The North American Free Trade Agreement (NAFTA) was a trilateral trade pact, a type of international agreement, that created a free-trade zone among the United States, Canada, and Mexico. It was signed in 1992 and officially took effect on January 1, 1994, superseding the 1988 Canada–United States Free Trade Agreement. The agreement was created to eliminate most tariffs and trade barriers between the three countries, with the goal of boosting prosperity through increased trade and production.
NAFTA worked by calling for the gradual reduction of tariffs, customs duties, and other trade barriers, with some tariffs eliminated immediately and others phased out over a period of up to 15 years. Key provisions included the elimination of tariffs for qualifying goods, the removal of non-tariff barriers like import licenses, and the protection of intellectual property rights. It also established a mechanism for trade dispute resolution, such as the one outlined in Chapter 20. The agreement also included supplemental side agreements, such as the North American Agreement on Labor Cooperation (NAALC) and the North American Agreement on Environmental Cooperation (NAAEC), to address labor and environmental concerns.
NAFTA was replaced by the United States–Mexico–Canada Agreement (USMCA) on July 1, 2020, after being in force for over 26 years. The USMCA is often characterized as "NAFTA 2.0" because it maintains many of the core obligations of its predecessor, ensuring continued free trade access for most goods and services. However, the USMCA modernized the agreement with new provisions, including updated rules of origin for automobiles, stronger enforcement mechanisms for labor provisions, and new sections on digital trade, while deleting certain investor-state dispute settlement provisions.