What is NAFTA?

business economy

The North American Free Trade Agreement (NAFTA) is one of the most powerful and wide-reaching treaties in the world. It governs the entire spectrum of North American trade and has at its roots hemispheric cooperation on a scale never before seen.

NAFTA is a treaty between Canada, Mexico, and the United States that was designed to foster greater trade between the three countries. NAFTA has been in effect since 1 January 1994. It has since been updated with two major additions, the North American Agreement for Economic Cooperation (NAAEC) and the North American Agreement for Labor Cooperation (NAALC). A very recent addition was the Security and Prosperity Partnership of North America, designed to foster cooperation on issues of national security.

One important thing that NAFTA did right away was to eliminate a large number of tariffs on goods shipped between the three countries. American goods, mostly, were being sold to Canada and especially to Mexico and carried with them a high tariff. Mexico and Canada did not wish to pay the tariffs, so the goods were not sold in North America. Prime examples of these goods were cars, car parts, computers, and food.

As a result of NAFTA, Mexico especially has purchased goods from the US in much greater numbers than before. This saves Mexican companies money on imports, and it saves American companies money on export shipping costs. Canada has benefited in this way as well, although not nearly to the extent that Mexico has.

One prime benefit of NAFTA is that goods shipped between the three countries have labels printed in three languages: French, Spanish, and English. The English is for Canada and the US, the Spanish is for Mexico, and the French is for Quebec and other French-speaking parts of Canada. Another prime benefit, at least for Mexico, is that the NAFTA agreement ostensibly also encourages greater immigration between the three countries. In recent years, the increased immigration from Mexico to the US has become even more of a flashpoint than it had been previously. The same sort of relationship does not exist between Canada and the US or between Canada and Mexico.

Many observers consider NAFTA to be the same sort of economic and political union that the European Union (EU) is. This is both true and untrue. The EU, like NAFTA, is an economic union that fosters greater trade and cooperation between a large handful of the countries of Europe. EU members, however, have a common currency, while NAFTA members do not. Also, the EU has a political element and its own government, neither of which NAFTA has.

Related wiseGEEK articles

Category

New: Discuss this Article

Posted by: anon6575
The Euro is the main currency across the EU, but not every country in the EU has converted to it, for example the UK has kept its £ sterling but is still part of the EU and abides by EU regulations.
Posted by: anon7998
Tell us that our government is not working on a "North American Union".
Posted by: anon9970
Maybe we aren't functioning on a single currency or unified govt YET, but we will in due time.
Posted by: thomas101960
The NAFTA agreement when it came into Canada caused the loss of 3 million jobs in Canada almost overnight. This was the worst downturn in the Canadian economy in its entire history! This would be the equivalent of 30 million people out of work in the United States. Don't tell me Canada has benefited from the NAFTA deal because what we have lost we will never regain. As a result manufacturing in Canada is largely dead due to the initial shipment of jobs to the United States then to other areas of the world. China for instance where wages are extremely small compared to North America.

FREE: Subscribe to wiseGEEK

 
    learn more

our strict privacy policy ensures that your email address will be safe



Written by David White

copyright © 2003 - 2008
conjecture corporation