(From Grolier Multimedia Encyclopedia)

North American Free Trade Agreement

Negotiated by Canada, Mexico, and the United States beginning in 1990, the North American Free Trade Agreement (NAFTA) went into force on Jan. 1, 1994. Under its provisions, all barriers to trade in goods and services from the Yukon to Yucatán are to be phased out over 15 years.

Proposals for the agreement followed completion by the United States and Canada of a free-trade pact that took effect on Jan. 1, 1989. Negotiations by representatives of all three countries were successfully concluded in August 1992, and ratification was completed in late 1993 after agreement on supplemental clauses demanded by U.S. negotiators to strengthen environmental- and labor-protection provisions.

Under the terms of the treaty, advertising and trucking were freed of restrictions immediately; all limits on bank and insurance-company ownership were lifted by the year 2000; and duties on farm products and some 10,000 other products were to be eliminated over 15 years, and those on American-made autos over 10 years. Foreign ownership of Mexican oil fields was expressly forbidden.

Economic integration began on schedule despite a financial crisis and recession that subsequently engulfed Mexico. In December of that year, however, in a politically charged decision, the United States and Mexico announced that they had agreed to postpone indefinitely implementation of a NAFTA provision granting free access to Mexican trucks in the U.S. border states. The decision was seen as symbolic of the disenchantment that had set in in both countries since the signing of the agreement—disenchantment with recession in Mexico and with declining cross-border exports and job losses in the United States. The administration of President BillClinton nevertheless declared in 1997 that NAFTA had been generally successful and that it would seek gradual expansion into a hemispheric free-trade association.

In pursuit of this aim, Clinton asked Congress in September 1997 to enact a bill giving him a free hand in negotiating trade agreements—the so-called fast-track or trade-promotion authority that lawmakers had granted to several of his predecessors. After encountering strong opposition from members of his own party, however, he was forced to withdraw the proposed legislation. A new bill submitted by the administration of President George W. Bush was approved in July 2002.

The implementation of a clause lifting tariffs on almost all agricultural imports in January 2003 sparked massive protests by Mexican farmers. Although by this time Mexico had significantly increased its exports to the United States—mostly manufactured goods from maquiladora assembly plants near the U.S. border and fruits, vegetables, and processed foods made by large Mexican and transnational corporations—the treaty's impact on Mexican subsistence and midsize farmers (about one in every five Mexicans) had been devastating. In the aftermath of the country's 1995 economic crisis, most government agricultural subsidies in Mexico had ended, while those in the United States were actually increased in 2002. Thus the costs to large U.S. swine producers to raise a pig were about one-fifth of those in Mexico, and roughly one-third of Mexico's swine producers had been driven out of business. The lifting of a 48% tariff on U.S. poultry imports was likely to have a similar impact on Mexican poultry farmers. By 2002, about one-fourth of Mexico's corn was being imported from the United States, and Mexican farmers were heading to the cities or to the United States in search of work. Despite these dislocations, which were worsened by an economic downturn in the United States, Mexico's government said that it would not try to renegotiate NAFTA. The Bush administration did move in November 2002 to quiet criticisms in Mexico by lifting some restrictions on Mexican trucks—which had not been allowed to travel freely in the United States since 1982 due to safety and pollution concerns— after an international panel concluded that the trucking restrictions violated NAFTA. The removal of these restrictions was later blocked by a U.S. appeals court, which ruled in early 2003 that the U.S. government must first examine the environmental impact of such a plan, but this ruling was overturned by the U.S. Supreme Court in June 2004.

By Jan. 1, 2004, when NAFTA celebrated its tenth anniversary, free trade was becoming an increasingly contentious issue in the United States. Under NAFTA, Mexico's per-capita income had risen by 24%, and its exports had tripled. Most believed that various NAFTA provisions had also contributed to political change in Mexico. But a majority of Mexicans contended that the pact's benefits had been outweighed by the negative impact of subsidized U.S. food imports on Mexican agriculture, and the perceived shortfalls of NAFTA gave fresh impetus to opponents of free trade in Latin America and elsewhere.


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