North American Free Trade Law

1. North American Free Trade Law Chapter 14 © 2002 West/Thomson Learning

2. 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

3. Levels of Economic Integration Level ofIntegration Political Union Economic Union NAFTA Common Market Customs Union Free Trade Area EU 1992

4. 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

5. NAFTA 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

6. NAFTA • 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

7. 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

8. 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

9. Major 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

10. Textiles • 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

11. Agriculture • 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

12. Access 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

13. 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

14. Services • 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

15. 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, but Transportation Dept. is operating it under current budget

16. 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

17. Cross 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

18. 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

19. 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

20. 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

21. Dispute 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

22. 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?

23. 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/