NAFTA

Glossary : Customs : NAFTA

NAFTA (North American Free Trade Agreement) which entered into force in January 1994, is a free trade agreement comprising Canada, the United States and Mexico. NAFTA exceeds 360 million consumers and a combined output of $6 trillion --approximately 20 percent larger than the European Community. NAFTA's consumer population is slightly smaller than the European Economic Area which has over 380 million consumers.

The Agreement:
Progressively eliminates almost all U.S.-Mexico tariffs over a 10-year period, with a small number of tariffs for trade-sensitive industries phased out over a 15-year period. Mexico-Canada tariffs are also phased out over a 10-year period. Tariff reduction schedules between the United States and Canada negotiated in the Canadian Free Trade Agreement are retained. Eliminates other barriers to trade such as import licensing requirements and Customs user fees. Establishes the principle of national treatment, for ensuring that NAFTA-origin products trade between NAFTA countries will receive treatment equal to similar domestic products. Guarantees service providers of the three countries equal treatment in the NAFTA area, including the right to invest and the right to sell services across borders. Establishes five basic principles to protect foreign investors and their investment into the free trade area: (a) nondiscriminatory treatment, (b) freedom from performance requirements, (c) free transference of funds related to an investment, (d) expropriation only in conformity with international law, and (e) the right to seek international arbitration for a violation of the agreement's protections.

The NAFTA Agreement contains special provisions for sensitive economic sectors, including agriculture, automotive products, energy, and textiles and apparel. The Agreement also created a Border Environment Cooperation Commission and a North American Development Bank.