What Is NAFTA?

A key to understanding the North American Free Trade Agreement (NAFTA) is knowing what a free-trade agreement is and what the designers of those agreements want to achieve. A free-trade agreement sets up conditions for members that apply only to members.

Compare a free trade agreement between nations separated by an ocean with trade inside a single country. That puts the idea in a better perspective because the framers of a free-trade agreement want the same open borders that exist between states within one nation. They envision no quotas on what can be imported or exported and they certainly don’t want extras fees or charges on certain products, commonly called tariffs.

The objective is to eliminate any trade barriers that would restrict the smooth flow of products between those who have assigned onto the agreement.

nafta1NAFTA is a trade consortium between Canada, the United States and Mexico that replaces a previous and similar agreement between Canada and the U.S. This agreement is nearly 20 years old now. It began with discussions between the elected leaders of the three nations – the first President Bush; Brian Mulroney, Prime Minister of Canada; and Mexican President Carlos Salinas.

The agreement was signed during a ceremony in 1992 but the document had to be approved by the legislators in each country before it could take effect. In the U.S. the final steps to putting NAFTA into effect fell to a new President, Bill Clinton. The new executive took some additional steps to protect workers in the U.S. by inserting clauses that would calm the fears of some members of Congress.

The new agreement, under Clinton, also put some focus on the environmental issues that were addressed in the United States but not necessarily in Mexico or Canada. NAFTA passed in the House of Representatives by a narrow margin. The legislation establishing this significant free-trade agreement was controversial to say the least. It was effective on January 1, 1994.

What made the North American Free Trade Agreement so important was the massive production capability of the three countries involved. At the time, the agreement tied together three nations who had the largest domestic-product capability in the world.

The countries combine their efforts to establish a superhighway of product movement, eliminating many of the restrictions that kept products within national borders prior to NAFTA. Economic history records that it took more than 14 years to put all of the final details of the North American Free Trade Agreement into action. It was widely advertised as beneficial to ranchers and consumers throughout North America. Those opponents to NAFTA came from the labor movement, from religious organizations, from environmental groups and consumer activists. One of the key objections to NAFTA came from food-safety organizations who feared that standards would be lowered in the U.S. to satisfy the quantity demands of other countries.

The United States has more than a dozen similar agreements. In fact, the percentage of U.S. exports to free-trade-agreement countries approached half of all exports in 2006 (42.6 percent).

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