Some critics of the North American Free Irade Agreement (NAFTA) suggest that firms outside NAFTA nations sometimes shift unassembled inputs to Mexico, assemble the inputs into final goods there, and then export the final product to the United States in order to take advantage of Mexican trade preferences. What term describes what these critics are claiming is occurring with regard to U.S.-Mexican trade as a result of NAFTA? Explain your reasoning.

Short Answer

Expert verified

The origin of exported products will be examined rather than the exporting country under this guideline.

Step by step solution

01

Given information

A trade deflection is a technique in which a company from outside a regional bloc transports unassembled inputs to a member country so that the member can export the goods to other regional members tariff-free.

02

Explanation

In the case of NAFTA, Country M gets unassembled components from outside the trade bloc and exports them tariff-free to Country U and other member countries. Both Country M and non-member nations benefit from tariff advantages.

03

Result

To avoid trade deflection, origin rules were implemented. The origin of exported products will be examined rather than the exporting country under this guideline.

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