Tuesday, March 27, 2007


The North American Free Trade Area is the trade bloc created by the North American Free Trade Agreement (NAFTA) and its two supplements, the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC), whose members are Canada, Mexico and the United States. It came into effect on 1 January 1994.

The agreement

NAFTA called for immediately eliminating duties on half of all U.S. goods shipped to Canada, and gradually phasing out other tariffs, over a period of about 14 years. Restrictions were to be removed from many categories, including motor vehicles and automotive parts, computers, textiles, and agriculture. The treaty also protected intellectual property rights (patents, copyrights, and trademarks), and outlined the removal of investment restrictions among the three countries. Provisions regarding worker and environmental protection were added later as a result of supplemental agreements signed in 1993.

This agreement was an expansion of the earlier Canada-U.S. Free Trade Agreement of 1988. Unlike the European Union, NAFTA does not create a set of supranational governmental bodies, nor does it create a body of law superior to national law. NAFTA is a treaty under international law. Under United States law it is classed as a congressional-executive agreement rather than a treaty, reflecting a peculiar sense of the term "treaty" in United States constitutional law that is not followed by international law or the laws of other nations.


Trade has increased dramatically amongst the three nations since NAFTA. In the period of 1993-2004, total trade between the United States and its NAFTA partners increased 129.3% (110.1% with Canada and 100.9% with Mexico), yet total trade between the United States and non-NAFTA partners increased 123.8% in the same period, a roughly similar figure.

According to Hufbauer (2005), overall, NAFTA has not caused trade diversion, aside from a few select industries such as textiles and apparel, in which rules of origin negotiated in the agreement were specifically designed to make U.S. firms prefer Mexican manufacturers.

The World Bank also showed that the aggregate NAFTA imports' percentage growth was accompanied by an almost similar increase of non-NAFTA imports, thus suggesting that increase in trade was not diversionary.

However, Mexico is right now the #2 trade partner of US and last year trade reached a record level of almost 400 billion dollars when 15 years ago, was only 10 billion dollars.

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