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North American Free Trade Agreement

Investor Protection Provisions Under Nafta

The North American Free Trade Agreement (NAFTA) was made between the United States, Canada, and Mexico, and took effect January 1, 1994. Its purpose is to increase the efficiency and fairness of trade among the three nations.

At the heart of NAFTA is a simple goal: the elimination of tariffs—the taxes each nation imposes on the others' imports—and other bureaucratic and legal barriers to trade. In addition to its central terms, the massive, highly detailed agreement also includes so-called side agreements intended to ensure that each nation enforces its own labor and environmental laws. The bulk of its regulations are to be phased in over the course of 15 years.

The impetus for NAFTA developed in the 1980s. Its roots lie in the United States-Canada Free Trade Agreement of 1988—implemented by the United States-Canada Free Trade Agreement Implementation Act (19 U.S.C.A. § 2112 note [Supp. 1993])—which, by the mid-1990s, had already eliminated most trade barriers between the United States and Canada. With the world gradually becoming divided into large regional trading blocs where goods and services move freely, as in the European Union, NAFTA's supporters saw the inclusion of Mexico as necessary for North America to compete internationally.

In the United States, debate over NAFTA threatened to derail it. Proponents saw economic benefits for all three nations in the agreement. But opponents concentrated their attack on the implications for the relationship between the United States and Mexico. They feared several potential outcomes if NAFTA were signed: the loss of U.S. jobs, damage to the environment as a result of economic growth in Mexico, and the likelihood that U.S. safety regulations would be challenged as barriers to free trade.

In 1993, a coalition of consumer and environmental groups brought suit in an attempt to block congressional consideration of the agreement. In Public Citizen v. United States Trade Representative, 5 F.3d 549 (D.C. Cir. 1993), the coalition argued that the administration of President BILL CLINTON had failed to comply with the NATIONAL ENVIRONMENTAL POLICY ACT (42 U.S.C.A. §§ 4321 et seq. [1977]), which requires all federal agencies to submit environmental impact statements for all legislation or actions that affect the environment. The suit failed when a federal appellate court ruled that it had no authority to review the president's actions.

In response to anti-NAFTA criticisms, the White House negotiated three side agreements that were signed on September 14, 1993. The side agreements attempted to ensure that the three countries comply with their own labor and

President Bill Clinton signs a NAFTA side agreement on September 14, 1993. NAFTA won congressional approval two months later.

environmental laws; established fines and limited trade sanctions for violations; and called for consultations by the members if increases in imports from one country appeared to be having a devastating effect on an industry in one of the other countries. Two months later NAFTA won congressional approval. The House of Representatives narrowly passed the implementing legislation (North American Free Trade Implementation Act [19 U.S.C.A. §§ 3314 et seq., Pub. L. No. 103-182, 107 Stat. 2057]), and the Senate also passed it.

NAFTA specifies a timetable for its changes. When the agreement went into effect on January 1, 1994, the United States eliminated all tariffs on 60 percent of imports from Mexico that previously were subject to tariffs. On January 1, 2003, more U.S. tariffs on Mexico's imports were removed, and 92 percent of previously taxed Mexican goods were able to enter the United States without tariffs. Finally, on January 1, 2008, all remaining tariffs on the three countries' goods will be eliminated. Other barriers were removed beginning January 1, 2000. For instance, U.S. banks, which had traditionally been shut out of Mexico, became free to take over as much as 15 percent of the Mexican financial market.


Hufbauer, Gary Clyde, et al. 2000. NAFTA and the Environment: Seven Years Later. Washington, D.C.: Institute for International Economics.

NAFTA Handbook. 2002. Buffalo, N.Y.: W. S. Hein.

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