RESTRICTED
WORLD TRADE WT/REG4/1
23June1995
ORGANIZATION(95-1677)
WORKING PARTY ONTHE NORTH AMERICAN
FREE TRADE AGREEMENT
Questions andReplies
ContractingpartiestotheGATTwereinvited(GATT/AIR/364)tocommunicatetotheSecretariat
anyquestions theymight wishtoputconcerning theNorth American FreeTrade Agreement (NAFTA).
Inresponse tothisrequest, anumber ofquestions werereceived andweretransmitted totheParties
totheAgreement. Thequestions andreplies which havebeenreceived aresetoutbelow.WT/REG4/1
Page2
TABLE OFCONTENTS
Questions Pages
I. GENERAL PART 1-18 3-6
II. TRADE INGOODS
National Treatment andMarket Access (Chapter 3)
National Treatment 19-28 6-11
Tariffs 29-44 11-16
Other Measures 45-51 16-17
Automotive Sector 52-56 17-18
Textiles andApparel Goods 57-58 18-19
Steel 59 19
Rules ofOrigin (Chapter 4) 60-102 19-33
Customs Procedures (Chapter 5) 103-105 34-35
Energy andBasic Petrochemicals (Chapter 6) 106-107 35
Agriculture (Chapter 7) 108-124 36-40
Emergency Action (Chapter 8) 125-128 40-41
III. TECHNICAL BARRIERS TOTRADE 129-133 41-42
IV. GOVERNMENT PROCUREMENT 134-141 42-44
V. INVESTMENT, SERVICES AND RELATED MATTERS
Investment (Chapter 11) 142-160 45-49
Services (Chapter 12) 161-176 49-55
Telecommunications (Chapter 13) 177-178 55
Financial Services (Chapter 14) 179-187 56-62
Temporary Entry forBusiness Persons (Chapter 16) 188-190 62-63
VI. INTELLECTUAL PROPERTY 191-205 63-65
VII. ADMINISTRATIVE AND INSTITUTIONAL PROVISIONS 206-214 65-69
VIII. OTHER PROVISIONS 215-219 69-70
ENVIRONMENTAL CONSIDERATIONS 220-225 70-73
SUPPLEMENTARY AGREEMENTS 226-232 73-74WT/REG4/1
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I. GENERAL PART
1. Arethere anysectors, orparts thereof, oftheeconomy excluded from NAFTA? Ifso:
Please listthem and
Isthere anagreed timetable tobring these sectors under theAgreement?
Noeconomic sectors areexcluded from theNAFTA.
2. Article 201provides adefinition of"goods ofaParty" which mayinclude "such goods
astheParties mayagree". Have theParties reached anysuchagreement?
Asindicated inthedefinition of"goods ofaParty", theParties haveagreed thatgoods that
originate under Chapter FouroftheNAFTA are"goods ofaParty". Pursuant toAnnex 311(1), the
Parties haveestablished "Marking Rules" todetermine when agoodisagoodofaParty forpurposes
ofcountry oforigin marking andforapplying NAFTA tariff preferences during thetariff phase-out
period.
3. TheGATT/WTO permits itsmembers toestablish afreetrade agreement, although it
constitutes amajor derogation from them.f.n. principle. Thebasic rationale hereisthat
afreetrade agreement willbring about atrade creation effect toworld trade byremoving
allthebarriers between themembers totheagreement, andthatthetrade creation effect
willexceed thetrade diversion effect resulting from thenon-m.f.n. arrangement. Ithas
beenabout oneyearsince theNAFTA came intoforce. Please provide specific information
onthetrade creation effect, aswellasonthetrade diversion effect, thattheNAFTA Parties
have sofarexperienced andwilldosointhefuture.
4. Have theParties undertaken anystudies ofthelikely trade creation andtrade diversion
effects ofNAFTA? Ifso,what were their findings?
5. Have theParties undertaken anystudies ofthepossible effects ofNAFTA onthird parties?
Ifso,what were their findings?
Answer toquestions 3,4,5and9:
Themostauthoritative analysis ofthisissueistheonefromtheInternational Monetary Fund
initsMay1993 World Economic Outlook. TheIMFstates that:
"Trade creation caningeneral beexpected tobehighwhen theregional trade arrangement
ischaracterised bymembers atsimilar levels ofdevelopment, lowtransport costs, analready
highshareofintraregionaltrade,andlowcommonexternalprotection.....Regionalarrangements
between developing andindustrial countries maybenefit theformer byimproving thecredibility
ofpolicies, thereby fostering amore stable macroeconomic environment, aswellasby
encouraging reforms thatwould bepolitically difficult tocarry outunilaterally."
TheIMFconcludes that:WT/REG4/1
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"Empirical evidence suggests thatregional trading arrangements inindustrial countries have
generally increased members 'welfare....In thecaseofCUSFTA (Canada-U.S. FTA), estimates
hadsuggested thatCanada 'srealGDPmight riseasmuch as9percent inthelongrun,inpart
because ofsharp productivity gains arising from economies ofscale. Thisisnowregarded
asoptimistic, given thealready lowtariffs onU.S.-Canadian trade andtheexclusion ofsome
keysectors....The liberalization oftradeunder NAFTA willprobably confer netwelfare gains
onallthree members."
Based onthisanalysis, ourviewisthatanumber offactors suggest thatthetradecreation effects
ofNAFTA overwhelm anytrade diversion effects: trade among NAFTA members ismuch more
important thantheirtradewithnon-NAFTA countries, sothelikelihood oftradecreation issubstantially
more thantrade diversion; and,therealincome gains ofNAFTA countries resulting from thetrade
agreement would increase theirdemand forproducts fromother countries, leading tonettradecreation
evenamong these countries andNAFTA members.
Moreover, aneconomic assessment oftheCanada-U.S. FreeTrade Agreement donebythe
Government ofCanada in1988 demonstrates thathigher Canadian economic output resulting from
thepositive impact ofthetrade agreement would result inhigher imports from thirdcountries.
6. Itiscommon knowledge thatstudies havebeencarried outonthepositive impact ofthe
implementation oftheFTA ontheeconomies ofMexico, theUnited States andCanada.
Would notageneral elimination oftariff barriers applied toother countries oftheregion
bemore beneficial, rather thantheir preferential reduction among FTA countries, asin
facthappened?
NAFTA Parties support themultilateral system andwould notbeaverse todiscussions with
anyother countries interested ineliminating tariffs onamutually-agreed reciprocal basis, whether
bilaterally, plurilaterally ormultilaterally, consistent withtheirWTO obligations.
7./8. How aretheNAFTA countries going toavoid trade diverting mechanisms which could
discriminate access oftraditional suppliers (oftextiles andapparel, automobiles and
automobile parts, foodandagricultural products, forexample) totheir markets?
Increating afree-trade area,rather thanacustoms union, NAFTA Parties havereduced barriers
tomember countries without raising them toothers. Therulesoforigin havebeenconstructed soas
toavoid trade diversion.
9. Have thecontracting Parties made studies oftheeffects oftheAgreement ontrade flows
andpossible deviations oftrade? Towhatextent dotheParties expect there tobedeviations
oftrade?
Seeanswer toquestion 3.
10. Could NAFTA countries statetheirviews regarding theimpact oftheAgreement ontrade
inthecontinent andevaluate suchimpact?
ThethreeNAFTA partners havejoined together tofacilitate tradeandinvestment onacontinent-
widebasis, withaviewtopromoting efficiency andeconomies ofscaleinorder topromote themutual
benefit oftheircitizens. Wealsobelieve thattheresulting increases inwealth andprosperity should
leadtoincreased trade andinvestment opportunities fornon-members.WT/REG4/1
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11. What impact dotheParties totheAgreement predict willbeoftheNAFTA agreement
ondisplacement ofproduction inside theNAFTA area andoninvestment from the
European Community?
12. CantheParties provide anycomment onthepossible effects ofNAFTA ontheir overseas
investment, particularly intheAsian region?
Answer toquestions 11and12:
Itispremature toassess theimpact onproduction inside theNAFTA area, butNAFTA is
expected tocontribute tostronger economic performance inallthree member countries (i.e., raise
output) anditisanticipated thatinvestment opportunities, regardless ofsource, willexpand inparallel.
13. What arethearguments andfactors embodied intheNAFTA toanswer thecriticism that
itmight become aninstrument ofmanaged trade?
NAFTA isafree-trade area, rather thanacustoms union, withallthree countries committed
tomaintaining openmarkets totherestoftheworld, andtherefore there isnoincreased possibility
ofmanaged trade.
14. Article 103stipulates thatNAFTA shall prevail overother agreements totheextent of
anyinconsistency, except asotherwise provided.
CantheParties totheAgreement indicate theprecise scope ofthisclause asfarastheir
obligations ascontracting parties totheGATT/WTO areconcerned?
TheWTO continues toapply inallrespects between Canada, Mexico andtheU.S.inlinewith
Article XXIV. Article 103relates onlytoquestions atissue between theParties totheAgreement.
Itsimply clarifies that,insofarasresolution ofsuchquestions ispursued under theprovisions ofthe
Agreement, theprovisions oftheAgreement prevail overtheprovisions ofanyother agreement.
TheNAFTA doesnotaltertherights andobligations ofCanada, Mexico ortheUnited States
under theWTO withrespect tothirdcountries. Nordoesitaltertherights andobligations ofCanada,
Mexico andtheUnited States withrespect toeachother under theWTO.
Should resolution ofanydispute between theParties bepursued under theWTO oranyof
itsinstruments, theissue would havetobedecided inlightoftheprovisions andobligations ofthe
WTO ortherelevant plurilateral agreement.
15. Article 103(2) states thatintheevent ofinconsistency between NAFTA andanyother
agreements, theNAFTA Agreement would prevail totheextent oftheinconsistency. Can
theParties outline anysituations where theyenvisage NAFTA taking precedence over
their obligations under theGATT? Does NAFTA result inanydiminution oftherights
thattheParties have under theGATT inrelation totheir trade withoneanother? How
dotheParties intend toactintheevent ofanyconflict between their obligations toeach
other under NAFTA andtheir obligations tonon-Parties under trade agreements with
suchnon-Parties?WT/REG4/1
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16. While Article 103:1 states that, "theParties affirm their existing rights andobligations
withrespect toeachother under theGeneral Agreement onTariffs andTrade andother
agreements towhich suchParties areparty," Article 103:2 states that, "intheevent of
anyinconsistencybetweenthisAgreementandsuchagreements,thisAgreementshallprevail
totheextent oftheinconsistency, except asotherwise provided inthisAgreement." Please
explain comprehensively such"inconsistency" withtheGATT/WTO.
17. Weunderstand thatinthecaseofanyinconsistency arising between theprovision of
NAFTA andtheGATT, theformer willprevail unless NAFTA provides otherwise. What
aretheNAFTA provisions atvariance withtheGATT? Ifthere arenone, doParties to
theNAFTA intend tointroduce suchprovisions inthefuture? Ifthatisnottheintention,
what isthepurpose ofsuchaclause?
Seeresponse toquestion 14.
18. What isthelegal relationship between theNAFTA andtheUS-Canada FTA? Isitthe
general rulethattheprovisions oftheNAFTA tosupersede theprovisions oftheUS-Canada
FTA unless otherwise stated intheNAFTA, asisthecasewithagriculture andSPS?
Except where specifically provided forintheNAFTA, theUnited States andCanada have
suspended theoperation oftheCanada-U.S. FreeTrade Agreement. Thesuspension became effective,
pursuant toanexchange ofletters between thetwogovernments, onthedateofentry intoforce of
theNAFTA. Thesuspension willremain ineffect forsuchtimeasthetwogovernments areparties
totheNAFTA. Certain provisions oftheFTAwereincorporated intheNAFTA, however, andthus
continue toapply asbetween Canada andtheUnited States totheextent specified bytheterms ofthe
incorporation.
II. TRADE INGOODS
National Treatment andMarket Access (Chapter 3)
National Treatment
19. Annex 301.1 provides anumber ofmeasures andproducts towhich thenational treatment
assetoutinArticle 301doesnotapply. Would theParties provide information onthe
percentage oftrade between theParties thatisnotcovered bytheprovisions ofArticle
301? What plans dotheParties have fortheeventual inclusion ofthemeasures and
products inAnnex 301within thescope ofArticle 301? CantheParties comment onthe
consistency withArticle IIIoftheGATT ofthefailure toprovide national treatment for
themeasures covered byAnnex 301.3?
Annex 301.3 covers exceptions tobothnational treatment andtheelimination ofnon-tariff
barriers. Theonlysignificant exception listed inAnnex 301.1 pertaining tonational treatment isthe
exclusion oftradeinmarine vessels. The1994bilateral tradeamong NAFTA partners under therelevant
tariff linesofH.S. Chapter 89isindicated inthetable below. There arenoplans toinclude trade
inmarine vessels under thescope ofArticle 301.Therights andobligations oftheNAFTA Parties
andofthirdcountries under Article IIIoftheGATT arenotaffected bythisexception.WT/REG4/1
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1994 Imports from:
Canada Mexico U.S.A.
Mexico 0 -- 0.03%
Canada -- 0 0.0004%
U.S.A. 0.18% 0 --
20. Themeasures specified inParagraph 3ofSection AofAnnex 301.3 areexcepted from
theprovisions ofArticles 301to309onthegrounds thattheywere incorporated in
mandatory legislation atthetimeofCanada 'saccession totheGATT. What action do
theParties intend totakeupon acceptance oftheWTO, under which thegrandfather
provisions ofthePAA areterminated?
Therights andobligations thattheprovisions inquestion create among theNAFTA Parties
areindependent oftheGATT Protocol ofProvisional Application (PPA). These NAFTA rights and
obligations arenotaffected bythetermination ofthePPA.
21. Would Canada andMexico detail their plans fortheremoval ofmeasures onwine and
distilled spirits (Annex 312.2) thatdonotconform with theprovisions ofArticle 301
(National Treatment)? Dothese measures apply equally towineandspirits imported from
non-Parties, orispreferential treatment accorded toother Parties toNAFTA? How do
themeasures mentioned inAnnex 312.2 (such asdiscriminatory pricing), conform with
Article IIIoftheGATT?
TheCanadian measures onwines anddistilled spirits towhich Article 301applies areidentified
inAnnex 312.2. Canada ismeeting itsobligations under Article 301withrespect tothese measures.
Withregard topricing inparticular, themark-up differential between 100% Canadian andnon-Canadian
winewillbephased outbyJanuary 1,1998forMexico inaccordance withNAFTA Annex 312.2 Section
B(4)(b). Annex 312.2 Section B(4)(b) refers toAnnex CoftheAgreement between Canada andthe
European Economic Community Concerning Trade andCommerce inAlcoholic Beverages which is
applied onanMFN basis.
Mexico doesnotapply anyrestrictions onwineanddistilled spirits.
22. Although Article XXIV:8 oftheGATT requires theparties totheNAFTA toeliminate
trade barriers "onsubstantially allthetrade" conducted among them, certain items, for
example, agricultural items, arenotcovered bytheNAFTA. Inwhat ways dotheNAFTA
parties intend tobring thissituation intoconformity withtheabove requirement?
Answer toquestions 22and116:
NAFTA isfullyconsistent withArticle XXIV:8(b) assubstantially alltradebetween theParties
willbefreeattheendofthetransition period. NAFTA establishes separate bilateral agreements on
agriculture between Canada andMexico andbetween theUnited States andMexico. Thespecific market
access provisions oftheCanada-United States FreeTrade Agreement continue toapply between Canada
andtheUnited States. TheCanada-Mexico agreement provides fortheelimination ofallCanadian
andMexican tariffs andtariff-rate quotas withtheexception oftariffs andtariff-rate quotas ondairy,
poultry andeggproducts andtariffs onsugar andsugar-syrup products. Mexico andtheUnited States
haveagreed toeliminate alltariff andtariff-rate quotas without exception.WT/REG4/1
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23. Oncertain products, including footwear, glasses, watches, etc.,thetransitional period
fortheelimination oftariff andnon-tariff measures imposed onthem isscheduled over
15years. Inwhat ways willtheNAFTA parties bring thissituation intoconformity with
Article XXIV:5(c) oftheGATT andparagraph 3oftheUruguay Round Understanding
onArticle XIV?
24. DotheParties totheAgreement consider thatNAFTA satisfies therequirements of
Article XXIV asinterpreted attheendoftheUruguay Round, inparticular concerning
theperiod of15years envisaged forMexican tariff elimination?
Answer toquestions 23and24:
Yes,according toArticle XXIV ofGATT, paragraph 5(c),anyagreement necessary forthe
formation ofafree-trade areashould include aplanandschedule fortheformation ofsuchafree-trade
areawithin a"reasonable length oftime." Furthermore, paragraph 3oftheUnderstanding onthe
Interpretation ofArticle XXIV oftheGATT 1994, states that,thatlength oftime"should exceed 10
years onlyinexceptional cases." SuchisthecaseinNAFTA concerning products subject tothe15-year
tariff phase-out category, since trade inthese products amounts tolessthan1%oftotaltrade between
Mexico andtheUnited States, andtoonly0.0003% between Mexico andCanada.
25. What percentage, bothinvolume andinvalue, ofthetotalMexican trade isnowconducted
within theNAFTA countries? What about thatfortheUSandCanada? Inwhat way
arethese figures likely tochange?
Canadian Imports from NAFTA partners:
1994 World Imports $C205,099,881,968
1994 Imports from U.S. $C138,377,881,323 67.47% oftotal
1994 Imports from Mexico $C4,499,145,794 2.19% oftotal
1994 Imports from NAFTA $C142,877,027,117 69.66% oftotal
Mexican Imports from NAFTA partners:
1994 World Imports US$79,346 million
1994 Imports from U.S. US$54,791 million 69.05% oftotal
1994 Imports from Canada US$ 1,621 million 2.04% oftotal
1994 Imports from NAFTA US$56,412 million 71.00% oftotal
U.S.Imports from NAFTA partners:
1994 World Imports US$663 billion
1994 Imports from Canada US$129 billion 19.4% oftotal
1994 Imports from Mexico US$ 49.5billion 7.5% oftotal
1994 Imports from NAFTA US$178.5 billion 26.9% oftotal
26. What percentage ofthetotal Mexican trade isnowconducted under allitspreferential
trade arrangements, including theNAFTA andthefreetrade arrangement withLatin
American countries? What about thatfortheUSandCanada? Inwhat wayarethese
figures likely tochange?WT/REG4/1
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Canadian Imports from preferential partners:
1994 World Imports $C205,099,881,968
1994 Imports from U.S. $C138,377,881,323 67.47% oftotal
1994 Imports from Mexico $C 4,499,145,794 2.19% oftotal
1994 Imports from NAFTA $C142,877,027,117 69.66% oftotal
U.S.Imports from preferential partners:
1994 World Imports US$663billion
1994 Imports from NAFTA US$178.5 billion 26.9% oftotal
1994 Imports from Israel US$ 5billion 0.8% oftotal
1994 Total preferential US$183.5 billion 27.7% oftotal
Mexican Imports from preferential partners:
1994 World Imports US$79,345,891,218
1994 Imports from NAFTA US$56,411,171,796 71.00% oftotal
1994 Imports from Colombia
andVenezuela US$ 418,462,007 0.60% oftotal
1994 Imports from Bolivia US$ 19,077,380 0.024% oftotal
1994 Imports from Costa Rica US$ 27,557,724 0.034% oftotal
1994 Imports from Chile US$ 230,083,960 0.30% oftotal
1994 AllTrade Agreements US$57,106,352,867 71.96% oftotal
27. What percentage oftrade between theParties tothisAgreement isaccounted forby:
(a) Goods covered byAnnex 300-A?
(b) Goods covered byAnnex 300-B?
(c) Goods covered byanother Chapter inthisPart; and
(d) Goods notcovered by(a),(b)or(c)?1
(a) Goods covered byAnnex 300-A:
Imports intoCanada: (1994)
U.S.: $C32,603,093,209 =23.56% oftotalU.S.imports
Mexico: $C1,995,432,876 =44.35% oftotalMexican imports
Imports intoMexico: (1994)
U.S.: US$9,862,294,417=18.0% oftotalU.S.imports
Canada: US$638,225,829=$39.4% oftotalCanadian imports
Imports intoU.S.: (1994)
Canada:US$4.2 billion =3.3.% ofU.S.imports from Canada
Mexico:US$1.5 billion =2.9% ofU.S.imports from Mexico
(b) Goods covered byAnnex 300-B:
Imports intoCanada: (1994)
U.S.: $C3,150,413,723 =69.09% oftotalU.S.imports
Mexico: $C63,944,162 =1.42% oftotalMexican imports
Imports intoMexico: (1994)
U.S.: US$2,958,688,325=5.4% oftotalU.S.imports
Canada: US$24,297,938=1.5% oftotalCanadian imports
1Please refertoArticle 300.WT/REG4/1
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Imports intoU.S.: (1994)
Canada: US$1.7 billion =1.3% ofU.S.imports from Canada
Mexico:US$1.5 billion =6.8% ofU.S.imports from Mexico
(c) Goods covered byHSChapters 1-24excl. Chapter 3:
Imports intoCanada: (1994)
U.S.: $C7,016,943,856 =5.07% oftotalU.S.imports
Mexico: $C218,071,353 =4.85% oftotalMexican imports
Imports intoMexico: (1994)
U.S.:US$4,867,900,134=8.88% oftotalU.S.imports
Canada:US$390,421,465=24.10% oftotalCanadian imports
Imports intoU.S.: (1994)
Canada:US$3.0 billion =2.4% ofU.S.imports from Canada
Mexico:US$5.8 billion =11.7% ofU.S.imports from Mexico
(d) Goods notcovered by(a),(b),or(c):
Imports intoCanada: (1994)
U.S.: $C95,607,430,535 =69.09% oftotalU.S.imports
Mexico: $C2,221,697,403 =49.38% oftotalMexican imports
Imports intoMexico: (1994)
U.S.:US$37,093,185,112=67.7% oftotalU.S.imports
Canada: US$566,951,878.5=35.0% oftotalCanadian imports
Imports intoU.S.: (1994)
Canada: US$120 billion =93%ofU.S.imports from Canada
Mexico: US$38.8billion =78.6% ofU.S.imports from Mexico
28. With theentry intoforce oftheAgreement, therates ofeffective tariff protection (ETP),
understood asthecoefficient oftheaverage tariff anditsdispersion, would havetheresult
that, inthecaseofMexico, insome industries effective protection withregard toimports
from third regions would beveryhighinthefinaltransition period (year 2008) ifthetariff-
cutting agreed withtheUnited States andCanada were applied toallMexico 'sforeign
trade withtherestoftheworld.
Thefollowing table provides anexample:
YEAR AVERAGE TARIFF DISPERSION
1991 13.2% 4.5%
1994 8.9% 6.2%
1995 8.2% 5.6%
1996 7.6% 5.1%
1997 6.7% 4.9%
1998 6.0% 4.8%
1999 5.6% 4.6%
2000 5.3% 4.5%
2001 5.0% 4.5%
2002 4.7% 4.5%
2003 4.4% 4.6%
2006 4.4% 4.6%
2008 4.4% 4.6%WT/REG4/1
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From thistable itmaybededuced that, although theaverage tariff would decline from
13.2percentto4.4percent, incontrast thedispersion would increase from 4.5percent
in1991 to4.6percentin2008, sothatthelevel ofprotection oftheMexican economy
would increase withtheentry intoforce oftheFTA. Ifweanalyze theETP, onlysixof
45industries haveasharp reduction inthelevelofprotection. Itshould bestressed that
theETPdepends onthepaceoftariff-cutting forendproducts: thefaster thetariffs on
suchproducts arecut,thefaster theETPisreduced intheearlier years ofoperation of
theFTA, while falling more slowly inthelateryears ofthetransition. Finally, itisblatant
thatinthesectors where there isgreater participation byother regions, thefallinthe
ETPislessthanwhere suchparticipation issmaller. Thisisstrikingly illustrated bythe
"leather andleather products" sector: therateofeffective protection remains unchanged
from 1991 to2008, andinthisindustry other regions have ashare of59.5percentof
Mexico 'strade.
What willbetheimpact ofthistypeofrestriction fortrade withother regions, taking
intoaccount thatMexico inparticular hasahighdegree ofintegration andcomplementarity
with theUnited States economy, andthatwhile protection within theregion isbeing
reduced, insome sectors itwould appear thattheFTAhastheopposite effect withrespect
tothird regions?
Asaresult oftheelimination oftariffs among North American countries, theeffective rate
ofprotection forMexican industries, considering regional trade only, willbereduced tozerowithin
thenext10years (15years foraverysmall proportion oftrade). Furthermore, theglobal effective
rateofprotection considering totalMexican trade, willalsofall.
29. What proportion ofthetrade between theParties is:
(a) Currently duty-free?
(b) Willbecomeduty-freewithintenyearsfromthedateofimplementationofNAFTA?
(c) Subject totariff quotas under Annex 302.2?
(a) Proportion oftrade thatiscurrently duty-free between NAFTA Parties (1994):
Imports intoCanada:
62.09% from theU.S.entered duty-free
54.7% from Mexico entered duty-free
Imports intoMexico:
53%from theU.S.entered duty-free
59%from Canada entered duty-free
Imports intoU.S.:
63.6% from Canada entered duty-free
68%from Mexico entered duty-free
(b) Withtheexceptionofover-quotatariffsforsupply-managedgoods,margarine,barleyandbarley
products, allimports intoCanada fromtheUnited States willbeduty-free onJanuary 1,1998.
Again withtheexception ofdairy, poultry andsugar, allimports intoCanada from Mexico
willbeduty-free onJanuary 1,2003.
Withintenyears,morethan99%ofU.S.importsandvirtuallyallCanadianimportsintoMexico
willbeduty-free.WT/REG4/1
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Within tenyears, 99%ofimports fromMexico willenter theUnited States duty-free. More
than99%ofimports fromCanada willentertheUnited States duty-free asofJanuary 1,1998.
(c) Canada didnotestablish TRQs under NAFTA Annex 302.2
Mexican products subject totariff quotas represent 0.7% ofU.S. imports and0.002% of
Canadian imports.
Quotas maintained under 302(2) account for1.2% ofU.S.NAFTA imports.
30. How dotheParties intend totreat thetrade between them in
(a) determining principal andsubstantial supplier status inthecontext ofGATT
Article XXVIII?
(b) applying theprovisions ofGATT Article XIX?
(a) Intheevent ofanyrecourse thattheParties might havetoGATT Article XXVIII, theyintend
tofullycomply withtherequirements ofthatArticle aswellaswithother relevant provisions
oftheWTO agreements.
(b) Seeanswer toquestions 125through 128.
31. CantheParties provide assurances thatm.f.n. tariff rates inanyParty willnotbe
maintained atrates higher than necessary toprotect thatParty 'sdomestic industry,
specifically forthepurpose ofproviding atariff preference toanindustry inoneofthe
other Parties toNAFTA?
There arenorulesinNAFTA thatprovide forhigher MFN tariffratesinaparticular NAFTA
member inorder togrant "atariff preference toanindustry inoneoftheother Parties".
32. Given Mexico 'shighbound ceiling rates andhighapplied rates, what measures willthey
taketoensure thatnon-preferential suppliers 'existing access isnoteroded through the
verysubstantial margins ofpreference granted byMexico toNAFTA andtoanyother
regional partners shemayhave?
Mexico maymodify existing MFN duties ornegotiate preferential arrangements withother
countries orregions according toitsownneeds. InnocasewillMexico raiseMFN duties applied to
non-NAFTA members above thebound levels negotiated intheUruguay Round.
33. Arethere anyitems (bound orunbound) forwhich tariff rates (bound rates orapplied
rates) were raised during thelastyearbefore NAFTA came intoforce (that is,anytime
during 1993) inthecustoms tariff oftheUS,Canada andMexico? Ifany,please provide
information ontheHSeight-digit number ofsuchitems, therange oftheincrease (from
what percentage towhat percentage) andtherationale fortheincrease.
During 1993, Mexico increased tariffs onlyon:cattle andbeef(HSheadings 01.02.90, 02.01
and02.02) andpolypropylene (HSsubheading 3902.10). Tariffs oncattle (HSheading 01.02.90)
increased from0to15%; tariffs onbeef(HSheadings 02.01 and02.02) increased from0to25%and
tariffs onpolypropylene (HSsubheading 3902.10) increased from 0to10%.
Tariffs ontheseproducts hadbeenremoved in1990, onatemporary basis, fordomestic supply
purposes. Once theneedtoimport these products duty-free disappeared, duties were reimposed.WT/REG4/1
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34. Inparticular, arethere anyitems (bound orunbound) forwhich tariff rates were raised
inorder toharmonize tariff levels among theNAFTA parties during thesame period?
Ifany,please provide information ontheHSeight-digit number ofsuchitems andrange
oftheincrease (from what percentage towhat percentage).
No,there arenoitems insuchasituation.
35. Would theParties listproducts where theypropose toincrease orhaveincreased existing
customs duties, orpropose toadopt orhaveadopted customs duties onoriginating goods,
asprovided forinArticle 302(1)? CantheParties comment ontheconsistency ofany
suchaction withArticle IIoftheGATT?
Anyincrease induties onoriginating goods would notaffect bound MFN dutyrates. Therefore,
anysuchincrease would notbeinconsistent withGATT Article II.Forfurther details, seeanswer
toquestion 36.
36. Under what circumstances would theParties tothisAgreement envisage tariff increases
asallowed forinArticle 302(1)?
Article 302(1) prohibits NAFTA Parties from increasing oradopting acustoms dutyonan
originating good, except where provided forelsewhere intheAgreement.
Consequently, customs duties maybeincreased onlyasprovided forinother provisions of
theAgreement, suchasinaccordance withChapter Eight (Emergency Action). NAFTA alsopermits
certain limited safeguard actions fortextiles andapparel asprovided forinSections 4and5ofAnnex
330-B andforasmall number ofspecified agricultural products intheform oftariff-rate quotas as
provided forinArticle 703.Asafurther example, tariffs mayalsobeincreased pursuant tosuspension
ofbenefits under Chapter XX.
37. CantheParties outline themethods bywhich theywillapply theprovisions provided for
inArticle 302(4) whilst ensuring thattheadoption orallocation oftariff quotas doesnot
have anyrestrictive trade effect onnon-Parties totheNAFTA Agreement?
TheParties willensure thatthisprovision isapplied consistently withtheWTO Agreement.
38. Would theParties tothisAgreement please provide thereasons forexemptions oftheitems,
referred toinArticle 303(6)(f) anddetailed inAnnex 303.6, from theprovisions ofArticle
303(Restriction ofDrawback andDuty Deferral Programmes)?
CantheParties explain thereason fortheprovision setoutinAnnex 303.6, anditseffect
onthetrade ofnon-Parties totheAgreement?
Theprovisions setoutinthefirstparagraph ofAnnex 303.6 ensure theexistence oftheSugar
Re-export Program (SRP) oftheUnited States evenafterJanuary 1,2001(datewhen drawback practices
intheregion willbeeliminated) andatthesametimeensure thattheU.S.products exported toMexico
under SRParesubject totheprovisions setoutinparagraph 21ofAnnex 703.2 oftheAgricultural
Chapter.
ForCanada-U.S. trade, thetwoParties agreed toincorporate intotheNAFTA theexemption
from thedrawback provisions under theCanada-United States FreeTrade Agreement forapparel
products subject toMFN duties andforcitrus products. Inaddition, thetwoParties agreed toexempt
fromtheprovisionsofArticle303quiltedcottonpiecegoods,quiltedman-madepiecegoodsandfurniture
moving pads. These exemptions apply onlytoCanada-U.S. trade.WT/REG4/1
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Asindicated intheanswer toquestion 39,theprovisions ofArticle 303apply onlytotrade
between theNAFTA Parties anddonotaltertheMFN tariffs applicable toimports fromnon-NAFTA
countries.
39. Itisnoted thattheelimination, ortheproposed elimination, ofthedrawback scheme and
theMaquiladora scheme hassubstantially thesame effects astariff increase. What is
theview oftheNAFTA parties ontheconsistency ofthiselimination withparagraphs
4and5(b)ofArticle XXIV oftheGATT? DotheNAFTA parties intend totakefurther
liberalization measures inorder tocountervail thisincrease oftrade barriers?
UnderArticle303,theNAFTAPartieshaveagreedtoreplaceexportdrawbackanddutydeferral
programs withanewsystem thatwillprovide fortherefund ofthelesser oftheamount ofduties paid
onimported goods andtheamount ofduties paidonexports ofthatgood, oranother goodmanufactured
fromthatgood, toanother NAFTA Party. Thisnewsystem applies toCanada-U.S. trade beginning
onJanuary 1,1996, andtoCanada-Mexico andMexico-U.S. trade starting onJanuary 1,2001. The
purpose ofthenewsystem istoavoid double taxation ofnon-originating goods made fromimported
inputs when traded between theNAFTA Parties.
Thenewsystem applies onlytotrade between theNAFTA Parties, except asexcluded under
Article 303(6). Itdoesnotapply toexports fromaNAFTA Party toanon-NAFTA country. Existing
drawback anddutydeferral programs willcontinue toapply togoods exported fromaNAFTA Party
tonon-NAFTA countries. Since thereisnoincrease inMFN tariffs thatapply togoods imported into
anyNAFTA Party fromanynon-NAFTA country, thenewsystem doesnotfallwithin theprovisions
ofparagraph 5(b)ofArticle XXIV oftheGATT.
40. Article 304allows fortheadoption ofcustoms duties waivers providing thattheyarenot
accompanied byperformance conditions. CantheParties tothisAgreement detail the
requirements, other thanassetoutinArticle 304,whereby newwaivers ofcustoms duties
maybeadopted,orexpandedwithrespecttoexistingrecipients,orwhereanexistingwaiver
isextended toanewrecipient? CantheParties tothisAgreement giveassurances that
theprovisions ofArticle 304willnothave anyrestrictive trade effect onnon-Parties to
thisAgreement?
Newwaivers ofcustoms duties maybeadopted orexpanded withrespect toexisting recipients,
oranexisting waiver maybeextended toanewrecipient, byanyofthethree NAFTA members, if
suchwaivers arenotconditioned tothefulfilment ofaperformance requirement.
41. Under theFTA, Mexico hascommitted itselftoreplacing thepresent taxdrawback system
within aperiod ofseven years, inaccordance withArticle 304,Annex 304.2, which would
constitute apossible tariff barrier, asgoods produced inother regions, apart from not
enjoying thepreference which isspecific tomembers oftheFTA, would havetofacethis
kindofinstrument, which would obviously discourage imports ofproducts from other
regions.
Isanykindofcompensation envisaged forthetrade injury caused bythismeasure?
Asindicated intheanswer toquestion 39,theprovisions ofArticle 304donotaffect MFN
tariffs thatapply toimports from non-NAFTA countries. Thereplacement oftheprogram willput
production forexport toother North American countries under thesame conditions asproduction for
thedomestic market.WT/REG4/1
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42. Chapter 3,inconnection withAnnex 304.2(c) ofNAFTA setsadeadline on1January
2001beyond which thepresent waivers ofcustoms duties, which Mexico maygrant subject
tothefulfilment ofaperformance requirement, willnolonger bepossible.
Without entering intoadiscussion ontheuseofperformance requirements asacondition
forobtaining agiven levelofmarket access, thequestion istowhat extent thesituation,
which willresult from theimplementation ofthose provisions, willbemore restrictive
fornon-NAFTAsuppliersthantheonewhichexistedpriortotheformationofthefree-trade
area?
Would itbepossible toquantify thevolume ofimports concerned? Could theMexican
authorities provide statistics showing thebreakdown bytariff position andbycountry
oforigin ofthose imports? Could theMexican authorities provide statistics combining
thetwocriteria, i.e.showing, foreachtariff position, thebreakdown bycountry oforigin?
Relevant dataregarding imports currently benefiting fromdutywaivers inMexico arepresented
intheanswer toquestion 44.
43. Article 304.3 ofNAFTA saysthat"ifawaiver oracombination ofwaivers ofcustoms
duties granted byaParty withrespect togoods forcommercial usebyadesignated person
canshow byanother Party tohave anadverse impact onthecommercial interests ofa
person ofthatParty, orofaperson owned orcontrolled byaperson ofthatParty that
islocated intheterritory oftheParty granting thewaiver, orontheother Party 'seconomy,
theParty granting thewaiver shall either cease togrant itormake itgenerally available
toanyimporter".
Since oneofthepossibilities contemplated bythisArticle isthatthewaiver nolonger be
granted, itseems thatthiswould again represent atreatment forthenon-NAFTA suppliers
which would bemore restrictive thanthesituation which existed prior totheformation
ofthefree-trade area. Isthisanalysis correct? Ifnot,why?
Itisnotcorrect toconclude thatceasing thegranting ofawaiver would represent "restrictive"
treatment fornon-NAFTA suppliers under theGATT. EachNAFTA Party mayapply itsMFN tariffs
onimports from non-NAFTA countries uptotheleveloftheratesbound under theGATT.
44. Until veryrecently, imports intoMexico ofequipment goods notproduced inthecountry
could benefit from tariff exemptions under thesystem called PITEX. Itseems thatunder
thissystem equipment goods werefirstimported onatemporary basis and,atalaterstage,
imported definitely withexemption ofduties.
Could theMexican authorities provide details ontheworking ofthesystem andalsothe
textoftherelevant legislation? Which wasthevalue oftheequipment goods imported
under PITEX during thelastsixyears? Could theMexican authorities confirm thatthe
PITEX arrangements arenotinforce anylonger andalsoprovide thetextoftheabrogating
legislation?
Legislation regulating thePITEX Program waspublished intheDiario Oficial delaFederación
onMay3,1990 andisstillinforce. Acopy ofthislegislation hasbeensubmitted totheWTO
Secretariat. Anyamendments tothePITEX Program willbeinaccordance withNAFTA Articles 303
and304.
Thefollowing tablecontains relevant dataonimports under thePITEX Program from 1988
to1993.WT/REG4/1
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Imports under thePITEX program, 1988-1993
(Thousands ofdollars)
Year TOTAL Machinery Equipment Other inputs
1988 853,643 127,002 12,207 714,434
1989 1,323,654 295,404 6,988 1,021,262
1990 1,992,869 553,378 8,362 1,431,129
1991 3,065,766 694,457 13,172 2,358,137
1992 4,037,813 928,061 15,844 3,093,908
1993 4,864,165 807,447 104,192 3,952,526
45. Article 309permits Parties tothisAgreement toadopt import andexport restrictions that
arenotinaccordance withArticle XIoftheGATT. How dotheParties justify theuse
ofGATT-inconsistent measures? What plans dotheParties havefortheremoval ofthe
exceptions toArticle 309asdetailed inAnnex 301.3?
Therights andobligations oftheNAFTA Parties under Annex 301.3 donotaffect therights
andobligations oftheNAFTA Parties orofthirdcountries under theWTO Agreement.
46. CantheParties totheAgreement explain thereasons whyitems under theHSSub-
headings 8541 and8542 areexempted from theCountry ofOrigin Marking provisions
ofArticle 311andAnnex 311?
Productsclassifiedunderheading8541and8542aresemiconductordevicesandmicroassemblies,
among other similar products. These products, duetotheirnature, areincapable ofbeing marked,
except atacostthatissubstantially highinrelation totheirvalue. Also, these products areinputs of
other products, andarerarely imported forretail sales. Forthese reasons, items under headings 8541
and8542 areexempted from thecountry oforigin marking.
47. NAFTA provides thatthecustoms userfeesimposed bytheUSandMexico tobeeliminated
by30June 1999; inthemeantime theyshould notbeincreased.
Does thisstandstill oncustoms userfeesandtheireventual elimination alsoapply totrade
from non-preferential suppliers?
No.These provisions apply forNAFTA-originating goods only.
48. Annex 311contains priorities which apply between theParties onCountry ofOrigin
Marking. CantheParties advise whether these provisions areequally applicable toimports
from third countries?
Annex 311setsouttheNAFTA obligations concerning themarking ofcountry oforigin only
onimports from other NAFTA Parties. Annex 311builds onandelaborates ontheobligations set
outinArticle IXoftheGATT.
49. Annex 311:1 oftheNAFTA requires theparties to"establish byJanuary 1,1994, rules
fordetermining whether agood isagood ofaParty ("Marking Rules") forthepurposes
ofthisAnnex,..." What arethedifferences between theMarking Rules andtheNAFTA
rules oforigin?WT/REG4/1
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NAFTA preferential rulesoforigin under Chapter 4determine whether agoodmaybeeligible
forpreferential tarifftreatment, whereas marking rulesdetermine whether agoodproduced inaNAFTA
country canbemarked as"Made inMexico", "Made intheUnited States," or"Made inCanada" when
exported toanother NAFTA Party. Seealsotheanswer toquestion 57.
50. CanCanada provide more detail ontheAutomatic Listing Measures maintained inBritish
Columbia (Annex 312.2 Section B(3)(b))? Howdosuchmeasures comply withArticle 301?
TheNAFTA allows British Columbia toprovide forautomatic listing measures forexisting
estate wineries producing lessthan30,000 gallons ofwineannually andmeeting existing content rules,
provided thatBritish Columbia 'slisting measures otherwise conform toArticle 301. Inthisregard,
British Columbia provides national treatment toforeign wines initslisting policies.
51. WilltheParties tothisAgreement provide more information onthecontrols thatthey
willmaintain anddevelop inrelation totheexport ofeachothers 'goods toanon-Party
asprovided forbyParagraph 2ofArticle 315? CantheParties confirm thatsuchexport
restrictions willconform totheGATT obligations oftheParties?
Paragraph 2ofArticle 315refers tocontrols onreexports ofcontrolled items traded between
theUnited States andCanada. NAFTA Article 315isidentical toArticle 409oftheCanada-U.S.
FreeTrade Agreement. Asnoted inAppendix 315,Article 315doesnotapply between Mexico and
theother Parties.
Generally, U.S. controls onreexports arenotlimited toreexports from Canada, butapply
toreexports ofU.S.-origin items from anycountry. TheonlyU.S.exports thatcurrently fallunder
Article 315areexports ofcertain petroleum andpetroleum products. These oilexports otherwise
permitted onlypursuant toaPresidential finding maybeexported toCanada: 1)inexchange, for
convenience, forthesame quantity ofcrude oil;2)temporarily exported, forconvenience, forreentry
intotheUnited States; or3)forconsumption inCanada.
Intheevent thatanyfurther controls areintroduced, theParties willtakedueaccount ofthe
needtoensure thattheyareconsistent withtheWTO Agreement.
52. Theexisting measures fortheduty-free imports ofautomobiles andautoparts between
theUSandCanada based ontheir bilateral arrangement aremaintained intheNAFTA.
Does thismean thatforeign companies arenoteligible forpreferential treatment under
theNAFTA, unless theyhave already benefitted from such duty-free treatment under
thatbilateral arrangement? Ifso,why?
Duty-freetreatmentundertheU.S.-Canadabilateralarrangementisnotprerequisitetopreferential
treatment under theNAFTA. Anymotor vehicle orautomotive partmanufactured inCanada, Mexico
ortheUnited States, irrespective ofthenationality oftheownership ofthecompany producing the
goods, maybenefit frompreferential dutytreatment iftheproduct meets theNAFTA automotive rule
oforigin.
53. TheMexican local content requirements andtrade balance requirements aremaintained
under certain conditions foracertain period bytheNAFTA (Appendix 300-A.2). What
istheviewofMexico ontheconsistency ofthese requirements withtheprovisions ofGATT,
particularly Articles IIIandXI,andwiththeTRIMs agreement?WT/REG4/1
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Before Mexico 'saccession toGATT in1986 andlateroninaccordance withitsProtocol of
Accession, automotive tradehasbeensubject toanimport permit regime which hasbeenadministrated
through anAutomotive Decree. Under NAFTA, Mexico 'svalue-added andtradebalance provisions,
contained intheAutomotive Decree, willbegradually phased out.
Under theTRIMs Agreement, notified trade-related investment measures willbeallowed a
fiveyeartransition period fromtheentry intoforce oftheWTO Agreement andtheCouncil forTrade
inGoods mayextend suchperiod foradeveloping country Member which faces particular difficulties
inimplementing theprovisions oftheTRIMs Agreement.
Mexico notified itsAutomotive Decree totheTRIMs Committee onMarch 31,1995, soas
tobefullytransparent inthismatter. Since itisnotpossible todetermine nowwhat theMexican
situation willbeinthefuture, when thetimecomes Mexico 'sfinaldecision withrespect tothe
Automotive Decree willdepend onitsindividual development, financial andtrade needs aswellas
onitsrights andobligations under theWTO.
54. Ithasbeen reported thatautoexports toMexico from themanufacturers located inthe
USandCanada would beprohibited fortenyears, unless these manufacturers have
production facilities inMexico. Isthisreport confirmed? Ifso,what isthelegal basis
forthisprohibition?
Inaccordance withtheMexican Automotive Decree, anytradesurplus (value ofexports minus
value ofimports) achieved byavehicle manufacturer established inMexico canbeusedbythat
manufacturer toimport vehicles from anycountry andfrom anyother manufacturer. Theauthority
shallissue theimport permits atleastinthatamount.
55. Appendix 300-A.1 allows Canada toadopt prohibitions orrestrictions onimports ofused
vehicles from theterritory ofMexico. Would theParties tothisAgreement provide
information onhowtheadoption ofaprohibition orrestriction isconsistent withArticle XI
oftheGATT?
Under theNAFTA (Appendix 300-A.1), Canada negotiated, onareciprocal basiswithMexico,
thephased elimination oftheprohibition onoriginating usedvehicles bytheyear2019.
56. Isthere alinkbetween theCanada-USA "Auto Pact" andtheNAFTA rules oforigin?
There isnolinkbetween theCanada-United States "Auto Pact" andtheNAFTA rulesoforigin
inthecaseofimports intoCanada under theAuto Pact. InthecaseofCanada, Auto Pactmembers
areabletoimport vehicles andparts freeofdutyunder NAFTA inreturn forachieving prescribed
performance standards. However, there isalinkinthecaseofimports intotheUnited States under
theAuto Pact. InthecaseoftheUnited States, duty-free entry isrestricted tovehicles andparts
imported direct from Canada which meettheNAFTA rules oforigin.
57. Isthere alinkbetween theNAFTA rules oforigin andtheprovisions concerning origin
marking, more particularly fortextiles?
TheNAFTA preferential rules oforigin under Chapter Fourareusedtodetermine ifagood
produced inaNAFTA Party qualifies forNAFTA tariff preferences. Therulesoforigin established
pursuant toAnnex 311(1) (i.e., theMarking Rules) areusedtodetermine thecountry oforigin for
purposes ofcountry oforigin marking intrade between theNAFTA Parties.WT/REG4/1
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Byvirtue ofthedefinition of"goods ofaParty" under Article 201,agood thatoriginates in
aNAFTA Party under theChapter Four preferential rules oforigin isautomatically agood ofthat
Party forpurposes oftheNAFTA, including withregard totheprovisions ofAnnex 311oncountry
oforigin marking.
Inaddition, during theNAFTA tariffphase-out period, Mexico andtheUnited States areusing
theMarking Rules asthebasisfordetermining which NAFTA tariff preference applies tooriginating
goods imported fromanother NAFTA Party. Canada isusing theMarking Rules todetermine which
NAFTA preference applies tooriginating agricultural andtextile goods imported fromtheother two
NAFTA Parties.
58. How dotheparties totheNorth American Free Trade Agreement justify thefactthat
forthepreferential treatment ofready-made clothing andother similar products therules
oforigin require thatthese products must beworked upwithin thefreetrade areafrom
rawmaterials, forexample wool, cotton, man-made filaments andman-made staple fibres?
Inthese circumstances, howcanasupplier located outside theNAFTA areacontinue to
sellyarn, forexample, ontheNorth American market?
(1) The"fact" related tothefibre-forward ruleisincorrect. Generally, theruleoforigin for
NAFTA preferences isyarn-forward, meaning thatready-made clothing andother similar
products mustbeproduced intheNAFTA region from NAFTA originating yarnandfabric.
(2) Therules oforigin apply onlytotrade onpreferential terms between theNAFTA Parties.
TheNAFTA doesnotraisebarriers tothird-country trade. Trade toandamong theNAFTA
countries atMFN ratesofdutyisnotaffected bytheNAFTA rules oforigin.
(3) Tomake surethatproducers haveaccess totheinputs fromoutside theNorth American Area,
flexibilities havebeenincorporated through theTariff Preferential Levels (TPL's).TPL'sallow
yarnorfabric from countries outside theNAFTA territory tobeusedtoproduce afinished
product andstillobtain aNAFTA preference when itisexported toanother NAFTA Party.
59. Arethere anyspecial provisions under NAFTA applicable tosteelproducts? Willcurrent
United States arrangements forimports ofsteelcontinue:
- forimports from other NAFTA Parties?
- forimports from third countries?
There arenospecial provisions under NAFTA forthesteelsector. TheUnited States maintains
noimport arrangements onsteel.
Rules ofOrigin (Chapter 4)
60. TheNAFTA Rules ofOrigin seem unnecessarily complex inthecontext ofatrade
liberalising agreement. What plans dotheParties have fortheir simplification?
TheParties havealready begun work tosimplify therules oforigin byseeking toeliminate,
wherever possible, thevalue content testandreplacing itwithatariff shifttest.
61. CantheParties assure non-Parties tothisAgreement thattheir trade opportunities are
notrestricted bytheNAFTA country oforigin provisions?WT/REG4/1
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TheNAFTA rulesoforigin create nonewrestrictions ontradeopportunities withnon-NAFTA
countries. TheNAFTA rulesoforigin areusedonlytodetermine whether agoodiseligible forNAFTA
tariffpreferences intradebetween theNAFTA Parties. They donotaffect MFN tariffs orother policy
instruments thatapply toimports from non-NAFTA countries.
62. Weunderstand thatMexico introduced newrules oforigin forimports from non-NAFTA
countries. Please provide fullinformation onthenewrules.
OnAugust 30,1994Mexico published initsOfficial Gazette, theAgreement thatEstablished
NewRules ofOrigin forCountervailing orAntidumping Duties Purposes (theAgreement).
These newrulesoforigin arenotderived fromNAFTA, butfromMexico 'sdomestic needs.
Itsmain purpose istoavoid evasion ofcountervailing orantidumping duties payment when imported
products arealready subject toCVD orADmeasures. Itsapplication covers products fromallcountries,
including USandCanadian products other thanoriginating products.
Since theserulesaimtoavoid theevasion ofCVD orADduties payment when exporters utilize
athirdparty territory todisguise therealorigin ofproducts subject tothesemeasures, itisnotnecessary
tofulfil therequirements regarding theorigin determination andcertification forthose products
originating inacountry withwhich Mexico hasafree-trade agreement, provided thattheimporter
hasobtained avalidcertificate oforigin, according totheprovisions ofthespecific free-trade agreement.
Todootherwise, would imply anunnecessary double checking ontherealorigin ofthose products.
63. Werecall thattheUS,inthecourse oftheUruguay Round negotiations onrules oforigin,
emphasized three setsofprinciples: (1)consistency, uniformity, (2)clarity, simplicity,
predictability, and(3)non-use asnon-tariff barriers. What istheUSviewontheNAFTA
rules oforigin inlightofthese principles?
Itshould benoted thattheprinciples citedarethose which areapplicable tonon-preferential
rulesoforigin,nottopreferentialrulessuchasthoseinvolvedintheNAFTA.Nevertheless,theNAFTA
preference rules areconsistent anduniform inthattheyapply tariff shifttests, based onapositive
standard, andawell-defined value-content testtodetermine eligibility. Asindicated intheresponse
toquestion 70,bythepromulgation oftheUniform Regulations forChapter Four astheirdomestic
regulations, theParties haveensured tothemaximum extent possible thattheruleswillbeinterpreted,
applied andadministered inauniform andconsistent fashion. Producers, exporters andimporters
alsohaveaccess under theNAFTA toadvance rulings fromtheCustoms Administrations onissues
related totherulesoforigin. Thecombination oftheUniform Regulations andtheprovision ofadvanced
rulings aredesigned andintended toprovide themaximum degree ofguidance tothose ininternational
trade whose goods willbesubject totherules. Under theNAFTA, theParties havealsoextended
review andappeal rights toproducers andexporters intheother NAFTA Parties.
Inaddition, theWorking Group onRules ofOrigin created pursuant toArticle 513ofthe
Agreement exists asamechanism toresolve anypotential differences ininterpretation, application
oradministration oftherules oforigin.
TheParties notethattheabove principles andcriteria oftransparency, uniformity, rulesbased
ontariffshifts andapositive standard, publication ofdomestic regulations, andtheprovision ofadvance
rulings andrights ofreview andappeal aresetoutintheCommon Declaration With Regard to
Preferential Rules ofOrigin under Annex IIoftheUruguay Round Agreement onRules ofOrigin.
TheParties alsonotethattheNAFTA preferential rulesareusedtodetermine eligibility forpreferential
tarifftreatment anddonotaffect MFN tariffs orother policy instruments thatapply toimports ofgoods
from non-NAFTA countries.WT/REG4/1
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64. Webelieve thattheNAFTA rules oforigin withregard toautomotive goods, colour TVs,
andtextiles, forexample, arenotonlydifferent from those oftheUS-Canada FTA but
alsocomplex. Furthermore, theNAFTA requires mandatory purchases ofcertain parts
from theNAFTA countries. Aresuchrules consistent withtheUSprinciples stated above?
NAFTA rulescompared toFTArules: TheRules ofOrigin under theCanada-U.S. FTAand
under theNAFTA arebased onthesame premise: aspecified change intariff classification confers
originating status. TheParties agreed tousethisapproach under theNAFTA because itistransparent,
itisbased onanexisting system, theHarmonized System, already usedbyproducers, importers,
exportersandCustomsAdministrationsthroughouttheworld,anditworkedwellundertheCanada-U.S.
FTA.
Asignificant change from theCanada-U.S. FTA istheelimination ofthevalue content
requirement intherules oforigin forawiderange ofgoods. TheNAFTA rules forthese products
arebased onchanges intariff classification. Thepurpose inconstructing these tariff shiftrules was
toeliminate theuncertainty, difficulty andadministrative burden onproducers under anyvalue content
requirement.
TheNAFTA alsoprovides anumber ofgeneral provisions thatprovide flexibility forproducers
inqualifying under atariff shiftruleormeeting avalue content requirement. These include: 1)the
new"deminimis" provision, which reduces therigidity oftariffshiftrules; 2)theprovisions onfungible
materials andgoods, which allow aproducer touseinventory control methods, asopposed tospecific
identification, todetermine theorigin ofmaterials andgoods; and3)theintermediate materials provision
which allows producers totreatself-produced materials inmanner similar tomaterials purchased from
other producers.
Theadditional specificity insetting outtheNAFTA rulesoforigin doesnotincrease complexity
orcreate adifferent system ofrules. TheNAFTA provides greater transparency andcertainty by
specifying tariff change rulesatthemore detailed levelofheadings, subheadings ortariff items under
theHS.Italsoprovides greater details onhowtheother features oftherulesoforigin operate, such
asthevalue-content test,and,asnoted above, incorporates anumber offeatures toprovide flexibility
forproducers, exporters andimporters inmeeting therules oforigin. Thisgreater specificity and
flexibility wasrequested byproducers, exporters andimporters because ofthedifficulty theyfaced
indetermining theruleoforigin thatapplied totheirgoods under theCanada-U.S. FTA.
Asregards thetextile rulesoforigin, while newtariffshiftruleshavebeendeveloped forapparel
andforcertain textile products, therulescontinue tobebased onchanges intariffclassification under
theNAFTA, withnovalue-content test.
With regard totherules forautomotive goods, please seetheanswer toquestion 72.
Consistent withprinciples: TheNAFTA rules havebeendeveloped soastomaximize the
useofachange intarifftest.Totheextent thatthishasbeenaccomplished, itaddresses ourprinciples
thataruleoforigin beclearandpredictable. Inmostcases aproducer needonlyknow theclassification
ofitsgoodandofthematerials usedinthegoodinorder todetermine whether ornotthegoodqualifies
asanoriginating good. Furthermore, because thespecific rulesforallgoods arestated intheNAFTA,
theyprovide consistent anduniform treatment toidentical orsimilar goods.
None ofthechanges made totheNAFTA rules oforigin affect MFN tariffs orother policy
instruments thatapply toimports from non-NAFTA Parties.WT/REG4/1
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65. Therulesoforigin usedinNAFTA aredefined onthebasis ofspecific sectors. Howspecific
wasthelevelofdiscrimination ofsectors forthedefinition ofrules oforigin?
While thereisno"level ofdiscrimination ofsectors" under theNAFTA, thedegree ofspecificity
intheNAFTA rules oforigin forindustry sectors isbased onthedegree ofspecificity intheHSfor
goods inasector.
TheHSisprincipally designed todescribe andidentify goods thatareofcommercial significance
inworld trade. Insome cases, theuseofnational 8-digit tariff items oraregional value-content test
wasnecessary tospecify thedesired degree oftransformation ofnon-originating materials because
theHS6-digit subheadings were notsufficiently specific.
66. Rules oforigin usedinNAFTA should notbecome atoolofdiscrimination against countries
outside ofthearea. What criteria existtosafeguard thisprinciple ofnon-discrimination?
Asnoted intheanswer toquestion 61,therules oforigin under NAFTA Chapter Four are
usedonlyastherulesoforigin fordetermining whether agoodiseligible fortariff preferences when
traded trilaterally. They donotapply toimports from outside theNAFTA territories; nordothey
affect MFN tariffs orother trade instruments thatapply toimports from non-NAFTA countries.
With regard tothereference to"discrimination" inthisquestion, theParties would notethat
theprovisions ofArticle XXIV anticipate thatgoods thatmeettherules oforigin under afree-trade
agreement willbetraded duty-free within thatarea. The"criteria" tosafeguard countries outside the
free-trade areaistheprovisions ofparagraph 5(b)ofArticle XXIV.
67. Rules oforigin mayactasanon-tariff barrier totrade byproviding protection forregional
input producers. Thecriteria used toidentify goods thatqualify fortariff preference
areachange intariff classification andtheregional content rule. Under thefirstcriterion,
theruleoforigin isfulfilled when inputs from third regions incorporated intotheproduct
subsequently exported enter under onetariff heading andthefinished product isexported
under adifferent tariff heading. Under thesecond criterion, aproduct isconsidered as
originating where thevalue oftheregional content isequal to60percentor50percent,
according towhether itiscalculated bythetransaction value ornetcost. Therules of
origin actasatrade-displacing instrument against products ofcountries ofthird regions
asingeneral theyarehard tofulfil, especially where what arebeing classified areinputs
imported from third regions, which would result insubstitution ofsuchimports byregional
imports ifthecharacteristics oftheinput concerned sopermit.
Have theParties totheFTA quantified whether thetrade displacement effect through
theapplication ofrules oforigin which arerestrictive insome cases would begreater than
thetrade displacement resulting from thereduction inthebenefits stemming from the
signing oftheFTA?
TheNAFTA Parties have notundertaken anyquantitative studies ofthepotential trade
displacement oftheNAFTA. However, asindicated theresponse toquestions 3,4,5and9,theParties
expect thetrade creation effects tooutweigh significantly anytrade diversion effects because ofthe
realincome gains resulting from North American producers andconsumers taking advantage ofthe
NAFTA tariff preferences andtheexpansion ofthefree-trade areatoinclude Mexico.
Inaddition, asindicated intheresponse toquestion 61,theNAFTA rulesoforigin apply only
totrade between theNAFTA Parties under theNAFTA tariff preferences. They donotaffect MFN
tariffs orother policy instruments thatapply toimports from non-NAFTA countries.WT/REG4/1
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68. CantheParties explain theneedinatrade liberalising agreement forthemore stringent
Local Content andRules ofOrigin provisions provided forinChapter 4?
Itisunclear towhatsubject thisquestion isaddressed. Could therules thatarethesubject
ofthisquestion bespecified?
69. Why areChapters 61through 63oftheHarmonized System excepted from Article 401?2
These Chapters arenotexcluded from Article 401, butmerely from theprovisions of
Article 401(d). Foralimited number ofgoods, theHarmonized System (HS)classifies thegoodand
itsparts under thesame heading, where theheading isnotfurther subdivided intosubheadings, or
under thesame subheading. ThisArticle addresses these limited cases where atariff shiftrulecould
notbedeveloped because oftheHS.Article 401(d) isnotintended toapply inthose cases where the
goods anditsparts areclassified inseparate tariff provisions, orinthose cases where parts have
undergone sufficient production tonolonger beclassified under aparts tariff provision butinstead
areproperly classified asanunfinished orincomplete good under thefinalgood tariff provision.
Inthecaseofgoods classified under Chapters 61through 63,therulesoforigin aresufficiently
detailed tocapture, interms oftariff shifts under theHS,thetransformation required toqualify for
NAFTA tariff preferences. TheParties were concerned, however, about theuncertainty thatcould
arisefrom theevery-day useoftheterm"parts" byproducers ofthese products, incontrast tothe
intended meaning under Article 401(d). Inorder toavoid thisuncertainty forproducers, exporters
andimporters, theParties chose toexplicitly exempt these Chapters from Article 401(d).
70. Isnational legislation onpreferential rules oforigin standardized sothatthird countries
know exactly thesituation forparticular products sharper toeachNAFTA member?
TheNAFTA rules oforigin areinforce uniformly among theParties. Pursuant toNAFTA
Article 511,theParties haveestablished andimplemented theUniform Regulations regarding the
interpretation,applicationandadministrationoftherulesoforiginandcustomsprocedures.TheChapter
FourUniform Regulations aredesigned toprovide consistent anduniform interpretation, application
andadministration oftherulesoforigin andtoprovide producers, exporters, importers andCustoms
officials withthenecessary details ontheoperation oftherulesoforigin. ThethreeParties implemented
verbatim, other thanagreed minor drafting differences, theChapter FourUniform Regulations astheir
domestic regulations onJanuary 1,1994.
Likewise under Article 511,theParties havedeveloped Uniform Regulations forChapter Three
andFivewhich clarify andelaborate theobligations setoutinChapter Three ondrawback andinChapter
Fiveincustoms procedures related totherules oforigin.
Ifthequestion concerns preferential regimes other thanNAFTA, theanswer isasfollows:
Each Party hasineffect anumber ofother preferential regimes, eachofwhich contains its
ownrequirements. These regimes arereflected clearly intheimplementing legislation andregulations.
Thus given thetransparency ineachParty, non-NAFTA countries willbeabletodetermine therules
applicable toproducts inwhich theyhaveaninterest.
71. PartIVoftheURAgreement onRules ofOrigin aims attheharmonization ofrules of
origin. Canitbeconfirmed thattheNAFTA rules oforigin donotimpede suchefforts?
2Theoriginal question read"...Chapters 62through 63...".WT/REG4/1
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While PartIVoftheUruguay Round Agreement onRules ofOrigin pertains onlytonon-
preferential rules oforigin andtherulesoforigin under NAFTA Chapter Fourarepreferential rules
oforigin, theNAFTA Parties areactively engaged intheharmonization program fornon-preferential
rules setoutunder thatPartoftheUruguay Round Agreement.
72. NAFTA Article 403:5 callsforthe"regional value-content requirement" onautomotive
goods tobehigher thanthatrequired bytheUS-Canada FTA. Please explain indetail
thedifferences ofsuchlocal content requirements onautomotive goods between thetwo
FTAs. Why arethese differences made? IsnotthisNAFTA scheme inconsistent with
paragraphs 4and5(b)ofArticle 24oftheGATT?
Indeveloping therulesoforigin formotor vehicles, theNAFTA Parties recognized thatsuch
products arecomplex andsophisticated goods, comprising hundreds ofmajor components which in
turnaremade fromthousands ofparts. Itwastherefore theviewoftheParties thataspecial calculation
wasrequired fordetermining theNorth American content levelofmotor vehicles andtheirparts. In
addition, theParties agreed thattheambiguities incontent equation under theCanada-U.S. FTAneeded
tobeaddressed inorder toavoid repeats oftheproblems thatthetwoParties tothatAgreement had
experienced.
Asaresult, theNAFTA makes anumber ofsignificant changes totheCanada-U.S. FTAauto
rules oforigin thataredesigned toimprove theclarity oftheformula forcalculating content andto
provide amore accurate calculation ofNorth American content forautoproducts.
Thefirstmajor change from theCanada-U.S. FTArules oforigin involves theformula for
calculating theregional value content. Under theCanada-U.S. FTA, theregional value content was
based onacost-build upequation. Thecontent percentage under thisAgreement wasbased onaratio
ofthevalue oftheterritorial inputs tothevalue ofthegoods when exported. Excluded fromthe"value
ofthegoods when exported" wereallthecostsofprocessing thatwerenot"direct" costsofprocessing
or"direct" costsofassembling. Thedifference between the"originating" content (i.e,thedirect costs
ofprocessing andassembling andoriginating materials) andthevalue ofthegoodwhen exported was
thevalue ofthenon-originating materials. TheCanada-U.S. FTA content percentage, setat50%,
reflected these facts.
Under theNAFTA, thecontent percentage forautomotive goods iscalculated under the"Net
CostMethod" (NCM). TheNCM isbased onatop-down calculation which starts withthecostsreported
onaproducer 'sbooks inaccordance withGenerally Accepted Accounting Principles. Thenetcost
isdeterminedbysubtractingfromtotalcostthefollowingcostcategories:royalties,shippingandpacking
costs, marketing andsalespromotion costs, after-market services costs, andinterest costs inexcess
of700basis points above thegovernment borrowing rateforcomparable maturities. Animportant
feature tonoteabout theNCM isthatthenetcostincludes costs thatwere notincluded asNorth
American content under theCanada-U.S. FTAformula andtherefore ismore inclusive thanthe"value
ofagood when exported" under theCanada-U.S. FTAformula.
TheNAFTA alsosetsoutaspecial "tracing" requirement forcalculating thevalue ofnon-
originating materials forthose automotive goods identified inArticle 403(1) (i.e., light-duty vehicles
andparts) andArticle 403(2) (heavy-duty vehicles andparts). Thespecial "tracing" requirement applies
onlytothose materials identified inthe"tracing lists" under Annex 403.1 and403.2. Thisrequirement
provides thatthevalue ofthose parts, ifimported from outside theNAFTA territories, beincluded
when calculating thevalue ofnon-originating materials fortheautogoodforwhich theNAFTA tariff
preference isbeing claimed.WT/REG4/1
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Thistracing requirement provides foramore accurate calculation. Italsoallows producers
toinclude asNorth American content anyvalue-added incorporated intoanimported partafterithas
entered intotheNAFTA region, including value-added contributed byother suppliers. Further, in
thecaseofautomotive goods identified inArticle 403(1), imported partsthatarenotidentified onthe
tracing listunder Annex 403.1 areexcluded fromthecalculation ofthevalue ofnon-originating materials
under theNAFTA autovalue-content test.
Given theabove changes, theParties alsoagreed toadjust thecontent levelforautogoods.
TheNAFTA autocontent levelissetcurrently at50%andrises, intwostepsovereightyears, to62.5
percent forlight-duty vehicles andtheirengines andtransmissions, andto60percent forother vehicles
andparts. Theeight-year period isdesigned toprovide areasonable transition period foranyproducers
thatmayrequire timetoadjust totheNAFTA autocontent rule.
TheNAFTAalsoprovidesspecialaveragingprovisionsforautomotiveproducers.Article403(3)
allows motor vehicle producers toaverage theirNAFTA content calculation overtheirfiscal yearfor
either alltheirproduction, orjustthose vehicles exported tooneorbothoftheother NAFTA Parties,
onthebasisof:1)classofvehicle byplant; 2)model linebyclassbyplant; or3)model linebyclass
byParty. Thedefinitions ofclass ofvehicle andmodel linearesetoutinNAFTA Article 415
(Definitions). Article 403(4) setsouttheaveraging options forpartsproducers. These special averaging
provisions havebeendeveloped towork inthecontext oftheother features oftheNAFTA autorules
oforigin.
Asregards theestablishment ofafree-trade area, paragraphs 4and5(b)ofArticle XXIV of
theGATT stipulate thatafreetrade agreement isnottoraisebarriers to,norisittoestablish higher
ormore restrictive duties andregulations affecting thetrade ofother GATT parties withthemembers
ofthefree-trade area. TheNAFTA rules oforigin forautomotive goods donotraiseMFN tariffs
ormake more restrictive other policy instruments thatapply toimports fromnon-NAFTA countries.
They onlyestablish therequirements foranautomotive goodtoqualify asan"originating" goodand
hence beeligible forNAFTA tariff preferences intrade between theNAFTA Parties. Goods arenot
required tomeettheNAFTA rulesoforigin when traded between theNAFTA Parties iftheyaretraded
under theMFN tariff rates.
73. TheNAFTA hasboththe"transaction value method" andthe"netcostmethod". With
regard togoods, suchasmotor vehicles, footwear, word processing machines, however,
onlythe"netcostmethod" shall beused, according toArticle 402:5(d). What isthe
rationale thatthe"netcostmethod" beusedforonlyalimited scope ofproducts?
Thenetcostmethod isavailable inevery caseinwhich avalue-content testisrequired. NAFTA
Article 402(1) allows producers tochose either thetransaction value method (TVM) orthenetcost
method when applying thecontent value requirement under theNAFTA rules oforigin, subject to
Article 402(5). Paragraph (b)ofArticle 402(5) requires aproducer tousethenetcostmethod ifthe
transaction value oftheproduct isunacceptable under theArticle 3oftheCustoms Valuation Code
(CVC), asapplied under theNAFTA (i.e., seeArticle 413(d)). Onemajor reason thattransaction
value canbefound tobeunacceptable under theCVC isthattheprice hasbeeninfluenced bythe
relationship between thebuyer andtheseller andtherefore doesnotrepresent amarket-determined
price. TheParties recognized thisproblem andtherefore, inorder toreduce uncertainty, theyagreed
under Article 402(c) thataproducer canuseonlytheNCM if85%ofitssales oftheproduct isto
related persons. Since alargeshare ofthesalesintheautomotive sector andtheword processing sector
inNorth America arealsobetween related persons, theParties alsoagreed thatonlytheNCM would
beallowed forproducers ofthese goods.WT/REG4/1
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Withregardtofootwear,theconcernwasthedisproportionateshareofmarketingandpromotional
costs inthetransaction value ofvarious footwear, forexample athletic footwear. Since thepurpose
ofthevalue-content testforfootwear istoensure thatanadequate degree oftransformation asaresult
ofproduction occurs within theNAFTA territories, theNAFTA agreed toallow onlythenetcost
method tobeusedforfootwear.
ItistheviewoftheParties thattheNCM provides amore precise measurement ofthevalue
content andisappropriate forthese products.
74. CantheParties provide information astothepurpose andeffect ofArticle 402(5) that
stipulates thatthenetcostmethod apply totheitems referred toin402(5)(d)?
Please seetheanswer toquestion 73.
75. Theso-called "tracing method" wasnewly required byNAFTA asthecalculating method
forregional value content while theso-called "roll-up/down method" wasrequired bythe
US-Canada FTA. Thismodification gave thecompanies intheregion additional costs
andadministrative ormanagemental burdens related totheintroduction ofnewcomputer
programmes, theconstant additions orchanges thetechnical anddetailed information
forthemaintenance ofthecomputer system, thehiring ofmore lawyers andaccountants,
thecollecting andupkeeping ofvastvolumes oftherelated documents andrecords, and
soon. Byimposing such costs andburdens onboth domestic andforeign invested
companies intheregion,this modification created, andraised, barriers totrade withthird
countries. What istheviewoftheNAFTA parties ontheconsistency ofthismodification
withparagraphs 4and5(b)ofArticle 24?
Asdiscussed intheanswer toquestion 72,onlythose partsonthetracing lists(i.e., Annexes
403.1 and403.2) arerequired tobetraced. Thetracing rule,inaddition toproviding amore accurate
measurement oftheNAFTA content inautomotive products, allows producers toinclude asNorth
American content intheircontent calculation anyvalue added thatisincorporated aftera"traced" part
isimported, whether ornotthatimported partundergoes sufficient transformation within North America
tomeettheNAFTA rulesoforigin. TheNAFTA alsoprovides autoproducers withspecial averaging
options designed toreduce administrative costs ofapplying theautorules oforigin.
Asindicated intheanswers toquestions 61and72,theNAFTA autorules oforigin donot
raiseMFN tariffs orintroduce newpolicy instruments thatrestrict autoimports from non-NAFTA
countries. Therefore, theyareconsistent withparagraphs 4and5(b)ofArticle XXIV ofGATT.
76. Moreover, themark oforigin, required bytheCanadian Statistic Bureau, requests
companies tocalculate theregional content based ontheir ownparticular methods. So
doestheUSLabelling Act.Themethods required bythese measures arenotonlydifferent
toeachother, butalsodifferent from theNAFTA methods. These measures, although
theyarenotbased ontheNAFTA, putevenmore burdens oncompanies andtheyhave
adverse effect ontrade. What istheviewoftheNAFTA parties onthis?
Theproblem thatmany countries havedifferent rules oforigin fordifferent non-preferential
commercial policy instruments (e.g., country oforigin marking, statistical reporting) isfarfromunique
totheNAFTA Parties andisofsignificant concern totheNAFTA Parties. Forthisreason, eachof
theNAFTA Parties supported thenegotiation oftheUruguay Round Agreement onRules ofOrigin
andisnowactively engaged inthenon-preferential rulesoforigin harmonization program under PartIV
ofthatAgreement.WT/REG4/1
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Asregards theU.S.Labelling Actinparticular, inaddition totheNAFTA regime, there are
other regimes which arecreated toprovide information toconsumers withrespect totheorigin and
content ofimported products. NAFTA recognized inAnnex 311(2) thatgeneral consumer measures
could require thatanimported good bemarked inthesame manner asprescribed fordomestic goods
inaParty.
77. TheNAFTA rules oforigin areverydetailed, technical anddifficult tobeadopted quickly
byallthecompanies concerned. What efforts have theNAFTA parties beenmaking to
facilitate thecompanies toappropriately adopt thenewrules, withaviewtoensure uniform
application oftherules throughout theNAFTA countries?
TheNAFTAPartieshaveundertakennumerousstepstoassistandfacilitateproducers,importers
andexporters inusing theNAFTA rules oforigin. Asindicated intheresponse toquestion 70,the
Parties implemented verbatim, onJanuary 1,1994, theUniform Regulations forChapter Fourastheir
domestic regulations. Thiswasdoneinorder toprovide thedetailed information companies needand
toensure uniform andconsistent treatment intheinterpretation, application andadministration ofthe
rulesoforigin bytheParties. TheParties alsoimplemented theUniform Regulations forChapter Three
andFiveonthesame datetoensure consistency anduniformity inthecustoms procedures related to
therules oforigin.
Inaddition, theParties published atrilateral guide totherules oforigin andrelated customs
procedures, andhaveissued through theirrespective Customs Administrations various bulletins and
notices clarifying various aspects oftherules oforigin. TheParties havealsoengaged, bothjointly
andindividually, inavigorous andextensive program oftraining andorientation forprivate sector
interests inorder toprovide inbetter understanding oftheoperation ofNAFTA rules oforigin. At
thesame time, theCustoms personnel inevery region oftheParties havebeentrained soastoadvise
these private sector interests withtheNAFTA rules oforigin.
Asprovided forunder NAFTA Article 509,producers, exporters andimporters canalsoseek
further advice ontherules oforigin byrequesting advance rulings from Customs Administration of
theimporting Party.
78. Ifthere arecriteria orguidelines fororigin verification other than those stipulated in
Article 506ofNAFTA, please provide suchinformation withtheworking party.
TheParties haveelaborated andclarified thecriteria andguidelines fororigin verification in
Article VIoftheUniform Regulations forChapter Three andChapter FiveoftheNAFTA. These
criteria andguidelines havebeenimplemented inthedomestic legislation andregulations ineachParty.
AcopyoftheUniform Regulations forChapter Three andChapter 5oftheNAFTA isavailable through
theWTO Secretariat.
79. Article 505ofNAFTA requires exporters orproducers tomaintain allrecords related
totheorigin ofagood forfiveyears, orlonger thanfiveyears astheNAFTA party may
specify. Inwhat specific cases canaNAFTA party specify thisperiod longer thanfive
years? Isthere anymaximum time-limit forextension ofthistime-period? HasaNAFTA
party specified thistime-period longer thanfiveyears? Ifso,please provide information
onthis.
While there isnomaximum period under thisprovision, itwasintended totreattheretention
ofNAFTA records byaParty soastorender itconsistent withitsgeneral record-keeping requirements.
Mexico andtheUnited States havespecified afive-year period fortheretention ofNAFTA records,
while Canada hasspecified asix-year period.WT/REG4/1
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80. Theprices ofimported goods canvary depending ontheexchange rate, forexample.
How istheprice change taken intoaccount intheprocess ofverification?
When thevalue ofagood oramaterial isexpressed inacurrency other thanthecurrency of
theNAFTA country inwhich theproducer ofagoodislocated, thevalue mustbereflected inaccordance
withSection 3oftheUniform Regulations forChapter Four. During averification, thegoods would
beevaluated onthebasisoftheexchange rateapplicable togoods andmaterials pursuant toSection 3.
AcopyoftheUniform Regulations forChapter Three andChapter 5oftheNAFTA isavailable through
theWTO Secretariat.
81. Arethegoods classified inHS8529 tobesubject totransaction value method ortonet
costmethod?
With theexception ofcertain parts classifiable under Canadian tariff item8529.90.60, U.S.
tariffitems 8529.90.78, 8529.90.81, 8529.90.83 and8529.90.85, andMexican tariffitem8529.90.22
(i.e., parts forgoods ofheadings 85.25 and85.27 notspecifically identified inthetableattheend
ofAnnex 401), noneofthegoods ofheading 85.29 aresubject toaregional value content requirement.
Therefore, neither thetransaction value method orthenetcostmethod apply tothese goods.
Concerning theparts classifiable inthetariff items referred toabove, either thetransaction
value method orthenetcostmethod maybeused, subject toArticle 402(5).
82. Itwasreported thattwokinds ofcertificates oforigin, the"NAFTA Certificate ofOrigin"
and"Certificate ofOrigin forGeneral Use", arerequired foracompany toexport goods
from Mexico totheUS. Isthisconfirmed? Ifso,please explain thereasons whytwo
certificates arenecessary. What arethedifferences between thetwo? What isthelegal
basis forthedouble requirements?
There isnoCertificate ofOrigin forGeneral Useorother general purposes certificate which
isrequired forexportations ofgoods from Mexico orCanada totheUnited States.
83. Insome respects, therules oforigin seem tobemore restrictive than what iscommon
inFreeTrade Agreements. E.g.; toobtain preferential treatment forclothes notonly
thefabric butalsotheyarn must have origin status. Intheautomobile sector, thelocal
content requirements havebeenincreased inorder toobtain origin status. These examples
indicate diminished market access possibilities forthird countries because ofNAFTA rules.
Article 412(b)inNAFTA concerning circumvention must beinterpreted inastrict way
inorder toavoid arbitrary use; cfthepreamble totheWTO Agreement onRules of
Origin. How willthisArticle beinterpreted?
None oftheParties havehadoccasion toapply theprovisions ofArticle 412(b) oftheNAFTA.
However, inorder forittobeinvoked, there must beashowing, based onapreponderance ofthe
evidence under thedomestic lawsofaParty, thattheobject ofaproduction orpricing practice was
tocircumvent theprovisions oftheNAFTA.
Asindicated intheanswer toquestion 61andother questions, theNAFTA rulesoforigin do
notaffect MFN tariffs orother policy instruments thatapply toimports fromnon-NAFTA countries
andtherefore donotaffect market access fornon-NAFTA countries.WT/REG4/1
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84. CantheParties explain thepurpose andeffect oftheexemption from theprovisions of
Article 402(4) items detailed inArticles 403(1) and403(2)(a)(I)?3
Thepurpose ofArticle 402(4) istopermit "roll-up" or"conversion" ofnon-originating material
costs into"originating" material costs ifthenewmaterial qualifies asanoriginating material.
Conversely, North American content is"rolled-down" ifthenon-originating material doesnotundergo
sufficient transformation within theNAFTA region toqualify asan"originating" material. Therefore,
forgoods other thanautomotive goods, Article 402(4) stipulates an"allornothing" effect, depending
onwhether theimported material undergoes sufficient production inNorth America toqualify asan
originating material before being usedbythenextproducer asamaterial intheproduction ofthatsecond
producer 'sgood (orifdesignated asanintermediate material bythefirstproducer foruseinthe
production ofanother good under Article 402(10)).
Asdescribed intheanswer toquestion 72,the"tracing" requirement fordesignated automotive
goods requires thatthevalue ofdesignated imported autopartsbetraced through theproduction chain
when calculating thevalue content leveloftheseautomotive goods. Italsoallows anyNorth American
value- added thatisincorporated aftera"traced" partisimported intotheNAFTA region tobecounted
asNAFTA content inthecalculation oftheautocontent level. Since theseautomotive rulesaredesigned
toobtain anaccurate measure oftheNorth American content level, itwasnecessary toexclude the
automotive goods designated under Articles 403(1) and(2),andtheirannexes, fromthe"allornothing"
provision inArticle 402(4). TheParties consider thatthisexemption provides theautomotive industry
withgreater flexibility inattaining regional content requirements.
85. CantheParties provide information astothepurpose andeffect ofthemore stringent
treatment oftheitems inAnnex 403.1 andAnnex 403.2 (when subsequently usedinthe
manufacture ofagood covered inArticle 403)forthepurposes ofcalculating regional
value content?
Please seetheanswer toquestion 84.
86. Annex 403.3 outlines themethod ofregional value-content calculation forCAMI
Automotive, Inc. What isthepurpose andeffect ofdifferent treatment forone
manufacturer?
Asindicated intheanswer toquestion 72,Article 403(3) setsouttheaveraging provisions
forcalculating thevalue content ofmotor vehicles. Inaddition tothemethods setoutinthatArticle,
Annex 403.3 provides thatCAMI, asajointventure involving GMCanada, mayaverage itscalculation
ofthecontent level ofitsvehicles, onthebasis ofeither class ofvehicle ormodel line,withthe
calculation forthecorresponding classormodel lineproduced byGMCanada. Thisprovision applies
onlytovehicles exported totheUnited States.
87. Would theParties explain howtheprovision fortheintroduction ofgreater local-content
requirements inArticle 403(5) areconsistent withtheaims oftrade liberalization?
3Theoriginal question read"...from theprovisions ofArticle 401(4) items detailed in...".WT/REG4/1
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Article 403(5) concerns regional content requirements under thetariff preference rulesofthe
NAFTA,andnotlocalcontentrequirements.TheNAFTArulesoforigindonotmandateanypercentage
oflocalcontent forvehicles produced orsoldinside aParty and,therefore, arenotinconsistent with
trade liberalization goals. Automotive goods thatmeetrules oforigin under Article 403,including
thecontent levels under paragraph (5)ofthatArticle, areentitled, andcanenjoy, thebenefits offree
trade between theNAFTA Parties. Asindicated intheanswers toquestions 61and72,theNAFTA
autorulesoforigin apply onlytogoods traded between theParties, anddonotaffect MFN tariffs or
introduce newrestrictions onimports from non-NAFTA countries.
88. CantheParties comment onwhether theyexpect theareacontent provisions tohave a
strong effect onimports from Asian countries ofproducts inthemotor vehicle andtextiles
sectors?
TheParties expect theNAFTA tohaveapositive impact onimports ofallgoods fromallregions
oftheworld because ofthetradecreation effects arising fromhigher incomes intheNAFTA territories.
Thisexpectation alsoapplies tothemotor vehicle andtextile sectors. Anyshort-term trade
diversion effect inthemotor vehicle sector isnotexpected tosignificantly affect imports fromoutside
theNAFTA territories. Mostautomotive producers, including many ofthenon-North American owned
companies, report thattheirmotor vehicles already meetorexceed thecurrent NAFTA 50%autocontent
levelunder therulesoforigin. Other companies havesuggested thattheyareclose tothe50%level
andtherefore willrequire ononlymodest increases inNorth American component purchases tobe
eligible forpreferential tarifftreatment under theNAFTA. Allcompanies havebeenprovided aneight-
yeartransition period tomake anyrequired adjustments tomove tothehigher NAFTA content level,
eventhough numerous companies haveindicated thattheyalready exceed thesefuture levels, including
motor vehicles which contain significant Asian components. Overthiseight-year period, imports from
outside theNAFTA region could beexpected togrowasthetradecreation effects oftheNAFTA become
stronger.
TheParties would alsoobserve thatthepastsuggests thatimports ofmotor vehicles andparts
fromoutside North America willlikely bemore influenced byMFN tariffs, transportation costs, other
traderestrictions, exchange ratemovements, worker productivity, andgeneral market conditions than
thespecific provisions oftheNAFTA.
Forsimilar reasons, theParties donotexpect thetextile rulesoforigin tohaveaparticularly
strong effect onimports from Asia. TheNAFTA rules oforigin fortextiles andapparel reflect the
highNorth American content which many products produced intheregion already contain. Thetariff
preference levels contained inPartB.,Appendix 6ofAnnex 300-B allow liberal exceptions tothe
rules oforigin formostproducts inthissector. Inaddition, anumber ofthespecific rules oforigin
inthesector require onlyasingle substantial transformation (i.e.products made from silkorlinen,
brassieres, men'sandboys'woven shirts inheading 6205 made from particular fabrics).
89. IfNAFTA isatrade liberalising agreement, whywere theLocal Content andRules of
Origin provisions made even more stringent inthemotor vehicle andtextile sectors?
Further, whydothelocal content levels varyfrom product toproduct?
TheNAFTA liberalizes trade between theParties byremoving tariffs andother barriers on
trilateral trade. Itdoesnotraisetrade barriers against imports from non-NAFTA Parties.WT/REG4/1
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Therules oforigin areusedonlytodetermine whether agood produced inaNAFTA Party
qualifies forNAFTA tariff preferences. Therulesoforigin developed fortheNAFTA reflect ineach
sector, including theautoandtextile sectors, thedegree oftransformation ofnon-originating materials
desired inorder foragood tobenefit from those tariff preferences.
90. Whyhasthelocalcontent requirement formotor vehicles beenincreased from 50percent
under CUSTA to65percentunder NAFTA?
TheNAFTA regional content requirement isphased inoveraneightyearperiod untilitattains
62.5percent forcarsandlighttrucks andtheirengines andtransmissions, and60percent forother
vehicles andparts. Please seetheanswer toquestion 72forfurther discussion oftheautorules of
origin, including theautocontent level.
91. InArticle 403,paragraph 5,what isthejustification forincreasing thepercentage under
thenetcostmethod, i.e.forreducing thepossibility ofresorting tothird country imports
from theyear2002?
Please seetheanswer toquestion 72.
92. Automobile sector rules oforigin arebased onregional value content (RVC). Therules
forpassenger vehicles aretobemore stringent thanintheexisting US-Canada FTA and
more stringent thanrules applying within theEEA.
Theautomobile sector rules oforigin appear toincrease abarrier totrade. How dothe
contracting parties viewthisinrelation totheobligations ofGATT Article XXIV:5?
TheNAFTA rules oforigin, notonlyforautos butforallgoods, apply onlytotrade under
theNAFTA tariff preference levels between theNAFTA Parties. TheNAFTA rulesoforigin donot
apply toimports fromnon-NAFTA countries; nordotheyincrease MFN tariffs orchange other policy
instruments ineachNAFTA country thatapply toimports from non-NAFTA countries. Therefore,
theNAFTA rules oforigin areconsistent withtheobligations found inArticle XXIV:5.
93. Areclothing products, whose backings aremade ofpolyester imported fromanon-NAFTA
country, tobesubject to"yarn forward" ruleorto"fabric forward" rule?
Certain, specific tailored apparel products aresubject toarequirement under therulesoforigin
thatthelining fabric (andonlythefabric, nottheinterlinings) besourced inNorth America fromthe
fabric stage forward. Forthese products, therulesoforigin generally require thattheouter shellbe
producedintheNAFTAregionfromthefabricstageforward.Ifthelininginsuchgarmentsiscomposed
ofmore thanonefabric, thelining rulesapplies tothelining fabric inthemain body ofthegarment,
excluding sleeves, which covers thelargest surface area, anddoesnotapply toremovable linings.
94. Isitcorrect thatforclothing indenim (jeans) toenjoy preferential treatment thearticle
must bemanufactured from cotton produced inthearea, spun, dyed, woven, finished
andmade upinthearea?
No.EachParty canimport cotton fibrefromanynon-NAFTA country buttoenjoy preferential
tariff treatment, thegood must bespun, dyed, woven, finished andmade-up inthefreetrade area.WT/REG4/1
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95. Isitcorrect thatinorder toobtain preferential treatment foratufted carpet, inthecase
oftheUSAthecarpet must bemanufactured from chemical fibres produced intheUSA,
butthatinthecaseofMexico andCanada theproduct canbemanufactured from spun
yarn? Does thismean thattherules aredifferent depending ontheNAFTA member
country concerned?
TheNAFTA contains rulesoforigin thatarespecific tocertain oftheNAFTA Parties intwo
instances inthetextile andapparel sector: tufted carpets andacrylic sweaters. Inthese twocases, the
ruleoforigin fortradebetween Mexico andtheUnited States isafibreforward rule. Thisrulerequires
thattufted carpet bemade fromeither U.S.orMexican origin fibres. Inthecaseofexports toorfrom
CanadaunderNAFTApreferences,tuftedcarpetmustbemadefromyarnwhichoriginatedintheregion.
96. Isitcorrect thatforthefewproducts forwhich asingle processing operation isrequired
thisprovision isautomatically modified when asingle producer announces theintroduction
ofproduction ofthatproduct inthearea?
Weareunsure astothemeaning ofthequestion. However, there isnoprovision forthe
automatic modification ofaruleoforigin based ontheintroduction ofanewproduction process.
97. With regard towoollen apparel, theadvantages oftheTariff Preference Limits (TPL)
system aregranted towoollen apparel made upfrom awoven orknitted fabric produced
within theNAFTA areafrom imported spun yarn. Why, inthese circumstances, will
awoollen fabric produced intheNAFTA areafrom imported spun yarn andmade up
inanother country oftheareanothavetheadvantage ofthepreferential treatment provided
under theTPL, eventhough cumulation isallowed?
Cumulation allows theTariff Preference Levels tobeusedforawool garment made inone
NAFTA Party fromwool fabric produced inanother NAFTA Party fromthirdparty yarn. Theneed
foraTariff Preference Level forwoolfabric itselfwasnotestablished noragreed inthenegotiations.
98. Isitcorrect thattherules oforigin maybemodified on1January 1998fortextile -apparel
products?
Therulesoforigin aregoing tobereviewed in1998, asprovided inAnnex 300-b, section 7,
paragraph 3.
99. Would theParties explain thepurpose andeffect oftherequirement inArticle 404for
non-originatingmaterials,usedintheproductionofagood,toundergoatariffclassification
change inorder toqualify theproduct forpreferential tariff treatment asanoriginating
good? What plans dotheParties have forreducing thenumber ofitems subject tothe
requirement oftariff transformation?
Article 404merely allows that,ifaproducer chooses toaccumulate theproduction ofasupplier
withitsownproduction forthepurpose ofdetermining whether itsgoodqualifies, thefinalgoodmust
stillsatisfy theNAFTA ruleoforigin setoutinAnnex 401. Thisprovision allows twoproducers to
betreated, ineffect, assingle producer under therulesoforigin, andArticle 404simply requires that,
asisthecaseforanyproducer, thesupplier 'snon-originating materials betaken intoaccount when
determining whether thegood meets therules oforigin forthefinalgood.WT/REG4/1
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ThebasicpremiseforthestructureoftheNAFTAruleoforiginisachangeintariffclassification
fornon-originating materials usedintheproduction ofagood (i.e., tariff shiftrules). There areno
plans toreduce thenumber ofitems subject totherequirement of"tariff transformation" ifthismeant
torefertotherulesbeing based ontariff shifts. TheParties doplantocontinue toseektoeliminate
theneedforasupplementary value content testbyreplacing itwithrules oforigin based solely on
changes intariff classification.
100. CantheParties explain thereason fortheexemptions from theNAFTA "deminimis"
provision specified inParagraphs 3-5ofArticle 405? CantheParties giveassurances
thatthisprovision doesnothave arestrictive effect ontrade withnon-Parties?
Inconstructing therules oforigin onthebasis ofchanges intariff classification, theParties
recognized thatgoods could failtomeettheirNAFTA ruleoforigin because theproducer usedsmall
values ofimported materials thatareclassified inthetariff provisions from which tariff shiftisnot
allowed. Toaddress thisproblem ofrigidity inthetariff shiftrules, theParties agreed totheseven
percent deminimis provision under Article 405. Atthesame time, inorder toavoid undermining
therulesoforigin forcertain goods, theParties alsoagreed toexempt fromthedeminimis provisions
thematerials identified inconnection withspecific goods inArticles 405(3) through (5)when those
materials areusedintheproduction ofthose goods.
SincetheNAFTArulesoforiginapplyonlytotradebetweentheNAFTAPartiesfortheNAFTA
tariff preferences anddonotaffect MFN tariffs inanyoftheParties, there isnorestrictive effect on
trade withnon-NAFTA countries.
101. Article 411provides forthepossibility ofanoriginating good being unloaded inthe
territory ofathird country without adirect transport document being required. What
evidence ofthenon-processing ofthese goods willberequired?
None oftheParties havehadtheoccasion todatetoapply thisprovision; however, theParties
haveagreed toamend subsection 16(1) oftheUniform Regulations forChapter Four(Transhipment)
intwoways inorder toclarify theinterpretation, application andadministration ofNAFTA Article
411. First, theParties haveclarified that,under Article 411,aproduct isconsidered nottobean
originating goodifitiswithdrawn fromcustoms control inanon-NAFTA country. Second, theParties
haveelaborated intheUniform Regulations thatthephrase "anyother operation necessary topreserve
thegood ingood condition" includes suchoperations asinspection, removal ofdustthataccumulates
during shipment, ventilation, spreading outordrying, chilling, replacing salt,sulphur dioxide orother
aqueous solutions, replacing damaged packing materials andcontainers andremoval ofunits ofthe
goodthatarespoiled ordamaged andpresent adanger totheremaining unitsofthegood, ortotransport
thegood totheterritory ofaNAFTA country.
102. Have theParties totheAgreement already worked outtheprocedures forapplying Article
412(b) oftheAgreement? What would bethemeans ofproof? Indoubtful cases which
authority would becompetent todecide?
Please seeresponse toquestion 83.WT/REG4/1
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Customs Procedures (Chapter 5)
103. Under aregulation published on29December 1993, Mexico changed themethod of
calculating thevalue ofimported goods forcustoms purposes. Articles 49and50ofthe
Mexican Customs Actnowprovide forthetransaction value toinclude transport costs,
insurance andassociated costsbetween theplace ofexportation andtheportofdestination.
Thecustoms value isaccordingly based onthec.i.f. value whereas itwasformerly based
onthef.o.b. value.
These provisions have increased thetaxable baseforthird-country goods imported into
Mexico, thereby introducing discrimination between imports from third countries and
from member countries oftheNAFTA. Infact,Article 14oftheResolution relating to
thecustoms aspects oftheNAFTA, published on30December 1993, stipulates thatfor
goods imported from theUnited States andCanada thevalue forcustoms purposes will
onlyinclude transport costs, insurance andassociated costs uptotheplace ofdeparture
oftheexports.
HowdotheParties totheAgreement viewthese provisions asregards their compatibility
withtheGeneral Agreement onTariffs andTrade?
TheuseofaCIForaFOB system iscompatible withArticle 8oftheCustoms Valuation
Agreement. Otherwise, Article 8oftheCustoms Valuation Agreement would favour onesystem over
theother.
Mexico 'sCIFsystem applies toproducts ofallcontracting parties, including thoseoftheUnited
States andCanada, inanon-discriminatory manner. However, when thegoods conform totherules
oforigin provisions contained inNAFTA, suchgoods areconsidered tocome notfrom theUnited
States orCanada butfromtheNorth American FreeTrade Area, andtherefore treated under theFOB
system.
Theapplication ofaFOBsystem tooriginating goods isnotrelevant since thetaxable base
forNAFTA imports would onlyincrease inamarginal andtemporary amount iftheCIFsystem were
extended toNAFTA imports:
(a) there islittledifference between CIFandFOBvalues for90%ofMexico 'simports
from theUnited States because ofitsclose proximity;
(b) atleast53%oftotalimports fromtheUSand59%oftotalimports fromCanada are
already duty-free under NAFTA; sothedutyrevenue iszero, regardless ofwhether
thegoods areconsidered CIForFOB, and
(c) attheendoftheNAFTA transition period, thedifference between CIFandFOBwill
beirrelevant because theNAFTA import dutyrevenue willbezero.
Since originating goods arecovered byafree-trade areaagreement, theapplication ofaFOB
system tothese goods iscompatible withMexico 'srights andobligations under theWTO Agreement.
104. Mexico changed thebasis forthecustoms valuation ofimports from non-NAFTA countries
from f.o.b. toc.i.f., although itcontinues tousethef.o.b. fortheimports from theNAFTA
parties. CanMexico explain itsintention ortherationale behind thischange? CanMexico
provide information onthenewsystem?WT/REG4/1
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105. Inourview, theMexican useofdifferent methods forcustoms valuation calculations
depending ontheorigin oftheproduct (FOB forNAFTA originating products andCIF
forother products) isincontradiction withArticle 1;MFN treatment, notcovered by
theprovisions inArticle XXIV andnotinconformity withtheprovisions oftheAgreement
onCustoms Valuation.
Seeanswer toquestion 103.
Energy andBasic Petrochemicals (Chapter 6)
106. What circumstances dotheParties envisage asjustifying theadoption ofarestriction on
importation from orexportation toanon-Party tothisAgreement asprovided forin
Article 603? CantheParties outline howtheywould administer asystem ofimport and
export licensing?
Article 603doesnotpurport toaffect therights orobligations thatanythirdcountry mayhave
under theGATT withrespect toanimport orexport restriction maintained byaNAFTA Party that
iscovered bythatArticle.
Thepurpose ofArticle 603.3 istomake clearthataNAFTA Party mayprevent circumvention,
through theuseofanother NAFTA Party'sterritory, ofitsimport orexport restrictions ontheenergy
products ofthirdcountries. Paragraph 3assuchdoesnotseektojustify aParty'simport orexport
restrictions ongoods from ortothird countries. Itonlyensures that,when suchrestrictions arein
place, itcanapply themtoimports orexports fromortothirdcountries evenwhen theproducts involved
come through orgotoanother NAFTA Party.
Thisprovision would apply, forexample, when aNAFTA Party prohibits exports ofadual-use
petrochemical product tocertain third countries, while another NAFTA Party permits suchexports
fromitsterritory. Inthatcase, under Article 603.3, theformer mayrequire thelatter nottore-export
theformer 'sdual-use petrochemical products tothecountries under restrictions. Asimilar situation
mayapply toimports.
107. Annexes 602.3 and603.6 setoutthereservations andexceptions regarding energy products
andactivities which allow Mexico toreserve foritself certain strategic activities. These
Annexes alsoallow Mexico torestrict thegranting ofimport andexport licences forthe
solepurpose ofreserving foreign trade inthese goods toitself. CantheParties outline
theconsistency withtheobjectives ofNAFTA ofthese exceptions toChapter Six,i.e.trade
liberalization? DotheParties have atimetable fortheremoval ofthese exceptions? Do
thetrade restrictions mentioned inthese Annexes apply equally tonon-Parties toNAFTA?
Theprovisions contained inAnnexes 602.3 and603.6 arenotinconsistent withtheNAFTA
objectives. Infact,Mexico 'strade inenergy andpetrochemical products represent animportant part
ofitstotaltrade withNAFTA andnon-NAFTA Parties.
There isnotimetable toremove these measures andtheyareequally applied tonon-NAFTA
parties. Neither annex purports toaffect theGATT rights andobligations ofthirdcountries inrespect
ofenergy andpetrochemical products.WT/REG4/1
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Agriculture (Chapter 7)
108. WhyareconcessionsnotreciprocalamongNAFTAcountriesinspecificagriculturalsectors?
Answer toquestions 108and117:
TheUnited States andCanada haveretained theagricultural market access provisions from
theFTA, andCanada andMexico, andtheUnited States andMexico, negotiated separate bilateral
market access agreements onagriculture, within thecontext oftrilateral rules under Article 703.
Article 703contains thegeneral NAFTA rulesonagricultural market access while Annex 703.2
contains thespecific market access provisions between theUnited States andMexico (Annex 703.2,
Section A)andCanada andMexico (Annex 703.2, Section B). AstheUnited States andCanada
negotiated theseseparately withMexico, thespecific provisions differ somewhat inthetwoagreements.
TheCanada-United States FreeTrade Agreement market access provisions astheyrelate toagricultural
trade between Canada andtheUnited States were incorporated intotheNAFTA pursuant toAnnex
702.1.
109. Theagreements onagriculture foresee thateachparty maycount thein-quota quantity
under atariff-rate quota applied toagriculture goods covered bytheagreements toward
thesatisfaction ofcommitments regarding anin-quota quantity ofatariff quota thathave
beenagreed under theGATT. Howwillthissystem function inpractice taking intoaccount
possible differences induty rates applicable toGATT members andNAFTA parties?
Isthatcompatible withGATT?
Thisprovision allows eachparty tocount thein-quota quantity under atariff-rate quota
established under NAFTA towards thesatisfaction ofanin-quota quantity ofatariff-rate quota orlevel
ofaccess agreed tounder theGATT. Canada hasnotestablished tariff-rate quotas under NAFTA,
other thanthose thatmaybeestablished separately under thespecial safeguard provisions (discussed
under question 110)andtherefore thisprovision doesnotapply forCanada. Thedifferences induties
applicable toWTO members andNAFTA Parties areconsistent withArticle XXIV ofGATT 1994
which allows fortheestablishment offree-trade areas among WTO members.
110. Onspecial safeguard provisions (Article 703.3) cantheParties describe circumstances
inwhich these provisions could beinvoked? CantheParties explain therelationship
between thisNAFTA safeguard andsafeguards under theGATT, theWTO Agreement
onSafeguards, andthesafeguard provision oftheGATT Agreement onAgriculture?
TheNAFTA special safeguard provisions apply onlytotrade between Canada andMexico
andbetween Mexico andtheUnited States. Thesnapback provisions oftheCanada-United States Free
Trade Agreement (FTA) continue toapply totradebetween Canada andtheUnited States. TheNAFTA
special safeguard provisions permit theParties toapply atariff-rate quota toqualifying goods listed
inAnnex 703.2 incertain circumstances. Theover-quota tariff ratemaynotexceed thelower ofthe
prevailing MFN rateortheapplicable MFN rateasofJuly1,1991. Although theParties willgradually
phase outtheirtariffs onthequalifying goods, thetariffs mayberaised backtohigher levels should
imports reach thequota levels specified inthetariffschedules. AParty maynotsimultaneously apply,
withrespect tothesame goodandthesame country, bothaspecial safeguard under thisprovision and
anemergency action under NAFTA Chapter Eight. TheNAFTA special safeguard willexpire atthe
endoftheNAFTA tariffphasing transition period. Otherwise, theNAFTA special safeguard provisions
areindependent ofthesafeguards under theGATT, andtheWTO Agreement onSafeguards (except
asprovided inNAFTA Chapter 8)andthesafeguard provisions oftheWTO Agreement onAgriculture.WT/REG4/1
Page37
111. Article 704states thattheParties should endeavour towork toward domestic (agricultural)
support measures that"have minimal ornotrade distorting orproduction effects". How
dotheParties intend togiveeffect tothisobjective? WilltheParties monitor eachother's
policies toensure thatthisobjective isachieved?
Pursuant toArticle 704,theParties haveeachagreed thattheyshould endeavour toworktoward
domestic support measures fortheiragricultural producers thathaveminimal ornoproduction ortrade
distorting effects orthatareexempt from reduction commitments under theWTO.
TheNAFTA doesnotspecify howeachParty should endeavour towork toward thistypeof
support measure. Thismaybedonewithin theNAFTA, through theCommittee onAgricultural Trade,
orthrough other forasuchastheWTO. Certainly theWTO Agreement onAgriculture represents
significant progress inthisregard. TheCommittee onAgricultural Trade established under Article 706
provides aforum whereby NAFTA Parties maycontinue topursue thisobjective.
112. Onexport subsidies foragricultural products (Article 705)cantheParties confirm the
objective ofeliminating suchsubsidies inintra-NAFTA trade? Isthere amechanism or
timetable under which thismight beachieved? Arethere anyparticular products orsectors
thathavepriority interms oftheelimination ofexport subsidies? CantheParties advise
onthedefinition ofexport subsidies usedinNAFTA (forexample isitconsistent withthat
intheUruguay Round Agreement onAgriculture interms ofreduction commitments)?
CantheParties provide anassessment ofthelikely impact ofArticle 705onthequantity
ofsubstantial products which might beexported tothird countries?
TheParties confirm theobjective ofworking towards theelimination ofexport subsidies for
agricultural products inintra-NAFTA trade. Article 705establishes aWorking Group onAgricultural
Subsidies towork toward elimination ofallexport subsidies affecting agricultural trade between the
Parties. There isnotimetable established forreaching thisobjective.
113. Asregards export subsidies, Article 703provides thatwhere aNAFTA party considers
thatanon-party isexporting anagricultural good totheterritory ofanother party with
thebenefit ofexport subsidies, theimporting party shall attherequest oftheexporting
party consult withtheexporting party withaviewtoagreeing onspecific measures that
theimporting party mayadopt tocounter theeffect ofanysuchsubsidized imports.
Under theAgreement onAgriculture concluded under theUruguay Round negotiations,
GATT contracting parties have undertaken toreduce thevolume andbudgetary outlay
ofsubsidized exports. Uruguay commitments aretherefore being complied withifthose
conditions aremet.Howcould Article 703beapplied inamanner compatible withGATT?
Where aParty considers thatanon-NAFTA country isexporting anagricultural good tothe
territory ofanother NAFTA Party withthebenefit ofexport subsidies, Article 705provides consultation
procedures aimed athaving theimporting Party adopt measures tocounter theeffect ofanysuch
subsidized imports.
TheAgreement onAgriculture under theWTO introduced disciplines ontheuseofexport
subsidies. Anymeasures adopted byaNAFTA Party pursuant toArticle 705ofNAFTA would also
needtobefullyinconformity withprovisions intheWTO Agreement.
114. Article 706outlines theoperation oftheCommittee onAgricultural Trade. Apart from
itsmonitoring rolecanParties advise whether thisCommittee willhaveanyimplementing
authority orcapacity toadjudicate inthecaseoftrade disputes?WT/REG4/1
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Inaddition toitsmonitoring role,theCommittee 'sfunctions include providing aforum for
theParties toconsult onissues related totheagriculture provisions andreporting annually tothe
Commissionontheimplementationoftheseprovisions.TheCommitteedoesnothaveanyimplementing
authority orcapacity toadjudicate inthecaseoftrade disputes.
115. CantheParties advise whether theAdvisory Committee onPrivate Commercial Disputes
(Article 707) reports totheCommittee onAgricultural Trade? Will thisAdvisory
Committee beempowered toreport ondisputes involving trade with third countries?
What isthemechanism forthesettlement ofdisputes onNAFTA trade issues andisthis
mechanism consistent withthedispute settlement procedures tobeestablished under the
WTO?
TheAdvisoryCommitteeonPrivateCommercialDisputes(Article707)reportstotheCommittee
onAgricultural Trade. TheAdvisory Committee isrequired toreport andprovide recommendations
totheCommittee onAgricultural Trade forthedevelopment ofsystems intheterritory ofeachParty
toresolve private commercial disputes regarding trade inagricultural products between theParties
totheAgreement, drawing asappropriate onthesystems currently inplace inCanada andtheUnited
States suchasthattoresolve private commercial disputes forfresh andfrozen horticultural products.
TheAdvisory Committee doesnotdealwithdisputes involving thirdparties, andisnotintended to
bethedispute resolution body itself between theNAFTA Parties.
Chapter Twenty ofNAFTA establishes themechanism forthesettlement ofdisputes onNAFTA
tradeissues,exceptformatterscoveredbyChapterNineteen(relatingtoanti-dumpingandcountervailing
dutymatters) andasotherwise provided intheAgreement. TheNAFTA dispute settlement mechanism
isconsistent withthedispute settlement procedures established under theWTO.
116. Aretheprovisions onagriculture considered compatible withArticle XXIV:8(b)?
Seeanswer toquestion 22.
117. CantheParties explain whythere isaneed forthespecial provisions contained in
Annex 703.2?
Seeanswer toquestion 108.
118. What changes willoccur inMexico 'sregime forimports ofsugar from third countries
asaresult ofitsagreement withtheUS?
NAFTA contains several provisions concerning US-Mexico 'sbilateral tradeinsugar andsyrup
goods. Most ofthese provisions refer topreferential treatment between thetwoParties. Those that
concern non-parties donotrequire Mexico toapply MFN dutyrateshigher thanthedutyratesbound
byMexico intheUruguay Round negotiations. Such provisions are,therefore, without prejudice to
therights andobligations ofNAFTA andnon-NAFTA parties under theGATT/WTO.
119. With respect totrade insugar andsyrup goods (Annex 703.2) could theUnited States
advise oftherelationship between theimports ofsugar under itsbound Uruguay Round
global quotas andimports from itsNAFTA partners? Specifically, doesitintend toinclude
NAFTA imports aspartoftheUruguay Round global quota orwillthose imports be
accommodated outside ofthequota?WT/REG4/1
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120. Iftheintention istoinclude sugar imports from NAFTA countries aspartoftheUnited
States Uruguay Round global quota, could theUnited States advise onwhat thismeans
forsupplying countries which arenotParties toNAFTA?
Answer toquestions 119and120:
TheUnited States hascontinued toaccommodate imports from itsNAFTA partners within
thetariff-rate quotas thattheUnited States hasnowbound under theUruguay Round. Therefore there
hasbeennoeffect onother suppliers. Noallocations haveyetbeenmade forthenextquota period.
Theconcerns ofother suppliers willbetaken intoaccount inmaking anyallocations.
121. Australia 'sUruguay Round settlement with theUnited States onsugar provides an
assurance regarding thelevelofAustralia 'sshare oftheglobal quota. Given theobligations
oftheUnited States under GATT Article XIII, Article XXIV:5, andthereference to
Article XIIIinAustralia 'sbilateral Uruguay Round settlement withtheUnited States,
cantheUnited States explain howitsproposal toallocate ashare oftheglobal quota to
Canada andMexico above levels oftrade ina"previous representative period" would
beconsistent withthese obligations? WilltheUnited States confirm thatitwillhonour
itsUruguay Round settlement withAustralia which onsugar provides Australia with8.3
percentofthebaseratequota?
Asaresult oftheUruguay Round, theUnited States hasnowbound itsminimum levelofaccess
under thetariff-rate quota (TRQ) forsugar. TheUnited States hasnotproposed toallocate ashare
oftheTRQ toCanada orMexico inamanner inconsistent withArticles XIIIorXXIV.
TheUnited States canconfirm, asprovided intheMarch 22,1994, letter totheGovernment
ofAustralia, thatitintends, consistent withArticle XIIIandalloftheUruguay Round commitments,
tocontinue toallocate shares ofthesugar TRQ inthesame manner aspreviously, which results in
anallocation forAustralia of8.3percentofthebasequota amount. Asstated inthatletter, theUnited
States reserves theright tomodify, orsuspend, theallocation ofmarket shares inaccordance with
theprovisions ofGATT Article XIII.
122. CantheUnited States explain whyitproposes totakeadifferent approach onsugar by
including NAFTA sugar imports intheUnited States bound Uruguay Round global quota,
compared withtheapproach adopted byMexico inthecaseofSMP andtheUnited States
inthecaseofbeef?
TheUnited States policy isdecided inlightoftheconsiderations particular tothecommodity
andthesituation. TheU.S.approach inthecaseofsugar isappropriate tosugar.
123. Ondairy products, could Mexico please provide clarification ofhowitintends toprovide
"preferential access" for40,000 tonnes ofUnited States SMP, increasing bythree percent
peryearfor15years? AstheMexican Uruguay Round Schedule allows onlyforthebase
40,000 tonnes andnoincrease, could Mexico provide anassurance thattheabove growth
willnotbeattheexpense ofthe80,000 tonnes quota access allocated forcountries other
thantheUnited States? CantheUnited States advise whether SMP exported toMexico
under this"preferential access" willbesubsidized orinsome other wayassisted? Ifso,
cantheUnited States confirm thatanysuchassistance willbecounted against United States
commitments nowthattheUruguay Round istolimit export subsidisation?WT/REG4/1
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The3percentannual growth thatMexico grants totheUnited States inSkim Milk Power
(SMP) quota wasnotincluded within theMexican Uruguay Round schedule because suchincreases
apply toaNAFTA member only. These growth ratesdonotcreate ordiminish anyGATT rights.
Mexico hasalways complied withitsGATT/WTO commitments. Itsconcessions inSMPwill
notbeanexception. 80,000 tonswillbeprovided toGATT 94contracting parties onaMFN basis.
TheUnited States hasnotdecided, asamatter ofpolicy, whether toprovide export subsidies
forsuchexports. Anyexport subsidies willrespect U.S.WTO obligations. TheUnited States used
export subsidies onmilkpowder salestoMexico in1994. Anyexport subsidies usedintheMexican
market willbecounted aspartoftheUruguay Round commitments onexport subsidies.
124. Could Mexico explain howitsaction taken after negotiation oftheNAFTA, ofraising
theduty onbeefimported bynon-Parties, effectively providing apreference toUnited
States andCanadian beef, isconsistent withtherequirements ofGATT Article XXIV:5(b)
nottoraise trade barriers tothetrade ofthird countries?
Theadjustment inbeeftariffs wasapplied onaMFN basis, including imports from USand
Canada. Thereference toArticle XXIV: 5(b)isnotrelevant since, among other reasons, thismeasure
wastaken before theentry intoforce oftheNAFTA. Inanycase, theapplication of15,20and25
percent duties isbelow Mexico 'sbound duties under GATT 94.
Emergency Action (Chapter 8)
125. Under theterms ofArticle 802,aNAFTA country which adopts asafeguard measure
onamultilateral basis under Article XIXmust incertain circumstances exclude theother
NAFTA partners.
How dotheParties totheAgreement viewthisprovision inrelation toArticle XIXand
the"Safeguards" Agreement resulting from theUruguay Round?
Seeanswer toquestion 128.
126. Article 802oftheNAFTA provides forselective non-application ofsafeguard measures
based onArticle XIXofGATT, andnotjustified byArticle XXIV ofGATT.
Seeanswer toquestion 128.
127. During thetransition period ofthisAgreement, bilateral emergency action under
Article 801,foranyparticular good, islimited tooneaction byanyoneParty toanyother
Party. Could theParties tothisAgreement explain thepurpose andeffect ofthislimitation?
Hasbilateral emergency action between theParties beennecessary since thisAgreement
came intoeffect?
Paragraph 2(d)ofArticle 801provides that"no[bilateral emergency] action maybetaken by
aParty against anyparticular goodoriginating intheterritory ofanother Party more thanonceduring
thetransition period". Asimilar provision iscontained inArticle 1101oftheCanada-U.S. FreeTrade
Agreement.
Liketherestriction onrepeated application ofsafeguard measures onthesame product under
Article 7(5)oftheWTO Agreement onSafeguards, thepurpose ofparagraph 2(d)ofNAFTA Article
801istoprevent overuse ofbilateral emergency action during thetransition period.WT/REG4/1
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128. NAFTA recognises twotypes ofsafeguards: bilateral (when theimported product that
iscausing injury comes from aNAFTA party) andmultilateral orglobal (when theimport
isofmultiple origin, andcomes from NAFTA Parties aswellascountries thatarenot
Parties totheAgreement). Itwould appear from thetextoftheNAFTA thatthislatter
(multilateral) typeofsafeguard discriminates between non-members andmembers ofthe
Agreement. Article 802establishes thatwhen acountry thatisaparty toNAFTA takes
asafeguard action (i.e.inaccordance withGATT Article XIX), itsNAFTA partners shall
beexcluded from theaction (inother words, itwillnotbeapplied tothem -asageneral
rule), except (inwhich caseitwillapply tothem) where their exports -ofthegood in
question -totheNAFTA country concerned (a)account for"asubstantial share" oftotal
imports ofthegood bythecountry applying themeasure (theAgreement stipulates that
forexports ofaNAFTA country toconstitute a"substantial share" oftheimports itmust
beamong thetopfivesuppliers ofthegood inquestion); and(b)contribute importantly
totheserious injury orthreat thereof (forexports from aNAFTA country tobeconsidered
nottocontribute importantly totheinjury orthreat thereof, thegrowth rateofimports
ofthegood originating insuchparty must beappreciably lower thanthegrowth rateof
totalimports ofthegood).
Inlight oftheabove, isitconsidered thatthesafeguard mechanism iscompatible with
theGeneral Agreement?
Answer forquestions 125,126and128:
NAFTA Chapter 8(Emergency Action) isanextension ofChapter 11oftheCanada-U.S. Free
Trade Agreement (FTA). Itestablishes further disciplines beyond GATT/WTO obligations bywhich
NAFTA partners canusesafeguard measures against imports from other NAFTA countries.
Theprovisions ofNAFTA Article 802,under which imports from aNAFTA Party maybe
excluded from another NAFTA Party'sapplication ofaglobal safeguard action under certain
circumstances, donotconflict withGATT Article XIXandtheWTO Agreement onSafeguards in
thecontext ofafreetrade agreement under GATT Article XXIV 1994.
III. TECHNICAL BARRIERS TOTRADE
129. Articles 904.2 and905.1 -What guarantee isthere thattheright toestablish thelevel
ofprotection (legitimate objectives) willnotbeusedasameans ofdiscrimination? What
guarantee isthere thatthird countries (Switzerland) willnotbediscriminated against or
evenplaced atadisadvantage bythepursuit ofthese legitimate objectives?
Therighttoestablish thelevelofprotection inArticle 904.2 isbalanced byArticle 907.2 which
provides thatinestablishing alevelofprotection andconducting anassessment ofrisk,aParty should
avoid arbitrary orunjustifiable distinctions between similar goods orservices which result in
discrimination orconstitute disguised restrictions ontrade. Chapter 9doesnotrequire theParties to
discriminate against thirdcountries, andiscompatible withtheWTO Agreement onTechnical Barriers
toTrade.WT/REG4/1
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130. Compatibility andEquivalence (Article 906)-Inparagraph 7,itisstated thattoenhance
confidence inthereliability oftheresults ofeachother'sprocedures, theparties mayconsult
onsuchmatters asthetechnical competence oftheconformity assessment bodies involved,
including verified compliance withrelevant international standards. What form dothese
consultations take? May third countries participate? Isthere alistofconformity
assessment bodies recognized ascompetent? Ifso,isitpossible toobtain acopy ofthat
list?
Allconsultationsaboutstandards-relatedmeasuresarechannelledthroughtheNAFTACommittee
onStandards-Related Measures andtheSubcommittees operating under Chapter 9.TheCommittee
andtheSubcommittees arelimited toNAFTA Parties.
There isnotrilateral listofconformity assessment bodies.
131. Conformity Assessment (Article 908)-Paragraph 1:What arethecurrently existing
substantialdifferencesinthestructure,organizationandoperationofconformityassessment
procedures asbetween thethree countries?
Thedifferencesinthestructure,organizationandoperationofconformityassessmentprocedures
relates tothedegree ofgovernment/non-government involvement, andcentralization/ decentralization.
132. Conformity Assessment (Article 908)-Paragraph 2:Dothethree Parties totheAgreement
havealistofaccredited, approved, licensed andrecognized conformity assessment bodies?
There isnotrilateral listofconformity assessment bodies. Under Annex 908.2 Mexico has
anexemption forfouryears from theNAFTA requirement toaccredit other Parties 'conformity
assessment bodies. Canada andtheU.S.haveaccredited conformity assessment bodies oftheother
Party butnoconsolidated listhasbeenproduced.
133. Conformity Assessment (Article 908)-Paragraph 6:Thisparagraph encourages theparties
tonegotiate agreements forthemutual recognition oftheresults oftheir respective
conformityassessmentprocedures.Inwhatsectorsareagreementsofthistypeencouraged?
How arethese agreements structured? What istheir degree ofintegration? Isitalso
intended tonegotiate suchagreements withthird countries?
Paragraph 6encourages negotiation ofmutual recognition agreements (MRAs) between the
Parties inallsectors relevant toChapter 9andissimilar totheWTO provision onMRAs (Article 6.3).
There isnosectoral limitation onthisprovision, noristhere anyprescribed formula forsuchan
agreement.
TheNAFTA Parties arenotprevented fromentering intosuchagreements withthirdcountries.
IV. GOVERNMENT PROCUREMENT
134. Considering thatMexico isintheprocess ofenacting Government Procurement legislation
which would enable ittobecome aParty totheGATT GPA, initially atthecentral level
ofgovernment andlateratthesub-central andpublic utilities level, theCommunity would
wonder whether itisprepared toconsider accession totheGPAgreement?
Seeanswer toquestion 140.WT/REG4/1
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135. Article 1005denies thebenefits ofthechapter onGovernment Procurement toenterprises
owned orcontrolled bynon-NAFTA nationals. Thisprovision conflicts withtheNational
Treatment obligations undertaken byCanada andtheUSunder theGATT Government
Procurement Agreement. What isthepurpose ofArticle 1005 andhowdotheNAFTA
Parties expect ittowork inpractice? Could theUSandCanada identify theprecise
procurementsectorswherediscriminationagainstlocally-establishedEuropeansubsidiaries
willtakeplace?
NAFTA Article 1005 (Denial ofBenefits) allows aNAFTA Party tolimittheapplication of
theNAFTAProcurementChaptertoservicesuppliersownedorcontrolledbyNAFTAParties.However,
thispermissive provision under NAFTA withrespect toservice suppliers innowayrelates tothe
obligations ofCanada andtheUnited States under theGATT Procurement Code which mandates
treatment ofnon-national suppliers ofanyCode signatory andtheirgoods nolessfavourable thanthat
accorded todomestic suppliers andtheirgoods, withrespect toprocurement covered bytheCode.
Further, Canada andtheUnited States willmeet their obligations under thenewAgreement on
Government Procurement withrespect tonational andnon-discriminatory treatment oftheproducts,
services andsuppliers ofother Parties tothatAgreement, andtheprovisions ofNAFTA Article 1005
willnotaffect these obligations.
136. What isthesituation asregards thecompatibility between thepreferential provisions of
theNAFTA withrespect togovernment procurement andtheagreement onthissubject
which forms partofthefinalresults oftheUruguay Round asfarasenergy isconcerned?
Thepreference provisions withrespect toenergy entities aresimilar inboththeNAFTA and
WTO Agreement. Under NAFTA, access toprocurement ofthevarious Power Authorities and
Administrations listed intheSchedule oftheUnited States inAnnex 1001.1a-2 willonlyapply toCanada
when theprocurement oftheprovincial hydro utilities arecovered byChapter 10.Similarly, theUnited
States hasexcluded coverage forCanada ofthePower Authorities under Annex 3oftheWTO
Agreement. Consultations onthecoverage ofprovincial procurement under theWTO Government
Procurement Agreement areon-going.
137. Does Mexico intend toadopt theexisting ornewGovernment Procurement Code inthe
nearfuture? Ifso,when? Ifnot,whydoesMexico notmake commitments ongovernment
procurement intheGATT/WTO?
Seeanswer toquestion 140.
138. Isitcorrect tounderstand that, withrespect togovernment procurement made within
theNAFTA parties, theNAFTA parties willobserve Article 2:3oftheGovernment
Procurement Code, which states that,"theParties shallnotapply rulesoforigin toproducts
imported forpurchases ofgovernment procurement covered bythisAgreement from other
Parties, which aredifferent from therules oforigin applied inthenormal course oftrade
andatthetimeofimportation toimports ofthesame products from thesame Parties"?
Ifnot,could theNAFTA parties explain thedifferences, interms ofscope orimplications,
between Article 2:3ofGovernment Procurement Code andArticle 1004 ofNAFTA?
Boththeterms ofNAFTA Article 1004andtheterms ofArticle 2:4oftheGATT Government
Procurement Code require thattherulesoforigin applied inrelation togovernment procurement cannot
bedifferent thantherulesoforigin applied inthenormal course oftrade. Thereference toAnnex 311
inArticle 1004 simply indicates thatiftheMarking Rules inAnnex 311areadopted astherules of
origin forthenormal course oftrade, these rules shallalsoapply togovernment procurement.WT/REG4/1
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139. Could theParties advise ofanydifferences between theNAFTA Government Procurement
provisions andGATT Government Procurement Code?
Thegovernment procurement provisions oftheNAFTA build upontheprovisions ofthe1979
GATT Government Procurement Code. Theobligations aresimilar buthavebeenclarified incertain
respects toaccount forquestions raised intheNAFTA negotiations. Thekeydifferences arewithrespect
tocoverage, thresholds, andthehigher levelofobligations related tobidchallenge. The1994 WTO
AgreementonGovernmentProcurement,whichwillenterintoforceonJanuary1,1996,willincorporate
many ofthechanges found inNAFTA. Interms ofnumerical differences, thethresholds forprocurement
under thetwoagreements are:
NAFTA GATT Procurement Code
Goods US$50,000* 130,000 SDRs
Services US$50,000 NA
Construction US$6.5million NA
*(Note: US$25,000 between Canada andtheU.S)
Thresholdsunderthe1994WTOAgreementonGovernmentProcurementvarydependingupon:
(1)thelevelofgovernment (i.e.,central, sub-central orgovernment enterprise), (2)whether thecontract
isforgoods, services orconstruction, and(3)theindividual offer ofeachmember country.
140. WillMexico accede totheWTO Agreement onGovernment Procurement?
Answer toquestions 134,137and140:
CurrentlegislationinMexicoregardinggovernmentprocurementcontainsdisciplinestopromote
efficiency, transparency andbudgetary control. Inthiscontext, thegovernment procurement system
inMexico allows suppliers fromanycountry toparticipate ininternational tendering intheMexican
market.
Withtheaimofpromoting government procurement efficiency, Mexico decided tosubscribe
tobilateral andtrilateral international agreements providing disciplines toenhance certainty and
transparency intendering procedures. Such disciplines include criteria tobeused fortechnical
specifications, qualification ofsuppliers, timelimits fortendering anddelivery, andbidchallenge
procedures topromote fair,openandimpartial procurement procedures.
International agreements haveopened newmarket opportunities forMexico inthose countries
which offered Mexican suppliers access totheirgovernment procurement systems. Inthiscontext,
Mexico isopentoanalyze theconvenience ofsubscribing tonewagreements regarding government
procurement.
141. Willthestatistics collected bytheParties under Article 1019, inrelation tothemonitoring
ofGovernment Procurement, bepublished orotherwise made available tonon-Parties
tothisAgreement?
Article 1019 does notspecify public reporting requirements butrather theexchange of
information between theParties. Aswithallexchanges ofinformation between governments, each
Party maydecide whether ornottopublish theirinformation.WT/REG4/1
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V. INVESTMENT, SERVICES AND RELATED MATTERS
Investment (Chapter 11)
142. Cananinvestor submit abreach ofArticle 1106 toarbitration under Article 1116?
Breaches ofArticle 1106 (Performance Requirements) canbesubmitted toarbitration under
Article 1116.
143. Must theinvestor whowants tobenefit from arbitration under thisArticle have made
aninvestment intheParty whose measures hechallenges orcananinvestor inanother
Party, who suffers from theadverse trade effects under Article 1106 alsoinitiate
arbitration?
Article 1116 (Section B-Settlement ofDisputes between aParty andanInvestor ofAnother
Party) provides that,"aninvestor ofaParty maysubmit toarbitration under thisSection aclaim that
another Party hasbreached anobligation under...Section A...and thattheinvestor hasincurred loss
ordamage byreason of,orarising outof,thatbreach." "Investor ofaParty" means aParty orstate
enterprise thereof, oranational oranenterprise ofsuchParty, thatseeks tomake, ismaking orhas
made aninvestment (Chapter 11,Section C).
144. Can onedraw theconclusion from Article 1108(7)(a) thatArticle 1106 applies to
procurement byaParty oraState enterprise?
Article 1108(8)(b) states thatArticle 1106(1) (b),(c),(f)and(g),and3(a)and3(b)doesnot
apply togovernment procurement.
145. Does Article 1108(1)(i)(ii) mean thatParties atfederal levelandStates andprovinces are
notbound byArticle 1106 asfarasthemeasures listed intheAnnexes IandIIIofeach
NAFTA member country areconcerned?
Isthisexemption granted without anytime-limit?
TheParties arenotbound bytheperformance requirements obligations totheextent thateach
oftheParties havetaken reservations inAnnex 1.These reservations contain "phase-outs" asindicated.
146. Does Article 1108(1)(a)(iii) mean thatlocal governments remain freetoimpose any
performance requirement listed inArticle 1106 without anytime-limits?
Article 1108(1)(a)(iii) "grandfathers" without time-limit onlythose performance requirements
maintained byalocalgovernment which wereinexistence onthedateofentryintoforceoftheNAFTA.
147. What arethecriteria (funding, acting agency, origin oflaworregulation which isthe
basis foraction) todistinguish whether a"measure ismaintained byaParty atthefederal
level..., State orprovince level...oralocal government"?
There arenocriteria setforth intheNAFTA tomake suchdistinctions. Those distinctions
aremade under eachParty'slaw.WT/REG4/1
Page46
148. TheEUisMexico 'ssecond largest source ofdirect investment. Bybecoming partofa
market oriented regional grouping liketheNAFTA andthusachieving duty-free access
tooneofthelargest andrichest markets intheworld, Mexico isexpected tobecome an
evenmore attractive investment destination forthird countries, including theEuropean
Community.
However, amajor point ofconcern forECrelates totheeffects oftheNAFTA inthearea
offinancial services, insurance andinvestment. Itseems clearthat,inthese sectors, Mexico
might during thetransition period, limitthebenefits oftheagreement tocompanies which
arecontrolled byNAFTA nationals. This isanobvious interpretation ofpoint 6of
Annex VII(c) oftheagreement, according towhich Mexico shall administer itslicensing
andapproval procedures during thetransition period inamanner thatdoesnotdeny
thebenefits oftheliberalization toenterprises ofanother Party ultimately controlled by
nationals ofthatParty.
Thisiscontrary toCommunity practice towards foreign-owned firms established inthe
EC(andtheEEA) andpresents serious problems forEuropean Community enterprises.
Thequestion istherefore towhich extent NAFTA benefits inthisareawillbelimited to
companies controlled byNAFTA nationals andhowthiswillimpact onthetreatment given
toEC-controlled firms.
TheMexican authorities have earlier indicated thataslongasafinancial institution is
incorporated intheUSorCanada, notdiscriminatory treatment willtakeplace (even
though theinstitution maynotbecontrolled byaNAFTA national). Could Mexico confirm
itsintentions onthisissue?
Would thesame attitude befollowed byCanada andtheUS?Ifnot,what attitude would
eachParty totheAgreement adopt?
Towhat extent doestheMexican commitment constitute acommitment toliberalization
withrespect tothecurrent Mexican legislation onforeign investment ("Ley deInversión
Extranjera", published intheOfficial Journal of27December 1993)?
Theentry intoforceonDecember 1993ofMexico 'sForeign Investment Lawfollows aprocess
ofreform initiated inthemid-1980 'stogradually break away fromthecomplex, inward looking and
defensive policies ofthe1973Foreign Investment Law. Itisimportant tostress thatthenewlegislation
incorporates theliberalization commitments taken byMexico under NAFTA and,insome cases,
introducesliberalizationgoingbeyondthesecommitments.Newcomplementarylegislationinthefinancial
servicessectormakesfurtheradvancestowardsliberalization.However,thematterofforeigninvestment
isstillconsidered controversial anddelicate.
Pursuant toMexico 'saccession totheOECD, theMexican government agreed toreview its
treatment ofnon-NAFTA investors, nolaterthanthebeginning of1998, andtoconsider thepossibility
ofextendingNAFTAbenefitstothoseinvestmentsininstitutionssuchas:investmentcompanies,bonding
firms, general deposit warehouses andforeign exchange firms.
Mexico confirms thecriteria bywhich itgrants anon-discriminatory treatment tonon-NAFTA
financial institutions, aslongassuchinstitutions areincorporated under U.S.orCanadian laws. Once
theMexican financial system hasfurther developed, Mexico could evaluate thepossibility ofextending
NAFTA 'sbenefits tonon-NAFTA countries orcould dosobyeventually negotiating anagreement
containing provisions onfinancial services andrelated areas.
TheUnited States willfollow thesame ruleasMexico ingranting acompany incorporated
within theNAFTA territory, regardless ofownership, theprotections ofChapter 14.WT/REG4/1
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Asageneral rule,Canada 'sfinancial services regime isthesameforNAFTA Parties andGATS
parties. Thisisaresult ofsignificant liberalization thattookplace attheconclusion oftheUruguay
Round whereby Canada lifted forallmembers oftheWTO theremaining restrictions onforeign
ownership ofCanadian controlled financial institutions andthelimitation ontotaldomestic assets of
foreign bank subsidiaries inCanada. Theonlyremaining ruledistinguishing NAFTA-controlled
institutions fromothers isthatforeign banksubsidiaries controlled byaresident ofaNAFTA country
neednotobtain approval from theMinister ofFinance prior toopening branches inCanada. Non-
NAFTA-country controlled institutions continue tofacethisobligation.
149. Could Canada clarify towhich extent itmaintains more severe investment screening
thresholds thanother NAFTA Parties notonlytowards non-NAFTA members butalso
towards third country enterprises dulyestablished inNorth America butnotwholly owned
byNorth American nationals?
AspartofCanada 'slegislation toimplement itsWTO commitments, thepreferential treatment
provided toNAFTA investors under theInvestment Canada Actwasalsoextended toallinvestors
fromWTO members. Asaresult, there isnodifference intreatment between NAFTA investors and
investors from WTO Member countries inthereview process under theInvestment Canada Act.
Insummary, thenewrules areasfollows:
ForallNAFTA andWTO investors, thereview threshold fordirect acquisitions ofaCanadian
business is$160 million (indexed annually forthenominal increase inGDP) andthere isnoreview
required fortheindirect acquisition ofaCanadian business (anindirect acquisition occurs when a
Canadian business isacquired through theacquisition ofitsparents located outside Canada). The
previous thresholds ($5million fordirect acquisitions and$50million forindirect acquisitions) apply
inthefollowing sectors: cultural industries; financial services except insurance; transportation; and
uranium. Inaddition foranyforeign investor inthecultural industries, theestablishment ofanew
business ortheacquisition ofanexisting business ofanysizemaybesubject toreview inthepublic
interest.
150. DotheUSconsider thattheperformance requirements contained inanumber ofpieces
ofpending legislation on"conditional national treatment" suchasNational Competitiveness
Technology Partnership Act,Environment Technologies ActandNational Competitiveness
Actareincompliance withitsobligation under Article 1106?
None ofthose pieces oflegislation were passed bythelastCongress andnone havebeen
reintroduced.
151. What ismeant by"substantial business activities"? Cantheparties givedetails ofthe
criteria andprocedures thatmust befollowed inorder foracompany toshow thatit
satisfies thiscondition? Istheburden ofproof onthecompany orisitfortheparty denying
thebenefits oftheagreement toshow thatthecondition isnotsatisfied?
152. Aclarification isneeded ofwhat ismeant by"substantial activity" inArticle 1113 ofthe
NAFTA. Thisterm isalsousedinArticle 1005 onGovernment Procurement.
Answer toquestions 151and152:WT/REG4/1
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Theconcept of"nosubstantial business activities" isnotdefined intheNAFTA, butwould
beapplied onacase-by-case basis depending onthespecific circumstances ofaparticular business.
Forexample, subject toprior notification andconsultation, aParty maydenythebenefits ofChapter
11intheevent thatshellcompanies areused. Thecomplaining Party orinvestor would beartheburden
ofproving thatthebusiness atissuehassubstantial business activities intheterritory ofthedefending
Party.
153. TheTRIMs obligations within NAFTA would appear tobelessonerous thanthose that
apply within theTRIMs Agreement negotiated intheUruguay Round. Thiscould mean
thatunder NAFTA, aGATT-inconsistent TRIM could existbetween NAFTA Parties, but
notbetween aNAFTA Party andathird party (which isalsoaGATT member). What
istheassessment oftheNAFTA Parties onthispoint?
Onthecontrary, theperformance requirements obligations oftheNAFTA exceed those
illustratively listed intheTRIMs Agreement. Forexample, theNAFTA explicitly disciplines exclusive
supplier andexport requirements.
154. Intheevent ofadispute concerning aTRIM which isbothGATT-inconsistent andNAFTA-
inconsistent, would recourse betothedispute settlement procedures under GATT orunder
NAFTA?
Under theterms ofNAFTA Article 2005(1), thechoice offorum isgenerally lefttotheParty
initiating thedispute. Inaddition, onceNAFTA Chapter 20orWTO dispute settlement procedures
havebeenchosen, thenthechoice excludes thealternative forum regarding thesamemeasure ormatter.
155. Article1108(1)providesexemptionsforsub-nationalauthoritiesinrelationtotheapplication
ofArticle 1106(1)(d) dealing withTRIMs-type arrangements. These measures arereferred
toasnon-conforming measures. What istheeffect ofArticle 1108(1) onsub-national
authorities which apply GATT-inconsistent TRIMs?
Article 1108(1) permits stateauthorities totakereservations fornon-conforming measures in
effect atthetimeofentry intoforce oftheNAFTA, including measures inconsistent with1106(1)(d),
iflisted inAnnex IbyJanuary 1,1996. Existing non-conforming measures atthelocallevel need
notbelisted because theywereautomatically grandfathered withrespect toNAFTA obligations upon
entry intoforce oftheAgreement. These exemptions donotaffect theParties 'rights andobligations
under TRIMS.
156. Article1108(1)specifiesthatareservationorexceptionappliedtonon-conformingmeasures
which aremaintained onaSchedule canbecontinued orrenewed promptly oramended
inawaywhich doesnotdecrease their degree ofconformity. CanGATT-inconsistent
TRIMs applied atsub-national levelbeextended indefinitely under Article 1108(1)?
Sub-national measures inconsistent withArticle 1106 maybepermanently grandfathered in
accordance withArticle 1108 withrespect toNAFTA obligations.
157. Doesthenon-obligatorywordingofArticle1108(2)meanthat,unliketheTRIMsAgreement
which requires members tonotify theCouncil forTrade inGoods ofallnon-conforming
measures within 90daysofthedateofentry intoforce oftheWTO Agreement andthen
toeliminate those measures within twoyears, NAFTA Parties arenotrequired tonotify
anyexisting non-conforming measures?WT/REG4/1
Page49
Anystateorprovincial non-conforming measure mustbesetoutinAnnex Iinorder toreserve
themeasure. Ifameasure isnotlisted inAnnex I,orifthesector oractivity fallsoutside Annex II,
themeasure isnotreserved. Local non-conforming measures neednotbelisted intheAnnex inorder
tobegrandfathered byArticle 1108.
158. Towhat extent cantheexceptions onqualification requirements forgoods andservices
withrespect toexport promotion (Article 1108(8)(a)) andonthecontent ofgoods necessary
toqualify forpreferential tariffs orpreferential quotas (Article 1108(8)(c)) encompass
GATT-inconsistent TRIMs?
ThereisnoinconsistencybetweentheNAFTAandGATTobligationswithrespecttoqualification
requirements.
159. What istheintended coverage of"export promotion" inArticle 1108(8)(a)?
Examples ofexport promotion could include tiedaidprograms ortrade fairs.
160. Could theexclusions andmeasures setoutinAnnexes I,IIandIIIinclude GATT-
inconsistent TRIMs?
Itistheoretically possible, butunlikely, thatthemeasures, sectors andactivities setoutinthe
annexes could include GATT-inconsistent TRIMs.
Services (Chapter 12)
161. Could theparties giveanestimate ofthevolume oftrade inservices affected bythe
Agreement? Could theparties indicate thespecific services sectors particularly concerned
byaneffective liberalization?
Itisnotpossible toquantify theexact percentage ofservices trade covered byNAFTA. The
scope ofChapter 12isbroad, covering allsectors except financial services, which iscovered by
Chapter 14,andsome airservices. Most government measures affecting cross-border tradeinservices
arecoveredbyChapter12,withsomelimitedexceptionssuchassubsidiesandgovernmentprocurement.
Service sector investment iscovered byChapter 11,andtemporary entryforbusiness persons iscovered
byChapter 16.Chapter 13addresses issues relevant tothetelecommunications sector.
NAFTA applies totradeandinvestment inmostservice sectors withspecific exceptions. For
example, Chapter Twelve (Cross-Border Trade inServices) doesnotapply toairtransport services,
except forspecialty airservices. Chapters 11,12and14permit theNAFTA Parties totake
"reservations"whichallowthemtocontinuetheapplicationoflawsandregulationswhichdonotconform
withapplicable NAFTA principles. Thescheduling ofreservations forsub-national measures thatdo
notconform withtheprovisions ofChapter 11and12must becompleted byJanuary 1,1996. All
other reservations havealready beencompleted.
Inaddition tothegenerally applicable principles contained inChapters 11,12and14,the
NAFTA Parties alsonegotiated specific liberalization commitments. These commitments arecontained
inannexes tothesechapters. Inaddition, anumber ofreservations provide forthephase-out ofcertain
nonconforming measures. Consequently, further liberalization under NAFTA inservices sectors will
takeplace asthese commitments arecarried out.WT/REG4/1
Page50
CANADIAN DATA
Statistics Canada records international transactions inservices infivesectors: business services,
travel, freight andshipping, government andother services, asnoted below. Except where indicated,
statistics arebroken outonlyfortheUnited States, notMexico.
Canadian Aggregate Trade inServices
Inmillions ofCanadian dollars, seasonally adjusted
Payments Receipts Balance
1993 aggregates $40,681 $26,880 $13,802
1994 aggregates
(1stto3rdquarters) $30,729 $22,016 -$8,713
Canadian Trade inBusiness Services
Inmillions ofCanadian dollars, seasonally adjusted
Payments Receipts Balance
1993 aggregates $14,996 $10,198 -$4,798
1994 aggregates
(1stto3rdquarters) $11,050 $8,270 -$2,780
1993 trade withU.S. $10,258 $5,982 -$4,276
1994 trade withU.S.
(1stto3rdquarters) $7,095 $4,875 -$2,220
1992 trade
withMexico
(latest figures) $38 $86 $48
Canadian Trade inTravel Services
Inmillions ofCanadian dollars, seasonally adjusted
Payments Receipts Balance
1993 aggregates $16,681 $8,804 -$7,877
1994 aggregates
(1stto3rdquarters) $12,148 $7,317 -$4,831
1993 withU.S. $10,831 $5,079 -$5,752
-ofwhich,
passenger fares $1,312 $326 -$986
1994 withU.S.
(1stto3rdquarters) $8,020 $4,673 -$3,347WT/REG4/1
Page51
Canadian Trade inFreight andShipping Services
Inmillions ofCanadian dollars, seasonally adjusted
Payments Receipts Balance
1993 aggregates $6,563 $5,891 -$672
1994 (1stto3rd
quarters) $5,660 $4,977 -$683
1993 withU.S. $4,325 $3,647 -$678
1994 withU.S.
(1stto3rd
quarters) $3,702 $3,164 -$538
With respect tospecific service sectors particularly affected byliberalization commitments,
commitments weremade bythethreeparties intheareaofspecialty airservices. Inaddition, theUnited
StatesandMexicomadecommitmentstoliberalizecross-borderlandtransportationservices(bus,truck).
There alsoareprovisions inChapter 12fortheelimination ofcitizenship andresidency requirements
forprofessional services andformutual recognition ofprofessional qualifications.
MEXICAN DATA
Thefollowing information issourced from theBanco deMexico, SECOFI.
Trade inServices 1993-94
(million ofUSdollars)
1993 1994*
Credits
Non-factor services 9,352.60 7,124.80
Travellers 6,167.00 4,624.70
Other services 3,185.60 2,500.10
Debits
Non-factor services 11,028.30 8,388.50
Freights &insurance 2,180.70 1,923.00
Travellers 5,561.80 3,901.20
Other 3,285.80 2,564.30
Balance (1,675.70) (1,263.70)
Trade withtheUnited States
Credits 7,482.08 5,699.84
Debits 8,822.64 6,710,80
*1stto3rdquarters.WT/REG4/1
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U.S.DATA
U.S.InternationalSalesandPurchasesofPrivateServices,publishedbytheBureauofEconomic
Analysis (BEA) oftheU.S.Department ofCommerce, gives services datafortradebetween theUnited
States andMexico, andtheUnited States andCanada. Services trade dataarepublished annually in
theSurvey ofCurrent Business.
Datafrom themost recent article ofSeptember 1994 follows:
I. Cross-border (balance ofpayments) transactions for1993
U.S.receipts from Canada $16.4 billion
U.S.receipts from Mexico $8.4billion
Total $24.8 billion
U.S.payments toCanada $8.6billion
U.S.payments toMexico $8.3billion
Total $6.9billion
II. Foreign affiliate salesfor1992 (themost recent yearavailable)
Sales ofservices toforeign persons byforeign affiliates ofU.S.companies:
Affiliate salesinCanada $17.6 billion
Affiliate salesinMexico N/A
Sales ofservices toU.S. persons byforeign affiliates ofCanadian andMexican
companies:
Canadian affiliate salesinU.S. $20.0 billion
Mexican affiliate salesinU.S. N/A
162. Article 1201.2(d): Should theexclusion ofallforms ofsubsidies from thecoverage of
theAgreement beunderstood asanexception tonational treatment andthemostfavoured
nation clause?
Subsidies arenotcovered byNAFTA Chapter 12and,thus,theMFN, national treatment and
other provisions ofthatchapter donotapply tosubsidies.
163. What percentage ofservices trade between theParties iscovered bytheAgreement?
Seeresponse toquestion 161.
164. Same questions asforArticle 1108 above.
Oftheseven questions relating tothecategory Reservations andExceptions (Article 1108),
onlyonequestion, number 147,appears relevant toChapter 12.Theresponse tothisquestion isthe
same withregard toArticle 1206 asitiswithregard toArticle 1108.WT/REG4/1
Page53
165. What isthetrade impact ofthereservations andexceptions listed bythePartners tothe
Agreement?
There isnotrade impact vis-à-vis thirdparties. Theonlytrade impact willbethatbetween
NAFTA Parties. Reservations atthesub-national level under Annex Iwillnotbesubmitted until
January 1,1996anditisthusimpossible, atthistime, toestimate theimpact oftherelevant provincial
reservations andexceptions. Withrespect tothereservations listed atthefederal level, itisnotpossible
toquantify thetrade effects oftheannexes toChapters 11and12.However, theoverall trade impact
isexpected tobeliberalizing. Annex Ilists(orinthecaseoftheprovinces andstates, willlist)measures
inconsistent withChapters 11and12thatwereineffect asofJanuary 1,1994. There isnorequirement
tolistlocalgovernment measures. Thelisted measures maynotbemade more restrictive andnew
restrictions maynotbeintroduced inthese areas. Inaddition, there isacommitment inAnnex Ito
liberalize certain measures, e.g.specialty airservices, landtransportation andtelecommunications value-
added services.
AnnexIIlistssectorsandactivitiesinwhichthePartiesmayimplementnewmeasuresinconsistent
withChapters 11and12.However, these generally aresectors thatarenottraded commercially, such
associal services, oraresubject tofurther GATS negotiations, including basic telecommunications
andmaritime transport. Theimpact ontrade ofthese reservations therefore willbesmall, but
unquantifiable.
Annex IIIlistsinvestment sectors thatarespecific totheMexican stateandtherefore arenot
relevant tocross-border services.
Annex IVlistsexceptions toMFN thataregenerally subject tobilateral treaties orongoing
GATS negotiations. Notrade impact isanticipated.
Annex Vlistsnon-discriminatory quantitative restrictions fortransparency onlyandthushas
notrade impact. Chapter 12includes anobligation toendeavour toliberalize these measures.
166. Article 1206 (Reservations): Please provide anestimate ofthevalue andpercentage of
cross-border trade excluded from theoperation oftheAgreement through thenon-
application ofArticles 1202, 1203and1205tomeasures taken bytheParties atthefederal
level.
These statistics arenotavailable. Seeresponses toquestions 161and165. Itshould benoted
thatthescope ofChapter 12isbroad. While theimpact ofreservations intheannexes cannot be
quantified, Annex Ireservations aresubject to"standstill" andcannot bemade more restrictive.
Chapter 12willbesuccessful ataminimum inbinding measures inmostsectors toexisting levels of
liberalization.
167. Dotheparties envisage multilateralizing thedismantling ofthequantitative restrictions
maintained, asprovided forinArticle 1207.1?
Thecommitment isasstated: theParties shallperiodically, butinanyevent atleastevery
twoyears, endeavour tonegotiate theliberalization orremoval ofthequantitative restrictions setout
inAnnex V.TheParties haveyettodecide ontheextent towhich thisnegotiation willoccur orthe
schedule forsuchnegotiations.WT/REG4/1
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168. How should Article 1207.1(b) and3beinterpreted? Dotheyimply thattheparties have
notmade anygeneral commitment tofreeze theexisting levelofquantitative restrictions?
Does thatmean thatthecommitments relate onlytodiscriminatory measures andnotto
restrictive measures concerning market access when theyarenotdiscriminatory?
Thecommitment istonotify anynewnon-discriminatory quantitative restrictions. There is
norestriction ontheintroduction ofsuchmeasures infuture, though there isacommitment inArticle
1207(4) to"endeavour tonegotiate theliberalization orremoval ofthequantitative restrictions".
169. Article 1210.2: Dotheparties intend tooffernon-party countries anadequate opportunity
tobenefit from thesame recognition ofeducation, experience andcertifications?
Theobligations under NAFTA apply onlytoNAFTA Parties. Theseparate issueofobligations
under GATS (notably therelationship between arrangements under Article Vandobligations under
Article VII)would needtobeaddressed under thatagreement.
170. Article 1210.3: Should theobligation toeliminate citizenship andresidency requirements
beinterpreted ashaving mandatory legal force? Orisitaquestion ofabest-endeavour
clause subject toreciprocity?
Asstated inArticle 1210.3, eachParty musteliminate anycitizenship orpermanent residency
requirement currently inforce. Where aParty doesnotcomply withthisobligation, anyother Party
maymaintain orreinstate anequivalent requirement.
171. Article 1211.1(b): What aretheconditions ofregistration oftransport equipment ineach
oftheparties?
Article 1211.1(b): Registration oftransportation equipment normally means licensing within
oneoftheParties. Thismayentail economic needs orpublic convenience andnecessity tests, which
arereferred tounder Annex Vschedules.
IntheUnited States, vehicles areregistered atthestatelevel. Fortransport vehicles tooperate
inmore thanonestate, thevehicle must beregistered ineachstate. However, mechanisms for
reciprocity ofregistration between states existandarereadily available.
Thegeneral conditions toregister transport equipment inMexico arethefollowing:
1. Iftheequipment wasnotdomestically manufactured, animport permit mustbesecured.
2. Toprovide federal landtransportation services, andthusobtain thecorresponding plates
andcirculation card, anapplicant mustcomply withtherequirements established by
theSecretaría deComunicaciones yTransportes SCT(Secretariat forTransportation
andCommunications). Therequirements include: insurance policy, proof ofadequate
facilities andcertificate oflowemission pollutants.
3. Specialized freight services ofmaterial, remnants, andhazardous waste materials also
require certification thatthevehicles comply with thephysical andtechnical
specifications forthesafety transportation ofgoods, aswellasthecleaning andparking
facilities required according totheofficial standards.WT/REG4/1
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172. According toArticle 1211, aservice provider located inaNAFTA country maybedenied
thebenefits oftheNAFTA. Arethere anyprovisions which would deny thebenefit of
theNAFTA, inother sectors thantheservices?
There arespecific denial ofbenefits provisions incorporated intoChapters 10,11and12.
173. Article 1211.2 (Denial ofBenefits): HowdotheParties define theconcept "nosubstantial
business activities"?
Theconcept "nosubstantial business activities" isnotdefined intheNAFTA, butwould be
applied onacase-by-case basis depending onthespecific circumstances ofaparticular business.
174. Annex 1210.5 -Have theparties already initiated work programmes? Ifnot,when do
theyintend todoso?
Parties havealready initiated work programs onforeign legalconsultants andonengineers.
175. Isittheintention oftheNAFTA partners toseekawaiver onservices under Article V
(Economic Integration) oftheGeneral Agreement onTrade inServices when itenters
intooperation?
Article Vstates that"[t]his Agreement shallnotprevent anyofitsMembers frombeing aparty
toorentering intoanagreement liberalizing trade inservices" provided theagreement meets certain
criteria. Since theNAFTA meets suchcriteria there isnorequirement (orprovision) forawaiver.
176. NAFTA doesnotcontain anyrules fordealing withsubsidies inservices trade. Isthis
because subsidies arenotconsidered ofsufficient relevance inthecontext ofafreetrade
agreement?
Disciplines withrespect tosubsidies aretobenegotiated inamultilateral context under
Article XVofGATS.
Telecommunications (Chapter 13)
177. Article 1302.3 -Could theparties clarify thevarious forms of"cross-subsidization"
authorized? Howshould thisarticle beunderstood inrelation toArticle 1305(monopolies)?
Article 1305 requires thateachParty takemeasures toensure thatcross-subsidization from
monopoly tocompetitive activities doesnotadversely affect persons ofother Parties.
178. What arethereasons fornotincluding aMost-Favoured-Nation Article intheprovisions
fortelecommunications, bearing inmind thatthere isoneforfinancial services?
Chapter 13(telecommunications) isanelaboration ofthedisciplines ofChapters 9(standards),
11(investment) and12(cross-border trade inservices) withrespect totheterms andconditions for
access toanduseofpublic telecommunications transport networks andservices. Chapters 11and12
contain MFN provisions. Note, however, thatthesupply ofbasictelecommunications (including both
services andinfrastructure) issubject toreservations setoutinAnnexes IandIIoftheNAFTA. MFN
does, however, apply toaccess toanduseofbasic telecommunications andequipment certification
aswellastotheprovision ofenhanced telecommunications services.WT/REG4/1
Page56
Financial Services (Chapter 14)
179. Inrelationtoenforcementanddisputesettlement,theAgreementallowsforcross-retaliation
between goods andservices, except forfinancial services. What arethetrade policy reasons
fordoing so?
Article 1414(5) provides thatwhere adispute settlement panel finds ameasure inconsistent
withtheAgreement andthemeasure affects onlythefinancial sector, onlyfinancial services sector
benefits maybesuspended. Similarly, when ameasure found inconsistent withtheAgreement does
notaffect thefinancial sector, thiscannot haveimplications forthefinancial services sector.
Therationale forthisposition istoprevent thelinkage offinancial sector disputes withother
disputes between theParties. Theobjective wastoensure, asmuch aspossible, thatfinancial sector
policy isnotunduly affected byother trade disputes thatmayarise. Thisposition isconsistent with
theunique andhighly sensitive nature ofthissector.
180. WilltheUSprovide national treatment toCanada andMexico intheareaoffinancial
services following anyreview/amendment totheGlass Steagall Act? When isthatlikely
tooccur?
Although Congress currently hasbefore itproposals thatwould amend theGlass/Steagall Act
invarious ways, itisimpossible tosaywhen anyamendment might beenacted. Aswasthecasewith
respect totheReigle/Neal Interstate Banking andBranching Efficiency Actof1994, theAdministration
iscommitted toseeknational treatment forforeign banks.
181. InCanada, banks from third countries arenottreated inthesame wayasbanks from
NAFTA countries. IsCanada contemplating anychange initslegislation inthisregard?
Seeanswer toquestion 183.
182. Doestheadoption oftheInterstate Banking andBranching Legislation bytheUnited States
imply areview ofmarket access byCanada andMexico, asprovided forinArticle 1403.3
oftheNAFTA? Ifso,what would betheconditions applicable totheestablishment of
banks within NAFTA fornationals ofthethree signatory countries andforfinancial
institutions from third countries?
TheReigle/Neal Interstate Banking andBranching Efficiency Actof1994, which provides
national treatment forforeign banks, willpermit commercial banks toexpand throughout theentire
United States bymeans ofacquisition ofsubsidiaries and,depending onthechoices made bythe
individual states, alsobybranches. Although themajor changes required bythelegislation havenot
yetbecome effective, theUnited States believes thelegislation willeventually serve asabasistoinitiate
thereview andassessment ofmarket access asprovided inArticle 1403.3 oftheNAFTA. InCanada 's
view, theactions taken bytheindividual states under thelegislation willhavetobeassessed before
itcanbedetermined whether ornottherequirements forareview havebeentriggered.
183. InCanada, banks from third countries arenottreated inthesame wayasbanks from
NAFTA countries. IsCanada contemplating anychange initslegislation inthisregard?
Answer toquestions 181and183:WT/REG4/1
Page57
Market Access, national treatment andMFN treatment offoreign institutions inCanada are
thesubject ofongoing negotiations intheGATS. Assuch, anyliberalization thatoccurs inCanada
willbetheresult ofnegotiated liberalization onthepartoftheparties totheGATS agreement.
Theprincipal difference between NAFTA treatment andCanada 'sexisting offer inGATS
negotiations isthatNAFTA provides thatforeign banksubsidiaries controlled byMexican orUnited
States residents areexempt fromtherequirement toobtain approval oftheMinister ofFinance prior
toopening branches within Canada.
184. Annex VII(B)oftheNAFTA provides forquotas limiting thecapital heldinMexico by
foreign financial institutions.
Could Mexico explain howthese quotas arecurrently administered, provide precise
information about thepresent situation, sector bysector, andindicate what criteria are
applied forissuing authorizations. Inparticular, figures ontheremaining margins would
beveryuseful forunderstanding thescope oftheMexican commitment.
Could Mexico explain what access toitsfinancial market isoffered tothemembers of
theGATS?
Mexico 'sfinancial services opening hasbeendesigned tobegradual inorder toallow domestic
institutions toadapt tothenewenvironment andtoexpose them toforeign competition.
Averyimportant stepintheopening ofMexico 'sfinancial services wastheNorth American
FreeTrade Agreement (NAFTA). Under NAFTA, Canadian andUSbased financial institutions,
regardless ofthenationality oftheirinvestment, willbeabletoestablish affiliates inMexico toprovide
alltypes offinancial services.
Inorder toguarantee thisgradual opening, Mexico established "market share limits" during
atransition period, thatrunsfromJanuary 1,1994toDecember 31,1999. During thisperiod, affiliates
offoreign financial institutions willbesubject toindividual and/or aggregate market share limits
applicable toeachtypeoffinancial institution. Bothindividual andaggregate market share limits are
based ontheoperating capital ofalloftheinstitutions ofthesame typeestablished inMexico.
Individual market share limits areapplicable toeachparticular affiliate, whereas aggregate
market shares areapplicable toallNAFTA affiliates established inMexico. Based ontheapplicable
market access wecandivide financial institutions inthree groups.
(i) Financial institutions subject toindividual andaggregate market share limits
Inthisfirstgroup wefindthemajor financial institutions suchasbanks, securities firms and
insurance companies. These institutions willfacelimitations ontheirindividual andaggregate
growth. Individual limits remain thesameduring thewhole transition period whereas aggregate
market share limits haveconstant increases during thisperiod. Thelimits established inNAFTA
forthistypeoffinancial institutions are:WT/REG4/1
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INTERMEDIARY INDIVIDUAL LIMIT AGGREGATE LIMIT . BASE
BANKS 1.5% 8-15% NETCAPITAL
SECURITIES FIRMS 4% 10-20% GLOBAL CAPITAL
INSURANCE COMPANIES 1.5% 6-12% Measured Separately
ForCasualty And
LifeAndHealth
Inaddition tothese market share limits, "safeguard provisions" forbanks andsecurities firms
wereestablished inNAFTA. These provisions maybeinvoked afterthetransition period. A
safeguard provision allows Mexico tofreeze unilaterally thesizeofparticipation ofNAFTA
banks andsecurities firms affiliates, onceandforathree yearperiod from 2000 to2003, if
their participation exceeds 25% ofthebanking market and30% ofthesecurities market
respectively.
Inthebanking sector thereisanadditional safeguard provision, applicable afterthetransition
period andonapermanent basis. Itprohibits theacquisition ofbanks byforeign financial
institutions, iftheresulting bankexceeds 4%ofthemarket (thisthreshold wasraised to6%
inthe1995 amendment).
(ii) Intermediaries subject toaggregate market share limits
Inthisgroup, wefindlimited scope financial institutions ofrecent creation, leasing companies
andfactoring companies which aresubject onlytoaggregate market share limits:
Intermediary Aggregate Limit Base
Limited Scope Financial
Institutions3% Assets OfAllBanks Plus
Assets OfAllLimited
Scope Financial
Institutions
Leasing Companies 10-20% NetWorth
Financial Factoring
Companies10-20% NetWorth
(iii) Intermediaries notsubject tomarket share limits
Inthisthirdgroup wefindforeign exchange firms, securities specialists, investment companies,
managing companies ofinvestment companies, bonding companies andgeneral deposit
warehouses, thatwillnotbesubject tomarket share limits therefore notsubject toagradual
opening.
Legal amendments toimplement thefinancial opening.WT/REG4/1
Page59
After NAFTA wasratified bylegislative bodies oftheParties, theMexican Congress approved
amendments tothefinancial legislation. Thepurpose ofthisamendment wasnotonlyimportant
fortheimplementation ofNAFTA butalsoforthecreation ofaframework thatwould allow
furtherliberalizationofthefinancialsectorthroughthesigningofotherinternationalagreements.
There isnonationality requirement forthemembers oftheboard ofdirectors, including the
chief executive officer. However, theCEO andthemajority oftheboard must havetheir
residence inMexico.
Affiliates maynotissue subordinate debtunless itisacquired bytheirparent company.
Affiliates maynotestablish branches orsubsidiaries outside Mexico.
AUTHORIZATION PROCESS
Based onthe1993 amendments, theMinistry ofFinance andPublic Credit issued on
April 21,1994 the"Regulations fortheestablishment ofaffiliates offoreign financial institutions".
These regulations determine therequirements thattheapplications fortheestablishment oracquisition
ofaffiliates byforeign financial institutions mustmeet, theprocedures forsuchapplications andthe
method ofcalculation ofindividual andaggregate market share limits.
Under these regulations, theMinistry ofFinance received, byJuly31,1994, 102applications
fordifferent types offinancial institutions. AsofJanuary 1995, theMinistry ofFinance hadissued
favourable opinions and/orauthorizations for80ofthose applications.
Applications fortheestablishment ofaffiliates offoreign financial institutions
Intermediary Applications Favourable Opinions Authorizations
Financial Groups 10 6 4
Banks 20 11 7
Securities Firms 17 16
Insurance Companies 13 8 4
Limited Scope
Financial Institutions17 11
Leasing Companies 12 1 5
Factoring Companies 5 2 3
Foreign Exchange
Firms1 1
Bonding Companies 1 1
Investment
Companies6
Total 102 41 39WT/REG4/1
Page60
Withtheexception ofsecurities firms, where the1994market share wasinsufficient, thequotas
wereample enough toauthorize alloftheapplications received withtheamounts requested. Forthe
firstquarter of1995, there isquota available foralltypes ofinstitutions, excluding securities firms.
1995 NAFTA Market Share Limits
Intermediary Minimum Capital Individual Limits Aggregate Limits
Commercial Banks N$60,424,000
USD 13,427,5551.5%
N$839,430,000
USD 186,540,0009.4%
N$5,260,430,000
USD 1,168,984,444
Securities Firms N$30,000,000
USD 6,666,6664%
N$207,514,480
USD 46,114,32812%
N$622,543,440
USD 138,342,986
Insurance Casualty N$7,000,000
USD 1,555,5551.5%
N$42,757,065
USD 9,501,5708%
N$228,037,680
USD 50,675,040
Insurance Lifeand
HealthN$7,000,000
USD 1,555,5551.5%
N$16,882,530
USD 3,751,6738%
N$90,040,160
USD 20,008,924
Intermediary Minimum Capital Aggregate Limits
Financial Leasing Companies N$9,000,000
USD 2,000,00012%
N$435,731,280
USD 96,829,173
Financial Factoring
CompaniesN$9,000,000
USD 2,000,00012%
N$189,949,740
USD 42,211,053
Limited Scope Financial
InstitutionsN$9,063,600
USD 2,014,1333%
N$20,956,860,000
USD 4,657,080,000
Minimum Requirements forallaffiliates offoreign financial institutions notsubject tomarket share under
NAFTA
Intermediary Minimum Capital
Bonding Companies N$10,000,000
USD 2,222,222
General Deposit Warehouses N$9,000,000
USD 2,000,000
Foreign Exchange Firms N$7,500,000
USD 1,666,666WT/REG4/1
Page61
1995 NAFTA Market Share Availability
Intermediary (Thousands ofN$) % (Thousand ofUS$)
Banks 2,071,825 3.7 460,405
Securities Firms
Insurance Companies 132,003 5.4 29,334
Leasing Companies 342,325 9.4 76,072
Factoring Companies 106,616 6.7 23,692
Limited Scope Financial
Institutions17,888,426 2.6 3,975,205
(Exchange rate: N$4.5)
Theapplication process fortheauthorization ofaffiliates wasthesame thattheoneapplied
todomestic institutions. Foreign financial institutions havenotmodified theiroriginal business plans
aftertheeconomic events occurred inDecember oflastyear. Most ofthem willbegin tooperate in
thefirstsemester of1995.
OnJanuary 1995, several financial legalstatutes wereamended inorder toincrease theforeign
ownership (excluding subsidiaries) incommercial banks, holding companies, securities firms and
securities specialists.
185. Could Canada confirm thattherestriction relating tothetotal assets offoreign banks
mentioned inAnnex VII,Section C,paragraph 1,willnotbeapplicable tothemembers
oftheGATS from itsentry intoforce, since thisrestriction doesnotappear initsGATS
schedule ofcommitments? CanCanada confirm thatitistherefore aquestion ofalesser
opening relative toitsGATS commitments?
Annex VII,Section C,paragraph 1provides thatMexico isentitled tothesame treatment as
theUnited States --thatis,itisexempt fromthelimits onforeign ownership ofCanadian-controlled
financial institutions. Inaddition, Mexican banks willnolonger besubject totheaggregate ceiling
thatisapplied totheassets offoreign banksubsidiaries inCanada. There arenolonger restrictions
ofthisnature inCanada 'sGATS offer. Amendments totheBank Act,Insurance Companies Act
(Canada), Trust andLoan Companies Act(Canada) andtheInvestment Companies ActinDecember
1994 eliminated bothofthese limits. Assuch, allGATS parties areeligible forthesame treatment
asNAFTA Parties.
186. Could Canada explain thedifferential treatment offinancial institutions according to
whether ornottheyarecontrolled byMexican orAmerican residents? CanCanada
confirm thatintheabsence ofarequest forwaiver oftheGATS most favoured nation
clause, suchdifferential treatment isincompatible withthedisciplines oftheGATS?
Asindicated intheresponse toquestion 183,market access, national treatment andMFN
treatment offoreign institutions inCanada arethesubject ofongoing negotiations intheGATS. As
such, anyliberalization thatoccurs inCanada willbetheresult ofnegotiated liberalization onthepart
oftheparties totheGATS agreement.WT/REG4/1
Page62
Theprincipal difference between NAFTA treatment andCanada 'sexisting offer inGATS
negotiations isthatNAFTA provides thatforeign banksubsidiaries controlled byMexican orUnited
States residents areexempt fromtherequirement toobtain approval oftheMinister ofFinance prior
toopening branches within Canada.
187. CanCanada confirm thatitunderstands Article V.6oftheGATS asprohibiting such
apractice eveninthecaseofaneconomic integration agreement?
AssetoutinArticle VoftheGATS, Canada confirms thatNAFTA isdesigned tofacilitate
trade between theParties totheAgreement anddoesnotraisetheoverall level ofbarriers totrade
inservices tonon-members ofNAFTA compared tothelevelapplicable prior tosuchanagreement.
Temporary Entry forBusiness Persons (Chapter 16)
188. Could theparties explain therelationship between Chapters 12and16?Canthecategories
ofpersons towhich Chapter 16applies benefit from theprovisions ofChapter 12?
While bothChapter 12,Cross-Border Trade inServices, andChapter 16,Temporary Entry
forBusiness Persons, dealwiththefacilitation oftradeinservices, thechapters govern different types
ofmeasures. Chapter 16addresses theParties 'immigration measures regulating thetemporary entry
ofbusiness persons. Chapter 12treats allother types ofmeasures related tothecross-border provision
ofservices,includingservicesprovidedbypersonsenteringaNAFTAcountrypursuanttotheprovisions
ofChapter 16.
189. Dotheparties intend togrant thesame entry conditions tonatural persons whoare
nationals ofcountries notmembers oftheNAFTA?
Thetemporary entry provisions ofChapter 16apply onlytocitizens ofNAFTA countries.
These temporary entry provisions reflect thepreferential trading relationship among thethreeNAFTA
countries andthebenefits oftheChapter areconferred onthebasisofcitizenship ofaNAFTA Party.
However, thisdoesnotpreclude non-NAFTA business persons from seeking temporary admission
inaccordance withimmigration lawsineffect intheNAFTA countries. Many ofthese lawsafford
entry onthesame basis astheNAFTA obligations.
190. What istheduration ofthetemporary entry provided forinSections A,B,CandD?
Article 1608 ofChapter 16defines temporary entry as"entry intotheterritory ofaParty by
abusiness person ofanother Party without theintent toestablish permanent residence." Subject to
thatdefinition, eachParty willspecify thecriteria, andthespecific periods oftimeforeachcategory,
initsimmigration provisions.
Section A:Business Visitors:
(a) IntheU.S., theNAFTA business visitor willbeadmitted fortheperiod necessary toengage
intheintended activities, nottoexceed oneyear, andextended atthediscretion oftheU.S.
Immigration andNaturalization Service.
(b) InCanada, NAFTA business visitors mayremain forperiods ofuptosixmonths.
(c) InMexico, NAFTA business visitors mayremain foraslongas30calendar days. However,
ifthecircumstances under which entry wassought donotchange, theymaystayforaperiod
ofoneyear, being abletorenew theirstatus fourtimes, foramaximum length offiveyears.WT/REG4/1
Page63
Section B:Traders andInvestors:
(a) IntheU.S., NAFTA traders andinvestors areadmitted foroneyearandextensions ofstay
uptotwoyears arepermissible.
(b) InCanada, NAFTA traders andinvestors maytemporarily reside inCanada foraslongas
theirstatus remains unchanged. Employment authorizations must berenewed annually.
(c) InMexico, NAFTA traders andinvestors canremain foraslongas30calendar days. However,
ifthecircumstances under which entry wassought donotchange, theymaystayforaperiod
ofoneyear, being abletorenew theirstatus fourtimes, foramaximum length offiveyears.
Section C:Intra-company Transferees:
(a) IntheU.S., intra-company transferees rendering services inanexecutive ormanagerial capacity
mayremain foramaximum period ofseven years. Those rendering services inacapacity
involving "specialized" knowledge mayremain foramaximum period offiveyears.
(b) InCanada, NAFTA intra-company transferees whoareinexecutive ormanagerial positions
canremain foruptoseven years. Those with"specialized" knowledge canremain forupto
fiveyears. Employment authorizations must berenewed annually.
(c) InMexico, NAFTA intra-company transferees mayremain foraslongas30calendar years.
However, ifthecircumstances donotchange, theymaystayforaperiod ofoneyear, being
abletorenew theirstatus fourtimes, foramaximum length offiveyears.
Section D:Professionals:
(a) IntheU.S., NAFTA professionals maybeadmitted foraninitial period ofoneyear, and
extensions maybegranted inoneyearincrements. Although presently there isnospecific
limitonthenumber ofextensions, thepurpose ofentryintheU.S.mustbetemporary innature.
(b) InCanada, NAFTA professionals maytemporarily reside foranindefinite period oftime,
although employment authorizations must berenewed annually.
(c) InMexico, NAFTA professionals mayremain foraslongas30calendar days. However,
ifthecircumstances donotchange, theymaystayforaperiod ofoneyear, being abletorenew
theirstatus fourtimes, foramaximum length offiveyears.
VI. INTELLECTUAL PROPERTY
191. How dotheNAFTA Parties, inviewofArticle 19(1) oftheTRIPs Agreement, intend to
remedy thefactthatunder Article 1708.8 oftheNAFTA theregistration ofatrademark
maybecancelled forthereason ofnon-use after anuninterrupted period oftwoyears?
192. Where atrademark ofaforeign supplier cannot beusedbythatsupplier inoneNAFTA
member, isitsuseinother NAFTA members affected?WT/REG4/1
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193. Does thefactthatArticle 1709.5(a) doesnotmention theright oftheowner ofaproduct
patent toprevent other persons from offering forsaleorimporting theproduct mean
thatthese actsarenotsubject tothepatent owner 'sauthorization, asrequired under
Article 28(1)(a) oftheTRIPs Agreement?
194. Does thefactthatArticle 1709.5(b) doesnotmention theright oftheowner ofaprocess
patent toprevent other persons from offering forsaletheproduct obtained directly by
thatprocess mean thatthisactisnotsubject tothepatent owner 'sauthorization, as
required under Article 28(1)(b)?
195. What aretheimplications ofthechoice ofpatent term between 20years from thedate
offiling and17years from thedateofgrant, notably inviewofArticle 33oftheTRIPs
Agreement which provides thattheterm ofprotection available shall notendbefore the
expiration ofaperiod of20years counted from thefiling date?
196. DotheParties totheNAFTA consider thattheprotection granted under Articles 1712.1(a)
and1712.2 fully meets therequirements under Articles 23(1) and23(2) oftheTRIPs
Agreement?
197. How dotheParties totheNAFTA interpret thereference inArticle 1712.4 touseofa
geographical indication inacontinuous manner "foratleast10years" or"ingood faith"
notably inviewofthefactthattheTRIPs Agreement specifically refers inArticle 24(4)
touse"foratleast 10years preceding 15April 1994" or"ingood faith preceding that
date"? How isthecompatibility withtheTRIPs Agreement going tobeassured?
198. What isthemeaning ofArticle 1712.8 andwhat arethesituations theParties wishtocover
inthisparagraph?
199. Does thefactthatArticle 1713.3 doesnotmention theright oftheowner oftheindustrial
design toprevent other persons from importing articles bearing orembodying thatdesign
mean thatthisactisnotsubject tothedesign owner 'sauthorization, asrequired under
Article 26(1) oftheTRIPs Agreement?
200. Could theNAFTA Parties explain theexact significance andimplications ofArticle 1715.7?
201. How dotheUnited States ofAmerica intend toextend, byvirtue ofArticles 4,9,14(6)
and70(2) oftheTRIPs Agreement, theprotection granted under Articles 1705.7, 1720.1
and1720.3 oftheNAFTA?
202. Isthepossibility toaccept, from theentry intoforce oftheNAFTA, applications from
plant breeders forplant varieties andsubsequently protection, limited tonationals or
domiciliaries ofaNAFTA Party?
203. HowdotheUnited States andMexico intend toextend, byvirtue ofArticle 4oftheTRIPs
Agreement, theprotection granted under Article 1709.4 tonationals ofandpatents granted
inother WTO members? What istheexact procedure thatthese nationals havetofollow
inorder toobtain suchprotection?
204. TheNAFTA requires protection andenforcement stricter thanthose provided bytheTRIPs
Agreement. DotheNAFTA parties apply these measures onanm.f.n. basis tonon-parties
totheNAFTA? Ifnot,whynot?WT/REG4/1
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205. Have theintellectual property standards, including those which establish protection greater
thanordifferent from thatprovided inthefuture TRIPS Agreement, been reflected in
thethree national legislations?
VII. ADMINISTRATIVE AND INSTITUTIONAL PROVISIONS
206. According toArticle 1911 oftheNAFTA, while theNAFTA Parties (thegovernments)
areincluded inthedefinition of"foreign interest" inthecaseofacountervailing duty
proceeding, butthegovernments arenotincluded inthescope inthecaseofanti-dumping
dutyprocedure. Please explain thereasons forthisdifference.
Governments areincluded inthedefinition of"foreign interest" inthecaseofacountervailing
duty proceeding because itisthegovernment thatprovides thesubsidy, andconsequently the
government 'saction thatisunder review. Governments arenotincluded inthedefinition of"foreign
interest" inthecaseofanantidumping dutyproceeding because itisthepricing practices ofprivate
firms, andnotgovernments, thatarethesubject ofthedispute.
207. Parties totheNAFTA mayopttoinvoke dispute settlement procedures under theNAFTA
orunder theGATT. Since NAFTA came intoeffect, howmany cases have been dealt
withunder theNAFTA dispute settlement mechanism, which alternatively, could have
been handled intheGATT?
Under NAFTA, dispute settlement procedures areconsidered tohavebeeninitiated when, after
consultations, aParty requests ameeting oftheFreeTrade Commission. Thishashappened once,
when theCommission convened attherequest oftheUnited States toconsider thecollection ofNew
Brunswick provincial salestaxbyCanada Customs. TheUnited States hadexpressed concerns that
thispractice mayhavebeeninconsistent withCanada 'sobligations under Article IIIoftheGATT,
which isincorporated byreference intotheNAFTA. Since thisdispute concerned thealleged
contravention ofU.S.rights arising under boththeGATT andtheNAFTA, Article 2005(1) provides
thatthedispute could havebeensettled ineither forum, atthediscretion ofthecomplaining party.
208. IfaParty totheNAFTA optstoseekdispute settlement under theAgreement vis-à-vis
another Party totheAgreement, howdoestheAgreement ensure thatanysubsequent
remedial actions taken byaParty willbeimplemented inamanner consistent withits
obligations under theGATT vis-à-vis other contracting parties, particularly inrespect
ofitsobligations onm.f.n. treatment?
TheNAFTA doesnotaffect therights andobligations thattheNAFTA Parties haveunder
theWTO inrespect ofotherWTO Members. Consequently, anymeasure taken byoneormoreNAFTA
Parties under Chapter 20thataffect thirdparties would befullysubject toscrutiny under therelevant
provisions oftheWTO Agreement.WT/REG4/1
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209. When aconflict concerns amatter thatmaybedealt withbothinNAFTA andinGATT,
theAgreement gives thecomplaining party theoption tochoose either forum tosettle the
dispute, withthefollowing exceptions (inwhich onlytheNAFTA system maybeinvoked):
- Where theresponding party claims thatitsaction issubject toArticle 104
(Environmental andConservation Agreements) andrequests inwriting thatthe
matter beconsidered under theNAFTA system;
- Where thedispute arises under Section BofChapter 7(Sanitary andPhytosanitary
Measures) orChapter 9(Standards-Related Measures) andconcerns ameasure
adopted ormaintained byaparty toprotect itshuman, animal orplant lifeor
health, ortoprotect itsenvironment, andtheresponding party requests inwriting
thatthematter beconsidered under theNAFTA.
Forwhatreasons didtheUnited States, Mexico andCanada establish these twoexceptions?
Paragraphs (3)and(4)ofArticle 2005 areareflection oftheimportance theParties placed
onenvironment-related matters inthenegotiation oftheNAFTA.
Paragraph (3)wasestablished toprovide aresponding Party withthemeans toensure thata
complaining Party could notavoid itsArticle 104commitment bychoosing theGATT forum. Article
104wasestablished toensure thattheNAFTA would notderogate fromaParty'srighttotakeaction
under thespecific tradeobligations intheenvironmental andconservation agreements setoutinArticle
104. TheGATT hadnoequivalent ruletothatsetoutinArticle 104. TheParties determined that
where Article 104could beapplied, itwould beappropriate thatdisputes onsuchactions would be
pursued under theNAFTA.
Paragraph (4)reflects theParties 'sensitivity toenvironmental issues, andtheircommitment
toensuring highlevels ofcooperation inmeeting health, conservation andenvironmental objectives.
BuildinguponexistingGATTrules,theNAFTA'sdisputeresolutionrulesandinstitutionsareparticularly
responsive tothese unique andspecialized NAFTA obligations.
Itshould benoted thatparagraphs (3)and(4)donotprovide thatonlyNAFTA dispute settlement
procedures maybeinvoked. Rather, acomplaining Party hastheinitial choice offorum, subject to
aresponding Party'srighttorequest thatthematter beconsidered under theNAFTA (which would
result inthecomplaining Party having recourse todispute settlement solely under theNAFTA inthat
case).
210. Why istheGATT dispute settlement system notconsidered suitable forthese twospecific
sectors?
ThePartiesdidnotconsidertheGATTdisputesettlementsystemunsuitable.Rather,theysimply
wanted toensure thataParty would notbeprecluded fromrecourse totheNAFTA dispute settlement
process, which included access toresources thatwere notavailable under theGATT, inrespect of
those matters involving obligations unique totheNAFTA, unless theParties toadispute agreed
otherwise.
211. TheNAFTA dispute settlement system provides highly structured procedures andprecise
timelimits forthevarious stages oftheprocess. Itispossible thatsuchdisputes might
beexamined within theframework oftheNAFTA andtheGATT/WTO dispute settlement
procedures andthatthetwoprocesses might endincontradictory rulings.
Insuchcircumstances, theresult oftheNAFTA procedure might haveanimpact onthe
fulfilment oftheobligations assumed bytheparties totheNAFTA inrelation tothe
GATT/WTO. Could theParties totheAgreement throw further lightonthisquestion?WT/REG4/1
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Asdiscussed above, NAFTA Article 2005(1) provides thatdisputes regarding anymatter arising
underboththeNAFTAandtheGATT,anyagreementnegotiatedthereunder,oranysuccessoragreement
totheGATT maybesettled ineither forum atthediscretion ofthecomplaining Party. However,
Article 2005(6) provides thatoncedispute settlement proceedings havebeeninitiated byrequesting
ameeting oftheFreeTrade Commission under Article 2007, ordispute settlement proceedings have
beeninitiated under theGATT, "theforum selected shallbeusedtotheexclusion oftheother", unless
aParty hasmade arequest pursuant toArticles 2005(3) or(4).Therefore, dispute settlement proceedings
cannot bepursued within theframework ofboththeNAFTA andtheGATT/WTO withrespect to
thesame matter. Article 2005(7) provides thatforthepurposes ofArticle 2005, dispute settlement
proceedings under theGATT aredeemed tobeinitiated byaParty'srequest forapanel, suchasunder
Article XXIII:2, orforacommittee investigation, suchasunder Article 20.1oftheCustoms Valuation
Code.
Thefindings anddeterminations made byNAFTA panels, evenonmatters which could have
beenresolved through theGATT/WTO dispute settlement process, apply solely totheNAFTA Parties
concerned. NAFTA panel findings andrecommendations innowayprejudice therights ofnon-NAFTA
WTO Members topursue theirrights intheWTO.
Itisalsoworth noting thatArticle 2005(2) provides thatbefore aParty initiates adispute
settlement proceeding intheGATT against another NAFTA Party ongrounds thataresubstantially
equivalent tothose available tothatParty under theNAFTA, thatParty mustnotify anyNAFTA third
Party ofitsintention. IfathirdParty wishes tohaverecourse todispute settlement procedures under
theNAFTA regarding thematter, itshallinform promptly thenotifying Party andthose Parties must
consult withaviewtoagreement onasingle forum. Ifthose Parties cannot agree, thedispute normally
shallbesettled under theNAFTA. Note47provides thattheobligation inArticle 2005(2) isnotintended
tobesubject todispute settlement under NAFTA Chapter Twenty.
Fordisputes involving obligations unique totheNAFTA, andnotincluded intheGATT/WTO,
thecomplaining Party would, ofcourse, havetopursue itsremedies exclusively through theNAFTA
dispute settlement process.
212. According totheprovisions ofArticle 1903.3(b)(i), ifapanel hasidentified thatanamended
statute ofoneoftheNAFTA parties doesnotconform totheprovisions ofArticle 1902.2(d)
theamending party should enact corrective legislation. Failing this,after anine-month
period, theparty thatrequested thepanel maytakecomparable legislative orequivalent
executive action.
Itwould seem illogical andcontrary totheprovisions oftheGATT/WTO, ifaparty that
rightly complains oftheinfringement ofe.g.provisions oftheGATT/WTO byanother
party, would beentitled tointroduce comparable GATT/WTO inconsistent legislation,
duetothefailure oftheother party tobring itslegislation intoconformity. Could the
Parties elaborate onthisissue?
Theretaliatory legislative orexecutive action established under Article 1903(3)(b)(i) isthelast
stepintheprocess. Itwillapply onlyifnocorrective legislation hasbeenenacted orwhere noother
mutually satisfactory solution hasbeenreached within ninemonths from theendoftheconsultative
period referred toinArticle 1903.3(a). Inthiscase, anydecision onwhether totakecomparable
legislative orexecutive action willbemade following ananalysis ofthepotential impact ofthataction
ontheParty'sWTO obligations.WT/REG4/1
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213. Theprovision ofArticle 1904, paragraph 13,foresees anextraordinary challenge procedure
(setoutinanannex tothisprovision) incase, interalia:
(ii) "thepanel seriously departed from afundamental ruleofprocedure, or
(iii) thepanel manifestly exceeded itspowers, authority orjurisdiction setoutinthis
Article, forexample byfailing toapply theappropriate standard ofreview".
Would itbepossible toelaborate onthis? e.g.what arethefundamental rules of
procedure? When would apanel manifestly exceed itspowers, what istheintended
difference behind authority andjurisdiction andwhat istheappropriate standard?
Anextraordinary challenge procedure maybeinitiated onlyifthreerequirements aresatisfied:
(1)anaction within subparagraph (a)oftheArticle 1904.13 hasoccurred (2)theaction hasmaterially
affected thepanel'sdecision and(3)theaction threatens theintegrity ofthepanel process. Accordingly,
where apanel manifestly exceeded itspowers, authority orjurisdiction, orhasseriously departed from
afundamental ruleofprocedure, thisaction alsomusthavematerially affect thepanel'sdecision and
must threaten theintegrity oftheprocess.
TheRules ofProcedure forArticle 1904Binational Panel Reviews werenegotiated andagreed
upon bytheNAFTA Parties andtookeffect January 1,1994. Such rules provide fortheduration
andscope ofpanel review, responsibilities oftheSecretary inservicing panel proceedings, routine
administrative internal functioning ofpanels, computation oftimeperiods forservice andfiling of
documents, filing andservice ofdocuments, protection ofproprietary andprivileged information, form
andcontent ofpleadings, motions andoralproceedings anddecisions andcompletions ofpanel review.
Fundamental rulesofprocedure include thebasic requirements ofprocedural fairness thatare
embodied intherules, suchastherighttofilebriefs andtomake oralargument asdistinguished from
anaccidentaloversight,clericalerrororomissionthatapanelmaymakeinthecourseoftheproceedings.
Aserious departure fromafundamental ruleofprocedure isamatter tobedecided onacasebycase
basis. Where, forexample, aparticipant whohascomplied withalltherules regarding theservice
andfiling ofbriefs, isdenied theopportunity tobeheard attheoralargument there maybegrounds
forfinding thatthepanel hasseriously departed from afundamental ruleofprocedure.
Apanel derives itspowers, authority andjurisdiction from theprovisions ofArticle 1904.
ThatArticle provides forreview byapanel offinalantidumping orcountervailing dutydeterminations
ofacompetent investigating authority ofanimporting Party todetermine whether thedetermination
wasinaccordance withtheimporting Party'sADorCVD law.Insodoing thepanel isbound toapply
exclusively thedomestic lawoftheimporting country (which includes relevant statutes, legislative
history, regulations, administrative practice andjudicial precedents) andthesame standard ofreview
thatareviewing court oftheimporting country would apply.
Theappropriate standard ofreview foreachcountry isfound inAnnex 1911. ForCanada
itisthestandard setoutinsubsection 18.1(4) oftheFederal Court Act,fortheUnited States thestandard
setoutinsections 516(b)(1)(A) and(B)oftheTariff Actof1930,andforMexico thestandard setout
inArticle 238oftheFederal Fiscal Code.
The"jurisdiction" ofthepanel differs fromthe"authority" ofthepanel inthat"jurisdiction"
refers tothelimits onthescope ofthepanel'spowers ofreview. Thepanel hasthejurisdiction to
conduct judicial review withrespect onlytoafinaldetermination ofaninvestigating authority. The
decisions thatarefinaldeterminations within themeaning ofArticle 1904 aresetoutinAnnex 1911,
andwhere applicable, theimplementing legislation oftheNAFTA Party. "Authority", ontheother
hand, refers tothepowers ofthepanel, operating within itsjurisdiction, toactinacertain way,such
as,forexample, remanding afinaldetermination backtothecompetent investigating authority following
review.WT/REG4/1
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Whether apanel manifestly exceeded itspowers, authority orjurisdiction isamatter tobe
decided onacasebycasebasis. Asstated above, thepanel'saction would notonlyhavetofalloutside
thescope ofthepowers, authority andjurisdiction provided toitunder Article 1904 butwould also
havetomaterially affect thepanel'sdecision andthreaten theintegrity ofthebinational panel review
process before relief could begranted bytheECC. Where, forexample, apanel bases itsdecision
onsomething other thantheADorCVD lawsoftheimporting country, failstoapply theappropriate
standard ofreview, purports toexercise injunctive relief orawards damages, there would begrounds
forfinding thatapanel hasmanifestly exceeded itspowers, authority orjurisdiction.
214. Theprovision ofArticle 1907.2(b) laysdown anagreement tofurther consult on:
"thepotential forreliance onasubstitute system ofrules dealing withunfair trans-border
pricing practices andgovernment subsidization".
Would itbepossible toexplain inmore concrete terms thepurpose ofthisprovision?
AtthetimeofthenegotiationoftheFTAandtheNAFTA,thePartiesrecognizedthatelimination
orreduction oftariff andother barriers totrade between theParties would increase integration ofthe
North American market interms ofproduction ofgoods andservices. TheParties alsorecognized
thateconomic integration would require further consultation ontrade remedy laws. Article 1907.2(b)
allows theParties toexamine thecurrent system oftraderemedy lawsanddiscuss improvements where
necessary withaviewtofacilitating thiseconomic integration.
VIII. OTHER PROVISIONS
215. Isitpractical forother Parties toaccede toNAFTA inthefuture orisitmore likely that
prospective members would joina"hub andspokes" typearrangement? Arethere any
current plans toextend NAFTA tocountries other thanthecurrent Parties?
216. CantheParties totheAgreement provide additional information concerning theprospects
forthefurther extension oftheNAFTA tothird countries?
Answer toquestions 215and216:
OnDecember 11,1994, Canada, theU.S., Mexico andChile announced theirintention to
negotiate theaccession ofChile totheNAFTA. Although other countries havebeenmentioned or
haveexpressed interest inacceding toNAFTA, theNAFTA partners arefocused onpreparing for
Chile'saccession. Decisions regarding anyfuture accessions havenotbeenmade.
217. What progress hasbeenmade intheworking group ontheaccession clause (Article 2204)?
Inparticular, howwilltheaccession system operate?
There isnoworking group ontheaccession clause. Theprocess forNAFTA accession isbeing
discussedamongtheNAFTArepresentativesleadingthenegotiationswithChile.Afterthesepreparatory
discussions, NAFTA partners will negotiate Chile'sfullaccession totheNAFTA 'srights and
obligations.
218. Theintention toenlarge themembership oftheNAFTA hasbeenexpressed inArticle 108
oftheUSNAFTA Implementation Bill,theUSTR report ofMay, 1994, andthePresidential
report totheCongress ofJuly, 1994. Cantheexisting NAFTA parties provide information
ontheir intentions orplans onthis? What arethecriteria foraccession totheNAFTA?
Isthere anytimeschedule forenlargement oftheNAFTA?WT/REG4/1
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Allthree NAFTA partners have, ashavealltheelected leaders headofstateandgovernment
intheWestern Hemisphere, committed topursue theFreeTrade AreaoftheAmericas (FTAA). All
three countries viewtheNAFTA asanimportant contribution totheobjective tobuild anFTAA by
theyear2005. Chile'saccession willdemonstrate thattheNAFTA isadynamic, outward-looking
instrument thatismaking aconcrete contribution towards achieving thegoalofhemispheric freetrade
by2005. Countries ableandwilling toundertake NAFTA rights andobligations mayseekaccession
totheNAFTA.
219. With reference tothereport onsignificant market opening oftheImplementation Act
states that: "The President, onthebasis ofreport submitted bytheTrade representative
under paragraph (2)shall determine withwhich foreign country orcountries, ifany,the
United States should seektonegotiate afree-trade areaagreement oragreements".
Inwhat waydoesthereport provided forbySection 108oftheNAFTA Implementation
Actdiffer fromtraditional reports senttoCongress, forexample under Section 301,Special
andSuper 301andTitle VIIoftheUSTrade Act,asfaritscoverage isnotlimited to
onlypossible candidates toadhesion toNAFTA?
Congress requires theExecutive Branch toprovide Congress literally hundreds ofreports per
year. Eachreport isbased upon, andresponds to,therequirements forthereport specified byCongress
inlaw.Insection 108oftheNAFTA Implementation Act,Congress required theUnited States Trade
Representative toprepare andsubmit toCongress byMay1,1994, andagain byMay1,1997, areport
oncountries having favourable conditions relating tomarket access forU.S.goods andservices and
toinvestment byUnited States persons. Onthebasisofthesereports, section 108required thePresident
toprovide toCongress bynolaterthanJuly1,1994, andagain byJuly1,1997, areport with, among
other things, thePresident 'srecommendations forfree-trade areanegotiations withcountries selected
from theMay1reports.
TheMay1,1994 report discussed opportunities forU.S.goods, services, andinvestment in
Latin America andtheCaribbean, theAsia-Pacific region, Sub-Saharan Africa, theMiddle East, the
European Union, theEuropean FreeTrade Area, andCentral andEastern Europe andtheFormer Soviet
Union. TheJuly1,1994report named onlyChile asacandidate forafuture free-trade areaagreement,
butnoted thestrong interest oftheUnited States inpursuing abroad tradeagenda globally, commenting
inparticular onthechanges andopportunities inLatin America andtheCaribbean, andtheAsia-Pacific
region.
ENVIRONMENTAL CONSIDERATIONS
220. Article 102.1(b) states asamain objective oftheagreement thepromotion of"conditions
offaircompetition inthetrade area". YetNAAEC Article 3states theright ofeachparty
totheagreement toestablish itsownlevel ofdomestic environmental protection and
environmental policies andpriorities andtoadopt ormodify accordingly itsenvironmental
lawsandregulations.
Istheright ofeachparty tomaintain itsownlevels ofenvironmental protection inconflict
withtheobjective topromote faircompetition inthefree-trade area?
TheNAAEC isaseparate agreement from theNAFTA, andtheNAAEC doesnotestablish
afree-trade area. Accordingly, itsprovisions arenotunder review.
Theobjectives ofthisAgreement areelaborated more specifically through itsprinciples and
rules. Asageneral matter, theotherprovisions oftheNAFTA helptoelaborate theNAFTA objectives;
theydonotcreate conflicts withthose objectives.WT/REG4/1
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221. Article 104:ThisArticle gives averyinteresting rulefortherelationship between alimited
number ofMultilateral Environmental Agreements (MEAs) towhich allthree NAFTA
partners either areParty orareexpected toadhere inthenearfuture. Itseems toprovide
interesting ideas forpossible rules ontherelationship between MEAs andWTO rules,
which willprobably bediscussed under thefirstitemofthework programme oftheWTO
Committee onTrade andEnvironment.
(a) Could theNAFTA partners envisage toagree intheWTO onasimilar
interpretation ofthe"priority" relationship between ontheonehand CITES,
Montreal andBasel andontheother hand GATT/WTO rules, atleastasfaras
relations between countries which areboth aparty totheMEA atstake anda
member oftheWTO areconcerned?
(b) Itappears fromparagraph 2ofArticle 104,thatamendments totheaforementioned
MEAs will,between NAFTA partners, onlytakethesame precedence overNAFTA
astheMEAs themselves assoonasthathasbeenagreed inwriting bytheNAFTA
partners. Does thismean thatforinstance Decisions oftheConference ofthe
Parties tosuch anMEA attheir conferences, which donotamount toformal
amendments, would nottaketheprecedence overNAFTA setoutinArticle 104,
paragraph 1aslong astheagreement inwriting referred toinArticle 104,
paragraph 2hasnotbeen reached?
(a) Oneoftheissues tobeaddressed bytheWTO Committee onTrade andEnvironment
istherelationship between theprovisions oftheWTO andtrade-related measures set
outinmultilateral environmental agreements. Whether theapproach taken bythe
NAFTA Parties inArticle 104would beappropriate fortheWTO would havetobe
evaluated within theWTO context; and,anyrecommendations onthisissue would
needtosuitthespecific circumstances oftheWTO.
(b) Paragraph 1would notapply toanynewspecific tradeobligation inanMEA, including
newobligationsresultingfromadecisionofthepartiestoaninternationalenvironmental
agreement listed inparagraph 1,untiltheParties agreed inwriting toinclude inAnnex
104.1 theagreement, ortheamendment toanagreement already listed inparagraph
1,containing thenewspecific trade obligation.
222. Themain objectives ofNAFTA (assetoutinArticle 102.1 (a)and(b))aretoeliminate
barriers totrade andtofacilitate thecross-border movement ofgoods andservices between
territories ofthecontracting parties. However, under Article 904.1 eachparty mayadopt,
maintain orapply anystandards related measure, including anysuchmeasure relating
tosafety, protection ofhuman, animal orplant lifeorhealth, theenvironment orconsumers
andanymeasure toensure itsenforcement andimplementation. Suchmeasures caninclude
those "toprohibit theimportation ofagoodofanother party" ortheprovision ofaservice
byaservice provider ofanother party thatfailstocomply withtheapplicable requirements
ofthose measures, ortocomplete theparty 'sapproval procedures.
Moreover, there isnoobligation towards harmonization ofstandards beyond theparties '
stated intent (Article 906.2) tomake these "compatible" tothegreatest extent practicable.
(a) Towhich extent does theright, under NAFTA Article 904.1, toprohibit the
importation ofagoodofanother party totheagreement onenvironmental grounds
conflict withthemain objectives ofNAFTA tofacilitate trade andcompetition
asexpressed inNAFTA Article 102.1 (a)and(b)?Willoperation ofArticle 904.1
beinconflict withtheagreement 'soverriding objectives?WT/REG4/1
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(b) What does "compatible" mean (NAFTA Article 906.2) with reference tothe
standards applying ineachoftheParties totheAgreement? When willstandards
becompatible, when incompatible andwillitbecome apparent? Bywhat criteria
willstandards applicable ineachoftheParties totheAgreement bejudged tobe
compatible?
(a) Article 102provides that"The objectives ofthisAgreement, aselaborated more
specifically through itsprinciples andrules, ...areto...."Asageneral matter, then,
theother provisions oftheNAFTA helptoelaborate theNAFTA objectives; theydo
notcreate conflicts withthoseobjectives. Inparticular, therighttorequire thatproducts
meettechnicalregulationsthatconformtotheprovisionsofChapterNineoftheNAFTA
doesnotconflict withtheobjectives oftheNAFTA tofacilitate thecross-border
movement ofgoods andtopromote conditions offaircompetition. TheWTO
Agreement onTechnical Barriers toTrade alsorecognizes therightofgovernments
torequire thatproducts adhere totechnical regulations.
(b) Article 915defines "make compatible" tomean "bring different standards-related
measures ofthesame scope approved bydifferent standardizing bodies toalevelsuch
thattheyareeither identical, equivalent orhavetheeffect ofpermitting goods or
services tobeusedinplace ofoneanother orfulfil thesame purpose."
223. Article 904.2 provides that"...eachparty may, inpursuing itslegitimate objectives on
safety ortheprotection ofhuman, animal orplant lifeorhealth, theenvironment or
consumers establish thelevel ofprotection thatitconsiders appropriate ...". NAAEC
Article 3recognizes theright ofeachparty totheagreement toestablish itsownlevels
ofdomestic environmental protection andenvironmental policies andpriorities, andto
adapt ormodify accordingly itsenvironmental lawsandregulations, yetitobliges each
party to"ensure thatitslawsandregulations provide forhighlevels ofenvironmental
protection".
Howarethepotential conflicts between theright toestablish ownlevels ofprotection under
NAFTA Article 904.2, andtheobligation under NAAEC Article 3toensure highlevels
ofenvironmental protection tobereconciled?
TheNAAEC isaseparate agreement from theNAFTA, andtheNAAEC doesnotestablish
afree-trade area. Accordingly, itsprovisions arenotunder review.
224. Article 2005.3 andArticle 2005.4 establish aspecial dispute settlement regime for
environment-related matters. Article 2005.3 refers todisputes related tothethree MEAs
covered byArticle 104(CITES, Montreal andBasel). Article 2005.4 refers todisputes
which arise under theTBT andSPSNAFTA provisions.
Forthese cases, theresponding party hastheright tochoose whether tohavethedispute
settled under GATT/WTO orNAFTA dispute settlement system.
(a) Ifthedispute istobesettled under NAFTA DSSystem, willitbeuptotheNAFTA
panellists tointerpret whether themeasures challenged bythecomplaining party
arecovered bytheresponding Party 'srights andobligations under theMEA?
Ifso,howisitassured thatthepanellists havethenecessary expertise tointerpret
theMEA? Could they, forinstance, askaninterpretation from theSecretariat
oftheMEA?WT/REG4/1
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(b) Isourviewcorrect thatfordisputes arising under thegeneral exceptions provided
byArticle 2101, which reproduces thegeneral exceptions provided byGATT
Article XX,thegeneral ruleofArticle 2005.1 applies, whereby "anymatter arising
under boththese agreements (GATT/WTO andNAFTA) maybesettled ineither
forum atthediscretion ofthecomplaining party", therefore notentitling the
responding party totheright ofchoosing thedispute settlement forum?
(a) Where boththeNAFTA andanArticle 104agreement apply inrespect ofaparticular
measure which isthesubject ofaNAFTA dispute, thedispute settlement panel will
examine themeasure inlightofArticle 104.Articles 2009(2) and2010 provide for
panelists tobeappropriately qualified andunder Article 2014 thepanel would have
access totherelevant experts, which could, where appropriate, include aSecretariat
ofaninternational environmental agreement.
(b) Thatiscorrect, subject totheother provisions ofArticle 2005.
225. Article 2014: Isitcorrect that, whereas under Article 13,paragraph 1oftheURDispute
Settlement Understanding, aPanel canseekinformation andtechnical advice from any
individual orbody which itdeems appropriate, provided that-before doing so-itinforms
theauthorities oftheWTO member within whose jurisdiction theperson orbodyislocated,
under Article 2014 aPanel canonlydosoprovided thatboth(all)disputing Parties so
agree andsubject tosuchterms andconditions assuchParties mayagree?
Furthermore, isitcorrect thatthesame limitations apply inArticle 30oftheNorth
American Agreement onEnvironmental Cooperation?
With respect toArticle 2014, thatiscorrect. With respect totheNAAEC, theNAAEC is
aseparate agreement from theNAFTA, andtheNAAEC does notestablish afree-trade area.
Accordingly, itsprovisions arenotunder review.
SUPPLEMENTARY AGREEMENTS
226. What isthestatus oftheSupplementary Agreements?
227. DotheParties regard theSupplementary Agreements aspartofNAFTA itself?
228. WilltheSupplementary Agreements apply toanyParty thataccedes toNAFTA?
229. Inorder toaccede toNAFTA, willother countries alsohavetoratify these Supplementary
Agreements (both theEnvironmental Agreement andtheLabour Agreement have an
accession clause, which would suggest thatitwould bepossible toaccede, forexample,
toNAFTA andtheLabour Agreement andnottotheEnvironment Agreement, orany
other possible combination)?
230. What sanction mechanisms existinthese twoSupplementary Agreements andwhat are
thereasons forthedistinction between Canada (which didnotaccept theimposition of
trade sanctions), ontheonehand, andtheUnited States andMexico, ontheother (which
didaccept recourse totrade sanctions asalastresort)?
231. Taking intoaccount thisdifference intreatment, which ofthese twosanction mechanisms
would apply tofuture members oftheSupplementary Agreements?WT/REG4/1
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232. TheSupplementary Agreements establish awhole dispute settlement procedure onlyfor
thecasewhere amember country doesnotenforce itsenvironmental orlabour legislation.
What would happen ifamember country decided tolower itsenvironmental orlabour
standards, allowing access ofproducts ofthird countries which could notenter itsmarket
under theearlier standards? (The Supplementary Agreements, likeNAFTA itself,
encourage parties toraise orhave highstandards, butdonotspecify -oratleast itis
notclear -what would happen ifacountry lowered them).
Answer toquestions 226through 232inclusive:
TheNAAEC isaseparate agreement from theNAFTA, andtheNAAEC doesnotestablish
afree-trade area. Accordingly, itsprovisions arenotunder review.