What Is NAFTA?
NAFTA is short for the North American Free Trade Agreement. It covers Canada, the U.S. and Mexico making it the world’s largest free trade area (in terms of GDP). It was launched 20 years ago to reduce trading costs, increase business investment, and help North America be more competitive in the global marketplace.
When Did It Start?
NAFTA was signed by President George H.W. Bush, Mexican President Salinas, and Canadian Prime Minister Brian Mulroney in 1992. It was ratified by the legislatures of the three countries in 1993. The U.S. House of Representatives approved it by 234 to 200 on November 17, 1993. The U.S. Senate approved it by 60 to 38 on November 20, three days later.
It was finally signed into law by President Bill Clinton on December 8, 1993 and entered force January 1, 1994. Although it was signed by President Bush, it was a priority of President Clinton's, and its passage is considered one of his first successes. (Source: History.com, NAFTA Signed into Law, December 8, 1993)
How Did It All Begin?
The impetus for NAFTA actually began with President Ronald Reagan, who campaigned on a North American common market. In 1984, Congress passed the Trade and Tariff Act. This is important because it gave the President "fast-track" authority to negotiate free trade agreements, while only allowing Congress the ability to approve or disapprove, not change negotiating points. Canadian Prime Minister Mulroney agreed with Reagan to begin negotiations for the Canada-U.S. Free Trade Agreement, which was signed in 1988, went into effect in 1989 and is now suspended since it's no longer neeeded. (Source: NaFina, NAFTA Timeline)
Meanwhile, Mexican President Salinas and President Bush began negotiations for a liberalized trade between the two countries. Prior to NAFTA, Mexican tariffs on U.S. imports were 250% higher than U.S. tariffs on Mexican imports. In 1991, Canada requested a trilateral agreement, which then led to NAFTA. In 1993, concerns about liberalization of labor and environmental regulations led to the adoption of two addendums.
What Was Its Purpose?
Article 102 of the NAFTA agreement outlines its purpose:
- Grant the signatories Most Favored Nation status.
- Eliminate barriers to trade and facilitate the cross-border movement of goods and services.
- Promote conditions of fair competition.
- Increase investment opportunities.
- Provide protection and enforcement of intellectual property rights.
- Create procedures for the resolution of trade disputes.
- Establish a framework for further trilateral, regional and multilateral cooperation to expand the trade agreement's benefits. (Source: NAFTA Secretariat, "FAQ")
Has It Fulfilled Its Purpose?
NAFTA has eliminated trade barriers, increased investment opportunities, and established procedures for resolution of trade disputes. Most important, it has increased the competitiveness of the three countries involved on the global marketplace. This has become especially important with the launch of the European Union and the economic growth of China and other emerging market countries. In 2007, the EU replaced the U.S. as the world's largest economy.
Despite NAFTA's benefits, it has remained highly controversial. Its disadvantages are usually pointed out during Presidential campaigns. In 1992, before the trade agreement was even ratified, Independent Presidential candidate Ross Perot famously warned that "You're going to hear a giant sucking sound of jobs being pulled out of this country." Ross predicted that the U.S. would lose 5 million jobs -- a whopping 4% of total U.S. employment -- to lower-cost Mexican workers. In fact, this never happened as Mexico entered a recession and the U.S. entered a period of prosperity. True, American workers were displaced by low-cost Mexican imports. But research showed it was more like 2,000 per month. (Source: Brad DeLong, "Jobs and NAFTA")
The 2008 Presidential Campaign
NAFTA was attacked from all sides during the 2008 Presidential campaign. Barack Obama blamed it for growing unemployment. He said it helped businesses at the expense of workers in the U.S. It also did not provide enough protection against exploitation of workers and the environment along the border in Mexico. Hillary Clinton included the trade agreement in her pledge to strictly enforce all existing trade agreements, as well as halt any new ones. Both candidates promised to either amend or back out of the agreement all together. However, Obama hasn't done anything about these campaigns promises since becoming President. For more, see Has Obama Forgotten His Promise?
In 2008, Republican candidate Ron Paul said he would abolish the trade agreement. He said it was responsible for a Superhighway and compared it to the European Union. However, unlike the EU, NAFTA does not enforce a single currency among its signatories. Paul has maintained this position in his 2012 campaign.
Republican nominee John McCain supported NAFTA, as he did all free trade agreements. In fact, he wanted to enforce an existing section within it that promised to open up the U.S. to the Mexican trucking industry. (Article updated August 26, 2013)