North American free trade: history, structure and prospects

Abstract

The North American Free Trade Agreement (NAFTA) came into effect on 1 January 1994, creating a continental free trade zone incorporating Canada, the US and Mexico. The NAFTA was constructed on the framework of an earlier bilateral agreement between the US and Canada (the Canada–US Free Trade Agreement, or CUFTA), implemented five years earlier on 1 January 1989. In 2018, negotiators from the three countries agreed to replace the NAFTA with a new agreement, the United States–Mexico–Canada Agreement (USMCA). Importantly, the title of the agreement no longer even mentions ‘free trade’. At the time of writing, the final legal status of the USMCA is still not certain; despite being formally signed by all three governments, the new deal faced a potentially difficult path to ratification in the US Congress. This chapter gives an overview of the history, structure and prospects of North American trade. First, a review of the historical and political context in which the original NAFTA was negotiated is provided. Then the NAFTA’s specific provisions are described, followed by a summary of the agreement’s apparent economic effects. Finally, the discussion concludes with consideration of the problems and pressures that have been experienced within this integrated North American market, leading up to NAFTA’s crisis and its proposed replacement with the USMCA.