As per the terms of the NAFTA, all the non-tariff trade barriers which impeded agricultural trade between the economies of United States as well as Mexico had been eliminated. Besides this, several other types of tariffs were also eliminated immediately and a pledge was made to phase out the other barriers over a period of five to fifteen years. The main functions of NAFTA have been summarized as (Economy Watch, 2010):
- Elimination of the trade barriers that existed in various service sectors which belonged to the member nations of the NAFTA.
- It brought about a reduction in high Mexican tariffs that facilitated the promotion of agricultural exports.
- It also seeks to provide assistance to companies that spanned these three member nations to bid for government contracts.
- It also sought to assure fair market value and prices to investors which were accomplished by reducing risk along with the offering of the same legal rights to investors as were enjoyed by the domestic local investors.
Thus this treaty can be a major rationale for the increased trade activity between the United States and Canada & Mexico. Reduction in tariffs and other forms of trade barriers made the US goods competitive in the economies of Canada and Mexico as a result of which, there was an increase in demand for US goods in these economies. This increase in demand was met by the exports of higher volume of goods by the US and hence the major importers of US goods are Canada and Mexico. Besides this, all these economies are developed economies and are hence characterized by similar tastes and preferences of consumers. As a result, there is a high probability of acceptance of the US goods in these regions than the emerging markets’ regions. It was seen that the biggest importer of US goods was Canada followed by Mexico. This can be due to the fact that the relative size of the Canadian economy is greater than that of the US economy.