How Does NAFTA Work?

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The Facts

  • "NAFTA" is an acronym that stands for the North American Free Trade Agreement. It is a trade agreement made between the United States, Canada and Mexico that removed trade barriers for goods and services across their borders. NAFTA is made up of two supplemental policies that address environmental and labor issues.
    The North American Agreement on Environmental Cooperation(NAAEC) was instated to maintain the United States' environmental production standards, while the North American Agreement on Labor Cooperation (NAALC) was instated to facilitate the resolution of labor problems, and to improve labor conditions in all three countries.

History

  • The United States, Canada and Mexico signed off on NAFTA in December of 1992 on the condition that each country's respective legislature approved the agreement. Originally, the agreement was drafted between President Bush (senior), Mexican President Carlos Salinas de Gortari and Canada's Prime Minister, Brian Mulroney.
    The actual ratification of the agreement in the United States did not occur until November 20, 1993, under the Clinton Administration. Opponents to NAFTA expressed concerns regarding environmental and labor issues should the agreement be ratified. It was at this time that President Clinton tacked on the supplemental NAAEC and the NAALC addendum agreements.

    The bombing attack of September 11, 2001 saw a third supplement added to the NAFTA agreement. The Security and Prosperity Partnership of North America was added to further unite the three countries on issues of national security.

Features

  • The NAFTA agreement, for the most part, removed import taxes, or tariffs, for goods shipped between the three countries. The union of the three countries in this manner makes this north American sector the world's largest free trade area in regards to gross domestic product. Inherent in the NAFTA agreement is the opportunity for increased investment opportunities, procedures for settling trade disputes and the promoting of fair competition between the countries. The agreement remains in place for 15 years, meaning the new president for 2009 will play a part in deciding whether the NAFTA agreement is reinstated.

Effects

  • In terms of cause and effect, opinions vary as to what effects the NAFTA agreement has had on each country's economic status. Much has happened within each respective landscape since the agreement came into being; some good, some bad. One of the most controversial of issues has to do with the increased number of illegal, Mexican immigrants entering the United States since the agreement was formed. Statistics report that there were 2 1/2 illegal Mexican immigrants in the United States in 1995. Since that time, eight million illegal immigrants have gained entry into the country. NAFTA critics attribute this increase to Mexican farmers being forced out of business as a result of cheaper imports brought in from the U.S.
    Another issue raised as an effect of NAFTA was the mass relocation of U.S. manufacturing plants to Mexico. Companies relocated to reduce payroll cost---wages, benefits and insurance. As a result, millions of American jobs have been eliminated. Manufacturing plants in Mexico pay workers of a fraction of what their American counterparts received. Companies were also free of costly regulation standard requirements imposed by American law.

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