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"NAFTA" is also an abbreviation for the New Zealand Australia Free Trade Agreement; see also Nafta.

The North American Free Trade Agreement, known usually as NAFTA, is a free trade agreement among Canada, the United States, and Mexico. NAFTA went into effect on January 1, 1994. NAFTA is also used to refer to the tripartite trading bloc of North American countries.

Purpose

NAFTA called for immediately eliminating duties on half of all U.S. goods shipped to Mexico and gradually phasing out other tariffs over a period of about 14 years. Restrictions were to be removed from many categories, including motor vehicles and automotive parts, computers, textiles, and agriculture. The treaty also protected intellectual property rights (patents, copyrights, and trademarks) and outlined the removal of restrictions on investment among the three countries. Provisions regarding worker and environmental protection were added later as a result of supplemental agreements signed in 1993. This agreement was an expansion of the earlier Canada-U.S. Free Trade Agreement of 1989. Unlike the European Union, NAFTA does not create a set of supranational governmental bodies, nor does it create a body of law which is superior to national law. NAFTA is a treaty under international law. (Under United States law it is classed as a congressional-executive agreement rather than a treaty, reflecting a peculiar sense of the term "treaty" in United States constitutional law that is not followed by international law or the laws of other states.)

The agreement was initially pursued by free-trade conservative governments in the US and Canada, led by Canadian Prime Minister Brian Mulroney, and US President George H. W. Bush. There was considerable opposition on both sides of the border, but in the United States it was able to secure passage after President Bill Clinton made its passage a major legislative initiative in 1993. After intense political debate and the negotiation of several side agreements, the US House passed NAFTA by 234-200 (132 Republicans and 102 Democrats voting in favor) and the US Senate passed it by 61-38. Some opposition persists to the present day, primarily directed towards specific clauses within the agreement.

The United States and Canada have been arguing for years over the United States' decision to impose a 27% duty on Canadian softwood lumber imports. Canada has filed numerous motions to have the duty eliminated and the collected duties returned to Canada. Canada has won every case brought before the NAFTA tribunal, the last being on March 18, 2006. The United States responded by saying "We are, of course, disappointed with the 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). The failure of the U.S. to adhere to the terms of the treaty has generated widespread political debate in Canada. The debate includes imposing countervailing duties on American products, and possibly shutting off all or some energy shipments, such as natural gas.

Effects

Controversy

NAFTA has been controversial since it was first proposed. Transnational corporations have tended to support NAFTA in the belief that lower tariffs would increase their profits. Labor unions in Canada and the United States have opposed NAFTA for fear that jobs would move out of the country due to lower labor costs in Mexico. Some politicians, economists, and policy experts have opposed free trade for fear that it will turn countries, such as Canada, into permanent branch plant economies. Farmers in Mexico have opposed and still oppose NAFTA because the heavy agriculture subsidies for farmers in the United States have put a great deal of downward pressure on Mexican agricultural prices, forcing many farmers out of business. Wages there have decreased by as much as 20 percent in some sectors. NAFTA's approval was quickly followed by an uprising amongst Zapatista revolutionaries, and tension between them and the Mexican government remains a major issue. Furthermore, NAFTA was accompanied by dramatic reduction of the influence of trade unions in Mexico's urban areas. NAFTA has been accompanied by a dramatic increase of illegal immigration from Mexico to the United States; presumably, a significant fraction of these people are farmers forced off their land by bankruptcy. Opposition to NAFTA also comes from environmental, social justice, and other advocacy organizations that believe NAFTA has detrimental non-economic impacts to public health, the environment, etc.

Chapter 11

Another matter that is particularly controversial is "Chapter 11", which allows corporations to sue federal governments in the NAFTA region if they feel a regulation or government decision adversely affects their investment. It is argued this provision scares the government from passing environmental regulation because of possible threats from an international business. For example Methanex, a Canadian corporation, filed a $970 million suit against the United States, claiming that a Californian 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. In another case Metalclad, an American corporation, was awarded $16.5 million from Mexico after the latter passed regulations banning the toxic waste dump it intended to construct in El Llano, Aguascalientes. Further, it has been argued that the provision benefits the interests of Canadian and American corporations disproportionately more than Mexican businesses, which often lack the resources to pursue a suit against the much wealthier states. It has been a longtime fear of some Canadians that this provision gives large US companies too much power. There was one case where a Natural Gas company in Nova Scotia which pumped from Sable Island wanted to sell cheaper gas to residents in New Brunswick, a Canadian province, but threats of a lawsuit over Chapter 11 stopped these plans in their tracks.

Since NAFTA was signed, it has been difficult to analyze its macroeconomic effects due to the large number of other factors in the global economy. Various economic studies have generally indicated that rather than creating an actual increased trade, NAFTA has caused trade diversion, in which the NAFTA members now import more from each other at the expense of other countries worldwide. Some economists argue that NAFTA has increased concentration of wealth in both Mexico and the United States.

Chapter 19

Also contentious is NAFTA's Chapter 19, which replaces judicial review of antidumping and countervailing duty determinations with binational panel review. For example, in the United States, review of agency decisions imposing antidumping and countervailing duties are normally heard before the U.S. Court of International Trade, an Article III court. NAFTA parties, however, have the option of appealing the decisions to binational panels composed of five citizens from the two relevant NAFTA countries. The panelists are generally lawyers experienced in international trade law. The panel is charged with determining whether agency determinations involving antidumping and countervailing duties comport with the NAFTA country's domestic law. Chapter 19 is unique in international dispute settlement in that it applies a country's own law rather than international law.

In the case of determinations involving the United States, a Chapter 19 panel is expected to examine whether the agency's determination is supported by "substantial evidence." This standard assumes significant deferrence 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. As of January 2006, no NAFTA party have successfully challenged a Chapter 19 panel's decision before an extraordinary challenge committee.

Canada

In Canada a large amount of the opposition to NAFTA comes from fears over the possible effects of various clauses and articles of the treaty. For example, if something is sold even once as a commodity, the government cannot stop its sale in the future. This of course applies to the water from Canada's Great Lakes and rivers, fueling fears over the possible destruction of Canadian ecosystems and Canada's water supply. Other fears come from the effects NAFTA has had on Canadian law making. In 1996, MMT, a chemical additive that some studies had linked to nerve damage, was brought into Canada by an American company. The Canadian government banned the importation of the additive but, when sued by the American company, was forced to settle out of court. 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.

Language

From the perspective of North American consumers, one of the effects of NAFTA has been the significant increase in bilingual or even trilingual labeling on products, for simultaneous distribution through retailers in Canada, the U.S., and Mexico in French, English, and Spanish.

Comparision with other Regional blocs

Template:Most Active Regional blocs

See also

• Agricultural subsidies
• Anti-globalization movement
• Free Trade Area of the Americas
• Trade bloc
• List of Free Trade Agreements
• List of international trade topics
• Maquiladora
• The Dominican Republic-Central America Free Trade Agreement (DR-CAFTA)
• "Giant sucking sound"

References

• Greider, William (1997). One World, Ready or Not. Penguin Press. ISBN 0-713-99211-5.

Further reading

• NAFTA, 13 Years Later (Yale Economic Review)
• Vicki Been, Does an International "Regulatory Takings" Doctrine Make Sense?, 11 New York University Environmental Law Journal (2003) (arguing that NAFTA Chapter 11 has more expansive compensation criteria than US takings law, which has the potential to impact and threaten domestic environmental regulation and impact federalism issues)
• David Bacon. The Children of NAFTA: Labor wars on the U.S./Mexico Border. Berkeley: University of California Press. 2004. ISBN 0520237781.
• NAFTA at Ten: The Recount (Center for Economic and Policy Research)
• Denise Grab, Expropriation clauses: a natural extension of domestic takings law or much more?
• Public Citizen's Report on NAFTA

External links

• NAFTA Secretariat website
• Border Trade Alliance
• North American Free Trade Agreement, 1992 Oct. 7 at Project Gutenberg

• 1994 in Mexico
• Economic history of Canada
• Economic history of Mexico
• Economic history of the United States
• Foreign relations of Canada
• Foreign relations of Mexico
• Foreign relations of the United States
• International organizations
• Modern Mexico
• Trade blocs
• United States treaties