As you undoubtedly noticed, a great deal of the points of the Summit of the Americas dealt with crime & punishment, despite the fact that it was a meeting with the goal of setting the framework for a hemisphere-wide free trade policy. From specifying how to deal with political corruption to precisely what happens to an individual if they are arrested for a crime of any sort. This focus on crime overall, & not just crime around trade policy, seems out of place in a platform meant to open our borders to duty free trade.
Why do you suspect that there was so much emphasis placed on crime & methods of dealing with crime in a set of regulations aimed at establishing a framework for moving to an ideal, communal future?North, Central & South America:

The Americas are a relatively new phenomenon when it comes to the concept of international trade. Prior to the late 1400’s or early 1500’s, there was no trade as we know it today. Prior to the European explorers setting out from the shores of Europe, sailing West to look for a water route to India, the belief was that all the land that was the world was that of Europe, Asia & Africa.

When the explorers made landfall, stepped off their boats & saw dark skinned natives, their belief was that they had actually landed upon the shores of India. Thus they coined the terms “Indians” for the natives they found. They didn’t know it at first, but they didn’t find India, they found an entirely new hemisphere of land that would eventually come to be named “North America”, “South America”, “Central America” & the “Caribbean Islands”.

In fact, while we celebrate Columbus as the founder of America. It wasn’t America that Columbus stumbled upon, but rather, as most believe, it was the Island of Puerto Rico. The North American mainland is believed to be discovered by the Italian explorer Amerigo Vespucci, thus the name “America”.

Prior to the European onslaught onto our continent, the indigenous peoples were, for the most part, self-sufficient within their societies… a tribal mentality prevailed.

As the continent became more settled & the new economy overtook the previous tribal one, the area flourished, so much so that by the mid 1800’s, the Americas were giving the far more developed civilizations of Europe & the Mediterranean rim a serious run for their money. During the 1800’s the nations of the region got together to discuss issues that concerned them all during the Pan-American Conference. They decided to make the Conference meetings a regular occurrence over the next 100 years.

Finally, in 1948, following WWII, the Pan-American convened & formed the Organization of American States (OAS). The OAS, which is still in existence today & active, consisted of the U.S. & 20 other members when it was founded. Today there are 35 members, all of which are democratic countries from North, Central & South America, as well as the Caribbean region.

In 1995, the Pan-American Union held its First Summit of the Americas. This was a more advanced discussion around building some consensus about what it means to be from this region. What common goals to the member nations have? What obligations do the member countries have when dealing with one another? Out of the Summit of the Americas, came the following list of political, economic & social goals:

Democracy was decided to be the only government type allowed in the region & when democracy was being threatened, rules were written about how to deal with the situation if the freedom to choose leadership within a country is threatened.
Human Rights were to be guaranteed through regional laws
Police abuse would not be tolerated
Due Process would be well documented & followed. Due process are the rights owed to any defendant once they are arrested.
In the U.S., due process is roughly:
You must be told why you are being arrested
You must be read your rights (Miranda Rights (Links to an external site.))
You must face a judge within 48 hours at an arraignment where all the charges that you are facing are formerly read to you by a judge & it is determined if you will be granted bail or if you will be held in custody until your trial
You must be given the opportunity to meet with an attorney, whether or not you can afford one.If you cannot afford one, you are given one by the state free of charge.
Due process in other countries is very different.The idea is not to have the process be the same in every country, but rather the due process of each country be well documented & uniform for all defendants within that country
Security was strengthened at financial borders to prevent the financing of terrorism.Large bank transactions are to be reported to the government. If the transactions are found to be suspect, there are procedures in place to deal with such suspicions.
Border crossings were strengthened to better monitor who crosses, when & where.
Law enforcement agencies no longer were limited to ending cooperation at an international border. Law enforcement from one country could request information from their counterparts in another country. Criminals could no longer cross a border to win a fresh start. Criminals caught in one country would now be routinely extradited (sent back) to another country if their crimes were deemed worse, or more likely to win prosecution in another country.
The Free Trade Area of the Americas (FTAA) was formulated with the goal of working towards a hemisphere wide free trade zone. This is still being worked on, but it is the ultimate goal of the region.
Measures were taken to combat illegal drugs by:
Strengthening anti-drug laws
Enhancing prevention programs
Taking steps to stem trafficking of illegal narcotics, related chemicals & firearms
Fighting political corruption by adopting the Inter-American Convention against Corruption, the 1sttreaty of its type in the world’s
As you can see, the goals of the Summit of the Americas were quite extensive & quite lofty. In terms of our class materials, there are several aspects that impact the importing & exporting of goods within the region, but none more impactful thatn the implications of the Free Trade Area of the Americas. This treaty is the most comprehensive free-trade agreement in existence, involving 34 countries.

The FTAA was supposed to be fully negotiated & implemented by 2005. While that goal was not fully realized, it is still in works with full implementation still being the ultimate goal. Full implementation would create economic development through reduction of trade barriers. The primary obstacle standing in the way of the final implementation is that presence of countless trade agreements with conflicting terms that are already in existence between member countries. Mexico has free trade with Brazil, but not Venezuela, Venezuela trades freely with Argentina, but not Brazil, the U.S. doesn’t recognize Venezuela or Argentina, but like Chile & Brazil… you get the picture… it’s a tangled mess!

There are 4 official languages used throughout the Organization of American States; English, Spanish, French & Portuguese (for Brazil).

In the region, the U.S. has the highest per capital GDP in the at $46,860.00 (2017) ($37,800.00 in 2006) with Canada being 2ndw/ $42,158.00 (2017) ($29,700.00 in 2006). Highest in the world is Luxembourg with $102,831.00 (2017) ($55,100.00 in 2006).

Another interesting trivia fact… the U.S. & Canada share the longest unprotected border in the world & 90% of Canadians live within 100 miles of the border. I like to kid Canadian students that this is because Canadians are desperate to be U.S. citizens, but the reality is that it’s really cold in Canada if you go too much farther North than that.

NAFTA:

To listen to the orange man in the white house talk, you’d think that NAFTA (North American Free Trade Agreement) is a newly adopted trade agreement. Quite the contrary is actually true. Negotiations for NAFTA began in 1981 when U.S. President Reagan & Prime Minister Mulroney of Canada began negotiating free trade between the U.S. & Canada. At this time, 80% of trade was already free with mainly Textiles, Apparel & Automobiles being the main items with tariffs. It doesn’t take a trade genius to surmise that the agreement was very lucrative prospect for the U.S. as they are major suppliers of all three of the items currently tariffed. Breaking down tariffs on these three categories would make U.S. made products far less costly to Canadians, who need all three categories of products. Given the close proximity to the U.S. for Canada, versus the other major garment supply centers of Europe & Asia, duty free trade with the U.S. on these products would make them far more affordable to Canadians, as they don’t produce any of them in meaningful quantities with Canadian car production being zero.

In 1991, President Clinton began trilateral negotiations, which included Mexico. He saw the advantage of having Mexico be in the agreement, as the border issues with Mexico were reaching a crisis point. Having Mexico’s economy stimulated by such an agreement would go a long way, perhaps, at giving Mexicans reason to stay in their countries versus cross into the U.S. to seek more opportunities.

Finally, in 1994, NAFTA as we know it today was ratified into law. While the law’s ratification was not without controversy & it was hardly a unanimous vote in the U.S. Congress (234 for & 200 against… oddly, there were far more Republicans for the NAFTA agreement than there were Democrats for the treaty… yet, the orange man in the white house has now made the repeal of NAFTA a major Republican initiative… go figure…).

The NAFTA Treaty is surprisingly quite simple as laws of this ilk go. However, I’m going to further simplify the law & outline it as such…

Provisions of NAFTA:

50% of duty was removed from U.S.-made goods imported into Mexico
99% of goods traded among Mexico, Canada & U.S. would be duty free within a 10-year period
Textiles & apparel would be duty free within a 15-year period
Nontariff barriers such as quotas were immediately removed (Remember quotas were discussed back when we spoke about the GATT treaty?Quota are unit limits on imported goods versus a duty or tarrif.)
Restrictions on direct foreign investment were eliminated.Now, a U.S. citizen can purchase a property or a company in Canada or vice-versa. Same is true for Mexico to U.S., Canada to Mexico, Mexico to U.S., etc. This singular line of the agreement has had major implications for the national psyche of the countries in ways not possibly imagined & cold very much be the reason why the law is in question. More on this later…
National environmental standards were to be upheld
Workplace health & safety, minimum wages, & child labor laws were to be upheld
The economies & the development status of the three member parties of NAFTA were widely different at the time of signing with Canada & the U.S. being nearly on par with one another. At the time of NAFTA’s ratification, hourly wages in the three countries were widely divided:

Canada: $14.71 ($24.57 in 2016)

U.S.: $14.31 ($27.29 men/ $23.55 women in 2016)

Mexico: $2.32 ($2.43 in 2016)
When you compare the average wages across the 3 countries, it’s no wonder that Mexico was such a lucrative option for manufacturers to consider for their production needs. The average wages in Mexico were 1/6 those of the U.S. & Canada at the time of signing. Today (or rather 2016), the wages in Mexico are now 1/12 of those in Canada & the U.S. We’ll address this issue shortly.

Since NAFTA’s ratification, the effects on trade have been monumental to say the least:

Trade between U.S. & Canada has nearly doubled
Trade between U.S. & Mexico has gone up 4 times pre-NAFTA levels
86% of Canadian exports now go to U.S. firms
2/3 of foreign investment in Canada comes from U.S. firms
Trade between Canada & Mexico has increased 9 times pre-NAFTA levels
Effects on industry is arguable on a case by case basis
In order to truly ascertain if NAFTA has been a success or not, we’ll have to consider the effects of the treaty on a country by country basis:

In the United States:

Textile jobs in the U.S. have dropped by nearly 50% since 1980. You can argue that this is not a NAFTA related issue, as all manufacturing in the U.S. has declined, so textiles are just part of that trend. Well… that’s actually not the case at all. In the same period when textile jobs dropped 50% in the U.S., manufacturing jobs in other sectors actually grew in the U.S. by 11.3%. The drop in textile & garment manufacturing jobs is 100% related to NAFTA. Following is another example of the exodus the U.S. has suffered in the fashion sector.
At the time of NAFTA’s signing, there were 4 manufactures of denim jeans in El Paso, TX employing over 5,000 workers. Soon after the agreement began, three of these factories chose to exit their TX base & head across the border to Mexico, where the still are located. Today, there is only 1 jean manufacturer left in the U.S., in El Paso, TX employing 550 people. Thank you, NAFTA! However, all is not bleek in the garment industry in the U.S…
Quite to the contrary, jobs in the NY Garment Center have pretty much remained constant. Why? Well, two main reasons. The Garment Center in NY is in the heart of our industry. It primarily services two types of functions, first is sample making. The predominant type of “factory” in NY is called a “sample room”. Sample rooms make designer sales samples & also produce small lots of 24 to 200 pieces. As a result of their specializing in samples & small lots, they tend to be very pricey. The second function of NY Garment Center production rooms is, as already stated, small production lots. The very reason they are in existence is to allow designers, whose studios are in the neighborhood convenient access to the production facilities just downstairs. Therefore, the factories in the NY Garment Center have pretty much been immune to feeling the negative effects of NAFTA that so much of the balance of the industry have felt.
Additionally, apparel jobs in LA County have significantly increased, making LA County the largest garment manufacturing center in the U.S. This is a rather uncanny phenomenon that has a great deal to do with immigration, but not across the Southern Border, but rather the Pacific Ocean. The Korean community has set-up a massive network of factories in the LA County area. They purchased factories that were previously owned & operated by the Latin population & before that by the Jewish population that manufactured men’s & casual sportswear, which is the foundation of the West Coast Garment Center. LA has a strong tradition in menswear, junior clothing & casual/surf style clothing. A bit of Fashion Trivia… The MAGIC Show in Las Vegas, which was traditionally the anchor event in the men’s fashion world stands for “Mens Apparel Guild In California”… a testament to the California roots of the American menswear industry. Let’s compare the Korean model to the traditional model of factory management:
Korean-American factory model is making serious inroads in manufacturing in LA County
Work on ½ the staff
Work on 15% margins
Turn goods 35 times a year, a new production lot every week & a half.
Mainstream model for comparison
Front office staff heavy
Work on 25 to 30% margins
Turn goods 12 times a year
Retailing:
Mergers & WalMart are the only big stories
WalMart was $262 Billion company in 2006, twice as large as the 2nd largest retailer in the world (Carrefour). In 2016, WalMart was a $447 Billion company, 5 times larger than it’s 2nd place direct competitor, Carrfour. Amazon is now over $107 billion & coming on strong. Target was $70 billion in 2015.
Mergers
Sears bought Lands’ End & then merged with K-Mart for $11 Billion
Federated Stores (Macy’s) took over May Company for $11 Billion, resulting in a company of over 1,000 stores with annual sales of $25.73 Billion in for the last year, ending on April 30th, 2019. This is small change compared to the larger mass merchants in the market.Yet, we put so much emphasis on Macy’s in the market… why??? They seem to be everywhere, but as you can see from the figures above, they are almost inconsequential compared to WalMart & Amazon. The answer
In Canada:

Until 2003, Canada had a positive trade balance in the textile sector, but that switch wasn’t due to NAFTA, but rather low cost manufactured goods from India, China, Pakistan & Indonesia. Truth is, the globalization boom that was sweeping the Western world did not skip Canada. NAFTA was blamed for this move by many, but it simply isn’t the case.
Following NAFTA, apparel imports into Canada grew by 600% with most of that increase coming from U.S. companies. The reduction in duty made American goods far more price competitive than the European counterparts, so it’s not surprising that the importing of U.S. made apparel increased. The U.S. fashion industry is very happy with this area of the treaty.
The constant strengthening & deflation of the Canadian Dollar has done much to harm trade between Canada & the U.S. as prices are very volatile literally from month to month, season to season, making fiscal decisions very unpredictable.
Retailing:
High consumer confidence level has kept Canadian retail strong since the treaty took effect, of course with the normal ebbs & flows that are to be expected
Retailing & the related support businesses has grown to be Canada’s 2nd largest employer
Sadly the WalMart blight hit Canada in 1994 & spread rapidly, bringing with it Costco & Sam’s Club
Target began to move into the Canadian market post NAFTA as well, but unexpectedly failed miserably & led to all their stores closing & the company retreating back to the U.S.
The trend of retail consolidation has also been running rampant in the country
The biggest psychological blow to the Canadian business state was when Hudson’s Bay Trading Company was purchased by a U.S. company. This was a direct result of the ability for direct investment across the borders that was not so simply pre-NAFTA. Hudson’s Bay Trading was the first official business on the North American continent & dates all the way back to the 1600’s when it was established as a company to trade Beaver pelts with the European markets. To have such an historic pillar fall into foreign hands was a definite ego blow.
In Mexico:

Mexico has the most to gain across the board from NAFTA as their economy was far less developed, not to mention the infrastructure, fiscal health, etc. The economies of the U.S. & Canada were far more developed, so while they had much to gain, the gains may not be as clear on the surface as they would be in Mexico.

Mexico’s infrastructure has improved due to increased trade traffic. I was in Mexico three years ago & witnessed these improvements first hand. The highway system was brand new & in great shape. Several airports were newly built & state of the art. I also saw massive development in terms of deep water ports on the Caribbean side that were brand spanking new & quite busy.
If Mexico has one Achilles Heel, it would be the state of the drug trade. The drug trade & the related baggage that comes along with the business is still a problem major hindering overall progress. 70% of U.S. cocaine supply still passes through Mexico & as a result, the U.S. is very reluctant to open the borders & loosen the purse strings for fear of the problem only becoming exacerbated.
Contrary to what one might expect from an undeveloped country positioned on the planet where it is, Mexico has quite a sophisticated network of trade agreements that extend far beyond their neighbors to the North. In addition to NAFTA, Mexico has instituted a free trade area with Guatemala, Honduras, El Salvador & the European Free Trade Area… yes, Mexico has a free trade agreement in place with the EU… a feat that most of the developed world has yet to accomplish.
Regardless of what the Mexican Government may actually desire, the Mexican economy is still highly dependent on the success of the U.S. economy. When our economy declines, or our citizens’ buying power diminishes, it is felt nearly immediately by the Mexican economy. The influx of U.S. cash is not solely from manufacturing, but also from tourism due to the close proximity. As soon as the consumers feel a cash crunch, they are less likely to pop off to Mexico for a quick vacation. Tourism fuels all levels of an economy.
NAFTA’s benefits have largely been unevenly felt in the North & Central areas of the country with little effect on the Indian populations in the Southern areas.This makes total sense when you think about it. The areas closer to the U.S. border are naturally more desirable for companies moving across the border just due to proximity & shipping times. The central parts of the country are where the larger cities & population of workers reside.
The biggest issue hindering Mexico’s long-term development has been that their educational system was not prepared to handle the demands for a more educated workforce that came along with more trade jobs. If you run a factory in Mexico, you will need to manage it yourself or bring in the management team from the U.S. As a result, these higher paying jobs are not going to the native Mexicans, thus the money doesn’t get spent in the Mexican economy.
The World Bank estimates that due to NAFTA:
Global exports have increased 25%
Foreign investment has increased 40%
Per capita income has increased 5% (as you can see in the wages chart above)
90% of Mexico’s textile production is exported to the U.S. with several large U.S. firms building state of the art facilities in Mexico
Goal was to get production times down from 34 to 40 weeks to 15 to 20 weeks
Retailing:
Growth has been seen in the modern retail sector within specific target markets
Growth has also been seen in the traditional retail sector, where open markets & bartering are characteristic. This would make sense in that the common worker has seen an increase of 5% in their income & they tend to shop locally
WalMart arrived in 1997 when it bought an existing chain, Commerciale Mexicana & now does $10.6 billion in sales annually
Efficiency of WalMart’s operation is putting pressure on rest of the retailing industry to adapt or face failure
WalMart has seen some local protests like those in other countries for various reasons

The Caribbean Basin:

Even though the Caribbean region is not party to the NAFTA agreement, they too have seen significant improvement in economic cooperation in the region under their own version of NAFTA, called the CAFTA. A great deal of the economic growth has been in the textile & apparel sector due to U.S. investment & preferential trade programs such as the 807 clause. The 807 clause is the program we spoke about earlier that allowed items of all categories to be manufactured in Free Trade Zones in the Caribbean with duty only being charged on the value accrued on the item while it is out of the U.S. Basically, in laymen’s terms, it states that cut pieces (or parts if we are talking about a non-textile based item) can be cut in the U.S. & then exported to these countries for assembly with return duty only assessed on the value added while out of the U.S.

Originally the CAFTA was negotiated with Dominican Republic not signing on as a party to the agreement. Later, after a few other clauses were added &/or amended, Dominican Republic joined & the name of the agreement, as it stands currently, became CAFTA-DR.

South America:

In South America, there is, a great deal of disparity between the nations on the continent. Brazil, however, is the largest economic force & a great deal of the continent’s affairs, especially around trade, hinge on the extent to which Brazil is a part of the figures.

There are several trade blocks in play on the continent, all similarly structured, just with different members.

ANDEANcountries: Columbia, Bolivia, Ecuador & Peru (Venezuela until 2000’s). The ANDEAN Pact was established with the U.S. in 1960 & has been updated two more times in 1991 & 2002
MERCOSUR(Mercado Commune Sur, aka: Southern Mercantile) countries: Argentina, Brazil, Paraguay & Uraguay. The members of this treaty make-up 70% of the continent’s total economy
ALBAcountries: Argentina, Cuba, Bolivia, Ecuador & Venezuela (Alternativa Boliveriana)
Like in all the other regions we discussed so far, there is one country that doesn’t subscribe to the same treaties that the others do. In Europe, it’s the UK & Switzerland, in Caribbean, it was the Dominican Republic, in North America, it was the U.S. & in South America, it’s Chile. Chile is not a member of any of the trade groups & is a stable, prosperous, democratic country with a healthy trading record with the world. They don’t feel that they need to be a part of the trade groups, as they are well off enough on their own, so the remain neutral.

Overall Thoughts on North, Central & South America:

As you can see, there has been immense movement in the region towards regional cooperation on a trade front. However, there is still a looooooong way to go before the dream of a hemisphere wide free trade area is realized. It is important to remember that progress doesn’t happen overnight, but rather incrementally over long periods of time.

Despite attempts by governments to thwart the onslaught of Free Trade, the overall movement on the planet is towards open borders on the trade front. Though I’m the first to argue that we will never have full on, 100% free trade, planet wide, it is an impossibility to argue that the tendency towards reduced barriers is real.