NAFTA

Outline

Introduction

Origins of NAFTA

Objectives of NAFTA

Trade Liberalization under NAFTA

NAFTA's Importance in Protecting and Stimulating U.S. Investment in Mexico

NAFTA Today

NAFTA's Supporters and Detractors

Conclusion

Introduction

NAFTA, the North American Free Trade Agreement, is a trilateral agreement between Canada, Mexico, and the United States in which the three nations pledge to reduce trade barriers against each other to improve international trade and comity (Anthony, 2004). Although Canada, Mexico, and the United States are arguably at different levels of economic development, they came together in an agreement to develop a multilateral North American trading bloc. The NAFTA Agreement had its genesis in an earlier bilateral free trade agreement between the United States and Canada, the U.S./Canada Free Trade Agreement (1989). NAFTA is an example of regional economic integration combining three sovereign nations.

Origins of NAFTA

While Canada and the United States were forging the U.S./Canada Free Trade Agreement, the government of Mexican President Miguel de la Madrid Hurtado opened Mexico to the international trade community by joining the General Agreement on Tariffs and Trade (GATT) in 1986. On joining GATT, Mexico reduced its trade barriers and came into compliance with the prevailing international trade regulations of the time. Combining its GATT compelled openness with a program of economic reforms instituted by President Madrid's successor, Carlos Salinas de Gortari, Mexico became ready to join Canada and the United States in establishing a multilateral trade agreement. On August 12, 1992, Canada, Mexico, and the United States announced their intentions to create a free trade zone—the NAFTA. Stretching from the Arctic Circle to Mexico's borders with Guatemala and Belize, NAFTA would be the largest trilateral trade relationship in the world.

Objectives of NAFTA

NAFTA combined the United States with its largest (Canada) and third-largest (Mexico) trading partners. Trade between the three countries was well established prior to NAFTA due to the U.S./Canada Free Trade Agreement and a new openness in Mexico to international trade. Under Article 102 of the NAFTA Agreement, Canada, Mexico, and the United States agreed to the following macro objectives: The countries pledged to work cooperatively to “eliminate barriers to trade in, and facilitate the cross border movement of, goods and services between the territories of the Parties; promote conditions of fair competition in the free trade area; increase substantially investment opportunities in their territories; provide adequate and effective protection and enforcement of intellectual property rights in each Party's territory; create effective procedures for the implementation and application of this Agreement, and for its joint administration and the resolution of disputes; and establish a framework for further trilateral, regional and multilateral cooperation to expand and enhance the benefits of this Agreement.”

Trade Liberalization under NAFTA

NAFTA liberalized trade in a variety of ways. Tariffs were either eliminated immediately or phased out over periods of up to 15 years. Limits on investments were removed, and investors from any of the three countries were treated equally, currency was freely transferred at market rates, and performance requirements such as maintaining export levels and trade balancing were eliminated. Trade in services was liberalized and equal treatment was expected ...