Free Trade Area (L9) Flashcards
How do FTA’s affect trade resctrictions?
FTA’s remove trade restrictions preferentially
what are the rules of origin in NAFTA?
- only goods wholly or largely of area origin (originally produced within the FTA) can cross the border tariff free.
- all non-nafta inputs must have a different product classification from the product exported.
Why do goods in NAFTA have to be produced in NAFTA for free trade?
Due to trade deflection, where each country has a different external tariff. SO instead of directly exporting to US with a 20% tariff, instead you will export it to Mexico, who has a 5% tariff and then ship it to the US.
But there is only gain if the extra shipping cost is less than 15%
What does “NON-NAFTA INPUTS MUST HAVE A DIFFERENT PRODUCT CLASSIFICATION FROM THE PRODUCT EXPORTED” mean?
If bread is baked in Mexico from European flour it’s OK to export tariff-free to the US But NOT European bread-mix because bread-mix and baked bread belong to the same product category
Why is FTA weaker than CU?
Lots of flexibility allowed by each country. (anti dumping charges & ROO)
What is the NAFTA approach to NTB?
- Multilateral system (WTO rules)
- Plurilateral system - involves some non-NAFTA countries. Anti-counterfeiting trade agreements, so you can’t sell fake goods.
- Bilateral (only between 2 countries) - recognise each other’s conformity tests via bilateral agreements.
NAFTA eliminates need for this security check.
Other non-trade barriers dealt with in NAFTA?
- NAFTA eliminates service barriers [not allowing another country to provide services in your country] in nearly all sectors, meaning that entry becomes straightforward and if you’re from the US you can open branches essentially everywhere in mexico.
- Non-discriminatory public procurement. If government purchases goods from the market, it doesn’t matter where you get it from.
- Intellectual property rights installed: patents, copyrights etc.
Facts: Impact of NAFTA on trade?
Intra-NAFTA trade tripled in 2011 to $1 trillion.
Canada and Mexico are the two largest export destinations for the US and 2nd and 3rd import suppliers.
How much of intra-NAFTA growth is causal to NAFTA?
Romali 2005 - he compared trade in products where tariff cuts were BIG vs SMALL. if there was causality, we would see a larger trade increase in producst where tariff cuts are biggest. VALID.
What were the effects of NAFTA on US?
- Concern of job relocation, wages are much lower in Mexico.
- If mexican workers are paid a lower wage, goods will be much cheaper in mexico. Due to no tariffs, when they export clothes to the US, this could drive US companies out of business.
economic policy institute estimated almost 1million jobs lost in the US due to import heavy trade with C+M
- also many US multinationals can invest in mexico and combine US technology with mexican workers. This puts US jobs in danger because not only are mexican companies competing with US companies, but are moving their jobs away from the US to Mexico.
- Also worry about environmental standards.
What is the wage effect?
For existing workers in the USA, your wage goes down because according to theory - factor prices become more and more equalized. Mexico has low prices + US has high prices.
but are job losses ACTUALLY due to NAFTA?
No, research shows that what happened is actually due to technological change
Robots substitute workers’ jobs.
So why do politicians not blame job losses on technology
It’s easier to blame job losses on things like NAFTA, where trade can induce job losses because Mexico has lower costs, meaning firms go to M + move jobs over there, because protectionism is a much easier solution.
E.g., if we say its due to the foreign trade deal, foreigners stealing jobs etc. then we can increase tariff barriers or implement some protectionism to calm down worries. But with technology, it’s impossible to stop technological advances.
What was the impact of NAFTA on mexico?
- Income per person up by 40% since 1994 + a major decline in poverty.
- FDI increase from 15mil to 19mil as nafta rules encourage investment.
- Maquiladoras (labour intensive manufactoring firms) placed on Mexican borders with main purpose to export to US. Easier if located close to border to minimise transport costs.
- Over time, manufacturing getting more advanced, from clothes to aerospace. Technology b US companies has spread to all parts of mexico, upgrading industry structure.
- HOWEVER, NAFTA decline in small mexican firms. Trade makes some winners and some losers. Small firms cannot compete with big US firms.
NAFTA key driver of mexico’s economic and social transformation past 20 years.
what are NAFTA labour market provisions?
- Partners must apply international labour standards.
- Partners must enforce own labour rules
- Sanctions for rules like minimum wages, shouldn’t use child labour, occupational health + safety
