U.S. government recently announced that United State, Canada and Mexico have completed negotiation of a North America Free Trade Agreement (NAFTA). This agreement will phase out barriers to trade in goods and services in North America, eliminate barri...
U.S. government recently announced that United State, Canada and Mexico have completed negotiation of a North America Free Trade Agreement (NAFTA). This agreement will phase out barriers to trade in goods and services in North America, eliminate barriers to investment, and strengthen the protection of intellectual property rights.
For many years, Mexico used high tariffs and licensing restrictions in an effort to encourage industrial development and import substitution. Mexico has recent opened its market and implemented sweeping economic reforms. This Mexican economic reforms has considerably increased effective Mexican demend for imports, resulting in a surge in U.S. exports to that market.
The objective of NAFTA is to open markets, this agreement involves an ambitious effort to eliminate barriers to agricultural and manufacturing, to remove investment resrictions , and protect effectively intellectual property rights. Highlights of the NAFTA include :
(1) Tariffs Elimination.. . Approximatedly 65% fo U.S. industrial and agricultural exports to Mexico will be eligible for duty-free treatment either immediately or within five years. Mexico's tariffs currently average 10%, which is two-and-a-half times the average U.S. tariff.
(2) Reduction of Motor Vehicle and Parts Tariffs. . .U.S. auto and light trucks will enjoy greater access to Mexico, which has the fastest growing major auto market in the world. With NAFTA, Mexican tariffs on Vehicles and light trucks will immediately be cut in half. Within five years, duties on three-quarters of U.S. parts exports to Mexico will be eliminated, and Mexican "trade balancing" and "local content requirement" will be phased out over 10 years.
(3) Auto Rule of Origin.. .Only Vehicles with substantial North American parts and labor content will benefit from tariff cuts under NAFTA's strict rule of origin. NAFTA will require that autos contain 62.5% North American content, considerably more than the 50% required by the U.S.-Canada Free Agreement. NAFTA contains tracing requirements so that individual parts can be identified to determine the North American content of major components and sub-assemblies. This strict rule of origin is important in ensuring that the benefits of the NAFTA flow to firms that produce in North America.
(4) Expanded Trade in Financial Service. . ,Mexico's closed financial services markets will be opened and U.S. banks and securities firms will be allowed to estabilish wholly owned subsidiaries. Transitional restrictions will be phased out by January. 1, 2000.
(5) Increased Investment. . .Mexican "domestic content" rules will be eliminated, permitting additional sourcing of U.S. inputs and, for the first time, U.S. firms operating in Mexico will receive the same treatment as Mexican-owned firms. Mexico has agreed to drop export performance requirements, which presently force companies to export as a condition of being allowed to invest.
(6) Protection of Intellectual Property Rights.. . NAFTA will provide a higher level of protection for intellectual property rights than any other bilateral or multilateral agreement. U.S. high-technology, entertainment, and consumer goods producers that rely heavily on protection for their patent, copyrights, and trademarks will realize substantial gains under NAFTA. The agreement will also limit compulsory licensing, resolving an important concern with Canada.
This Agreement objected to open markrts, and it is not designed to creat a closed
regional trading bloc, and does not erect new barriers to non-paticipant. But This
ageement are the estimated amounts of decreases trade with Korea by the three countries on a one-static basis.
The U.S. International Trade Commission (USITC) surveyed and evaluated the various economic analyses of NAFTA, and reported that all three conutries are expected to gain from a NAFTA, and that NAFTA would increase U.S. grouth, jobs and wages. USITC found that NAFTA would increase U.S. real GDP by up to 0.5% per yeat once it is fully implemented, and USITC projected aggregate U.S. employment increases ranging from under 0.1% to 2.5% (over on million U .S. jobs by 1995 under NAFTA) increases in U.S. real wages of between 0.1% to 0.3%.