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India's Trade With NAFTA: Investment Policies

India's foreign trade is inclusive of both exports and imports, working both ways, i.e. to and from India. Administered by the Ministry of Commerce and Industry, foreign trade accounts for a significant percentage in India's GDP. Presently, exportation of more than 7500 commodities in accordance to importation of more than 6000 commodities from countries demarcate the significant rise of total export and import structure of India. With the advent of new times, the figure of import/export is expected to rise significantly.

The past five year performance of India displays a significant increase in the country's GDP, steadily promoting India's trade relations with other countries. The Make in India� campaign initiated by the Modi Government attracted several multinational companies to set up their institutions in India. Microsoft has already set up its base in India along with other multinational companies like Google, Oracle etc. Apple Inc, the American multinational company has decided to set up its own manufacturing unit in India. Analyzing the data and statistics, it is expected that India's foreign trade will rise significantly over the next five years. Presently, India ranks among the top ten (7th) countries in terms of GDP growth.[1]

What is NAFTA?

Signed by three countries namely the United States, Canada and Mexico, NAFTA deals with a trilateral trade agreement in North America.[2]
Established in 1st January 1994 by the then President of US, Ronald Regaon, the agreement objectified towards:
  • Elimination of trade barriers thereby facilitating the cross-border intercourse.
  • Promotion of conditions for competitions competed through fair means.
  • Expansion of substantial investment possibilities.
  • Provision of adequate protection of interest vis-à-vis enforcement of intellectual property rights.
  • Creation of procedures effective enough for implementation of this agreement.
  • Incorporation of a framework so as to facilitate future trilateral, regional and multilateral collaboration.[3]

NAFTA: Industrial Outcomes

The incorporation of NAFTA resulted in significant changes throughout the industrial sector, the results of which are discussed below,[4]
Textile and Apparel Industries:- Negation of duties on textile and apparel goods over a 10 year period, decided in the North America meeting, facilitated duty free trade between the three countries.

Automotive Industry:-
Negation of Mexico's restrictive auto decree alongside negation of all US, Mexico and Canada tariffs. Basic requirements were included in the agreement to enact a monopoly in trade services. The requirements were instituted to 62.5 percent for autos, light trucks, engines, transmissions, suspensions etc, in contrast to 60 percent for other vehicles and automotive parts.

Separate bilateral undertakings are adopted on cross-border agricultural trade. Canada and Mexico entered into an agreement while U.S. and Canada had a separate agreement. However, the FTA provisions related to U.S. and Canada continued to exist.

Foreign Investment:- NAFTA made significant changes in investment policies, uplifted basic protection for investors thereby providing an effective mechanism related to settlement of disputes, guiding the investors and providing them with rights to settle disputes with the country.

Dispute Settlement Procedures:- The FTA provisions which existed between the U.S. and Canada contain the measures for prevention and settlement of disputes. A structure for arbitration resolved disputes including initial consultations. If needed, one could approach the NAFTA Trade Commission, or go through arbitral panel proceedings.[5]

Intellectual property in relation to NAFTA

The first ever international trade agreement to include objections for protection of intellectual property rights, the NAFTA revolutionized the world of trading. The logic pertaining to incorporation of intellectual property provisions within an agreement of trade ensures in itself the enforcement of law consistent with access to markets and non-discrimination of the free trade principles. Chapter 17 of the NAFTA lays down the provisions related to intellectual property rights thereby referring to copyright and other rights related to trademark and patent, etc. The provisions contain various safeguards including adequate and effective measures for protection and enforcement of intellectual property rights. All the parties affiliated to NAFTA are bound to implement such laws so as to prevent unauthorized duplication of materialistic work. Additionally, such countries affiliated under NAFTA are entailed to protect the interests of another NAFTA country. In other words, such countries are restrained from providing to another, a better title for protection of such rights. Obligations included in Chapter 17 lays down a sequence of obligations, included in order to protect rights of the parties. The trademark provisions incorporated within restrict third parties from application of identical designs and structures thereby providing a minimum standard of protection against replication of signs and designs, uplifting public interest.[6]

NAFTA: The Indian Scenario

The globalization process seldom follows capital flows. The contribution of liberalization and deregulation in the past has helped strongly to cascade the FDI flows. However, the extent of such was inconsistent throughout the territory. For instance, an area lacking in technology got a significant boost in the technological sector due to the advent of foreign firms thereby causing a rise in employment. There is a term prevalent in Mexico called Maquiladora� which signifies foreign owned firms. Such firms boost the employment and resources, thereby increasing productivity in the industrial sector and facilitating the society with economic needs. Similar scenario exists in India whereby foreign companies set up their bases in India.[7]

Economic Assistance from NAFTA to India

Being direct in nature, such assistance is provided on country to country basis making its source tied. Only specified donor countries are applicable to spend such resources irrespective of price and market conditions. The principle of multilateral assistance is to this date the most efficient embodiment of economic assistance. Loans and grants are the principal forms of such assistance. Keshav C. Sharma, an imminent author quoted, Loans are that part of the economic assistance which has to be serviced with the interest payments either in local currency or in the foreign currency.� USAID (US Agency for International Development) deals with channelization of economic assistance, while CIDA (Canadian International Development Agency) deals with the Canadian structure of assistance provided to developing countries.[8]

Post independence, the scenario underwent a significant transformation whereby such assistance was not required, making India economically independent. The P.L. - 480 (Public Law 480) program, set up to curb the problem of hunger and malnutrition, administered such aid during the initial phase of independence, specifically in food sector. Comprising of three titles, each one of them objectified their significance providing agricultural assistance in different societal strata. Provided in Title One is the selling of agricultural commodities, basis of which is in long term credit. Title Two deal with donation of agricultural commodities while Title Three engulfs itself with donations based on government to government basis thereby supporting the humanitarian aspect of the civilization. Agency for International Aid (AID) looks after the two titles viz, two and three.[9]

Quantum of Assistance

All G-8 countries are entitled to provide assistance, bilateral in nature. Such countries include USA, UK, Japan, Germany, France, Canada etc. Another situation exists whereby some countries are predefined not to provide assistance in governmental levels to another country. However, provision of assistance does not get restricted there, thereby enabling the countries to provide assistance not in the governmental level but in relation to development of schools and universities etc. Collaboration of such universities further assimilates the growth of the educational sector, providing a significant boost in the educational structure and providing further employment opportunities abroad.

Statistics (Export/Import)
India was authorized an assistance amount of Rs.4,84,761.2 crore till the year 2011 out of which about 84 percent was used in economical aspects of the country. NAFTA provided assistance to India at an amount of Rs. 7,030.5 crore out of which Rs. 5875.20 crore was appropriated in developmental aspects. Combining both the stats from overall assistance provided to India and the assistance as provided by NAFTA, it is further examined that the rate of appropriation of the amount by NAFTA was significantly higher than the overall assistance received for economical aspects.[10]

In 1985, the statistics of trade between India and USA amounted to $ 1641.9 in terms of export and $ 2294.7 in terms of import, the figures of which remained similar till the year 1987. 1988 onwards, India observed a significant growth in the import/ export ratio which continued to increase throughout the years. In 2018, India's total export amounted to an aggregate of $ 33,120.1 while maintaining its import at an aggregate of $ 54,407.5 which showed a significant increase than the ratio observed in 2017. The stats show an aggregate of $ 25,688.9 in terms of export while maintaining its import at an aggregate of $ 48,602.9. The present statistics in 2019 show an export in the amount of $ 5,337.9 and an import of $ 9,536.3.[11]

The current scenario of NAFTA took a significant turn when the US President Donald Trump announced to re-negotiate and even excoriate a few of those treaties held to be disadvantageous to the American economy. Calling it the worst trade deal ever made�, Trump proceeded with the re-negotiation of the NAFTA and has been involved in an arm-twisting brawl with the other two countries visually, Mexico and Canada. Trump in one of his twitter posts quoted, NAFTA, which is under renegotiation right now, has been a bad deal for USA.

Massive relocation of companies and jobs, Tariffs on Steel and Aluminum will only come off if new and fair NAFTA agreement is signed.�[12] For at least half a century, the trade agreement succeeded in maintaining a good relationship with two of its neighboring states. Moreover, if such re-negotiation takes place India is likely to get affected significantly, creating an order of chaos between the countries, thereby affecting the diplomatic relationship of the two states. It is for this particular reason, that the Congress repelled Trump's atrocious decisions in fear of depleting the relationship between Canada, USA and Mexico.

Significance of this agreement lies in its application in interlinking trade relations between countries along with maintenance of good relations between the countries. Mexico and Canada, both being neighboring states, the significance of such relationship stands atop all.[13]

  1. Sheveta Sehgal, The Evolution of NAFTA: An Experience in Regionalism, (2011).
  2. Michael J. Boskin, NAFTA at 20: The North American Free Trade Agreement's Achievements and Challenges, (2014)
  3. William A. Orme (Jr.), Understanding NAFTA: Meixco Free Trade, and the New North America, (1996).
  4. Mary E. Burifisher, Sherman Robinson, Karen Thierfelder, The Impact of Nafta on the United States, (2001).
  5. Lokeshwarri SK, All You Wanted to Know About Nafta Negotiations, (2018)
  6. David Bacon, The Children of Nafta, (2004).
  7. Joseph Fitz, The North American Free Trade Agreement (NAFTA), (1993).
  8. Rene Cabral Torres, Andre Varella Mollick, Intra-Industry Trade Effects on Mexican Manufacturing Productivity before and after NAFTA, (2018).
  9. Vivek Rajbahadur Singh, Trends and Flow of Foreign Direct Investment: An Indian Perspective, (2016).
  10. USA authorized Rs. 5221.6 crore and Canada authorized Rs. 1808.9 crore in terms of loans and grants.
  11. NAFTA Job Claims; Truth in Statistics?: Hearing Before the Committee on Governmental Affairs, United States Senate, One Hundred Third Congress, First Session, (2018).
  12. Alan Rappeport and Jim Tankersley, Trump Berates Canada and Threatens Car Tariffs as NAFTA Talks Falter, The New York Times, (26 September, 2018).
  13. Edward G. Hinkelman, Glossary of International Trade, (2010).

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