What is NAFTA?

, , Leave a comment

What is NAFTA?
NAFTA stands for North American Free Trade Agreement, which is signed by the governments of Canada, Mexico and the United States of America. This agreement came into effect in January 1, 1994 and started the trilateral trade bloc in the North America.

The main goal of NAFTA is to eradicate the stumbling block of trade and investment among the three countries. After the implementation of the agreement, the United States immediately eliminated more than one half of the tariffs from its import from Mexico and more than one third of the country’s export to Mexico. Most of the US-Canada trade was already free of tariffs.

The agreement includes in its provisions that after 10 years of the implementation, the tariff trade between U.S. and Mexico will all be eliminated. However, this does not include some U.S. agricultural exports to Mexico.  The U.S. agricultural exports to Mexico were set to be tariff free in 15 years. NAFTA is not limited to trades with tariffs but it also intends to eliminate non-tariff trade barriers.

There are specific reasons why NAFTA was formed. Below are some of these reasons:

  • Signatories will be granted the ‘Most Favored Nation’ status, which means all members receive the same trade benefits as all other members.
  • To take away all barriers of trade and smooth the progress of cross-border movements of products and services.
  • Encourage the status of fair competition.
  • Encourage opportunities for investments.
  • Protect and enforce intellectual property rights.
  • Generate courses of actions to resolve trade disputes.
  • To expand NAFTA’s benefits by establishing framework for further trilateral, regional, and multilateral cooperation.
  • Many are wondering if NAFTA has fulfilled its purpose. The answer is that NAFTA was able to manage the elimination of trade barriers. It has also fulfilled its purpose of encouraging investment opportunities, established procedures for resolution of trade disputes and most importantly, it has created a great increase in the competitiveness of the three signatory countries in terms of their involvement in the global market.
    Establishing competitiveness in the global market has been significantly important after the formation of the European Union or EU.

    Although NAFTA has fulfilled its purpose, many are still blaming it for the reduction of some available jobs in several sectors. There is also evidence that there has been a decrease in the feasibility of small business in some sectors. Moreover, it was also blamed for the overall imbalance in the economy of the three countries.
    However, still, there are many analysts who touted NAFTA’s compassion contributing to the improved North American GDP. Contrary to what NAFTA critics insisted, many analysts stress that the agreement did create more jobs, and that the transparency between the three countries has greatly increased. Moreover, exports have also been seen to intensify.

    On the other hand, NAFTA, like any other agreement is not considered to be perfect for all members. Some issues had come up as a result of the agreement. Criticisms were thrown at issues like; NAFTA is a threat to the Canadian water supply and ecosystem, jobs for specific sectors that are important have greatly decreased. There are also criticisms on how the three countries committed NAFTA violations. However, no matter how imperfect NAFTA is, the important thing is that it helped the economy of its member countries.

    Tea Time Quiz

    [forminator_poll id="23176"]

    Leave a Reply