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1
North American Free Trade Agreement
North American Free Trade Agreement
Chapter 13
© 2005 West Legal Studies in Business/Thomson Learning
2
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
3
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
5
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?
7
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?
20
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
27
Rights to Temporary EntryRights to Temporary Entry
• Business visitors, traders, potential investors, managers, transferees, qualified professionals
• FMN card valid for 30 days
28
Maquiladora PlantsMaquiladora Plants
• Preceded NAFTA
• Samsonite v. U.S.
• Social responsibility of plants?
29
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?
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