NAFTA INTRODUCTION: The North American Free Trade Agreement (NAFTA ) is a trilateral trade bloc in North America created

by the governments of the United States, Canada, and Mexico.The agreements were signed in December 1993 by the leaders of the three countries Brian Mulroney of Canada, Carlos Salinas de Gortari of Mexico, and Bill Clinton of the United States but did not come into effect until January 1, 1994. It is one of the most powerful, wide-reaching treaties in the world. NAFTA was created to eliminate tariff barriers to agricultural, manufacturing, and services trade taking place among the United States, Mexico, and Canada. NAFTA also implemented intellectual-property protections, established dispute-resolution mechanisms, and put into place regional labor and environmental safeguard. Small businesses were among those that were expected to benefit the most from the lowering of trade barriers since it would make doing business in Mexico and Canada less expensive and would reduce the red tape needed to import or export goods.

OBJECTIVES : y Eliminate customs barriers and facilitate cross-border trade in goods and services: Before NAFTA, tariffs of 30 percent or higher on export goods to Mexico were common, as were long delays caused by paperwork. Additionally, Mexican tariffs on U.S.-made products were, on average, 250 percent higher than U.S. duties on Mexican products. NAFTA addressed this imbalance by phasing out tariffs over 15 years. Approximately 50 percent of the tariffs were abolished immediately when the agreement took affect, and the remaining tariffs were targeted for gradual elimination. y Provide for the protection and adequate application of intellectual property rights in each country : NAFTA stipulated that Mexico had to provide a very high level of protection for intellectual property rights. This was especially helpful in fields such as computer software and chemical production. Mexican firms, now, will no longer be able to steal intellectual property from companies and create a "Mexican" version of a product. y Establishment of standards. The three NAFTA countries agreed to toughen health, safety, and industrial standards to the highest existing standards

among the three countries . Also, national standards could no longer be used as a barrier to free trade. The speed of export-product inspections and certifications was also improved.

Guarantee conditions of equitable competition in the free trade zone:

Substantially increase investment opportunities in the three member countries

Adopt efficient implementation, joint administration and dispute settlement procedures:

Establish a framework for further trilateral, regional and multilateral cooperation to expand NAFTA's benefits:

BENEFITS OF NAFTA NAFTA has eliminated trade barriers, increased investment opportunities, and established procedures for resolution of trade disputes. Most important, it has increased the competitiveness of the three countries involved on the global marketplace.

Increased trade: Trade relations among Canada, Mexico, and the United States have broadened substantially since NAFTA's implementation .Trade with NAFTA partners now accounts for more than 80 percent of Canadian and Mexican trade, and more than a third of U.S. trade.One reason trade grew because NAFTA provided the ability for firms in member countries to bid on government contracts. It also protected intellectual properties. Boosted U.S. farm exports: NAFTA increased farm exports because it eliminated high Mexican tariffs. Mexico is the top export destination for beef, rice, soybean meal, corn sweeteners, apples and beans. It is the second largest for corn, soybeans and oils. As a result of NAFTA, the percent of U.S. agricultural exports to Canada and Mexico has grown from 22% in 1993 to 30% in 2007.

Created Trade Surplus in Services: More than 40% of U.S. GDP is attributable to services, such as financial services and health care. These aren't easily transported, so being able to export them to nearby countries is important. NAFTA boosted U.S. service exports to Canada and Mexico from $25 billion in 1993 to $106.8 billion in 2007 (latest data available). Service exports were $40 billion.

Eliminated trade barriers: NAFTA eliminated trade barriers in nearly all service sectors, which are often highly regulated. NAFTA requires governments to publish all regulations, lowering hidden costs of doing business.

Reduced Oil and Grocery Prices: The U.S. imported $157.8 billion in oil from Mexico and Canada .This reduces U.S. reliance on oil imports from the Middle East and Venezuela where oil is sold in currencies other than the dollar, contributing to the decline in the dollar's value. Since NAFTA eliminates tariffs, oil prices are lower. The same is true for food imports, which totaled $28.9 billion in 2008.

Positive impact on labour market: There has been an increase in overall employment of 24 percent since NAFTA's inception, as well as declining unemployment rates over the same period. In addition, the inflation-adjusted U.S. wages rose 19.3 percent between 1993 and 2007, as compared to only 11 percent in the fourteen years prior.

NAFTA SUPPLEMENTS The North American Free Trade Agreement (NAFTA) has two supplements:y North American Agreement on Environmental Cooperation (NAAEC):

It was a response to environmentalists' concerns that the United States would lower its standards if the three countries did not achieve consistent environmental regulation.

y North American Agreement on Labour Cooperation (NAALC): It supplements NAFTA and endeavors to create a foundation for cooperation among the three countries for the resolution of labour problems, as well as to promote greater cooperation among trade unions and social organizations in order to fight for improved labor conditions.

NAFTA: Challenges and Prospects The challenges for NAFTA are:

y

Resolve current trade disputes pertaining to sugar, softwood lumber and trucking:

Address the issue of 10 million illegal Mexican immigrants in the US.

Include Mexico in important provisions relating to investments.

Enable funding and adequate mandates for key institutions like NADBank (North American Development Bank).

Resolve the trade deficit of the US with Canada and Mexico, which grew from $9.1 billion in 1993 to $138.5 billion in 2007.

Promoting economic integration is not easy for any treaty but NAFTA rose to do just that. In 1994, NAFTA was established with a $6 trillion economy. By 2004, NAFTA grew to an economy of $12.5 trillion