What is the purpose of NAFTA?

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pohnpei397's profile pic

Posted on (Answer #1)

The purpose of the North American Free Trade Agreement (NAFTA) was to cause economic development in all three countries that are covered by the agreement.  Those countries are the United States, Mexico, and Canada.

Most economists believe that free trade is good for the economies of all countries involved.  It allows countries to focus on making things that they have a comparative advantage in making.  When countries do that and trade for the things they do not make (economists say), the overall levels of production for the world as a whole (or in this case for the region as a whole) increase.

The point of this agreement, then, was to increase production in the economies of all three countries.

kipling2448's profile pic

Posted on (Answer #2)

The North American Free Trade Agreement (NAFTA) was negotiated among the United States, Canada and Mexico for the purpose of removing barriers to the exchange of goods and services among the three countries.  Absent a trade agreement, countries often find themselves entangled in disputes regarding each other's taxes, or tariffs, on the goods imported from abroad and on arcane issues like "dumping," which refers to one country's practice of exporting a large amount of goods, like steel, into another country's market, thereby depressing prices (the resulting surplus of steel, for instance, causes domestic prices to fall, hurting the domestic producers) and potentially driving those domestic producers out of business.  In addition to negotiating an agreement designed to minimize trade disputes among the three nations of North America, NAFTA was intended to help Mexico's economy expand by creating the conditions under which industries would prosper there, providing employment opportunities, thereby raising the standard of living for the average Mexican citizen.

Whether NAFTA has been successful is a matter of perspective.  Many Americans blame the agreement for encouraging American manufacturers to relocate their facilities to Mexico, where labor costs are lower and environmental standards generally weaker.  In addition, the hoped-for improvement in the standard of living among many Mexicans may have materialized, but it remains substantially lower than than in the United States.  Consequently, the hoped-for decrease in illegal immigration from Mexico to the United States hasn't occurred.

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