what was the north american free trade agreement nafta 
the north american free trade agreement nafta was implemented to promote trade between the u s canada and mexico the agreement which eliminated most tariffs on trade between the three countries went into effect on jan 1 1994 numerous tariffs particularly those related to agricultural products textiles and automobiles were gradually phased out through jan 1 2008 nafta was terminated and replaced by the united states mexico canada agreement usmca in 2020 investopedia sydney saporitounderstanding the north american free trade agreement nafta nafta was an agreement that created a free trade area between the three major countries in north america the united states canada and mexico the deal was signed by the three parties in 1992 and went into effect two years later 1it aimed to encourage economic activity among north america s three major economic powers its primary focus was to open up and expand trade in the agricultural automotive and textile industries some of its main goals included proponents of the agreement believed that it would benefit the three nations involved by promoting freer trade and lower tariffs among them some experts also suggested that aligning mexico with the more established economies of the u s and canada would help boost its economic growth 2history of the north american free trade agreement nafta legislation for nafta was developed during george h w bush s presidency as the first phase of his enterprise for the americas initiative the agreement was built on an existing agreement between the u s and canada the u s canada free trade agreement from 1989 the u s began trade talks with mexico three years later adding canada to the negotiations 3the clinton administration believed nafta would create 200 000 u s jobs within two years and a million within five years because exports played a major role in u s economic growth as of april 2024 about 29 of all u s imports originate from mexico and canada they are respectively the united states first and second largest suppliers of imported goods approximately 35 of u s exports are destined for canada and mexico as of april 2024 4under president clinton the white house anticipated a dramatic increase in u s imports from mexico as a result of the lower tariffs through nafta additions to naftanafta s provisions were supplemented by two other regulations the north american agreement on environmental cooperation and the north american agreement on labor cooperation intended to prevent businesses from relocating to other countries to exploit lower wages more lenient worker health and safety laws and looser environmental regulations nafta did not eliminate regulatory requirements on companies wishing to trade internationally such as rule of origin regulations and documentation requirements that determine whether certain goods can be traded under nafta the free trade agreement also contained administrative civil and criminal penalties for businesses that violate any of the three countries laws or customs procedures provisions of naftathe full text of the trade agreement consisted of 22 chapters divided into eight sections as well as additional annexes and appendices each section was broadly aimed at facilitating trade within the hemisphere and eliminating trade barriers the most important provisions are highlighted below one of the main goals of nafta was to eliminate most tariffs and other restrictions on trade between the three countries before the implementation of nafta high import tariffs discouraged cross border trade in some manufactured goods the agreement also sought to eliminate non tariff barriers to trade such as border processing and licensing requirements nafta also provided increased protections for intellectual property such as trade secrets and computer software these protections increased the incentives for cross border trade because they reduced the risk of losing business secrets to an international competitor in response to critics who argued that nafta would lead to a decline in environmental and labor standards the clinton administration negotiated several side agreements to ensure protections for the environment and labor rights the first of these the north american agreement on labor cooperation included provisions to prevent child labor and other abuses but stopped short of protecting the right to organize the second the north american agreement on environmental cooperation introduced a commission to assess the results of liberalization on environmental regulations in order to further facilitate cross border trade the agreement included a dispute resolution process for disagreements between investors businesses and state governments this process was heavily criticized in all three countries as it was seen as a way for multinational corporations to overrule local regulations 5north american industry classification systemthe three nafta signatory countries developed a new collaborative business classification system that facilitates the comparison of business activity statistics across north america the north american industry classification system naics organizes and separates industries according to their production processes the naics replaced the u s standard industrial classification sic system allowing businesses to be classified systematically in an ever changing economy the new system enables easier comparability between all countries in north america to ensure that the naics remains relevant the system is reviewed every five years the three parties responsible for the formation and continued maintenance of the naics are the the first version of the classification system was released in 1997 a revision in 2002 reflected the substantial changes occurring in the information sector the 2022 review made changes to the classification of industries by creating 111 new ones this was done by reclassifying combining or splitting 156 naics 2017 industries or their parts 6naics is reviewed every five years in years ending in 2 and 7 the next scheduled review is set for 2027 7this classification system allows for more flexibility than the sic s four digit structure by implementing a hierarchical six digit coding system and classifying all economic activity into 20 industry sectors five of these sectors are primarily those that produce goods and the remaining 15 sectors provide some type of service every company receives a primary naics code that indicates its main line of business a company receives its primary code based on the code definition that generates the largest portion of the company s revenue at a specified location in the past year the first two digits of a naics code indicate the company s economic sector the third digit designates the company s subsector the fourth digit indicates the company s industry group the fifth digit reflects the company s naics industry and the sixth designates the company s specific national industry advantages and disadvantages of naftanafta s immediate aim was to increase cross border commerce in north america and it did indeed spur trade and investment among its three member countries by limiting or eliminating tariffs it was especially advantageous to small or mid size businesses because it lowered costs and did away with the requirement that a company have a physical presence in a foreign country to do business there most of the increase came from trade between the u s and mexico or between the u s and canada though mexico canada trade grew as well the 1 trillion threshold in trilateral trade from 1993 was reached in 2011 real per capita gross domestic product gdp also grew slightly in all three countries primarily canada and the u s 89during the nafta years u s trade deficits importing more from a nation than you export did increase especially with mexico nafta protected non tangible assets like intellectual property established dispute resolution mechanisms and through the naaec and naalc implemented labor and environmental safeguards it increased u s competitiveness abroad and exported higher u s workplace safety and health standards to other nations critics of nafta were concerned that the agreement would result in the relocation of american jobs to mexico despite the supplementary naalc many companies moved their manufacturing operations to mexico and other countries with lower labor costs including automakers and those in the garment industry however nafta may not have been the reason for all those moves some critics also cite the rising wave of mexican immigrants to the u s as a result of nafta partly because the expected convergence of u s and mexican wages didn t happen thus making the u s more attractive to mexican workers 10surge in cross border trade and investmentincreased competitiveness of u s industryopportunities for small businesseshigher universal health safety and environmental standardsloss of manufacturing jobs especially in certain industriesincreased inflation in the u s increased u s trade deficitsincreased wage gap between u s and mexiconafta vs usmcaon aug 27 2018 president donald trump announced a new trade deal with mexico to replace nafta the u s mexico trade agreement as it was called would maintain duty free access for agricultural goods on both sides of the border and eliminate non tariff barriers while also encouraging more agricultural trade between mexico and the united states on sept 30 2018 the agreement was modified to include canada the usmca took effect on july 1 2020 completely replacing nafta if not renewed the usmca will expire in 16 years from its start date 11a september 2018 joint press release from the u s and canada trade offices stated during the 2016 presidential election donald trump campaigned on a promise to repeal nafta and other trade agreements he deemed unfair to the united states the usmca went into effect on july 1 2020 although it builds on and uses nafta as a basis there are some differences the usmca also revised and toughened labor laws relating to mexico establishing an independent investigatory panel that can investigate companies accused of violating workers rights and stop shipments from those found to violate labor laws it also compelled mexico to enact a wide array of labor reforms from improving working conditions to increasing wages 13the following table shows other distinctions between these agreements indicating qualifications for tariff free status and other rules 