North American Free Trade Agreement (NAFTA) | Trade Samaritan

North American Free Trade Agreement (NAFTA)

NAFTA took effect on January 01, 1994 and marks its 20th anniversary this year. NAFTA agreement is executed between the governments of Canada, Mexico and United States in San Antonio, Texas.

Primary Goals:

  • Increase Trade
  • Create Employment
  • Increase Investment

Supplementary Goals:

  • North American Agreement on Environmental Cooperation
  • North American Agreement on Labor Cooperation

NAFTA has created a trilateral trade block in North America and is the largest trade block in the world. NAFTA also has two supplements as below. The agreement opened the door for open trade, ending tariffs on various goods and services, and implementing equality between Canada, USA, and Mexico. NAFTA has allowed agricultural goods such as eggs, corn, and meats to be tariff-free. This allowed corporations to trade freely and import and export various goods on a North American scale.

The prime goal of NAFTA is to eliminate barriers to trade and investment between United States, Canada and Mexico. NAFTA eliminated tariffs on its exports to Canada and Mexico. Upon implementation, almost 70% of U.S. imports from Mexico and 50% of U.S. exports to Mexico received duty-free treatment. NAFTA is a radical trade block as never before had a merger of 3 nations with such different level of development has been attempted. Also trade blocks are typically restricted to the movement of goods and services however NAFTA also include domestic law and environmental issues.

NAFTA has been criticized time and again in United states, it is said that NAFTA has served as a fuel in the fire as it has widen the gap of U.S. trade deficit, increased the unemployment rate and has sent US factory jobs abroad. In spite of the criticism it faces, since NAFTA entered into force in 1994, trade with Canada and Mexico has grown three-and-one-half fold to $1.2 trillion, and the two countries buy about one-third of U.S. merchandise exports. U.S total trade under NAFTA has increased by 250.6% (2011) since the inception of NAFTA in 1994.

U.S. Chamber of Commerce commissioned a study in 2010 entitled Opening Markets, Creating Jobs: Estimated U.S. Employment Effects of Trade with FTA Partners to conduct a more serious analysis of NAFTA and job creation.

It is remarkable that 14 million U.S. jobs depend on trade with Canada and Mexico which is more than 1 in 10 U.S. private sector jobs. The economies of Canada and the United States are similar because they are both developed countries and are each other’s largest trading partners. Given its great natural resources, highly skilled labor force, and modern capital plant, Canada enjoyed solid economic growth from 1993 through 2007. NAFTA also benefits Canadians as NAFTA eliminates the high Mexican tariffs that traditionally existed on agricultural exports, post NAFTA goods produced in Mexico can enter Canada and the United States duty free helping to lower costs. NAFTA has also benefited Canadians as through the agreement a greater variety of products is available in the Mexican market, Canada also has benefited from an increase of trade in services. The study conducted by U.S. Chamber of Commerce indicates that Canada, Mexico, and the United States together form a continental trading platform that allows U.S. firms and workers to compete on a more even footing with the rest of the world. Canada, Mexico, and the United States today represent an expanded North American home market for U.S. workers, farmers, and companies. Without this broader, integrated market, U.S. enterprises would be significantly less competitive on the global stage.

A number of studies have also found that NAFTA has brought economic and social benefits to the Mexican economy as a whole, but the benefits have not been evenly distributed throughout the country. Views of NAFTA within Mexico are mixed. Media reports tend to highlight the anti-NAFTA sentiment in the Mexican agricultural sector, but according to an extensive non-partisan opinion survey conducted by two independent groups in Mexico, the majority of the Mexican population views NAFTA favorably. Public opinion in Mexico, Canada and the United States tends to be positive toward NAFTA and the prospect of widening free trade across the hemisphere.


The Economist
U.S Chamber of Commerce