by Mark Benson

Created on: December 17, 2008

What Is NAFTA?

NAFTA, the acronym for the North American Free Trade Agreement, is a milestone in global economic history, the first trade pact designed to unite the U.S., Canada and Mexico in a tariff-free, regional market. NAFTA has set the stage for a series of free trade initiatives in the Americas, most recently, the U.S.-Colombia Free Trade Agreement. However, NAFTA has always been a subject of lively debate, its goals and effectiveness generating several unresolved disagrements.

Historical Background

NAFTA took effect on January 1, 1994, but it was the result of years of negotiations and two bilateral trade agreements. One was the U.S.-Canada Free Trade Agreement signed in October 1987, the other, the August 1992 trade agreement signed by U.S. President George H.W. Bush and Mexican President Carlos Salinas. In November 1993, the U.S., Canada and Mexico were united in NAFTA once the U.S. Congress approved the necessary enabling legislation, which passed in the House of Representatives by a 234-200 vote, in the Senate, 61-38.

The complete text of the NAFTA Agreement is available on line via the NAFTA Secretariat web site at www.nafta-sec-alena.org/DefaultSite/index_e.aspx.

When NAFTA went into effect, it created a new regional market with an annual production of $6.5 trillion and 358 million workers. However, there was then, and remains now, concern about the differences between the economies of the three nations. While the U.S, and Canada were already advanced industrialized nations, Mexico was far less developed, its economy dependent in large measure on its petroleum industry and availability of cheap labor. Current critics note that Mexico is still among the poorest nations, ranking 61st in per capita income at $6,050, and in 52nd place on the United Nations Human Development scale, one spot below Cuba.

Important NAFTA Provisions

Among the most significant areas of regional trade that the NAFTA agreement addressed were tariffs, health and environmental standards and worker rights.

Tariffs. NAFTA was designed to eliminate all tariffs within 15 years of the date it took effect, or January 1, 2009. However, for some key industries, phasing out tariffs was a politically charged process.

Prior to NAFTA, Canada had agreed to a 15% tariff on all softwood lumber imported into the U.S. After a long series of negotiations, Canada and the U.S. agreed in 1996 to a tariff quota system on softwood lumber from British Columbia, Quebec, Ontario and Alberta, whereby

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