The North American Free Trade Agreement (NAFTA) was implemented on January 1, 1994.

It is designed to remove tariff barriers between the U.S., Canada and Mexico over the next
fifteen years. NAFTA includes two important side agreements on environmental and labor issues
that extend into cooperative efforts to reconcile policies, and procedures for dispute resolution
between the member states.
Rules of origin and regional Content:

Goods that are "wholly obtained or produced" entirely in one or more NAFTA countries
originate. For a good to qualify under this criterion, it must contain no non-North
American parts or materials.
Goods Containing Non-originating Materials and Meeting the Annex 401 Origin Rules.

Goods Produced in the NAFTA Region Wholly from Originating Materials.

Unassembled Goods and Goods classified with their parts which do not meet
Annex 401 Rule of Origin, but Contain Sufficient Regional Value Content.

Automatic Data Processing Equipment

The North American Free Trade Agreement contains a De Minimis Provision.

Exporters may seek Advance Rulings as to whether or not their products

qualify for NAFTA tariff preference.

The product specific rules of origin are found in Annex 401 of the NAFTA. Most products
specific rules in Annex 401 are based solely on Harmonized System (HS) tariff classification
changes. However, in limited cases, NAFTA requires a specified amount of "regional value
content" in order for a good to obtain NAFTA tariff preference. For example, a rule might
specify that at least 50% of the value of a product must be North American in order to qualify for
NAFTA treatment
Regional value content rules are used extensively for automotive goods and chemicals, but are
quite limited in other product areas. It is important to note that the regional value content test is
not a generally available option for exporters, but may be used when specified in Annex 401
rules.
Special Provisions:
The North American Free Trade Agreement (NAFTA) will generate jobs, increase exports of
U.S. goods and services, and improve the competitiveness of American workers and firms. It will
create the largest, richest market in the world.

Trade in Goods. NAFTA levels the playing field for U.S. workers and companies by
eliminating Mexican tariff barriers.
NAFTA provides a phase-out period of up to 15 years for U.S. tariffs on key
manufactured products to ensure a smooth adjustment for U.S. firms and workers in
import-sensitive industries,
NAFTA will ensure uniformity, predictability, and transparency in customs enforcement
under the agreement
NAFTA tariff cuts and elimination of non-tariff barriers will create substantial market
access for key export sectors.
NAFTA provides access for U.S. energy and petrochemical suppliers to Mexico's
electricity, petrochemical, gas, and energy services and equipment markets
Trade in Services. NAFTA will open new markets for the delivery of U.S. services to
Canada and Mexico, where U.S. services companies are already large and growing.
Moreover, NAFTA ensures Protection of Investment, Intellectual Property Rights and Dispute
Settlement for its underlying countries.
Impact of International Business:
NAFTA is one the most successful trade agreements in history and has contributed to
significant increases in agricultural trade and investment.

US two-way trade with Canada and Mexico exceeds US trade with the European Union
and Japan combined.

In fact, US trade more with Maxico in a month than trade with other countries in a year.
US exports more to Mexico in a day than with Paraguay in a year.

US exports more in a week with Canada than with Central America in a year.

After eighteen years, most tariffs have gone to zero, except for some very sensitive
(mostly agricultural) goods that have limited protection.

Can make the exporter more competitive than other non-participating countries.

200% increase in trade among the 3 countries and benefits the importers by reduced or
duty free goods.

It has negative impacts on farmers in Mexico who saw food prices fall based on cheap
imports from U.S. agribusiness.

It has negative impacts on U.S. workers in manufacturing and assembly industries who
lost their jobs and critics also argue that NAFTA has contributed to the rising levels of
inequality in both the U.S. and Mexico

Expansion

NAFTA is enhancing access to foreign markets is necessary for promoting prosperity.

Internationally, the advancement of NAFTA will help create new employment
opportunities, and improve working conditions and living standards abroad by opening
up the US marketplace to their major industries.
The expansion of NAFTA will positively affect the US labor force.
Enlargement of NAFTA will stimulate democratic advancements in Latin America and
the Caribbean, an area where 19 of 20 nations have recently established the institutions of
democracy.
NAFTA was created with the intention of expansion. Canada and Mexico are both willing
to take on new members; it is the US lack of direction that has halted such
advancements.

Implication for corporate Strategy:

NAFTA is one of the most successful treaties of the times of growth in trade in terms of
imports, exports, GDP etc. But on the other hand, it is also responsible for causalities like
loss of jobs, migration, rising level of inequality and many others. Thus its important that
the treaty should be carried forward concerning about taking steps for the problems
originated due to NAFTA, otherwise it will create inequality in many terms which can lead to
bad conditions in future for all the three countries.
Main Challenges

Despite the progress made, more could be done to deepen market integration within
North America, as the continental market remains more segmented than the individual
national economies of the United States, Canada and Mexico.
Controlling for the influence of distance and market size.
The discrepancy still remaining between internal and cross-border trade suggests that the
North American market would become more efficient and better integrated.
The major dilemma confronting the emergence of a truly unified North American
economy is that, while product and input markets are becoming more integrated across
international borders, the institutions to support this integration remain largely national.
There is the possibility that supranational institutions will be created, whose members
would represent the interests of the North American community and who would be

endowed with the authority to negotiate policy with nationally chosen governmental
officials.

Trade dispute:

Unintended ambiguities in the agreement's text have led to disputes over how to interpret
NAFTA.
Investment disputes between one of the States party to NAFTA and investors nationals of
one of the parties.
Domestic policies that influence production, prices, or trade have direct spillover effects
into the agricultural markets of the other NAFTA countries.
A growing number of disputes are related to sanitary and phytosanitary issues, which are
particularly complicated due to the existence of three different regulatory frameworks
managing diseases and pests within the region.
The increased competitive pressures associated with free trade have led some industries
to seek protection through trade actions.

Common trade and foreign policy: For the United States, NAFTA was more about foreign
policy than about the domestic economy. Its biggest payoff for the United States has been to
institutionalize our southern neighbors turn away from centralized protectionism and toward
decentralized, democratic capitalism.
It has successfully decoupled its economy from the old boom-and-bust, high-inflation, debtridden model that characterized it and much of Latin America up until the debt crisis of the
1980s. In 2000, Mexico avoided an election-cycle economic crisis for the first time since the
1970s. Today Mexico and Chile are the two most stable and dynamic economies in Latin
America and the two that have reformed most aggressively.
Foreign Investment: Despite predictions, NAFTA did not cause anything like a mass departure
of manufacturing investment to Mexico. U.S. investment in Mexico did increase after NAFTA,
along with trade, but those flows are a trickle compared to what anyone invests domestically.