NAFTA — North American Free Trade Agreement

North American Free Trade Agreement

NAFTA - North American Free Trade Agreement

Name: North American Free Trade Agreement
Acronym: NAFTA
Year of foundation: 1994
Headquarters: Mexico City (Mexico), Ottawa (Canada), Washington D.C. (USA) 
NAFTA documents: go to page
Official web site: go to page


The North American Free Trade Agreement (NAFTA) is an agreement signed by Canada, Mexico, and the United States and entered into force on 1 January 1994 in order to establish a trilateral trade bloc in North America.

Member States

NAFTA has three member States, namely Canada, Mexico and United States.

Events Leading up to NAFTA

Prior to NAFTA, Canada and the United States were developed economies with strong traditions of liberal political and economic policies, while Mexico had neither. After World War II, Mexico engaged in protectionism and import-substitution, as opposed to export-led growth.

Mexico’s policies were intended to create independence from American hegemony and encourage domestic industrialization through state and corporatist policies. These policies backfired and by the 1980s Mexico had triple-digit inflation, backward industries, and extensive international debt.

  In this environment, Mexico began to liberalize in 1985 and tear down its protectionist policies. However, Mexican wages were still just one seventh of those in the United States just prior to NAFTA.

This created significant opposition to cooperation with Mexico in the United Sates, where American labour and union groups feared large job losses to Mexico. Ross Perot famously paraphrased this fear among Americans with his “giant sucking sound” metaphor for jobs going south of the US border to Mexico.

For Mexico’s part, opening its economy as required by NAFTA threatened political and economic leaders who had controlled and distributed state revenues without external interference. Much smaller differences existed between the US and Canadian economic and political system, which were both liberal democracies with far more open economies.

The impediments to regional cooperation in North America were indeed real but this did not stop political leaders from realizing the benefits of integration and reaching across their borders. The first move was made by Ronald Reagan in the US, who proposed a “North American Agreement” to facilitate regional cooperation.

As president, Reagan made good on his campaign pledge and declared a North American common market was a future goal. During the early 1980s and while Mexico remained aloof, Canada and the US grew closer and signed a series of agreements that culminated in the Canada-US Free Trade Agreement in 1988.

At this crucial juncture, Mexico signalled it was ready to join the negotiations and NAFTA talks were started.

The NAFTA agreement was a free trade agreement (FTA), but it served as a framework for further regional cooperation. From the beginning, to get NAFTA passed Bill Clinton insisted on environmental and labour protections to assuage the fears Americans had regarding Mexico, a large and poor country.

Un earlier absorptions of poorer countries Spain and Portugal by the European Community (EC), where the income difference was ½ and the population only 13 percent of the EC total, Mexico’s income was 1/7 of the US and population 24 percent of North America.

Given the size and nature of this disparity, significant job losses could be expected in the US and Canada, especially among low skilled jobs. The challenge for the US and Canada was then to improve education and transform their workforces into higher educated and more skilled ones.

For Mexico, the challenges were more political and economic, making sure the government remained committed to transparency and an open economy. As will be seen in the following section, NAFTA was designed to allay these fears, and limit the anxieties of stakeholders who would risk much by engaging in regional cooperation in unchartered territory.

Effects of NAFTA and Recent Events

In spite of its limited institutionalization, the effects of NAFTA are profound and perhaps best understood by reference to the agreement itself. Article 102 of NAFTA describes the purpose of the treaty, which is the creation of a framework for further regional cooperation.

More than a typical trade agreement, NAFTA covers competition law (Chapter 15), intellectual property (Chapter 17), investment (Chapter 11), and government procurement (Chapter 10).

By subjecting these traditional vestiges of national sovereignty to review by multinational NAFTA panels, NAFTA is bestowed with a supranational character. While this judicial mechanism has some exceptions for national security and product safety, it does create a largely effective enforcement mechanism.

Thus, the panel dispute settlement mechanism designated in Chapter 20 is not a court per se, but it serves essentially the same function by reviewing and providing an alternative to national decisions.

NAFTA has altered the political landscape in North America by putting free trade and economic cooperation on a firm footing. By making economic transactions transparent and secure in the region, the demand for political institutions has developed to govern these transactions.

This functionalist finding has been called the “Europeanization” of North America as cross-border technical harmonization and domestic effects have created a demand for further institutionalization. The political reaction to events in the region since the signing of NAFTA supports this finding.

Leaders have collaborated on everything from terrorism after 2001 to cooperation on regional infrastructure such as the proposed NAFTA superhighway running from Canada to Mexico.

Compared to the post-World War II period prior to the signing of NAFTA, regional cooperation, especially with Mexico, has grown exponentially.

A quick summary of recent events demonstrates regional cooperation under the NAFTA framework. When the Mexican debt crisis broke out in 1995, US president Clinton announced a multi-billion dollar aid plan and Mexico repaid the loan early.

These cooperative efforts were perceived as necessary to preserve the NAFTA system and as such were instructive for future regional financial institutionalization. In addition to financial cooperation, greater cooperation on regional energy, terrorism, health, emergency management, and a competition commission have all been developed since.

As the size of cross-border transactions increases, actors lobby their governments for more regional cooperation to lock in their positions. Events such as the 9/11 terrorist attacks that shut down regional borders created pressure for a common regional border security system.

Similar forces are at work in many industries previously sheltered from international competition. The cumulative effect of these forces creates a demand for institutionalization.

Another important effect of NAFTA has been the model it has offered the rest of Latin America. At present, Central America, Chile, and the Caribbean have signed free trade agreements with NAFTA. This offers poorer countries in Latin America an important path to development and support for national democratization.

By gaining access to larger markets and opening economic and political institutions, development is also enhanced. However, without basic infrastructural development many countries in Latin America will still find it difficult to compete.

This indicates successful regional integration for poorer countries requires development funds similar to those the EU provided southern and eastern European countries. If the goal of Mexican president Vincente Fox of a common market is to be realized, fiscal transfers will have to precede the free movement of goods, services, and people in order to make it politically palatable.

According to Fox: «Our forecast and our idea is to sell a long-term project where we can move upwards from a trade agreement to a community of nations agreement or a North American common market. To move in that direction implies more than just trading, more than just facilitating the transit of merchandises, products, services, and capital.

It has to imply the free flow of citizens, and it has to imply long-term monetary policies, maybe a common currency 20, 30, 40 years from now. Should this path for NAFTA materialize, it is sure to influence the rest of the Western Hemisphere and further integration may depend on it.

While there are many benefits of NAFTA, there are problems that pose challenges to the legitimacy of the regional experiment in North America. Economically, NAFTA has been blamed for “deindustrialization” in the United States as manufacturing jobs migrated to Mexico.

In Mexico, NAFTA is blamed for the impoverishment of rural areas as cheap subsidized American corn imports displaced local producers. Further north in Canada, the main complaint is cultural domination by the United States and the loss of independent Canadian media firms.

As with the freedom that democracy grants, costs and benefits are associated with regional cooperation. Loss of independence is not necessarily a negative when it is replaced by a system of interdependence. A regional institutional demand is now being created by problems caused by NAFTA that demand resolution from affected persons.

If regional democratic institutions do not arise to address these problems, there is a danger of dependence and domination which leads to undemocratic and unstable outcomes.

NAFTA Structure and Decision-making Procedures

NAFTA's governance structure is minimal and cantered on two institutions, the Free Trade Commission (TFC) and the Secretariat.

The Free Trade Commission (FTC)

The Free Trade Commission (FTC) is the principal body of NAFTA, and oversees NAFTA’s performance and evolution. It is also responsible for dispute settlement, and is composed of the US Trade Representative, the Canadian Minister for International Trade, and the Mexican Secretary of Commerce and Industrial Development.

The day-to-day work of the FTC is carried out by expert working groups and committees. This authority was laid out in Article 2001 (2) of the NAFTA, which gave express power to the FTC to oversee, resolve, and supervise the work of “all committees and working groups established under…[the NAFTA]…Agreement”.

The FTC also has implied power in Section 2001 (3) to “establish…delegate, seek the advice of non-governmental…groups and take…other [unspecified] action”. These powers are enforced annually at trilateral cabinet-level meetings as prescribed by Article 2001, or in actions that review national court decision affecting North American Trade.

The powers of the FTC can be characterized as technical, specific, and obligatory. The FTC operates by consensus and has no effective method of amending NAFTA rules. Lacking the ability to delegate power or vote by majority rule as a legislature might, the FTC suffers from a democratic deficit and this could damage its long term legitimacy (Maryse 2006).

While this minimal institutionalization will need to be reformed in the long run if NAFTA is to be viable, the technical nature of NAFTA is in keeping with the functionalist approach. Also in view of this, it is no surprise that NAFTA focuses on precision and obligation and eschews delegation of power (Abbott 2000).

At the time NAFTA was negotiated, political constraints among North American leaders prohibited greater regional democratization.

The Secretariat

The Secretariat serves as an administrator for the FTC and is organized on a national basis, with each member responsible for supporting its own staff. Operationally, the secretariat assists the FTC, along with the dispute panels, committees, and working groups.

The Secretariat is located in separate national offices in Mexico City, Ottawa and Washington (Lopes Lima 1997). This decentralized structure does not mean the secretariat has any real power of its own through delegation from the FTC. Instead, it takes care of the day-to-day affairs that are prescribed by Article 2002.

If the FTC directs it under Article 2002 (a)(c) to administer a trade dispute panel, it must adhere to the guidelines of Article 2012. This high level of legalization constrains the secretariat from acting independently and insures real decisions are made by the FTC or panels rather than at the discretion of secretariat staff.

This low level of delegation limits the responsiveness of the secretariat to exogenous groups such as labour or environmental groups and guarantees that free trade and investor interests will be guarded vociferously.

As interests inevitably collide with greater interactions, this democratic deficit may need to be remedied by a court or legislature with regional authority.
The national secretariats are also complemented by a NAFTA Coordinating Secretariat (NAFTACS) based in Mexico. This trilateral secretariat was created on January 14, 1995.

The main purpose of the central secretariat is to help administer labour and environmental issues that fall under NAFTA. In reality, due to limited enforceability and lax regulation, this body has not been very active, and is unequal in power to the investment and free trade lobbies.

Going forward, US domestic opposition to NAFTA is great among the environmental and labour communities and will grow as interests clash. This means that the international secretariat needs greater authority to overcome the narrow interests of business elites in each country, and thus endow NAFTA with democratic legitimacy.


Market Access for Goods

  • The elimination of duties on thousands of goods crossing borders within North America.
  • Phased-in tariff reductions – now complete – and special rules for agricultural, automotive, and textile and apparel products.
  • Important rights for NAFTA services providers and users across a broad spectrum of sectors.
  • Special commitments regarding telecommunications and financial services.
  • Formal dispute resolution processes that help resolve differences that arise in the interpretation or application of NAFTA’s rules.

Protection for Foreign Investment

  • Commitment to treat each others’ investors and their investments in the territory of the host NAFTA country no less favorably than their own domestic investors.
  • Commitment to provide NAFTA investors with the best treatment given to foreign investors from beyond North America.
  • A transparent and binding dispute resolution mechanism specially designed to deal with investment.

Protection for Intellectual Property

  • Adequate and effective protection and enforcement of a broad range of intellectual property rights (including through patents, trademarks, copyrights, and industrial designs), while ensuring that the measures that enforce these rights do not themselves become barriers to legitimate trade.

Easier Access for Business Travelers

  • Easier access for business professionals in hundreds of different professions so that they can travel for business throughout the continent.

Access to Government Procurement

  • Access to government procurement opportunities at the federal levels in Canada, Mexico, and the United States.

Rules of Origin

  • NAFTA rules of origin are used to determine whether a good is eligible for preferential treatment under NAFTA.
  • At various times since NAFTA came into effect, the partners have implemented measures to liberalize or expand the list of products that qualify for preferential treatment. Since 2005, for example, the NAFTA partners have implemented two sets of changes to make it easier for traders to qualify for duty-free treatment under NAFTA.

Side Agreements

The NAFTA partners also negotiated two side agreements: the North American Agreement on Environmental Cooperation and the North American Agreement on Labor Cooperation.

Commitment to the Environment

The NAFTA partners signed a parallel agreement addressing environmental issues, the North American Agreement on Environmental Cooperation (NAAEC).

Under the NAAEC, the United States, Canada and Mexico have committed to take certain steps to protect the environment, including the obligation that each of the parties will not fail to effectively enforce its environmental laws.

A party’s failure to meet this environmental obligation is subject to the same type of dispute resolution mechanism that is included in the NAFTA for commercial obligations.

In addition, the NAAEC has created a mechanism that allows any citizen or non-governmental organization to make a submission concerning whether a party is failing to effectively enforce its environmental law. In contrast, commercial obligations are not subject to this type of independent review.

Under the NAAEC, the parties also agreed to work cooperatively to address regional environmental concerns, to help prevent potential trade and environmental conflicts, and to promote the effective enforcement of environmental law, among other things. In order to assist with the parties’ efforts to fulfill these commitments, the partners created an international institution, the Commission for Environmental Cooperation (CEC).

For more information, please visit

Commitment to Labor Cooperation

The NAFTA partners signed a parallel agreement on labor cooperation designed to promote the effective enforcement of each country’s labor laws and regulations and to facilitate further cooperation between NAFTA partners on labor matters.

The North American Agreement on Labor Cooperation (NAALC) established the Commission for Labor Cooperation (CLC), consisting of a Ministerial Council and a Secretariat. In the implementation of the NAALC, the CLC is assisted by National Administrative Officers (NAOs) in each of the three countries.

  • The current work program for labor cooperation focuses on occupational safety and health, employment and job training, labor law, and workers’ rights and productivity.
  • For more information, please visit


Соглашение о североамериканской зоне свободной торговли. Досье

NAFTA - North American Free Trade Agreement

ТАСС-ДОСЬЕ. 23 января президент США Дональд Трамп подписал указ о начале переговоров с Мексикой и Канадой по изменению условий Североамериканского соглашения о свободной торговле, в которую входят эти три страны.

NAFTA (North American Free Trade Agreement) — одно из крупнейших экономических объединений Западного полушария: общая площадь стран NAFTA составляет 21,8 млн кв. км, население превышает 470 млн, совокупный ВВП — около $20 трлн.


Замысел создания организации, объединяющей США, Канаду и Мексику, был сформулирован в Вашингтоне еще в середине 1970-х гг. и получил поддержку видных представителей делового мира и администрации США. Первоначально речь шла об оформлении лишь энергетического союза этих стран, затем появилось предложение образовать североамериканский общий рынок.

В 1988 г. было подписано Канадско-американское соглашение о свободной торговле CUSFTA, по которому США и Канада должны были создать зону свободной торговли в течение 10 лет. Документ вступил в силу в 1989 г.

В феврале 1991 г. в Торонто между США, Канадой и Мексикой начались переговоры о создании NAFTA, которые завершились 12 августа 1992 г. Соглашение было подписано 17 декабря 1992 г.

президентами США и Мексики Джорджем Бушем и Карлосом Салинасом де Гортари, а также премьер-министром Канады Брайаном Малруни. К декабрю 1993 г.

его ратифицировали парламенты всех трех стран, а 1 января 1994 г. оно вступило в силу.

Соглашение и его реализация

Соглашение предусматривает поэтапную отмену странами-участницами таможенных пошлин во внутренней торговле. Конечная цель — полное снятие торговых барьеров. Помимо торговли товарами, соглашение также касается либерализации торговли услугами и инвестиционного режима, защиты прав интеллектуальной собственности, сотрудничества в сфере борьбы с загрязнением окружающей среды и др.

К моменту вступления в силу NAFTA большинство пошлин в торговле товарами между США и Канадой уже были отменены. С 1 января 1994 г.

были ликвидированы тарифы на половину позиций мексиканского экспорта в США и на одну треть — американского экспорта в Мексику.

Оставшиеся торговые барьеры между странами постепенно отменялись в течение 15 лет. Полностью положения cоглашения были выполнены к 2008 г.


Все решения в рамках зоны свободной торговли принимаются на встречах министров соответствующих ведомств.

Деятельность по выполнению положений cоглашения осуществляют ряд специальных институтов и должностных лиц: — трехсторонняя Комиссия по свободной торговле — центральный орган на уровне министров, собирается по мере необходимости, но не реже раза в год; наблюдает за имплементацией и дальнейшим развитием cоглашения, контролирует работу других органов;

— координаторы NAFTA — высокопоставленные представители торговых ведомств, назначаемые от каждой страны; ответственны за текущую работу по реализации положений соглашения;

— Секретариат NAFTA, состоящий из трех секций (секция Канады — в Оттаве, секция Мексики — в Мехико, секция США — в Вашингтоне); трактует спорные положения соглашения, решает разногласия между странами;

— Комиссия по трудовому сотрудничеству в составе министров труда и других должностных лиц; занимается вопросами унификации трудовых стандартов и совершенствования трудового законодательства стран;

— Комиссия по сотрудничеству в сфере окружающей среды в составе отраслевых министров трех стран;

— более 30 комитетов и рабочих групп по различным направлениям.

Результаты деятельности

Либерализация торговли способствовала существенному увеличению торгового оборота между странами. Если в 1993 г. он составлял $290 млрд (при этом большая часть приходилась на торговлю между США и Канадой), то в 2016 г. достиг $1,1 трлн.

Увеличился также объем взаимных инвестиций, например, за этот период прямые иностранные инвестиции США в экономику Мексики выросли с $15 млрд до $100 млрд.

Последствия для США

Торговый оборот США с Мексикой и Канадой за время действия NAFTA увеличился в три раза, при этом он рос более быстрыми темпами, чем торговля с остальным миром.

Около 14 млн рабочих мест были созданы в США в сфере торговли с Мексикой и Канадой. Тем не менее критики NAFTA утверждают, что реализация соглашения привела к сокращению 600 тыс.

рабочих мест и падению заработной платы из-за большого притока дешевой рабочей силы из Мексики и переноса многих производств на ее территорию.

Особенно это затронуло сектор автомобилестроения.

Последствия для Мексики

Благодаря NAFTA в три раза вырос объем сельскохозяйственного экспорта из Мексики в США. Были созданы сотни тысяч рабочих мест в сфере автомобилестроения, что, согласно ряду исследований, положительно сказалось на производительности мексиканской экономики и потребительских ценах, способствовало повышению уровня жизни населения.

Между тем в Мексике с момента присоединения к NAFTA в целом увеличился уровень безработицы и бедности, а ВВП на душу населения по-прежнему значительно меньше, чем у северных соседей. Также перенос ряда «грязных» производств из США в Мексику и увеличение добычи сырья для экспорта в США повлекло за собой загрязнение окружающей среды и ухудшение экологической обстановки.

Также вступление в NAFTA привело к неравномерному развитию секторов национальной экономики: если промышленность начала активно развиваться благодаря притоку иностранных инвестиций и открытию новых предприятий, то ситуация в аграрном секторе ухудшилась. Неспособность мелких сельскохозяйственных производителей конкурировать с американскими привела к разорению многих фермерских хозяйств, что, в свою очередь, вызвало рост эмиграции (легальной и нелегальной) из Мексики в США.

Последствия для Канады

Хотя Канада заключила соглашение о свободной торговле с США еще в 1988 г. и наибольший прирост взаимного торгового оборота между ними пришелся на начало 1990-х гг., после подписания NAFTA канадский экспорт в США вырос со $110 млрд до $346 млрд. Наибольший рост с 1994 г. пережила торговля сельскохозяйственными товарами с США и Мексикой — она увеличилась в три раза.

Канада также стала одним из главных импортеров американской сельскохозяйственной продукции. Объем американских и мексиканских инвестиций в экономику Канады увеличился втрое.


North American Free Trade Agreement (NAFTA)

NAFTA - North American Free Trade Agreement

The North American Free Trade Agreement (NAFTA), which was enacted in 1994 and created a free trade zone for Mexico, Canada, and the United States, is the most important feature in the U.S.-Mexico bilateral commercial relationship. As of January 1, 2008, all tariffs and quotas were eliminated on U.S. exports to Mexico and Canada under the North American Free Trade Agreement (NAFTA).

Mexico is the United States’ third largest trading partner and second largest export market for U.S. products.  In 2018, Mexico was our third-largest trading partner (after Canada and China) and second-largest export market.

Two-way trade in goods and services totaled USD 678 billion, and this trade directly and indirectly supports millions of U.S. jobs. The United States sold USD 265 billion of U.S. products to Mexico in 2018 and USD 34 billion in services, for a total of USD 299 billion in U.S. sales to Mexico.

Mexico is the first or second-largest export destination for 27 U.S. states. 

NAFTA provides coverage to services except for aviation transport, maritime, and basic telecommunications. The agreement also provides intellectual property rights protection in a variety of areas including patent, trademark, and copyrighted material.

The government procurement provisions of the NAFTA apply not only to goods but to contracts for services and construction at the federal level. Additionally, U.S. investors are guaranteed equal treatment to domestic investors in Mexico and Canada.


NAFTA allows your company to ship qualifying goods to customers in Canada and Mexico duty free. Goods can qualify in several ways under NAFTA’s rules of origin.

This might be due to the products being wholly obtained or produced in a NAFTA party or because according to the product’s rule of origin there is sufficient amount of work and materials required in a NAFTA party to make the product become what it is when its exported.  

Claiming/Documenting Origin

Once you have determined that your product qualifies for NAFTA, read below section for how to declare that the product qualifies for preferential tariff treatment.                          

NAFTA Certificate of Origin

Key Tips:

  • The exporter is responsible for filling out the NAFTA Certificate of Origin, not the importer.
  • Once an exporter has determined the product qualifies for NAFTA, the exporter needs to fill out a NAFTA Certificate of Origin UNLESS the product going to Canada or Mexico is valued at LESS than $1,000 USD. In these cases, the exporter simply needs to make a written declaration on the commercial invoice stating that the product is NAFTA qualifying.
  • Once the Certificate is completed, the exporter needs to send the original or a copy of the Certificate of Origin to the importer. It is recommended that a copy of the Certificate of Origin is also included with the shipment. The exporter is required to keep all documentation of NAFTA claims five years from the date of importation or such longer period as a Party may specify after the completion of the transaction.                                                                                                                                                                          
  • NAFTA Certificate of Origin (PDF from Customs and Border Protection).     
  • For more on completing a NAFTA Certificate of Origin, view Part one and Part two of the video series.                                                                                                        

Supporting Documentation

The issuer of a written declaration of origin is required to have it available, in addition to other supporting documentation used in demonstrating that the good qualifies as originating under the NAFTA rules of origin, for a period of FIVE years from the date of importation of the good for products going to Canada and for a period of TEN years from the date of importation of the good for products going to Mexico.


North American Free Trade Agreement (NAFTA) — Overview, Scope and Controversy

NAFTA - North American Free Trade Agreement

The North American Free Trade Agreement, known usually as NAFTA, is a free trade agreement among Canada, the United States, and Mexico. NAFTA went into effect on January 1, 1994. NAFTA is also used to refer to the tripartite trading bloc of North American countries.

NAFTA is an important topic for GS-2 of the UPSC Mains Examination.

Overview of NAFTA

NAFTA removed duties on most of all U.S exports shipped to Mexico and Canada. The agreement gradually phased out other tariffs and duties over a period of 14 years. Restrictions on categories such as automobile parts, motor vehicles, computers, textiles and agriculture were to be removed.

The treaty also protected intellectual property rights ( IPR deals with patents, copyrights, and trademarks) and outlined the removal of restrictions on investment among the three countries. A supplemental agreement signed in 1993 made provisions regarding worker rights and environmental protection.


This agreement was an expansion of the earlier Canada-U.S. Free Trade Agreement of 1989. Remarkably, different from the European Union, NAFTA does not create a set of supernational governmental bodies, nor does it create a body of law which is superior to national law. NAFTA is a treaty under international law. 

Scope of NAFTA

NAFTA is more comprehensive in its scope and was complemented by the North American Agreement for Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC).

The NAAEC agreement was in response to environmental concerns that non-native companies relocating to either three countries would lower their standards regarding environmental safety if they did not achieve a unanimous regulation on the environment. The NAAEC is more than just a set of environmental regulations.

It established the North American Commission for Environmental Cooperation (NACEC), a mechanism for addressing trade and environmental issues, the North American Development Bank (NADBank) for assisting and financing investments in pollution reduction and the Border Environmental Cooperation Commission (BECC).

The NAALC supplement to NAFTA aimed to create a foundation for cooperation among the three members for the resolution of labor problems, as well as to promote greater cooperation among trade unions and social organizations in order to fight for the improvement of labor conditions.

Though most economists agree that it is difficult to assess the direct impact of the NAALC, it is agreed that there has been a convergence of labor standards in North America. Given its limitations, however, NAALC has not produced (and in fact was not intended to achieve) convergence in employment, productivity and salary trend in North America.

For more UPSC notes about the Environment and Ecology, click on the linked article

Controversy Over NAFTA

NAFTA has been at the center of controversy since its inception. Transnational corporations have tended to support NAFTA in the belief that lower tariffs would increase their profits.

Trade and Labor unions in Canada and the United States are strongly opposed to NAFTA for the reason that they fear jobs would shift to Mexico due to the lower labor costs there.

Some politicians have opposed free trade for fear that it will turn countries, such as Canada, into permanent branch plant economies.

Legal Disputes

In 1996, the gasoline additive MMT was brought to Canada by Ethyl Corporation, an American company when the Canadian federal government banned imports of the additive.

The American company brought a claim under NAFTA Chapter 11 seeking US$201 million from the Canadian federal government as well as the Canadian provinces under the Agreement on Internal Trade (AIT). They argued that the additive had not been conclusively linked to any health dangers, and that the prohibition was damaging to their company.

Following a finding that the ban was a violation of the AIT, the Canadian federal government repealed the ban and settled with the American company for US$13 million.

To know more about other Government Exams, click on the linked articles.

Impact over Mexican Borders.

Despite critics accusing NAFTA of depressing the incomes of poor corn farmers, several studies have rejected such allegations. This was always the trend even before the existence of NAFTA.

Also, maize production increased after 1994, and there wasn’t a measurable impact on the price of Mexican corn because of subsidized corn from the United States. The studies do agree that the abolition of U.S.

agricultural subsidies will give a long-term benefit to Mexican farmers.

NAFTA – UPSC Notes:- Download PDF Here

Issue about Chapter 11

Another contentious issue is the impact of the investment obligations contained in Chapter 11 of the NAFTA. Chapter 11 allows corporations or individuals to sue Mexico, Canada, or the U.S.

for compensation when actions taken by those governments (or by those for whom they are responsible at international law, such as provincial, state, or municipal governments) have adversely affected their investments.

This chapter has been invoked in cases where governments have passed laws or regulations with intent to protect their constituents, that also impact a corporation’s bottom line.

Language in the chapter defining its scope states that it cannot be used to “prevent a Party from providing a service or performing a function such as law enforcement, correctional services, income security or insurance, social security or insurance, social welfare, public education, public training, health, and child care, in a manner that is not inconsistent with this Chapter.”

Further, it has been argued that the chapter 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.

Click on the related links below for more information about related topics and the UPSC exams.

Related Links


What is NAFTA? Seven things to know about the North American free trade pact

NAFTA - North American Free Trade Agreement

Donald Trump called NAFTA the “worst trade deal maybe ever signed anywhere.’’ So he wants to renegotiate it — or kill it altogether. So just what is NAFTA? (May 18)

WASHINGTON – After a year of negotiations, the U.S. and Mexico are on the verge of striking a deal to revise the North American Free Trade Agreement, or NAFTA.

With that in mind, this is a good time to step back and see how we got to this point.

Here are seven things you should know:

What is NAFTA?

The North American Free Trade Agreement, or NAFTA, is a trade pact signed by the U.S., Canada and Mexico, which made it easier for companies in those three countries to move goods and supplies across North America’s borders. The agreement took effect on Jan. 1, 1994, and essentially eliminated tariffs on most goods traded among the three nations.

NAFTA took effect under President Bill Clinton, who ushered it through Congress, but the framework for the deal was laid years earlier. Ronald Reagan made a North American free trade zone part of his 1980 presidential campaign platform. And President George H.W. Bush signed NAFTA on Oct. 7, 1992, setting the stage for congressional approval of the agreement.

President Donald Trump despises the current NAFTA agreement, which he blames for the loss of American jobs. Trump often blasted NAFTA as the “worst trade deal ever” while on the campaign trail and has even threatened to pull the agreement unless a better deal can be reached.

Other critics concede that NAFTA needs to be updated to reflect changes in the world economy. For example, the digital economy was in its infancy when NAFTA was originally negotiated. Now it’s a global phenomenon.

So to try to salvage NAFTA and sync it with today’s business environment, the U.S., Mexico and Canada entered into negotiations last August to revise the 24-year-old agreement.

Canada has been MIA during the most recent negotiations? Why?

Canada was a partner in the negotiations when they started last August. But the talks reached an impasse in late May, and Canada has been on the sidelines ever since.

Canadian Prime Minister Justin Trudeau blamed the breakdown over the U.S.’s insistence that any new deal include a five-year “sunset” provision.

That means any new NAFTA agreement would expire after five years unless the U.S., Canada and Mexico all took steps to renew it.

Canada considers a sunset clause a deal-breaker, arguing it would create perpetual uncertainty for businesses and harm long-term investment.

Mexican Foreign Minister Luis Videgaray, left, and Economy Minister Idelfonso Guajardo leave the Office of the United States Trade Representative Robert Lighthizer in Washington, Friday Aug.10, 2018. (Photo: Luis Alonso Lugo, The Associated Press)

Can NAFTA be reworked without Canada?

No. The U.S. and Mexico resumed negotiations without Canada in late July, but the Canadians would still have to sign off on any changes to NAFTA. Negotiators for the U.S.

and Mexico said they decided to continue because they needed to work through some disagreements between their two countries, such as auto trade and labor issues.

Canada will be invited back to the table when those issues are resolved.

What’s the rush?

The U.S. and Mexico are hoping to get a deal signed before Mexican President Enrique Peña Nieto leaves office on Dec. 1. That would free up Mexico’s incoming president, Andres Manuel López Obrador, to concentrate on domestic issues.

But to get a deal in place before López Obrador assumes the presidency, all sides would have to reach an agreement by the end of August. Why? Because the Trump administration must give Congress at least 90 days’ notice before a deal can be signed. The U.S. and Mexico are pushing to have a preliminary agreement in place by Aug. 25, which would leave just days to get Canada back on board.

Once negotiators reach a NAFTA deal, it must be signed by the leaders of all three countries. It then must be approved the U.S. Congress, the Canadian Parliament, and the Mexican Congress. In the U.S., a vote probably would not take place until early next year.

Can the U.S. exit NAFTA if no deal is reached?

Yes. But it’s complicated.

Under NAFTA Article 2205, any party to the agreement could withdraw six months after providing written notice. Even then, the U.S.’s obligations under NAFTA would not necessarily end. That is because NAFTA was implemented under legislation passed by Congress.

Many legal scholars argue that, to get NAFTA completely, Congress would have to vote to repeal that legislation, which it might be reluctant to do. What’s more, any attempt to exit NAFTA also could lead to legal battles that could delay the U.S. departure for years.

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