Crisis Committee Information Update 07.06.14
Written by Chairperson Flora Huang On behalf of the Crisis Team
TCGSMUN III Crisis Committee
Information Update
Case Study One NAFTA: The origin, pros and cons , and further proposed amendments
Information Update
Case Study One: NAFTA
Briefings Looking back on history, we can draw lessons from a lot of trade pacts signed between a strong economy body and a relatively weak, developing one. In our Information Update, we will take NAFTA as an example, tracking some of its pros and cons, to offer delegates more thoughts on CSSTA. What is NAFTA? NAFTA is a trilateral free-trade deal that came into force in January 1994, signed by U.S. president Bill Clinton, Mexican president Carlos Salinas, and Canadian prime minister Jean ChrĂŠtien. The central thrust of the agreement is to eliminate most tariffs on products traded among the United States, Mexico, and Canada. The terms of the agreement called for these tariffs to be phased out gradually, and the final aspects of the deal weren't fully implemented until January 1, 2008. The deal swept away import tariffs in several industries: agriculture was a major focus, but tariffs were also reduced on items like textiles and automobiles. NAFTA also implemented intellectualproperty protections, established dispute-resolution mechanisms, and set up regional labor and environmental safeguards, though some critics now lobby for stronger measures on this front.
What was its purpose? Article 102 of the NAFTA agreement outlines its purpose: • Grant the signatories Most Favored Nation status. • Eliminate barriers to trade and facilitate the cross-border movement of goods and services. • Promote conditions of fair competition. • Increase investment opportunities. • Provide protection and enforcement of intellectual property rights. • Create procedures for the resolution of trade disputes. • Establish a framework for further trilateral, regional and multilateral cooperation to expand the trade agreement's benefits. Controversy NAFTA was attacked from all sides during the 2008 President Campaign. NAFTA was attacked from all sides during the 2008 Presidential campaign. Barack Obama blamed it for growing unemployment. He said it helped businesses at the expense of workers in the U.S. It also did not provide enough protection against exploitation of workers and the environment along the border in Mexico. Hillary Clinton included the trade agreement in her pledge to strictly enforce all existing trade agreements, as well as halt any new ones. Both candidates promised to either amend or back out of the agreement all together. However, Obama hasn't done anything about these campaigns promises since becoming President. Advantages of NFATA on the U.S 1. Free trade increases sales and profits for U.S. businesses, thus strengthening the economy. > Removal of costly and delaying trade barriers, such as tariffs, quotas and conditions, inherently leads to easier and swifter trade of consumer goods. The result is an increased volume of U.S. sales. 2. Free trade creates U.S. middle-class jobs over the long term > The theory is that as U.S. business grow from greatly increased sales and profits. demand will grow for midd-class higher-wage jobs to facilitate the sales increases. The New York Times wrote in 2006:"Economists can promote the very real benefits of a robustly growing world: when they sell more overseas, American businesses can employ more people." 3. Free Trade is an opportunity for the U.S. to provide financial help to some of the world’s poorest countries. > U.S. free trade benefits poorer, non-industrialized nations through increased purchases of their materials and labor services by the U.S. 4. It creates trade surplus in services: > More than 40% of U.S. GDP is services, such as financial services and health care. These aren't easily transported, so being able to export them to nearby countries is important. NAFTA boosted U.S. service exports to Canada and Mexico from $25 billion in 1993 to $106.8 billion in 2007.
5. It steps up Foreign Direct Investment (FDI): > NAFTA reduces investors' risk by guaranteeing they will have the same legal rights as local investors. Through NAFTA, investors can make legal claims against the government if it nationalizes their industry or takes their property by eminent domain. Since NAFTA was enacted, U.S. foreign direct investment (FDI) in Canada and Mexico more than tripled to $357 billion in 2009, up from $348.7 billion in 2007. Canadian and Mexican FDI in the U.S. grew to $237.2 billion, up from $219.2 billion in 2007. That means this much investment poured into U.S. manufacturing, finance/insurance, and banking companies. Advantages of NAFTA on Mexico 1. Farm exports: > The Economist notes that despite increased competition, Mexican farm exports to the United States have tripled since NAFTA's implementation, in part because of reduced tariffs on maize. 2. Helps offset slow income growth: > GEA, a Mexico City-based economic consulting firm, estimates that the cost of basic household goods in Mexico has halved since NAFTA's implementation. 3. Urges the country to adopt orthodox economic management practices and is no longer prone to crises. > The government abandoned many protectionist policies and allowed the prices of tradable goods to converge on both sides of the border, which reduced deficits and limited the potential for currency crises. Disadvantages of NAFTA on the U.S. 1.
Free trade has caused more U.S. jobs losses than gains, especially for higher-wage jobs.
> When he signed NAFTA on September 14, 1993, President Bill Clinton exulted, "I believe that NAFTA will create a million jobs in the first five years of its impact. And I believe that that is many more than will be lost... " But industrialist H. Ross Perot famously predicted a "giant sucking sound" of U.S. jobs heading to Mexico if NAFTA was approved. Unfortunately, he was correct. Since the North American Free Trade Agreement (NAFTA) was signed in 1993, the rise in the U.S. trade deficit with Canada and Mexico through 2002 has caused the displacement of production that supported 879,280 U.S. jobs. Most of those lost jobs were high-wage positions in manufacturing industries.The loss of these jobs is just the most visible tip of NAFTA's impact on the U.S. economy. In fact, NAFTA has also contributed to rising income inequality, suppressed real wages for production workers, weakened workers' collective bargaining powers and ability to organize unions, and reduced fringe benefits. 2.
The agreement actually harmed other countries.
> Workers in other countries are being exploited and harmed. In Mexico, real wages have fallen sharply and there has been a steep decline in the number of people holding regular jobs in paid positions. Many workers have been shifted into subsistencelevel work in the 'informal sector'... Additionally, a flood of subsidized, low-priced corn from the U.S. has decimated farmers and rural economics.
> The environment in other countries is being defiled. Sen. Sherrod Brown (D-OH) observes in his book "Myths of Free Trade": "The lack of international laws for environmental protection, for example, encourages firms to go to the nation with the weakest standards." Disadvantages of NAFTA on Mexico 1. Unrealized promises > One lofty, unrealized promise of NAFTA was that the treaty would narrow the gap between the per capita incomes of Mexico, the United States, and Canada. Per capita income in Mexico rose at an annual average of 1.2 percent over the past two decades, from $6,932 in 1994 to $8,397 in 2012, far slower than Latin American countries such as Brazil, Chile, and Peru. 2. Mexico's Farmers Were Put Out of Business: > Thanks to NAFTA, Mexico lost 1.3 million farm jobs. The 2002 Farm Bill subsidized U.S. agribusiness by as much as 40% of net farm income. When NAFTA removed tariffs, corn and other grains were exported to Mexico below cost. Rural Mexican farmers could not compete. 3. Maquiladora Workers Were Exploited: > NAFTA expanded the maquiladora program, in which U.S.-owned companies employed Mexican workers near the border to cheaply assemble products for export to the U.S. This grew to 30% of Mexico's labor force. These workers have "no labor rights or health protections, workdays stretch out 12 hours or more, and if you are a woman, you could be forced to take a pregnancy test when applying for a job," according to Continental Social Alliance. 4. Mexico's Environment Deteriorated: > In response to NAFTA competitive pressure, Mexico agribusiness used more fertilizers and other chemicals, costing $36 billion per year in pollution. Rural farmers expanded into more marginal land, resulting in deforestation at a rate of 630,000 hectares per year. Amendments proposed 1. During the 2008 U.S. presidential election, many Democrats called for an amendment of NAFTA to include additional labor and environmental standards. 2. A 2013 Congressional Research Service report on NAFTA notes that some of these policies include strengthening protections for workers and the environment, enhancing regulatory cooperation, investing in border infrastructure, and promoting research and development to improve the competitiveness of North American industries.
TCGSMUN III Crisis Committee
Information Update
Case Study Two ASEAN FTA with New Zealand: Safeguard Mechanisms
Information Update
Case Study Two: ASEAN
Safeguard Mechanisms In Use The ASEAN FTA establishes an additional safeguard mechanism under which any Party can either temporarily suspend tariff reductions or increase the tariff rate if there have been increased imports of a product as a result of the tariff reductions being carried out under the FTA and such increases have caused serious injury to a domestic industry. 1. The ASEAN FTA provides for the imposition of a safeguard measure on imports during the period that tariffs are being phased out or reduced for any particular good, and for up to three years beyond that. A measure can be imposed by any Party to the ASEAN FTA to address situations of serious injury to a domestic industry caused by increased imports as a result of tariff reductions under the FTA by either suspending further tariff reductions or reverting to higher tariffs for a certain period. 2. To apply a safeguard measure, New Zealand would have to undertake an investigation, publish the findings and only suspend tariff reductions or increase the tariff to the minimum extent necessary to prevent or remedy the injury being caused and to facilitate adjustment to import competition. 3. New Zealand would have to provide compensation to the other Parties whose exports are subject to the measure in the form of either equivalent tariff concessions or offsetting other obligations under the ASEAN FTA equivalent to the measure imposed. But if New Zealand was unable to agree on compensation with the affected Parties, those Parties have the right to suspend equivalent tariff concessions on New Zealand's exports, except that this right cannot be exercised for the first two years a measure is in place if it was imposed as a result of an absolute increase in imports. Any ASEAN country that proposed to apply a safeguard measure on imports from New Zealand is subject to the same requirements. 4. In New Zealand, the Ministry of Economic Development is responsible for conducting any safeguard investigations pursuant to the ASEAN FTA.
TCGSMUN III Crisis Committee
Information Update
Case Study Three Methods and mechanisms used to protect business interests
Information Update
Case Study Three: Methods
Non-Tariff barriers to Trade (NTBs) Non-tariff barriers to trade (NTBs) are trade barriers that restrict imports but are not in the usual form of a tariff. Some common examples of NTB's are anti-dumping measures and countervailing duties, which, although they are called "non-tariff" barriers, have the effect of tariffs once they are enacted. Their use has risen sharply after the WTO rules led to a very significant reduction in tariff use. Some non-tariff trade barriers are expressly permitted in very limited circumstances, when they are deemed necessary to protect health, safety, or sanitation, or to protect depletable natural resources. In other forms, they are criticized as a means to evade free trade rules such as those of the World Trade Organization(WTO), the European Union (EU), or North American Free Trade Agreement (NAFTA) that restrict the use of tariffs.
Types of Non-Tariff Barriers to Trade Specific Limitation on Trade: 1. Licenses and Quotas: The most common instruments of direct regulation of imports (and sometimes export) are licenses and quotas. Almost all industrialized countries apply these non-tariff methods. The license system requires that a state (through specially authorized office) issues permits for foreign trade transactions of import and export commodities included in the lists of licensed merchandises. A quota is a limitation in value or in physical terms, imposed on import and export of certain goods for a certain period of time. Licenses and quotas limit the independence of enterprises with a regard to entering foreign markets, narrowing the range of countries, which may be entered into transaction for certain commodities, regulate the number and range of goods permitted for import and export. 2. Minimum import price limits 3. Embargoes: Embargo is a specific type of quotas prohibiting the trade. As well as quotas, embargoes may be imposed on imports or exports of particular goods, regardless of destination, in respect of certain goods supplied to specific countries, or in respect of all goods shipped to certain countries. Although the embargo is usually introduced for political purposes, the consequences, in essence, could be economic. Customs and Administrative Entry Procedures: 1. Valuation systems 2. Antidumping practices 3. Documentation requirements
Government Participation in Trade: 1. Government procurement policies 2. Determination of eligibility of an exporting country by the importing country 3. Determination of eligibility of an exporting establishment(firm, company) by the importing country. 4. Additional trade documents like Certificate of Origin, Certificate of Authenticity 5. Occupational safety and health regulation 6. Intellectual property laws (patents, copyrights)
Think Tank Delegates should focus on " The Next Step of CSSTA". For the delegation you're representing, what is the next step? If you are one of the advocate of signing the CSST, what kind of protective mechanism should the Government establish to enhance the public's confidence toward it? If your delegation regard CSSTA as deleterious and a tactic from China to accomplish their long goal of political unification, what other trade agreemeents, FTAs or even trade regions can Taiwan look out to, so that we may not only protect ourselves from the threaten of China, but the economic threaten to our dwindling economy from the entire Asia pacific region? Don't forget to submit your Position Paper to the Chairperson NO LATER THAN 6/12. Please email it directly to floradahuang@yahoo.com Your cooperation is highly appreciated by the whole Crisis Team. Our warmest welcome to your participation in this year's Crisis Committee, and we hope to see you on June 14th! Best, Flora Huang Chairperson Crisis Committee | TCGSMUN III 2014 Conference Written on behalf of the Crisis Team
References
1. NAFTA Secretariat, "FAQ" 2. http://www.cfr.org/trade/naftas-economic-impact/p15790 3. http://useconomy.about.com/od/tradepolicy/p/NAFTA_Problems.htm 4. Economic Policy Institute, "The High Cost of Free Trade," May 3, 2011 5. International Forum on Globalization, Exposing the Myth of Free Trade, February 25, 2003; The Economist, Tariffs and Tortillas, January 24, 2008 6. Worldpress.org, Lessons of NAFTA, April 20, 2001 7. Carnegie Endowment, NAFTA's Promise and Reality, 2004 8. Measures to protect businesses from unfair trade and import surges http://www.asean.fta.govt.nz/protection-from-unfair-trade/ 9. Methods And Mechanism Used To Protect Business Interests Commerce Essay http://www.ukessays.com/essays/commerce/methods-and-mechanism-used-toprotect-business-interests-commerce-essay.php