About NAFTA
The North American Free Trade Agreement is the trade bloc in North America, whose members are Canada, Mexico, and the United States. Its purpose is to remove most barriers to trade and investment among its members. This agreement came into effect on January 1, 1994 and as of 2007 it is the largest trade bloc in the world in terms of combined purchasing power parity GDP of its members.

Provisions Under NAFTA
Although NAFTA encourages trading partners to adopt international and regional standards, the agreement explicitly recognizes each country’s right to determine the necessary level of protection. Such flexibility permits each country to set more stringent standards, as long as they are scientifically based. NAFTA also allows state and local governments to enact standards more stringent than those adopted at the national level, so long as these standards are scientifically defensible and are administered in a forthright, expeditious manner.

Export Subsidies
The three NAFTA countries work toward the elimination of export subsidies worldwide. The United States and Canada are allowed under the NAFTA to provide export subsidies into the Mexican market, under certain conditions, to counter subsidized exports from other countries. Neither Canada nor the United States is allowed to use direct export subsidies for agricultural products being sold to the other, and both countries are required to consider the export interests of the other whenever subsidizing agricultural exports to third countries.

Internal Support
Under NAFTA, the parties should endeavor to move toward domestic support policies that have minimal trade or production distorting effects, or toward policies exempt from domestic support reduction commitments under the World Trade Organization.

Grade and Quality Standards
The United States and Mexico agreed that when either country applies a measure regarding the classification, grading, or marketing of a domestic product destined for processing, it will provide no less favorable treatment for like products imported for processing.

Rules of Origin
NAFTA improves incentives for buying within the North American region and ensures that North American producers receive the primary benefits of all newly established tariff preferences. Goods not originating from the United States, Mexico, or Canada must be significantly transformed or processed in one of those countries before they receive NAFTA’s lower duties for shipment to one of the two other countries.

SOURCE: USDA