The North American Free Trade Agreement (NAFTA) is a trade agreement between the United States, Canada, and Mexico that liberalizes restrictions on trade between the three countries. The objective of NAFTA is to promote an environment of free competition, increased market access, and improved investment opportunities for small and medium-sized enterprises (SMEs). NAFTA has accomplished these goals by conducting business within a framework that is extremely open, governed by rules and enforcement mechanisms, thereby promoting greater economic integration and cooperation among the region. NAFTA has provided U.S. SMEs with more competitive goods, higher profit margins, opportunities for stability and growth, and an entrance into the global marketplace. Specific benefits include:
Elimination of tariffs, lower prices, and increased profit margins. NAFTA has been successful in opening trade between the three countries through the elimination of virtually all tariffs. This free trade agreement will eliminate almost all tariffs on NAFTA-originating goods traded between the U.S. and Mexico by 2008 and has already eliminated tariffs on goods traded between the U.S. and Canada. A lower tariff rate on any good, or final product made from such goods, makes the product available at a lower price than non-NAFTA (higher tariff) competitors’ goods. This allows SMEs to compete with larger firms without sacrificing their profit margin.
Increased trade results in increase in sales of U.S. goods.Since implementation on January 1, 1994, trade between the three countries has increased more than 200%, creating the largest trading area in the world. Our NAFTA partners purchase more U.S. exports than all of Europe and purchase about 36% of total U.S. exports. In the past ten years since NAFTA, the number of SME exporters has tripled.
Increased manufacturing output and wages.In this first decade, U.S. manufacturing output soared, up 44% in real terms, U.S. employment grew by over 20 million from 1993 to 2000, and U.S. manufacturing wages more than doubled the rate of increase over the previous decade. With 97% of U.S. exporters being composed of SMEs, these comprehensive benefits are directly favorable to SMEs.
A good does not need to originate in a NAFTA country to qualify for NAFTA preferential duty rates, but rather contain sufficient North American inputs. Qualifying your product as NAFTA-originating will add value to your product. (To determine if your product qualifies for NAFTA please visit the Trade Information Center's website on NAFTA Rules of Origin). Firms that qualify their goods as NAFTA-originating offer the benefit of lower tariffs, not only when selling directly to buyers in Canada and Mexico, but also when selling products as inputs for other firms that export to NAFTA markets.
The United States is in the process of negotiating the Free Trade Area of the Americas (FTAA), which encompasses 34 countries in the Western Hemisphere. In order to help small businesses learn the process and compete in the new free trade area, the FTAA is likely to have Rules of Origin similar to those for NAFTA. In this increasingly globally-integrated market, learning the simplified origination and qualification processes for NAFTA now, will help SMEs prepare for future opportunities under the FTAA and other trade agreements with Chile, Singapore, Morocco, Bahrain, Australia, and Jordan.
Additional information on NAFTA is available at the U.S. Department of Commerce’s NAFTA Website.
The information in this article was compiled by Heather Tomasetti of the U.S. Department of Commerce’s Global Diversity Initiative. To contact the Global Diversity Initiative, you may call 202-482-4792 or e-mail global_diversity@ita.doc.gov .