by Daniel Xiao Wang

Created on: December 07, 2008

NAFTA (the North American Free Trade Agreement) is a trilateral free trade zone in North America, established in October of 1992. It is one of the largest, most far reaching trade blocs in the world. The United States, Canada, and Mexico comprise its three members.

The agreement was supported by big business, eager to remove trade barriers to doing business, but opposed by environmentalists and labor groups. Two supplements were added to NAFTA: The North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC).

The NAAEC was created in response to environmentalists concerns that the agreement would lower environmental standards. The agreement establishes that these three nations must adhere to the environmental laws of their countries. Further, the agreement created several commissions to promote environmental development.

The NAALC was created in response to labor concerns that free trade would provide for cheaper labor and result in lost jobs and fewer benefits. The agreement allows for increased cooperation among labor unions and establishes a mechanism for the resolution of labor disputes.

Chapter 11 of NAFTA allows individual companies to sue the governments of Canada, the United States, or Mexico for actions taken that are detrimental to their business. This does not take into account for important social and environmental considerations, however, and Chapter 11 has repeatedly come under fire.

Trade within North America has benefited greatly by NAFTA increasing over 150%. Imports to Canada and Mexico from the US significantly increased as well. The hardest hit industry in the United States was manufacturing. Many manufacturing jobs went to Mexico. In Mexico the hardest hit industry was agriculture, with the Mexican markets now having access to inexpensive agricultural products from the United States.

The situation in Mexico has resulted in a paradox referred to as trade without development. The increase in trade has resulted in a spike in foreign direct investment in Mexico but the modernization of markets and industry that should have accompanied it never happened. As Asian markets have become the destination for cheap labor Mexico has seen their falling unemployment come to an end.

NAFTA has not been wholly good or bad for the nations involved. Free trade is beneficial for the overall economy, but the rapid nature of trade that occurred under NAFTA left many industries unprepared to evolve and scrambling to adjust to the new environment.

Since NAFTA there have been several trade agreements. Free trade is quickly becoming the norm in the modern world.

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