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30 Years of NAFTA

Growth Platform

Last year marked three decades since the signing of the North American Free Trade Agreement (NAFTA), which – observed on the basis of the total GDP of the three countries involved and measured according to the purchasing power ratio – represents the world’s largest FTA

Trilateral trade in goods between Canada, the U.S and Mexico has tripled, while Canada-Mexico trade has increased eightfold over the course of these 30 years, during which there was a sincere belief that progress for nearly 500 million people could only be achieved by working together.

NAFTA is the North American Free Trade Agreement between Canada, Mexico and the U.S., which was signed in 1992 and came into force on 1st January, 1994. NAFTA was built on the foundations of the pre-existing Canada–United States Free Trade Agreement (CUSFTA), which came into force in 1989. The introduction of NAFTA created the world’s largest free trade zone. Tariffs were immediately eliminated or reduced on the majority of goods included in the agreement, which resulted in economic growth and the creation of jobs for members of the middleclass across North America. It paved the way for unprecedented economic integration between the three partner countries, creating a platform for companies from Canada, the U.S. and Mexico to collaborate, produce and perform together, instead of merely selling goods to one another, as they had previously. NAFTA was utilised by North American businesses to increase their export opportunities, as it provided them with lower tariffs, more predictable operations, clearer rules and reduced technical barriers to trade. In parallel with increased exports and imports, companies from the three countries also became more specialised and thus more competitive, which enabled them to produce together and perform together in addressing customers both within and beyond the NAFTA region.

ANNIVERSARY ALSO COMMEMORATED IN BELGRADE

The Embassy of Canada in Belgrade commemorated the 30th anniversary of the signing of NAFTA, which – observed in terms of the total GDP of the three countries and measured according to the purchasing power ratio – is the world’s largest free trade agreement.

“The commemorating of 30 years since the signing of NAFTA testifies to our shared belief that trade agreements represent a cohesive factor in connecting peoples, countries and continents. Trade ties between Canada, Mexico and the U.S. are strong. Since 1993, trilateral trade in goods between Canada, Mexico and the U.S. has more than tripled, which has enabled our companies to create new jobs, but also to engage in innovations and grow together. Economies need to develop and grow. Our trade agreements also continue to evolve, and now include improved environmental and labour standards, as well as the better regulation of digital trade and small enterprises. It was in this way that NAFTA developed into the new USMCA agreement in 2020,” reads the Canadian Embassy’s statement.

“With the exchange of goods and investments, social ties between our three countries have also developed significantly. Exchanges in the spheres of culture and the arts in various forms, including gastronomy and tradition, academic exchanges, sports and student mobility, are growing continuously between our three countries, adding a social and human component to trade and investment exchanges. One clear example of this social dimension of the NAFTA agreement is the co-hosting of the next FIFA World Cup in Canada, Mexico and the United States in 2026. We hope that the experience of North America can serve as an example for other regional free trade agreements around the world, including in the Western Balkans,” the statement noted.

TRILATERAL TRADE HAS TRIPLED

NAFTA established the world’s largest free trade region and has since led to the renewing of the foundations of trilateral cooperation. Since the day the agreement was signed, there has been no disputing of the fact that these three nations may have cultural, historical or ethnic differences, but they have never lost sight of the fact that they can only ensure progress for their almost 500 million people by working together. NAFTA symbolised the joint commitment of these three nations and the shared belief that cooperation and the reducing of barriers, particularly in the area of trade, have a multiplier effect that leads to improved cooperation in culture, politics and other areas, as well as mutual ties.

Thanks to this free trade agreement, the almost half a billion people who call North America home have gained opportunities to find good-paying jobs. By utilising NAFTA as a platform, the governments of the three countries have not only supported trade, but also investment, research, development and cooperation between businesses and individuals. By helping them at the regional level, the NAFTA agreement also helped them succeed on the international front.

The experience of North America can serve as an example for other regional free trade agreements around the world, including in the Western Balkans

Over the course of the previous three decades, trilateral trade in goods between Canada, the U.S and Mexico has tripled, while Canada-Mexico trade has increased eightfold. NAFTA, and now also CUSMA, have supported the development of an integrated and competitive North American market, providing a predictable and secure commercial environment for manufacturers, farmers, companies and consumers. It thus came as no surprise to anyone that trilateral trade reached a value of almost a trillion U.S. dollars in 2016, representing a more than threefold increase compared to 1993.

The North American Free Trade Agreement has 22 chapters, divided into eight parts, and 10 annexes, including special chapters, and is accompanied by two side agreements: the North American Agreement on Labour Cooperation (NAALC) and the North American Agreement on Environmental Cooperation (NAAEC). These two side agreements aimed to establish high common standards on workplace safety, labour rights and environmental protection, in order to prevent the relocating of companies to other countries with lower wages and less stringent regulations.

NEW TIMES REQUIRED A NEW AGREEMENT

The Canada-United States-Mexico Agreement (CUSMA) came into force on 1st July, 2020, three years after the launch of negotiations. Talks between the three countries included trade disputes and new tariffs that were used as negotiating tactics. CUSMA is the legal successor to NAFTA and has a different name in each of the three signatory countries. Although it is known as CUSMA in Canada, it is referred to in the U.S. as the United States-Mexico-Canada Agreement, or USMCA, and in Mexico as T-MEC, which is the Spanish version of the agreement’s name.

CUSMA and NAFTA are very similar in terms of their general concepts. CUSMA is the successor to NAFTA, but the two agreements nevertheless differ significantly. CUSMA covers 1,500 pages, twice that of NAFTA. The transition from NAFTA to CUSMA once again emphasises that import-export strategies come down to the fine details. This new trade agreement introduces new and revised rules of origin that impact manufacturers and their supply chains, particularly as they relate to the automotive sector. It is imperative that all importers and exporters review the new agreement and the sections that apply to their specific industry in order to ensure their right to duty-free entry.

CUSMA is the successor to NAFTA, but the two agreements nevertheless differ significantly. CUSMA covers 1,500 pages, twice that of NAFTA

CUSMA was born into a world of trade that differs greatly from that of its predecessor. When NAFTA came into effect in the 1990s, importers and exporters had numerous options, but nothing like today. The business world has shrunk, while supply chains have become longer and more complex. CUSMA is now just one of many trade agreements that Canada has signed with partners around the world and is diversifying opportunities for Canadian companies. However, the North American trade bloc cannot be overlooked. Proximity still counts, as does the common language and business culture in the case of the U.S.

“THREE AMIGOS” SUMMIT IN IN MEXICO CITY

In order to strengthen cooperation, representatives of Canada, the U.S. and Mexico participated in the ‘Three Amigos’ summit in Mexico City at the beginning of January this year. This three-day summit of North American leaders included events that brought together diplomats, government officials and privatesector emissaries from across the continent. Canadian Prime Minister Justin Trudeau acknowledged how close the continent came to losing NAFTA in 2019, with the free trade agreement replaced during the Donald Trump era with the U.S.-Mexico-Canada Agreement, or USMCA, which came into effect in 2020. “We’re talking amongst friends now… we almost lost NAFTA,” said Trudeau, as he thanked the group for the various roles that they played in securing the new deal, which is known in Canada as CUSMA.

“The last North American gathering at the White House in 2021 produced a list of more than 40 different ‘deliverables’. That is a huge number by most standards, but not surprising for three countries that share borders,” said U.S. Assistant Secretary of State for Western Hemisphere Affairs Brian Nichols, making clear that his country’s unique ties to Canada and Mexico won’t be lost because this is “a family relationship and family conversation”. Scotty Greenwood, CEO of the Canadian- American Business Council, is in agreement with Nichols. She suggested: “Let’s view things as a bloc and as a region, and let’s take things on together. I hope it [Canada] embraces it”. There are more than ample reasons for optimism, and the strongest one is based on the fact that the U.S., Canada and Mexico are home to more than 470 million people and that companies from all three countries require strong economies. CUSMA/USMCA will expire in 2036 unless extended in the meantime. All three parties have agreed to review the agreement every six years, in an effort to ensure its continued relevance in trade environment that’s constantly evolving.