NORTH AMERICA FREE

TRADE AGREEMENT
INTRODUCTION
• The North American Free Trade
Agreement (NAFTA) was implemented
to promote trade between the U.S.,
Canada, and Mexico. The agreement,
which eliminated most tariffs on trade
between the three countries, went
into effect on Jan. 1, 1994.
• Numerous tariffs, particularly those
related to agricultural products,
textiles, and automobiles, were
gradually phased out between Jan. 1,
1994, and Jan. 1, 2008.
• This free trade agreement was
terminated and replaced by the
United States-Mexico-Canada Agreem
ent (USMCA)
in 2020.
Some of the main goals of the agreement included the:

Reduction of trade barriers.

Creation of trade rules.
Improvement of working conditions
Establishment of a safe market for North American goods and services.
Expansion of global trade and cooperation.
Provisions of the NAFTA

1. Elimination of Trade Barriers

One of the main goals of NAFTA was to eliminate most tariffs and other restrictions on trade
between the three countries. Before the implementation of NAFTA, high import tariffs discouraged
cross-border trade in some manufactured goods. The agreement also sought to eliminate non-
tariff barriers to trade such as border processing and licensing requirements.

2. Intellectual Property Protections

NAFTA also provided increased protections for intellectual property, such as trade secrets
and computer software. These protections increased the incentives for cross-border trade because
they reduced the risk of losing business secrets to an international competitor.
3. Environmental and Labor Protections
In response to critics who argued that NAFTA would lead to a decline in environmental and labor
standards, the Clinton administration negotiated several side agreements to ensure protections for
the environment and labor rights.
The first of these, the North American Agreement on Labor Cooperation, included provisions
to prevent child labor and other abuses but stopped short of protecting the right to organize. The
second, the North American Agreement on Environmental Cooperation, introduced a commission
to assess the results of liberalization on environmental regulations.

4. Dispute Resolution
In order to further facilitate cross-border trade, the agreement included a dispute resolution
process for disagreements between investors, businesses, and state governments. This process was
heavily criticized in all three countries, as it was seen as a way for multinational corporations to
overrule local regulations.
Advantages and Disadvantages of the NAFTA

NAFTA's immediate aim was to increase cross-border commerce in North America, and it did
indeed spur trade and investment among its three member countries by limiting or eliminating
tariffs.

1. Increased Trade
Most of the increase came from trade between the U.S. and Mexico or between the U.S.
and Canada., though Mexico-Canada trade grew as well. Overall, there was
$1.0 trillion in trilateral trade from 1993 to 2015, a 258.5% increase in nominal terms (125.2%
when adjusted for inflation). Real per capita gross domestic product (GDP) also grew slightly in
all three countries, primarily Canada and the U.S.
During the NAFTA years, U.S. trade deficits (importing more from a nation than you
export) did increase, especially with Mexico. So did inflation.
2. Intellectual Property Protections
NAFTA protected non-tangible assets like intellectual property, established dispute-
resolution mechanisms, and, through the NAAEC and NAALC, implemented labor and
environmental safeguards. It increased U.S. competitiveness abroad and exported higher U.S.
workplace safety and health standards to other nations.

3. Job Loss and Immigration

Critics of NAFTA were concerned that the agreement would result in the relocation of
American jobs to Mexico, despite the supplementary NAALC. Many companies moved their
manufacturing operations to Mexico and other countries with lower labor costs, including
automakers and those in the garment industry. However, NAFTA may not have been the reason for
all those moves.

Some critics also cite the rising wave of Mexican immigrants to the U.S. as a result of NAFTA
—partly because the expected convergence of U.S. and Mexican wages didn’t happen, thus making
the U.S. more attractive to Mexican workers.
Objectives of NAFTA

• The objectives of NAFTA are enlisted in Chapter 1 of Article 102.

1. To eliminate barriers to trade and facilitate the cross-border movement of goods and services
between the territories of the Parties
2. To promote conditions of fair competition in the free trade area
3. To increase substantially investment opportunities in the territories of the Parties
4. To provide adequate and effective protection and enforcement of intellectual property rights
in each Party’s territory
5. To create effective procedures for the implementation and application of this Agreement, for
its joint administration and the resolution of disputes
6. To establish a framework for further trilateral, regional and multilateral cooperation to expand
and enhance the benefits of this Agreement.
• Controversy Related to NAFTA
Since its inception, NAFTA has been the centre of controversy. It was believed that the lower
tariffs would help in increasing the profits, but according to the trade and labour unions of the
United States and Canada, their jobs are in danger because of the fear of shifting to Mexico due to
lower labour costs there.

Moreover, former US President Donald Trump contended that the trade deficit with Mexico
and the loss of American jobs are due to NAFTA. For this, he intended to revise the trade agreement
with Mexico.
• Benefits of NAFTA

The NAFTA benefits are as follows:

a. It increased cross-border trade and commerce in North America and investment among
the three member countries. It quadrupled trade and boosted the economic growth of
the countries involved.
b. It benefited small and medium businesses because of lowered costs and allowed the
company to do business in a foreign country without a physical presence.
c. It established a proper framework for businesses, such as protecting intellectual
property rights, establishing dispute resolution mechanisms, and implementing labour
and environmental safeguards.
d. The agreement benefited not only the businesses but also the customers as the prices of
the products were lowered. A lower tariff also reduced the import prices, which reduced the
risk of inflation and kept the interest rate low, reducing the prices of the products.

e. Increase in foreign direct investment in Canada and Mexico, which also boosted the profit
for businesses based in the US by giving them opportunities for developing and exploring the
market. The agreement created a level playing field for the companies within the borders of the
three countries.
• How did NAFTA affect the U.S. economy?

In the years since NAFTA, trade between the United States and its North American
neighbors more than tripled, growing more rapidly than U.S. trade with the rest of the world.
Canada and Mexico are the two largest destinations for U.S. exports, accounting for more than
one-third of the total.
Most estimates conclude [PDF] that the deal increased U.S. gross domestic product
(GDP) by less than 0.5 percent, an addition of up to $80 billion to the U.S. economy upon full
implementation, or several billion dollars of added growth per year.
• NAFTA definitions and interpretations

i. business person means a citizen of a Party (a “Party” means the U.S., Mexico or Canada) who is
engaged in trade in goods, the provision of services or the conduct of investment activities;
ii. enterprise means any entity constituted or organized under applicable law, whether or not for
profit, and whether privately-owned or owned by government, including any corporation, trust,
partnership, sole proprietorship, joint venture or other association
iii. enterprise of a Party means an enterprise constituted or organized under the law of a Party;
iv. existing refers to, for Canada and the U.S., the date of entry into force of the FTA (January 1,
1989); while for Canada and Mexico and for the U.S. and Mexico it is the date of entry into force of
the NAFTA (January 1, 1994);
v. measure includes any law, regulation, procedure, requirement or practice.
• Effect on Mexico
A number of studies have found that NAFTA has brought economic and social benefits to
the Mexican economy as a whole, but that the benefits have not been evenly distributed
throughout the country. The agreement also had a positive impact on Mexican productivity. A
2011 World Bank study found that the increase in trade integration after NAFTA had a positive
effect on stimulating the productivity of Mexican plants.
• Effect on Canada

As noted earlier, the U.S.-Canada FTA came into effect on January 1, 1989. Thus, trade
liberalization between the two countries was well underway—or already completed—by the
time of the implementation of NAFTA. This section summarizes the effect of trade liberalization
from both agreements on Canada.
• North American Free Trade Agreement (NAFTA) vs. U.S.-Mexico-Canada Agreement
(USMCA)

On Aug. 27, 2018, President Donald Trump announced a new trade deal with Mexico
to replace NAFTA. The U.S.-Mexico Trade Agreement, as it was called, would maintain duty-free
access for agricultural goods on both sides of the border and eliminate non-tariff barriers while
also encouraging more agricultural trade between Mexico and the United States.
On Sept. 30, 2018, the agreement was modified to include Canada. The USMCA took
effect on July 1, 2020, completely replacing NAFTA. If not renewed, the USMCA will expire in 16
years.
• Summary

The North American Free Trade Agreement (NAFTA) is both an improving and
controversial measure. Though it improved the trade and investment between the three
countries, on the other hand, it hurt the economy in terms of employment and environment.
The agreement is a matter of debate as there were significant gains and also some losses. The
engagement of the three North American countries has laid the foundation of free trade and
globalisation for the world.

With the changing business environment, it is important to update the old

agreements and transform them into new ones to keep in line with the current changes. The
new renegotiated agreement between the United States, Mexico, and Canada, i.e., USMCA, has
included the earlier loopholes, to improve the trade agreement.
THANK YOU