Relative to imports and exports to other nations, what is the size of NAFTA?

On November 1, 1993, Maastricht, Netherlands the EU was founded as the largest economy in the world with a GDP per capita of €25 000 for its 500 million consumers. The North American Free Trade Agreement (NAFTA) was entered into by the United States, Canada, and Mexico and went into effect on January 1, 1994 and it became became the largest free market in the world. The combined economies of the three nations at that time were measured at $6 trillion and directly affected more than 365 million people. Both the EU and NAFTA were created to eliminate tariff barriers to agricultural, manufacturing, and services; to remove investment restrictions; and to protect intellectual property rights. One of the premises was that small businesses were among those expected to benefit the most from the lowering of trade barriers since it would make doing business in the trade blocs less expensive and would reduce the red tape needed for trade.

Highlights of NAFTA include:

Before NAFTA, a tariff of 30 percent or higher on export goods to Mexico was common, as well as long delays caused by red tape. About half of the tariffs were abolished immediately when the agreement took effect, the remaining tariffs were for gradually eliminated. Among the businesses specifically covered by NAFTA are construction, engineering, accounting, advertising, consulting, management, architecture, health-care, commercial education, and tourism.

NAFTA Standards

The three NAFTA countries agreed to toughen health, safety, and industrial standards to the highest level among the three countries. In addition, national standards could no longer be used as a barrier to free trade. Promptness of export-product inspections and certifications was swiftly improved.

Additional Understanding

This addressed the concern that Mexico's lower wages would cause U.S. companies to shift production to that country, and to ensure that Mexico's increasing industrialization would not lead to rampant pollution. The three countries agreed to establish commissions to handle labor and environmental issues by empowering the commissions to impose steep fines against any of the three governments that failed to follow its laws consistently. Environmental and labor groups from both the United States and Canada, however, have repeatedly charged that the regulations and guidelines have not been enforced.

Key Provisions

One of the key provisions of NAFTA was the concept of "national goods" status to products meaning that no state, provincial, or local governments could impose taxes or tariffs on those goods. In addition, customs duties were either eliminated at the time of the agreement or scheduled to be phased out over time.

The U.S. Chamber of Commerce, which represents the interests of small businesses, was one of the most active supporters of NAFTA, organizing the owners and employees of small and mid-size businesses to support the agreement. This support was crucial in countering the efforts of organized labor to stop the agreement.

NAFTA leveled the playing field by allowing small firms export to Mexico at the same cost as the large firms and by also eliminating the requirement that a business needed to establish a physical presence in Mexico in order to do business there. The lifting of these restrictions meant that the new markets were wide open to small businesses that had done business only in the United States. It was regarded particularly important for small businesses that produced goods or services that had matured in U.S. markets.

Criticism of NAFTA

Much organized opposition to NAFTA was the cheaper labor but also strong among environmental groups, who contended that the treaty's anti-pollution fundamentals were inadequate. This criticism has not abated since NAFTA's implementation and both Mexico and Canada have been cited for environmental carelessness. However, North American business interests have sought to weaken a key NAFTA side accord on environmental protections and enforcement. Moreover, NAFTA’s passage, has gained satisfaction and support from American business interests.

Critics of the agreement argue that NAFTA has been at least partially responsible for trade deficits as well as the striking loss of manufacturing jobs experienced in the U.S. over the last decade. Nonetheless, manufacturing jobs began to decline before the NAFTA agreement. NAFTA remains a lightning rod for political opinions to include globalization and free trade in general. However, most experts agree that job losses are mostly due to production automation and competitiveness from new and industrial production of intermediate and finished merchandise.