I. NAFTA Is Signed into Law

Heinz Exports to Mexico

On December 17, 1992, Canadian Prime Minister Brian Mulroney, Mexican President Carlos Salinas de Gortari, and U. S. President George Bush signed the North American Free Trade Agreement (NAFTA), marking the end of a process that began on February 5, 1991, when the three leaders announced they would negotiate the trade accord. Following approval by the legislatures in each of the three countries, NAFTA entered into force January 1, 1994. Its implementation created a free-trade area in North America that was the largest of its kind in the world, with a combined 1994 gross domestic product (GDP) of $7.7 trillion and 368 million consumers. The objectives of the trade agreement, as detailed more specifically through its principles and rules, are to

  • eliminate barriers to trade in, and facilitate the cross-border movement of, goods and services between the territories of the three involved parties;

  • promote conditions of fair competition in the free-trade area;

  • increase substantially investment opportunities in the territories of the member parties;

  • provide adequate and effective protection and enforcement of intellectual property rights in each party's territory;

  • create effective procedures for the implementation and application of the agreement, for its joint administration and for the resolution of disputes; and

  • establish a framework for further trilateral, regional, and multilateral cooperation to expand and enhance the benefits of the agreement.

NAFTA eliminates tariffs on most goods originating in Canada, Mexico, and the United States and destined for markets in those same countries. The schedule to eliminate tariffs previously established in the Canada-U. S. Free Trade Agreement of 1989 was continued as planned so that all Canada-United States trade is, as of today, duty-free. For most Mexico-United States and Canada-Mexico trade, the intent of NAFTA was to either eliminate existing customs duties immediately or phase them out in 5 to 10 years. By 1998, many duties had been zeroed out. On a few sensitive items, the agreement will phase out tariffs over 15 years. NAFTA-member countries may agree to a faster phase-out of tariffs on any goods at any time.

Table 1, below, is a sample tariff-reduction schedule from an actual U. S. company.1

This schedule, covering multiple products for a single U. S. company, is typical of the rate of tariff reduction experienced by thousands of companies throughout America.

Among NAFTA's many precedent-setting arrangements are the following:

  • complete elimination of trade barriers for agricultural goods within 15 years;

  • inclusion of the innovative dispute-settlement procedures incorporated in the Canada-U. S. Free Trade Agreement;

  • liberalization of trade services, including financial services, within a framework of clear rules on intellectual property rights; and

  • the removal of all tariffs and quotas on textiles and apparel in North America (although the impact is somewhat muted by tight guidelines regarding rules of origin).2

Many of these arrangements signify remarkable progress on issues that international negotiators were unable to resolve through the General Agreement on Tariffs and Trade (GATT) for generations, particularly in the areas of textiles and agriculture.