History of NAFTA and Its Purpose

NAFTA's History began with Reagan
President Ronald Reagan at fundraising event inside the Howard Hughes 'Spruce Goose' geodesic dome on June 30, 1983 in Long Beach, California. Photo by Bob Riha, Jr./Getty Images

NAFTA is the North American Free Trade Agreement. It was envisioned at least 30 years ago to reduce trading costs, increase business investment, and help North America be more competitive in the global marketplace. It is between Canada, the United States. and Mexico. For more details, see NAFTA Fast Facts.

What Is Its History?

The impetus for NAFTA actually began with President Ronald Reagan, who campaigned on a North American common market.

In 1984, Congress passed the Trade and Tariff Act. That gave the President "fast-track" authority to negotiate free trade agreements more freely. That's because it restricts Congressional input to the ability to approve or disapprove. Congress lost the ability to change negotiating points.

Canadian Prime Minister Mulroney agreed with Reagan to begin negotiations for the Canada-U.S. Free Trade Agreement. It was signed in 1988, went into effect in 1989. It was suspended when NAFTA was signed since it's no longer needed. (Source: "NAFTA Timeline," NaFina.)

Meanwhile, Mexican President Salinas and President Bush began negotiations for a liberalized trade agreement between the two countries. Prior to NAFTA, Mexican tariffs on U.S. imports were 250 percent higher than U.S. tariffs on Mexican imports. In 1991, Canada requested a trilateral agreement, which then led to NAFTA. In 1993, concerns about the liberalization of labor and environmental regulations led to the adoption of two addendums.

NAFTA was signed by President George H.W. Bush, Mexican President Salinas, and Canadian Prime Minister Brian Mulroney in 1992. It was ratified by the legislatures of the three countries in 1993. The U.S. House of Representatives approved it by 234 to 200 on November 17, 1993. The U.S. Senate approved it by 60 to 38 on November 20, three days later.

It was finally signed into law by President Bill Clinton on December 8, 1993. It entered force January 1, 1994. Although it was signed by President Bush, it was a priority of President Clinton's, and its passage is considered one of his first successes. (Source: "NAFTA Signed into Law," History.com, December 8, 1993.)

What Is Its Purpose?

Article 102 of the NAFTA agreement outlines its purpose:

  • Grant the signatories Most Favored Nation status.
  • Eliminate barriers to trade and facilitate the cross-border movement of goods and services.
  • Promote conditions of fair competition.
  • Increase investment opportunities.
  • Provide protection and enforcement of intellectual property rights.
  • Create procedures for the resolution of trade disputes.
  • Establish a framework for further trilateral, regional, and multilateral cooperation to expand the trade agreement's benefits. (Source: "FAQ," NAFTA Secretariat.)

Has It Fulfilled Its Purpose?

NAFTA eliminated trade barriers, increased investment opportunities, and established procedures for resolution of trade disputes.

Most important, it increased the competitiveness of the three countries in the global marketplace.  That's made it  the world’s largest free trade area (in terms of GDP). 

This has become especially important with the launch of the European Union and the economic growth of China and other emerging market countries. In 2007, the EU replaced the U.S. as the world's largest economy. In 2015, China replaced both and took the top spot.

The 2016 Presidential Campaign

Donald Trump promised to renegotiate NAFTA to get a better deal for U.S. workers. He wants Mexico to eliminate the VAT tax on U.S. exports to Mexico. He also wants Mexico to end its Maquiladora program.  If Mexico and Canada don't agree, he would be withdraw. He also threatened to impose a 35 percent tariff on Mexican imports. Here's What Happens If Trump Dumps NAFTA.

The 2008 Presidential Campaign

NAFTA was attacked from all sides during the 2008 Presidential campaign. Barack Obama blamed it for growing unemployment. He said it helped businesses at the expense of workers in the U.S. It also did not provide enough protection against exploitation of workers and the environment along the border in Mexico.

Hillary Clinton included the trade agreement in her pledge to strictly enforce all existing trade agreements, as well as halt any new ones. Both candidates promised to either amend or back out of the agreement altogether. Obama didn't do anything about these campaigns promises when he was President. 

In 2008, Republican candidate Ron Paul said he would abolish the trade agreement. He said it was responsible for a Superhighway and compared it to the European Union. However, unlike the EU, NAFTA does not enforce a single currency among its signatories. Paul maintained this position in his 2012 campaign.

Republican nominee John McCain supported NAFTA, as he did all free trade agreements. In fact, he wanted to enforce an existing section within it that promised to open up the U.S. to the Mexican trucking industry. 

Ross Perot

Despite NAFTA's benefits, it has remained highly controversial. Its disadvantages are usually pointed out during Presidential campaigns. In 1992, before the trade agreement was even ratified, Independent Presidential candidate Ross Perot famously warned that "You're going to hear a giant sucking sound of jobs being pulled out of this country." Ross predicted that the United States. would lose 5 million jobs -- a whopping 4 percent of total U.S. employment -- to lower-cost Mexican workers.

In fact, this never happened as Mexico entered a recession and the U.S. entered a period of prosperity. True, American workers were displaced by low-cost Mexican imports. But research showed it was more like 2,000 per month. (Source: "Jobs and NAFTA," Brad DeLong.) Find out more about NAFTA Pros and Cons.

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