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North American Free Trade Agreement

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

The NAFTA initialing ceremony in October 1992.

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 conservative governments in the US and Canada. In Canada, the Government was led by Brian Mulroney of the Progressive Conservative Party of Canada. The Canadian government worked aggressively with Republican President George H. W. Bush to create and sign the agreement. There was considerable opposition on both sides of the border. Some opposition persists to the present day. Recently in Canada, labour unions have removed their objections to the agreement from their platforms.

Although currently only a trade agreement, with no supranational bodies or laws as in the European Union, all three members support proposals to move towards an EU style organisation.

Effects

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 wage 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 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 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 health, environment, etc. In Mexico the poverty has risen considerably since the signing of NAFTA. Wages have decreased by 20 percent. NAFTA's approval was quickly followed by an uprising amongst indigenous people led by the Zapatistas, 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.

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.

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 an American company brought a toxin damaging to the nerve system known as MMT into Canada. The Canadian government sued the company, but was forced to drop the charges due to the agreement which prevents governments from doing harm to foreign companies. Instead the U.S. company charged the elected government of Canada for enforcing a law aimed at protecting Canadians.

These issues, among others as well as fears about the rellocation of jobs have created opposition to NAFTA. Most opponents such as the New Democratic Party support the renegotiation of the treaty, while others such as former Progressive Conservative leadership candidate David Orchard support Canada withdrawing from the agreement altogether. Despite this many Canadian politicians have made peace with the agreement, including most of the governing Liberal Party of Canada, which campaigned in the 1993 election to renegotiate the teaty but then took no steps to do so and even signed an extension of the Free Trade Agreement (the North American Free Trade Agreement or NAFTA) in 1994.

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.

Further reading

See also

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