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What Is the North American Free Trade Agreement?

Some have said NAFTA will lead to American companies moving their operations to Mexico.
The goal of the North American Free Trade Agreement is to increase free trade.
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  • Written By: Jessica Ellis
  • Edited By: Bronwyn Harris
  • Last Modified Date: 30 September 2014
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The North American Free Trade Agreement, also known as NAFTA, is a major treaty governing trading laws between Canada, Mexico, and the United States. Created in 1994, the aim of the treaty was to increase free trade, leading to more profitable markets and a wider selection of goods in all three countries. Controversial from the beginning, the North American Free Trade Agreement remains a topic of considerable political and economic debate.

One major long-term goal of the North American Free Trade Agreement was the elimination of tariffs on imported goods between the three countries. According to the basic philosophy behind the agreement, the removal of tariffs would allow goods to be imported and exported at a lower cost, making a wider range of goods available across each of the three markets. Not all tariffs were eliminated immediately by the North American Free Trade Agreement; on some goods, a ten to fifteen year phase out of tariff charges was permitted instead.

The North American Free Trade Agreement was not the first document aimed at increasing trade between North American countries. In the 1980s, the United States and Canada reached a similar agreement regarding import and export laws between the two countries. NAFTA was created following negotiations between the US and Mexico for a similar trade agreement; in order to protect their interests, Canada demanded to be involved in these negotiations, creating the need for the three-country pact.

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Various controversies surround NAFTA and its impact on each of the countries. In Canada, critics argue that certain clauses in the agreement pose a possible danger to Canadian environment, particularly in regards to the sale of water sources to the United States. Some experts say that the Mexican farming system has been devastated by the North American Free Trade Agreement, as US farming subsidies and higher wages drive Mexican farmers into the US to look for work.

Possibly the greatest criticism regarding NAFTA is the issue of outsourcing. The US and Canada have a number of laws and regulations that ensure safety standards and fair wages. Mexico has fewer laws in these areas, making it profitable for American companies to move their business to Mexico, where land and workers are far less expensive. Unions and environmental groups are often among the most persistent in calling for revisions to or removal of NAFTA, as many believe it can lead to falling product quality and safety, as well as loss of jobs to American and Canadian workers.

Although NAFTA is rarely deemed a cohesive success, some experts believe that it is a living document that can be modified and improved with amendments and revisions. Since its official creation in 1994, the North American Free Trade Agreement has undergone two series of revisions, suggesting that the policy will continue to be malleable over time. Whether beloved or despised, many economists agree that the North American Free Trade Agreement is one of the most important and influential trade agreements ever created.

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