North American Free Trade Agreement (NAFTA)
The economic development stages of NAFTA include the gradual removal of tariffs and other trade barriers on most goods produced and sold in North America. NAFTA became effective in Canada, Mexico, and the United States on January 1, 1994. NAFTA forms the world’s second largest free-trade zone, bringing together 365 million consumers in Canada, Mexico, and the United States in an open market.
The largest free-trade zone in the world is the European Economic Area (which includes the members of the European Union and the European Free Trade Association), which also became effective in 1994.
Facts on NAFTA
NAFTA was built upon a 1989-trade agreement between the United States and Canada that eliminated or reduced many tariffs between the two countries
NAFTA called for immediately eliminating duties on half of all U.S. goods shipped to Mexico and gradually phasing out other tariffs over a period of about 14 years. Restrictions were to be removed from many categories, including motor vehicles and automotive parts, computers, textiles, and agriculture.
The treaty also protected intellectual property rights (patents, copyrights, and trademarks) and outlined the removal of restrictions on investment among the three countries.
Provisions regarding worker and environmental protection were added later as a result of supplemental agreements signed in 1993.
Economic Development Stages of NAFTA
In December 1992 NAFTA was signed by the leaders of the three countries—Brian Mulroney of Canada, Carlos Salinas de Gortari of Mexico, and George H. W. Bush of the United States. The agreement would not be made effective until the legislatures in all three countries had also voted to accept it.
In response to concerns during the legislative approval process, two supplemental agreements were added to the treaty; one addressed labor issues and the other environmental issues. The Congress of the United States narrowly approved NAFTA in November 1993.
The most innovative, yet controversial, aspects of NAFTA are its environmental provisions, which are included in the agreement itself as well as in a separate Supplementary Agreement on the Environment. These provisions make NAFTA the most environmentally conscious trade agreement ever negotiated. The Supplementary Agreement established a Commission on Environmental Cooperation (CEC), composed of senior environmental officials from each North American country.
Formal negotiations to expand NAFTA to include Chile began in 1995, but the Clinton administration was unable to conclude them. President George W. Bush announced his support for the creation of a “Free Trade Area of the Americas” that would include virtually all countries in the Western Hemisphere. Many trade experts believe that such an agreement will be difficult to negotiate.
Advantages and Disadvantages of NAFTA
In 2007, Canada and Mexico were the largest export markets for United States’ agricultural products. From ’92 – ’07, U.S. farm and food exports to its two NAFTA partners grew by 156%.
NAFTA’s environmental impact has been mixed. The CEC created an action plan to phase out four dangerous pollutants in North America and established systems to improve the monitoring of various measures of environmental quality. It has also investigated a number of complaints, but the results have been inconclusive. There has been measurable improvement in the enforcement of environmental laws in Mexico; however, economic problems have made it difficult for many smaller firms to improve their environmental performance. As a result both air and water pollution remain serious problems in Mexico. NAFTA’s most conspicuous failure has been the lack of significant improvement in environmental conditions along the Mexican-American border. On balance, American environmentalists have been disappointed by the impact of NAFTA’s “green” provisions.