North American Free Trade Area (NAFTA)

Introduction

The North American Free Trade Agreement (NAFTA) was signed by Canada, Mexico, and the United States in December 1992, and came into effect on January 1st, 1994. The NAFTA is precedent-setting in that it establishes a free trade area among developed and developing countries.

The agreement seeks to promote free trade in goods and services and increase investment not only by eliminating tariff protection and reducing non-tariff barriers, but also by introducing GATT plus trade and investment-related disciplines. The NAFTA builds on the bilateral Canada-U.S. Free Trade Agreement (CUSFTA) which came into effect on January, 1989. Major advances in the NAFTA over the CUSFTA include the substantially expanded coverage of government procurement (to services and construction), intellectual property and investor's rights (introducing binding investor-state arbitration), as well as more stringent rules of origin.

Two side agreements signed in 1993 address cooperation on labor (NAALC) and the environment. These side agreements will allow the imposition of fines and trade sanctions to enforce national standards under certain circumstances.

Major trade components of the NAFTA include:

General:

(a) Tariffs and Quotas: All U.S., Canadian, and Mexican tariffs and quotas will be phased out over 15 years;

(b) Rules of Origin: Goods made with materials or labor from outside North America qualify for NAFTA treatment only if they undergo "substantial transformation" within a member country;

Sector-Specific:

(a) Autos: Tariffs will be eliminated after eight years for autos only if a certain percentage of costs are comprised of North American materials or labor. The requirement that U.S. auto manufacturers produce in Mexico in order to sell there will be lifted after 10 years;

(b) Textiles and Apparels: Strict rules will eliminate tariffs only for goods made from North American-spun yarn or from fabric made from North American fibers. Quotas can be reimposed temporarily if imports cause "serious damage" to domestic industry;

(c) Agriculture: About half of the existing tariffs and quotas will be eliminated immediately; however those for politically sensitive crops, such as U.S. corn sold to Mexico or Mexican peanuts, sugar and orange juice sold to the U.S., will be gradually phased out over the maximum period of 15 years.

Institutions

Various institutions will facilitate the implementation of the agreement. The Free Trade Commission, composed of cabinet-level representatives of each member country, will meet at least once a year to oversee the performance and evolution of NAFTA. In particular, it will supervise dispute resolution and the work of the nearly 40 committees and working groups set up under the NAFTA. At the Commission's first ministerial meeting in January of 1994, it was agreed that an International Coordinating Secretariat be established in Mexico City, with a U.S. Executive Director. This decision has yet to be implemented.

North American Free Trade Agreement, NAFTA

PART ONE
GENERAL PART

Chapter One
Objectives



Article 101:  Establishment of the Free Trade Area

     The Parties to this Agreement, consistent with Article XXIV
of the General Agreement on Tariffs and Trade, hereby establish a
free trade area.


Article 102:  Objectives

1.   The objectives of this Agreement, as elaborated more
specifically through its principles and rules, including national
treatment, most-favored-nation treatment and transparency are to:

     (a) eliminate barriers to trade in, and facilitate the
 cross border movement of, goods and services between
 the territories of the Parties;

     (b) promote conditions of fair competition in the free
 trade area;

     (c) increase substantially investment opportunities in
 their territories;

     (d) provide adequate and effective protection and
 enforcement of intellectual property rights in each
 Party's territory;

     (e) create effective procedures for the implementation and
 application of this Agreement, and for its joint
 administration and the resolution of disputes; and

     (f) establish a framework for further trilateral, regional
 and multilateral cooperation to expand and enhance the
 benefits of this Agreement.

2.   The Parties shall interpret and apply the provisions of this
Agreement in the light of its objectives set out in paragraph 1
and in accordance with applicable rules of international law.


Article 103:  Relation to Other Agreements

1.   The Parties affirm their existing rights and obligations
with respect to each other under the General Agreement on Tariffs
and Trade and other agreements to which such Parties are party.

2.   In the event of any inconsistency between the provisions of
this Agreement and such other agreements, the provisions of this
Agreement shall prevail to the extent of the inconsistency,
except as otherwise provided in this Agreement.


Article 104:  Relation to Environmental and Conservation
Agreements

1.   In the event of any inconsistency between this Agreement and
the specific trade obligations set out in:

     (a) Convention on the International Trade in Endangered
 Species of Wild Fauna and Flora, done at Washington,
 March 3, 1973;

     (b) the Montreal Protocol on Substances that Deplete the
 Ozone Layer, done at Montreal, September 16, 1987, as
 amended June 29, 1990; 

     (c) Basel Convention on the Control of Transboundary
 Movements of Hazardous Wastes and Their Disposal, done
 at Basel, March 22, 1989, upon its entry into force for
 Canada, Mexico and the United States; or 

     (d) the agreements set out in Annex 104.1,

such obligations shall prevail to the extent of the
inconsistency, provided that where a Party has a choice among
equally effective and reasonably available means of complying
with such obligations, the Party chooses the alternative that is
the least inconsistent with the other provisions of this
Agreement.

2.   The Parties may agree in writing to modify Annex 104.1 to
include any amendment to the agreements listed in paragraph 1,
and any other environmental or conservation agreement.


Article 105:  Extent of Obligations

     The Parties shall ensure that all necessary measures are
taken in order to give effect to the provisions of this
Agreement, including their observance, except as otherwise
provided in this Agreement, by state and provincial governments.

=============================================================================

                                 ANNEX 104

       Bilateral and Other Environmental and Conservation Agreements


1.   The Agreement Between the Government of Canada and the
Government of the United States of America Concerning the
Transboundary Movement of Hazardous Waste, signed at Ottawa,
October 28, 1986.

2.   The Agreement between the United States of America and the
United Mexican States on Cooperation for the Protection and
Improvement of the Environment in the Border Area, signed at
La Paz, Baja California Sur, August 14, 1983.

Chapter Two General Definitions Article 201: Definitions of General Application 1. For purposes of this Agreement, unless otherwise specified: Commission means the Free Trade Commission established under Article 2001; Customs Valuation Code means the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade, including its interpretative notes; days means calendar days, including weekends and holidays; enterprise means any entity constituted or organized under applicable law, whether or not for profit, and whether privately- owned or governmentally-owned, including any corporation, trust, partnership, sole proprietorship, joint venture or other association; enterprise of a Party means an enterprise constituted or organized under the laws of, or principally carrying on its business in the territory of, a Party; existing means in effect at the time of entry into force of this Agreement; Generally Accepted Accounting Principles means the recognized consensus or substantial authoritative support in the territory of a Party with respect to the recording of revenues, expenses, costs, assets and liabilities, disclosure of information and preparation of financial statements. These standards may be broad guidelines of general application as well as detailed standards, practices and procedures; Harmonized System means the Harmonized Commodity Description and Coding System, and its legal notes, as adopted and implemented by the Parties in their respective tariff laws; measure includes any law, regulation, procedure, requirement or practice; national means a natural person who is a citizen or permanent resident of a Party and any other natural person referred to in Annex 201.1; originating means qualifying under the rules of origin set out in Chapter Four (Rules of Origin); person means a natural person or an enterprise; person of a Party means a national, or an enterprise of a Party; state enterprise means an enterprise that is owned, or controlled through ownership interests, by a Party; and territory means for a Party the territory of that Party as set out in Annex 201.1. 2. For purposes of this Agreement, unless otherwise specified, a reference to province or state includes local governments. ============================================================================= ANNEX 201.1 Country-Specific Definitions For purposes of this Agreement, unless otherwise specified: national also includes: (a) for Mexico, a national or a citizen according to Articles 30 and 34, respectively, of the Mexican Constitution; and (b) for the United States, "national of the United States" as defined in the existing provisions of the United States Immigration and Nationality Act; territory means: (a) with respect to Canada, the territory to which its customs laws apply, including any areas beyond the territorial seas of Canada within which, in accordance with international law and its domestic laws, Canada may exercise rights with respect to the seabed and subsoil and their natural resources; (b) with respect to Mexico, (i) the states of the Federation and the Federal District, (ii) the islands, including the reefs and keys, in adjacent seas, (iii) the islands of Guadalupe and Revillagigedo situated in the Pacific Ocean, (iv) the continental shelf and the submarine shelf of such islands, keys and reefs, (v) the waters of the territorial seas, in accordance with international law and its interior maritime waters, (vi) the space located above the national territory, in accordance with international law, (vii) any areas beyond the territorial seas of Mexico within which, in accordance with international law, including the United Nations Convention on the Law of the Sea, and its domestic laws, Mexico may exercise rights with respect to the seabed and subsoil and their natural resources; and (c) with respect to the United States, (i) the customs territory of the United States, which includes the 50 states, the District of Columbia and Puerto Rico, (ii) the foreign trade zones located in the United States and Puerto Rico, and (iii) any areas beyond the territorial seas of the United States within which, in accordance with international law and its domestic laws, the United States may exercise rights with respect to the seabed and subsoil and their natural resources.