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What is NAFTA?

By David White
Updated May 16, 2024
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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.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Link to Sources
Discussion Comments
By anon979584 — On Nov 27, 2014

wow. This is so UNREAL I just can't believe this isn't butter

By anon357371 — On Dec 03, 2013

How and why was Canada involved?

By anon327229 — On Mar 26, 2013

A single trade bridge between Detroit and Windsor account for all exports to China in a single year. Trade between Canada and USA often account for more than many countries GDP. NAFTA was just an official way to make trade between Canada and USA tax free. Before the agreement, taxes were almost negligible between the two countries.

By anon302180 — On Nov 07, 2012

My husband lost his job of 20 years in 1996 with a manufacturing move to Mexico. It's 2012, he is with another company, and once again after 10 years, he is losing his job with a manufacturing move to Mexico.

It's sad to see, even when everyone knows their quality is not what ours is. American made is quality. Too bad we don't have the pride and loyalty anymore. It's all about the money, when sometimes you just need to do what is right.

By anon264471 — On Apr 28, 2012

NAFTA was created by millionaires. They have no interest in blue collar workers or their families. They only want to make themselves richer. The only country that has benefited is Mexico.

Canada and the US companies produce the products in Mexico for cheap labor then send them back across to the US and Canada without paying high taxes. That's NAFTA in a nutshell.

By anon256264 — On Mar 21, 2012

I have to go with NAFTA, in my opinion.

By anon248603 — On Feb 18, 2012

I am Canadian and I hate NAFTA. I saw enough people I know lose their jobs in Canada because their factories were moved to the USA or Mexico. It seemed to favor The USA at first. The companies could find cheaper manufacturing in the USA. They were then situated more centrally between Canada and mexican markets and also a broad range of tariffs were being eliminated.

Before NAFTA Canada had an investment rule. No foreign company could own more than 49 percent of a Canadian company in Canada. The Canadian company had to be 51 percent Canadian owned. I'm OK with 100 percent foreign ownership of a company in Canada. I am not OK with still losing more jobs to the USA and even more to China.

We can be all be sued now in some cases for not allowing resources to be mined. We are all losing ground to corporate control. I don't want my country controlled by corporations. Our governments should be setting the rules for corporations to abide by. Canada will fight corporate and foreign control. My ancestors and family members did not fight and die in vain.

We can trade fairly without corporations dictating to us. We can respect each others sovereignty by fighting this together. We are much stronger independently cooperating.

By anon153483 — On Feb 17, 2011

I live in Canada and let me tell you that I'm totally against NAFTA.

It has allowed American companies to take over everything here. In fact, there is not one major Canadian owned retailer left standing. Almost everything sold on the retail level in Canada is sold through American owned companies.

American companies sell over 1-1.5 trillion dollars in goods and services in Canada each year, which, to put that in prospective is enough money to finance the entire war in Iraq and half the American debt.

In exchange, Canada gets to sell oil to the United States. But here is the thing with that. The companies taking the oil out of the ground are American owned, pay half the royalties that they should, ship the raw oil to the US with American shipping companies then refine the oil in American refineries, then ship it back to Canada using American trucking companies then American owned gas stations sell us our own oil for more money then they do to their US customers. (I'm not making this up!)

Then to top everything off, when we are making grounds on selling something into the US (like softwood lumber) the US government start to step in.

Even the beer stores in Ontario are American owned!

The Romans used slaves to build their empire. America has used their corporate machine.

By anon151199 — On Feb 09, 2011

I understand people wanting to remove NAFTA so we can more Made in America sold right here in the USA. The only problem, is that, as long as Unions have their hold in our economy, the alternative would be to outsource. Believe it or not, unions is what is destroying this country and forcing companies to bail out.

I know this for a fact, because my company is a union shop and the things that happen there will leave you with your mouth open. You cannot fire anyone, even if they are incompetent, and the salaries they get compares to one graduating from college. For now, we will have to accept trades with the likes of Canada and China.

By anon131791 — On Dec 03, 2010

Have you guys stopped to think why there is this "invasion" of illegal immigrants in the United States? Before immigrants were labeled illegal, immigrants would always come to the country to work seasonal jobs. Anyone form the southern border could easily walk across the border without the interruption of anyone. Back then we managed fine.

To better understand what the real issue is, we must look at the life of an immigrant (which should be seen as a human, not a terrorist) There is a huge misconception where people in the U.S. see the war on drugs, and immigration as one thing (terrorism or invasion) The only difference form now and then was the restriction of the boarder passage.

Try to see this from their point of view. We live in a world where money means everything. It can make the difference between providing food for their children to live healthy or die of hunger. With the restriction of immigrants not being able to cross the border it leaves them two options: (a) illegally cross the border and stay in the U.S. (as opposed to seasonal) or (b) join the drug cartels (which offer more than they could possibly make in a month in Mexico) and their organized crime. If it’s the issue of illegal immigration you guys argue about.

Removing the NAFTA agreement is not going to change anything. The real issue here is the drug cartels business that easily dominating the war on drugs, human, and weapon smuggling. No matter how many restrictions the U.S. places on the border, it is not going to change anything. Corruption in both the United States and Mexico is far too high.

In other words, fighting them is inevitable. Our government is far too slow to do anything through our bureaucratic snail structure as opposed to the Drug cartels pyramid like hierarchical structure where actions can be made over night through the word of mouth.

The point is, we need to make huge changes in the U.S. government structure and actually use the research scholars have conducted to our advantage. Also we should make it so that our government educates our children in politics. Since this country is ran by politics, it sounds logical that a great emphasis in the subject is needed in primary schooling. Just a thought.

By anon129029 — On Nov 21, 2010

If we get rid of NAFTA, then we need to create another free-trade agreement with Canada at least. Canada is our #1 trade partner as of October 2010 (yes, barely beating out China) and we import a good amount of oil and electricity from Canada. So, if you completely get rid of NAFTA without an alternative agreement with Canada then oil and electricity will skyrocket, and our economy cannot handle that right now.

For more information look up the U.S. Energy Information Administration and look up the Country Analysis Brief for Canada. This site will not allow me to post links. Also, feel free to look up how much oil we get from Canada as well. So, unless we are willing to embrace green technology we should at least keep trade with Canada.

By anon96768 — On Jul 16, 2010

I can tell you President Obama supports NAFTA and that is one of many reasons why I do not support his government or in better terms, the shadow government. Nafta stinks! They allow businesses to care more about profit than actually quality. One fact is digital televisions now are made to fail after a few years. Investigate and you will see this to be true! Shame on NAFTA! This country is not a democracy and hasn't been for 200 years!

By anon78878 — On Apr 20, 2010

Update your information. it does not give all facts.

By anon67619 — On Feb 25, 2010

i think nafta is bad. my opinion.

By anon63933 — On Feb 04, 2010

Please let us cancel our NAFTA agreement, before all our jobs are gone. How much worse can it get for the average guy? Please shut the doors on the people coming into this country. Enough already. They get more perks from our government then our American people. Something is not right in this picture.

By anon26094 — On Feb 08, 2009

Reply to: anon25696

I work for Perot Systems corporation, owned by Ross Perot and Ross Perot Jr. Let me tell you something, he outsources too. Our technical support department, and many other jobs have been shipped overseas to India. So shame on Ross Perot too!!! For not backing his words, with actions.

By anon25696 — On Feb 02, 2009

Ross Perot said don't pass NAFTA or we will regret it. What you will hear is a giant sucking sound of jobs heading out of the United States. People made fun of Ross Perot's big ears but Ross was right and the stupid people didn't believe him, they believed a republican. Shame on you people. Look at the following real close If we keep buying foreign, where will our children work !!!!

By hldowless — On Dec 19, 2008

Yes, the earth has already been divided into ten territories. We are witnessing the stage of the development where a leader is being assigned to each territory/trade zone. Once this Viceroy/king has been selected for each zone/territory they will submit to a parliamentary board....and the New World Government will then be born. The NAFTA zone is now attempting to equalize it's economy and the economic status quo of all of it's people. This is the reason why the US and Canada is having so many economic problems. Another reason is to intentionally reduce the values of our currencies. We now truly do hear talk of a new currency called the Amero being chosen to mainstream all three of our currencies. Eventually one single currency will dominate worldwide, as will one government and one religion......just like the prophet foretold 2000 years ago!

By anon23191 — On Dec 18, 2008

Americans and Canadians can just get ready for the obvious; the earth has already been divided into ten areas or territories. We all know them as free trade zone areas. Look all of this up on line. Look to the Euro zone for a hint of NAFTA'S future aspirations. NAFTA is just one horn on the dragons head right along with nine others. Soon NAFTA or the NAA WILL have an appointed president or Viceroy. Nafta will soon be a nation and the three nations simply states. Our government will be Socialist with the Government owning all real estate. That is the real reason for the volatility in the job stability and the job market at large.

By thomas101960 — On Dec 03, 2008

The Canadian economy my now be around 6.1 % but we are not talking about the loss of 3 million jobs in the 1990's. These are jobs that never came back, largely in the manufacturing area. These are jobs lost forever bc of the NAFTA agreement. So don't site 6.1% bc that is now after tremendous hardship from the 90's the worst unemployment rates and job losses ever even worse than the 1929 stock market crash. Your lack of knowledge of history is appalling anon14469!!!!!!!!!

By anon21855 — On Nov 23, 2008

It sounds as though the US needs to abolish NAFTA! The US needs to support made in AMERICA..and let Canada do the same! The imports are killing our Economy as well as Canada's. Greed needs to be realized here. Of course American made products will have to deal with the union wages (or NOT) and then price and produce accordingly. Right now our entire auto industry is suffering from both greed and imports. Many Americans do not understand the way of life in these Countries that have workers who will work for Half of what American workers work for! To begin with in many foreign countries owning a home is not a way of life, up to 15-20 people live together! to save money. They do not feel that they need time off for family, holidays or anything else..they work all the time. work is the only thing that matters to them. While in the US Americans want to live and work. Living to Americans means owning a home, having a job and spending time with their families when they are not working. Canada as well as the US needs to get back to self sufficiency! Certainly at our inception we were able to stand on the premise of "Give me your poor, hungry, and down trodden" We are now given out! We need to slam the door on any further assistance to anyone anywhere and not allow any more people into the US until we get our house in order. We have gotten to the point that we cannot feed, house, employ, or keep safe our own people. America is starting to look like the spoils After a huge raid and that is what under developed Countries have done..taken and taken until they are now built up and we are horribly struggling. This is not to say that those in charge of our commerce have not been greedy and should be handled for their greed. Not jailed, just all of the money that was greedily taken from their companies returned by our government. It needs to happen now. And the US is not the only place this is happening. Look into places like DUBI where they actually have solid gold bathroom fixtures, solid gold dog houses! While their people are starving. NOT a single penny should go to any Country with that sort of greed going on!

By anon19826 — On Oct 20, 2008

What are the major set-backs and other drawbacks that might be surfacing from the progression of NAFTA?

By anon14469 — On Jun 17, 2008

The unemployment rate in Canada, according to government statistics, is 6.1%. This, although slightly higher than America's unemployment, is still a low rate. A lot of people are constantly complaining about the supposed disastrous effects that free trade and outsourcing will have on American and Canadian workers, but this doesn't hold up to the facts. The American unemployment rate has held steadily low, while the Canadian unemployment rate has actually been going down. (Just Google "Canadian Economy" and the official government site is the first listing.)

By thomas101960 — On Apr 15, 2008

The NAFTA agreement when it came into Canada caused the loss of 3 million jobs in Canada almost overnight. This was the worst downturn in the Canadian economy in its entire history! This would be the equivalent of 30 million people out of work in the United States. Don't tell me Canada has benefited from the NAFTA deal because what we have lost we will never regain. As a result manufacturing in Canada is largely dead due to the initial shipment of jobs to the United States then to other areas of the world. China for instance where wages are extremely small compared to North America.

By anon9970 — On Mar 17, 2008

Maybe we aren't functioning on a single currency or unified govt YET, but we will in due time.

By anon7998 — On Feb 06, 2008

Tell us that our government is not working on a "North American Union".

By anon6575 — On Jan 03, 2008

The Euro is the main currency across the EU, but not every country in the EU has converted to it, for example the UK has kept its £ sterling but is still part of the EU and abides by EU regulations.

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