Running head: NAFTA through out the years 1

History of the NAFTA

Enrique A. Anaya

CETYS Universidad
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History of the NAFTA

In 1994 Canada, U.S.A. and Mexico established a trilateral free trading bloc within

North America for the sole purpose of getting rid of restrictions on trade, like high tariffs

and taxes, since then, most tariffs and non-tariffs barriers have been eliminated for the

investment to grow within these three North American countries, as well as the promotion

of free competition in order to increase the market access and not fall into a monopoly of a

specific market.

In other words, Canada and the U.S agreed to remove the barriers on traded goods,

like; meat, fruit and vegetables, machinery, live animals, wine, clothing and electrical

goods. This is only the market access for goods, but the trade agreement also included;

Protection in foreign investment, protection for intellectual property, easy access for

business travelers, access to government procurement and some side agreements like

environmental cooperation and labor cooperation.

This agreement was established as the North American Free Trade Agreement

(NAFTA). In this essay, four main topics will be discussed; The history of the NAFTA, the

purpose that it served, the cause of its renegotiation, and what the agreement might look

like in a near future. The North American Free Trade Agreement was first initiated between

former Mexican president Carlos Salinas de Gortari and U.S. president George H. W. Bush

in 1990, and was joined by Canada a year after.

It was then formally established and presented in 1994 with a starting economy of

$6 trillion that would increase significantly through out the next ten years, the GDP of these

countries grew faster than the Organization for Economic Cooperation and Development

(OECD) had established for the countries. Both Canada and the United States were growing
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massively, as for Mexico; its growing progress was insufficient compared to its

neighboring country because of its peso crisis in 1994-1995.

This trade agreement also helped the troubled relationship that Mexico and the U.S

had. According to Hufbauer, lyde, Schott and Jeffrey (2005) the imports that the United

States received from Mexico, would contain more U.S materials than any other competing

imports, like; Asia. This was a benefit for both countries, the U.S benefited from its

materials used and Mexico would increase their purchases due to U.S firms.

The on going debate of the NAFTA before its renegotiation was that many things

that were promised would never Cease to be completed because not everything could be

accomplished with a free trade agreement. Many U.S citizens were against this agreement

because many companies would move to Mexico due to its cheap labor, and leave

American citizens unemployed; the most notable would be the automotive industry.

The purpose

There are 7 main purposes that the NAFTA established as goals; Give the most favored

nation status, which meant that trading partners had to give their best trade terms to each

other, this included low tariffs and no trade barriers. Eliminate barriers on the trade of

goods and services and facilitate its movement, with the NAFTA, barriers and tariffs were

removed as long as the product had at least 62.5% of its components made inside North

America. Promote fair competition, the NAFTA accomplished the prevention of possible

monopolies, it made the access of market competition more accessible, and since trade

barriers were the lowest given, it also made the products more competitive.

Increase investments, since the NAFTA took off, many companies around the world

established their commerce inside North America, this was because these companies could

take advantage of the trade agreement that was established, some examples are; the
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automotive industry, like; Toyota of Tecate which is a company originated from Japan and

Mercedes-Benz of La Ciudad de Mexico. These companies take advantage of the NAFTA

but have the obligation to also contribute to it, like mentioned before 62.5% of its parts

have to originate from inside North America. The protection of intellectual property rights

basically established that trademarks, patents, copy rights and industrial designs will be

protected as long as the protection itself does not become a barrier for trade and thus create

a monopoly for a specific product or service.

Another completed goal is the creation of procedures to resolve disputes of the

agreement, in the NAFTA, chapters like 11, 14, 19 and 20 cover the disputes that could

happen within the agreement, these disputes could be related to; investments, services,

agricultural disputes and the interpretation of the NAFTA (Burfisher, Norman & Schwartz,

2009). And the final goal; to establish frameworks for future cooperation to expand the

NAFTAS benefits, this made it the world’s biggest free trade area according to its Gross

Domestic Product (GDP)

Apart from these 7 completed goals that were established in the agreement, the

NAFTA was also responsible for the increase of competitiveness not only in the 3 countries

were the NAFTA takes place, but also for the rise of emerging market countries and the

growth of the European union and the economic growth of china which both of them have

already replaced the U.S as the world’s largest economy, China being the top country up to

date.

The demand for renegotiation

Since the government of President Trump took over, one of the president’s goals

was to renegotiate the 23-year-old NAFTA and update it for increased benefits for the U.S,

apart from the demand from the United States; there were several disadvantages that
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affected both Mexico and the U.S, some of these disadvantages were; U.S jobs were lost,

cheap labor in Mexico made industries withdraw their production from the U.S to Mexico,

682,900 jobs transferred to Mexico, 80% of them being in the manufacturing industry

(Maryse, 2000). This also made U.S wages decrease, with little power from unions,

workers had to accept this wage suppression.

As for Mexico, Farmers were put out of business, this was because of the removed

trade tariffs, local Mexican farmers could not compete against the prices that the U.S had

on products like corn and grains that were imported to Mexico. Subsidies were decreased

for farmers in Mexico, and were focused on bigger farms, making competition impossible

for local farmers. These agricultural changes impacted on the environment, farmers used

fertilizers and chemicals that resulted in 36 billion dollars every year on pollution and

massive deforestation, 630 thousand hectares per year, for larger farming areas, according

to Fickling, Meera, Schott & Jeffrey (2011).

The maquiladora workers were exploited, tariffs were removed in the manufacturing

sector, the U.S took massive advantage of that and placed many U.S owned manufacturing

industries in Mexico, near the U.S border, 30% of Mexico’s labor force grew, but with a

cost; there were no worker rights and no health care, with labor shifts that could last up to

12 hours. (Murray 2018).

And the last major disadvantage was that the United States considered Mexican

transport truck to be road Hazardous, due to a difference in safety standards from Mexico

and the United States. This obligated Mexican transport trucks to switch to American

transport truck after a 20-mile commercial limit, but American transport trucks had no

restrictions upon entering Mexican soil.

The future of the NAFTA

The now renegotiated agreement that no longer is called the NAFTA, but the United

States-Mexico-Canada Agreement (USMCA) was established and now is expected to be

put in use in the year 2020. Some changes for these upcoming trade agreements are the

following; the USMCA is a 16-year contract that must be reviewed by its founding

countries every six years for potential extension of the agreement. The dispute settlement,

as mentioned before, will still be the same for Mexico and the United States, as for Canada;

it removed this element when it comes to negotiation and trading between this country and

the United States.

The United States will have access to export 4.6% of Canada’s dairy market and

making Canada remove its class 7 pricing system, which basically is a dairy product tariff

that Canada has in order ingredient prices and incentives. This was speculated by the

United States government and ruled out in order to establish a true free trade across the 3

member countries. It also established that Canada has to give the United States more

access into their food market, like; chicken, turkey, and eggs, and the permission to sell U.S

wine and liquor inside Canada. As for Mexico, the U.S is allowed to import some American

made cheeses.

The most important and impacting change of the USMCA comes from the

automotive industry, 40% of each automobile must be made in the United States or Canada

and it is disguised as cars needing to be produced by employees making $16 dollars an hour

in order to avoid duties, and a total of 75% of the components need to be made inside North

America to pass as duty free. (Donnan & Coy 2018)

To conclude, the NAFTA has had both advantages and disadvantages, but all

members have benefited greatly from it, increasing significantly their GDP and foreign

investment. As for the new agreement the USMCA, not allot of changes were made, but the

few that were, will impact greatly in the Mexican economy, more time was needed to

renegotiate, but it needed to be done before AMLO’s Mexican presidency.

References
Robert, M. (2000). Negotiating NAFTA : Explaining the Outcome in Culture, Textiles,

Autos, and Pharmaceuticals. Toronto, Ont: University of Toronto Press, Scholarly

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Hufbauer, G. C., & Schott, J. J. (2005). NAFTA Revisited : Achievements and Challenges.

Washington, DC: Peterson Institute for International Economics. Retrieved from

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Fickling, M., & Schott, J. J. (2011). NAFTA and Climate Change. Washington, DC:

Peterson Institute for International Economics. Retrieved from

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Donnan, S., & Coy, P. (2018). NAFTA [naf-tuh] USMCA [naf-tuh]. Bloomberg

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AGUILERA FERNÁNDEZ, A., & CASTRO LUGO, D. (2018). NAFTA and Wage

Inequality in Mexico: An Analysis for Border Cities, 1992-2016. Frontera

Norte, 30(60), 85–109. https://ebiblio.cetys.mx:4083/10.17428/rfn.v30i60.1363

Martin Murray. (2018). Export processing zones (EPZ). Retrieved from

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