by Christina Pomoni

Created on: December 03, 2008   Last Updated: December 19, 2008

The North American Free Trade Agreement (NAFTA) is an agreement between the United States, Canada and Mexico to abolish barriers to trade and investment. Implemented on January 1, 1994, the NAFTA agreement focuses on strengthening the policies and measures governing trade and investment among the U.S., Canada and Mexico and implements the procedures of trade liberalization aiming to increase wealth and improve competitiveness.

Under NAFTA, the United States, Canada and Mexico are a single, integrated market of over 400 million consumers with an annual value of goods and services of almost $6.5 trillion.NAFTA takes into account full protection of intellectual property rights (patents, copyrights, and trademarks) and includes provisions covering trade rules and dispute settlement. The treaty alsodirectly addresses environmental concerns for the first time in the history of U.S. trade policy.

Within the context of economic integration, the contents of the NAFTA agreement include:

(1) The abolition, within ten years, of tariffs on 99% of the goods traded between the U.S., Canada and Mexico.

(2) The elimination of barriers on the cross-border flow of services, allowing financial institutions unlimited access to the Mexican market by 2000.

(3) Protection of intellectual property rights.

(4) Elimination of restrictions on foreign direct investment (FDI) between the U.S., Canada and Mexico with special protection given to Mexican energy and railway industries, American airline and radio-communications industries, and Canadian culture.

(5) Request of national environmental standards provided they have a scientific basis and they are not lowered to lure investments.

(6) Establishment of two authorities to impose fines and remove any trade privileges when environmental standards or legislation referring to health and safety, minimum wages of child labor, are ignored.

NAFTA's advocates argue that the agreement allows trade and investment flows in North America to increase considerably and founds an enlarged and resourcefully productive base for the whole region. With the NAFTA agreement U.S. and Canadian firms move production to Mexico at lower labor costs and obtain a comparative advantage in low-skilled, labor-intensive manufacturing industries such as textiles. In that way, Mexico benefits from investment and employment, while the U.S. and Canada benefit from the increased imports as a result of the increased income of the Mexicans.

NAFTA's enemies argue that the agreement inevitably

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