1. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. CHAPTER 14 North American Free Trade Law

2. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage 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.” 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. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 3 The North American Free Trade Area Comprised of United States, Canada, and Mexico. Largest free trade area in the world – GDP $15 trillion. NAFTA created in 1994 by President Clinton. Canada and U.S. are each other’s largest trading partners. U.S. and Mexico trade at $332B in 2006.

4. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 4 The NAFTA NAFTA is not a customs union or common market, like the EU. Long before NAFTA, GATT allowed trade between three countries. NAFTA fosters trade and lowers/eliminates tarrifs and barriers to trade: commercial travel, the environment, worker safety, child labor.

5. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 5 National Treatment NAFTA has similar provision to GATT: once goods arrive from another NAFTA country, they are treated without discrimination and no differently than domestic goods. Elimination of Non-Tariff Borders: –Prohibits new export taxes on goods. –Customs user fees were eliminated in 1999. Continuing Barriers…

6. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 6 Rules of Origin Critical to NAFTA implementation. NAFTA tarrifs apply only to goods that originate in NAFTA country. 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). Regional value content requirement.

7. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 7 Goods Wholly Produced or Obtained in North America NAFTA Article 415: applies to goods wholly produced or obtained in North America. Goods may not contain any non-NAFTA parts or materials. Producer must be able to document all inputs to raw materials mined, grown, or born in North America.

8. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 8 Annex 401 Tariff Shift Rule of Origin Non-North American good or material can be “transformed” into a product of North America if each non-NA input undergoes a tariff classification change. Changes in Tariff Classification. Regional Value Content Requirement: ROO based on target classification. Minimal Amounts: less than 7% total cost of product.

9. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 9 NAFTA- Certificate of Origin Required for commercial shipments unless under $2500 US, $1000 Mexico and $1600 CAD. Marketing and labeling rules- Annex 311. Normas : Mexican standards and technical obligations.

10. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 10 Marking and Label Rules Set out in Annex 311 to NAFTA. The “Skippy” peanut butter case wanted to use the “Made in the U.S.A.” label. Mexican labeling is controversial: Normas Oficiales Mexicanas. What Items d Not Require Marks?

11. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 11 Trade in Goods: Sectoral Issues Automobiles and parts: 2004 eliminated all duties on parts originating in North America; duties will continue on used cars. Textiles: phase out in 2004. Agriculture: most eliminated in 2004. Services. Investment. Intellectual property. Environment and labor.

12. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 12 Trade in Textiles and Apparel NAFTA phased out tariffs on textiles in 2004 on goods that meet North American Value content requirement. WTO Agreement on Textiles and Clothing in 2005 is now expired  China is taking over, becoming the world leader of low-cost textile production.

13. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 13 Trade in Agriculture 15 year phase out Many eliminated by 2004; all eliminated January 2008. Certain sensitive produce will be regulated by tariff rate quotas. Agricultural Rules of Origin.

14. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 14 Government Procurement Maintain national defense and weapons exceptions. Greater than $50,000 and construction projects greater than $6.5 million. Bids from all suppliers in NAFTA countries must be treated without discrimination.

15. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 15 Trade in Services General principle of liberalization and access. Financial services- opening banks, insurance. Transportation 

16. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 16 Transportation and Telecommunications 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. –As of 2007: Congress failed to gather enough support to implement NAFTA cross-border rules. TELECOMMUNICATIONS: all tariffs on phones eliminated in 2004. Must be allowed access to all Mexican infrastructure.

17. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 17 Cross Border Investments Liberalizes 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? Investor Claims and Dispute Resolution procedures.

18. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 18 Other NAFTA Provisions Intellectual Property Rights: usually protected by international treaties (GATT/TRIPS). Enforced by NAFTA. –Trademarks. –Copyrights. –Patents. –Enforcements and Penalties.

19. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 19 Other NAFTA Provisions Environmental Cooperation and Enforcement. –NAAEC calls for three countries to cooperate in protecting the environment. Labor Cooperation and Worker Rights. Antitrust and Competition Policy. Rights to Temporary Entry.

20. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 20 Administration and Dispute Settlement NAFTA Fair Trade Commission: supervises agreement implementation. Arbitral panels Antidumping and Countervailing Duty Cases. –Appeals process has changed, now appeals go to NAFTA binational panels. See the Synthetic Baler Twine with a Knot Strength of 200 lbs case. Extraordinary Challenge committees.

21. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 21 Production Sharing: Assembly Plants and the Mexican Maquiladoras Process of spreading manufacturing and assembly operations across borders is called production sharing. Allows countries to do what they do best. Proximity to US makes process efficient. Assembly Plant Tariff Rules: See the Samsonite Corp. v. United States case. –Mexican regulation of Maquiladora plants.

22. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 22 Issues Related to the Mexican Maquila Industry Migration of Mexican workers to border regions creates social and health problems, crime is becoming an epidemic (witness the recent shootings in Laredo and Tijuana). There has also been great damage to the environment, especially the Rio Grande river. Recent Trends (away from Mexico): –The impact of China. –The impact of CAFTA-DR.

23. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 23 The Free Trade Area of the Americas FTAA is a proposal to extend NAFTA into a single Western Hemisphere free trade area. This may a number of years away. Other Western Hemipshere FT Agreements: –CAFTA-DR (2005) provides for NAFTA-like trade between US and Central American countries.

24. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 24 ConclusionConclusion 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?