North American Free Trade Agreement

In December of 1992, President Salinas of the Government of the United Mexican States, President Bush of the Government of the United States of America, and Prime Minister Brian Mulroney of the Government of Canada signed the North American Free Trade Agreement (NAFTA); however, it was not ratified and fully effective until 1 January 1994. NAFTA, which established a free trade area among the aforementioned nations, consistent with the previously instituted General Agreement on Tariffs and Trade (GATT), eliminates tariffs on goods produced by the signatory nations by 2005, removes most barriers to cross-border investment and to the movement of goods and services, and improves intellectual property protection. The specific objectives contained in NAFTA are as follows:

a) eliminate barriers to trade in, and facilitate the cross border movement of goods and services between the territories of the Parties;

b) promote conditions of fair competition in the free trade area;

c) increase substantially investment opportunities in their territories;

d) provide adequate and effective protection and enforcement of intellectual property rights in each Party\'s territory;

e) create effective procedures for the implementation and application of this Agreement, and for its joint administration and the resolution of disputes; and

f) establish a framework for further trilateral, regional, and multilateral cooperation to expand and enhance the benefits of this Agreement.

Proponents of NAFTA claim that the accord will increase trade throughout the Americas, moderate product prices, and create new jobs in all three countries. Critics claim just as adamantly that the proposed accord will degrade blue-collar employment wages and environmental standards throughout North America. Moreover, they claim that jobs will move to Mexico due in part to the wide disparity in labor market regulations and wages existing between the United States, Canada, and Mexico. In addition to worker displacement, the prospect of environmental problems stemming from Mexico\'s lax enforcement of environmental standards has led critics to disagree with the institution of the NAFTA.

The NAFTA agenda is divided into six areas: market access (tariffs and nontariff barriers, rules of origin, government procurement, automobiles, and other industrial sectors); regulations (safeguards, subsidies, trade remedies, and standards); services (principles of services, financial services, insurance, land transportation, telecommunications, and other services); investment; intellectual property; and dispute settlement.

A major issue addressed in NAFTA negotiations is whether capital should move between the neighboring countries, and how and under what conditions such increased trade and investment should take place. NAFTA was initiated to promote a climate of fair marketing, improve investment opportunities, protect industrial and intellectual property rights, as well as establish procedures for the resolution of disputes. However, NAFTA has introduced increased bureaucracy in each country and more regulations and rules for businesses to contend with.

The move toward NAFTA by the United States Government can be attributed as a response to the decline in U.S. productivity growth. Since the 1970s, output per worker has slowed in its growth rate dramatically. Due to this decline, the United States had to look for ways to either stimulate growth in the service sector or rely on international trade to further American progress and growth.

Prior to NAFTA\'s enactment, conducting business and investing in Mexico was a difficult process. Investors needed the Mexican Government\'s approval and were also required to meet specific investment guidelines. These requirements forced investors to export a set level of goods and services, utilize domestic goods and services, and transfer technology to competitors. Under NAFTA, investors and business professionals no longer need government approval to invest and are treated as domestic investors.

NAFTA has increased intellectual property rights and allowed companies to obtain patents in Mexico and Canada. In the past, companies were hesitant to export research and development intensive goods because of the need of increased intellectual property protection; however, exports of these goods has shown a definite increase. As a result of better trading conditions, exports and imports of most other goods have increased along with sensitive research and development goods.

Another related trade agreement conveying the benefits of international trade is the General Agreement on Trade and Tariffs (GATT). It was created in 1947, and like NAFTA, GATT promotes international trade through the reduction of tariffs. Today, GATT encompasses over one hundred countries and 90% of the world\'s trade goods. There have been eight different versions of GATT, each resulting in a new trade agreement.