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INTRODUCTION A trade union or labor union is an organization of workers who have lined together to achieve common goals such as better working conditions. The trade union, through its leadership, negotiates with the employer on behalf of union members and confers labor contracts (collective bargaining) with employers. From the concept of trade union several trade agreements has been signed between several countries of the world. A trade agreement is generally formed between three or more countries and/or, regions. Several operating agreements at present are: Asia-Pacific Trade Agreement (APTA). ASEAN Free Trade Area (AFTA). African Free Trade Zone (AFTZ). South Asia Free Trade Agreement (SAFTA). North American Free Trade Agreement (NAFTA).

The North American Free Trade Agreement or NAFTA is an agreement between three counties which together started a Trade Bloc in North America. They are: Canada Mexico United States

The agreement came into force on January 1, 1994. It made the Canada-United States Free Trade Agreement out of date in terms of combined purchasing Power parity GDP of its members, as of 2007 the trade bloc is the largest in the world and is the second largest by nominal GDP comparison. NAFTA has two parts, the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC). Canada and the United States signed the Canada-United States Free Trade Agreement in 1988, after the US Congress approved implementing legislation. The American government then started negotiations with the Mexican government for a similar agreement. The international environment, at that time, started expanding trade blocs, and in 1992 the Maastricht Treaty which created the European Union was signed. The vision of NAFTA was to abolish barriers of trade and investment between the three countries. The implementation for NAFTA immediately eradicated the tariffs on more than one half of US imports from Mexico as well as more than one third of US exports to Mexico. Most trades between US and Canada are already duty free. NAFTA also seeks for eliminating non-tariff trade obstacles.

Page |2 TRADE THEORIES BEHIND NAFTA There are several existing trade theories on the basis of which several trade unions are working on. The main trade theories are:

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Mercantilism. Theory of absolute advantage. Theory of comparative advantage. Heckscher-Ohlin Theory. The product life-cycle Theory. New trade theory. National Competitive advantage.

In our conferred trade union NAFTA, we shall discuss about the theory of absolute advantage, Theory of comparative advantage, Heckscher-Ohlin theory, the product life-cycle theory and the new trade theory.

Theory of Absolute Advantage: Adam Smith (father of liberalism and economical science) brought the argument in his book The Wealth of Nations, published in 1776, that the mercantilist policies favorite producers and disadvantaged the interests of consumers. Adam Smiths theory starts with the idea that export is profitable if you can import goods that could satisfy better the necessities of consumers instead of producing them on the internal market. The essence of Adam Smith theory is that the rule that leads the exchanges from any market, internal or external, is to determine the value of goods by measuring the labor incorporated in them. In order to demonstrate its theory, Adam Smith analyzed for the beginning country A, using one factor of production, the productivity of labor, evaluated in the necessary of hours needed to produce a unit of measure of the products X and Y. He used a unifactorial system of economy. Symbolizing Hhours, L-labor, and the unitary necessary of labor for product X is HLX and for Y is HLY. Because all the economies have limited resources, there are limits in the level of production, and if a country

Page |3 wants to produce much of one product it has to give up producing another goods, existing in this case renounce of trade. Renounces can be illustrated by a graphic.

THE PRODUCTION POSSIBILITY FRONTIER

We have a single factor of production- labor, which results in productivity. This country has a resource of labor of 8+4=12 hours. - with 4 hours of labor the country can produce 1 kilo of cheese. - with 8 hours of labor the country can produce 1 liter of wine The production possibility frontier illustrates the variety of the mixing of goods that can be produce by the economy. The opportunity cost is the number of measure units of product Y to which the economy has to give up in order to produce one supplementary unit of product X. Specialization in production and the advantage from trade through absolute advantage

Country A is more productive the B in the production of X and it has an absolute advantage in this product and country B is more productive then B in producing product Y. It is reasonable and in the benefit of 2 countries to concentrate all resources of labor to the product for which they have absolute advantage. After specialization, exchanging products, both countries gain from trade.

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Theory of Comparative Advantage: The theory of comparative advantage allows, however, that a nation may nevertheless benefit from free trade even though it is assumed to be technologically inferior to another nation in the production of everything. The critical move was to show that a "comparative advantage good requires a comparison of production costs across countries. But one does not need to compare the monetary costs of production, or the labor, or other resource costs of production. Instead one must compare the opportunity costs of producing goods across countries. Every choice has an opportunity cost, measured by the value of next best alternative sacrificed. Thus, "A country is said to have a comparative advantage in the production of a good (say cloth) if it can produce cloth at a lower opportunity cost than another country. The opportunity cost of cloth production is defined as the amount of wine that must be given up in order to produce one more unit of cloth. Thus England would have the comparative advantage in cloth production relative to Portugal if it must give up less wine to produce another unit of cloth than the amount of wine that Portugal would have to give up to produce another unit of cloth." The modern version of the Ricardian model and its results are typically presented by constructing and analyzing an economic model of an international economy. In its most simple form the model assumes two countries producing two goods using labor as the only factor of production. Goods are assumed homogeneous (identical) across firms and countries. Labor is homogeneous within a country but heterogeneous (non-identical) across countries. Goods can be transported costlessly between countries. Labor can be reallocated costlessly between industries within a country but cannot move between countries. Labor is always fully employed. Production technology differences across industries and across countries and are reflected in labor productivity parameters. The labor and goods markets are assumed to be perfectly competitive in both countries. Firms are assumed to maximize profit while consumers (workers) are assumed to maximize utility. It is clear that the theory of competitive advantage employs the entire apparatus of neoclassical price theoryincluding, accordingly, the full range of essential assumptions regarding rationality, competition, equilibrium and timelessness. Heckscher-Ohlin Theory: Swedish economists Eli Heckscher and Bertil Ohlin put forward a different explanation of comparative advantage. They argued that comparative advantage arises from differences in national factor endowments. By factor endowments they meant the extent to which a country is endowed with

Page |5 such resources as land, labor and capital. Nations have varying factor endowments and different factor endowments explain differences in factor costs. Specifically, the more abundant a factor, the lower its cost. The Heckscher-Ohlin theory predicts that countries will export those goods that make intensive use of factors that are locally abundant, while importing goods that make intensive use of factors that are locally scarce. Thus, the Heckscher-Ohlin theory attempts to explain the pattern of international trade that we observe in the world economy. Heckscher-Ohlin theory also argues that free trade is beneficial and the pattern of international trade is determined by differences in factor endowments, rather than differences in productivity. The Product Life-Cycle Theory: Reymond Vernon initially proposed the product life-cycle theory in the mid- 1960s. The product life-cycle theory suggests that, trade patterns are influenced by where a new product is introduced. In an increasingly integrated global economy, the product life-cycle theory seems to be predictive than it once was. Vernon went on to argue that early in the life-cycle of a typical new product, while demand is starting to grow rapidly in the united state, demand in other advanced countries is limited to high income groups. The limited initial demand in other advanced countries does not make it worthwhile for firms in those countries to start. Producing the new product, but it does necessitate some exports from U.S to those countries. Overtime, demand for the new product starts to grow in other advanced countries. The U.S, Canada and Mexicos production pattern of industries largely depends on this theory. New Trade Theory: The new trade theory began to emerge in the 1970s when a number of economists pointed out that the ability of firms to attain economies of scale might have important implications for international trade. Economies of scale are unit cost reductions associated with a large scale of output. New theory states that trade allows a nation to specialize in the production of certain goods, attaining scale economies and lowering the costs of producing those goods, while buying goods that it does not produce from other nations that are similarly specialized. By this mechanism, the variety of goods available to consumers in each nation is increased, while the average costs of those goods should fall. Some new trade theories have promoted the idea of strategic trade policy. The argument is that, government, by the sophisticated and judicious use of subsidies, might be able to increase the chances of domestic firms becoming first movers in newly emerging industries.

Page |6 2. HISTORY of NAFTA

The North American Free Trade Agreement or NAFTA is an agreement signed by the Governments of Canada, Mexico, and the United States of America, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It outdated the Canada-United States Free Trade Agreement between the U.S. and Canada. In terms of combined purchasing power parity GDP of its members, as of 2007 the trade block is the largest in the world and second largest by nominal GDP comparison. The North American Free Trade Agreement (NAFTA) has two supplements, the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC). The history of NAFTA is three-fold which includes the trade history of U.S.A., Canada and Mexico; and how these countries initiated NAFTA as a trade union. In 1988 Canada and the United States signed the Canada-United States Free Trade Agreement after the US Congress approved implementing legislation. The American government then entered into negotiations with the Mexican government for a similar treaty, and Canada asked to join the negotiations in order to preserve its perceived gains under the 1988 deal. The international climate at the time favored expanding trade blocs, and the Maastricht Treaty which created the European Union was signed in 1992. Following diplomatic negotiations dating back to 1991 between the three nations, the leaders met in San Antonio, Texas, on December 17, 1992, to sign NAFTA. U.S. President George H.W. Bush, Canadian Prime Minister Brian Mulroney and Mexican President Carlos Salinas; each responsible for spearheading and promoting the agreement, ceremonially signed it. The agreement then needed to be ratified by each nation's legislative or parliamentary branch. Before the negotiations were finalized, Bill Clinton came into office in the U.S. and Kim Campbell in Canada, and before the agreement became law, Jean Chrtien had taken office in Canada. The proposed Canada-U.S. trade agreement had been extremely controversial and divisive in Canada, and the 1988 Canadian election was fought almost exclusively on that issue. In that election more Canadians voted for anti-free trade parties (the Liberals and the New Democrats) but more seats in parliament were won by the pro-free trade Progressive Conservatives (PCs). Mulroney and the PCs had a parliamentary majority and were able to easily pass the Canada-U.S. FTA and NAFTA bills. However Mulroney himself had become deeply unpopular and resigned on June 25, 1993. He was replaced as Conservative leader and prime minister by Kim Campbell, who then led the PC party into the 1993 election where they were decimated by the Liberal party under Jean Chrtien. Chrtien had campaigned on a promise to renegotiate or abrogate NAFTA, but instead negotiated the two supplemental agreements with the new U.S. president.

Page |7 In the U.S., Bush (senior), who had worked to "fast track" the signing prior to the end of his term, ran out of time and had to pass the required ratification and signing into law to incoming president Bill Clinton. Prior to sending it to the House of Representatives, Clinton introduced clauses to protect American workers and allay the concerns of many House members. It also required U.S. partners to adhere to environmental practices and regulations similar to its own. The ability to enforce these clauses, especially with Mexico, and with much consideration and emotional discussion the House of Representatives approved NAFTA on November 17, 1993, by a vote of 234 to 200. The agreement's supporters included 132 Republicans and 102 Democrats. NAFTA passed the Senate 6138. Clinton signed it into law on December 8, 1993; it went into effect on January 1, 1994. In 1990, the President of Mexico at the time, Carlos Salinas de Gortari, approached then U.S. President George H.W. Bush with the idea of forming a free trade agreement (FTA). President Salinas de Gortaris main motivation in pursuing an FTA with the United States was to stabilize the Mexican economy by attracting foreign direct investment (FDI). The Mexican economy had experienced many difficulties throughout most of the 1980s with a significant deepening of poverty. Mexicos intention in entering NAFTA was to increase export diversification by attracting FDI, which would help create jobs, increase wage rates, and reduce poverty. At the time NAFTA went into effect, many studies predicted that the agreement would cause an overall positive impact on the Mexican economy. From the 1930s through part of the 1980s, Mexico maintained a strong protectionist trade policy in an effort to be independent of any foreign power and as a means to industrialization. Mexico established a policy of import substitution in the 1930s, consisting of a broad, general protection of the entire industrial sector. The 1980s in Mexico were marked by inflation and a declining standard of living. 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 mid1980. Much of the governments efforts in addressing the challenges were placed on privatizing state industries and moving toward trade liberalization. In the late 1980s and early into the 1990s, the Mexican government implemented a series of measures to restructure the economy that included steps toward unilateral trade liberalization. Mexican began to reverse its protectionist stance in the mid-1980s when the government was forced to declare that it was unable to repay its debts and to default on its loans. Then President Miguel de la Madrid took steps to open and liberalize the Mexican economy and initiated procedures to replace import substitution policies with policies aimed at attracting foreign investment, lowering trade barriers and making the country competitive in non-oil exports. In 1986, Mexico acceded to the

Page |8 General Agreement on Tariffs and Trade (GATT), assuring further trade liberalization measures and closer ties with the United States. In November 1987, the United States and Mexico entered into a bilateral understanding on trade and investment called the Framework of Principles and Procedures for Consultation Regarding Trade and Investment Relations. Prior to this agreement, there had been no legal framework to govern commercial relations between the two countries. There were two parts to the agreement; one served as a mechanism to address trade issues, and the other established an agenda for the removal or reduction of trade barriers. Seven topics were listed in the agenda for possible future discussions: textiles, agriculture, steel, investment, technology transfer and intellectual property, electronics, and information on the service sector. Under this framework understanding, two sectoral agreements were reached which liberalized trade in steel, textiles, and alcoholic beverages. In addition, working groups started meeting on agriculture, industry, services, tariffs, and intellectual property rights. In October 1989, the two countries entered into a second trade and investment understanding called The Understanding Regarding Trade and Investment Facilitation Talks. This agreement built on the work of the 1987 agreement, establishing a negotiating process for expanding trade and investment opportunities. These two agreements significantly improved trade relations between Mexico and the United States and other improvements in trade relations followed. Marking the advances in trade relations between the two countries, Mexico proposed negotiations for a free trade agreement with the United States. In June 1990, then President Carlos Salinas de Gortari of Mexico and then President George H.W. Bush issued a joint statement in support of negotiating a free trade agreement. The Mexican economy is strongly tied to economic conditions in the United States, making it very sensitive to economic developments in the United States. Mexico is highly reliant on exports and most of Mexicos exports go to the United States. In 2007, Mexicos exports as a percent of GDP equaled 33%, up from 10% twenty years ago, and over 80% of Mexicos exports went to the United States. The state of the Mexican economy is important to the United States because of the close trade and investment ties between the two countries, and because of other social and political issues that could be affected by economic conditions, particularly poverty and how it relates to migration issues. The Mexican government expected investor confidence to be restored after the August 1994 presidential election. In the months following the election, the current account deficit widened as imports surged due to an overvalued peso. The government began to experience a short-term liquidity crisis. By December 1994, the continued decrease in the inflows of foreign direct investment and

Page |9 foreign exchange reserves put pressure on the government to abandon its previous fixed exchange rate policy and adopt a floating exchange rate regime. As a result, Mexicos currency plunged by around 50% within six months, sending the country into a deep recession. In the aftermath of the 1994 devaluation, the Mexican government took several steps to restructure the economy and lessen the impact of the currency crisis among the more disadvantaged sectors of the economy. The United States and the International Monetary Fund (IMF) assisted the Mexican government by putting together an emergency financial support package of up to $50 billion. Mexico adopted tight monetary and fiscal policies to reduce inflation and absorb some of the costs of the banking sector crisis. The austerity plan also included an increase in the value-added tax, budget cuts, and increases in electricity and gasoline prices. The peso steadily depreciated through the end of the 1990s, which led to greater exports and helped the countrys exporting industries. However, the peso devaluation also resulted in a decline in real income, hurting mostly the poorest segments of the population, but also the newly emerging middle class. Yet, NAFTA and the change in the Mexican economy to an export-based economy may have helped to soften the impact of the currency devaluation.

3. COMPARISON OF STATUS/RELATION AMONG NAFTA NATIONS:

Political relations:

P a g e | 10 National politics or preferences have played an important role in explaining the dynamics of integrative experiences. Within North America or NA, the role of national politics should be explained by taking into consideration the political asymmetries prevailing among NAFTA members, and the differences in their respective political systems. As the time and rhythm of NA regionalism has remained heavily dominated by Washingtons interests and calculations. Neither Canada nor Mexico together could counterbalance the disproportional weight of the US economy and of Washingtons politics. Even though Canada and Mexico share the same challenge of being neighbors of the worlds main super power, their respective bilateral agendas with Washington do not necessarily converge. On sensitive issues such as migration and border security, Canadians and Mexicans have different problems and priorities with regard to their common neighbor. Following 9/11 continental and border security became, for instance, a particular issue of concern within USCanada relations. This is so because traditionally, and in contrast with the USs southern border, the line at the 49th parallel was considered a business-friendly, tourist-oriented thin border (Ackleson, 2008) for corporate Canada and those sectors that benefited from trade and production chains located on the two sides of the borderline, the creation of a borderless economic space was an anticipated goal devised by NAFTA. Once the Department of Homeland Security (DHS) was created and a progressive securitization of the northern border became unavoidable, Canadians realized that border security could become a new and expensive non-tariff barrier that could compromise its competitiveness, both regionally and globally. Canadians were thus prompted to agree to a so-called 30 point action plan in order to internalize the costs of having a safe and open border. At the foundation of this action plan was the establishment of the so-called smart borders approach, transforming borders into check points using information technologies (IT) assessing and detecting levels of risk on human and material cross-border flows. Smart borders were at the foundation of what thereafter evolved into a trilateral alliance called the Security and Prosperity Partnership (SPP). At any rate, Canadians moved into shared governance practices with US agencies for ensuring border operations in order to reduce transactions costs generated for US security concerns. In spite of all this, delays crossing south or north bound the 49th parallel are still significantly higher than pre-September 11 activities (Pastor, 2008). The fact that security trumps trade has become a source of criticism and irritation in Canada-US relations. Apart from strong political asymmetries and priorities existing among NAFTA partners, the excessive fragmentation of the US political and regulatory system could also become a barrier for coordinating and enhancing integrative initiatives. This is in contrast to the Canadian parliamentary system, in which a majority (as it was during the negotiations of NAFTA) or a coalition government (as it is today) could facilitate the convergence of domestic interests towards regional or international issues. In the case of the US the role of Capitol Hill becomes crucial for articulating national constituencies whose interests could play against the international commitments/interests of the Executive. This is

P a g e | 11 particularly true in trade policies and politics, as witnessed by the latest presidential campaign, during which NAFTA became the target of easy criticism from both Barack Obama and Hillary Clinton. In the midst of a severe economic recession, the Democratic candidates running for the presidency had to gain the support of labor and trade unions, their constituencies, by displaying a campaign in which the protection of jobs and wages become a priority in relation to trade openness and regional commitments. While the criticisms against NAFTA during the presidential campaign seemed to be rhetorical for obtaining the support of electors from the rust belt, the early days of the Obama administration has stuck to some of the promises made to constituents. The passing of the Buy America Act giving preference to national industries over imports- has caused concern and uncertainty both in Ottawa and Mexico City, even though the Senate had made it consistent with the USs international trade agreements. Nonetheless, the two neighbors remain alert to the possibility of an escalated protectionism coming from the US Congress in case the economic downturn becomes worse or protracted. It is well known that in periods of recession US trade agencies are more deferent to domestic pressures for establishing anti-dumping and CVDs against trade partners. In parallel to mounting protectionist pressures coming from Congress, Canada and Mexico have to deal with powerful lobbies able to bend the rule-based commitments signed by the Executive. The case of softwood lumber trade between Canada and the US is an example of this. A more recent one has strained and damaged Mexico-US relations. This is the case of Mexican trucks transporting goods to the borderline. Though NAFTA liberalized cross-border trucking services between the two countries, the teamsters, the powerful union of US carriers, have traditionally opposed the entrance of Mexican trucks, arguing safety and regulatory concerns. Similar to Canadas lumber conflict, Mexicans asked for a bilateral panel under chapter 20 of NAFTA in order to settle the problem, having a positive award for its claims. In spite of this, US agencies stuck to their protectionist positions until a pilot program was established in March 2008 in order to allow 55 Mexican trucks to enter the country. During the first days of the Obama Presidency, this pilot program was canceled, by barring the funding that made it possible. Mexicans counterattacked by imposing tariffs on 90 American products that were already liberalized under NAFTA. This is the first time that Mexico has invoked tit for tat measures accepted under NAFTA- since the agreement came into force. However symbolic these measures may be, they demonstrate the limits for market access governance under NAFTA. If security trumps trade, teamsters and other powerful lobbies do the same.

P a g e | 12 Relations between Canada and the United States span more than two centuries, sharing British colonial heritage, conflict during the early years of the United States, and the eventual development of one of the most successful international relationships in the modern world. Each is the other's chief economic partner, and indeed the two economies have increasingly merged since the North American Free Trade Agreement (NAFTA) of 1994. In addition, there has always been large scale immigration between the two nations and since 1900 large-scale tourism as well. The most serious breach in the relationship was the War of 1812, which saw an American invasion of then British North America and counter invasions from British-Canadian forces. The border was demilitarized after the war and, apart from minor raids, has remained peaceful. Military collaboration began during World War II and continued throughout the Cold War on both a bilateral basis and through NATO. A high volume of trade and migration between the United States and Canada has generated closer ties, despite continued Canadian fears of being overwhelmed by its neighbor, which is ten times larger in terms of population and economy. Canada and the United States are currently the world's largest trading partners, share the world's longest un-militarized border, and have significant interoperability within the defense sphere. Recent difficulties have included repeated trade disputes (despite a continental trade agreement), environmental concerns, Canadian concern for the future of oil exports, and issues of illegal immigration and the threat of terrorism. The foreign policies of the neighbors have been closely aligned for the Cold War and after, though Canada has disagreed with American policies regarding the Vietnam War, the status of Cuba, the Iraq War, Missile Defense, and the War on Terrorism. A minor diplomatic debate is whether the Northwest Passage is in international waters or under Canadian jurisdiction. Shortly after being congratulated by then U.S. President George W. Bush for his victory in February 2006, Prime Minister of Canada, Stephen Harper rebuked U.S. Ambassador to Canada David Wilkins for criticizing the Conservatives' plans to assert Canada's sovereignty over the Arctic Ocean waters with armed forces. Harper's first meeting with the former U.S. President occurred at the end of March 2006; and while little was achieved in the way of solid agreements, the trip was described in the media as signaling a trend of closer relations between the two nations. Prime Minister Harper called and congratulated the then President-elect, Barack Obama, on his victory over John McCain, and he assured the President-elect that the two countries will become the greatest of allies. After he was inaugurated, on January 20, 2009, as President of the United States, it was announced that Mr. Obama's first international trip would be to Canada, which took place on February 19, 2009.

P a g e | 13 CanadaMexico relations are relations between Canada and the United Mexican States. Despite the fact that historic ties between the two nations have been coldly dormant, relations between Canada and Mexico have positively changed in recent years; seeing as both countries brokered the NAFTA. Although on different sides of the Cold War Spectrum (Canada was a member of NATO while Mexico was in the Non-Aligned Movement, though Mexico later left; the two countries were, however, allies in World War Two.) Canada is represented by its embassy in Mexico City, a Consulate General in Monterrey and a consulate in Guadalajara. Mexico is represented by its embassy in Ottawa, Consulates-General in Montreal, Toronto and Vancouver, and Consulates in Calgary and Lamington.

Cultural relation : The United States is a multicultural nation, home to a wide variety of ethnic groups, traditions, and values. Aside from the now small Native American and Native Hawaiian populations, nearly all Americans or their ancestors immigrated within the past five centuries. The culture held in common by most Americans - mainstream American culture - is a Western culture largely derived from the traditions of European immigrants with influences from many other sources, such as traditions brought by slaves from Africa. More recent immigration from Asia and especially Latin America has added to a cultural mix that has been described as both a homogenizing melting pot and a heterogeneous salad bowl in which immigrants and their descendants retain distinctive cultural characteristics. Canadian culture has been greatly influenced by immigration from all over the world. Many Canadians value multiculturalism and see Canada as being inherently multicultural. However, the country's culture has been heavily influenced by American culture because of its proximity and the high rate of migration between the two countries. The great majority of English-speaking immigrants to Canada between 1755 and 1815 were Americans from the Thirteen Colonies; during and immediately after the American Revolutionary War, 46,000 Americans loyal to the British crown came to Canada. Between 1785 and 1812, more Americans immigrated to Canada in response to promises of land. American media and entertainment are popular, if not dominant, in English Canada; conversely, many Canadian cultural products and entertainers are successful in the United States and worldwide. Many cultural products are marketed toward a unified "North American" or global market. The creation and preservation of distinctly Canadian culture are supported by federal government programs, laws, and institutions such as the Canadian Broadcasting Corporation (CBC), the National Film Board of Canada, and the Canadian Radio-television and Telecommunications Commission.

P a g e | 14 Mexican culture reflects the complexity of the country's history through the blending of pre-Hispanic civilizations and the culture of Spain, imparted during Spain's 300-year colonization of Mexico. Exogenous cultural elements mainly from the United States have been incorporated into Mexican culture.

Common interest : USA, Canada and Mexico are the members of the UN, G8+5, Organization for Economic Cooperation and Development and Organization of American States. USA and Canada are the members of NATO. Canada was a major contributor of the North American Aerospace Defense Command (NORAD) in cooperation with the United States to defend against potential aerial attacks from the Soviet Union. During the Suez Crisis of 1956, future Prime Minister Lester B. Pearson eased tensions by proposing the inception of the United Nations Peacekeeping Force, Canada joined the Organization of American States (OAS) in 1990 and hosted the OAS General Assembly in Windsor, Ontario, in June 2000 and the third Summit of the Americas in Quebec City in April 2001.Canada seeks to expand its ties to Pacific Rim economies through membership in the Asia-Pacific Economic Cooperation forum (APEC) and so did USA. Canada has had troops deployed in Afghanistan as part of the U.S. stabilization force and the UN-authorized, NATO-commanded International Security Assistance Force. Canada and the U.S. continue to integrate state and provincial agencies to strengthen security along the Canada-United States border through the Western Hemisphere Travel Initiative. As an regional and emerging power, Mexico has a significant global presence and is a member of several international organizations and forums such as the United Nations, the Organization of American States, the G8+5, the G-20 major economies, the Asia-Pacific Economic Cooperation and the Organization for Economic Co-operation and Development.

Canada and the United States both hold membership in a number of multinational organizations (excluding NAFTA) such as:

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Asia-Pacific Economic Cooperation Food and Agriculture Organization G-8 G-10 G-20 major economies International Chamber of Commerce

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International Development Association International Monetary Fund International Olympic Committee Interpol North American Aerospace Defense Command North American Numbering Plan North Atlantic Treaty Organization Organization of American States Organization for Economic Co-operation and Development Security and Prosperity Partnership of North America UKUSA Community United Nations UNESCO World Health Organization World Trade Organization World Bank

Mexico and the United States both hold membership in a number of multinational organizations (excluding NAFTA) such as:

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Asia-Pacific Economic Cooperation Bank for International Settlements Food and Agriculture Organization G-20 International Atomic Energy Agency International Chamber of Commerce International Court of Justice International Olympic Committee International Monetary Fund International Telecommunication Union Interpol Organization for Economic Co-operation and Development Organization of American States Security and Prosperity Partnership of North America UNESCO United Nations World Bank World Health Organization

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*
Geographical position :

World Trade Organization

The United States territory consists of three separate parts, different in size, natural features, level of development.

1)

The main part, the United States proper, with an area of 7,800,000 square kilometers. It

borders on Canada in the north and on Mexico in the south. It is washed by the Pacific Ocean in the west, the Atlantic Ocean in the east, and the Gulf of Mexico in the south-east; Alaska, which occupies the north-western part of the continent of North America, including a lot of islands; Hawaii in the Pacific Ocean. 2) The geography of Canada is vast and diverse. Occupying most of the northern portion of

North America (41% of the continent), Canada is the world's second largest country in total area. Canada spans an immense territory between the Pacific Ocean to the west and the Atlantic Ocean to the east and the Arctic Ocean to the north (hence the country's motto "From sea to sea"), with the United States to the south (contiguous United States) and northwest (Alaska), and the Arctic Ocean to the north; Greenland is to the northeast. Off the southern coast of Newfoundland lies Saint-Pierre and Miquelon, an overseas collectivity of France. Since 1925, Canada has claimed the portion of the Arctic between 60W and 141W longitude to the North Pole; however, this claim is contested. 3) The geography of Mexico entails the physical and human geography of Mexico, a country

situated in the Americas. Mexico is located at about 23 N and 102 W in the southern portion of North America. It is also located in a region known as Middle America. Mexico is bounded to the north by the United States (specifically, from west to east, by California, Arizona, New Mexico, and Texas), to the west and south by the Pacific Ocean, to the east by the Gulf of Mexico, and to the southeast by Belize, Guatemala, and the Caribbean Sea. The northernmost constituent of Latin America, it is the most populous Spanish-speaking country in the world.

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Economic growth :

Table of Economic growth Comparison among NAFTA member countriesCountry Name GDP GDP (PPP) 2009 estimate Total $14.256 trillion Per capita $46,381 US A GDP (nominal) 2009 estimate Total $14.256 trillion Per capita $46,381 GDP (PPP) 2009 estimate Total $1.281 trillion Per capita $38,025 Canada GDP (nominal) 2009 estimate Total $1.336 trillion Per capita $39,668 1.48% 1.40% 7.90% 0.50% 1.0337 3.0% 2.0% 9.7% 0. 25% 83.947 0 GDP Growth Inflation Unemployment Rate Interest Rate Exchange Rate

P a g e | 18 GDP (PPP) 2010 estimate Total $1.541 trillion Per capita $14,495 Mexico GDP (nominal) 2010 estimate Total $1.085 trillion Per capita $10,211 -0.35% 3.69% 5.68% 4.50% 12.7693

The United States has a capitalist mixed economy, which is fueled by abundant natural resources, a well-developed infrastructure, and high productivity. According to the International Monetary Fund, the U.S. GDP of $14.4 trillion constitutes 24% of the gross world product at market exchange rates and almost 21% of the gross world product at purchasing power parity (PPP). It has the largest national GDP in the world, though it is about 5% less than the GDP of the European Union at PPP in 2008. The country ranks seventeenth in the world in nominal GDP per capita and sixth in GDP per capita at PPP. The United States is the largest importer of goods and third largest exporter, though exports per capita are relatively low. In 2008, the total U.S. trade deficit was $696 billion. Canada, China, Mexico, Japan, and Germany are its top trading partners. In 2007, vehicles constituted both the leading import and leading export commodity. Japan is the largest foreign holder of U.S. public debt, having surpassed China in early 2010. The United States ranks second in the Global Competitiveness Report. Canada is one of the world's wealthiest nations, with a high per-capita income, and it is a member of the Organization for Economic Co-operation and Development (OECD) and the G8. It is one of the world's top ten trading nations. Canada is a mixed market, ranking above the U.S. on the Heritage Foundation's index of economic freedom and higher than most western European nations. The largest foreign importers of Canadian goods are the United States, the United Kingdom, and Japan. In 2008, Canada's imported goods were worth over $442.9 billion, of which $280.8 billion was from the United States, $11.7 billion from Japan, and $11.3 billion from the United Kingdom. The countrys 2009 trade deficit totaled C$4.8 billion, compared with a C$46.9 billion surplus in 2008. As of October 2009, Canada's national unemployment rate was 8.6%. Provincial unemployment rates vary from a low of 5.8% in Manitoba to a high of 17% in Newfoundland and Labrador. Canada's federal debt is estimated to be $566.7 billion for 201011, up from $463.7 billion in 200809. Canadas net foreign debt rose by $40.6-billion to $193.8-billion in the first quarter of 2010. The

P a g e | 19 combined federal and provincial government deficit in the 200910 fiscal year could reach of $100billion, and the federal deficit is forecast to be C$49.2 billion in 201011. In the past century, the growth of the manufacturing, mining, and service sectors has transformed the nation from a largely rural economy to a more industrial and urban one. Like other First World nations, the Canadian economy is dominated by the service industry, which employs about three quarters of Canadians. Canada is unusual among developed countries in the importance of its primary sector, in which the logging and petroleum industries are two of the most important. Canada is one of the few developed nations that are net exporters of energy. Atlantic Canada has vast offshore deposits of natural gas, and Alberta has large oil and gas resources. The immense Athabasca Oil Sands give Canada the world's second-largest oil reserves, behind Saudi Arabia. Canada is one of the world's largest suppliers of agricultural products; the Canadian Prairies are one of the most important producers of wheat, canola, and other grains. Canada is the largest producer of zinc and uranium, and is a global source of many other natural resources, such as gold, nickel, aluminum, and lead. Many towns in northern Canada, where agriculture is difficult, are sustainable because of nearby mines or sources of timber. Canada also has a sizable manufacturing sector centered in southern Ontario and Quebec, with automobiles and aeronautics representing particularly important industries. Representatives of the Canadian, Mexican, and United States governments sign the North American Free Trade Agreement in 1992. Economic integration with the United States has increased significantly since World War II. This has drawn the attention of Canadian nationalists, who are concerned about cultural and economic autonomy in an age of globalization, as American goods and media products have become ubiquitous. The Automotive Products Trade Agreement of 1965 opened the borders to trade in the auto manufacturing industry. In the 1970s, concerns over energy selfsufficiency and foreign ownership in the manufacturing sectors prompted Prime Minister Pierre Trudeau's Liberal government to enact the National Energy Program (NEP) and the Foreign Investment Review Agency (FIRA). In the 1980s, Prime Minister Brian Mulroney's Progressive Conservatives abolished the NEP and changed the name of FIRA to "Investment Canada" in order to encourage foreign investment. The Canada United States Free Trade Agreement (FTA) of 1988 eliminated tariffs between the two countries, while the North American Free Trade Agreement (NAFTA) expanded the free-trade zone to include Mexico in the 1990s. In the mid-1990s, the Liberal government under Jean Chrtien began to post annual budgetary surpluses and steadily paid down the national debt. The 2008 global financial crisis caused a recession, which could boost the country's unemployment rate to 10%.

P a g e | 20 The economy of Mexico is the 11th largest in the world. The economy contains rapidly developing modern industrial and service sectors, with increasing private ownership. Recent administrations have expanded competition in ports, railroads, telecommunications, electricity generation, natural gas distribution and airports, with the aim of upgrading infrastructure. As an export-oriented economy, more than 90% of Mexican trade is under free trade agreements (FTAs) with more than 40 countries, including the European Union, Japan, Israel, and much of Central and South America. Mexico has a free market mixed economy, and is firmly established as an upper middle-income country. It is the 11th largest economy in the world as measured in gross domestic product in purchasing power parity. According to the latest information available from the International Monetary Fund, Mexico had the second-highest Gross National Income per capita in Latin America in nominal terms, at $9,716 in 2007, and the highest in purchasing power parity (PPP), at $14,119 in 2007. After the 1994 economic debacle, Mexico has made an impressive recovery, building a modern and diversified economy. Oil is Mexico's largest source of foreign income. According to Goldman Sachs, BRIMC review of emerging economies, by 2050 the largest economies in the world will be as follows: China, India, United States, Brazil and Mexico. Mexico is the largest North American auto producing nation, recently surpassing Canada and U.S. Mexico is the first and only Latin American country to be included in the World Government Bond Index or WGBI, which list the most important global economies that circulate government debt bonds. According to the director for Mexico at the World Bank, the population in poverty has decreased from 24.2% to 17.6% in the general population and from 42% to 27.9% in rural areas from 2000 to 2004. As of January 2009 4.6% of the population is impoverished if measured by food based poverty and 15% of the population is considered to be impoverished by asset based measurements (living on less than $10,000 per year). Nonetheless, income inequality remains a problem, and huge gaps remain not only between rich and poor but also between the north and the south, and between urban and rural areas. Sharp contrasts in income and Human Development are also a grave problem in Mexico. The 2004 United Nations Human Development Index report for Mexico states that Benito Jurez, a district of Mexico City, and San Pedro Garza Garca, in the State of Nuevo Len, would have a similar level of economic, educational and life expectancy development to Germany or New Zealand. In contrast, Metlatonoc, in the state of Guerrero, would have an HDI similar to that of Syria.

Social Comparison :

P a g e | 21 USA:

The United States population is projected by the U.S. Census Bureau to be 309,699,000 including an estimated 11.2 million illegal immigrants. It is the third most populous nation in the world, after China and India. English is the de facto national language. Although there is no official language at the federal level, some lawssuch as U.S. naturalization requirementsstandardize English. In 2006, about 224 million, or 80% of the population aged five years and older, spoke only English at home. Spanish, spoken by 12% of the population at home, is the second most common language and the most widely taught second language. Some Americans advocate making English the country's official language, as it is in at least twenty-eight states. Both Hawaiian and English are official languages in Hawaii by state law. The United States is officially a secular nation; the First Amendment of the U.S. Constitution guarantees the free exercise of religion and forbids the establishment of any religious governance. In a 2002 study, 59% of Americans said that religion played a "very important role in their lives," a far higher figure than that of any other wealthy nation. According to a 2007 survey, 78.4% of adults identified themselves as Christian, down from 86.4% in 1990. Protestant denominations accounted for 51.3%, while Roman Catholicism, at 23.9%, was the largest individual denomination. The study categorizes white evangelicals, 26.3% of the population, as the country's largest religious cohort; another study estimates evangelicals of all races at 3035%. The total reporting non-Christian religions in 2007 was 4.7%, up from 3.3% in 1990. The leading non-Christian faiths were Judaism (1.7%), Buddhism (0.7%), Islam (0.6%), Hinduism (0.4%), and Unitarian Universalism (0.3%). The survey also reported that 16.1% of Americans described themselves as agnostic, atheist, or simply having no religion, up from 8.2% in 199

Canada:

Canada's 2006 census counted a total population of 31,612,897, an increase of 5.4% since 2001. Population growth is from immigration and, to a lesser extent, natural growth. About four-fifths of Canada's population lives within 150 kilometers (93 miles) of the United States border. According to the 2006 census, the largest reported ethnic origin is English (21%), followed by French (15.8%), Scottish (15.2%), Irish (13.9%), German (10.2%), Italian (5%), Chinese (3.9%), Ukrainian (3.6%), and First Nations (3.5%). Approximately one third of respondents identified their ethnicity as "Canadian". There are 600 recognized First Nations governments or bands encompassing 1,172,790 people. According to the 2001 census, 77.1% of Canadians identify as being Christians; of this,

P a g e | 22 Catholics make up the largest group (43.6% of Canadians). The largest Protestant denomination is the United Church of Canada (9.5% of Canadians), followed by the Anglicans (6.8%), Baptists (2.4%), Lutherans (2%), and other Christians (4.4%). About 16.5% of Canadians declare no religious affiliation, and the remaining 6.3% are affiliated with non-Christian religions, the largest of which is Islam (2.0%), followed by Judaism (1.1%). Over six million people in Canada list a non-official language as their mother tongue. Some of the most common non-official first languages include Chinese (mainly Cantonese; 1,012,065 first-language speakers), Italian (455,040), German (450,570), Punjabi (367,505) and Spanish (345,345). Mexico: According to the latest official estimate, which reported a population of 111 million, Mexico is the most populous Spanish-speaking country in the world. Mexican annual population growth has drastically decreased from a peak of 3.5% in 1965 to 0.99% in 2005. Life expectancy in 2006 was estimated to be at 75.4 years (72.6 male and 78.3 female). There is no de jure constitutional official language at the federal level in Mexico. Spanish, spoken by 97% of the population, is considered a national language by The General Law of Linguistic Rights of the Indigenous Peoples, which also grants all indigenous minority languages spoken in Mexico, regardless of the number of speakers, the same validity as Spanish in all territories in which they are spoken, and indigenous peoples are entitled to request some public services and documents in their native languages. Mexico has the largest Spanish-speaking population in the world with more than twice as many as the second largest Spanish-speaking country (Spain, Argentina, and Colombia all have about 40 million speakers each). Almost a third of all Spanish native speakers in the world, live in Mexico. Nahuatl is spoken by 1.5 million people and Yucatec Maya by 800,000. Mexico has no official religion, and the government does not provide any financial contributions to the church, and the church does not participate in public education. The last census reported, by self-ascription, that 95% of the population is Christian. Roman Catholics are 89% of the total population, 47% percent of whom attend church services weekly. In absolute terms, Mexico has the world's second largest number of Catholics after Brazil. About 6% of the population (more than 4.4 million people) is Protestant, of whom Pentecostals and Charismatics (called Neo-Pentecostals in the census) are the largest group (1.37 million people). There are also a sizeable number of Seventh-day Adventists (0.6 million people). The 2000 national census counted more than one million Jehovah's Witnesses. The Church of Jesus Christ of Latter-day Saints claims over one million registered members as of 2009. About 25% of registered members attend a weekly sacrament service although this can fluctuate up and down. There are eleven Temples of the Church of Jesus Christ of Latter-day Saints in Mexico. The presence of Jews in Mexico dates back to 1521, when Hernn Corts conquered the Aztecs, accompanied by several Converses. According to the last national census by the INEGI, there are now more than 45,000 Mexican Jews.

P a g e | 23 Almost three million people in the 2000 National Census reported having no religion. Islam in Mexico is practiced by 25,000 people in Mexico. It is practiced in populations such as in the city of Torren, Coahuila, and there are an estimated 300 Muslims in the San Cristbal de las Casas area in Chiapas. Mexico's Buddhist population currently makes up a tiny minority, some 108,000 according to latest accounts. Most of its members are of Asian descent, while people of various other walks of life have turned toward Buddhism in the recent past. In 1992, Mexico lifted almost all restrictions on the Catholic Church and other religions, including granting all religious groups legal status, conceding them limited property rights, and lifting restrictions on the number of priests in the country. Until recently, priests did not have the right to vote, and even now they cannot be elected to public office.

4. TRADE BARRIERS AND NAFTA: A trade barrier is generally anything that makes trade difficult or even impossible. Examples of trade barriers range from government-instituted tariffs to cultural preferences. Trade barriers have a negative effect on exporters because they interfere with the normal supply and demand and make international trade more complicated. They also negatively impact importers and ultimately consumers since they interfere with competitive sourcing, which can result in higher prices. The global trend in recent years has been to eliminate as many trade barriers as possible. Organizations like the World Trade Organization (WTO) have been established with the purpose of limiting barriers and reconciling trade disputes among member nations. Free Trade Agreements (FTAs) among countries, such as the North American Free Trade Agreement (NAFTA), ASEAN in Asia, and the European Union customs union have reduced the number of barriers involved in regional trade. Trade Barriers within NAFTA: The most fundamental objective of the North American Free Trade Agreement (NAFTA) is the elimination of barriers to trade. Barriers take two basic forms: taxation (tariffs) and non-tariff barriers (NTB). Non-tariff barriers can include items such as quotas which are numerical limits of how much of an imported product can be entered into a country, or health and safety barriers which take the form of standards which attempt to protect the end user from a potentially negative impact from an imported product.

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Because NTBs can be significant impediments to trade, they have been scrutinized by nations for years. Some have called these types of barriers the most insidious of all. Therefore, the question of standards as potential trade barriers has been treated in the General Agreement on Tariffs and Trade (GATT), The Treaty of Rome, and in the North American Free Trade Agreement. Article XX of GATT and Article 36 of the Treaty of Rome specifically uphold a nation's right to set and enforce measures to protect the health and life of humans, animals, or plants. What constitutes protection, then, becomes an issue for national, state, and local governments and private organizations as well. The Tokyo Round of GATT further produced guidelines for the development of any new standards (those after the Tokyo Round) in its Agreement on Technical Barriers to Trade. In this agreement there is an obligation on the part of the signatories to ensure that national and regional regulatory entities do not use standards as a means of discrimination. In other words, a Nation cannot protect a local industry, say avocado production, by limiting the importation of foreign avocados under the guise that the foreign avocados do not meet phytosanitary standards if the standards are not justifiable scientifically and are merely used to discriminate. Similarly, a nation could not discriminate against a foreign motor carrier on safety grounds if the safety grounds were not valid and were used only to depress foreign competition to the local, regional, and national carriers. Since one of the purposes of NAFTA is to eliminate nontariff barriers, it is not surprising that one chapter in the accord is devoted to technical barriers to trade. Chapter Nine entitled Standards Related Measures affirms the party nations' responsibilities and rights under The Agreement on Technical Barriers to Trade. It also repeats the parties' commitment to afford national treatment to each other in this respect. National treatment means treatment no less favorable than accorded to like goods of its own nation. Furthermore, it adheres to the principle that no party nation shall create unnecessary obstacles to trade through the establishment of standard-related measures. Specifically, NAFTA states: "Each Party shall use, as a basis for its standards-related measures, relevant international standards or international standards whose completion is imminent, except where such standards would be an ineffective or inappropriate means to fulfill its legitimate objectives, for example because of fundamental climatic, geographical, technological or infrastructural factors, scientific justification or the level of protection that a Party considers appropriate." The chapter further reveals that each nation will coordinate the harmonization, notification, and publication of standards as quickly as possible under the terms of the Agreement. United States of America: NAFTA affects bilateral trade flows among the United States, Canada, and Mexico because it eliminates tariffs and many nontariff barriers to trade. At the time of the NAFTA debate, studies

P a g e | 25 suggested that Mexico would bear more of the adjustment than would the United States or Canada. For example, the Congressional Budget Office (1993) forecast that Mexicos economy could increase 6 to 12 percent, or even more, by the end of the NAFTA transition period. In contrast, it predicted the U.S. economy would increase by about one-fourth of 1 percent in the long run due to NAFTA. The different gains are due to differences in trade dependence and tariff structure. In contrast, 83.3 percent of Mexicos exports and 71.2 percent of Mexicos imports were with the United States.* The tradeweighted average tariff and tariff equivalent of quotas was 4 percent for the United States, compared to 10 percent for Mexico. NAFTA was expected to have little effect on Canada because Canada had already liberalized trade with the United States under the Canada-U.S. Free Trade Agreement in 1989, and Canada had relatively little trade with Mexico. Real exports and imports for the U.S. economy since 1980, along with bilateral real exports and imports with Mexico and Canada, are shown in Figures 1 and 2.** U.S. Figure 1 Real U.S. Export Index

Source: World Trade Organization web page [http://www.wto.org/]

Barriers to labor and professional mobility are seen as causing the most harm to the Canadian economy and the standard of living of Canadians and Mexicans. Other serious barriers are those relating to agriculture, transportation, investment, procurement, and natural resource processing. Barriers to the trade in alcoholic beverages are deemed least serious. A domestic content rule requires a certain portion of a product to be made domestically. This tactic is often used by the automobile industry within the U.S. Figure 2 Real U.S. Import Index

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Source: World Trade Organization web page [http://www.wto.org/]

* Trade shares are constructed from data on bilateral merchandise trade found in the International Monetary Fund, Direction of Trade Statistics. ** The real export and import indices are calculated from nominal export and import data from the IMF Direction of Trade Statistics deflated by U.S. export price index and import price index from the Economic Report of the President.

Canada is the largest single nation trading partner of the United States. In 2006, total merchandise trade with Canada was $533.7 billion (a 6.9% increase over 2005), consisting of $303.4 billion (5.4% over 2005) in imports and $230.3 billion (8.9% over 2005) in exports.2 In 2006, nearly $1.5 billion in goods crossed the border each day. Trade with Canada represented nearly 18.5% of U.S. total trade in 2006, with Canada purchasing 22.2% of U.S. exports and supplying 16.4% of total U.S. imports last year. While Canada is an important trading partner for the United States, the United States is the dominant trade partner for Canada. The United States supplied 65% of Canadas imports of goods in 2006, and purchased 79% of Canadas merchandise exports. In the United States, the value of trade (exports + imports) as a percentage of GDP was about 21.8% in 2006. Autos and auto parts are the top U.S. exports to, and imports from, Canada. Computer equipment, electrical equipment, engines, turbo-engines, recorded media, optical equipment and precision instruments are other major U.S. exports. Primary U.S. imports from Canada outside the automotive sector are energy (natural gas, petroleum products, and electricity), engines, aircraft equipment, wood, and paper products. TARIFF BARRIERS Despite the substantial tariff reduction and elimination agreed in the Uruguay Round, the U.S. retains a number of significant duties and tariff peaks in various sectors including food products, textiles, footwear, leather goods, ceramics, glass, and railway cars. A tariff-rate quota (TRQ) combines the idea of a tariff with that of a quota. The typical TRQ will set a low tariff for imports of a fixed quantity and a higher tariff for any imports that exceed that initial quantity. In a legal sense and at the WTO, countries are allowed to combine the use of two tariffs in the form of a TRQ, even when they have agreed not to use strict import quotas. In the United States, important TRQ schedules are set for beef, sugar, peanuts, and many dairy products. In each case, the initial tariff rate is quite low, but the over-quota tariff is prohibitive or close to prohibitive for most normal trade.

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NON-TARIFF BARRIERS Regulatory Divergences In a global economy international standards are an indispensable tool to eliminate technical barriers to trade, to facilitate and increase market access, to improve the quality and safety of products and services, and to promote and disseminate know-how and technologies. A particular problem in the U.S. is the relatively low level of implementation and use of international standards set by the international standardization bodies. In the U.S., products are increasingly being required to conform to multiple technical regulations regarding consumer protection (including health and safety) and environmental protection. Import Prohibitions The right of sovereign nations to take measures to protect their essential national security interests has been widely recognized by multilateral and bilateral trade agreements and, of course, particularly since the events of 9/11. However, it is in the interest of all trade partners that such measures are prudently and sparingly applied. Restrictions to trade and investment cannot be justified on national security grounds if they are, in reality, essentially protectionist in nature and serve other purposes. Under Section 232 of the Trade Expansion Act of 1962, U.S. industry can petition for the restriction of imports from third countries on the grounds of national security. The application of Section 232 is however not dependent on proof from industry. Consequently, the law provides U.S. manufacturers with the opportunity to seek protection on the grounds of national security, when in reality the aim can be simply to curb foreign competition. In addition, the chemicals sector is affected by import restrictions for certain drug precursor chemicals. Similarly, the Jones Act uses national security reasons to prohibit the use of foreign vessels. In the area of fisheries, the Marine Mammal Protection Act of 1972 establishes significant import prohibitions. Sanitary and Phytosanitary Measures In the agricultural area, a number of sanitary and phytosanitary (SPS) issues remain a significant source of difficulty. Other long-standing trade barriers apply to exports of beef, pork and poultry products and are originally motivated by animal health protection. Imposing trade restrictions on products from a region which is affected by disease outbreaks is a quick, administrative process - and rightly so. The current U.S. import regime for Grade A milk products constitutes an effective block to any trade as there is currently no Federal State that would be willing to inspect establishments in any other foreign country, under the Pasteurized Milk Ordinance. Discussions with the Food and Drug Administration (FDA) to regulate Grade A milk imports under a federal regime are still at an initial stage.

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Public Procurement In the field of public procurement, the main U.S. trade barriers are contained in a wide array of clauses in federal, state and local legislation and regulation giving preference to domestic suppliers or products, or excluding foreign bidders or products altogether. In addition, there are federal restrictions on the use of federal grant money by State and local government. These restrictions are called 'Buy America' (Buy America Act or BAA). Taken together, these restrictions, such as the "Buy America" provisions of the Department of Transportation (DoT), cover a significant proportion of public purchasing in the U.S. The Department of Defense (DoD) also has significant procurement expenditures that exclude foreign suppliers of goods or services. The DoD is the largest public procurement agency within the U.S. government, spending billions of dollars annually on supplies and other requirements. Many procurements fall under national security exceptions to open procurement obligations. The concept of national security was originally used in the 1941 Defense Appropriations Act to restrict DoD procurement to U.S. sourcing. Trade Defiance Instruments Several U.S. trade defiance measures have been brought by the European Union to the WTO Dispute Settlement system. Many aspects of U.S. trade defiance legislation and practices have already been ruled as inconsistent with WTO Agreements. Implementation by the U.S. of these WTO findings has, at best, also been slow. The Antidumping Agreement and the Subsidy and Countervailing Measures Agreement (SCM) contain a so-called "sunset review". Measures should not last longer than five years unless it is deemed that their termination would likely lead to the continuation or recurrence of dumping or subsidization which are causing injury. For many years the U.S. kept in place countervailing duty measures on privatized steel firms dating back as far as 1985. However, the U.S. International Trade Commission decided on 14 December 2006 to revoke the measures. The U.S. had also enacted anti-dumping and countervailing duties on uranium imports from France, Germany, the Netherlands, and the UK in 2002, which were partially revoked in 2006 and were subject to a sunset review in 2007. Subsidies There are some concerned about the significant direct and indirect government support given to U.S. farmers and industry by means of direct subsidies, protective legislation and tax policies. The adoption by the U.S. Congress of the Farm Security and Rural Investment Act of 2002 ("Farm Bill") significantly increased the trade-distorting effect of U.S. farm subsidies. This Act is clearly inconsistent with the express commitments of WTO Members, reinforced at Doha in November 2001,

P a g e | 29 that farm policies should be reformed in the direction of less trade distorting forms of support. Closely related to the Farm Bill are the commodity loan programs with marketing loan provisions for crops like wheat, rice, corn, soybeans and other oilseeds. These programs are administered by the Farm Service Agency (FSA) through the Commodity Credit Corporation (CCC). Additionally, several agricultural export programs such as the Export Enhancement Program, the Dairy Export Incentive Program and Market Access Program, the Export Credit Guarantee Program (GSM-102) as well as the Food Aid Programs provide considerable amounts of subsidies for U.S. farmers. INVESTMENT RELATED MEASURES Foreign Direct Investment Limitations The Foreign Investment and National Security Act (FINSA, formerly Exon-Florio Amendment) to the 1950 Defense Production Act (H.R. 556) and subsequent legislation is restraining foreign investment in (or ownership of) businesses relating to national security. FINSA is implemented by the Committee on Foreign Investment in the United States ("CFIUS"), an inter-agency committee chaired by the Secretary of Treasury which is now a statutory body established by law. The law allows a foreign acquisition of a U.S. corporation to be blocked on national security grounds. The lack of a clear definition of national security may lead to an overly wide interpretation of the term by the U.S. U.S. restrictions on foreign investment are particularly evident in the shipping, energy and communications sectors. Further investment constraints exist in the telecommunication sector (Section 310 of the 1934 Communications Act), where U.S. law enforcement agencies have imposed strict corporate governance requirements on companies seeking Federal Communications Commission (FCC) approval of the foreign takeover of a U.S. communications firm in the form of far-reaching Network Security Arrangements. Under the Federal Power Act, any construction, operation or maintenance of facilities for the development, transmission and utilization of power on land and water over which the Federal government has control, are to be licensed by the Federal Energy Regulatory Commission. Such licenses can be granted only to U.S. citizens and to corporations organized under U.S. law. Tax Discrimination Several aspects of U.S. taxation practices constitute additional difficulties to foreign investment in the U.S. market. These are mainly related to the nature of reporting requirements and conditions for deductibility of interest payments. And concerns about federal tax measures focus on the nature of reporting requirements and the fact that domestic and foreign companies are treated differently. INTELLECTUAL PROPERTY RIGHTS Copyright and Related Areas

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Despite a number of positive changes in U.S. legislation following the Uruguay Round, copyright issues are still problematic due to Section 110(5) of the 1976 U.S. Copyright Act ("Irish Music" case). Despite losing a WTO case on the issue, the U.S. has not yet brought its Copyright Act into compliance with the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs). The EU has safeguarded its rights to suspend trade benefits granted to the U.S. if the Copyright Act is not amended. Appellations of Origin and Geographical Indications The continuing misuse of EU geographical indications on food and drinks produced in the U.S., especially in the wine sector, as well as other food products, is a source of considerable frustration for EU producers. Particularly problematic is the fact that the U.S. still considers a number of European wine names as 'semi-generics'. U.S. producers making use of 'semi-generics' can take advantage of, or could damage, the reputation of the Community geographical indications in question. Patents, Trademarks and Related Areas Governments that use patents are required to promptly inform the patent right holders. Although patents are extensively used by the U.S authorities, it appears that U.S. government departments frequently fail to comply with that obligation. This is problematic because right holders are consequently likely to miss the opportunity to initiate an administrative claim process. SERVICES Communication Services The GATS Basic Telecommunications Agreement, in force since February 1998, has a widely positive impact on communication services. There are also limits to foreign indirect investment, although this is subject to a public interest waiver. Business and Financial Services The implementation schedule of the General Agreement on Trade in Services (GATS) for professional services has brought about some improvement in market access. However, a number of problems remain to be tackled in order to secure more transparent and open access to the U.S. market. Canada: The U.S. goods trade deficit with Canada was $74.2 billion in 2008, an increase of $6.0 billion from $68.2 billion in 2007. U.S. goods exports in 2008 were $261.4 billion, up 5.0 percent from the

P a g e | 31 previous year. Corresponding U.S. imports from Canada were $335.6 billion, up 5.8 percent. Canada is currently the largest export market for U.S. goods. The stock of U.S. foreign direct investment (FDI) in Canada was $257.1 billion in 2007 (latest data available), up from $230.0 billion in 2006. U.S. FDI in Canada is concentrated largely in the manufacturing, finance/insurance, and mining sectors. IMPORT POLICIES Agricultural Supply Management: Canada uses supply management systems to regulate its dairy, chicken, turkey, and egg industries. Canadas supply management regime involves the establishment of production quotas; producer marketing boards to regulate the supply and prices farmers receive for their poultry, turkey, eggs, and milk products; and border protection achieved through tariff-rate quotas. Canadas supply management regime severely limits the ability of U.S. producers to increase exports to Canada above the tariff-rate quota levels and inflates prices Canadians pay for dairy and poultry products. The United States has pressed for expanded in-quota quantities for these products as part of the negotiations regarding disciplines on tariff-rate quotas in the WTO Doha Round agricultural negotiations. Early in 2008, Canada announced its intention to proceed with finalizing the implementation of the WTO Special Agricultural Safeguard (SSG) for its supply-managed goods. The SSG is a provision that allows additional duties to be imposed on over-quota trade when import volumes rise above a certain level, or if prices fall below a certain level. Ministerial Exemptions: Canada prohibits imports of fresh or processed fruits and vegetables in packages exceeding certain standard package sizes unless the government of Canada grants a Ministerial exemption. To obtain an exemption, Canadian importers must demonstrate that there is an insufficient supply of a product in the domestic market. The import restrictions apply to all fresh and processed produce in bulk containers if there are standardized container sizes stipulated in the regulations for that commodity. The restriction has a negative impact on exports of U.S. apples and blueberries. In addition, Canadian regulations on fresh fruit and vegetable imports prohibit consignment sales of fresh fruit and vegetables in the absence of a pre-arranged buyer. Continued progress was made in 2008 concerning the implementation of the Technical Arrangement Concerning Trade in Potatoes between the United States and Canada. This arrangement is designed to provide U.S. potato producers with predictable access to Canadian Ministerial exemptions which are necessary to import potatoes. Restrictions on U.S. Grain Exports:

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Canada has varietal registration requirements on its wheat. On August 1, 2008, Canada eliminated a portion of the varietal controls by no longer requiring that each registered variety of grain be visually distinguishable based on a system of Kernel Visual Distinguishability (KVD) requirements. This KVD requirement limited U.S. access to Canadas grain market, since U.S. varieties could not be registered for use in Canada. While this policy change is a step in the right direction, it will take years before U.S. wheat varieties go through the field trials that will determine whether the varieties will be registered for use in Canada. In the meantime, U.S. wheat, regardless of quality, will continue to be sold in Canada sharp price discounts compared to Canadian varieties. Personal Duty Exemption: The United States continues to urge Canada to facilitate cross border trade for returning residents by relaxing its taxation of goods that Canadian tourists purchase in the United States. Canadas allowance is linked to the length of a tourists absence from Canada and allows C$50 for tourists absent for at least 24 hours, and C$400 and C$750 for visits exceeding 48 hours and 7 days, respectively. Wine and Spirits: Market access barriers in several provinces hamper exports of U.S. wine and spirits to Canada. These include "cost of service" mark-ups, listings, reference prices, and discounting distribution and warehousing policies. The Canadian Wheat Board and State Trading Enterprises (STEs): The United States has longstanding concerns about the monopolistic marketing practices of the Canadian Wheat Board. The United States seeks a level playing field for American farmers, including through the elimination in the Doha Round agricultural negotiations of the monopoly power of exporting STEs. STANDARDS, TESTING, LABELING, AND CERTIFICATION Restrictions on Fortification of Foods: Canadian requirements for foods fortified with vitamins and minerals have created a costly burden for American food manufacturers that export to Canada. Health Canada restricts marketing of breakfast cereals and other products, such as orange juice, that are fortified with vitamins and/or minerals at certain levels. Canadas regulatory regime requires that products such as calcium enhanced orange

P a g e | 33 juice be treated as a drug. The regime forces manufacturers to label vitamin and mineral fortified breakfast cereals as "meal replacements," which imposes costs on manufacturers who must make separate production runs for the U.S. and Canadian markets.

Restrictions on Container Sizes: Canada is the only NAFTA country to impose mandatory container sizes on a wide range of processed fruit and vegetable products. The requirement to sell in container sizes that exist only in Canada makes it more costly for U.S. producers to export their products to Canada. For example, Canadas Processed Products Regulations (Canada Agricultural Products Act) require manufacturers of baby food to sell in only two standardized container sizes: 4.5 ounces (128 ml) and 7.5 ounces (213 ml). SOFTWOOD LUMBER The Softwood Lumber Agreement (SLA) was signed on September 12, 2006, and entered into force on October 12, 2006. Its implementation settled massive litigation in U.S. and international venues and resulted in the revocation of antidumping and countervailing duty orders on softwood lumber from Canada. The SLA is designed to create a downward adjustment in softwood lumber exports from Canada into the United States when demand in the United States is low through the imposition of export measures by Canada. The Softwood Lumber Committee, established pursuant to the SLA, met in May 2008 and December 2008 to discuss a range of implementation issues and Canadian provincial assistance programs for softwood lumber industries. On March 30, 2007, the United States requested formal consultations with Canada to resolve concerns regarding Canadas implementation of the export measures, in particular the operation of the Agreements surge mechanism and quota volumes, as well as several federal and provincial assistance programs that benefit the Canadian softwood lumber industry. After formal consultations failed to resolve these concerns, the United States requested international arbitration under the terms of the SLA on August 13, 2007, challenging Canadas implementation of the import surge mechanism and quota volumes. On March 4, 2008, the arbitral tribunal agreed with the United States that Canada violated the SLA by failing to properly adjust the quota volumes of the Eastern Canadian provinces in the first six months of 2007. However, the Tribunal did not find that the same adjustment applies to British Columbia and Alberta. The first arbitration under the SLA concluded in February 2009. In that arbitration, the tribunal found that Canada violated the SLA by failing to properly calculate regional quota volumes for the eastern provinces during the first half of 2007. In a February 2009 decision, the tribunal ordered Canada to cure the breach within 30 days and prescribed compensatory adjustments to the export measures to

P a g e | 34 remedy the breach. The United States filed a second request for arbitration on January 18, 2008, challenging a number of assistance programs implemented by Quebec and Ontario, which the United States believes are inconsistent with Canadas obligations under the anti-circumvention provision of the SLA. An award in this arbitration is expected in late 2009. TECHNOLOGY PARTNERSHIP CANADA Technology Partnership Canada (TPC) is a Canadian government program that supports the research and development activities of select industries. Established in 1996, TPC provided loan funding for so-called "pre-competitive" research and development activities for companies incorporated in Canada. Although TPC was targeted at a number of industries, a disproportionate amount of funding had been provided to aerospace and defense companies. The Canadian government restructured the TPC program in 1999 after a WTO Dispute Panel requested by Brazil determined that it provided an illegal subsidy. In 2006, Canada's Minister of Industry closed the program to new TPC applicants except for the aerospace and defense sectors. According to government of Canada figures, as of July 2008, approximately C$381million has been paid back to the government out of approximately C$3.7 billion that has been committed in TPC investments. In 2007, the government of Canada established the Strategic Aerospace and Defense Initiative (SADI), replacing Technology Partnership Canada (TPC). The SADI "provides repayable support for strategic industrial research and pre-competitive development projects in the aerospace, defense, space and security industries." There is no minimum or maximum limit on how much a company can apply to receive through SADI, although typically SADI is expected to contribute about 30 percent of a project's eligible costs. SADI repayment is generally based on a royalty applied to the company's gross business revenues. To receive funding through SADI, the level of assistance from all government sources (federal, provincial, territorial, municipal) shall not normally exceed 75 percent of a project's eligible costs. The first SADI funds were disbursed in early 2008; SADI is expected to invest nearly C$900 million between 2007 and 2012, with funding to reach a maximum of C$225 million per year. In 2008, the Canadian federal government and the Quebec provincial government announced aid to Bombardier not to exceed C$350 million (federal) and C$118 million (provincial) to support the launch of a new class of Bombardier "C Series" regional jets. This financial aid is independent of the SADI program, and the conditions of the arrangement have not been made public. The United States has long been opposed to market-distorting aircraft launch aid for civil aircraft and has expressed to Canada its expectation that any such aid would be provided in a manner consistent with its international obligations.

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GOVERNMENT PROCUREMENT As a signatory to the WTO Agreement on Government Procurement (GPA) and to NAFTA, Canada allows U.S. suppliers to compete on a nondiscriminatory basis for its federal government contracts covered by the two agreements. However, Canada has not opened its provincial ("sub-central") government procurement markets. Some Canadian provinces maintain "Buy Canada" price preferences and other discriminatory procurement policies that favor Canadian suppliers over U.S. and other foreign suppliers. Because Canada does not cover its provinces under the GPA, Canadian suppliers do not benefit from the U.S. coverage of procurements of 37 state governments under the GPA. In recent years, several U.S. states and Canadian provinces have cooperated to make reciprocal changes in their government procurement systems that may enhance U.S. business access to the Canadian sub-federal government procurement market. However, the U.S. federal government and a number of U.S. states have expressed concern that Canadian provincial restrictions continue to result in an imbalance of commercial opportunities in bilateral government procurement markets. INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION Canada is a member of the World Intellectual Property Organization (WIPO) and is a Party to several international intellectual property agreements, including the Paris Convention for the Protection of Industrial Property and the Berne Convention for the Protection of Literary and Artistic Works. Canada is also a signatory to the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty (together the WIPO Internet Treaties), which set standards for intellectual property protection in the digital environment. Canada has not yet ratified or implemented either treaty. In June 2008, Canada introduced legislation to implement the WIPO Treaties and to provide improved copyright protection, but no action was taken on the bill before national elections were called in September 2008. The United States hopes that Canada will quickly reintroduce copyright legislation that will ratify and fully implement the two WIPO Internet Treaties, including prohibiting the manufacture and trafficking in circumvention devices, and enact a limitation-of-liability for Internet service providers that effectively reduces copyright infringement on the Internet by using the "notice-and-takedown" model, rather than the less effective "notice-and-notice" model.

P a g e | 36 U.S. intellectual property owners are concerned about Canada's weak border measures and general enforcement efforts. The lack of ex officio authority for Canadian Customs officers makes it difficult for them to seize shipments of counterfeit goods. To perform a civil seizure of a shipment under the Customs Act, the rights holder must obtain a court order, which requires detailed information on the shipment. In addition to pirated software, many stores sell and install circumvention devices that allow pirated products to be played in a legitimate console. Once pirated and counterfeit products clear Canadian Customs, enforcement is the responsibility of the Royal Canadian Mounted Police (RCMP) and the local police. The RCMP lacks adequate resources, training, and staff for this purpose. Few prosecutors are willing or trained to prosecute the few cases that arise. Where an infringement case has gone to trial, the penalties imposed can be insufficient to act as a deterrent. With respect to cam-cording, however, Canada has achieved some success in protecting and enforcing intellectual property rights. In June 2007, Canada enacted Bill C-59 which makes unauthorized camcording of theatrically exhibited motion pictures a federal criminal offense. Industry reports that this new law has had a deterrent effect; since the new law was enacted, several individuals have been arrested, and one individual was convicted in November 2008. In 2006, Canada put in place data protection regulations. There are currently legal challenges to those regulations. The U.S. pharmaceutical industry has expressed concern with the nature of infringementrelated proceedings in conjunction with the approval of copies of patented drugs. The industry has also expressed concerns related to draft pharmaceutical pricing guidelines, specifically with respect to the regulatory burden that would be placed on pharmaceutical manufacturers. SERVICES BARRIERS Audiovisual and Communications Services In 2003, the government of Canada amended the Copyright Act to ensure that Internet re-transmitters are ineligible for a compulsory retransmission license until the Canadian Radio-television and Telecommunications Commission (CRTC) licenses them as distribution undertakings. Internet "broadcasters" are currently exempt from licensing. The Broadcasting Act lists among its objectives, "to safeguard, enrich, and strengthen the cultural, political, social, and economic fabric of Canada." The federal broadcasting regulator, the CRTC, implements this policy. The CRTC requires that for Canadian conventional, over-the-air broadcasters, Canadian programs must make up 60 percent of television broadcast time overall and 50 percent during evening hours (6 P.M. to midnight). It also requires that 35 percent of popular musical selections broadcast on the radio should qualify as "Canadian" under a Canadian government determined point system. For cable television and direct to

P a g e | 37 home broadcast services, a preponderance (more than 50 percent) of the channels received by subscribers must be Canadian programming services. A concern of Canadas television industries is the spread of unauthorized use of satellite television services. Industry has estimated that between 520,000 to 700,000 households within cabled areas use unauthorized satellite services. The Canadian Broadcasting Industry Coalition has estimated that piracy costs the Canadian broadcasting system $400 million per year. Of this number of illegal users, it is estimated that over 90 percent are involved in the "black market" (i.e., signal theft without any payment to U.S. satellite companies), with the remainder subscribing via the "gray market" where the unauthorized user does in fact purchase the signal from a U.S. satellite company, but only by pretending to be a U.S. resident. Distributors of theatrical films in Canada must submit their films to six different provincial or regional boards for classification. Most of these boards also classify products intended for home video distribution. The Quebec Cinema Act requires that a sticker be acquired from the Rgie du Cinma and attached to each pre-recorded video cassette and DVD at a cost of C$0.40 per unit. The Quebec government has reduced the sticker cost to C$0.30 for Quebecois films, films in French, and English and French versions of films dubbed into French in Quebec. Telecommunications Services In its schedule of WTO services commitments, Canada retained a 46.7 percent limit on foreign ownership of suppliers of facilities-based telecommunications service, except for submarine cable operations. In addition to the equity limitations, Canada requires that at least 80 percent of the members of the board of directors of facilities-based telecommunications service suppliers be Canadian citizens. These restrictions prevent global telecommunications service providers from managing and operating much of their own telecommunications facilities in Canada. In addition, these restrictions deny foreign providers certain regulatory advantages only available to facilities-based carriers (e.g., access to unbundled network elements and certain bottleneck facilities). As a consequence of foreign ownership restrictions, U.S. firms presence in the Canadian market as wholly U.S.-owned operators is limited to that of a reseller, dependent on Canadian facilities-based operators for critical services and component parts. This limits those U.S. companies options for providing high quality end-to-end telecommunications services, as they cannot own or operate their own telecommunications transmission facilities. INVESTMENT BARRIERS

P a g e | 38 General Establishment Restrictions Under the Investment Canada Act, the Broadcasting Act, the Telecommunications Act, and standing Canadian regulatory policy, Canada screens new or expanded foreign investment in the energy and mining, banking, fishing, publishing, telecommunications, transportation, film, music, broadcasting, cable television, and real estate sectors. Mexico: Two-way trade between the United States and Mexico grew from $81.5 billion in 1993 to $235.5 billion in 2003. United States trade with Mexico has grown at an average annual rate of 11 percent since implementation of the NAFTA, which contributes to Mexicos status as the United States second largest trading partner since 1999. Approximately 89 percent of Mexicos exports go to the United States, while 62 percent of Mexicos imported goods come from the United States. In 2003, Mexico held an 11 percent share of total U.S. imports. United States goods exports to Mexico were $97.5 billion in 2003, virtually unchanged from the previous year. Imports from Mexico were $138.1 billion, an increase of 2.6 percent from 2002. The United States trade deficit with Mexico for 2003 was $40.6 billion, an increase of $3.5 billion from the 2002 deficit. Mexico has signed a total of 11 free trade agreements with 33 trade partners, including the European Union, Chile, the five economies of the Central American Common Market, and Israel. IMPORT POLICIES Tariffs and Market Access Under the terms of the NAFTA, Mexico eliminated tariffs on all remaining industrial and most agricultural products imported from the United States on January 1, 2003. Remaining tariffs and nontariff restrictions on corn, sugar, dairy products and dried beans will be phased out by January 1, 2008. Mexicos average duty on U.S. goods has fallen from 10 percent prior to the NAFTA to less than 0.1 percent today. Trade growth in agricultural products has in fact been remarkably balanced since the NAFTA was implemented, with U.S. exports increasing by 118 percent from 1993 to 2003, and imports from Mexico increasing by 131 percent. However the numbers are less balanced when considering only nonagricultural trade. U.S. imports from Mexico grew 251 percent, compared with U.S. export growth of 139 percent from 1993 to 2002. A number of U.S. exports are subject to antidumping duties, which limit access to the Mexican market. Products subject to these duties currently include beef, apples, rice, liquid caustic soda,

P a g e | 39 ammonium sulfate, polyvinyl chloride, bond paper, and corrugated rods. Mexico initiated antidumping investigations of pork, industrial fatty acids, stearic acid and welded carbon steel pipe and tube in 2003. As part of an agreement with the United States, Mexico also imposed safeguards on poultry leg quarters in July of 2003. The United States exempted Mexico from the recently ended safeguard action on steel. On January 1, 2001, as required by NAFTA Article 303, Mexico implemented limitations on the use of duty drawback and duty deferral programs. Therefore, the duties waived for non-NAFTA originating goods incorporated into products that are subsequently exported to the United States or Canada may not exceed the lesser of: (a) the total amount of customs duties paid or owed on the good initially imported; or (b) the total amount of customs duties paid to another NAFTA government on the good, or the product into which the good is incorporated, when it is subsequently exported. To minimize the increase in input costs for its manufacturers as a result of these new limitations, Mexico created several Sectoral Promotion Programs (PROSECS). PROSECS reduce the MFN applied tariffs (often to zero) on items in over 16,000 tariff categories used to produce specified products in 22 industries. While the industries and items eligible for the reductions are those of greatest importance to the temporary import (maquiladora) sector, the reduced tariffs are available to all qualifying producers, regardless of nationality, and do not condition benefits on subsequent exportation. On January 1, 2002, Mexico published amendments to its Income Tax Law that appear to discriminate against small retailers and distributors that sell imported products by subjecting them to higher taxes and more burdensome administrative reporting requirements. Article 137 precludes small companies that sell imported products from qualifying as small contributors for tax purposes, even if they meet all other qualifications (e.g., annual income limit of less than approximately $150,000 per year). As a result, small companies selling imported goods are categorized as medium contributors, with an annual income not to exceed $400,000. Meanwhile, small companies only selling products produced domestically can continue to enjoy the small contributor status. Officials have raised this matter with the Government of Mexico. Agricultural Products: The United States exported $7.9 billion in agricultural products to Mexico in 2003, a new record. Mexico is the United States third largest agricultural market. Under NAFTA, Mexico has eliminated nearly all import tariffs and tariff-rate quotas on agricultural products from the United States. As of January 1, 2003, the only U.S. agricultural exports subject to tariffs or tariff-rate quotas are corn, sugar, dry beans, chicken leg quarters, and non-fat dry milk. Mexicos Secretariat of Economy (SECON) continued antidumping duties on beef, rice, and apples, while eliminating antidumping

P a g e | 40 duties on live hogs. SECON has also initiated an antidumping investigation on U.S. pork. Concerns about Mexicos methodology for determining injury to the Mexican domestic industry and for calculating dumping margins in the rice case have led the U.S. to challenge the antidumping measure at the WTO. In the case of beef product exports, the dumping duty rates assigned to individual companies only apply to beef aged less than 30 days and graded Choice or select; for all other cuts of beef subject to the order, the higher rate applies. These policies have reduced the number of U.S. suppliers and have altered product trading patterns. Industry believes that between $100 million to $500 million is lost each year due to dumping duties in this sector. In July 2003, Mexico imposed a NAFTA safeguard on U.S. chicken leg quarters that will remain in effect until December 31, 2007. The safeguard takes the form of a tariff-rate quota on chicken leg quarters. The TRQ preserves market access for U.S. exporters at levels achieved in recent years. Pursuant to the NAFTA, Mexico agreed to provide compensation to the United States, including a commitment not to impose any additional import restrictions on U.S. poultry products and to eliminate certain sanitary restrictions on U.S. poultry products. Mexicos cattlemen have also submitted a proposal for a global safeguard on beef. SECON has not yet decided if it will conduct a beef safeguard investigation. On December 31, 2001, the Mexican Congress approved a 20-percent consumption tax on certain beverages sweetened with ingredients other than cane sugar, including HFCS. This action has prevented a settlement of broader sweetener disputes between the United States and Mexico. Industry estimates that the cost of this trade barrier to the United States is roughly $200 million in U.S. corn and HFCS exports and $800 million in U.S. investment in Mexico. HFCS sales fell well below prior volumes, as bottling companies in Mexico switched to cane sugar. On March 5, 2002, the Fox Administration suspended the tax for a period of seven months; however, the Supreme Court ruled this action unconstitutional and reinstated the consumption tax on July 12, 2002. The tax was renewed by the Mexican Congress for 2003 and 2004. On March 16, 2004, the United States requested consultations under the dispute settlement procedures of the WTO. In late 2002, Mexico announced its Agricultural Armor initiative, a package of measures designed to keep Mexican agriculture competitive. The initiative calls for measures to increase sanitary, phytosanitary and food safety inspections and impose quality standards. The initiative also proposed modifications to Mexico's antidumping and countervailing duty laws, which resulted in amendments to the Foreign Trade Law in early 2003. The United States is challenging several of these provisions before the WTO. On April 28, 2003, the Government of Mexico and producer groups signed the National Agricultural Accord. The documents most specific measures echo what was contained in Mexicos Agricultural Armor package, such as stricter enforcement of sanitary and phytosanitary

P a g e | 41 measures. In addition, the agreement proposes approaching Canada and the United States to investigate the possibility of revising the dry bean and white corn provisions of the NAFTA. Sanitary and Phytosanitary Issues: Mexican sanitary and phytosanitary standards have created barriers to exports of certain U.S. agricultural goods, including grains, seed products, apples, stone fruit, pork, beef, poultry, citrus, wood and wood products, dry beans, avocados, and table eggs. In addition, procedural requirements regarding sanitary and phytosanitary inspections at the port-of-entry often do not reflect agreements reached between U.S. Department of Agriculture officials and the Mexican Secretariat of Agriculture, resulting in unnecessary delays at the border, seaports, and airports. In 2003, significant quantities of imports were rejected or delayed at the border. Disagreements over the prevalence of certain pests and certain administrative requirements led to a delay in the implementation of the California Stone Fruit protocol in 2003 and 2004, which provides for a systems approach to prevent transmission of quarantinable pests. Because of this delay in implementing the systems approach protocol, the U.S. industry is reverting to more costly fumigation procedures. Similarly, in October 2001, the Mexican quarantine monitoring system for apples was to have been transferred to APHIS. While all but one Mexican inspector was withdrawn from the State of Washington, the program remains in operation and the final transfer is subject to additional reviews. Also, Mexican plant quarantine authorities have notified APHIS of their intent to add new pests to their lists of quarantine concerns, even though no quarantine pests have been detected in over 52 million boxes of apples the United States has shipped to Mexico since 1993. USTR and USDA have raised these issues several times over the last year, including jointly in the bilateral Consultative Committee on Agriculture. Mexico banned imports of U.S. beef in December 2003 with the detection of one positive case of Bovine Spongiform Encephalopathy (BSE) in the State of Washington. Mexico announced in March it would accept U.S. boxed beef under 30 months of age. As of the publication of this report, the U.S. government is taking aggressive action and is working intensively to fully re-open the market as quickly as possible. In addition, the United States is working in the International Organization for Epizootics to revise international standards on BSE to reflect current scientific knowledge. Despite the eradication of Low Pathogenic Avian Influenza (LPAI) in eight U.S. states, Mexico maintains a complete ban on all poultry products from those states. Mexico continues to restrict imports from three U.S. states where Exotic Newcastle Disease was detected in poultry in early 2003.

Administrative Procedures and Customs Practices:

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U.S. exporters continue to complain about Mexican customs administration procedures, including the lack of sufficient prior notification of procedural changes; inconsistent interpretation of regulatory requirements for imports at different border posts; and discriminatory and uneven enforcement of Mexican standards and labeling rules. Agricultural exporters note that Mexican inspection and clearance procedures for some agricultural goods are long, burdensome, non-transparent and unreliable. Customs procedures for express packages continue to be burdensome, though Mexico has raised the minimum level to fifty dollars from one dollar. However, Mexican regulation still holds the courier 100 percent liable for the contents of shipments. To be eligible to import any of well over 400 different items, including agricultural products, textiles, chemicals, electronics and auto parts, Mexican importers must apply to the Secretariat of Finance and Public Credit (SHCP) and be listed on a special industry sector registry. U.S. exporters complain that the registry requirement sometimes causes costly customs clearance delays when new products are added to the list of subject items with immediate effect, thereby denying importers sufficient notice to apply. They also report that certain importers have been summarily dropped from the registry without prior notice or subsequent explanation, effectively preventing U.S. exporters from shipping goods to Mexico. Mexico requires import licenses for a number of commercially sensitive products. Mexico also uses estimated prices for customs valuation of a wide range of products imported from the United States and other countries, including apples, milled rice, beer, distilled spirits, chemicals, wood, paper and paperboard products, textiles, apparel, toys, tools, and appliances. Since October 2000, the Mexican government has imposed a burdensome guarantee system for goods subject to estimated prices. Importers cannot post bonds to guarantee the difference in duties and taxes if the declared value of an entering good is less than the official estimated price. Instead they must deposit the difference in cash at a designated Mexican financial institution or arrange one of two alternative sureties (a trust or line of credit). The cash deposit is not returned for six months and then only if the Mexican government has not initiated an investigation and if the supplier in the country of exportation has provided an invoice certified by its local chamber of commerce. Mexican banks charge as much as $1,500 to open an account for this purpose and $250 for each transaction, making this a burdensome and costly regulation for businesses on both sides of the border. The United States and Mexican governments are discussing an exchange of customs data for security purposes that would result in the lifting of the estimated pricing regime.

STANDARDS, TESTING, LABELING AND CERTIFICATION

P a g e | 43 Changes to the 1997 Federal Metrology and Standardization Law provided for greater transparency in the rules applicable to technical regulations and voluntary standards. However, the Mexican government continues to consider certain regulations to be executive orders that are allegedly exempt from WTO and NAFTA rules concerning notification and comment periods. Under NAFTA, Mexico was required, starting January 1, 1998, to recognize conformity assessment bodies in the United States and Canada on terms no less favorable than those applied in Mexico. To date, no U.S. certification bodies have been recognized by Mexico. U.S. exporters have complained that standards are enforced more strictly for imports than for domestically produced products, and of inconsistencies in the treatment of goods among ports of entry. Mexico has over 700 mandatory technical regulations (NOMs) issued by a number of different agencies, each with its own compliance procedures. Only the Secretariat of Economy and the Secretariat of Agriculture (for a limited subsector of its NOMs) have published their procedures. After discussions with the United States government, the Secretariat of Economy implemented procedures in 2000 designed to reduce the cost of exports to Mexico by allowing U.S. manufacturers and exporters to hold title to a NOM certificate of compliance (an official document certifying that a particular good complies with applicable standards) and assign it to as many distributors in Mexico as needed to cover the market. Previously, only Mexican producers or importers were allowed to obtain a NOM certificate posing a problem for U.S. firms using multiple importers. Each importer had to pay to have the exact same product tested at a Mexican lab every year. The costs associated with this redundant testing were industrys main complaint. While the new procedures were supposed to address redundant testing requirements, U.S. firms are complaining that the certification bodies have increased the cost of certification and are charging for certificates to be assigned to other entities. In addition, key Mexican ministries such as Health, Energy and Labor have yet to publish their product procedures. The Mexican government, citing the need to ensure the quality of Mexican tequila, is considering amending the official standard for tequila to require that tequila be bottled at the source. Currently, the Mexican standard requires that only 100 percent agave tequila be bottled at the source. Ordinary tequila can be sold and exported in bulk form under the current official standard. If the draft standard prepared in 2003 is adopted, it will require that all tequila be bottled within the territory of the Mexican appellation of origin, and bulk exports will be prohibited. The United States is Mexicos largest export market for tequila, accounting for 50 percent of Mexican production. In 2003, the United States imported over $402 million in tequila. Approximately 77 percent of the total volume was tequila in bulk form. Government officials and industry stakeholders from the NAFTA partners are engaged in consultations, with the aim of removing the export ban from the proposed standard. U.S. exporters of certain vitamins, nutritional supplements, and herbal remedies have reported that Mexicos revised health law regulations impede access to the Mexican market. While the Mexican government has stated that it is looking at ways to address these concerns consistent with WTO and NAFTA obligations, the U.S. Government has seen no progress. According

P a g e | 44 to industrys estimates, the cost of this trade barrier to the United States is over $500 million each year. GOVERNMENT PROCUREMENT Mexicos efforts to make its government procurement regime more transparent through policies and technologies have resulted in increased competition as well as savings for the government. The Mexican government has established several e-government Internet sites to increase transparency of government processes and establish guidelines for the conduct of government officials. Compranet allows on-line processing of government procurement and contracting. According to the Mexican Secretariat of Public Administration, 321 government offices processed 3,800 electronic transactions for procurement through Compranet in 2002. In addition to continuing allegations of corruption, several problems remain with Mexicos procurement market. The NAFTA Government Procurement Chapter allowed Mexico to cover only a temporary, narrow list of services, based on the requirement that it would develop a complete list of covered services by July 1, 1995. However, Mexico has not yet completed the permanent list. NAFTA provides for the gradual increase of U.S. suppliers access to purchases by the two largest Mexican procuring authorities, Mexicos government owed enterprise of petroleum and electricity monopolies, PEMEX and the Federal Electricity Commission (CFE). As of January 1, 2003, NAFTA limits the total value of contracts that PEMEX and CFE may remove from coverage under NAFTA to $300 million per year. The United States has not been able to confirm whether this commitment has been properly implemented, as Mexico has not provided the statistics called for under NAFTA. The United States also has concerns with CFE procurement practices, in particular its domestic content requirements in procurements for sub-stations and transmission lines. Also, as a result of CFEs decentralization of its procurement activities in 2002, the number of procurements covered by the NAFTA has been reduced. The United States has raised with the Government of Mexico the concerns of suppliers with regard to additional fees that PEMEX includes in procurement for offshore platforms. PEMEX applies supervision fees to bids for platforms to be built outside of Mexican territory and assesses transportation fees on a nautical mile that disadvantage suppliers based outside of Mexico. These fees significantly diminish U.S. suppliers access and raise concerns under NAFTA.

INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION

P a g e | 45 Under NAFTA and the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), Mexico is obligated to implement certain standards for the protection of intellectual property and procedures to address infringement such as piracy and counterfeiting. Although Mexican legislation on IPR matters is quite comprehensive, the enforcement of these IPR laws is limited and sporadic. Monetary sanctions and penalties are minimal and generally ineffective in deterring these illegal activities. The United States remains concerned about the continuing high levels of piracy and counterfeiting in Mexico and closely monitors how the Mexican Government is addressing these problems. Mexico was taken off the Special 301 Watch List in 2000, but put back on in 2003 due to enforcement concerns. Copyright Protection Copyright piracy remains a major problem in Mexico, with U.S. industry loss estimates growing each year. Although enforcement efforts by the Mexican government are improving, piracy levels continue to rise, resulting in closures of legitimate copyright-related businesses, according to industry sources. Counterfeit sound and motion picture recordings are widely available throughout Mexico, crippling the Mexican music industry. The International Intellectual Property Alliance (IIPA) estimates that trade losses due to copyright piracy in Mexico totaled $718 million in 2002. Piracy levels in some industries have declined since 1996. For instance, industry estimates that the business software piracy level decreased from 67 percent in 1996 to 55 percent in 2002. Although levels of music piracy are down from last year, dropping from 68 percent in 2002 to 60 percent in 2003, the music industry in Mexico suffered one of its worst years in recent history. Of all pirated music sales in Mexico in 2003, 90 percent were of Spanish speaking artists. Industry associations report that piracy has begun to shift from traditional formats to optical discs (CD, DVD, CD-ROM). This is particularly troubling, as content in digital form is easier to reproduce on a large scale. In July 2003, the Mexican Congress amended the Mexican copyright law. These amendments fail to address the comprehensive reforms needed by Mexico to: (1) effectively implement the obligations of the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty (Mexico is a party to both agreements); and (2) correct existing incompatibilities in the law with Mexicos obligations under the NAFTA IPR Chapter and the WTO TRIPS Agreement. Implementing regulations that Mexico has indicated would address these concerns were to have been published by the end of October 2003 but as of January 2004 have not yet been made available. The United States has been urging Mexico to meet its various obligations by issuing satisfactory implementing regulations. Mexican law enforcement agencies have conducted hundreds of raids on pirates. In 2003, the Attorney General's Office created an IPR enforcement unit, which combines federal prosecutors and police to make the enforcement regime more effective and efficient. Industry representatives report that raids against counterfeiting operations have improved from 2002 and there has been improved

P a g e | 46 access to prosecutors. Despite increased raids and seizures of counterfeit material, only three of the 900 counterfeiters who were arrested in 2002 and 2003 received sentences greater than one year, thus undercutting the deterrent effect of the raids and arrests. Very few IPR violations result in prison terms. As a result, counterfeiters are often released and return to the street. Patent, Trademark, Pharmaceutical and Agricultural Chemical Protection Patents and trademarks are under the jurisdiction of the Mexican Institute of Industrial Property (IMPI), an independent agency that operates under the auspices of the Secretary of Economy. Some U.S. trademark holders have encountered difficulties in enjoining former subsidiaries and franchisees from continued use of their trademarks. U.S. companies holding trademarks in Mexico have cited problems with trademark enforcement and administration. When counterfeit items are discovered, injunctions against trademark violators are often unenforceable and are consistently challenged before the courts. Although federal administrative actions are supposed to be completed within four months, actions related to trademark enforcement often take as long as 18 months. The time can be lengthened by jurisdictional and procedural disputes within the Mexican government, as well as by internal coordination problems within IMPI. Trademark applications in Mexico are not subject to opposition. Registrations are issued and can only be canceled post registration. On average, it takes two and a half years to cancel a trademark registration, and the registrant is allowed to continue using the mark for one year following cancellation. U.S. pharmaceutical and agricultural/chemical companies are concerned about the lack of coordination between IMPI and other Mexican agencies with regard to government procurement of copies of patented pharmaceuticals. In 2003 the Mexican Ministry of Health agreed that starting with purchases scheduled for delivery on January 1, 2003, IMSS (Mexican Social Security Institute) and possibly ISSTE (Social Security Institute for Government Workers) would purchase only patented products where a patent already exists in Mexico. In the past, the Mexican Ministry of Health granted health registrations to generic products without verifying with IMPI whether a patent already existed for such products. In September 2003, the Ministries of Health and Economy implemented a Presidential decree that requires applicants for safety and health registrations to show proof of patent and proof that test data was obtained in a legitimate matter. According to the regulation, failure to present proof of patent and test data will result in denial of the registration. Also, submitting companies can now be subject to both civil and criminal proceedings for false submissions. Border Enforcement of IPR NAFTA Article 1718 and Article 51 of the TRIPS Agreement obligate Mexico to allow U.S. intellectual property rights holders to apply to Mexican authorities for suspension of release of goods

P a g e | 47 with counterfeit trademarks or pirated copyright goods. Intellectual property rights owners seeking to use the procedure must obtain an order from a competent authority that directs customs officials to detain the merchandise. Companies requesting such actions report positive outcomes. SERVICES BARRIERS Telecommunications Mexicos former state-owned telecommunications monopoly (Telmex) continues to dominate Mexicos telecom sector. Competition in the sector has been hampered by the inability of Mexicos telecommunications regulator (Cofetel) to enforce its own regulatory findings. Enforcement authority resides with the Secretariat of Communications and Transportation (SCT), which has been slow to act against Telmex. Telmex competitors complain of inaction by both Cofetel and the SCT in resolving disputes, resulting in many cases lingering for months or years without resolution. Failure to ensure nondiscriminatory quality of service for interconnection, highlighted by a Cofetel report documenting the inferior quality Telmex provided to competitors, is particularly troubling. In cases where the government has taken action, Telmex has successfully used court-ordered injunctions to prevent enforcement against it. For example, an injunction has prevented the SCT from enforcing a regulatory ruling requiring Telmexs wireless affiliate (Telcel) to adopt competitively neutral numbering rules. Legislation to reform the telecommunications sector is pending in the Mexican Congress. Meanwhile, the Fox Administration is expected to issue Executive Orders reorganizing the regulatory structures and transferring enforcement authority from SCT to Cofetel. Mexico has also failed to address muchneeded reform to its international rules. Mexicos international long distance rules grant Telmex the exclusive authority to negotiate interconnection rates for cross-border traffic on behalf of all Mexican carriers and prevent foreign carriers from using leased lines to bring calls directly into the domestic network. The United States has repeatedly raised concerns regarding the WTO-consistency of Mexicos international telecom regime and on February 13, 2002, the United States requested formation of a WTO dispute settlement panel arguing that Mexico has failed to fulfill its WTO obligations to ensure that international interconnection rates are cost-oriented and that leased lines are available. The WTO panel issued its final report in March 2004. The panel found that Mexico breached its commitment to ensure that U.S. carriers are afforded cost-based interconnection and that Mexico failed to prevent its dominant carrier from engaging in anti-competitive practices. INVESTMENT BARRIERS Ownership Reservations:

P a g e | 48 Mexicos Constitution and Foreign Investment Law of 1992 reserve ownership of certain sectors, such as oil and gas extraction, to the state; other laws limit activities to Mexican nationals, such as forestry exploitation, and domestic air and maritime transportation. This reservation is incorporated into the NAFTA. In addition, only Mexican nationals may own gasoline stations. Gasoline is supplied by PEMEX, the state-owned petroleum monopoly, and gasoline stations sell only PEMEX lubricants, although other lubricants are manufactured and sold in Mexico. A national foreign investment commission decides questions of foreign investment in Mexico. Investment restrictions prohibit foreign ownership of residential real property within 50 kilometers of the nations coasts and 100 kilometers of its borders. However, foreigners may acquire the effective use of residential property in the restricted zones through trusts administered by Mexican banks. Trade Barriers of out-side NAFTA: Non-NAFTA nations especially fear losses in trade and investment. Table-1 shows why these excluded nations harbor such fears. The European Community (EC), Japan and the ASEAN nations are particularly concerned. Based on trade volume, the implications of the agreement to their access to U.S. markets is clearly worrying for non-NAFTA members. The Canadian share of trade, for example, is yearly more important to Japan. And the anticipated growth in the Mexican economy will increase that country's future importance for most Asian economies. Table-1 Trade Volume with NAFTA as a Percentage of Total Exports and Imports, 1990:Unions EC Japan ASEAN Exports & Imports Exports to Imports from Exports to Imports from Exports to Imports from NAFTA 8.3% 8.3% 34.8% 26.9% 21.9% 12.9% U.S. 7.2% 7.0% 31.7% 22.5% 20.6% 11.9% Canada 0.7% 1.0% 2.3% 3.6% 1.1% 0.9% Mexico 0.4% 0.3% 0.8% 0.8% 0.2% 0.1%

Source: International Monetary Fund, Direction of Trade Statistics 1991. The aim of a free trade agreement is to promote greater mutual trade and economic harmony among its member countries, while enhancing both efficiency and competitiveness and thereby increasing economic welfare. Proposed benefits for members include more and wider employment, increased exports, lower prices and faster economic growth. Outsiders may view these gains as a threat to their own well-being. They may fear they will end up losers in a zero-sum game, where the members' benefits will come at the expense of non-members. The principal causes of these feared losses are trade and investment diversion and deterioration in terms of trade.

P a g e | 49 NAFTA will create the largest single economic block in the world, larger than the European Community (EC) and the European Free Trade Area (EFTA) combined. It will do this both in terms of Gross National Product (GNP) and in populations covered. ASEAN's population, for example, is of comparable size, but its GNP is only a fraction of NAFTA's. Japan has 58 percent of NAFTA's GNP, yet only 35 percent of its population. Though still a developing country, Mexico alone has 90 million citizens, a high annual population growth rate, and a rapidly expanding economy. As an international trading bloc, therefore, NAFTA, in terms of both production and consumption, will unquestionably be a powerful force in world affairs. Table-2 illustrates this inescapable conclusion. Table-2 GNP and Population Comparison:Unions GNP in Billions of US$* Population in Millions** NAFTA 5,932 357 EC and EFTA 5,784 358 ASEAN 394 325 Japan 3,374 124 Sources: Hufbauer and Schott 1992, Far Eastern Economic Review Asia 1993 Yearbook. * 1989 figures for NAFTA, EC/EFTA, and 1991 figures for ASEAN and Japan. ** 1989 figures for NAFTA, EC/EFTA, and 1992 figures for ASEAN and Japan. Trade diversion is the re-orienting of imports within a free trade area from a low cost outside source to a more expensive inside source in response to a change in trade policies. A welfare loss results from the allocation of resources away from the most efficient producer. The extent of trade diversion that can be expected to occur for a given change depends, in part, on how protective the market was prior to change. A free trade area, for example, may decrease tariffs for its members, thus decreasing the costs of importing products from these trading partners. If the tariffs for all trading partners are low prior to the change, the effect will be minimal as the marginal differences in cost will be small. Additionally, outside trading partners will only be adversely affected to the extent that their goods compete directly with goods produced within the free trade area where tariffs have been lowered. Within NAFTA, both Canada and Mexico have higher trade barriers than the U.S., so exporters to those countries will face more potential trade diversion. The Canadian and Mexican markets, however, are much smaller than that of the United States. Understandably, the U.S. is, therefore, the typical concern of most outsiders. Despite the general consensus that overall diversionary effects are likely to be small, regional or sectoral effects could be significant for particular industries or countries that compete directly against the NAFTA countries in exports, or where high existing trade barriers will be dramatically lowered for insiders. One study asserts that "NAFTA's sectoral impact will be essentially neutral in Canada and the U.S., but highly significant in opening the Mexican investment regime." The U.S. International Trade Commission estimates that American investment in Mexicofor automobiles and

P a g e | 50 parts, computers, electronics, household appliances and apparelwill increase 16 percent in the long term. To the extent that this investment, were there no NAFTA, would have been made in countries other than Mexico, it represents a diversionary effect. Aside from automobiles and parts, other sectors identified as likely to experience trade diversion are textiles and apparel, and agriculture. Diversion of investment capital from both inside and outside NAFTA is of great concern to nonmembers, especially developing countries for whom foreign investment is crucial for further development. Investment diversion could occur if investors want to capitalize on the ability to export duty-free among the NAFTA nations or ensure market access to the three member countries. Low barriers, however, already exist for most products in the NAFTA region, rendering investment for tariff-jumping purposes unlikely. Tariffs are the lowest for the U.S. market, especially for countries qualifying under the Generalized System of Preferences. Tariffs are the highest in Mexico, making investment diversion for production within the Mexican market the most economically beneficial. Given the present size of its economy, however, it is unlikely that there will be sufficient economies of scale to warrant extensive foreign investment in the near future for Mexican consumption. Contrary to the fears of many NAFTA opponents, investment decisions are usually most heavily influenced by the economic and political stability of the host country, the existence of well-defined property rights, the stability of the currency, and the ability to repatriate profits, not merely wage costs or tariff evasion. Given similar costs, NAFTA will presumably give Mexico an edge in attracting investment because it will lock in the economic reforms undertaken during the 1980's in the country and brighten its growth prospects, making Mexico less risky for investors. It is likely that investment diversion to Mexico will originate from outside of NAFTA, as nonmembers position investment to take advantage of Mexico's enhanced stability and growth, as well as its improved access to the U.S. and Canada. Nevertheless, the lowered tariffs probably will not in themselves cause large diversionary effects. Mexico's path of economic reform would attract investment even in the absence of NAFTA. Environmental laxity in Mexico has also been cited as a reason that investment diversion might occur. The theory is that environmental regulations in the industrialized countries involve substantial costs and that firms could lower these costs by relocating to Mexico. Environmental costs, however, represent a small fraction of manufacturers' total costs and can be only part of a "package" of reasons for relocating. For non-members, NAFTA's investment provisions do provide some cause for concern about its external trade policy. The proposed rules of origin for automobiles of 62.5 percent, combined with duty drawback restrictions, will encourage regional sourcing of auto parts and the location of new

P a g e | 51 automobile sector investments in North America. Another example where NAFTA's proposed rules of origin could negatively effects outsiders is in the electronics market. It is anticipated that these rules will promote the use of U.S.-made television tubes at the expense of Asian products. Despite reservations expressed about investment provisions, they are generally viewed as successful in achieving the goals of clarity, enforceability and transparency. They should also liberalize the Mexican investment regime and provide greater protection for foreign investment in the three NAFTA countries. A possible result of enhanced competitiveness and rationalization of production for NAFTA members is deterioration in the terms of trade for non-members. This can occur for several reasons. Insiders may experience reduced costs through obtaining duty-free inputs from other members. Rationalization of production among the three countries based on comparative advantage can produce economies of scale that enable members to reduce costs. These two factors would result in a strengthening of the position of an insider who is the existing low-cost producer, or allow a member to newly become the low cost producer. In either case, outsiders will have to cut prices to match the preference given to insiders. Another possible cause of deterioration in the terms of trade to outsiders is the relaxing of quotas for members. For example, the proposed agreement lifts U.S. import quotas under the Multi-fiber Arrangement for Mexican textiles, which qualify under the NAFTA rules of origin, and allows no new quotas to be imposed. As a result, increased Mexican textile imports to the U.S. may force down prices and allow the U.S. to recapture quota rents previously earned by outsiders. The outsiders, still constrained by their quotas, would have to drop their prices to remain competitive with the lower prices of Mexican products. If the NAFTA countries represent a large enough market for a particular product or country, adjustment costs may occur for that industry or country as well. Textile exports, for example, from the Caribbean could decline if the NAFTA member textile industries become more competitive. Yet trade creation and income effects could cause increased exports from the Caribbean to NAFTA members in other sectors. If NAFTA markets represent a large enough portion of a non-member nation's trade, then reallocation of resources could occur in non-member countries as well. This scenario could only credibly occur, however, for a small group of countries for all of whom the U.S. is the dominant import source and export market. A less directly negative NAFTA consequence could be a shift in U.S. focus to regionalism, thus diminishing its leading role in the General Agreement on Tariffs and Trade (GATT). To date NAFTA's aims have included continuing trade liberalization on the multilateral level. The failure of the Uruguay Round, however, could cause a re-orientation inward. This would be dangerous for

P a g e | 52 outside nations who stand to gain much from continued liberalization under GATT, and for whom a more protectionist U.S. market would be disastrous. Recent discussions by U.S. policy makers have somewhat dispelled this fear by speaking of NAFTA as a step toward a freer and more open world trading system. The close margin of the U.S. House of Representatives' vote on NAFTA, however, underscores the strength of U.S. protectionist interests. NAFTA may provide some benefits and opportunities for outsiders. The benefits of investment in Mexico for non-members will be increased by enhanced access to NAFTA markets and continued economic reform and stability in Mexico. And higher growth in all of the NAFTA countries is anticipated to cause income effects and trade creation. Thus, the question remains whether trade creation will dominate trade diversion in providing a welfare-enhancing outcome for outsiders as well as for NAFTA members. Trade creation results when a member of a free trade area imports goods it previously produced itself from a lower cost producer who is also a member of the same free trade area. The welfare of members is increased because resources are reallocated based on comparative advantage. There is a production effect, reflecting the shift from a less to more efficient producer, and a consumption effect, as consumption of the now lower priced good should increase. Expanded production of a good within the free trade area will provide benefits to outsiders if it requires more inputs imported from outside the preference area. Income growth in the member countries should expand import demand, thus increasing imports from outside nations as well as member countries. This effect should be especially important for Mexico, which will undoubtedly experience increasing demand for consumer goods as its per capita income grows. This growth dividend can result in a positive sum game with overall net welfare enhancing effects if the increased volume of imports exceeds trade diversion. A positive externality to outsiders can result if an insider is already the lowest cost producer of imports for outsiders, and the price of those goods falls further due to duty free components or economies of scale. If Canada, for example, produces machinery for export to ASEAN manufacturers and can lower its costs because it can now obtain parts from the U.S. duty-free, lower prices can be charged. The ASEAN manufacturers, as a result of NAFTA, will therefore gain from improvements in Canada's cost position. A question raised by NAFTA is whether it will have differential impacts on industrialized versus developing countries. The answer may vary from country to country, depending on its trade pattern and the complementarily of production with NAFTA members. Generally, with tariff barriers, the agreement is likely to hit developing countries less hard as they currently face lower tariffs than the industrialized countries under the Generalized System of Preferences. ASEAN, as a grouping of rapidly industrializing developing countries, is a clear exception, though the degree of its

P a g e | 53 intra-regional trade is much less than the EC's or NAFTA's, leaving it more exposed to protectionism in other regional blocs. While the accession clause to the agreement is of special interest to the Caribbean Basin countries and those of Latin America, prospects for the agreement's expansion will also concern other outsiders. The proposed accession clause stipulates that unanimous approval by the NAFTA members is required, yet delineates no geographic limitation. There are no specified application procedures or criteria, for example. Each NAFTA member can form its own free trade or bilateral agreements with non-member countries, even those rejected for accession to NAFTA. Additionally, there are several industry-specific sectors of the agreement that make no reference to possible extension to outsiders. It may thus require extensive renegotiation to admit additional members. The implications of NAFTA's expansion for non-members are more the benefits to members; the less they will want to share these benefits by pushing for multilateral liberalization. Beneficial terms, however, increase the incentives for outsiders to end such discrimination and preferential benefits. This adds external pressure for either expansion or increased multilateral liberalization. One caveat is that insiders may soften to multilateral liberalization after a rationalization and restructuring period if they feel they are more prepared to face international competition and will, therefore, not be hurt by lower trade barriers. For multilateral requirements, GATT requires that preferential trade areas address all trade among the member countries without raising external barriers as a group. NAFTA complies with this provision. There may be scope, however, for unilateral protectionist action by any of the three countries using non-tariff barriers, including such "gray-area" measures as voluntary export restraints, contingent protection measures (anti-dumping and countervailing duties), and "rules of origin."Consequently, without any further action, agreement on the measures proposed by the current GATT talks would mitigate NAFTA's impact for non-members.

5. Real Trade within and Outside NAFTA: National Trade: The trading relationship between United States and Canada represents the largest bilateral flow of income, goods, and services in the world. In 2002, two-way trade between the U.S. and Canada reached $431.5 billion, averaging $1.2 billion per day. Since the implementation of the Canada-US Free Trade Agreement in 1989, trade has nearly tripled. In 2002, 82 percent of Canadian exports went to the U.S., and 19 percent of U.S. exports went to Canada.

P a g e | 54 Mexico is the U.S.s second largest trading partner after Canada, and Mexico-U.S. trade reached $232 billion in 2002. Mexico-US trade has increased by over 225 percent since the North American Free Trade Agreement of 1994. U.S. exports to Mexico total $62.5 billion year to date, while imports were $90.2 billion. Total U.S. Mexico Trade in Goods

Source: Compiled by CRS using data from Mexicos Ministry of Economy.

Since NAFTA, the two-way trade between Canada and Mexico more than doubled from $6.5 billion to $15.1 billion. Canada is Mexicos second most important export market, and Mexico has become Canadas fourth most important export market. Between 1994 and 2002, Canadian merchandise exports to Mexico rose 10.5 percent per year while imports from Mexico increased at a rate of 13.8 percent per year. Mexico accounted for 0.7 percent of Canadian total exports and 3.1 percent of Canadian imports in 2002, up from 2.4 percent in 1995.

Mexico-Canada trade: Monthly trends January 1993- December 2002

P a g e | 55 (Value in million US dollars)

Source: The Ministry of the Economy with data from BANXICO and STATISTICS CANADA

In terms of trilateral relations, both Canada and Mexico send more than 80 percent of their exports to NAFTA partners, whereas the US relies on its NAFTA partners for only about 30 percent of its trade.

The U.S. is Canadas leading agricultural market, importing nearly one-third of all Canadian food exports. Conversely, Canada is the second-largest U.S. agricultural market (after Japan), primarily importing fresh fruits, vegetables and livestock products. About one-fifth of Canadian exports to Mexico consist of agricultural goods, and agricultural goods accounted for four percent of Canadas total imports from Mexico in 2002.

U.S. Trade with Canada, 2006-07

P a g e | 56

Source: U.S. International Trade Commission. (Figures are NAIC-4, Total Exports and General Imports.)

Regional Trade: Canada and Mexicos importance to the United States is more than simply a border-state phenomenon. In 2002, Canada was the leading export market for 39 of the 50 US states. In 2002, Texas was the top state exporter to Mexico at close to $20 billion, followed by Michigan at $15 billion and California at almost $14 billion. In 2002, Michigan had the largest trade relationship with Canada at $65.7 billion in 2002, followed by New York at $23.5 billion, California at $23.3 billion, and Texas at $14.6 billion. The Canadian province of Ontario is the fourth largest trading partner of the United States (after Canada, Mexico, and China) with total trade nearing $245 billion in 2002. Half of all

P a g e | 57 Canadian exports originate in Ontario. In 2001, U.S. exports to Ontario alone were worth almost two times as much as U.S. exports to Japan. Total Ontario exports to Mexico were approximately C$1 billion in 2002.

Trade of Top Products within NAFTA nations: Cattle: United States Historically, U.S. tariffs on cattle entering from Canada and Mexico have been quite low. Purebred breeding cattle and cattle imported for dairy purposes were admitted duty-free, while other cattle were charged 2.2 cents per kilogram. Under the Canada-U.S. Free Trade Agreement (CFTA), the United States began to gradually eliminate its tariffs on cattle imports from Canada. This process, originally intended to last 10 years, was accelerated to completion by 1993. Duties on cattle imports from Mexico were completely eliminated at the start of NAFTA. Canada Even before CFTA, Canadas import regime on U.S. cattle exports largely resembled the U.S. regime on Canadian cattle exports. Purebred breeding cattle and cattle intended for dairy purposes were admitted duty-free, and other cattle were charged 2.2 cents per kilogram. Under CFTA, Canada began tariff elimination with the United States over a 10-year period and accelerated this process to completion by 1993. Canadian duties on cattle imports from Mexico were completely eliminated at the start of NAFTA. Mexico In late 1992, Mexico raised its tariffs on non-breeding cattle from zero to 15 percent. Once NAFTA took effect in 1994, Mexico eliminated its tariffs on U.S. and Canadian cattle. Beef: United States, Under CFTA and NAFTA, the United States exempted both Canada and

Mexico from the U.S. Meat Import Law. This exemption from quantitative restrictions on the shipment of fresh, chilled, or frozen beef was carried forward in calculating the TRQs under the Uruguay Round. The United States also applies a tariff of 2 cents per pound on most types of imported beef. Under CFTA, this duty originally was to be eliminated over 10 years. However, the reduction in beef duties was accelerated, and Canadian beef now enters the United States duty free. Tariffs on imports from Mexico were eliminated in the first year of NAFTA. Mexico In late 1992, Mexico raised its tariffs on beef from zero to 20 percent for fresh beef and to 25 percent for frozen beef. Once NAFTA took effect, tariffs on U.S. and Canadian beef were eliminated. Prior to NAFTA, there was a 20-percent tariff on beef offal exported to Mexico. That tariff, which is now 8 percent, is being phased out over 10 years.

P a g e | 58

Canada exempts both the United States and Mexico from its Meat Import Law and subsequent TRQ calculations. Canada eliminated its tariffs on U.S. beef under an accelerated schedule, while tariffs on imports from Mexico were eliminated at the start of NAFTA. Hog: United States, there are no tariffs on hogs entering the United States. While the United States

has maintained a countervailing duty (CVD) on hogs imported from Canada since 1984, recent policy changes in Canada prompted the U.S. Department of Commerce to declare the CVD rate to be de minims, or effectively zero, in September 1998. With the exception of certain regions, Mexico is considered hog-cholera endemic, and any hogs exported to the United States are subject to a 90- day quarantine. This effectively precludes most hog imports from Mexico. Canada There is no duty on hog imports. Mexico Prior to NAFTA, Mexico maintained a 20-percent duty on non-purebred hogs. Under NAFTA, this duty is to be reduced over 10 years. A safeguard TRQ was placed on imports. If imports rise above that level, the duty reverts to the lower of the MFN and pre-NAFTA levels. The safeguard, initially set at about 370,000 head, expands 3 percent per year. Pork: United States The majority of imported pork enters the United States duty-free, but there are

duties on several categories of processed pork. These duties range from 1.2 cents per kilogram for sausages to 6.4 cents for canned hams. Originally under CFTA, the duties were to have been reduced over a 10-year period, but this schedule was accelerated and Canadian pork exports now enter the United States duty-free. Mexico is considered hog-cholera endemic, and any pork exported from there to the United States must be cooked and in air-tight containers. U.S. duties on Mexican pork were eliminated at the start of NAFTA. Canada, Although CFTA called for Canadian duties on U.S. pork to be reduced over a 10-year period, this process was accelerated and U.S. pork is now admitted dutyfree. Any pork exported to Canada from Mexico must be cooked and in air-tight containers. Canada eliminated its duties on Mexican pork at the start of NAFTA. Mexico Prior to NAFTA, Mexico had a duty of 20 percent on most imported pork products. Under NAFTA, the duty for the United States and Canada is to be reduced over 10 years. A safeguard quota was placed on imports of certain cuts of pork. If imports rise above that level, the duty reverts to the lower of the MFN and pre-NAFTA levels. The safeguard, initially set at about 68,500 metric tons for all categories, expands 3 percent per year. Poultry: United States Prior to NAFTA, the United States imposed tariffs on poultry ranging from 2

to 10.6 cents per kilogram. Under CFTA, U.S. tariffs on Canadian poultry were to be gradually reduced over a 10-year period. As with other meats, the tariff reductions on poultry were accelerated, and the tariffs on Canadian poultry have since been eliminated. U.S. tariffs on Mexican poultry were eliminated during the first year of NAFTA. The United States still requires that all imported poultry

P a g e | 59 products from Mexico be cooked and sealed. The United States is in the process of determining whether certain parts of Mexico are free of both highly pathogenic avian influenza and exotic Newcastle disease. In May 1999, USDA issued a proposal to ease restrictions on the importation of poultry and poultry products from Sinaloa and Sonora. Under the proposal, these imports would be subject to documentation that the poultry was indeed from those states and had not been in contact with exotic Newcastle disease. A second proposal would allow live birds to be shipped to Mexico for processing and the processed parts to be shipped back to the United States. USDA has not yet published rules governing this second proposal, but it is in the process of doing so. Canada Prior to URAA, Canadas import quotas were tied to production decisions for its domestic supply controls. The import quota for broilers was set at 6.3 percent of the previous years broiler production, and the import quota for turkeys was set at 2 percent of the current years expected production. Under CFTA and subsumed into NAFTA, the global quota allocations were increased to 7.5 percent for broilers and 3.5 percent for turkeys. Canada has also offered supplemental quotas, which in many cases raise imports well above the formal quotas. Under the terms of the Uruguay Round, Canada converted its MFN quotas to a TRQ with a high over-quota tariff. Canadas new TRQ also includes poultry products, which had not been included in its global quotas. Mexico Prior to URAA, Mexico controlled poultry imports through import licenses and a 10 percent duty. Under NAFTA, an initial TRQ of 95,000 metric tons was established on a variety of poultry categories. Quantities above that amount were subject to over-quota duties ranging from 133 to 260 percent. The TRQ will expand 3 percent per year, and the duties will decline 24 percent during the first 6 years of the agreement and then be eliminated by year 10. To date, the Mexican government has chosen not to enforce its poultry TRQs. Mexicos annual poultry imports from the United States, especially in parts and machine-deboned meat (MDM), have greatly surpassed the TRQs. Corn: United States, Before NAFTA, the United States maintained tariffs of $2.00 per metric ton on dent corn and $9.80 per metric ton on non-seed corn other than dent. Under NAFTA, the United States immediately eliminated its tariffs on corn imports from Mexico and continued the 10-year elimination of tariffs on imports of corn from Canada as originally negotiated under the Canada- U.S. Free Trade Agreement (CFTA). U.S. tariffs on Canadian corn were eliminated on January 1, 1998. Mexico, Under NAFTA, Mexico immediately eliminated its import license requirement and established duty-free tariff-rate quotas (TRQs) for corn from the United States or Canada. Initially, the TRQs were set at 2.5 million tons for the United States and 1,000 tons for Canada for 1994, increasing 3 percent per year thereafter. Imports above these levels face an over-quota tariff of 215 percent, which was reduced 24 percent by 1999 and will be phased out by 2008.

P a g e | 60 Canada, Before CFTA, Canada maintained tariffs on imported corn ranging from Can$1.73 to Can$2.77 per ton. CFTA, subsumed into NAFTA, eliminated tariffs on corn imports from the United States over a 10-year period that ended January 1, 1998. Sorghum: United States, The United States immediately eliminated its import tariffs on Mexican

sorghum, following NAFTAs implementation on January 1, 1994. Mexico immediately eliminated its 15-percent seasonal import tariff on U.S. sorghum. Improved market access for Canada under NAFTA does not apply to sorghum since Canada does not produce the crop due to its cooler climate. Canada immediately eliminated its import tariffs on U.S. sorghum following CFTAs implementation on January 1, 1989. Similarly, Canada immediately eliminated its tariffs on Mexican sorghum following NAFTAs implementation. Barley: The United States eliminated all tariffs on barley imports from Mexico upon NAFTAs

implementation on January 1, 1994. Import tariffs on Canadian barley were eliminated in 1996, following successive reductions under CFTA and NAFTA. Mexico, On January 1, 1994, Mexico immediately eliminated its import license requirement for barley imported from the United States and Canada. The United States initially received a 120,000ton duty-free TRQ for 1994, with the duty-free amount increasing 5 percent per year thereafter. Canada received a duty-free TRQ of 30,000 tons for 1994, with duty-free access also increasing 5 percent per year thereafter. Imports from the United States and Canada over the duty free levels face over-quota tariffs ranging from 128 percent (barley) to 175 percent (malt). These tariffs will be phased out over 10 years. Canada, Under CFTA and NAFTA, Canada agreed to a 10-year elimination of tariffs on U.S. barley imports. In Article 705 of CFTA, Canada agreed to remove its quantitative restrictions on these imports when the 2-year average of the U.S. Governments support for barley is less than that of Canada. Canada imposed import licenses on U.S. imports of barley and barley products until August 1, 1995, when these licenses were converted to TRQs in accordance with URAA. Over quota tariffs were initially set at more than 100 percent and will be reduced 36 percent over 6 years. The withinquota tariff was eliminated on January 1, 1998. Oat: The United States already had a zero most-favored-nation (MFN) tariff on oats imports, and

this was not changed by NAFTA. Mexico applies a 10-percent ad valorem MFN import tariff on oats. Under NAFTA, the tariff on imports from the United States and Canada is being phased out over 10 years, beginning January 1, 1994. Canada already had a zero MFN tariff on oats imports, and this has

P a g e | 61 continued under NAFTA. Under Article 705 of CFTA, subsumed into NAFTA, Canadas import license requirement on U.S. oats and oat products was removed in 1989. Wheat: United States, Under NAFTA, the United States eliminated tariffs on common wheat

imports from Mexico over 5 years and is doing the same for durum wheat over 10 years, beginning January 1, 1994. Under first CFTA and then NAFTA, the United States phased out its tariffs on Canadian wheat over a 10-year period that ended January 1, 1998. Mexico immediately eliminated its import license requirement for all wheat following NAFTAs implementation on January 1, 1994. A 15-percent ad valorem tariff, to be phased out over 10 years, was then applied to wheat imports from the United States and Canada. Canada completed its 10-year elimination of tariffs on U.S. wheat imports on January 1, 1998, as was agreed under CFTA. According to CFTAs Article 705, Canada removed its import 29 license requirement on U.S. wheat and wheat products in 1991. Rice: United States, Before NAFTA, U.S. tariffs on imported rice ranged from 0.69 to 3.3 cents a

kilogram, depending on the type of rice. These tariffs are being phased out over a 10-year period, from 1994 to 2003. Under URAA, the United States is reducing its MFN tariffs by 36 percent through 2000. Mexico, Before NAFTA, Mexico levied tariffs of 10 percent on rough and broken rice and 20 percent on milled and brown rice. In 1990, the milled and brown rice tariff was raised from 10 to 20 percent in response to Mexican millers who wanted to import rough rice in order to maintain a high mill utilization rate. Under NAFTA, these rates are to be gradually lowered to zero by 2003. The first cut took place in 1994, which dropped the respective tariffs to 18 and 9 percent. By 1998, these duties were 10 and 5 percent, respectively. Mexico banned rice imports from Asian sources for phytosanitary reasons in September 1993. In December 1996, this policy was modified to allow rice from Asian sources to be imported if the rice passed rigid disease-free requirements and was placed in an extensive quarantine. Imports of Asian rice to Mexico are currently impractical under these rules. Canada, Under CFTA and NAFTA, Canadian tariffs on imported U.S. milled or semi-milled rice were steadily reduced beginning in 1989 and reached zero in 1998. In 1995, Canadas tariff on U.S. broken rice and whole or semi-milled rice was $1.10 per ton, compared with $5.51 per ton for countries receiving MFN status. There is no tariff on imported brown or rough rice. Canada produces no rice domestically, and Mexico does not export rice to Canada.

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Oilseeds:

United States, Prior to NAFTA, the United States did not levy tariffs on soybean and

sunflower seed imports. But it did impose tariffs of 22.5 percent on soybean oil and 0.3 cents per pound on soybean meal. Under NAFTA, the tariff on soybean oil will be phased out over 10 years, and the tariff on soybean meal was eliminated on January 1, 1994. Before CFTA, the United States also imposed tariffs of 0.4 cents per bushel on rapeseed, 22 cents per bushel on flaxseed, 0.12 cents per pound on rapeseed meal, and 7.5 percent on canola oil. These tariffs were eliminated for Canada on January 1, 1989 under CFTA and for Mexico on January 1, 1994 under NAFTA. Previously, Mexico imposed a seasonal tariff of 15 percent on soybeans. Under NAFTA, Mexico immediately reduced this tariff to 10 percent and shortened the dutiable season from August 1January 31 to October 1-December 31. Mexico will phase out this tariff by 2003. Mexico had tariffs of 15 percent on soybean meal, 10 percent on crude soybean oil, and 20 percent on refined soybean oil, as well as similar tariffs on minor oilseed meals and oils. These restrictions will also be phased out over 10 years. Prior to CFTA, Canada lacked tariffs on soybeans, soybean meal, rapeseed, and other meals. However, there were tariffs of 7.5 percent on soybean oil and 10 percent on other vegetable oils. Under CFTA and NAFTA, Canada eliminated its tariffs on selected imports over a 10-year period that concluded January 1, 1998. Under NAFTA, Canada immediately eliminated its tariffs on soybean oil and other oil imports from Mexico, while maintaining the successive tariff elimination with the United States established by CFTA. Peanuts: United States, Prior to NAFTA and URAA, the United States restricted peanut imports

using quotas established under Section 22 of the Agricultural Marketing Act of 1932. Under NAFTA, the United States instituted a TRQ for shelled and in-shell peanuts from Mexico. The original annual quota was 3,377 metric tons, with over-quota tariffs of about 123 percent for shelled peanuts and 186 percent for in-shell peanuts. The TRQ increases at 3 percent per year, and the over-quota duties are scheduled to decline 15 percent in the first 6 years and then be phased out by 2008. To qualify for NAFTA benefits, peanut products imported from Mexico must be made from Mexican-grown peanuts. U.S. imports of Canadian peanut butter are governed by URAA. Under URAA market access commitments, the United States has established a TRQ on peanut butter and peanut paste imports, with most allocated to Canada and Argentina. The Canadian portion of the TRQ is 14,500 metric tons. There is no constraint on peanut butter imports from Mexico, other than that peanut products must contain 100 percent Mexican-grown

P a g e | 63 peanuts. Mexico had no quantitative restrictions on peanuts prior to NAFTA but maintained a 20percent tariff on peanut butter. Under NAFTA, this tariff will be phased out by 2003. Canada has no restrictions or tariffs on imports of peanuts. However, prior to CFTA, Canada imposed tariffs of $44.10 per metric ton on peanut butter and 7.5 percent on peanut oil. CFTA and NAFTA eliminated these tariffs over a 10-year period that ended on January 1, 1998. Under NAFTA, Canada immediately eliminated its tariffs on Mexican peanut oil and peanut butter, while maintaining its timetable of progressive tariff elimination with the United States. Dry Beans: United States Prior to the Canada-U.S. Free Trade Agreement (CFTA), the United

States maintained duties ranging from 1.7 to 3.3 cents per kilogram on imported dry beans. Under CFTA, which was subsumed into NAFTA, duties on imports from Canada were scheduled to be reduced over a 10-year period, but these reductions were accelerated and duties have since been eliminated. Under NAFTA, the tariffs on imports from Mexico were removed immediately upon implementation. Before NAFTA, Mexico restricted dry bean imports through import licenses. Under NAFTA these licenses were eliminated and the United States was granted a duty-free tariff-rate quota (TRQ) of 50,000 metric tons. Canada received a TRQ of 1,500 metric tons. Over-quota tariffs for both countries were set at $480 per metric ton, but not less than 139 percent ad valorem. From 1994 to 1999, the over-quota tariff will decline a total of 24 percent. Then, it will be phased out in equal increments from 2000 to 2008. Concurrently, the quotas will expand 3 percent each year during the 15-year transition period. In 1998, the over-quota tariff was $384 per metric ton, but not less than 111.2 percent ad valorem. Prior to CFTA, Canada maintained duties of 2.21 or 3.31 Canadian cents per kilogram on imported dry beans. Under CFTA, duties on imports from the United States were scheduled to be phased out over a 10-year period, but this process has since been accelerated to completion. Cotton: Under NAFTA, the United States established a duty-free cotton import quota for Mexico of

46,000 bales, two-and-a-half times Mexicos previous quota under Section 22. Pre-agreement tariffs on cotton imports ranged between 1.5 and 4.4 cents per kilogram. The NAFTA quota has grown 3 percent annually, and after 10 years the 26-percent tariff for over-quota shipments will be phased out. For textile products (yarn, fabric, and apparel), the United States reduced tariffs and expanded quotafree access for textile products derived from yarn and fiber produced by a NAFTA country. U.S. duties were eliminated after 5 years on 95-99 percent of Mexicos textile goods that meet NAFTA rules of origin. All duties between the United States and Canada on qualifying yarn and thread, as

P a g e | 64 well as all fabric and apparel, were eliminated January 1, 1998, under NAFTA. Quotas were eliminated for Mexican yarn and for fabric and apparel produced from yarn from a NAFTA country. Mexicos pre-NAFTA tariff of 10 percent on cotton imports is being phased out over 10 years. Mexican duties have been eliminated, after a 5-year transition period, on 89-97 percent of U.S. textile exports that satisfy NAFTA rules of origin. Import duties were eliminated immediately upon NAFTAs implementation for key products of interest to U.S. producers. All duties between the United States and Canada on qualifying yarn and thread, as well as all fabric and apparel, went to zero on January 1, 1998, under NAFTA. U.S.-Canadian textile trade was not affected by Multi-Fiber Arrangement quotas, so no changes were necessary. Similarly, Canada had no tariff on imported cotton before CFTA. Sugar and Sweeteners: United States Prior to CFTA, Mexico and Canada each had a share of the

U.S. sugar import quota, which began in 1982. Under this quota, Canada paid the low duty of 0.66 cents a pound on refined beet sugar, and a similar duty was waived for Mexico under the Generalized System of Preferences. Under CFTA, the quantity provisions of the U.S. quota system continued to apply to Canadian sugar, and duties on sugar between the United States and Canada declined to zero on January 1, 1998. In 1990, the United States unilaterally converted its absolute sugar import quota to a TRQ system, after a GATT panel ruled against the absolute quota in a case brought by Australia. A second-tier tariff of 16 cents a pound was established to apply to quantities above the TRQs first level. The United States interpreted CFTA to mean that the second-tier tariff could not be applied against Canada. Thus, from 1990 through 1994, Canadian sugar entered the United States freely, paying only the low CFTA duty. These imports from Canada were small relative to the size of the U.S. market and did not seriously disrupt the U.S. sugar program. When the Uruguay Round Agreement on Agriculture (URAA) was implemented in 1995, Canada became subject to the mostfavored-nation (MFN) over-quota tariff of approximately 16 cents a pound. The CFTA tariff applies to within-quota shipments. As a result of an agreement reached with Canada, 10,300 metric tons of refined sugar and 59,250 metric tons of the TRQ for certain sugar-containing products maintained under Additional U.S. Note 8 and Chapter 17 to the Harmonized Tariff Schedule of the United States are allocated to Canada. Because Canada does not produce raw cane sugar, it is not given a share of the larger raw sugar TRQ. NAFTA contains special, reciprocal provisions covering U.S.-Mexican sugar trade. Thus, the following description of Mexican access to the U.S. market also applies to U.S. access to the Mexican market. A formula defines net surplus production, as projected production minus projected domestic consumption. A side agreement stipulates that, for the purposes of the formula, high fructose

P a g e | 65 corn syrup (HFCS) should be included on the consumption side only. Thus, projected Mexican sugar production would have to exceed Mexican consumption of both sugar and HFCS for Mexico to be considered a net surplus producer. From 1994 through 1999, Mexico was entitled to duty-free access for sugar exports to the United States in the amount of its projected net surplus production, up to a maximum of 25,000 metric tons, raw value. If Mexico was not a net surplus producer, it still enjoyed duty-free access for 7,258 tons--the minimum boatload amount authorized under the U.S. TRQ. From 2000 through 2007, Mexico will have duty-free access to the U.S. market for the amount of its surplus as measured by the formula, up to a maximum of 250,000 tons, with minimum duty-free access equal to the minimum boatload. By the end of 1999, Mexico was to have installed a TRQ system, with a second-tier tariff for other countries that is equal to the U.S. second-tier tariff. Sugar tariffs between the United States and Mexico are scheduled to decline 15 percent over the first 6 years, and then to zero by 2008. Barriers to sugar-containing products have been converted to TRQs and are declining to zero over 10 years. U.S. refiners that ship sugar to Mexico under the U.S. Refined Sugar Re-Export Program receive MFN treatment, but NAFTA provides no special benefit for reexport sugar because it is not considered to be of U.S. origin. NAFTA does allow for reciprocal dutyfree access between the United States and Mexico for refined sugar made from raw sugar produced in the other country. As a result of CFTA, the Canadian duty on sugar imports from the United States was 0.11 cents a pound, refined basis, in 1997, and became zero in 1998. Canada made no changes in sugar trade policies as a result of NAFTA. Bell Peppers: Before CFTA, the general U.S. tariff on bell peppers was 5.5 cents per kilogram.

Under URAA, the United States is lowering the tariff to 4.7 cents per kilogram over 6 years, beginning in 1995. Under NAFTA, the United States phased out the June-October bell pepper tariff over 5 years and is phasing out the November-May tariff over 10 years. Under CFTA, the U.S. tariff on Canadian bell peppers was eliminated in 1998, following a 10-year transition period. Prior to NAFTA, Mexico imposed a duty of 10 percent on bell peppers. With NAFTA, Mexico gradually eliminated this tariff over 5 years. Canada Prior to CFTA, the seasonal tariff on bell peppers was 4.41 cents per kilogram but not less than 10 percent. With CFTA, the tariff declined 10 percent a year until it fell to zero in 1998. The seasonal tariff could not exceed 12 weeks in any 12-month period ending March 31. Cucumber: The general U.S. tariff on cucumbers varies by season. Before CFTA, the highest rate

was 6.6 cents per kilogram. This duty was in effect March 1 to May 31, June 1 to June 30, September

P a g e | 66 1 to September 30, and October 1 to November 30. From December 1 to the last day of February, the tariff was 4.9 cents per kilogram. The lowest rate was 3.3 cents per kilogram during July and August. NAFTA eliminated the duties for the two lowest tariff seasons: December to February and July to August. The December-February period is a time of low Florida production, and the July-August period is one of low imports from Mexico. For the higher tariff periods, the duties are being gradually eliminated. The March-May and October-November tariffs are being phased out over 15 years, and the June-September tariffs were gradually eliminated over 5 years. CFTA reduced U.S. tariffs on Canadian cucumbers by 10 percent a year, until the tariffs fell to zero in 1998. Until 2008, NAFTA provides for a snapback to MFN tariff levels, under certain price and acreage conditions. Under URAA, the United States is gradually reducing the MFN tariff for July 1 to August 31 from 3.3 cents to 1.5 cents per kilogram. For December 1 to the end of February, the tariff is being 64 lowered from 4.9 to 4.2 cents per kilogram. During the rest of the year, the tariff is being reduced from 6.6 cents to 5.6 cents per kilogram. These changes are being phased in over 6 years, beginning in 1995. Prior to NAFTA, Mexicos tariff on imported cucumbers was 10 percent. Under NAFTA, Mexico is matching the U.S. seasonal tariffs and phase out schedule, except that Mexicos transition period lasts 10 years. Before CFTA, Canadas seasonal tariff on fresh cucumbers (not for processing) was 4.96 cents per kilogram, but not less than 15 percent. With CFTA, the tariff declined 10 percent a year, until it fell to zero in 1998. The seasonal tariff could not be used for more than 30 weeks during any 12-month period ending March 31. Snapback provisions remain in place under certain price and acreage conditions. Fresh and Processed Potatoes: Before CFTA, the United States imposed tariffs of 0.77 cents per

kilogram on all fresh and seed potatoes, 17.5 percent on frozen potatoes, 10 percent on frozen French fries, 10 percent on potato chips, and 10 percent on other prepared potatoes. In URAA, the United States agreed to gradual tariff reductions over 6 years beginning in 1995. At the end of this transition period, the tariffs will fall to 0.50 cents per kilogram for fresh and seed potatoes, 14 percent for frozen potatoes, 6.4 percent for frozen French fries (yellow), 8 percent for other frozen French fries, and 6.4 percent for potato chips and other prepared potatoes. Under NAFTA, the United States has eliminated its tariffs for Canada and Mexico on fresh yellow (Solano) potatoes, seed potatoes, potato chips and other prepared potatoes, and yellow frozen French fires. After a 5-year transition period, the United States also eliminated its tariffs on frozen potatoes, other fresh potatoes, and other frozen French fries. As part of CFTA, the United States agreed to many of these tariff reductions with respect to Canadian potatoes. This agreement provided for a 10-year transition period in which the United States gradually eliminated its tariffs on fresh potatoes and frozen French fries from Canada. Under NAFTA, the United States may implement a snapback provision, only on fresh potatoes, given certain conditions and re-institute MFN tariff levels until 2008.

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Prior to NAFTA, Mexico imposed tariffs of 15 percent on frozen potatoes and 20 percent on dried potatoes, frozen French fries, and other prepared potatoes. Mexico also required import licenses for fresh potatoes from Canada and the United States. Under NAFTA, all tariffs on processed potatoes from the United States and Canada are to be phased out over 10 years. In addition, Mexico eliminated its import license requirements for Canadian and U.S. fresh potatoes and instituted a TRQ in their place. With a phytosanitary permit, fresh potatoes may be shipped to Mexicos northern Border States for processing. No fresh potatoes destined for the fresh market are allowed into Mexico. Under the TRQ for fresh potatoes, the United States initially received a duty-free quota of 15,000 metric tons. This amount increases at an annual compounded rate of 3 percent during the 10-year transition period. Initially, over-quota imports were assessed a tariff of $354 per metric ton, but not less than 272 percent. Over the first 6 years of the agreement, Mexico is to eliminate 24 percent of this over-quota tariff. The remainder is to phased out during the last 4 years of the reduction period. Mexicos processed potato industry is also protected by TRQs, but the over-quota tariff is the MFN rate of 20 percent. In 1994, the TRQ for processed potatoes was 1,800 metric tons for frozen potatoes, 200 metric tons for dried potatoes, 3,100 metric tons for frozen French fries, and 5,400 metric tons for other prepared potatoes. These quotas grow at a compound annual rate of 3 percent. Prior to CFTA, the general Canadian tariff on fresh and seed potatoes was $7.72 per metric ton, and the tariff on frozen French fries and other prepared potatoes was 10 percent. Canada phased out its tariffs on potatoes and potato products from the United States over 10 years in equal reductions, until they reached zero on January 1, 1998. Orange Juice: Before CFTA, the MFN tariff on frozen concentrated orange juice (FCOJ) was 35

cents per single-strength equivalent (SSE) gallon. With URAA, the United States is decreasing its general tariff on orange juice by 15 percent over 6 years, beginning in 1995. Under NAFTA, all U.S. tariffs on Mexican orange juice are to be phased out over a 15-year transition period. Under the U.S. tariff-rate quota (TRQ), 40 million SSE gallons of FCOJ and 4 million SSE gallons of single-strength orange juice (SSOJ) may enter the United States from Mexico, each year, subject to the reduced tariff rate of half the MFN rate, which equaled 17.5 cents per SSE gallon in 1994. Mexican exports in excess of these quotas are subject to an over-quota tariff. During the first 5 years of the transition, the over-quota tariff declined 15 percent from the 1993 MFN level. Over the second 5 years, the tariff is constant. During the last 5 years, the rate declines to zero. When the over-quota rate finally falls below the in-quota rate, the over-quota rate will apply to all imports from Mexico and the quota will be eliminated. All Mexican citrus juice exports to the United States must be made entirely of fruit produced in the NAFTA countries. A snapback provision was included to protect U.S. producers from sudden surges in imports from Mexico. If these imports exceed a certain volume and if the domestic price falls below a certain level, the MFN tariff rate is automatically re-instated. For 1994-2002, the

P a g e | 68 volume threshold for 77 snapback is 70 million SSE gallons. For 2003-07, it is 90 million SSE gallons. The definition of the price threshold is far more complex. If for 5 consecutive days, the daily closing price of FCOJ on the New York futures market falls below the most recent 5-year average of the markets monthly closing price of FCOJ for the month in question, the price threshold is triggered. This calculation, however, excludes the highest and lowest monthly closing averages for the 5-year period. The price trigger was met several times in 1998. However, the volume threshold has never been met, and the snapback provision has not been put into effect. URAA tariff reductions beginning in 1995 resulted in minor adjustments to the NAFTA tariff schedule, which is based on the MFN rate. In the original schedule, the over-quota rate would have remained constant from 1999 to 2005 at 29.8 cents per SSE gallon. The revised schedule requires a slight reduction in 2000, so that the Mexican over-quota rate does not exceed the URAA MFN tariff rate of 29.71 cents. The snapback tariff rate is equal to the MFN rate, so it too must decline in accord with the URAA tariff rate. Under CFTA and NAFTA, the U.S. tariff for Canadian orange juice fell to zero in 1998. Before NAFTA, Mexico levied a tariff of 20 percent on imported orange juice. Under NAFTA, Mexico is matching U.S. changes in tariff lines and duties over the same 15-year transition period. However, the Mexican tariff on U.S. orange juice is not allowed to exceed the pre-NAFTA duty of 20 percent. Mexico also has instituted a TRQ of 194,100 SSE gallons. Before CFTA, bulk FCOJ entered Canada duty-free, but retail-ready orange juice was subject to a tariff of 3 percent. Under CFTA and NAFTA, the tariff for U.S. orange juice was reduced 10 percent per year, until it reached zero in 1998.

Apple: United States Prior to NAFTA, all apples entered the United States duty-free. There has been no change in this policy. Before NAFTA, Mexico imposed a tariff of 20 percent on fresh apples. Import licenses were eliminated in 1991. As part of NAFTA, Mexico established a tariff-rate quota (TRQ) for U.S. apples. The TRQ was initially set at 55,000 metric tons, somewhat below pre-NAFTA levels, but it will increase at a compounded annual rate of 3 percent. The within-quota tariff is being phased out over 10 years. Over-quota apples enter at the lower of Mexicos MFN duty in 1993 (20 percent) or the MFN rate in effect when the over-quota apples are imported. Phytosanitary certificates are required to export U.S. apples to Mexico due to concerns primarily regarding apple maggot. Most countries accept U.S. systems approaches for pest management as adequate protection against the threat of apple maggot. However, Mexico requires cold treatment for its imported fruit. At the beginning of the shipping season, Mexican inspectors examine the storage/treatment facilities to ensure that temperature probes are approved and properly calibrated. After the cold treatment is over, treatment records are reviewed. Apples destined for Mexico are treated at either 32 degrees Fahrenheit

P a g e | 69 for 40 days or 37.9 degrees Fahrenheit for 90 days. Due to this requirement, most U.S. apples exported to Mexico are marketed later in the season, when much of the Mexican harvest has already been sold. The 40-day treatment carries a greater risk of damage to the fruit, but it is attractive from a marketing perspective. Exports to Mexico must also be free of plant debris and soil. There is a maximum average tolerance of two leaves per box, which is more problematic for Golden Delicious apples than for Red Delicious apples. This requirement is unique to Mexico. Currently, apple exports to Mexico are limited to apples from the States of Washington, Oregon, California, Idaho, Colorado, Utah, Michigan, New York, Pennsylvania, Virginia, and West Virginia, with the exception of any area regulated for fruit flies of quarantine importance. Within these areas, only storage/treatment facilities that have been inspected and cleared by Mexican phytosanitary officials may take part in the export program, which is expensive to producers. To date, only producers in Washington, Oregon, and Idaho have participated. Producers in these States are able to spread the costs of inspection over a large volume of apples. The Northwest apple industry is charged for the cost of the Mexican inspectors, who are in residence during the entire shipping season to monitor the program. The industry collects money from shippers throughout the season to pay for the phytosanitary requirements. In November 1998, Mexico agreed to end its supervision of this inspection program. The State of 81 Washingtons Department of Agriculture and USDAs Animal and Plant Health Inspection Service (APHIS) will supervise the program, beginning with the 2001 harvest. Prior to the Canada-U.S. Free Trade Agreement (CFTA), Canada had no tariffs on U.S. apples, and this policy remains unchanged under NAFTA. Canada generally restricts bulk sales in large, nonstandard containers such as bins or trucks, which makes trade more difficult for U.S. producers. Sales of apples in containers over 25 kilograms are prohibited, unless the Canadian government grants an easement. In October 1997, the Canadian Food Inspection Agency initiated a 2-year trial allowing interprovincial shipments and imports of bulk fresh apples in bins with a net weight of up to 200 kilograms. In addition, the Agency removed all weight restrictions for apples destined for processing. No adverse consequences have been reported through 1998. A final decision whether to change the Fresh Fruit and Vegetable Regulation will be made by March 2000. Grapes: The MFN tariff on grapes is zero during April, May, and June. The tariff for July 1 to

February 14 is $2.12 per cubic meter, and the tariff for February 15 to March 31 is $1.31 per cubic meter. Under URAA, the United States agreed to reduce the tariff for February 15 to March 31 to $1.13 per cubic meter and the tariff for July 1 to February 14 to $1.80 per cubic meter. These changes are to be phased in over 6 years, beginning in 1995. With CFTA and NAFTA, the U.S. tariff for Canadian grapes was reduced 10 percent a year until it fell to zero in 1998. Under certain conditions, there is a snapback to MFN tariff levels until 2008. Upon NAFTAs implementation, the United States eliminated all of its tariffs on Mexican grapes.

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Before NAFTA, Mexico levied a tariff of 20 percent on imported grapes and required import licenses on fresh table grapes. Under NAFTA, Mexico eliminated the import licenses and replaced them with tariffs. The tariff for October 15 to May 31 was eliminated immediately upon NAFTAs implementation. The 20-percent tariff for the rest of the year will be reduced to zero over a 10-year period that began in 1994, with equal declines each year. Currently, imports from the United States must originate in areas of California without fruit-fly quarantine. Before CFTA, Canada imposed a seasonal tariff of 2.21 cents per kilogram on grapes. This tariff was limited to 15 weeks during any 12-month period ending March 31. With CFTA, the tariff declined 10 percent a year until it fell to zero in 1998. Snapback provisions apply. Cantaloupe: United States Prior to URAA, the United States levied a general tariff on cantaloupe

of 20 percent from August 1 through September 15 and 35 percent during the rest of the year. From the mid- 1980s through 1992, the United States frequently exempted fresh cantaloupe from the general tariff during January 1 to May 15. Starting in 1995, URAA-mandated tariff reductions began to phase in. Over 6 years, the general U.S. tariff on cantaloupe will fall to 12.8 percent for August 1 to September 15 and to 29.8 percent during the rest of the year. Under CFTA and NAFTA, the United States gradually reduced its tariff on Canadian cantaloupe by 10 percent a year, until the tariff reached zero in 1998. NAFTA includes a snapback to MFN tariff levels until 2008. Under NAFTA, the tariff on Mexican cantaloupes from August 1 to September 15 is being phased out over 10 years. The tariffs for May 16 to July 31 and September 16 to November 30 are being gradually eliminated over 15 years. The tariff for December through May 15 was eliminated in1994. Before NAFTA, Mexico levied a 20-percent tariff on cantaloupe imports. Under NAFTA, Mexico is matching the U.S. tariff line changes and phase-out periods. Canada had no tariff on cantaloupe before CFTA, and this policy is unchanged. Watermelon: Before CFTA, the United States levied a general tariff on watermelons of 20 percent.

Under URAA, the United States pledged to decrease the tariff for December 1 to March 31 to 9 percent and the tariff for the rest of the year to 17 percent. These reductions began in 1995 and will be completed after a 6-year transition period. Under NAFTA, the tariff for the main U.S. production period (May 1 to September 30) is being phased out over 10 years. The tariff for the rest of the year was eliminated immediately upon NAFTAs implementation. For the May-September period, the United States introduced a TRQ of 54,400 metric tons. The quota grows at a compounded annual rate

P a g e | 71 of 3 percent over the transition period. Over-quota imports from Mexico are subject to the lower of the MFN rate in place on July 1, 1991, or the current MFN rate. Under CFTA and NAFTA, the U.S. tariff on Canadian watermelon was reduced 10 percent per annum until it was eliminated in 1998. A snapback provision to MFN tariff levels applies until 2008. Before NAFTA, Mexico levied a 20-percent tariff on watermelons. With NAFTA, this tariff is limited to the same period (May 1 to September 30) as the U.S. tariff. The Mexican tariff is to be phased out over 10 years. Canada had no tariff on watermelon before CFTA. This policy is unchanged. Squash: Before CFTA, the general U.S. tariff on squash was 2.4 cents per kilogram. In accordance

with URAA, the United States is lowering its tariff on squash to 1.5 cents per kilogram by 2001. Under NAFTA, the tariff for July-September was phased out over 5 years, and the tariff for OctoberJune is being gradually eliminated over 10 years. In addition, the United States has established a TRQ of 120,800 metric tons for the more sensitive period of October-June, with an over-quota tariff equal to the lower of the pre-NAFTA MFN tariff of 2.4 cents per kilogram and the current tariff rate. The volume of the TRQ increases at an annual compound rate of 3 percent over the 10-year transition period. Under CFTA and NAFTA, the U.S. tariff on Canadian imports was reduced 10 percent per year until 1998, when the tariff reached zero. A snapback provision is included until 2008 under certain price and acreage conditions. With NAFTA, Mexico immediately eliminated its 10-percent duty on U.S. squash. Prior to CFTA, Canada levied an ad valorem tariff of 5 percent on squash. Under CFTA, the tariff declined 10 percent a year, until it fell to zero in 1998. Fresh Tomatoes: United States Prior to NAFTA, the general U.S. tariff on imported tomatoes was 4.6 cents per kilogram during March 1 to July 14 and September 1 to November 14 and 3.3 cents per kilogram for July 15 to August 31 and November 15 to the last day of February. Under NAFTA, the tariffs for Mexican tomatoes during July 15 to August 31 and September 1 to November 14 were phased out over 5 years beginning in 1994. The tariffs for March 1 to July 14 and November 15 to the last day of February are being phased out over 10 years. During this transition, a tariff-rate quota (TRQ) will be in effect for each period. In the first year of NAFTA (1994), the quota for March 1 to July 14 was 165,000 metric tons and the quota for November 15 to the last day of February was 172,300 metric tons. These quotas increase at a compound annual rate of 3 percent during the 10-year transition. Over-quota imports are charged the lower of the most-favored-nation (MFN) tariff in effect before NAFTA and the MFN rate in effect at the time of the over-quota trade. Cherry tomatoes receive separate tariff treatment under NAFTA. The tariff for cherry tomatoes for December 1 to April 30 was eliminated immediately upon NAFTAs implementation. The base tariff on cherry tomatoes from May 1 to November 30 is 3.3 cents per kilogram. This was phased out over 5 years. There is no TRQ for cherry tomatoes. Under the Canada-U.S. Free Trade Agreement (CFTA), which was subsumed into NAFTA, the U.S. tariff on Canadian tomatoes was reduced over 10 years

P a g e | 72 beginning in 1989, until it fell to zero in 1998. NAFTA also includes a snapback to MFN tariff levels until 2008 under certain price and acreage conditions. The MFN tariff is tied to the Uruguay Round Agreement on Agriculture (URAA), which requires a decrease in tariffs of at least 15 percent, to be fazed in over 6 years beginning in 1995. Tariffs for March 1 to July 14 and August 1 to November 14 decrease from 4.6 to 3.9 cents per kilogram. Tariffs for the periods of July 15 to August 31 and November 15 to the end of February decline from 3.3 to 2.8 cents per kilogram. Prior to NAFTA, Mexico imposed a tariff of 10 percent on fresh tomato imports. Under NAFTA, Mexico matches U.S. tariffs and transition periods for tomatoes. During the transition, the duty assessed on U.S. imports may not exceed Mexicos pre-NAFTA duty. Prior to CFTA, the seasonal Canadian tariff on imported tomatoes was 5.51 cents per kilogram, but not less than 15 percent ad valorem. Under CFTA and NAFTA, the Canadian tariff decreased 10 percent per year until it fell to zero in 1998. The seasonal tariff could be divided into two separate periods, which could not exceed a total of 32 weeks in any 12-month period 55ending March 31. The agreement also includes a snapback provision to MFN tariff levels until 2008 under certain price and acreage conditions. Processed Tomatoes: United States Prior to CFTA, U.S. duties on processed tomato products

ranged from 7.5 percent (for ketchup) to 14.7 percent (for tomatoes, whole or in pieces, and preserved otherwise than by vinegar or acetic acid). The pre-CFTA tariff for tomato juice was 0.3 cents per liter, and the pre- CFTA tariff for other tomato products (purees, pastes, and sauces) was 13.6 percent. URAA reduced these duties by 15 percent over 6 years, beginning in 1995. With the implementation of NAFTA, the U.S. tariff on tomato juice and ketchup from Mexico was immediately set to zero. In addition, there was an immediate decrease to a new tariff base of 11.5 percent for tomato purees, pastes, and sauces. Under NAFTA, U.S. duties on processed tomato products from Mexico are scheduled to be phased out over a 10-year period. In 1998, U.S. tariffs on Mexican tomato products were as follows: --Tomatoes, whole or in pieces, 7.3 percent. --Ketchup and juice, no duty. --Paste, puree, miscellaneous sauces (HS chapter 20), 5.7 percent. --Sauces described in HS chapter 21, 6.8 percent. Under CFTA, the duty on Canadian processed tomatoes decreased 10 percent per year, starting in 1989, until all tariffs reached zero in 1998. Thus, Canadian tomato products now enter duty free. Before NAFTA, Mexicos duty on imported tomato paste was 20 percent. Under NAFTA, Mexico lowered its duties to match U.S. levels. Canada In 1989, Canada instituted a 10-year phase out of its

P a g e | 73 13.6-percent tariff on U.S. processed tomatoes. For tomato ketchup and other sauces, Canada phased out the pre-CFTA tariff of 15 percent on U.S. product over 10 years, until it reached zero in 1998.

6. Factor Movement Within Trade Union: Labor: Negotiated in 1993 by Canada, Mexico, and the United States, the North American Free Trade Agreement (NAFTA)s supplemental labor pact, the North American Agreement on Labor Cooperation (NAALC), sets forth eleven Labor Principles that the three signatory countries commit themselves to promote: 1) Freedom of association and protection of the right to organize 2) The right to bargain collectively 3) The right to strike 4) The abolition of forced labor 5) The abolition of child labor 6) Minimum wage, hours of work, and other labor standards 7) Nondiscrimination

P a g e | 74 8) Equal pay for equal work 9) Occupational safety and health 10) Workers compensation 11) Migrant worker protection The signers of the NAALC pledged to effectively enforce their national labor laws in these eleven subject areas, and agreed to open themselves to critical reviews of their performance by the other countries. It is worth noting that these subjects range far beyond the core labor standards recently elaborated by the International Labor Organization (ILO). The ILOs definition is limited to organizing and bargaining rights, forced labor, child labor, and discrimination (ILO 452 Antipode 1998). Nonetheless, the NAALC failed to address critical issues of development assistance or worker migration, for example, and did not develop a strategy for upward harmonization of labor standards, emphasizing instead effective enforcement of national law. USA: About 146 million people in the United States were working in paid jobs at the end of 2006, with another 7 million unemployed; the 153 million total makes up the world's third largest labor force, after China's and India's. Nearly two-thirds of U.S. working-age people participate in the labor force. Males and females each account for about half. About 15 percent of them are foreign born. Some 5 to 6 percent of them work more than one job. The private sector employs most U.S. workers, 85.5 percent, and governments employ the rest. A lot of people are self-employed, more than 10 million in 2005, although some of them split their time between working for other people and for themselves. Most working people work for someone else in nearly 6 million U.S. companies. U.S. workers are flexible, people changing jobs. In 2005 only 12 percent of unemployed U.S. workers could not find work within a year, compared to 46 percent in the European Union. Although U.S. workers have long had the right to organize, only 12 percent of them were labor union members in 2006, down from about 35 percent half a century earlier. The biggest group of U.S. workers comprises nearly 23 million in office and administrative support jobs, such as telephone receptionists, secretaries, and hotel clerks. The groups of workers getting the highest average wages, more than $80,000 a year, have jobs in management and law. The people getting the lowest average wages, less than $20,000 a year, work in food preparation and service. Canada:

P a g e | 75 The working-age population is divided into three mutually exclusive groups: employed, unemployed and those not in the labor force. People in the first two groups are considered active in the labor market. The third groupthose not in the labor forceis not often examined despite its large size. It comprised 8.2 million people in 2003, more than six times higher than the number of unemployed. The people who are out of the labor force are a heterogeneous group. In 2003, the not in the labor force group mainly included people aged 65 and over (44%), students not wishing to work (14%), and women who had children under 18 years of age and did not want a job (8%). That year, discouraged searchers (people who wanted work but did not look because they thought none was available) accounted for less than 1% of the population who were not in the labor force. The not in the labor force group has declined steadily as a proportion of the working-age population, dropping from about 38% in 1976 to 32% in 2003. However, this trend is likely to reverse itself in the future, owing to an aging population and an anticipated surge in the number of retirees Mexico: In order to highlight the important changes that have occurred in the rate of activity for men and women, we look at a long period of time from 1995 to 2007. In this interval, the overall rate of activity for people 14 years and older underwent important changes: it rose from 36.8 to 41.4 for women, while for men it went from 80.8 to 78.1. For men the tendency for rates of participation to fall was most pronounced in the youngest and oldest groups. For women, the fall in rates of participation is only observable in the youngest groups (younger than 25 years), since in all of the age groups there was a significant increase. This is reflected by the breakdown by civil society position for the Economically Active Population. Thus, for 1995, 40.6% of employed women were single, while 46.1% were married. In 2007, the percentage of single women had fallen to 35.2%, while married women rose to 50.6%. The number of respondents per home also reflects the greater participation of women. According to data from the National Survey of Household Income and Spending the rate of respondents per family went from 1.8 to 2.1 between 1996 and 2006. The above evidences a strategy of homes to obtain increased income, which translates into increased engagement in employment. The proportion of salaried workers in all jobs by age group also underwent significant changes, with relative levels for both men and women rising. Between 1995 and 2007, the overall rate of salaried employment for men went from 58% to 66%, while for women it rose from 59% to 65%. More than half of the salaried workers were under thirty years of age in 2007; in the case of women, more than half were younger than thirty-five. The shape of both curves shows a systematic decline in the rates of salaried employment, with the peak in the 20-24 year-old age range. This pattern can be explained by a tendency towards self-employment and to the withdrawal of older workers from the workforce.

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Investment: Canada is the largest single nation trading partner of the United States. In 2006, total merchandise trade with Canada was $533.7 billion (a 6.9% increase over 2005), consisting of $303.4 billion (5.4% over 2005) in imports and $230.3 billion (8.9% over 2005) in exports.2 In 2006, nearly $1.5 billion in goods crossed the border each day. Trade with Canada represented nearly 18.5% of U.S. total trade in 2006, with Canada purchasing 22.2% of U.S. exports and supplying 16.4% of total U.S. imports last year. While Canada is an important trading partner for the United States, the United States is the dominant trade partner for Canada. The United States supplied 65% of Canadas imports of goods in 2006, and purchased 79% of Canadas merchandise exports. Trade is a dominant feature of the Canadian economy. While in the United States, the value of trade (exports + imports) as a percentage of GDP was about 21.8% in 2006, the comparable figure for Canada was nearly 60%. Canadas good exports represent 31.9% of Canadian GDP and exports to the United States alone represent 26.9% of Canadian GDP. A further 18.2% of Canadian GDP is used to purchase U.S. goods. Canada is relatively more exposed to the world economy and to the fortunes of other economies, foremost the United States, than most other countries. Direct investment in Mexico has increased under NAFTAtotaling some US$153 billion up to 2002- but it is not well integrated into the country's national productive chains and therefore has not produced the promised multiplier effects in terms of growth and employment. It has been mainly concentrated in the manufacturing export sector, in banking, and in commerce. There was virtually no foreign investment in the Mexican countryside, just a bare 0.25% during the entire NAFTA period. So the gap between Mexico's poor and marginalized areas and those that enjoy greater wealth has been widened by NAFTA, not narrowed.

Capital Market: USA: U.S. exchanges share of equity raised in global public markets, through IPOs and secondary offerings, reflects the relative attractiveness of the U.S. public market for both domestic and foreign issuers. The share of the principal U.S. exchanges has significantly dropped from 28.8% in 2002 to 19.2% in 2007 (through October). The U.S. share was 16.8% in 2006. The trend is the same using a different data source with a longer time series. According to this second source, the U.S. share of equity raised in global public markets was 22.0% in 2007, down from its average of 33.2% in the

P a g e | 77 period from 1996 to 2005. In 2006, the U.S. share was also 22.0% The U.S. share of Global IPOs IPOs done by non-U.S. companies on an exchange outside their respective countries of domicile, or privately offered in the U.S. via SEC Rule 144Areflects the relative attractiveness of our public equity markets to foreign companies. The measure is especially telling because foreign companies more so than U.S. companiesmust choose to come to the U.S. Since 1996, the U.S. share of Global IPOs has dramatically dropped. In the first nine months of 2007, just 10.1% of Global IPOs were listed on a U.S. exchange, compared to 44.5% in 1996 and an average of 21.2% in the period from 1996 to 2005. Similarly, U.S. exchanges have captured just 7.7% of the total value of Global IPOs Canada: The market capitalization of the 200 largest listed issuers accounts for more than 88% of the total market capitalization of all TSX- and TSX Venture Exchange- listed companies. There are more than 1000 listed companies in Canada (approximately 29% of the companies for which data is available) with market capitalization of less than $5 million, plus another 385 companies (about 11%) with market capitalization of between $5 million and $10 million. The market capitalization of the smallest 2000 listed issuers (about 57% of the total number of listed companies) accounts for less than 9% of the total market capitalization of all TSX- and TSX Venture Exchange-listed companies. This suggests that Canadian issuers are compelled (or incentivized) to go public at an earlier stage in their development than U.S. firms.

Mexico: The BOM auctions two principal long-term government securities: Bondes (Bonos de Desarollo) and Ajustabonos. Bondes are development bonds with roughly three-year maturities. They have a face value of 100 pesos and are sold at a discount. They pay interest every 28 days and are indexed to the three-month Cete yield. Ajustabonos are three- and five-year bonds whose interest payments and redemption at maturity are indexed to inflation in order to guarantee a real return. Ajustabonos pay interest quarterly based on a 100 peso par value adjusted for inflation. Mexico's privatized pension funds, Afores, are the major buyers of Mexican long-term government securities. In December 1997, Bondes and Ajustabonos represented approximately 30 percent of outstanding public sector debt instruments. FTZ (Free Trade Zone):

P a g e | 78 USA: The US-FTZ Board is a branch of the US-Commerce department and has been the regulator of US FTZ since their establishment in 1934. There have been numerous changes in legislation and regulation, especially during the 1980s when US value-added (i.e. labor, overhead, profit) was excluded from the calculation of value of goods for the purpose of assessing duty payable on goods released into the US-domestic economy. There are two types of US foreign trade zones: general purpose zones and special-purpose subzones. General-Purpose Zones (GPZ): It operates under public utility principles under

the sponsorship of a corporation granted authority by the US-FTZ Board and supervised by US-Customs. General-purpose zones are usually located in industrial parks or in seaport and airport complexes with facilities available for use by the general public. Special-Purpose Subzones: subordinate to a particular GPZ, and typically a part of a single company's operations used for their exclusive use. Subzones are single-purpose sites for operations that cannot be feasibly moved to, or accommodated in, a general purpose zone (e.g. oil refining and automobile manufacturing). In 2007, there were 382 approved US-FTZ (126 GPZ and 256 subzones) of which 161 were in active use. Annual shipments in 2007 from US-FTZ were US$502B with employment of 300,000. However, the value of export shipments was only US$32B (6%) and the ratio of FTZ exports-to-imports was only 22%, indicating that the focus of the FTZ program was clearly more on import-facilitation than on export-facilitation. Close to 5% of US-imports flow through FTZ. Technically, a US-FTZ is not considered to be within the US-Customs territory. An FTZ operator must use an Inventory Tracking System to track and account for all goods in an FTZ and provide goods to be removed from the zone.

Canada:

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There are currently no FTZs in Canada. The closest parallel to a FTZ in this country is a combination of the Export Distribution Centre (EDC) Program and the Duty Deferral Program. These programs are administered by the Minister of National Revenue, the Canada Revenue Agency (CRA) and Canadian Border Services Agency (CBSA). Any companies that want to utilize both the EDC Program and the Duty Deferral Program must apply separately to each respective department and agency. In addition to having a multi-application approach, these programs have restrictions on valueadded activity, focus solely on re-export and receive limited government promotion to generate awareness among trade officials and industry. Subsequently, Canada is the last G-8 nation to enact the trade incentives offered through a FTZ program and was behind a number of OECD and developing nations. FTZs offer a flexible, streamlined and profitable approach to the movement of goods and services that will encourage Canadian businesses to take advantage of manufacturing, storage, distribution, value-added, domestic and re-export trade opportunities. An effective and efficient FTZ program will ultimately increase Canadas competitiveness in the global supply chain.

Mexico: There were 98 general purpose FTZs and 206 subzones located in the Alliance Region as of February 2003. Approximately 200,000 persons are employed at more than 1,200 firms that operate in the Alliance Region under FTZ status. The combined value of shipments into Alliance Region general purpose zones and subzones totaled $148.4 billion in 2001. This represents 61.6 percent of the U.S. total for all general purpose zones and subzones. The level of domestic status inputs (62 percent) used by FTZ operations indicates that FTZ activity tends to involve domestic operations that combine foreign inputs with significant domestic inputs. Exports (shipments to foreign countries) from Alliance Region facilities operating under FTZ procedures amounted to $10.0 billion and shipments to the U.S. comprised $140.7 billion. Some 85 percent of zone activity took place at Alliance Region subzone facilities, which is consistent with the historical pattern in the region and for the rest of the U.S.

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7. Discussion And Analysis Findings: The North American Free Trade Agreement or NAFTA is an agreement signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the Canada-United States Free Trade Agreement between the U.S. and Canada. In terms of combined purchasing power parity GDP of its members, as of 2007 the trade block is the largest in the world and second largest by nominal GDP comparison. The North American Free Trade Agreement (NAFTA) has two supplements, the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC). Official languages - English, French and Spanish Membership - Canada, Mexico, United States Area - Total21,783,850 km (1st) Population - 2008 estimate445,335,091 (3rd) GDP 2007 estimate - Total$15,857 billion (1st) After scrutinizing, we have found that NAFTA is applicable to the theory of absolute advantage, Theory of comparative advantage, Heckscher-Ohlin theory, the product life-cycle theory and the new trade theory. Eventually the elimination of the barriers to trade is the most fundamental objective of the North American Free Trade Agreement (NAFTA). Barriers take two basic forms: taxation (tariffs) and non-tariff barriers (NTB). NAFTA affects bilateral trade flows among the United States, Canada or Mexico because it eliminates tariffs and many nontariff barriers to trade. Despite the substantial tariff reduction and elimination agreed in the NAFTA, the U.S. retains a number of significant duties and tariff peaks in various sectors including food products, textiles, footwear, leather goods, ceramics, glass, and railway cars. Because of this; Canada, Mexico and USA has some sort of import and export policies which are practiced through Copyright and Related Areas, Tax Discrimination, Foreign Direct Investment Limitations, Subsidies, Trade Defiance Instruments, Regulatory Divergences, Import Prohibitions , Sanitary and Phytosanitary Measures, Public Procurement, Appellations of

P a g e | 81 Origin and Geographical Indications, Patents-Trademarks and Related Areas, Communication Services, Business and Financial Services, Agricultural Supply Management, Ministerial Exemptions, Personal Duty Exemption, Wine and Spirits etc. The trading relationship between United States and Canada represents the largest bilateral flow of income, goods, and services in the world. Since the implementation of the Canada-US Free Trade Agreement in 1989, trade has nearly tripled. Mexico is the U.S.s second largest trading partner after Canada and Mexico-US trade has increased by over 225 percent since the North American Free Trade Agreement of 1994. Since NAFTA, the two-way trade between Canada and Mexico more than doubled from $6.5 billion to $15.1 billion. Canada is Mexicos second most important export market, and Mexico has become Canadas fourth most important export market. NAFTA nations trades various products like cattle, beef, pork, hog, poultry, corn, sorghum, barley, oat, wheat, rice, oilseed, dry beans, cotton, sugar and sweeteners, bell peppers, cucumber, fresh and processed potatoes, orange juice, apple, grapes, cantaloupe, watermelon, squash, fresh tomatoes, processed tomatoes. Factor Movement within NAFTA nations are basically of labor, investment and capital. For Labor movement, negotiated in 1993 by Canada, Mexico, and the United States, the North American Free Trade Agreement (NAFTA)s supplemental labor pact, the North American Agreement on Labor Cooperation (NAALC), sets forth eleven Labor Principles that the three signatory countries commit themselves to promote. The signers of the NAALC pledged to effectively enforce their national labor laws in these eleven subject areas, and agreed to open themselves to critical reviews of their performance by the other countries. For Investment, Canada is the largest single nation trading partner of the United States. In 2006, total merchandise trade with Canada was $533.7 billion, consisting of $303.4 billion in imports and $230.3 billion in exports. Direct investment in Mexico has increased under NAFTAtotaling some US$153 billion up to 2002--but it is not well integrated into the country's national productive chains and therefore has not produced the promised multiplier effects in terms of growth and employment. And as for Capital market, U.S. exchanges share of equity raised in global public markets, through IPOs and secondary offerings, reflects the relative attractiveness of the U.S. public market for both domestic and foreign issuers. The market capitalization of the 200 largest listed issuers accounts for more than 88% of the total market capitalization of all TSXand TSX Venture Exchange- listed companies. The BOM auctions two principal long-term government securities: Bondes (Bonos de Desarollo) and Ajustabonos. Bondes are development bonds with roughly three-year maturities. The US FTZ (United State Free Trade Zone) Board is a branch of the US-Commerce department and has been the regulator of US FTZ since their establishment in 1934. There are two types of US foreign trade zones: General purpose zones and Special-purpose subzones. There are currently no FTZs in Canada. The closest parallel to a FTZ in this country is a combination of the Export Distribution Centre (EDC) Program and the Duty Deferral

P a g e | 82 Program. There were 98 general purpose FTZs and 206 subzones located in the Alliance Region. The level of domestic status inputs (62 percent) used by FTZ operations indicates that FTZ activity tends to involve domestic operations that combine foreign inputs with significant domestic inputs. Critics of NAFTA: Though NAFTA have many successes within the three countries critics of NAFTA have found some contradictory issues which affects the image of NAFTA.

Job loss occurred in NAFTA nations when the employer is unable to compete in the international marketplace or enhances plant and equipment to compete more effectively, thereby necessitating fewer employees for the same productive operations. In short, the employee is discharged from the enterprise. Labor intensive enterprises may experience increasing difficulty competing against the relatively lower Mexican wage rates. Given this generalization, it is reasonable to conclude that firms in such labor-intensive industries as furniture, glass products, shoes, and textiles may experience loss of jobs to Mexico, while such capital intensive industries as chemicals, plastics, metals, pharmaceuticals, and telecommunications may be expected to fare well in the NAFTA era.

Displacement occurred as a worker must acquire different, enhanced, or new skills in order to maintain a present job, or must secure a different job in his or her company. This may require retraining, sometimes at the worker's expense, extended periods of time between jobs, and possibly entering the new job at a level lower than the worker occupied at the previous job.

Even if workers find new jobs, the positions pay less and have fewer benefits. Manufacturing wages in U.S. states that trade extensively with Mexico to U.S. states that do not. Average weekly earnings (not adjusted for inflation) for all U.S. manufacturing workers rose by 26 percent over the period 19972006, when NAFTA was almost fully implemented. Four of the top five U.S. states, in terms of trade with Mexico, recorded wage growth higher than the national average.

Applied to NAFTA, critics point to the growing U.S. trade deficit as evidence of failure. The U.S. trade deficit with its NAFTA partners grew from $7 billion in 1993 to $138 billion in 2007. Most importantly, net U.S. energy imports from Canada and Mexico increased by $81 billion, and now account for more than two-thirds of the U.S. deficit with its NAFTA partners. Excluding energy trade, the 2007 U.S. merchandise trade deficit with Mexico was $47 billion, and the United States ran a $4 billion surplus with Canada.

Mexico's economy has not recovered fully from the crisis triggered by the peso devaluation in December 1994. The harsh adjustment program that followed brought about the worse recession in sixty years, an economy wide payments crisis and the fraudulent bailout of the banking system.

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Performance and Relationship of NAFTA as Cooperation: Structure of NAFTA Trade: Trade patterns within the NAFTA conform largely to a hub-and spoke structure, with the U.S. located at both the geographical and the economic centre of the continent. Bilateral trade flows are largest between the U.S. and Canada, and are also large between the U.S. and Mexico. Bilateral flows are small between Canada and Mexico. Canada and Mexico are the largest trading partners of the U.S.and, of course, the U.S. is the largest trade partner for each of Canada and Mexico. Not surprisingly, relative to GDP intra- NAFTA trade is most important to Canada and Mexico, accounting for roughly 60 and 50 percent of national GDP, respectively, and far outstripping each countrys trade with the rest of the world. In contrast, intra-NAFTA trade flows are equivalent to just 6 percent of U.S. GDP, and account for less than one-third of Americas total foreign trade. This reinforces the conclusion that the implementation of the NAFTA was a much more significant event in Canada and Mexico, than it was in the U.S. Expansion of Trade: Intra-NAFTA trade expanded notably in each of the three member countries following the transition to free trade on the continent, although that expansion was most dramatic for Canada and Mexico. Canadas trade within North America has roughly doubled since the advent of the Canada-U.S. FTA, measured as a share of domestic GDP: from about 30 percent in the late 1980s, to 60 percent by 2000. Since Canadas trade with the U.S. is about 45 times larger than its trade with Mexico, almost all of this expansion must be attributed to the post-FTA expansion in Canada-U.S. trade, rather than to the subsequent effects of the NAFTA. In contrast, Canadas foreign trade flows with the rest of the world did not increase at all during the last decade (despite the general process of economic integration at the global level), indicating that for Canada the growth of intra-NAFTA trade may have been a substitute for other trade relationships. In Mexico, on the other hand, an equally dramatic expansion in the importance of intra-NAFTA trade was complemented by a significant expansion in trade with non-NAFTA partners. This is consistent with the conclusion that for Mexico the NAFTA represents part of a broader package of deregulatory initiatives, which served to open Mexican markets in a broader sense. Finally, in the U.S. case, the discrete impacts of the FTA and the NAFTA are not even perceptible in trade data, which indicate a longer-term, more gradual expansion in the relative importance of foreign trade with both NAFTA and non-NAFTA partners. Trade Imbalances: Merchandise trade flows within North America are characterized by significant bilateral imbalances. These imbalances have fueled arguments, especially in the U.S., that NAFTA trade flows undermine domestic employment and output levels. The U.S. experiences large merchandise trade deficits with both of its NAFTA partners: some $55 billion (U.S.) with Canada in

P a g e | 84 2000, and roughly half that much with Mexico. In each case, the imbalance represents over just onetenth the total value of the two-way trade flow. Proportionately, the bilateral flow between Canada and Mexico is the most unbalanced, with Canadas merchandise trade deficit equivalent to a full 70 percent of the value of total bilateral trade. Employment: There has been much debate in all three NAFTA countries regarding the aggregate employment impacts of continental free trade. Within Canada, the Canada-U.S. FTA was widely blamed for a precipitous decline in manufacturing employment during the first years of that agreement; Canada lost nearly 20 percent of its manufacturing employment during the first four years of the FTA, in an unprecedented wave of plant closures and industrial restructuring. In retrospect, much of this decline was the result of a very aggressive anti-inflation monetary policy that was implemented in Canada during the same period, and while the FTA clearly sparked a one-time process of adjustment in Canadian industry it cannot be argued to have promoted a broad deindustrialization in Canada. Later in the 1990s Canadian manufacturing expanded strongly, and Canadas share of total North American manufacturing grew; by 1998 manufacturing employment in Canada exceeded its pre-FTA peak. On the other hand, U.S. labor market conditions have been the strongest of the three NAFTA countries during most of the post-NAFTA period. In Mexico, meanwhile, the promise that the NAFTA would spark a wave of job-creation in export-oriented industries has been unfulfilled. Export-oriented employment did expand in the late 1990s, especially in the northern border zone of maquiliadora export production facilities; but the number of new jobs created in those industries remained relatively trivial relative to the overall size of Mexicos labor market. In none of the three countries, therefore, can a convincing argument be made that continental economic integration has had a major impact on labor markets, whether positive or negative. While trade and investment flows are obviously an important determinant of employment patters, overall labor market conditions in each country continue to reflect other more important factors. Economic Growth: It is hard to argue that continental free trade has had any perceptible impact on real economic growth rates on the continent, which also continue to reflect primarily domestic factors. None of the NAFTA-member countries have exhibited stronger economic growth in the wake of continental free trade, than before it. This finding seems particularly damaging to the claim of NAFTA proponents that pro-competitive structural changes in the Mexican economy, implemented in conjunction with the NAFTA, would significantly enhance economic growth there. Mexicos growth under the NAFTA has been no stronger than in previous periods indeed, Mexican growth under NAFTA has been no faster than average growth rates recorded elsewhere in Latin America during this time.

P a g e | 85 Structural Change in Mexico: The negotiation and implementation of the NAFTA was a key part of a broader effort by Mexicos government and business leaders to restructure the national economy more closely along neoliberal linesand to signal forcefully to the rest of the world that this restructuring was both thorough and permanent. The very day of NAFTAs inauguration (January 1, 1994) marked the beginning of a campaign of armed insurrection and political mobilization by the radical Zapatista National Liberation movement (based in the southern Mexican state of Chiapas). Another financial peso crisis in 1995 was the culmination of large and unsustainable financial capital flows which had inundated Mexico in anticipation of the NAFTA. Another indirect but important impact of the NAFTA on Mexico could prove to be its influence on political and democratic processes. After seven uninterrupted decades of rule, the PRI was defeated in the 2000 federal election by the right-wing Partido de Accion Popular (PAN), led by Vicente Fox Quesada. The NAFTA is often credited with playing a supporting role in these democratic improvements, since all sides within Mexico understand that perceived violations of democratic process in Mexico would have probable repercussions for Mexicos increasingly important economic links with the U.S. Sustainability and Expansion of NAFTA: The North American Free Trade Agreement or NAFTA has better sustainability as a trade block which shows promise and future prosperity. So, increase in trade, GDP and reduction of internal dispute among the three nations are the factors that determine the sustainability of NAFTA. The NAFTA has had a significant impact on the structure of trade flows within North America, but no visible effect on aggregate economic activity or employment. The prospects for the expansion of NAFTA to include other countries in the Western Hemisphere, or for the deepening of the NAFTA to include topics such as monetary integration or greater freedom of migration, seem relatively less possible than other trade unions. Motives for being NAFTA members: The three governments put down a series of resolutions for any country desires to be a NAFTA member: a) Eliminate barriers to trade in goods and services, and facilitate their cross-border movements between the territories of the member countries; b) Promote conditions of fair competition in the free trade area; c) Increase substantially investment opportunities in the territories of the member countries; d) Provide adequate and effective protection, and enforcement of intellectual property rights in each member country's territory;

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e) Create effective procedures for the implementation and application of the agreement, for its joint administration and for the resolution of disputes; and f) Establish a framework for further trilateral, regional and multilateral cooperation to expand and enhance the benefits of the agreement.

As if things were not complicated enough, NAFTA is supported by a series of national legislation to allow internal modifications, letters, statements and regulations such as: a) Domestic legislation used to implement NAFTA obligations into domestic laws in Canada and the USA; b) Supplemental agreements to NAFTA on the environment and labor, and the trilateral understanding on emergency actions, signed on 14 September 1993; c) Letters by NAFTA member countries clarifying or modifying some provisions in the initial agreement; d) A statement of Administrative Action produced by the American Administration which sets out its position regarding the implementation of the agreement; e) A statement of Government Action issued by the Canadian government which sets out its position on key NAFTA implementation and interpretative questions; f) Several internal regulations by NAFTA member countries dealing with the agreement;

g) Rulings of panels on the provisions of the General Agreement on Tariffs and Trade GATT and the Canada-USA Free Trade Agreement (FTA) which were then incorporated into NAFTA. Common Facts of NAFTA members: For comparison within North America or NA, the role of national politics should be explained by taking into consideration the political asymmetries prevailing among NAFTA members, and the differences in their respective political systems. As the time and rhythm of NA regionalism has remained heavily dominated by Washingtons interests and calculations. Neither Canada nor Mexico together could counterbalance the disproportional weight of the US economy and of Washingtons politics. Even though Canada and Mexico share the same challenge of being neighbors of the worlds main super power, their respective bilateral agendas with Washington do not necessarily converge. On sensitive issues such as migration and border security, Canadians and Mexicans have different problems and priorities with regard to their common neighbor. Relations between Canada and the United States span more than two centuries, sharing British colonial heritage, conflict during the early

P a g e | 87 years of the United States, and the eventual development of one of the most successful international relationships in the modern world. Each is the other's chief economic partner, and indeed the two economies have increasingly merged since the North American Free Trade Agreement (NAFTA) of 1994. In addition, there has always been large scale immigration between the two nations and since 1900 large-scale tourism as well. Canada and the United States are currently the world's largest trading partners, share the world's longest un-militarized border, and have significant interoperability within the defense sphere. CanadaMexico relations are relations between Canada and the United Mexican States. Despite the fact that historic ties between the two nations have been coldly dormant, relations between Canada and Mexico have positively changed in recent years; seeing as both countries brokered the NAFTA. The United States is a multicultural nation, home to a wide variety of ethnic groups, traditions, and values. Aside from the now small Native American and Native Hawaiian populations, nearly all Americans or their ancestors immigrated within the past five centuries. Canadian culture has been greatly influenced by immigration from all over the world. Many Canadians value multiculturalism and see Canada as being inherently multicultural. However, the country's culture has been heavily influenced by American culture because of its proximity and the high rate of migration between the two countries. Mexican culture reflects the complexity of the country's history through the blending of pre-Hispanic civilizations and the culture of Spain, imparted during Spain's 300-year colonization of Mexico. As for common interest between USA, Canada and Mexico, apart from NAFTA, are the UN, G8+5, Organization for Economic Co-operation and Development and Organization of American States, Asia-Pacific Economic Cooperation, G-20, International Chamber of Commerce, International Monetary Fund, International Olympic Committee, Interpol, UNESCO, World Bank, World Health Organization, World Trade Organization, Security and Prosperity Partnership of North America. USA and Canada are the members of NATO. The United States, Canada and Mexico territory consists of three separate parts, different in size, natural features, level of development. The main part, the United States consists of an area of 7,800,000 square kilometers. The geography of Canada is vast and diverse. Occupying most of the northern portion of North America (41% of the continent), Canada is the world's second largest country in total area. Mexico is located in a region known as Middle America. For economic growth; USA has GDP (PPP) 2009 estimate- Total $14.256 trillion, and Per capita $46,381. And GDP (nominal), 2009 estimate- Total $14.256 trillion, Per capita $46,381. For Canada, GDP (PPP) 2009 estimate- Total $1.281 trillion, Per capita $38,025. And GDP (nominal)

P a g e | 88 2009 estimate- Total $1.336 trillion, per capita $39,668. For Mexico, GDP (PPP) 2010 estimate- Total $1.541 trillion, Per capita $14,495. And GDP (nominal) 2010 estimate- Total $1.085 trillion, Per capita $10,211. Dominance in NAFTA: The NAFTA is dominated, both economically and politically by the United States, which accounts for about 70 percent of its population, and nearly 90 percent of its economic output. Consequently, the negotiation and implementation of the NAFTA were much more important events in Canada and Mexico, than in the U.S. itself. For both of those countries, the implementation of free trade with their much-larger neighbor was an event of decisive historical importance, culminating a decades-long evolution in their respective bilateral relationships with the U.S. And for both countries, the decision to embark on a course of tighter continental economic integration marked a defining moment in their national histories. For the U.S., on the other hand, the implementation of a North American free trade zone represented an important but hardly periodical development, one which mostly served to reinforce its already-existing economic and strategic dominance on the continent. Despite their increasingly tight economic relationships, great economic and political differences continue to exist between the three NAFTA members the U.S. economy is the richest of the three, measured in per capita incomes, and its political-economy reflects an extreme of deregulation and market orientation that is unique in the industrialized world. Canadas economy is somewhat less developed than that of the U.S. (although it still ranks in the top ten nations of the world, according to per capita income), and has traditionally exhibited a more mixed pattern of development, with a larger economic role. Mexico is a middle-income, industrializing economy. Its average per capita real income is roughly one-quarter that of the U.S. and income inequality is twice as severe in Mexico as in the U.S., where inequality in turn is twice as severe as in Canada. Both Mexico and Canada continue to rely on the production and export of a range of natural resource staples (especially energy, and especially to the U.S. market) as an important economic activity, and both have also taken active measures to stimulate the development of value-added manufacturing industries (with Mexico relying on its abundant and relatively inexpensive labor resources, and Canada attempting to develop emerging higher technology capacities).

Future Prospects of NAFTA:

P a g e | 89 Despite initial debates within each country regarding the desirability of continental economic integration, the NAFTA now seems well-established as a central fixture of the North American economy. The future projections of NAFTA are: Increase In Jobs/Growth Of Industries: The strongest, if not the most histrionic, hyperbole in the NAFTA debate was the issue of the potential loss of jobs and industries due to NAFTA. Some jobs have been lost and will undoubtedly be lost because of NAFTA in both the U.S. and Mexico, particularly in labor-intensive industries. But, on balance, NAFTA is expected to produce a net gain in jobs. One of the better analyses of the impact of NAFTA on U.S. industry is a study by Fortune magazine. That study presents a forecast for twelve U.S. industries following the passage of NAFTA and predicts an increase in exports by all twelve industries. An increase in exports may be expected to bring an increase in jobs because trade is a positive-sum game in which all parties stand to gain, and there is no natural limit to the number of jobs that can be created by it. This does not, however, imply that there will be no loss of jobs in some companies and in some industries as the result of NAFTA. Stability And Growth In Mexico: Passage of NAFTA was important for Mexico. It facilitated the continuation of economic and political reforms in Mexico. It was America's best assurance that its large neighbor to the south will continue to develop into a stable and prosperous nation. But, if NAFTA had not been adopted, scenarios included a potential collapse of the Mexican economy, a reversal of economic and structural reforms, a run on the Mexican currency, a drying up of foreign investment in Mexico, and a nationalist backlash by the people of Mexico. Castaneda discounts the seriousness of these scenarios and suggests that the only downside to a defeat of NAFTA would have been damage to the prestige of former Mexican President Salinas. Interestingly, while NAFTA was passed, it has not prevented the recent damage to Salinas' prestige. Now, the new Mexican President, Ernesto Zedillo Ponce de Leon, needs a successful NAFTA to persuade voters that the pain of Salinas' economic reform program will have a payoff. Protect And Stimulate U.S. Investment: Passage of NAFTA was important for the United States because U.S. firms had significant investments in Mexico. In August 1993, U.S. firms invested $615 million in Mexico; 72% of all foreign investment that month. In total, foreign investment in Mexico from 1989 through August 1993 was $33.09 billion, of which an estimated $24 billion was by U.S. firms. The passage of NAFTA protected this investment, is expected to stimulate additional U.S. investment in Mexico, to provide additional markets for U.S. products, to increase jobs, and to enhance the standards of living in both the U.S. and Mexico. Success with NAFTA will stimulate further investment in Mexico and provide a doorway to the rest of Latin America. Pre and Post NAFTA prospects:

P a g e | 90 The North American Free Trade Agreement (NAFTA) went into effect on January 1, 1994. At first blush, NAFTA appears to be a stunning success in the areas it was most directly concerned with, namely, international trade and foreign investment. The bilateral trade of the United States with both Canada and Mexico grew rapidly in the 1990s (especially between 1993 and 2000), although it leveled off after 2000. United States had increasing bilateral trade deficits with both Canada and Mexico, especially between 1990 and 2000 with the former and between 1993 and 2003 with the latter. The U.S. importexport ratios with Canada and Mexico were smaller than the averages for all countries in both 1993 and 2003although the ratio with Mexico deteriorated relatively more than the ratio with Canada over this decade. Net capital flows (as measured by the financial account balance) into Mexico have been strongly positive throughout most of the period since 1990, except for the crisis and recovery years of 199596. Also, there was a notable change in the composition of net financial inflows after 1994. Most of the inflows Mexico received in the early 1990s were composed of hot money or portfolio capital that quickly fled the country during the panic of 199495. Foreign direct investment (FDI) inflows were relatively small prior to 1994. Since 1994, however, FDI has accounted for the bulk of Mexicos net financial inflows. One important indicator is the trend in employment in Mexicos export-oriented maquiladora plants. Between 1993 and 2003, such employment rose by 520,031 workers (from 542,074 to 1,062,105), as an increase of 749,158 from 19932000 was followed by a loss of 229,127 from 2000 2003. About 879,280 jobs were lost in the United States as a result of the worsening of the U.S.Mexican and U.S.Canadian trade balances combined between 1993 and 2002, of which 486,190 can be attributed to the increased U.S. trade deficit with Mexico and 393,090 to the increased deficit with Canada. While public attention has focused mainly on NAFTA, real exchange rate fluctuations for the three North American currencies have been an order of magnitude larger than the tariff reductions enacted by that trade agreement. The Mexican peso exhibits the most dramatic swings, with a strong appreciation during the pre-NAFTA boom in financial inflows in 199093, followed by a stunning collapse during the crisis of 199495, and then a gradual recovery to a peak in early 2002 followed by a more gradual (and partial) depreciation into early 2004.23 Meanwhile, the U.S. dollar gradually appreciated by a cumulative 43 percent between July 1995 and February 2002, and it subsequently depreciated by only 17 percent through March 2004. Canada, in contrast, began the 1990s with a significantly overvalued currency. The Canadian dollar then depreciated substantially between 1991 and 1995 and remained low until it experienced a partial recovery in 20034. These currency gyrations, in turn, have had a major impact on trade and growth in all three countries.

8.

RECOMMENDATION:

P a g e | 91 Despite initial debates within each country regarding the desirability of continental economic integration, the NAFTA now seems well-established as a central fixture of the North American economy. Four sets of issues in particular could eventually produce a more powerful form of economic integration in the Western Hemisphere, although in each case it is clear that the further expansion of continental economic integration faces formidable political and economic barriers: Hemispheric Free Trade: Political leaders throughout the Western Hemisphere have initiated negotiations to create a hemisphere-wide Free Trade Area of the Americas (FTAA), building on the framework of the NAFTA. The plan received initial tentative approval at hemispheric political summits in Miami in 1994, Santiago in 1998, and Quebec City in 2001, and working groups have been established to identify key issues for negotiation. The Quebec City summit adopted an action plan in which the progress of free trade negotiations would supposedly be linked to the maintenance of democratic rights through the continent. Subsequent political events, however, have cast doubt on the prospects for the FTAA. The Argentine financial and political crisis has sparked widespread opposition there to the FTAA and other forms of globalization; the electoral strength of the antiFTAA Workers Party in Brazil will certainly affect that nations participation in the negotiations; and continuing political instability in countries like Columbia and Venezuela (where the U.S. government has supported groups attempting to remove the elected government of Hugo Chavez from power) undermine the claim that hemispheric economic integration will be associated with stability and democracy. Monetary Union: Unlike the EU, the NAFTA contained no provisions for harmonization in monetary or exchange rate policy. Each member country continues to have its monetary policy determined by its own central bank, and each countrys currency trades flexibly on international markets. The continued course of continental economic integration has sparked some calls in Canada, however, for a parallel process of monetary integration, which would culminate in the development of a common continental currency (or, more likely, the use of the U.S. dollar as a de facto continental currency). The introduction of the Euro beginning in 1999 provided additional momentum to this discussion. In this context, some prominent conservative voices in Canada have proposed that Canada should work towards a continental currency. Unlike free trade with the U.S., however, this proposal as yet enjoys only minority support from Canadas business and financial communities (who continue to favor an independent Canadian currency), and is widely opposed by members of the general public. Unless and until there is a widespread agreement among Canadas economic and political elites of the sort that presaged free trade negotiations with the U.S. in the 1980s, the issue of continental monetary union is unlikely to become a serious political possibility in Canada. The issue has not received any serious attention in the U.S. or Mexico.

P a g e | 92 Migration: Within Mexico, more concern has been expressed regarding the absence of provisions within the NAFTA for greater mobility by persons within North America, and of measures to protect the interests and standing of Mexican migrant workers in the U.S. (Weintraub et al., 1997). An estimated 8 million Mexican citizens live in the U.S., half of them illegally. The new Fox government in Mexico has made the issue a major priority in its relationship with the U.S. Here, too, however, it is unlikely that the concern will result in concrete changes in the actual provisions of the NAFTA. In the wake of the terrorist acts of September 11, 2001, the American political climate has become more inward-focused and xenophobic than usual, and there will be little political support there for measures which would allow freer cross-border flows of people within North America. For the foreseeable future, it seems, North American economic integration will continue to be effected by flows of commodities and flows of capital, more than by flows of human beings. Borders: Another consequence of the September 11 terrorist attacks was the exacerbation of growing problems of congestion and traffic delay at Canada-U.S. and Mexico-U.S. border crossings. An immediate U.S. security crackdown in the wake of September 11 produced unprecedented backlogs in cross-border traffic, and while those disruptions were temporary they did highlight the extent to which North American businesses have been dependent on cross border flows of inputsand hence vulnerable to disruptions and delays in those flows. High level initiatives have since been taken to enhance traffic flows at both borders, including the expansion of physical infrastructure and the introduction of new high-speed screening measures for regular pre-screened shipments. These measures will certainly improve the congestion problems at both borders. As yet, there is no significant discussion in North America about European-style efforts to eliminate border crossings within the free trade zone; this approach would require a prior harmonization of immigration, customs, and security policies which is not considered feasible in any of the NAFTA countries. Furthermore, there are some sensitive areas that could be resolved through taking following considerations over time. First of all, the federal government could explore all avenues to achieve a common definition of dumping in the agricultural sector that excludes production costs in integrated markets, as well as a common timeframe for the investigation of dumping charges that reflects the production or business cycle. Secondly, the Government of Canada could develop a long-term, consistent policy of legal-aid support for Canadian softwood lumber associations until such time as the dispute is ended, in recognition of their high legal costs. Furthermore, we recommend that the government devote more of its own resources to the prosecution of the softwood lumber dispute. As a general rule, the federal government should provide financial support (e.g., assistance for the payment of legal fees and provision of loan guarantees) to those industries adversely affected by NAFTA trade remedy cases.

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9. CONCLUSION

The implementation in 1994 of the NAFTA, building on the earlier framework of the 1989 CanadaU.S. FTA, marked a watershed in the historical political-economic evolution of Canada and Mexico. The implementation of the NAFTA was a much less important event for the U.S. The relatively simple task of eliminating tariffs on intra-NAFTA merchandise trade constitutes a modest portion of the overall NAFTA package. More important has been the NAFTAs attempt to establish a continentwide regime of deregulated, market-oriented economic development. Indeed, the Mexican governments primary interest in the NAFTA may have been precisely to commit itself publicly and permanently to a broadly neoliberal development strategy, thus winning the confidence and approval of both international investors and domestic wealth-holders. The NAFTA has had a significant impact on the structure of trade flows within North America, but no visible effect on aggregate economic activity or employment. Success with NAFTA will stimulate further investment in Mexico and provide a doorway to the rest of Latin America. That doorway may open toward an even larger trade agreement in the Americas, foreshadowing the mega-trading blocs that are likely to emerge throughout the world in the 21st century. And that is why many theorists refer to a "triad concept" of the Americas, the Asia Pacific region, and Europe forming trading groups in near future to establish tangible globalization. NAFTA and the formation of other trading blocs around the world represent a standard shift in the way nations relate to each other through trade - a standard shift that recognizes the emergence of trade alliances in the global marketplace. It is a shift that cannot be ignored. The world is an interdependent place and agreements such as NAFTA will have economic, political, and social consequences of a scale not heretofore experienced.

10. BIBLIOGRAPHY

Hill, W.L, Charles,. (2009). International Business. Globalization, Labor policies and the environment. 29-30, An Overview of Trade Theory, 168. New York: McGraw-Hill Irwin.

P a g e | 94 Hill, W.L, Charles, (2009). International Business. An Overview of Trade Theory, 168-188. New York: McGraw-Hill Irwin. Kemp, Murray C. and Henry Y. Wan, 1986. Gains from trade with and without lump-sum compensation, Journal of International Economics, 21, 99-110 Jones, Ronald W. (1987), the New Palgrave Dictionary of Economics, Heckscher-Ohlin Trade Theory, 2nd Ed. Villarreal, M. Angeles and Cid, Marisabel, November 4, 2008. NAFTA and the Mexican Economy. CRS Report for Congress. Frankel A. Jeffrey, Regional Trading Arrangements: Barriers or Stepping Stones for Global Free Trade, An Agenda for the Twenty-first Century World Bank, July 9, 1998 Becker S. Geoffrey and Hanrahan E. Charles, Agriculture and Fast Track or Trade Promotion Authority, CRS Report, November 7, 2002 Bhagwati Jagdish and Lehman Arthur, US Trade Policy: The Infatuation with FTAs, American Economic Association meetings, January 1995 Griswold T. Daniel, NAFTA at 10: An Economic and Foreign Policy Success, Centre for trade policy studies, December, 2002. Hggart Blayne, Canada and the United States: Trade, Investment, Integration and the Future, Parliamentary Research Branch, April 2, 2001 Villarreal, M. Angeles and Cid, Marisabel, November 4, 2008. NAFTA and the Mexican Economy. CRS Report for Congress. Stambrook David, Canada/US Comparison of Foreign Trade Zone (FTZ) Related Programs & Policie, March 31, 2009. Bolle, Mary Jane (2002). NAFTA Labor Side Agreement: Lessons for the Worker Rights and Fast Track Debate. Washington: Congressional Research Service, Report 97-861.

http://www.bmonesbittburns.com/candaeconomics http://www.citizenstrade.org

P a g e | 95 http://www.bmonesbittburns.com/mexicoeconomics http://www.bmonesbittburns.com/usaeconomics http://en.wikipedia.org/wiki/Trade_union http://en.wikipedia.org/wiki/NAFTA http://en.wikipedia.org/wiki/Canada http://en.wikipedia.org/wiki/Mexico http://en.wikipedia.org/wiki/USA