North American Free Trade Agreement (NAFTA)

Background Information

The North American Free Trade Agreement (NAFTA) came into effect on January 1, 1994, creating the largest free trade region in the world, generating economic growth and helping to raise the standard of living for the people of all three member countries. By strengthening the rules and procedures governing trade and investment, the NAFTA has proved to be a solid foundation for building Canada’s prosperity and has set a valuable example of the benefits of trade liberalization for the rest of the world.

Prosperity

In 1993, trilateral trade within the North American region, as measured by each nation’s imports from its two NAFTA partners, was over US$288 billion while in 2012 it passed the $1 trillion mark.  Reflecting the prosperity and development of the region, the North American economy has more than doubled in size since 1994.  The combined gross domestic product (GDP) for Canada, the U.S., and Mexico was US$19.2 trillion in 2012 up from US$7.7 trillion in 1993. Canadian merchandise exports to the United States grew at an annualized rate of 4.4 percent between 1993 and 2012; and Canada’s bilateral merchandise trade with Mexico was close to $31 billion in 2012. Approximately 75.7 percent of Canada’s total merchandise exports were destined to our NAFTA partners in 2012. Total merchandise trade between Canada and the United States more than doubled between 1993 and 2012. Trade between Canada and Mexico has increased more than almost 7-fold over the same period.

Canada-U.S. trade in goods and services in 2012 reached close to $742 billion or 41 percent of Canada’s GDP. Canada is the largest market for U.S. services exports with Canada-U.S. services trade reaching nearly $107.6 B in 2012, a 167.3 percent increase. Canada was the main destination for United States merchandise exports in 2012, and was the second largest source of merchandise imports into the United States. Canada is the main foreign supplier of energy to United States (Mexico is 3rd), and is the 4th largest cumulative source of foreign direct investment (FDI) into the United States.

Between 1993 and 2012, Mexico-Canada merchandise trade grew by 6.8 times to over $30.9 billion in 2012, showing an average annual growth rate of over 10.6 percent.  Services trade between Canada-Mexico quintupled to $2.9 billion in 2011. In 2012, Mexico was Canada’s 3rd largest trade partner and was Canada’s 3rd largest supplier and 5th largest export market for merchandise trade.

The enhanced economic activity and production in the region have contributed to the creation of jobs for Canadians with one in five jobs in Canada related to trade. With the addition of more than 4.7 million net new jobs during the period from 1993-2014, Canada’s unemployment rate has decreased from 11.4 percent (1993) to 7.2 percent (2012).

Investment

The NAFTA’s provisions ensure greater certainty and stability for investment decisions and have contributed to enhancing Canada’s attractiveness for foreign investors while providing more opportunities for Canadians to invest in NAFTA partners’ economies.

At the end of 2012, the stock of direct investment in Canada from the United States was CA$326.5 billion, while Canada has invested $289 billion in our NAFTA partners. Canada and the U.S. have one of the world’s largest investment relationships with a bilateral investment stock totalling almost $616.0 billion in 2012. The stock of Canadian direct investment in Mexico has increased dramatically since NAFTA entered into force, reaching nearly $5.6 billion in 2012, up from only $530 million in 1993, and making Canada the 4th largest foreign investor in Mexico.

Integration

North America is home to approximately 459 million people, representing about one quarter of the world’s economy. Our integration helps maximize our capabilities, making our economies more innovative and competitive, creating a North America where Canadian, American and Mexican companies do more than sell things to each other – now, our companies increasingly make things together.

Competitiveness

NAFTA has benefited North American businesses through increased export opportunities resulting from lower tariffs, predictable rules, and reductions in technical barriers to trade. Along with increasing exports and imports, firms have become more specialized and thus more competitive, allowing for them to make things together for customers within and beyond the NAFTA region.

For Canadians, it is important that trade and investment liberalization proceed hand in hand with efforts to protect the environment and improve working conditions. Under NAFTA, our three countries have also been able to introduce the successful approach of parallel environmental and labour cooperation agreements.

Through the North American Agreement on Environmental Cooperation (NAAEC), the three partners agreed to promote the effective enforcement of environmental laws. Through the North American Agreement on Labour Cooperation (NAALC), the three partners agreed to work together to protect, enhance and enforce basic workers’ rights.

A strong, modern and flexible NAFTA is important for the continent to maintain its competitiveness in an increasingly complex and connected global marketplace. Canada and its NAFTA partners will continue to work together to reduce the costs of trading within the region and to improve the competitiveness of North America.