Background & History

Established: 1 January, 1994

The North American Free Trade Agreement (NAFTA) was ceremonially signed in December 1992 by US President George H. W. Bush, Canadian Prime Minister Brian Mulroney, and President of Mexico Carlos Salinas de Gortari. It would be another year before the agreement would come into effect, pending ratification by each member country.

Upon becoming effective in January 1994, NAFTA formed one of the largest trading blocs in the world, with a population of 360 million and a $6 trillion economy.

The idea of a Free Trade Agreement (FTA) among the countries of North America predated NAFTA by more than a decade. Forming a central component of his 1979-1980 Presidential election campaign, the "North American Accord" was Ronald Reagan's proposal for greater economic integration between the United States, Canada and Mexico.

While the exact design of the Accord was nebulous and faced stiff resistance from Canadian Prime Minister Pierre Trudeau, it in many ways set the wheels in motion for future cooperation.1 Indeed, after sector trade initiatives were progressively explored from 1983 onwards, the two countries eventually signed the Canada-United States Free Trade Agreement (CUSFTA) in 1988. CUSFTA was foundational in the eventual design of the NAFTA legal text.

At the same time, Mexico and the United States were also increasingly cooperating in the economic domain. Since the 1982 debt crisis, Mexico had been undertaking a program of economic reform aimed at opening up trade and enticing the return of much needed foreign investment. Under the stewardship of President Miguel de la Madrid, these efforts saw the dismantling of a number of protectionist policies, such as import licences and restrictions on foreign investment, as well as Mexico’s entry into the General Agreement on Tariffs and Trade (GATT) in 1982.

Capitalizing on this momentum, Mexico formally invited the United States to commence negotiations for a FTA in 1990. The United States was receptive to the idea, which to President Bush represented an opportunity to gain improved access to a liberalizing market of 90 million people, and to deepen political ties with its southern neighbour. It was also seen as a way of hedging against growing economic uncertainty, caused in large part by the United States’ descent into net-debtor status in the mid-1980s, and it’s registering a series of unprecedented trade deficits.2

After the presidents of Mexico and the United States issued a joint statement detailing their commitment to negotiate a FTA, Canada expressed its desire to also join discussions. Canada’s main incentive for joining the negotiations was to preserve the integrity of CUSFTA, and in some instances, improve provisions within it. The prospect of a trilateral bloc was also appealing as it would allow domestic players to more effectively compete against American firms in the Mexican market.

NAFTA’s appeal for the three countries was also augmented by the frustration associated with the GATT negotiations, typified for many by the difficulties endemic in the early stages of the Uruguay Round. The inability of GATT to deliver expeditious reforms led many countries around the globe to adopt “two track trade policies”. While maintaining a commitment to the framework of GATT, these policies called for regional solutions to expedite trade liberalization in the interim.

Negotiations for NAFTA took place over 14 months, with the leaders formally signing the Agreement on 17 December 1992.

Ratification of the Agreement overlapped with the 1992 US Presidential election, which saw President Bush up against Democrat challenger Bill Clinton. NAFTA was elevated to a central issue in the campaign, with many in the Democrat Party and Bush’s own Republican Party disavowing the Agreement on the basis that it would result in a loss of American jobs and environmental degradation. Clinton gave his qualified support for NAFTA, making his full support contingent on securing stronger environmental and labour provisions.

After winning the election, Clinton moved quickly to negotiate two additional side agreements, the North American Agreement on Labor Cooperation (NAALC) and the North American Agreement on Environmental Cooperation (NAAEC). These side agreements created labour and environmental monitoring bodies, and provided mechanisms for joint-initiatives in both of these areas. Coupling these side agreements with a trade adjustment package, Clinton was able to gain sufficient support for the passage of NAFTA, which passed the House and Senate with voting margins of 234-200 and 61-38 respectively.

NAFTA officially came into force in January 1994. The eventual Agreement provided for a substantial reduction in barriers to trade and investment, and pioneered a number of provisions in the areas of intellectual property and dispute resolution. NAFTA was gradually implemented over a 15-year period, with the last clauses coming into effect in 2008.

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