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NAFTA is the North American Free Trade Agreement, a treaty between Canada, Mexico, and the United States that has been in effect since 1 January 1994. The agreement was designed to increase trade among the three nations by reducing or eliminating restrictions on commerce, such as tariffs and import quotas. It is one of the most powerful and wide-reaching treaties in the world, governing the entire spectrum of trade and commerce on the North American continent. Although it was designed to benefit its member nations economically, it has been the subject of controversy since its inception.
How Free Trade Agreements Work
International commerce, the process of importing and exporting goods from one nation to another, is usually regulated by customs duties and fees such as tariffs. These measures are designed to promote a country's native businesses by protecting them from outside competition. Other regulatory measures, including environmental, health, and labor regulations, are often imposed on the companies that operate within a country. Free trade agreements (FTAs) are designed to encourage commerce between two or more nations by easing these restrictions. NAFTA is one of the most prominent and influential of these FTAs.
Tariffs and Sales
Before free trade agreements were implemented, U.S. goods exported to Canada and especially to Mexico were taxed at a high rate. These tariffs discouraged the sale of much U.S. merchandise, including cars, car parts, computers, and food, in its neighbor countries. As a result of the agreement, these duties were reduced over time, eventually being eliminated in 2008.
Sales of U.S. goods in Mexico increased dramatically after 1994; Canada has increased its trade in U.S. merchandise as well, although not nearly to the extent that Mexico did. Combined, NAFTA countries accounted for nearly one-third of U.S. exports in 2010. In that same year, these countries were two of the top three suppliers of imports to the U.S. as well. Trade between Canada and Mexico has also increased, with Mexico becoming Canada's fourth-largest source of imports. In addition, international services and foreign investments have gone up.
Immigration and Travel
One effect of the treaty is on immigration, as certain workers from one nation can apply for temporary residency in another while working under the auspices of NAFTA. In order to get this special visa, called a TN visa, the job must be on a list of approved professions and the specific position must require the services of a NAFTA professional. Individuals who apply must have the appropriate qualifications and experience for the position.
The agreement also eases restrictions on international travel, particularly for the transport of goods from one country to another. Long-haul truckers from each country are permitted to drive cargo across the borders; after a long moratorium, the first Mexican drivers were allowed to operate in the U.S. in October 2011.
Labeling and Documentation
Another effect is that goods shipped between the three countries are required to have labels printed in the languages of those countries. Items shipped into the US and Canada must have English labels, those imported into Canada must include French, and those exported to Mexico, Spanish. Goods must also have a certificate of origin verifying that they were made in one of the three countries.
Passage of NAFTA in the early 1990s was highly controversial in all three countries. Critics feared that national autonomy would be compromised as each nation altered its individual laws to comply with the treaty's provisions. Congressional and parliamentary debates focused on labor and environmental regulations that could be bypassed or superseded by the requirements of the FTA. The concern was that the economic benefits of NAFTA would not be sufficient to offset the loss of safeguards that had been established by the older tariff system.
The controversy has not lessened in the time since the FTA was passed. Labor unions have blamed the decline of U.S. manufacturing jobs on the agreement, which makes it easier for work to be outsourced to Mexico or Canada. When combined with agricultural reforms in that country, many Mexican farm workers lost their jobs as the methods of production changed and the industry faced more competition from U.S. imports.
The debate over environmental regulation also remains a hot topic. The treaty does include environmental provisions, and lead to the establishment of the Commission for Environmental Cooperation (CEC). Under the agreement, however, businesses that are prevented from some activity by a nation's environmental laws may be able to sue that government for damages if the action was in conflict with the provisions of NAFTA, which carry the force of international law.
Updates and Other Agreements
The North American Free Trade Agreement has been updated with two major additions, the North American Agreement for Economic Cooperation (NAAEC) and the North American Agreement for Labor Cooperation (NAALC). A later addition was the Security and Prosperity Partnership of North America, designed to foster cooperation on issues of national security.
Since 1994, the U.S. has negotiated free trade agreements with a number of other countries, including South Korea and Colombia, and with a group of nations in Central America. Canada also has FTAs with some of these same nations. Another broad agreement between the U.S. and a number of Pacific Rim countries has also been discussed. Although they still have their critics, these treaties seem to be less controversial than NAFTA was when it was approved.