Nafta - North American Free Trade Agreement - Impact on the U.S., Canada and Mexico

The North American Free Trade Agreement (NAFTA) is one of the most influential and extensive treaties in the world and is the expansion of the legacy Canada-US Free Trade Agreement of 1988 (Private Rights, 2001, Mayer, 1998). The agreement governs the whole spectrum of North American trade and it history extends from hemispheric cooperation on the largest scale ever seen (Private Rights, 2001). NATFA is a treaty between Canada, Mexico and the United States and was intended to cultivate greater trade between these three countries (Private Rights, 2001). NAFTA was put into effect in January of 1994 and has since been updated to include two significant additions, the North American Agreement for Environmental Cooperation (NAAEC) and the North American Agreement for Labor Cooperation (NAALC) (NAAEC, n.d., NAALC, n.d.). The NAAEC was an addition in response to environmentalist concerns that the United States would begin to lower its environmental standards if all three countries did not come to an agreement related to environmental regulation (NAAEC, n.d.). The NAALC augments NAFTA and attempts to create the groundwork for cooperation between the three countries for the resolution of labor issues and to promote increased cooperation between trade unions and social organizations working for improved labor conditions (NAALC, n.d.). Most recently the integration of the Security and Prosperity Partnership of North America has worked to encourage cooperation related to issues of national security (Security and Prosperity, n.d.). One of the most significant aspects of NAFTA is its elimination of tariffs on goods shipped between Canada, Mexico and the United States (Private Rights, 2001). United States goods were mostly sold to Canada and Mexico were accompanied with high tariffs (tax placed on imported goods) (Private Rights, 2001). As you can imagine, Mexico and Canada did not wish to incur these tariffs, as such these goods were not sold in North America. Restrictions related to motor vehicles, computers, textiles and agriculture were eventually lifted (Private Rights, 2001). The treaty protects intellectual property rights, including patents, copyrights and trademarks and outlines the removal of investment restrictions among the three countries (Private Rights, 2001). NAFTA is trilateral in its nature in that the majority of its terms apply uniformly to Canada, Mexico and the United States (XXXX). Exceptions to the trilateral nature of the agreement include exceptions in the area of agriculture where stipulations, tariff reduction phase out periods and protection of selected industries were negotiated on a bilateral basis (XXXX). Provisions related to environmental and worker protections were added later as a result of supplemental agreements (NAAEC, n.d., NAALC, n.d.).

The effects of NAFTA have been viewed as both positive and negative for the economies and cultures of the United States, Canada and Mexico.

Positive Impacts

• Comparative Advantage: Conceptually everyone benefits when countries produce and sell freely what they do most efficiently. Everyone should specialize in what they do best and governments should intervene as little as possible in the process (Pros & Cons, n.d., Friedman, 2000).

• Protectionism is expensive: Tariff and non-tariff barriers (NTBs) result in higher prices for consumers. Barrier costs are passed on to consumers and consumers are forced to buy more expensive domestically produced goods (Pros & Cons, n.d., Friedman, 2000).

• Competition: Competition encourages lower prices, efficiency in production, and innovation (Pros & Cons, n.d., Friedman, 2000).

• Functionalism: Cooperation in one area (such as trade) promotes cooperation in other areas. In theory, the drug problem, immigration problems, etc. can be more directly addressed (Pros & Cons, n.d., Friedman, 2000).

• Interdependence: Free trade leads to interconnections that make conflict too costly (Pros & Cons, n.d., Friedman, 2000, Hufbauer & Schott, 2005). Dependency reduces the likelihood of war.

• Economic Growth: Through free trade’s promotion of economic growth, pressing social problems, such as unemployment, environmental deterioration, or illegal immigration can be alleviated by being brought into the forefront for discussion (Pros & Cons, n.d., Friedman, 2000).

• Defense against protectionism elsewhere: Regional free trade agreements help offset the danger of protectionism elsewhere and secure markets for exporters (Pros & Cons, n.d.). NAFTA has leverage against other large economic entities, like the European Union.

• Introduction of capital and technology: For less developed countries, free trade can promote the introduction of capital