NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)

North American Free Trade Agreement (NAFTA)

North American Free Trade Agreement (NAFTA)

Introduction

The North American Free Trade Agreement, or NAFTA, formed the largest regional free trade economy agreement between Canada, the United States, and Mexico. NAFTA represented the continuation of a trend established by the 1989 U.S. Canada Free Trade Agreement. The interest in forming the free trade zone was advanced by a perceived need to balance the harmonization that led to the formation of the European Union and by reforms in Mexico that made it more compatible with the economies of the United States and Canada. In proposing the expansion to be included in the regional economy, Mexico was able to rely on the precedent set by the U.S. Canada Free Trade Agreement. In exchange for improved access to the largest market available through the formation of NAFTA, Mexico accepted the responsibility to develop environmental, labor, and other business regimes in keeping with the United States and Canada. (Gordon, Hanson, 2003)

The development of the NAFTA zone was in some respects a logical development of historical patterns of trade between the United States and its immediate neighbors to the north and the south. Canada and Mexico have traditionally been the first and second suppliers of food to the United States, respectively. Although the trade between Canada and Mexico has been relatively smaller than each country's trade with the United States, the agreement advanced the harmonization of the markets of the three major trading partners.

Discussion

NAFTA stands for the North American Free Trade Agreement among Canada, the United States, and Mexico that formed the largest regional free trade economy. The agreement represented the continuation of a trend established by the 1989 U.S. Canada Free Trade Agreement. In proposing the expansion and its own inclusion in the regional economy, Mexico was able to rely on the precedent set by the U.S. Canada Free Trade Agreement in designing and implementing extensive internal reforms. For the United States and Canada, the initial difference in NAFTA was the inclusion of Mexico. (Pamela, 2010)

The conclusion of the agreement and its implementation in 1993 led to broad consequences for the participating political systems and markets. Perhaps more so for Mexico than for the United States and Canada, governments at all levels in the region were required to reconfigure to equalize market access to eligible participants. In addition to reforming its investment laws, Mexico also changed its land ownership laws. The combination played a significant role in modifying the food industry in the region. (Litan, 2000)

The North American Free Trade Agreement (NAFTA) was ratified in 1994, linking Canada, Mexico, and the United States under a regime of liberalized trilateral commerce that harmonized procedures for defining rules of origin, expedited customs clearance for cross-border trade, and provided for a wide variety of institutional reforms to safeguard environmental interests and the rights of workers (sidebar agreements). The accord also included provisions to maintain stable flows of energy products, easier business travel, and reduced restrictions on foreign direct investment (FDI) across major sectors outside the energy domain (a concession to Mexico's oil industry). Despite many side agreements covering spheres such as labor conditions and environmental protection, a ...