1 North American Free Trade Agreement Chapter 13 © 2005 West Legal Studies in Business/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” But there is a caution 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 EU’s role in stimulating trade and development Target date of 1992 Countries outside of Europe were concerned about a “fortress Europe” Stimulated regional alliances to match the development in Europe

4 Customs Union and Free Trade Area Customs Union has common external tariff FTA does not EU is a customs union, NAFTA is not But NAFTA does more than just lower tariffs

5 CFTA preceded NAFTA CFTA in effect January 1, 1989 ( 10-year phase in) NAFTA started in 1994

6 NAFTA debate Often seen in “free trade” vs. protectionism Not many understand the “nitty gritty” of the agreement Extension of NAFTA: Free Trade in the Americas countries- target date 2005-elimation of all duties by not realistic?

7 What does NAFTA do? After 5 years ( ) 65% of the tariffs eliminated Remainder phased out over years By 2008 tariffs and nontariff barriers should be eliminated But some backsliding on commitments – continuing non-tariff barriers

8 Trade and Tariff Provisions National treatment Tariff elimination Elimination of non-tariff barriers

9 Rules of Origin are Central to NAFTA Use tariff classification shift test rather than substantial transformation test to determine whether item is from one of the three countries (each component must have undergone a tariff classification change too) Regional value content requirement

10 Minimal Amount of Non-North- American Materials If non- north American material is less than 7% of total cost may still be eligible for NAFTA rates

11 NAFTA- Certificate of Origin Required for commercial shipments unless under $2500 US, $1000 Mexico and $1600 CAD Marketing and labeling rules- Annex 311

12 Major Areas of Impact Automobiles and parts: 2004 phase out of duties ( 2001 will need 62.5% local content); duties will continue on used cars Textiles: phase out in 2004 Agriculture: most eliminated by 2004 Services Investment Intellectual property Environment and labor

13 Textiles NAFTA will phase out tariffs on textiles by 2004 on goods that meet North American Value content requirement Implications for non-NAFTA countries?

14 Telecommunications Tariffs eliminated in 2004

15 Agriculture 15 year phase out Many eliminated by 2004 Certain sensitive produce will be regulated by tariff rate quotas

16 NAFTA Gives Access to Government Procurement Maintain national defense and weapons exception Greater than $50,000 and construction projects greater than $6.5 million

17 Transportation Full access was to happen by 2000 for trucks and busses but did not Clinton delayed; Bush implemented In the matter of Cross Border Trucking: NAFTA Arbitral Panel unanimously held U.S. restrictions on Trucking industry violated NAFTA 2001

18 Services General principle of liberalization and access Financial services- opening banks, insurance

19 Cross Border Investments Liberalize restrictions However still some restrictions (national security and particular industries) Article 1110 protects investors from expropriation without compensation Metal Clad Corp v. Mexico: ICSID 2000 decision finds that Mexican treatment of a hazardous waste facility was an expropriation and awarded money damages. What has been the follow-up?

20 Creation of Labor and Environmental Commission to Oversee Separate Provisions Added to agreement to appease groups in US lobbying against NAFTA

21 Emergency Action to Protect Domestic Industry NAFTA Safeguards Until countries may take protective emergency action “ 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

22 Emergency Action to Protect Domestic Industry More limited than under the WTO After 2004, emergency action only with consent of country How will that work?

23 Dispute Settlement Fair Trade Commission: supervises agreement implementation Arbitral panels Antidumping and countervailing duties cases Extraordinary Challenge committees Synthetic Baler Twine, 1995

24 Intellectual Property Rights Protected by national law/ GATT/TRIPS Citizenship can not be a requirement

25 Antitrust and Competition Policy Mexico adopted law in 1993 Countries agree to enforce national law

26 Environmental Cooperation and Enforcement Side agreement CEC to enforce

27 Rights to Temporary Entry Business visitors, traders, potential investors, managers, transferees, qualified professionals FMN card valid for 30 days

28 Maquiladora Plants Preceded NAFTA Samsonite v. U.S. Social responsibility of plants?

29 Political Fallout Clinton unable to get Trade Promotion Authority ( formally called Fast Track Authority) authority to extend NAFTA. What about Bush? Debate about the impact of NAFTA Dislocation of workers Impact on countries?