NAFTA enhanced trade between the US, Canada, and Mexico. Starting January 1, 1994, this accord eliminated most trade barriers between these countries. Its primary focus was on cutting down agri-textile and autos-related tariffs that were gradually eliminated from the year of birth (a 1994) to 2008.

The North American Free Trade Agreement stimulated economic interactions among North America's three vital financial players: Canada, the U.S., and Mexico. Its advocates believed this agreement would benefit the three nations by fostering more liberal trade and reducing tariffs.

Timeline of NAFTA

On August 27, 2018, President Donald Trump proposed a new trade pact with Mexico to replace NAFTA. The U.S.-Mexico Trade Agreement preserved tariff-free agriculture trade and removed non-tariff obstacles to enhance U.S.-Mexico agricultural commerce.

On September 30, 2018, this deal was extended to include Canada, creating the USMCA, which replaced NAFTA on July 1, 2020. The USMCA expires after 16 years unless renewed.

In a joint statement published on September 30, 2018, the U.S. and Canada trade departments said the USMCA will benefit workers, farmers, ranchers, and companies with a high-standard trade deal. This agreement meant increasing market access, trade fairness, and regional economic prosperity. It sought to boost the middle class and provide well-paying employment and new possibilities for North America's almost 500 million people.

Trade between the US, Mexico, and Canada altered after NAFTA. In 2019, these two nations supplied 25% of US crude oil, equipment, gold, vehicles, fresh vegetables, livestock, and processed goods imports. One-third of US exports to Canada and Mexico were machinery, vehicle parts, mineral fuels and oils, and polymers.

In his Enterprise for the Americas Initiative, George H. W. Bush laid the framework for NAFTA. Later, Clinton signed NAFTA in 1993. The government expected NAFTA to create 200,000 U.S. employment in two years and a million in five. The predicted rise in U.S. exports, a crucial engine of economic development, and Mexican imports owing to decreased tariffs fueled this confidence.

In addition to its primary provisions, the North American Free Trade Agreement included supplemental agreements addressing labor and environmental concerns. Both were the North American Agreements on Environmental and Labor Cooperation. These agreements prevented companies from going to other countries for lower wages, worker health and safety, and environmental regulations.

Despite its focus on free trade, the North American Free Trade Agreement maintained specific regulatory requirements for businesses engaged in international trade. These included rules of origin regulations and documentation necessities, which determined the eligibility of goods for trade under NAFTA terms. Moreover, the agreement established a range of administrative, civil, and criminal penalties for businesses violating any of the participating countries' laws or customs procedures.

Key Provisions and Innovations of NAFTA

The North American Free Trade Agreement, an extensive trade agreement, encompassed a complete text of 22 chapters, organized into eight distinct sections, with additional annexes and appendices. The overarching aim of these sections was to simplify trade within the region and dismantle various trade barriers.

Critical provisions of NAFTA included:

Eliminating Trade Barriers

A primary objective of NAFTA was to remove most tariffs and trade restrictions among the member countries. Before NAFTA, high import tariffs significantly hindered cross-border trade in some manufactured products. The agreement also targeted non-tariff barriers, such as border processing and licensing requirements, streamlining trade processes.

Intellectual Property Protections

To safeguard trade secrets, computer software, and other intellectual properties, NAFTA enhanced protections. This move was crucial in boosting incentives for cross-border trade by reducing the risk of intellectual property theft by international competitors.

Environmental and Labor Protections

Addressing concerns that NAFTA could negatively impact environmental and labor standards, the Clinton administration included several side agreements. The North American Agreement on Labor Cooperation aimed to mitigate issues like child labor but did not extend to organizing rights. Meanwhile, the North American Agreement on Environmental Cooperation established a commission to monitor the effects of trade liberalization on environmental norms.

Dispute Resolution Mechanism

The agreement introduced a dispute resolution process to handle conflicts involving investors, businesses, and state governments. This process, however, faced criticism in all three countries for potentially allowing multinational corporations to override local regulations.

North American Industry Classification System (NAICS)

The NAFTA nations created NAICS to classify commercial operations and compare them throughout North America. NAICS replaces SIC with a six-digit hierarchical classification system that divides economic activity into 20 categories.

Five sectors are goods-producing, and the rest are service-oriented. Companies are assigned a primary NAICS code based on their most significant revenue source at a specific location in the past year.

• First two NAICS numbers reflect economic sector.
• Third digit denotes subsector.
• Fourth digit indicates industrial group.
• Five digits identify NAICS industries.
• The sixth digit indicates national industry..

Mexican INEGI, Statistics Canada, OMB, and US bureaus regulate the National System of Geographic Information (NSGI). NAICS, introduced in 1997 and updated frequently, provides for more exact categorization and adjusts to economic developments like the information sector.

Benefits and Drawbacks of NAFTA

The U.S., Canada, and Mexico boosted trade and investment under the North American Free Trade Agreement. Tariff reduction or elimination reduced small and mid-sized enterprise costs and removed the need for an overseas presence.

Increased Trade

Trilateral trade rose 258.5% to $1.0 trillion from 1993 to 2015 (125.2% after inflation). All three nations' real per-capita GDP grew, especially Canada and the U.S. NAFTA increased U.S. inflation and trade imbalances, especially with Mexico.

Intellectual Property Protections

The North American Free Trade Agreement also bolstered intellectual property protections, introduced dispute-resolution mechanisms, and set labor and environmental standards through the NAAEC and NAALC. This enhanced U.S. global competitiveness and exported higher U.S. workplace safety and health standards.

Job Loss and Immigration Concerns

Critics of NAFTA feared U.S. job losses to Mexico, concerns partially realized as many firms moved manufacturing to Mexico and other low-cost labor countries, impacting U.S. auto and garment industry workers. However, NAFTA might not be solely responsible for these relocations. The agreement also coincided with increased Mexican immigration to the U.S., driven partly by the lack of expected wage parity between the two countries.