North American
Free Trade Law
Chapter 14
© 2002 West/Thomson Learning
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Coexistence of GATT and
regional trade areas
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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
Political
Economic Union
NAFTA
Common Union
Free Customs Market
Union
Trade
Area
EU 1992
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Free Trade Area vs. Customs Union
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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,
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common economic policies
NAFTA Debate
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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
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realistic
NAFTA
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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
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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
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NAFTA Certificate of Origin:
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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 Impact
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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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Textiles
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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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Agriculture
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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
Procurement
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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
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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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Services
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General principle of liberalization and
access
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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
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NAFTA does not affect member domestic regulation of trucking or bus
companies
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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
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Jan. 2012 – Teamsters Union files suit to block program
Telecommunications
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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 Investments
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Liberalize restrictions on investment
from member states
NAFTA allows restrictions (national
security and particular industries):
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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
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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
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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
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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 20
Dispute Settlement
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NAFTA Fair Trade Commission oversees
implementation of agreement
Arbitral panels: can’t order member to
change laws or policies
Antidumping and countervailing duties
cases:
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Duties or CVD imposed by administrative
agencies of member countries
Appeals of decisions go to NAFTA binational
panels
Extraordinary Challenge committees:
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Limited review of panel decisions
Synthetic Baler Twine: standard of review
is that of judicial review of appropriate
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national court
Maquiladora Plants
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Preceded NAFTA – S.9802 allows
for reduced US tariff on goods reimported 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
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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/
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