North American Free Trade Agreement
The North American Free Trade Agreement, known usually as NAFTA, is a comprehensive trade agreement linking Canada, the U.S.A, and Mexico in a free trade sphere. NAFTA went into effect on January 1, 1994.
The agreement immediately ended tariffs on some goods, and on other goods tariffs were scheduled to be eliminated over a period of time. By 2008 all tariff eliminations are to be complete.
The agreement was an expansion of the earlier Canada-U.S. Free Trade Agreement of 1989. Unlike the European Union, NAFTA does not create a set of supranational governmental bodies, nor does it create a body of law which is superior to national law. NAFTA, as an international agreement, is very similar to a treaty. Under United States law it is classed as a congressional-executive agreement.
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Effects
NAFTA has been politicized since it was first proposed. Businesses have tended to support NAFTA in the belief that lower tariffs would increase trade potential, while labor unions in the United States have opposed NAFTA for fear that jobs would move out of the country due to lower wage costs in Mexico. Farmers in Mexico have opposed NAFTA because the heavy agriculture subsidies for farmers in the United States have put a great deal of downward pressure on Mexican agricultural prices, forcing many out of business.
Since NAFTA was signed, it has been difficult to analyze its macroeconomic effects due to the large number of other variables in the global economy. Various economic studies have generally indicated that rather than creating an actual increase in trade, NAFTA has caused trade diversion, in which the NAFTA members now import more from each other at the expense of other countries worldwide.
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