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North American Free Trade Agreement

North American Free Trade Agreement

Chapter 13

© 2005 West Legal Studies in Business/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”

• 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

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EU’s role in stimulating trade and development

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

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Customs Union and Free Trade AreaCustoms 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

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CFTA preceded NAFTACFTA preceded NAFTA

• CFTA in effect January 1, 1989 ( 10-year phase in)

• NAFTA started in 1994

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NAFTA debateNAFTA 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- 1994- 34 countries- target date 2005-elimation of all duties by 2015- not realistic?

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What does NAFTA do?What does NAFTA do?

• After 5 years (1993-98) 65% of the tariffs eliminated

• Remainder phased out over 10-15 years

• By 2008 tariffs and nontariff barriers should be eliminated

• But some backsliding on commitments – continuing non-tariff barriers

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Trade and Tariff ProvisionsTrade and Tariff Provisions

• National treatment

• Tariff elimination

• Elimination of non-tariff barriers

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Rules of Origin are Central to NAFTA

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

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Minimal Amount of Non-North-American Materials

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

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NAFTA- Certificate of OriginNAFTA- Certificate of Origin

• Required for commercial shipments unless under $2500 US, $1000 Mexico and $1600 CAD

• Marketing and labeling rules- Annex 311

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Major Areas of ImpactMajor 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

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TextilesTextiles

• NAFTA will phase out tariffs on textiles by 2004 on goods that meet North American Value content requirement

• Implications for non-NAFTA countries?

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TelecommunicationsTelecommunications

• Tariffs eliminated in 2004

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AgricultureAgriculture

• 15 year phase out

• Many eliminated by 2004

• Certain sensitive produce will be regulated by tariff rate quotas

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NAFTA Gives Access to Government ProcurementNAFTA Gives Access to

Government Procurement• Maintain national defense and weapons

exception

• Greater than $50,000 and construction projects greater than $6.5 million

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TransportationTransportation

• 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

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ServicesServices

• General principle of liberalization and access

• Financial services- opening banks, insurance

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Cross Border InvestmentsCross 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?

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Creation of Labor and Environmental Commission to Oversee Separate Provisions

Creation of Labor and Environmental Commission to Oversee Separate Provisions

• Added to agreement to appease groups in US lobbying against NAFTA

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Emergency Action to Protect Domestic Industry

Emergency Action to Protect Domestic Industry

• NAFTA Safeguards

• Until 2004 3 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

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Emergency Action to Protect Domestic Industry

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?

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Dispute SettlementDispute Settlement

• Fair Trade Commission: supervises agreement implementation

• Arbitral panels

• Antidumping and countervailing duties cases

• Extraordinary Challenge committees

• Synthetic Baler Twine, 1995

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Intellectual Property RightsIntellectual Property Rights

• Protected by national law/ GATT/TRIPS

• Citizenship can not be a requirement

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Antitrust and Competition PolicyAntitrust and Competition Policy

• Mexico adopted law in 1993

• Countries agree to enforce national law

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Environmental Cooperation and Enforcement

Environmental Cooperation and Enforcement

• Side agreement

• CEC to enforce

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Rights to Temporary EntryRights to Temporary Entry

• Business visitors, traders, potential investors, managers, transferees, qualified professionals

• FMN card valid for 30 days

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Maquiladora PlantsMaquiladora Plants

• Preceded NAFTA

• Samsonite v. U.S.

• Social responsibility of plants?

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Political FalloutPolitical 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?