign direct investment (FDI) in Mexico. As stated by Foreign Affairs and International Trade Canada, more than 2,800 Canadian companies are active in the Mexican market, and over 3,000 more areworking on their first sale there. Within this context, in 1992 the governments of Mexico, the United States of America and Canada decided to strengthen and to provide a framework for their trade relationship and they signed the North American Free Trade Agreement (NAFTA), which came into force on January 1st, 1994. Under this pact, the three countries gradually eliminated tariffs and non-tariffbarriers to trade in goods among them, granted improved access for services, established clear rules on investment, and reinforced intellectual property rights protection. Subsequently, two supplemental accords on environment and labour were enacted: the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labour Cooperation (NAALC). In March 2005, theSecurity and Prosperity Partnership of North America (SPP) was launched as a means to increase the competitiveness of the region and to enhance the security of its citizens.

WHAT NEXT FOR NAFTA

Current issues Due to NAFTA, Mexico’s export sales to their two trading partners –U.S. and Canada- have more than quadrupled, from U.S.$ 44.4 billion in 1993 –the year prior to the enforcement of thisagreement- to U.S.$ 193.4 billion in 20091. Mexico’s total trade with their two neighbours amounted to U.S. $ 313.2 billion in 2009 from U.S.$ 90.9 billion in 19932, a 244.6% increase in a 15-year period. Although there was a slowdown in the U.S. – Mexico trade in 2009 due to the recent economic crisis, the United States has historically been Mexico’s first trading partner, whereas Canada was the thirdas of 2009. It must also be noted that there is an important share of inter-company trade. Consistent with Mexico’s Ministry of Economy figures, FDI in Mexico for 2009 was U.S. $ 11.6 billion, down 51% from the previous year. However, the U.S. was once again the largest foreign investor in Mexico, accounting for 49.8% (U.S. $ 5.8 billion FDI from the U.S.) of reported FDI. The economic slowdownin the U.S. in 2008 and 2009 has caused a significant decline in this figure. Latest available data show that the U.S. stock of foreign direct investment in Mexico was U.S. $95.6 billion, whereas Canadian direct investment holdings in Mexico reached nearly Canadian $ 3.8 billion, in 2008. U.S. FDI in Mexico is concentrated largely in the manufacturing, non-bank holding companies, and finance /insurance sectors. The most important industries for Canadian investment in Mexico are: Banking, mining, energy, urban and rail transit equipment, aerospace, automotive and agri-food.

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Source: Mexico’s National Institute of Statistics and Geography (INEGI). Ibid, INEGI.

WHAT NEXT FOR NAFTA

Trade disputes Since its inception in 1994, there have been some trade disputes between theUnited States and Mexico, such as: Mexican tomatoes, avocados, and U.S. livestock –already settled-; and Mexican sugar, tuna-fish, cross-border Mexican trucking as well as U.S. sweeteners –in the process of being settled- . In fact, since March 2009, Mexico has imposed retaliatory tariffs on a list of U.S. exports, to seek U.S. compliance with its NAFTA obligation to provide Mexico with cross-border...
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