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NAFTA at 15. American Bar Association Section of International Law 2009 Annual Meeting. Adriana Ibarra-Fernandez. The North American Free Trade Agreement.

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nafta at 15

NAFTA at 15

American Bar AssociationSection of International Law2009 Annual Meeting

Adriana Ibarra-Fernandez

the north american free trade agreement
The North American Free Trade Agreement
  • The North American Free Trade Agreement (NAFTA) created the world’s largest free trade area, which today has 442.4 million people and a combined gross domestic product of USD 15.4 trillion.
  • Since 1994, each of the NAFTA partners has experienced strong economic growth, increased trade and investment flows, and rising prosperity.
  • Manufacturers, farmers, ranchers, and service providers have greater export opportunities, while consumers have enjoyed lower prices and more choices.

NAFTA at 15 2

Source: USTR

exports
Exports
  • Canada’s exports to its NAFTA partners increased by 173 percent in value from pre-NAFTA levels.
  • Exports to the United States grew from USD 116.8 billion to USD 316.8 billion, while exports to Mexico reached USD 3.9 billion.

NAFTA at 15 3

Source: USTR

exports4
Exports
  • U.S. exports to Mexico and Canada grew by 157 percent

NAFTA at 15 4

Source: USTR

exports5
Exports
  • Mexican exports to the U.S. grew by 392 percent, reaching USD212.3 billion.
  • Exports to Canada also grew substantially from USD1.5 to USD5.2 billion, an increase of almost 237 percent.

NAFTA at 15 5

Source: USTR

annual trilateral trade
Annual Trilateral Trade

NAFTA at 15 6

Source: USTR

are there opportunities and challenges for nafta
Are there opportunities and challenges for NAFTA?

Since 1994:

  • Canada has signed free trade agreements with Israel, Chile, and Costa Rica, and has concluded free trade agreement negotiations with the members countries of the European Free Trade Association (EFTA: Iceland, Liechtenstein, Norway and Switzerland).

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are there opportunities and challenges for nafta8
Are there opportunities and challenges for NAFTA?
  • Canada is currently in the process of negotiating free trade agreements with four countries in Central America (El Salvador, Guatemala, Honduras and Nicaragua), Singapore, Korea, and has recently launched free trade agreement negotiations with the Andean Community countries of Colombia and Peru, the Dominican Republic and the Caribbean Community (CARICOM).

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are there opportunities and challenges for nafta9
Are there opportunities and challenges for NAFTA?

Since 1994:

  • The United States has free trade agreements with Jordan, Chile, Singapore, Australia, Morocco, Bahrain, the Dominican Republic and five countries in Central America CAFTA-DR (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Costa Rica.)

NAFTA at 15 9

are there opportunities and challenges for nafta10
Are there opportunities and challenges for NAFTA?
  • The United States has recently signed free trade agreements with Peru, Colombia, Panama, and Korea, and is currently negotiating a free trade agreement with Malaysia. The U.S.-Oman Free Trade Agreement will enter into force upon Oman’s completion of its domestic procedures.

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mexico s ftas
Mexico’s FTAs

Since 1994:

  • Mexico has free trade agreements with Chile, the European Union, the European Free Trade Association, Israel, Bolivia, Colombia, Nicaragua, the Central America Northern Triangle (El Salvador, Guatemala, and Honduras), Costa Rica, Uruguay and Japan as well as Agreements in terms of the Latin American Association for Integration (“ALADI”) with Brazil and several other Latin American Countries.

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mexico s ftas12
Mexico’s FTAs
  • These new generation FTAs have disciplines that NAFTA did not contemplate. When compared with the NAFTA region, other regions such as Central America (El Salvador, Honduras, Nicaragua, Guatemala, Dominican Republic and Costa Rica) have more attractive disciplines in their FTAs with the U.S. and Canada, which discourage establishing operations in the NAFTA Region.

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nafta article 303
NAFTA Article 303
  • NAFTA: In terms of article 303 of NAFTA when non-NAFTA materials are imported temporarily into Mexico by a Maquiladora and are incorporated into finished goods exported to the U.S. or Canada, duties must be paid in Mexico as if the non-NAFTA materials remained in Mexico for domestic consumption.

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slide14

NAFTA Article 303

IMMEX companies must pay Mexican duty on non-NAFTA materials equal to:

Mexican duty on materials

US or Canadian duty on Finished Goods

Minus

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slide15

NAFTA Article 303(Example)

Materials

WORLD

$ 200 x 5% = $ 10

Finished Product

USA/Canada

México

IMMEX

IMMEX MUST PAY $5 MEXICAN DUTIES

Value x Duties

$ 100 x 15% = $ 15

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nafta article 30316
NAFTA Article 303
  • Other Trade Agreements such as CAFTA do not have a duty deferral provision as found in NAFTA article 303.
  • Instead, CAFTA does permit inputs from Mexico and Canada into certain textile articles if those countries amend their laws and agreements with the CAFTA countries.  To date, only Mexico has done so.
  • CAFTA's rules of origin are generally less complicated, and have a lower RVC requirement than NAFTA.
  • CAFTA does permit other countries or group of countries to accede to its provisions with permission of existing parties.

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other opportunities for improvement
Other opportunities for improvement?

a) NAFTA verifications of origin:

  • Importing country is entitled to request exporter or producer located in the territory of another NAFTA country, to provide evidence of the NAFTA eligibility of goods imported under preferential duty treatment.
  • SCOPE???

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other opportunities for improvement18
Other opportunities for improvement?

Article 505: Records

Each Party shall provide that:

  • an exporter or a producer in its territory that completes and signs a Certificate of Origin shall maintain in its territory, for five years after the date on which the Certificate was signed or for such longer period as the Party may specify, all records relating to the origin of a good for which preferential tariff treatment was claimed in the territory of another Party, including records associated with

(i) the purchase of, cost of, value of, and payment for, the good that is exported from its territory,

(ii) the purchase of, cost of, value of, and payment for, all materials, including indirect materials, used in the production of the good that is exported from its territory, and

(iii) the production of the good in the form in which the good is exported from its territory;

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other opportunities for improvement19
Other opportunities for improvement?
  • There is no provision allowing exporter or producer to provide the above mentioned documents/information with regards to representative samples only.
  • This can lead to extensive verifications of origin which impede evidencing NAFTA eligibility of goods even when the goods do in fact meet the applicable rules of origin and are therefore entitled to preferential duty treatment.

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other opportunities for improvement20
Other opportunities for improvement?

b) NAFTA’s Dispute Settlement Mechanism:

  • Panel selection can be blocked by the country that breached the agreement.
  • Compliance with arbitral resolutions???
  • Retaliatory measures such as those imposed by Mexico due to lack of compliance by the U.S. with panel’s decision in land transportation case brought by Mexico in terms of Chapter XX of NAFTA.

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other opportunities for improvement21
Other opportunities for improvement?

b) NAFTA’s Dispute Settlement Mechanism:

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Source: IQOM

post nafta work to improve regional competitiveness
Post NAFTA Work to Improve Regional Competitiveness
  • Regulatory harmonization;
  • Trade in services.- impulse cross-border health services, transportation, professional services;
  • Customs cooperation.- Streamline movement of goods and individuals in border crossings;

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Source: Ministry of Economy

post nafta work to improve regional competitiveness23
Post NAFTA Work to Improve Regional Competitiveness
  • Energy cooperation.- Develop a trilateral plan to guarantee access to sufficient, clean, accessible and trustworthy energy;
  • Environment.- Create a trilateral plan in response to main environmental challenges such as climate change, water shortage and biodiversity
  • Social agenda.- Trilateral policies to allow more people to benefit from free trade.

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Source: Ministry of Economy

slide24

Adriana Ibarra FernándezBaker & McKenzie, S.C. Edificio Scotiabank InverlatBlvd. M. Ávila Camacho No. 1-12o.Colonia Lomas de Chapultepec11009, México D.FMexico Tel: +52 55 5279 2947 Fax: +52 55 5557 8627 adriana.ibarra-fernandez@bakernet.com

Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.

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