====== NAFTA - History ======

This article traces the origins, negotiation, ratification, and implementation of the [[nafta|North American Free Trade Agreement]] (NAFTA), from its precursor agreements through its replacement by the [[usmca|United States-Mexico-Canada Agreement]] (USMCA) in 2020. For interpretive disputes about NAFTA's effects, see [[nafta-debate|NAFTA - Debate]]. For positions on free trade policy generally, see [[free-trade-economic-consensus|Free Trade - Economic Consensus]].

===== Background and Precursors =====

The groundwork for NAFTA was laid by the Canada-United States Free Trade Agreement (CUSFTA), signed in January 1988 and in effect from January 1, 1989. CUSFTA eliminated most tariffs between the two countries over a ten-year schedule and established dispute resolution mechanisms that would later serve as templates for NAFTA. The agreement was controversial in Canada, where it dominated the 1988 federal election; Prime Minister Brian Mulroney's Progressive Conservative Party won a majority government on a pro-CUSFTA platform, and the implementing legislation subsequently passed Parliament.

Mexico, under President Carlos Salinas de Gortari, had been pursuing economic liberalization since the mid-1980s, partly in response to the debt crisis of 1982. Mexico joined the General Agreement on Tariffs and Trade (GATT) in 1986. Salinas sought a formal trade agreement with the United States to anchor these reforms and attract foreign investment. He raised the idea with U.S. officials in 1990.

===== Negotiation (1990-1992) =====

President George H.W. Bush and President Salinas announced their intent to negotiate a bilateral free trade agreement in June 1990. Canada, concerned about being excluded from a framework governing its two largest trading partners, requested inclusion. Trilateral negotiations formally began in June 1991.

The three governments were represented by trade ministers and their delegations: U.S. Trade Representative Carla Hills, Canadian Trade Minister Michael Wilson, and Mexican Commerce Secretary Jaime Serra Puche. Negotiations covered tariff schedules, rules of origin (particularly for the automotive and textile sectors), agricultural trade, investment rules, intellectual property protections, and dispute resolution.

A draft agreement was initialed by the three governments on August 12, 1992. The text ran to several thousand pages. President Bush formally signed the agreement on December 17, 1992, alongside Salinas and Mulroney, shortly before leaving office.

===== Side Agreements and the Clinton Administration =====

During the 1992 U.S. presidential campaign, Bill Clinton expressed conditional support for NAFTA but called for supplemental agreements addressing labor standards and environmental protections - concerns raised by organized labor and environmental groups. After taking office in January 1993, his administration negotiated two side accords.

The North American Agreement on Labor Cooperation (NAALC) established a Commission for Labor Cooperation and a process for filing complaints about labor law enforcement, but did not impose uniform labor standards across the three countries. The North American Agreement on Environmental Cooperation (NAAEC) created the Commission for Environmental Cooperation (CEC), based in Montreal.

===== Ratification =====

Ratification required separate legislative action in each country.

**United States:** The Clinton administration submitted implementing legislation to Congress in November 1993. The vote was contentious. Organized labor, led by the AFL-CIO, campaigned against the agreement, arguing it would cost American manufacturing jobs. Ross Perot, who had run as an independent presidential candidate in 1992, became a prominent public opponent, warning in a phrase that became widely repeated that jobs would move to Mexico with a "giant sucking sound."((The phrase originated during the October 15, 1992 presidential debate in Richmond, Virginia. Perot used variations of it repeatedly during and after the 1992 campaign.)) Business groups and most mainstream economists supported the agreement. The House passed the implementing legislation on November 17, 1993, by a vote of 234 to 200, with support crossing party lines - a majority of Republicans voted yes, while a majority of Democrats voted no. The Senate passed it 61 to 38 on November 20, 1993.

**Canada:** Canada's Parliament ratified NAFTA in June 1993 under Mulroney, before his resignation. The legislation passed with the support of the governing Progressive Conservatives.

**Mexico:** Mexico's Congress ratified the agreement in November 1993. The vote was not close; the ruling Institutional Revolutionary Party (PRI) held a commanding majority.

===== Implementation (1994) =====

NAFTA entered into force on January 1, 1994. That same day, the Zapatista Army of National Liberation (EZLN) launched an armed uprising in the southern Mexican state of Chiapas. The Zapatistas explicitly framed their uprising in part as a response to NAFTA, arguing that the agreement would devastate indigenous farming communities by exposing Mexican corn producers to subsidized U.S. competition.

The agreement phased out most tariffs immediately, with others scheduled for reduction over periods of five, ten, and fifteen years. Agricultural tariffs between the United States and Mexico were among those with the longest phase-out schedules. The automotive sector was subject to rules of origin requiring a specified percentage of content to originate in North America to qualify for preferential tariff treatment.

===== The Peso Crisis (1994-1995) =====

In December 1994, Mexico devalued the peso following capital flight and a current account crisis. The currency lost roughly half its value against the dollar within weeks. The Clinton administration, over congressional opposition, arranged a $50 billion international rescue package, including $20 billion from the U.S. Exchange Stabilization Fund. Mexico's economy contracted sharply in 1995 before recovering.

The crisis occurred less than a year after NAFTA's implementation, complicating assessment of the agreement's early effects. Mexican exports to the United States rose substantially in the aftermath, partly as a result of the cheaper peso making Mexican goods less expensive for American buyers.

===== NAFTA's Operational Period (1994-2016) =====

Over the following two decades, trade among the three countries grew substantially. Total trilateral trade in goods rose from approximately $290 billion in 1993 to over $1.1 trillion by 2016. Supply chains in automotive manufacturing became highly integrated, with components crossing borders multiple times during production. The maquiladora sector - export-assembly factories clustered near the U.S.-Mexico border - expanded significantly.

The dispute resolution mechanisms established under NAFTA were used regularly. Chapter 19 panels adjudicated antidumping and countervailing duty cases, most prominently a long-running dispute over Canadian softwood lumber. Chapter 11 investor-state dispute settlement provisions allowed corporations to bring claims against governments for measures alleged to violate investment protections; these provisions attracted sustained criticism from labor, environmental, and sovereignty-focused critics on both left and right.

===== Renegotiation and Replacement (2016-2020) =====

Opposition to NAFTA became a significant theme in the 2016 U.S. presidential campaign. Donald Trump, running as the Republican nominee, repeatedly called NAFTA the worst trade deal the country had ever signed and promised to renegotiate or withdraw from it. Democratic candidate Bernie Sanders also opposed the agreement. Hillary Clinton, who had previously expressed support for the agreement, distanced herself from it during the primary campaign.

After taking office, President Trump formally notified Congress in May 2017 of his intent to renegotiate NAFTA. Negotiations among the three governments began in August 2017. The United States pressed for changes to rules of origin in the automotive sector, elimination of Chapter 19 dispute panels, a sunset clause, and provisions it said would address trade imbalances.

A revised agreement, renamed the United States-Mexico-Canada Agreement (USMCA), was signed on November 30, 2018, on the sidelines of the G20 summit in Buenos Aires. The USMCA tightened automotive rules of origin, required that a portion of automotive content be produced by workers earning at least $16 per hour, strengthened some intellectual property protections, updated digital trade provisions, and modified but retained a form of investor-state dispute settlement.

The USMCA was ratified by all three countries and entered into force on July 1, 2020, formally replacing NAFTA.

===== Controversies =====

The net effect of NAFTA on U.S. manufacturing employment is disputed among economists, with some studies attributing significant job losses to import competition and others arguing that automation and other factors were primary drivers; see [[nafta-debate|NAFTA - Debate]].

Whether NAFTA improved or worsened conditions for Mexican agricultural workers and rural communities, particularly corn farmers exposed to subsidized U.S. imports, remains a contested empirical and interpretive question; see [[nafta-labor-viewpoint|NAFTA - Labor Viewpoint]].

The adequacy of the NAALC and NAAEC side agreements in protecting labor rights and environmental standards has been disputed since their adoption, with critics arguing the enforcement mechanisms were intentionally weak; see [[nafta-debate|NAFTA - Debate]].

Whether the peso crisis of 1994-1995 was caused, accelerated, or unrelated to NAFTA's implementation is disputed among economists and historians.

The scope and legitimacy of Chapter 11 investor-state dispute settlement - and whether it constrained governments' regulatory authority in practice - is disputed; see [[nafta-sovereignty-viewpoint|NAFTA - Sovereignty Viewpoint]].

===== Footnotes =====

  - Mulroney, Brian. //Memoirs: 1939-1993//. Toronto: McClelland & Stewart, 2007.
  - Hufbauer, Gary Clyde, and Jeffrey J. Schott. //NAFTA Revisited: Achievements and Challenges//. Washington: Institute for International Economics, 2005.
  - Salinas de Gortari, Carlos. //Mexico: The Policy and Politics of Modernization//. Barcelona: Plaza & Janés, 2002.
  - U.S. House of Representatives. //NAFTA Implementation Act, H.R. 3450//. 103rd Congress, 1st Session. Roll Call Vote No. 575, November 17, 1993.
  - U.S. Senate. //NAFTA Implementation Act//. Roll Call Vote No. 395, November 20, 1993.
  - Office of the United States Trade Representative. //NAFTA Facts//. Washington: USTR, 2008.
  - Audley, John J., et al. //NAFTA's Promise and Reality: Lessons from Mexico for the Hemisphere//. Washington: Carnegie Endowment for International Peace, 2003.
  - Polaski, Sandra. //Mexican Employment, Productivity, and Income a Decade after NAFTA//. Washington: Carnegie Endowment for International Peace, 2004.
  - U.S. International Trade Commission. //The Impact of Trade Agreements: Effect of the Tokyo Round, U.S.-Israel FTA, U.S.-Canada FTA, NAFTA, and the Uruguay Round on the U.S. Economy//. Washington: USITC, 2003.
  - Office of the United States Trade Representative. //United States-Mexico-Canada Agreement//. Washington: USTR, 2018.