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North American Free Trade LawNorth American Free Trade Law

Chapter 14

© 2002 West/Thomson Learning

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Coexistence of GATT and regional trade areas

Coexistence of GATT and regional trade areas

GATT Art. 24 states “ the provisions of the Agreement shall not prevent...the formation of a customs union or free trade area”

GATT emphasizes: The purpose of a customs union or of a free trade area should be to facilitate trade between territories and not to raise barriers to the trade of other WTO trade countries

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Levels of Economic Integration

Free Trade Area

Customs Union

Common Market

Economic Union

Political Union

Level of Integration

NAFTA

EU 1992

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Free Trade Area vs. Customs Union Free Trade Area vs. Customs Union

Free Trade Area: free movement of goods and services among members

Customs Union: Free Trade Area plus common external tariff

Common Market: Customs Union plus free movement of goods and people among members

Economic Union: Common Market plus common currency and central bank, common economic policies

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NAFTA DebateNAFTA Debate Canadian Free Trade Agreement, precursor

of NAFTA, in effect January 1, 1989 Issues involved “free trade” vs.

protectionism (“Giant Sucking Sound” of jobs going to Mexico) Impact on workers Environmental impact

Proposed extension of NAFTA: Free Trade in the Americas: 34

countries - target date 2005 - not realistic

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NAFTANAFTA North American Free Trade Agreement

– Jan. 1, 1994: US, Canada and Mexico After 5 years (1993-98) 65% of the

tariffs eliminated Remainder phased out over 10-15

years Tariffs and nontariff barriers eliminated

by 2008 Some backsliding on commitments – US

restrictions on Mexican trucks

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NAFTA: Trade and Tariff Provisions Trade Agreement covering trade in goods,

services, investment Cooperation on antitrust policy Provisions re: environment and labor

stds. National treatment – once goods are in

country, no difference in treatment based on origin

Tariff elimination – phased out entirely by 2008

Elimination of non tariff barriers

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Rules of Origin are Central to NAFTA

Rules of Origin are Central to NAFTA

NAFTA Certificate of Origin: Required unless under $1000 (M), $2500

(US) or C$1600 (C) Marketing and labeling rules - Annex 311

Use tariff classification shift test rather than substantial transformation test to determine whether good is from one of the three countries (each component must have undergone a tariff classification change too)

Regional value content requirement

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Major Areas of ImpactMajor Areas of Impact

Automobiles and parts: phased out duties by 2004 (as of 2001 cars must have 62.5% North American content to qualify for duty free)

Textiles Agriculture Services Investment Intellectual property Environment and labor

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TextilesTextiles

NAFTA phased out tariffs on textiles by 2004 on goods that meet North American Value content requirement US quotas on Mexican textiles

eliminated New Quotas only in “emergency

situations” Complex rules for determining origin

of textiles

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AgricultureAgriculture

15 year phase-out of duties Most eliminated by 2004 Certain sensitive produce were regulated

by tariff rate quotas – expired 1/1/2008 US: sugar, eggs, orange juice and

poultry Canada: wheat, dairy products Mexico: corn, beans and dairy

products

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Access to Government ProcurementAccess to Government Procurement

No discrimination in treatment of bids for government goods and services Contracts greater than $50,000 and

construction projects greater than $6.5 million

Exception for national defense and weapons

NAFTA members must provide system to allow challenges to awards and procedures

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Emergency Action to Protect Domestic Industry

NAFTA Safeguards Provisions: After 2004, members can only take action

with consent of other country “ ...where increased quantities of a

particular good are a substantial cause of serious injury or threat thereof, to a domestic injury producing a like or directly competitive good”

NAFTA provisions more limited than GATT: only applied to NAFTA imports if are significant share of imports and contribute importantly to serious injury Postpone any decreases, or increasing duty

– no higher than MFN level Must agree with exporting country on

compensation

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ServicesServices

General principle of liberalization and access Apply national treatment and MFN

status US and Canada had largely opened

borders under CFTA Mexico phased out restrictions by 2000

Financial services: banks, insurance, securities, other financial services

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Transportation NAFTA does not affect member domestic regulation of trucking or bus

companies Members developing common safety standards for trucks and for license

certifications NAFTA required full access was by 2000 for trucks and busses US delayed access for Mexican trucks – safety issues and inspection

difficulties Mexico sought dispute resolution panel – panel held for Mexico ( In the

matter of Cross Border Trucking) 2001: Bush Admin. Announces plan to lift moratorium Aug. 2004: Sup. Ct. holds no need to consider environmental impact of

lifting moratorium Pilot Program begun September 2007 – allows Mexican trucks into US beyond

25 mile border zone Political dispute – Congress cut off funding for program in 2008 budget,

ending the program Mexico imposed $2.4 billion in retaliatory tariffs on US exports July 2011 – US and Mexico agreed on resolution: US will allow Mexican trucks

to travel into US, subject to monitoring for safety standards; Mexico phased out tariffs

Oct. 2011 – US sets up pilot program allowing some Mexican trucks into US Jan. 2012 – Teamsters Union files suit to block program

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Telecommunications Tariffs eliminated in 2004 NAFTA requires non-

discriminatory access to all North American public telecommunications networks

Members can impose reasonable technical standards to protect network safety and prevent equipment damage

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Cross Border InvestmentsCross Border Investments Liberalize restrictions on investment

from member states NAFTA allows restrictions (national

security and particular industries): US: nuclear power, broadcast industry,

airlines, mining, customs brokers Canada: “cultural industries”, broadcasting Mexico: land, cable tv, air and land

transportation, oil industry NAFTA protections from expropriation:

public purpose, due process, fair compensation

Metal Clad Corp v. Mexico : “permit” process used to facilitate expropriation

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Intellectual Property Rights

NAFTA adopts basic tenets of international I.P. agreements

IP rights protected by national law and GATT/TRIPS

Nondiscrimination: citizenship can not be a requirement

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NAFTA Labor and Environmental Commissions

NAFTA Labor and Environmental Commissions

Added to agreement to appease groups in US lobbying against NAFTA – prevent “race to the bottom”

N.A. Commission for Environmental Cooperation – cooperation in enforcement of environmental laws

N.A. Labor Commission for Labor Cooperation – oversees agreement and promotes cooperation; make labor policies uniform

Commissions can convene panels to resolve disputes

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Rights to Temporary Entry NAFTA doesn’t create common labor

market No free movement of people Members still determine own

immigration policy Business visitors, traders, potential

investors, managers, transferees, qualified professionals

Mexico: requires FMN card valid for 30 days; special visas for longer stays

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Dispute SettlementDispute Settlement NAFTA Fair Trade Commission oversees

implementation of agreement Arbitral panels: can’t order member to

change laws or policies Antidumping and countervailing duties cases:

Duties or CVD imposed by administrative agencies of member countries

Appeals of decisions go to NAFTA binational panels Extraordinary Challenge committees:

Limited review of panel decisions Synthetic Baler Twine: standard of review is that

of judicial review of appropriate national court

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Maquiladora Plants Preceded NAFTA – S.9802

allows for reduced US tariff on goods re-imported after assembly

Samsonite v. U.S.: was process fabrication or assembly – look to nature of processing

Social responsibility of maquiladora plants?

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Web Sites http://www.usmcoc.org/ http://www.ftaa-alca.org http://www.nafta-sec-alena.org http://www.naftaworks.org/ http://www.nafta-customs.org http://www.cocef.org/ http://www.naalc.org http://www.usmoc.org/