The North American Free Trade Agreement (Tratado de Libre Comercio de América del Norte [TLCAN], Accord de libre-échange nord-américain [ALENA]) is a trilateral trade bloc in North America created by the governments of the United States, Canada, and Mexico. The agreements were signed in December 1992 by the leaders of the three countries — Brian Mulroney of Canada, Carlos Salinas de Gortari of Mexico, and Bill Clinton of the United States but did not come into effect until January 1, 1994. In terms of combined purchasing power parity GDP of its members, the trade bloc is the largest in the world and second largest by nominal GDP comparison.
The North American Free Trade Agreement (NAFTA) has two supplements, the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labo(u)r Cooperation (NAALC).
Given the scope of the agreement, which includes very sensitive issues in trade talks such as agriculture liberalization and environment regulation, few countries have shown interest in joining NAFTA. Instead, some countries, like Chile, preferred to negotiate three separate bilateral agreements with the three current NAFTA members, with different restrictions to liberalization of their industries and the regulation of environment protection. Jamaica and Trinidad and Tobago also showed a similar interest.
In an interview with Larry King on October 8, 2007, Fox described any plans for a North American single currency as a "long term, very long term" proposal. He also spoke of he and U.S. President George W. Bush's support for the Free Trade Area of the Americas as a "first step" toward "a new vision" for the Americas, "like we are trying to do with NAFTA", but then said that Venezuelan President Hugo Chávez had decided to "destroy the idea".
NAFTA was initially promoted by politicians in the United States and Canada supportive of free trade, led by Canadian Prime Minister Brian Mulroney, U.S. President George H. W. Bush, Mexican President Carlos Salinas de Gortari. The agreement was pursued by business interests in all three countries and opposed by labor, environmental, and other business interests, in all three countries. The heads of state of all three countries signed NAFTA in December 1992, subject to ratification by the legislatures of the three countries.
In the United States, NAFTA was able to secure passage after Bill Clinton made its passage a major legislative priority in 1993. Clinton's Trade Representative, Mickey Kantor, was a strong advocate of the treaty. Since the agreement had been signed by Bush under his fast-track prerogative, Clinton did not alter the original agreement, but complemented it with the aforementioned NAAEC and NAALC. After intense political debate and the negotiation of these side agreements, the U.S. House of Representatives passed NAFTA on November 17, 1993, by 234-200 vote (132 Republicans and 102 Democrats voting in favor; 43 Republicans, 156 Democrats, and 1 independent against), and the U.S. Senate passed it on the last day of its 1993 session, November 20, 1993, by 61-38 vote (34 Republicans and 27 Democrats voting in favor; 10 Republicans and 28 Democrats against, with 1 Democrat opponent not voting -- Sen. Byron Dorgan (D-ND), an ardent foe of NAFTA, missed the vote because of an illness in his family).
In response to this mandate, the CEC created a framework for conducting environmental analysis of NAFTA, one of the first ex post frameworks for the environmental assessment of trade liberalization. The framework was designed to produce a focused and systematic body of evidence with respect to the initial hypotheses about NAFTA and the environment, such as the concern that NAFTA would create a “race to the bottom” in environmental regulation among the three countries, or the hope that NAFTA would pressure governments to increase their environmental protection mechanisms. The CEC has held four symposia using this framework to evaluate the environmental impacts of NAFTA and has commissioned 47 papers on this subject. In keeping with the CEC’s overall strategy of transparency and public involvement, the CEC commissioned these papers from leading independent experts.
Overall, none of the initial hypotheses were confirmed. NAFTA did not inherently present a systemic threat to the North American environment, as was originally feared, but NAFTA-related environmental threats instead occurred in specific areas where government environmental policy, infrastructure, or mechanisms, were unprepared for the increasing scale of production under trade liberalization. In some cases, environmental policy was neglected in the wake of trade liberalization; in other cases, NAFTA’s measures for investment protection, such as Chapter 11, and measures against non-tariff trade barriers, threatened to discourage more vigorous environmental policy. The most serious overall increases in pollution due to NAFTA were found in the base metals sector, the Mexican petroleum sector, and the transportation equipment sector in the United States and Mexico, but not in Canada.
The overall effect of the Mexico-U.S. agricultural agreement is a matter of dispute. Mexico did not invest in the infrastructure necessary for competition, such as efficient railroads and highways, creating more difficult living conditions for the country's poor. Still, the causes of rural poverty cannot be directly attributed to NAFTA; in fact, Mexico's agricultural exports increased 9.4 percent annually between 1994 and 2001, while imports increased by only 6.9 percent a year during the same period.
Production of corn in Mexico has increased since NAFTA's implementation. However, internal corn demand has increased beyond Mexico's sufficiency, and imports have become necessary, far beyond the quotas Mexico had originally negotiated. Zahniser & Coyle have also pointed out that corn prices in Mexico, adjusted for international prices, have drastically decreased, yet through a program of direct income transfer (a subsidy) expanded by former president Vicente Fox, production has remained stable since 2000.
The logical result of a lower commodity price is that more use of it is made downstream. Unfortunately, many of the same rural people who would have been likely to produce higher-margin value-added products in Mexico have instead emigrated. The rise in corn prices due to increased ethanol demand may improve the situation of corn farmers in Mexico.
In a study published in the August 2008 issue of the American Journal of Agricultural Economics, NAFTA has increased U.S. agricultural exports to Mexico and Canada even though most of this increase occurred a decade after its ratification. The study focused on the effects that gradual "phase-in" periods in regional trade agreements, including NAFTA, have on trade flows. Most of the increase in members’ agricultural trade, which was only recently brought under the purview of the World Trade Organization, was due to very high trade barriers before NAFTA or other regional trade agreements.
Canadian authorities estimated that, as of December 1, 2006, the total of 24,830 U.S. citizens and 15,219 Mexican citizens were present in Canada as "foreign workers". These numbers include both entrants under the NAFTA agreement and those who have entered under other provisions of the Canadian immigration law. New entries of foreign workers in 2006 were 16,841 (U.S. citizens) and 13,933 (Mexicans).
There is some concern in Canada over the provision that if something is sold even once as a commodity, the government cannot stop its sale in the future. This applies to the water from Canada's lakes and rivers, fueling fears over the possible destruction of Canadian ecosystems and water supply.
Other fears come from the effects NAFTA has had on Canadian lawmaking. In 1996, the gasoline additive MMT was brought into Canada by an American company. At the time, the Canadian federal government banned the importation of the additive. The American company brought a claim under NAFTA Chapter 11 seeking US$201 million, and by Canadian provinces under the Agreement on Internal Trade ("AIT"). The American company argued that their additive had not been conclusively linked to any health dangers, and that the prohibition was damaging to their company. Following a finding that the ban was a violation of the AIT, the Canadian federal government repealed the ban and settled with the American company for US$13 million. Studies by Health and Welfare Canada (now Health Canada) on the health effects of MMT in fuel found no significant health effects associated with exposure to these exhaust emissions. Other Canadian researchers and the U.S. Environmental Protection Agency disagree with Health Canada, and cite studies that include possible nerve damage.
The United States and Canada had been arguing for years over the United States' decision to impose a 27 percent duty on Canadian softwood lumber imports, until new Canadian Prime Minister Stephen Harper compromised with the United States and reached a settlement on July 1, 2006. The settlement has not yet been ratified by either country, in part due to domestic opposition in Canada.
Canada had filed numerous motions to have the duty eliminated and the collected duties returned to Canada. After the United States lost an appeal from a NAFTA panel, it responded by saying "We are, of course, disappointed with the [NAFTA panel's] decision, but it will have no impact on the anti-dumping and countervailing duty orders." (Neena Moorjani, spokeswoman for U.S. Trade Representative Rob Portman) On July 21, 2006, the U.S. Court of International Trade found that imposition of the duties was contrary to U.S. law.
On October 30, 2007, American citizens Marvin and Elaine Gottlieb filed a Notice of Intent to Submit a Claim to Arbitration under NAFTA. The couple claims thousands of U.S. investors lost a total of $5 billion dollars in the fall-out from the Conservative Government's decision last year to effectively tax income trusts in the energy sector out of existence.
Under the NAFTA, Canada is not allowed to target other NAFTA citizens when they impose new measures. Canadian Federal Finance Minister Jim Flaherty is on record that energy trusts were included because of their high U.S. ownership, while Real Estate Investment Trusts, owned mostly by Canadians, were excluded. NAFTA also stipulates that Canada must pay compensation for destroying investment by U.S. investors. The Government of Canada's 2006 Halloween tax changes for income trusts were designed to eliminate the income trust model for investment by U.S. citizens. The NAFTA says that U.S. investors are entitled to rely upon Canadian government promises. Harper repeatedly made a public promise that his Government would not tax trusts, as had the previous Liberal Government. Canada's tax treaty with the United States also says that trust income will not be taxed at more than 15 percent.
The Gottliebs maintain a website for American and Mexican citizens interested in filing a NAFTA claim against the Government of Canada.
In 2000, U.S. government subsidies to the corn sector totaled $10.1 billion, a figure ten times greater than the total Mexican agricultural budget that year. Other studies reject NAFTA as the force responsible for depressing the incomes of poor corn farmers, citing the trend's (what trend?) existence more than a decade before NAFTA's existence, an increase in maize production after NAFTA went into effect in 1994, and the lack of a measurable impact on the price of Mexican corn due to subsidized corn coming into Mexico from the United States, though they agree that the abolition of U.S. agricultural subsidies would benefit Mexican farmers.
This chapter has been invoked in cases where governments have passed laws or regulations with intent to protect their constituents and their resident businesses' profits. Language in the chapter defining its scope states that it cannot be used to "prevent a Party from providing a service or performing a function such as law enforcement, correctional services, income security or insurance, social security or insurance, social welfare, public education, public training, health, and child care, in a manner that is not inconsistent with this Chapter.
This chapter has been criticized by groups in the U.S., Mexico, and Canada for a variety of reasons, including not taking into account important social and environmental considerations. In Canada, several groups, including the Council of Canadians, challenged the constitutionality of Chapter 11. They lost at the trial level, and have subsequently appealed.
Methanex, a Canadian corporation, filed a US$970 million suit against the United States, claiming that a California ban on MTBE, a substance that had found its way into many wells in the state, was hurtful to the corporation's sales of methanol. However, the claim was rejected, and the company was ordered to pay US$3 million to the U.S. government in costs.
In another case, Metalclad, an American corporation, was awarded US$15.6 million from Mexico after a Mexican municipality refused a construction permit for the hazardous waste landfill it intended to construct in Guadalcazar, San Luis Potosi. The construction had already been approved by the federal government with various environmental requirements imposed (see paragraph 48 of the tribunal decision). The NAFTA panel found that the municipality did not have the authority to ban construction on the basis of the alleged environmental concerns.
A Chapter 19 panel is expected to examine whether the agency's determination is supported by "substantial evidence." This standard assumes significant deference to the domestic agency.
Some of the most controversial trade disputes in recent years, such as the U.S.-Canada softwood lumber dispute, have been litigated before Chapter 19 panels.
Decisions by Chapter 19 panels can be challenged before a NAFTA extraordinary challenge committee. However, an extraordinary challenge committee does not function as an ordinary appeal. Under the NAFTA, it will only vacate or remand a decision if the decision involves a significant and material error that threatens the integrity of the NAFTA dispute settlement system. , no NAFTA party has successfully challenged a Chapter 19 panel's decision before an extraordinary challenge committee.
A Canadian poll conducted in June 2003 by Ipsos Reid found that 70 percent of Canadians supported NAFTA, while only 26 percent were opposed. However, a May 2004 Ipsos poll found that "Six in ten Canadians (62 percent) disagree that Canada should sign a trade agreement that would open Canada’s public services to competition from foreign companies" and "A further six in ten (60 percent) disagree that government should sign deals that would allow corporations to directly sue the Government of Canada if our public policies impair their ability to make profits".
Despite their support for NAFTA, the polls in Canada and Mexico have tended to show that citizens see their own country as the loser in NAFTA, and to see the United States as the winner. The U.S. public has viewed Mexico as the winner and has been narrowly divided about whether the United States is a winner or loser in NAFTA.
Also, the border has been tightened in response to concerns about drugs and then terrorism. This freedom of mobility has had important qualifications. It can be suspended or terminated by either government at will.
In 2000, Mexican President Vicente Fox advocated the idea of free flow of people across the U.S.-Mexico border as a second phase of NAFTA, which would be completed in ten years. However, negotiations ceased after the 9/11 attacks, when debate in the United States shifted towards an immigration policy with security as its main goal.
Developments in early 2006 brought the Mexican-U.S. border and United States immigration debate to the center stage in American politics. The Secure Fence Act of 2006 provided for 700 miles of high security fence, to be built in regions of the border subject to high rates of illegal crossings. To this date only seven miles of fence have been built, with the U.S. Congress wavering on its decision. The Comprehensive Immigration Reform Act of 2007 would have granted illegal immigrants already in the country a way forward to stay and gain citizenship. It would also have provided up to 200,000 placements per year for guest workers. On June 28, 2007, the bill failed cloture in the Senate, largely due to public outcry, and no further action was taken.
The open skies policy is intended to be applied by both of the governments once the Mexican air-transportation industry has been stabilized and Mexico's largest airlines AeroMexico and Mexicana consider themselves able to compete with airlines the size of American Airlines, Continental Airlines and United Airlines.