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The Benefits of NAFTA

In light of the ongoing NAFTA renegotiation between Canada, the US and Mexico, it is important to look at what the North American Free Trade Agreement (NAFTA) is, how it came to be, and what benefits it serves.

History of NAFTA

The North American Free Trade Agreement is a trilateral trade bloc in North America. It came into force on January 1, 1994, and was built on the foundation of the US/Canada Free Trade Agreement of 1988. In 1992, after years of negotiations, the leaders of the 3 countries at that time, Brian Mulroney from Canada, George Bush from the US and Carlos Salinas de Gortari reached a preliminary agreement. By the time the ratification of the agreement was completed by each countries’ governments, only Salinas still held office. Jean Chretien was Prime Minister of Canada and Bill Clinton was President of the United States.

Benefits of NAFTA

The goal of NAFTA was to eliminate trade barriers and encourage investment between Canada, the US and Mexico. Because of the previous US/Canada Free Trade Agreement, most trade between Canada and the US was already duty free. By joining NAFTA, Mexico pledged to remove all duties on imported items within 10 years, save for some agricultural products. Among other things, the reduction of barriers has benefitted Canada by increasing US investment, strengthening supply chains (especially the auto industry), and increasing trade volumes.

Chapter 19

Chapter 19 of NAFTA has recently been in the spotlight. The title of Chapter 19 is “Review and Dispute Settlement in Antidumping and Countervailing Duty Matters”. This Chapter allows any of the countries to bypass the offending country’s judicial review process and instead establish a binational panel composed of 5 arbitrators agreed on by both parties. For example, when the US decided to place anti-dumping duty on Canadian softwood lumber, Canada filed a complaint under Chapter 19 that the duties had no merit and the panel overturned the decision. The provision ensures that no country unfairly imposes anti-dumping duties on their NAFTA counterparts. Canada is determined that Chapter 19 stay a part of any new agreement moving forward.

Moving Forward

NAFTA has allowed the US, Mexico and Canada to connect their economies in multiple ways and all parties have seen benefits. It will be very difficult to untangle the intertwined supply chains that NAFTA has encouraged. However, the spirit of the deal was to allow the US, Mexico and Canada to benefit from free trade. There is no doubt that the almost 25-year-old agreement needs updating to reflect the many advances in society. Changing it to ensure there are winning and losing participants instead of a rising tide that raises all ships, takes away the essence of the original deal. Instead, negotiators should be looking to build on the success of the NAFTA and ensure the progress continues into the future. Orbit Brokers handles customs clearance of thousands of shipments into Canada. Contact us today to with any questions you may have about importing shipments.

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