The North American Free Trade Agreement was negotiated between the United States, Mexico, and Canada between 1991 and 1993. It is the largest free trade area in the world, with a GNP of almost $5 trillion, and encompassing a population of over 360 million. Building on earlier US-Canada free trade accords, the final agreement establishes the progressive elimination of most tariff and non-tariff barriers to trade between these two countries and Mexico over a transition period that began on 1 January 1994 and will conclude on 1 January 2008. The agreement also facilitates cross-border investment, and includes side-agreements addressing cooperation on labour and the environment.
NAFTA is best seen as the institutionalization of previously dense economic interdependence in the region. Incentives for the formalization, regulation, and deepening of this ongoing process came from changing global economic and strategic conditions. The instability introduced by the end of the Cold War and its related geopolitical developments made both a regional integration strategy, and good relations with Latin America, an attractive alternative for the US. NAFTA would, however, become a controversial domestic politics issue, being opposed mainly by unions and the environmental lobby, but eventually piloted through the US Congress by a bipartisan coalition. The Mexican government's decision to pursue a NAFTA had its origins in the desperate need for resources of capital and investment posed by the debt crisis and the exhaustion of the import substitution industrialization (ISI) strategy. Mexico saw in NAFTA an institutional structure that would bolster investor confidence by locking in the market-oriented reform package of which it was part. It was also seen as an effective response to the problems created by the growing interdependence between the two countries, given the profound asymmetry characterizing US-Mexican relations. Canada, which like Mexico is crucially dependent on the US market, decided to join the initially bilateral talks despite less apparent benefit from a free trade area with Mexico, due to lack of a more attractive alternative and fear of exclusion. The business community also pressed for a mechanism that would insulate Canada from protectionist pressures in America.
— Andrew Hurrell/Laura Gomez-Mera
