NAFTA Is Economic and Trade Agreement Term Paper

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NAFTA is economic and trade agreement between United States, Canada and Mexico. The agreement has provided sufficient incentives to the member countries particularly those with stable economy and large market i.e. United States and Canada. The Canadian department claims that NAFTA has established a strong foundation for future growth and set a valuable example of the benefits of trade liberalization. According to Canadian government, the trade agreement has been responsible for the launch of "strong foundation for future growth and set a valuable example of the benefits of trade liberalization" (Stephanie, 2002).

NAFTA: Trade Volume and Level of Economic Activities

The United States and Canada have developed strong trade relationship; the trade volume of both the countries was reported to be more than USD 411 billion in 2004. The merchandise trade volume between Canada and United States was USD 370 billion. According to reports more than ninety percent of the Canadian trade through merchandise ships is diverted towards United States, the country receive more than sixty percent of the imported goods from United States. According to reports, more than twenty percent of the merchant ships from United States voyage to Canada for trade products delivery, and slightly less than twenty percent of the imported goods are purchased from Canada. The government of Canada and United States signed agricultural provisions of the U.S. & Canada Free Trade Agreement, which was effective since 1989; the provisions of the agreement were then incorporated in NAFTA, "all tariffs affecting agricultural trade between the United States and Canada, except for a few items covered by tariff-rate quotas, were removed by Jan. 1, 1998" (Thomas, 2003). The Agricultural trade between Canada and United States gained momentum after the implementation of NAFTA. The Canadian market is considered to be the priority market for the agricultural products produced in United States, the Canadian government purchases more than USD 9 billion of agricultural product on annual basis, "since 1994, U.S. agricultural products to Canada have accounted for almost half of total growth in U.S. agricultural exports worldwide, and the growth rate has significantly outpaced that of sales to the test of the world" (Public Policy Forum, 2002).

After the implementation of NAFTA annual growth rate of U.S. agricultural product exports to Canada has amplified, the annual growth rate of the U.S. agricultural product to the European and Asian countries is 1%, whereas the annual growth rate of the agricultural product to Canada has been phenomenal, the annual growth rate has been estimated to be five percent. A significant increase of imports of Canadian agricultural products to United States have been observed after the implementation of NAFTA, which includes mostly red meats, live animals and frozen potato fries. The Canadian imports from United States has also registered significant growth, the imported products include "wide range of bulk, intermediate and consumer-oriented agricultural products" (Clarkson, 2002). The analysts have expressed their concern that, in the absence of NAFTA agreement, the United States "would have lost these expanded export opportunities." The United States has registered massive increase in exports of the bulk commodity to Canada, the annual growth rate of ten percent has been observed, the growth rate is responsible for the creation of USD 1 billion market. The intermediate exports of United States "rose more than $500 million, the country has high value food exports grew at an annual average rate of 4.5% and has created a stable $6.0 billion market for U.S. manufactured consumer food products." In 2002, the sales of the fresh vegetables from United States to Canada was approximately USD 1 billion, the figure expressed an annual growth rate of five percent soon after the implementation of NAFTA. The sales of the vegetable products was expected to cross over the previous amount, which was responsible for the declaration of the Canadian market as major market for exports from United States in food and agricultural product category. The trade was facilitated through the incorporation of "NAFTA border facilitation measures and modern transportation and wholesale dealer networks, the network offered Canadian fresh vegetable buyers with prompt delivery" (Thomas, 2003).

Significance for Canadian and American Markets: Scope of Opportunities

In addition to the market opportunities which have generated through zero tariffs, NAFTA has provided Canadian consumers better choice to establish their requirement "for high-value agricultural products in a more competitive marketplace" (Public Policy Forum, 2002). The market conditions have been evaluated by the Canada's wholesale, retail and food service industries "with acute interest developments in U.S. packaged and processed foods and service trends." The trade agreement has been responsible for the creation of medium for exchange of information sources, which has been responsible for the "immediate demand that helps ensure the success of United States high-value food products" (Jackson, 1999). The demand of food-product has accelerated and has been responsible for the expansion of two-way trade; the Canadian community associated with food policy has distinguished the significance of functioning with the NAFTA partners in the direction of "harmonization in food packaging and nutrition labeling regulations" (Stephanie, 2002). The progress assures additional force for "accelerated trade for the NAFTA partners in the coming years" (Clarkson, 2002). The NAFTA agreement has listed tariff phase-out provisions. As per the approved and documented regulations, the fresh vegetables exported from United States to Canada "enter duty-free; seasonal duties are no longer applicable, although tariff snapback provision remains in effect until 2008, it has been used sparingly by Canada, and not at all in recent years." The trade agreement has offered an opportunity to the fresh vegetable exporters from United States to avail and access the opportunities in the neighboring Canadian market, "stemming from increased demand in the food service sector and higher fresh market sales to Canada's growing number of Asian immigrants, whose traditional diet includes large amounts of fresh vegetables" (Public Policy Forum, 2002). According to surveys, the world highest consumption rates of fresh vegetables has been reported in Canada, "in Canadian retail grocery stores, more space is devoted to fresh produce than to any other food sector" (Clarkson, 2002).

The NAFTA has been responsible for the creation of employment opportunities. According to employment statistics, nine years after the implementation of NAFTA, the employment opportunities in Canada grew by twenty percent, equivalent to 2.7 million new jobs; most of the jobs were full-time. The comparison between NAFTA and Canadian-U.S. Free Trade Agreement reflected "rosy period of Canadian job gains under NAFTA, between 1988 and 1994 Canada lost 334,000 manufacturing jobs, equivalent to 17% of total manufacturing employment in the year before CUFTA took effect." During Free Trade period the reduction in the tariff was responsible for "one-third of the job losses during the Canadian-U.S. Free Trade Agreement period." The trend was common in textile industry, where most of the employees were immigrant. The remaining two-third of the job losses "were the result of the severe recession provoked by the Bank of Canada's high interest-rate policy" (Public Policy Forum, 2002), the high interest rate policy was responsible for the "overvaluation of the Canadian dollar relative to its U.S. counterpart." The revival of Canadian economy took place soon after the interest rates were reduced, and the provisions in NAFTA were incorporated, "the bilateral current account balance of Canada with the United States turned from deficits to surpluses" (Thomas, 2003).

Dairy Products: Major Beneficiary

Before the signing of accord, the Canadian government imposed precise import measures and checks on all chief poultry and egg product trade, the exports from United States were restricted, and the restriction was based upon the "quotas based on the previous five-year historical access level." After the implementation of NAFTA, the government of United States was successful to gather access "to the fixed percentages of Canadian production of the products, thus enabling exports to grow as the market expanded" (Anne, 2003). Initially, the Uruguay Round of the General Agreement on Tariffs and Trade was implemented. The implementation was declared in 1995, after which the Canadian government converted its import protection for poultry to a Tariff-Rate Quota system (Mel, 2002). The Canadian government remained firmed towards the provisions listed in Canadian government, and the government of United States was offered greater access to the Canadian market, which access parameter crossed the maximum threshold set by the government under the Uruguay Round provisions. The government of United States insisted upon the provisions which exempted particular poultry items from the list of Canadian government. The measure was responsible for the increase of exports of poultry items from United States. The government of Canada was under legal obligation "to establish particular supplementary import categories to facilitate Canadian food manufacturers who make use of poultry meat ingredients to import additional U.S. poultry meat, in order to improve their competitiveness with comparable products of U.S. manufacture that enter Canada duty-free under NAFTA." The implementation of NAFTA was responsible for the "steady and substantial growth in U.S. poultry meat exports that may not have occurred without NAFTA" (Mel, 2002). According to reports, "Canada is the No. 2 export market for U.S. chicken;… [END OF PREVIEW] . . . READ MORE

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