NAFTA – The North American Free Trade Agreement

NAFTA – The North American Free Trade Agreement

November 27, 2019

The legislation was developed during George H. W. Bush’s presidency as the first phase of his Enterprise for the Americas Initiative. The Clinton administration, which signed NAFTA into law in 1993, believed it would create 200,000 U.S. jobs within two years and 1 million within five years because exports play a major role in U.S. economic growth. The administration anticipated a dramatic increase in U.S. imports from Mexico under the lower tariffs.

What is The North American Free Trade Agreement?

The North American Free Trade Agreement (NAFTA) is a treaty between Canada, Mexico, and the United States. As a result, it is the largest free trade agreement in the world. The three members’ gross domestic product is over $20 trillion. NAFTA is the first time that two developed nations have signed an Emerging Market World Trade Agreement.

The three signatories have agreed to abolish their trade barriers. NAFTA increases investment opportunities through the elimination of tariffs. There are 2,000 pages of this agreement including eight sections and 22 chapters.

The North American Free Trade Agreement was renegotiated in the United States, Mexico, and Canada on 30 September 2018. The new deal is referred to as the agreement between the United States and Mexico and Canada. It needs to be ratified by the legislature of each nation. It would therefore not be implemented until 2020.

In six fields the new deal is changing NAFTA. The most important thing is that car companies will manufacture 75% or more of the cars in the trade area of the USMCA.

The advantages and disadvantages of NAFTA are hotly discussed. Three main disadvantages of it are highlighted by critics. First, it sent a number of U.S. production jobs to Mexico. Furthermore, workers in those sectors must accept lower wages. Thirdly, in its maquiladora programs, Mexico’s workers were exploited.

Nevertheless, NAFTA has also three major benefits. Without tariff-free imports from Mexico, the prices of US food would be higher. Both Canada and Mexico have prevented the importation of fuel oil from increasing gas prices. For all three countries, this agreement also boosted trade and economic growth.

Additions to NAFTA

Two additional regulations were introduced by NAFTA: the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC). The aim of these side agreements was to prevent firms from moving to other countries in order to exploit low wages, to improve health and safety standards for workers and to loosen environmental regulations.

NAFTA has not abolished regulatory requirements for international companies such as rules of origin and paperwork standards that decide whether or not certain products can be exported under NAFTA. Furthermore, the free trade agreement provides for administrative, civil and criminal sanctions for companies violating any of the laws or customs procedures in three countries.

Functions of NAFTA

Firstly, NAFTA provides all co-signers with the most favored nation status. It allows both parties to be treated equally by governments. Foreign direct investment is included. Domestic investors can not receive better treatment than foreign investors. Investors from non-NAFTA countries can’t offer a better deal. Governments must also offer businesses in all three NAFTA countries federal contracts.

Second, NAFTA removes tariffs between the three countries on imports and exports. Tariffs are charges that increase the cost of foreign goods. It has developed special rules for regulating trade in agricultural products, cars, and clothing. Other services, including telecommunications and banking, are also provided.

Thirdly, exporters must receive Certificates of Origin to waive tariffs. This means that the export has to come from the USA, Canada or Mexico. A product made in Peru but shipped from Mexico still pays its duties when it comes to the USA or Canada.

Fourthly, this agreement lays down procedures for the resolution of commercial litigation. Chapter 52 protects companies from wrongdoing. The NAFTA Secretariat makes an informal settlement among the parties easier. This sets up a panel to investigate the issue if that does not work. This helps everyone avoid expensive proceedings in local courts. It helps the parties to understand the complex rules and procedures of this agreement. The protection of trade disputes also applies to investors.

Fifthly, the patents, trademarks, and copyrights of all NAFTA countries must be upheld. At the same time, the agreement will not interfere with trade by these intellectual property rights. 

Sixthly, the agreement provides easy access for business travelers across all three countries.


How does Canada benefit from NAFTA?


In the NAFTA period, Canada has seen substantial gains during cross-border investment: US and Mexican investments have tripled in Canada since 1993. US investment, comprising more than half of Canada’s FDI inventory, rose in 1993 to more than $368 billion in 2013, from $70 billion in 1993.

However, the most consequential aspect for Canada—opening its economy to the U.S. market, by far Canada’s largest trading partner—predated NAFTA, with the 1989 entry into force of the Canada-U.S. Free Trade Agreement (CUSFTA). Overall Canada-U.S. trade increased rapidly in the wake of Canada’s trade liberalization. Post-NAFTA, Canadian exports to the United States grew from $110 billion to $346 billion, while imports from the United States grew by almost the same amount.

In particular, agriculture has seen an impetus. Canada is the main importer of US agricultural products, and the rise in bilateral agricultural transactions between the U.S. and Canada was one of the largest economic effects of NAFTA for Canada. As Canada exports total agriculture to NAFTA partners, Canada’s trade in agriculture with the United States more than tripled since 1994.

None of the worst fears that Canada’s trade opponents would have, namely that opening up to trade would sweep off the production industry–nor the highest hope–that productivity would rise rapidly. Canadian jobs in manufacturing remained stable, but a disparity in productivity has not been narrowed between the Canadian and U.S. economies: labor productivity remains at 72% of the U.S. rate in Canada.


How to work in Canada?


Much like in the U.S., Canadians enjoy a free market economy, where individuals and enterprises are rewarded for their creativity, innovation and hard work. In addition, Canadian governments, both federal and provincial, are more inclined to intervene in the economy when it is pragmatic to do so. Canada is generally not governed from an ideological standpoint; this allows individuals can reach their potential, while also ensuring that ‘boom and bust’ cycles are not the norm.

A Canadian work visa is usually a major step towards working legally in Canada (referred to as a work permit). Our job search tool can be the key to finding work in your field at any point in Canada when you do not have a job offer. Congratulations if you have a work application from a Canadian employer! A document called a Labor Market Impact Assessment (LMIA) may be required before you and your prospective employer start working in Canada. This paper is proof of the probable neutral or positive effect of your job within Canada on the local labor market.

U.S. residents may be eligible for facilitated processing when applying for a temporary work leave in Canada under the auspices of a North American Free Trade Agreement (NAFTA). Working permits under the NAFTA require usually no LMIA.

U.S. citizens may work in Canada under NAFTA through one of the following categories:

  • NAFTA Professionals
  • NAFTA Intra-Company Transfers
  • NAFTA Traders
  • NAFTA Investors

1. NAFTA Professionals

NAFTA professionals must be qualified to work in one of about 60 different occupations. A candidate may need to provide training credentials as well as evidence of work experience in the field, depending on his or her profession. In a career that suits their expertise, NAFTA professionals must have prearranged jobs for Canada. Individuals wishing to work in Canada for themselves are not eligible in this category.

Work permits may be issued for a total term of three years to NAFTA professionals. Extensions for up to three years without a limit on the number of extensions are eligible to apply for professionals.

2. NAFTA Intra-Company Transfers

In order to work for the US or Mexican employer branch, subsidiary, or affiliate, NAFTA Intra-Company Transferees must be transferred to Canada temporarily. Furthermore, for at least one of the last three years, they must have worked continuously for their U.S. or Mexico employer in a position similar to that in Canada and must be working by the company before applying. A transferee of the NAFTA intracompany must work in a managerial, managerial or expert knowledge capacity. 

3. NAFTA Traders

A NAFTA Trader must demonstrate a willingness to trade in goods or services substantially between Canada and its country of nationality, whether in the USA or Mexico. “Substantial trade,” which is focused on either volume and value exchanged, is when more than 50 percent of trade between Canada and one nation is made.

The recruiting business must also be American or Mexican. It should be remembered that there must already be an existing relationship of trade between the foreign company and Canada and it is not possible for the supplier to enter into the contracts or customers for trading purposes. In fact, the trader must be employed or have essential skills as a supervisor and a manager.

4. NAFTA Investors

NAFTA investors must demonstrate that they have made significant investments into a new or existing company in Canada and that they are looking to enter Canada to develop and manage the Canadian company. The workers of the primary shareholder who can be considered important personnel can also obtain work permits in the NAFTA class of investment.


If working without a work permit


A number of situations may arise when U.S. citizens are able to work in Canada without a temporary work permit being secured. These include people engaged in industrial or commercial activities in Canada but are not joining the Canadian labor market, which is collectively known as Business Visitors.

Other positions covered by this provision include after-sales service workers, athletes, performing artists, media, and military personnel.

As part of NAFTA, some Americans and Mexicans are able, without a Canadian work license or Labor Market Impact Assessment (LMIA), to enter Canada for a period of time and engage in international commercial activities. A person must conduct activities that are international in scope, in order to be eligible as a business visitor. The business visitor must maintain that their main source of remuneration and headquarters are outside Canada. The visitor to the organization can not expect to reach the Canadian labor market.



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