North American Free Trade Agreement

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"NAFTA" is also an abbreviation for the New Zealand Australia Free Trade Agreement.

The North American Free Trade Agreement, known usually as NAFTA, links Canada, the United States, and Mexico in a free trade sphere. NAFTA went into effect on January 1, 1994.

NAFTA Initialing Ceremony, October 1992. From left to right: (Standing) Mexican President Salinas, President Bush, Canadian Prime Minister Mulroney (Seated) Jaime Serra Puche, Carla Hills, Michael Wilson. Source: George Bush Presidential Library and Museum
NAFTA Initialing Ceremony, October 1992.
From left to right: (Standing) Mexican President Salinas, President Bush, Canadian Prime Minister Mulroney
(Seated) Jaime Serra Puche, Carla Hills, Michael Wilson.
Source: George Bush Presidential Library and Museum

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. This agreement was an expansion of the earlier Canada-U.S. Free Trade Agreement of 1989. Unlike the European Union, NAFTA does not create a set of supranational governmental bodies, nor does it create a body of law which is superior to national law. NAFTA, as an international agreement, is very similar to a treaty (indeed, in Spanish, it is styled a tratado). Under United States law it is classed as a congressional-executive agreement.

The agreement was pursued by the free-trade conservative governments in the US and Canada. Canadian Prime Minister Brian Mulroney, and US President George H. W. Bush worked hard to create and sign the agreement. There was considerable opposition on both sides of the border, and the Clinton administration made passage of the agreement its major legislative initiative in 1993. After intense political debate and the negotiation of several side agreements, the US House passed NAFTA by 234-200 (132 Republicans and 102 Democrats voting in favor) and the US Senate passed it by 61-38. Some opposition persists to the present day. Recently in Canada, labour unions have removed their objections to the agreement from their platforms.

The United States and Canada have been arguing for years over the United States' decision to impose a 27% duty on Canadian softwood lumber imports. Canada has filed numerous motions to have the duty eliminated and the collected duties returned to Canada. Canada has won every case brought before the NAFTA tribunal, the last being on August 10, 2005. The United States responded by saying "We are, of course, disappointed with the [NAFTA panel's] decision, but it will have no impact on the anti-dumping and countervailing duty orders," (Neena Moorjani, spokeswoman for U.S. Trade Representative Rob Portman). The failure of the U.S. to adhere to the terms of the treaty has generated widespread political debate in Canada. The debate includes imposing countervailing duties on American products, and possibly shutting off all or some energy shipments, such as natural gas.




NAFTA has been controversial since it was first proposed. Transnational corporations have tended to support NAFTA in the belief that lower tariffs would increase their profits. Labor unions in Canada and the United States have opposed NAFTA for fear that jobs would move out of the country due to lower labor costs in Mexico. Some politicians, economists, and policy experts have opposed free trade for fear that it will turn countries, such as Canada, into permanent branch plant economies. Farmers in Mexico have opposed and still oppose NAFTA because the heavy agriculture subsidies for farmers in the United States have put a great deal of downward pressure on Mexican agricultural prices, forcing many farmers out of business. Opposition to NAFTA also comes from environmental, social justice, and other advocacy organizations that believe NAFTA has detrimental non-economic impacts to public health, the environment, etc. In Mexico, as only a single example, poverty has risen considerably since the signing of NAFTA. Wages there have decreased by as much as 20 percent in some sectors. NAFTA's approval was quickly followed by an uprising amongst Zapatista revolutionaries, and tension between them and the Mexican government remains a major issue. Furthermore, NAFTA was accompanied by dramatic reduction of the influence of trade unions in Mexico's urban areas. NAFTA has been accompanied by a dramatic increase of illegal immigration from Mexico to the United States; presumably, a significant fraction of these people are farmers forced off their land by bankruptcy. However, since NAFTA was signed, there has also been economic growth in all three nations, and an increase in the standard of living in Canada, and especially in Mexico, when compared to that in the United States. NAFTA has helped to integrate the three economies, which is seen as a benefit in Canada and Mexico where being attached to the largest economy in the world has great benefits.

Chapter 11

Another matter that is particularly controversial is "Chapter 11", which allows corporations to sue federal governments in the NAFTA region if they feel a regulation or government decision adversely affects their investment. It is argued this provision scares the government from passing environmental regulation because of possible threats from an international business. For example Methanex, a Canadian corporation, filed a $970 million suit against the United States, claiming that a Californian ban on MTBE, a substance that had found its way into many wells in the state, was hurtful to the corporation's sales of methanol. In another case Metalclad, an American corporation, was awarded $16.5 million from Mexico after the latter passed regulations banning the toxic waste dump it intended to construct in El Llano, Aguascalientes. Further, it has been argued that the provision benefits the interests of Canadian and American corporations disproportionately more than Mexican businesses, which often lack the resources to pursue a suit against the much wealthier states. It has been a longtime fear of some Canadians that this provision gives large US companies too much power. There was one case where a Natural Gas company in Nova Scotia which pumped from Sable Island wanted to sell cheaper gas to residents in New Brunswick, a Canadian Province, but threats of a lawsuit over Chaper 11 stopped these plans in their tracks.

Since NAFTA was signed, it has been difficult to analyze its macroeconomic effects due to the large number of other variables in the global economy. Various economic studies have generally indicated that rather than creating an actual increased trade, NAFTA has caused trade diversion, in which the NAFTA members now import more from each other at the expense of other countries worldwide. Some economists argue that NAFTA has increased concentration of wealth in both Mexico and the United States.


In Canada a large amount of the opposition to NAFTA comes from fears over the possible effects of various clauses and articles of the treaty. For example, if something is sold even once as a commodity, the government cannot stop its sale in the future. This of course applies to the water from Canada's Great Lakes and rivers, fueling fears over the possible destruction of Canadian ecosystems and Canada's water supply. Other fears come from the effects NAFTA has had on Canadian law making. In 1996, MMT, a chemical additive that some studies had linked to nerve damage, was brought into Canada by an American company. The Canadian government banned the importation of the additive, but when sued by the American company, was forced to settle out of court. The American company argued that their additive had not been conclusively linked to any health dangers, and that the prohibition was damaging to their company.


From the perspective of North American consumers, one of the effects of NAFTA has been the significant increase in bilingual or even trilingual labeling on products, for simultaneous distribution through retailers in Canada, the U.S., and Mexico in French, English, and Spanish.

See also


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