NAFTA Grows Up

Free trade agreements become a necessary part of doing business globally


Since its inception on January 1, 1994, NAFTA has increased the gross domestic products of the United States, Canada and Mexico and their trade. Imports in October 2007 were up 100.7 percent compared to October 1997, while exports were up 72.0 percent. From 1993 to 2005, U.S. GDP grew 48 percent, Mexico's 40 percent and Canada's 49 percent, according to data from USTR. Acting Agricultural Secretary Chuck Conner described NAFTA "as one of the most successful trade agreements in our history" on January 2, 2008.

"In 1994, our combined agricultural exports to Canada and Mexico totaled $10.1 billion. They are expected to reach $28 billion in 2008. Since the agreement's implementation, two-way agricultural trade between the United States and Canada has risen from $10.4 billion to $30.4 billion. Between the United States and Mexico, this trade has risen from $5.9 billion to $24 billion," Connor said.

A Blueprint for the Future

The success of NAFTA has not been lost on the rest of the world. The European Union has expanded dramatically since its inception to compete with NAFTA, growing from six countries in 1957 (at that point the European Economic Community) to its current 27 members.

Today the European Union has virtually eliminated borders between its member countries, creating a monolithic European organization with its own currency, tariffs, standards, motto and flag. It is a single market governed by a system of laws that apply to all member states. European Union Law provides the free movement of goods — member states have removed customs barriers between themselves and introduced a common customs policy toward other countries — much as NAFTA has with the United States, Canada and Mexico (although we have yet to create our own NAFTA song and motto).

Mercosur is another FTA that has expanded partly in response to NAFTA. Originally an agreement among Brazil, Argentina, Uruguay and Paraguay, founded in 1991, the group has added Bolivia, Chile, Columbia, Ecuador and Peru as associate members. Venezuela is awaiting ratification of its member status to the group. South Americans see Mercosur as a strategic counterbalance to NAFTA and other global economic powers. Then there is the ASEAN Free Trade Area, originally comprised of six members in 1992. Today it has grown to 10 members: Brunei, Vietnam, Laos, Thailand, Indonesia, Malaysia, Philippines, Singapore, Myanmar and Cambodia. As with the European Union and Mercosur, ASEAN's goal is to increase the global competitive edge of its member countries with elimination of tariffs among member countries.

NAFTA has also encouraged the increase in bilateral agreements between nations. Today the United States has a number of bilateral agreements with other countries, including Australia, Israel, Bahrain, Chile, Columbia, Korea and Singapore. Still more are under negotiation.

The Future of NAFTA

What's next? More companies will be entering NAFTA, and companies will be expanding their use of NAFTA this year and beyond. Indeed, with increased globalization and competition, companies can't afford to not take advantage of NAFTA and other FTAs. Even small and midsize companies are beginning to take advantage of NAFTA, and, again, those numbers will increase in 2008. Aberdeen's 2007 "Global Trade Management Strategies" benchmark report finds that 48 percent of respondents plan to increase their usage of preferential trade agreements in the near future. Among larger companies, a broader range of industries are using or are planning to use NAFTA. NAFTA leaders were once large manufacturers and electronics companies. However, that segment has expanded to include an array of other industries and will continue to grow.

Yet there are two hurdles to overcome: education and automation. From an education standpoint, companies need to know how NAFTA will benefit them. In addition, they need to understand the rules and regulations surrounding NAFTA, particularly the rules of origin, which are used to determine the country of origin of a good.

Another hurdle for companies is the complexity of NAFTA and the effort needed to take advantage of it. With an end product that might have 50,000 parts, it's almost impossible to manage manually. Even starting such a project is daunting without automation given the difficulty of working on a spreadsheet with thousands of rows. Companies need to take advantage of software solutions that automate the trade agreement process, from qualification to calculating the duties, taxes and fees for shipping a final product.

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