Was NAFTA passed in response to the European Union?
I seem to remember that we started having free trade with Canada and Mexico after most European countries started having free trade amongst themselves, and I figured, like I said, that we were doing it in response to European countries doing it amongst themselves. But was that a correct guess? Completely, partially, or not at all?
Before NAFTA (1994), there was the Canada-US Free Trade Agreement (1989). NAFTA essentially pulled Mexico into the agreement. There was a lot going on in the EEC/EU around that time, too. Tarriffs in the EU were dropped in 1993, but the treaty that lead to that (Treaty of Rome) was signed in 1986.
Nothing in politics happens in a vacuum. It’s unlikely that the overlap in dates is an accident.
Oh, I didn’t realize that we already had a Canada-US Free Trade Agreement. I guess you learn something new every day. Thanks.
FTA: Mays Business School | Advancing the world’s prosperity
NAFTA: http://www.nafta-sec-alena.org/DefaultSite/legal/index_e.aspx?CategoryID=42
But that just puts the question back a step - why was there a Canada-US FTA?
From the Canadian perspective, the EU was a factor - not in a tit-for-tat kind of way, but because it illustrated a problem for Canadian manufacturers. Prior to the FTA, the only market that Canadian manufacturers had guaranteed accsss to was the Canadian domestic market. Since Canada has one of the smallest populations amongst the G7, that meant a competitive disadavantage. American and Japanes companies each had guaranteed access to their own domestic markets, which are considerably bigger than the Canadian market, and the companies in the four G7 countries (U.K., France, German & Italy) all had guaranteed access to all of the EU, not just their own markets.
Guaranteed access to the U.S. market thus was a major concern for the Canadian companies, to allow them to grow and compete with companies from other G7 countries.
The US is Canada’s largest export market, and Canada is the US’s largest export market. Both would be hurt if trade were disrupted, but Canada would suffer far more. Some general info: http://www.dfait-maeci.gc.ca/can-am/menu-en.asp?mid=1&cat=1029
When I worked for a Canadian software company, 75% of our business was exports to the US, 15% to Europe, 7% to “other exports” (South America, Asia), and 3% to Canada. Like a lot of Canadian businesses, the company operated in US dollars. Every time the Canadian dollar went up relative to the US$, it would hurt, not from the loss of exports, but from the increase in salary expense (which was all paid in Canadian dollars).
You can’t pay a worker $0.70 an hour in Western Europe, nor in canada/USA…
…but you can in Mexico, which is part of NAFTA.
As for Canada, manufacturing costs are about 15% lower than in the US. In some industries the cost differences are quite dramatic (i.e. software, which is one of the reasons I stayed in the US instead of returning to Canada). Of course anything you can find cheap in Canada, you can find in India or China for 1/10 the price, so it is all relative…
It’s really amusing (ironic?) watching the Mexicans get in a heat about China. They’re worried about cheap Chinese imports (particularly the smuggled in, non-taxed kind) for now, but they’re really becoming aware of how cheap it is to conduct business in China. Luckily, though, there’s one thing the Chinese will never have: close proximity to N./S. American markets (logistics is still expensive).