The North American Free Trade Agreement
The North American Free Trade Agreement (NAFTA) was a trade agreement signed by the three principal powers of North America: the United States, Canada and Mexico. It went into effect January 1, 1994 and was designed to remove barriers to trade, reduce tariffs, and create favorable conditions for investments between the three signatories.
NAFTA has had a substantial effect on North American trade and the economies of the three countries involved since its implementation. Before NAFTA was put in place, Mexico was largely a closed economy. Companies made cash investment in Mexico to import goods produced in low-cost Mexican labor plants. As a result, the Mexican government imposed tight regulations in order to limit the influx of foreign products and foreign investments.
NAFTA ended these import restrictions and replaced them with a system that allowed free trade among the signatory nations. It removed most tariffs and duties on trade of goods and services between the three countries, reduced barriers to foreign direct investment, and improved upon the existing regulatory framework. Specifically, the agreement boosted levels of investment and job creation in Mexico, which led to increased purchasing power and improved living standards.
In addition to stimulating investment, NAFTA has had a positive effect on the environment by creating a more stable economic and social environment. For example, the agreement has enabled Mexico to make strides in reducing air and water pollution, increasing access to clean energy, and managing competition in the telecommunications industry. It has also encouraged Mexico to establish a modern regulatory framework for environmental protection and improving national environmental standards.
NAFTA has also had an important impact on cross-border investment. By reducing taxes and regulations, the agreement has helped to make North American companies more competitive in global markets. It has also made it easier for North American companies to invest in Mexico, while allowing Mexican companies to more easily access capital and the broader North American market.
The original NAFTA agreement has been amended several times since it was first signed in 1994. For example, in 2018, the United States, Canada, and Mexico agreed to the United States-Mexico-Canada Agreement (USMCA), which updated the original NAFTA and will come into effect in July 2020. The USMCA includes provisions on labor, environmental, digital trade, and other aspects of the economy that are designed to bring the agreement in line with the 21st century global economy.
NAFTA has had a major impact on North American economies since its implementation. The agreement has created greater access for North American companies to global markets, spurred significant amounts of foreign direct investment, and helped reduce poverty in Mexico. It has also encouraged environmental protections and created more jobs. In the future, the new U.S.-Mexico-Canada Agreement will help to further modernize the agreement and ensure that its benefits continue to be felt across North America.
