NAFTA & India's trade with NAFTA
International Economics topic - Analysis of NAFTA (US, Canada & Mexico) and India's trade with NAFTA
Published on: Mar 3, 2016
Transcripts - NAFTA & India's trade with NAFTA
INDIA’S TRADE WITH NORTH AMERICAN
FREE TRADE AGREEMENT (NAFTA)
NAFTA is an agreement signed by the
governments of the United states, Canada
and Mexico creating a trilateral trade bloc in
Members: Canada, Mexico & United States
Official languages: English, French and
Secretariats: Mexico city, Ottawa, Washington
Establishment: 1 January 1994
GDP of NAFTA alliance: USD 12 trillion
Why was NAFTA formed?
• The impetus for NAFTA actually began
with President, Ronald Regaon, who
campaigned on a North American common
market. In 1984, Congress passed the Trade
and Tariff Act.
• Canadian Prime Minister Mulroney agreed
with Reagan to begin negotiations for the
Canada-U.S. Free Trade Agreement, which
was signed in 1988, went into effect in 1989
and is now suspended since it's no longer
• Canada asked to join the negotiations in order
to preserve its perceived gains under the
Objectives of NAFTA
To eliminate trade barriers & facilitate the
To promote conditions of fair competition.
To substantially increase investment
To provide adequate and effective protection &
enforcement of intellectual property rights
To create effective procedures for the
implementation and application of this
To establish a framework for further trilateral,
regional and multilateral co-operation.
NAFTA: Progress over the
North American trade supports tens of thousands
of jobs in every single state.
NAFTA has raised the competitiveness of U.S.
U.S. unemployment rate was sharply lower in the
years following NAFTA implementation.
At the time that NAFTA went into effect, about
40% of U.S. imports from Mexico entered duty -
free and the remainder faced duties of up to 35.
Effect on Industries
Textiles and Apparel Industries. NAFTA phased out all
duties on textile and apparel goods within North America
meeting specific NAFTA rules of origin over a 10-year
Automotive Industry. NAFTA phased out Mexico’s
restrictive auto decree. It phased out all U.S. tariffs
imports from Mexico and Mexican tariffs on U.S. and
Canadian products as long as they met the rules of
origin requirements of 62.5% North American content for
autos, light trucks, engines and transmissions; and 60%
for other vehicles and automotive parts.
Agriculture. NAFTA set out separate bilateral
undertakings on cross-border trade in agriculture, one
between Canada and Mexico, and the other between
Mexico and the United States. As a general matter, U.S.-
Canada FTA provisions continued to apply on trade with
Effect on Industries
Foreign Investment. NAFTA removed significant
investment barriers, ensured basic protections for
NAFTA investors, and provided a mechanism for
the settlement of disputes between investors and a
Dispute Settlement Procedures. NAFTA’s
provisions for preventing and settling disputes were
built upon provisions in the U.S.-Canada FTA.
NAFTA created a system of arbitration for resolving
disputes that included initial consultations, taking
the issue to the NAFTA Trade Commission, or going
through arbitral panel proceedings.
Why Mexico joined the
Foreign direct investment (FDI); boosting
exports; creating industrial jobs; and giving
the Mexican economy a growth stimulus.
Mexico established a policy of import
substitution in the 1930s, consisting of a
broad, general protection of the entire
The 1982 debt crisis in which the Mexican
government was unable to meet its foreign
debt obligations was a primary cause of the
economic challenges the country faced in the
early to mid-1980’s.
Then President Miguel de la Madrid took
steps to open and liberalize the Mexican
In 1986, General Agreement on Tariffs and
In November 1987, Framework of
Principles and Procedures for Consultation
Regarding Trade and Investment
In October 1989, The Understanding
Regarding Trade and Investment
Mexico’s gains from NAFTA
NAFTA has brought economic and social benefits
to the Mexican economy as a whole.
NAFTA helped Mexican manufacturers to adopt
to U.S. technological innovations.
NAFTA went into effect, the overall
macroeconomic volatility, or wide variations in the
GDP growth rate, has declined in Mexico.
NAFTA may have supported the resolve of the
Mexican government to continue economic
Mexico’s trade with the United States has grown
trade balance shifted to a surplus
• The value of Mexican goods exported to
the United States an increase of 437
• The United States exported $136.5 billion
worth of goods to Mexico in 2007
• The United States is the largest source of
foreign direct investment (FDI) in Mexico,
Trade graph 1985-2007
firms, many of
• The Mexican maquiladora program, implemented
• Free trade agreement for foreign companies to
bring materials into the country for manufacturing.
• The maquiladora program allowed foreign
companies to enter Mexico with 100% of their
Why were they created?
Response to unemployment in Mexico’s
northern border region.
The failure of the Bracero program in
Maquiladora operations were dedicated
principally to the simple assembly of parts
• The program, initially started as an
emergency measure to reduce
unemployment, transformed into a
During the 1980s, the maquiladora
a industry grew rapidly and
became the main source of
new jobs in Mexico and
one of the leading generators
of foreign exchange.
What attracted Maquiladoras?
Cheap labor Weak enforcement
of environmental and
Women and child Exploitation.
Environment: loosely enforced Mexican
The minimum wage in Mexico is only $3.40
per day compared to $5.75 per hour in the
Maquiladora Benefits - Mexico
• Maquiladoras create employment opportunities
and additional income in the border region.
• Exportation of maquiladora products brings
needed foreign exchange into Mexico.
• Commercial deficit with the United States is
• Plants in Mexico that manufacture for export can
temporarily import foreign components without
payment of customs duties.
Win-Win Situation for US
Laws of Maquiladora and
NAFTA- favoring US.
Mexico offers lower wage
rates than many Asian countries.
Low Cost production.
More competitive in world market.
No Import Duty.
No environment pollution.
As far as NAFTA is concerned, it was more of a trade
between India and US than other NAFTA members.
India’s trade with NAFTA
India Trade Continental
Statistics-2013 (APPENDIX 1)
India’s Export to US is 91 % and that
of Canada and Mexico is less than 5
Export to Export %
India’s trade with US
India is currently 11th largest
goods trading partner of US
India was the United States'
18th largest goods export
market in 2013.
Top exports categories in 2013
were: Precious Stones
(diamonds and gold) Aircraft ,
Machinery , Electrical Machinery,
and Optic and Medical
India was the United States' 10th largest supplier of
goods imports in 2013.
U.S. goods imports from India totaled $41.8 billion in
2013, up 3.2% ($1.3 billion) from 2012, and up 220%
from 2003. U.S. imports from India account for 1.8%
of overall U.S. imports in 2013.
The five largest import categories in 2013 were:
Precious Stones (diamonds) Pharmaceutical
Products Mineral Fuel (oil) Organic Chemicals and
Miscellaneous Textile Articles
U.S. imports of agricultural products from India
totaled $3.5 billion in 2013, the 5th largest supplier of
India - Mexico
Crude oil is the major Mexican export to India besides fertilizers, iron &
steel and engineering goods.
Besides Mexico’s own sizable market and investment-friendly policies, it is
eminently placed in the region, with 44 FTAs, offering the strategic advantage of
the world’s largest NAFTA market. Already Latin America’s largest trading nation, it
is increasingly drawing large amounts of FDI from USA and elsewhere, and is fast
emerging as a major manufacturing hub.
Mexico’s Per capita income is roughly one-third that of the US; income
distribution remains highly unequal.
Items of Indian Export to Mexico
Metalworking machines, steel mill products,
agricultural machinery, electrical equipment, car
parts for assembly, repair parts for motor vehicle
Items of Import from Mexico to India
Manufactured goods, oil and oil products, silver,
fruits, vegetables, coffee, cotton
Eighty percent of Mexico's exports go to US and
Canada, with which Mexico is bound in NAFTA.
The growth of India's trade with Mexico(second largest
market of Latin America) is very steady.
India's exports were 2.95 billion dollars in 2012
increasing by 24% from 2.38bn in 2011
Crude oil imports in 2012 were 2.83 billion dollars
(accounting for 88% of India's imports from Mexico)
followed by electrical machinery and equipments, 242 m.
India was the eighth largest export destination of Mexico
in 2012. Reliance was the importer of Mexican crude oil,
as in the past several years.
The manufacturing sector is growing with a new vibrancy
after having overcome the Chinese competition.
Many American and foreign companies have started
production of manufactured goods in Mexico for the
markets of US and Canada.
Mexico has become the fourth largest exporter of cars in
the world after Germany, Japan and South Korea.
Given the positive prospects of Mexico in the coming
years, India's trade with Mexico could reach 10 billion
dollars by 2015.
NAFTA has played an important role in the
overall development of the three nations but is
more of a Win-Win situation for US than
Mexico and Canada. There is a need to revise
policies under NAFTA so that Mexico as an
Economy benefits, as currently they are being
exploited by the US. NAFTA has also led to
causalities like loss of jobs, migration, rising
level of inequality and many others.
The Mexican economy did not grow as much as expected. Inequality and
poverty have persisted. Slow wage growth for workers continues to harm
domestic consumption and overall domestic growth.
Both labor and environmental standards are largely missing from NAFTA:
Unsafe working conditions in factories US-Mexico border ,environmental
degradation in border towns where large populations have settled.
Mexican agricultural exports have grown more slowly than anticipated,
largely due to competition from large agricultural enterprises located inside
the United States and protected by US government subsidies.
Many had hoped that NAFTA would decrease immigration from Mexico to
the United States by creating Mexican jobs. This has not been the case, with
over 500,000 Mexican immigrants entering the US every year.
Technological advances have come slowly to Mexico thus sophisticated
parts are manufactured elsewhere and shipped to Mexico for assembly only.
This results in only a small part of the profit from these goods remaining in