What is the North American Free Trade Agreement (NAFTA)?

The North American Free Trade Agreement (NAFTA) was signed by Mexico, Canada and the United States to eliminate trade barriers on products (textiles, automobiles, agriculture and many others) traded between these countries. The major aim of this trade agreement was to foster economic activities among these three countries. 

The governments of the United States, Mexico and Canada agreed to replace NAFTA with the United States Mexico Canada Agreement (USMCA) on September 30th 2018. This trade agreement is expected to create robust economy, employment opportunities and freer markets for these countries.

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Additions to NAFTA

Two other regulations augmented the provisions contained in the North American Free Trade Agreement (NAFTA) agreement. They are North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC). NAAEC and NAALC are regarded as side agreements that were enforced to supplement NAFTA. Both agreements provide regulations guiding the relocation of businesses to other countries. They prevent businesses that relocate to other countries because of loose regulations that exist in the countries and lower wages. NAFTA also contains regulations and requirements on international trade between the participating countries and penalties for violation of the regulations.

North American Industry Classification System

In order to appropriately classify business establishments and draw a comparison of business activities across North America, a new business-classification system was developed. The North American Industry Classification System (NAICS) have three signatories, this business-classification system aid the classification of industries or businesses with regard to their peculiar production processes. NAICS is a new classification system that replaced the U.S. Standard Industrial Classification system. NAICS is however designed to be reviewed at a period of five years so that it can be continually relevant. The Instituto Nacional de Estadistica y Geografia in Mexico, Statistics Canada and the United States Office of Management and Budget are the three signatories to NAICS, they are also responsible for its maintenance.

The Impact of NAFTA

NAFTA has a number of significant impacts on the countries that signed it, these impacts are largely positive. However, some experts are at divergence on how NAFTA has contributed to economic growth and higher wages that these countries experience. It is therefore difficult to weigh the impacts of NAFTA due to certain factors involved. For instance, many businesses were allowed to relocate to countries or regions with lower labor costs despite the existence of supplementary trade agreements like NAALC and NAAEC. This relocation affected many employees, especially in the United States. This is one of the reasons that a motion was moved for the replacement of NAFTA by USMCA to put an end to the concerns of NAFTA.