North American Free Trade Agreement
Ronald Reagan announced his candidacy for the presidency in November 1979. He made the idea of a North American free trade zone part of that campaign. Canada and the United States signed the Canada, United States Free Trade Agreement in 1988. Shortly afterward Mexican president Carlos Salinas de Gortari decided to approach U.S. president George H. W. Bush. He proposed a similar agreement to bring in foreign investment following the Latin American debt crisis. The Canadian government under Prime Minister Brian Mulroney feared that advantages gained through the Canada-US FTA would be undermined by a US-Mexican bilateral agreement. Mulroney asked to become a party to the US-Mexican talks. Diplomatic negotiations dating back to 1990 continued until leaders of the three nations signed the agreement on the 17th of December 1992.
The signed agreement needed ratification by each nation's legislative or parliamentary branch. In Canada, more voters chose anti-free trade parties like the Liberals and New Democrats in the 1988 election. However, the split between those two parties meant pro-free trade Progressive Conservatives won the most seats. They passed the 1987 Canada-US FTA and NAFTA bills with a parliamentary majority. Kim Campbell replaced Mulroney as Conservative leader and prime minister. She led the PC party into the 1993 election where they were decimated by the Liberal Party under Jean Chrétien. Chrétien campaigned on a promise to renegotiate or abrogate NAFTA. He subsequently negotiated two supplemental agreements with Bush. Bill Clinton added two side agreements before sending it to the U.S. Senate. These were the North American Agreement on Labor Cooperation and the North American Agreement on Environmental Cooperation. The U.S. House of Representatives passed the implementation act on the 17th of November 1993 by a vote of 234, 200. The Senate approved it on the 20th of November 1993 with 61 votes for and 38 against. Clinton signed it into law on the 8th of December 1993. The agreement went into effect on the 1st of January 1994.
A 2004 article by University of Toronto economist Daniel Trefler found that NAFTA produced a significant net benefit to Canada in 2003. Long-term productivity increased by up to 15 percent in industries that experienced the deepest tariff cuts. A study in 2007 found that NAFTA had a substantial impact on international trade volumes but only a modest effect on prices and welfare. According to a 2012 study, trade with the United States and Mexico increased by 11% in Canada compared to an increase of 41% for the U.S. and 118% for Mexico. In Mexico, income in the maquiladora sector had increased 15.5% since the implementation of NAFTA in 1994. A 2005 study found that Mexico's welfare increased by 1.31% as a result of the NAFTA tariff reductions. A Tufts University study found that NAFTA lowered the average cost of basic necessities in Mexico by up to 50%. Economists generally agreed that the United States economy benefited overall from NAFTA as it increased trade. A 2015 study found that US welfare increased by 0.08% as a result of NAFTA tariff reductions.
Chapter 11 allowed corporations or individuals to sue Mexico, Canada or the United States for compensation when government actions violated international law. Methanex Corporation, a Canadian corporation, filed a US$970 million suit against the United States. They claimed that a California ban on methyl tert-butyl ether was hurtful to their sales of methanol. The claim was rejected and the company was ordered to pay US$3 million to the U.S. government in costs. Metalclad, an American corporation, was awarded US$15.6 million from Mexico after a Mexican municipality refused a construction permit for a hazardous waste landfill. In another case, Apotex sued the U.S. for US$520 million because of opportunity lost in an FDA generic drug decision. Lone Pine Resources Inc. filed a US$250 million claim against Canada accusing it of arbitrary behavior regarding fracking exploration under the St. Lawrence Seaway. In 1996, Ethyl Corporation brought gasoline additive MMT to Canada before the federal government banned imports. The American company sought US$201 million from the Canadian federal government. Following a finding that the ban violated the Agreement on Internal Trade, the Canadian federal government repealed the ban and settled with the American company for US$13 million.
In the second 1992 presidential debate Ross Perot argued against the agreement. He ultimately lost the election but his warnings shaped public discourse. Bill Clinton supported NAFTA which went into effect on the 1st of January 1994. In a February 2018 Gallup Poll, 48% of Americans said NAFTA was good for the U.S. while 46% said it was bad. Donald Trump expressed negative views calling it the single worst trade deal ever approved in this country. Republican support for NAFTA decreased from 43% support in 2008 to 34% in 2017. Meanwhile Democratic support for NAFTA increased from 41% support in 2008 to 71% in 2017. The political gap was especially large regarding views on free trade with Mexico. Only 47% of Americans believed Mexico practices fair trade compared to 79% who viewed Canada as a fair trade partner. A February 2017 Gallup poll showed that 73% of Americans aged 18, 29 said NAFTA was good for the U.S.
Shortly after his election U.S. President Donald Trump said he would begin renegotiating the terms of NAFTA. The leaders of Canada and Mexico indicated their willingness to work with the Trump administration. In July 2017 the Trump administration provided a detailed list of changes they wanted to see. On the 27th of August 2018 Mexico and the United States announced they had reached a bilateral understanding on a revamped trade deal. This included provisions that would boost automobile production in the U.S. and a 16-year expiration date with regular 6-year reviews. Canadian Prime Minister Justin Trudeau met with the House Ways and Means Committee since Congress would have to pass legislation rolling back treaty provisions if Trump tried to withdraw from the pact. On the 30th of September 2018 a preliminary deal between the two countries was reached. The new name for the agreement was the United States-Mexico-Canada Agreement or USMCA. It came into effect on the 1st of July 2020 replacing NAFTA.
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Common questions
When did the North American Free Trade Agreement go into effect?
The agreement went into effect on the 1st of January 1994. This date marked the implementation of the trade bloc between Canada, Mexico, and the United States.
Who signed the North American Free Trade Agreement in 1992?
Leaders of the three nations signed the agreement on the 17th of December 1992. The signatories included U.S. president George H. W. Bush, Canadian Prime Minister Brian Mulroney, and Mexican president Carlos Salinas de Gortari.
What happened to indigenous communities after NAFTA was implemented?
Indigenous farmers feared the loss of their land due to the cancellation of Article 27 of Mexico's constitution. The Zapatistas declared war on the Mexican state on the 1st of January 1994, labeling NAFTA a death sentence for indigenous communities.
How did NAFTA affect economic welfare in Mexico compared to the United States?
A 2005 study found that Mexico's welfare increased by 1.31% as a result of NAFTA tariff reductions. A 2015 study found that US welfare increased by 0.08% as a result of NAFTA tariff reductions.
When did the United States-Mexico-Canada Agreement replace the North American Free Trade Agreement?
The new name for the agreement is the United States-Mexico-Canada Agreement or USMCA. It came into effect on the 1st of July 2020 replacing NAFTA.