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The North American Free Trade Agreement (NAFTA) is an agreement signed by Canada, Mexico, and the United States, creating a trilateral rules-based trade bloc in North America. The agreement came into force on January 1, 1994. On that day, the three countries became the largest free market in the world’the combined economies of the three nations at that time measured $6 trillion and directly affected more than 365 million people. NAFTA immediately lifted tariffs on the majority of goods produced by the signatory nations. It also called for the gradual elimination, over a period of 15 years, of most remaining barriers to cross-border investment and to the movement of goods and services among the three countries.
NAFTA was created to eliminate tariff barriers to agricultural, manufacturing, and services; to remove investment restrictions; and to protect intellectual property rights, while also addressing environmental and labor concerns.
NAFTA has benefited North American businesses through increased export opportunities resulting from lower tariffs, predictable rules, and reductions in technical barriers to trade. Like Mexico and the U.S., Canada received a positive economic benefit as measured by GDP. Many feared declines failed to materialize, and some industries that were expected to suffer actually grew instead.
One of NAFTA’s biggest economic effects on U.S.-Canada trade has been to boost bilateral agricultural flows; Canada is the leading importer of U.S. agricultural products, and U.S. agricultural exports to Canada roughly doubled between 1994 and 2003.
Today NAFTA has a combined output of US$17.0 trillion across North America, and Canada and the United States have the largest trade relationship in the world. In 2012, U.S. merchandise trade with Canada consisted of US$324.2 billion in imports and US$292.4 billion in exports. The trade across Ambassador Bridge, between Windsor, Ontario, and Detroit, Michigan, alone is equal to all trade between the United States and Japan. Canada’s most popular exports to the U.S. include: mineral oil, fuel, motor vehicles, machinery, wood, and electrical machinery.
According to the Council on Foreign Relations, Canada has seen the strongest economic gains among the three NAFTA countries. Canada is the leading exporter of goods to the United States, U.S. and Mexican investments in Canada have tripled, and Canada has added 4.7 million new jobs since 1993.