The North American Free Trade Agreement (NAFTA) reached Aug. 12, 1991 between the United States, Canada and Mexico, after 14 months of negotiation created a trading bloc of over 360 million people with a combined GNP of $US 6,000 billion. Its aim was supposedly to remove trade and investment barriers between the three countries. This would in turn improve market access in sectors such as financial services and telecommunications. The resulting flow of capital would boost economic growth and create jobs. However, the Mexican peso had to be bailed out almost immediately after the agreement went into effect and the Canadian environment has suffered massively, especially along US-Canada commercial routes. Here's a summary of the key points in the NAFTA agreement.

Chapter Three: National Treatment and Market Access for Goods

Article 300 makes the fundamental principle of market access applicable to the provisions of the auto and textiles annexes and the energy and agriculture chapters, subject to any specific provisions set out in those chapters.

Article 301 incorporates the basic national treatment obligation of the GATT into the NAFTA. This means that once goods have been imported into any member country, they will not be subject to discrimination. Such an obligation is an essential part of any Agreement eliminating trade barriers since it prevents their replacement by internal measures favouring domestic goods over imports.

The NAFTA clarifies the manner in which the GATT's national treatment obligation applies to measures adopted by provinces or states (Article 301). With respect to measures of a state or provincial government, national treatment means treatment no less favourable than the most favourable treatment the state or province accords to the service providers of the country of which it forms a part.

Exceptions to the national treatment obligation are set out in annex 301.3. These exceptions also apply, as appropriate. to the rules governing import and export restrictions set out in Article 309. In general, the United States and Canada will be subject to the same exceptions under NAFTA as those that apply under the FTA. All three countries include export controls on logs and maritime cabotage restrictions in annex 301.3. Mexico may continue to require import licenses for up to ten years for a specified list of used machinery and equipment.

Article 302 provides for the phased elimination of US, Mexican and Canadian tariffs on goods traded between the Parties that qualify under the rules of origin set out in chapter four.

All tariffs on originating goods traded between Mexico and Canada will be eliminated over ten years with two exceptions. Certain agricultural goods in the dairy, poultry, egg and sugar sectors are exempt from the tariff-elimination provisions of the Agreement. The Mexican tariff on corn and dried lentils is being phased out over fifteen years. For remaining goods, existing customs duties will be eliminated immediately or phased out at some point over the ten-year period. Tariffs between the United States and Mexico will, in general, either be eliminated immediately or over a five or ten-year period. While most tariffs will be eliminated in five or ten equal annual stages, there are some exceptions. For example, Canada will eliminate its tariffs on most textile items over an eight-year period. The US tariff on a small number of products will be eliminated over a fifteen-year period.

Tariffs on originating goods traded between Canada and the United States will continue to be subject to the rules of the FTA carried forward with remaining tariffs being eliminated by January 1, 1998, in accordance with the schedule set out in the FTA. The Canadian NAFTA tariff schedule also provides for an additional column related to tariffs on goods jointly-produced in both Mexico and the United States. Currently, US goods assembled or processed in Mexican plants (or in any other third country) do not meet the origin requirements under the FTA and consequently do not qualify for the preferential FTA rate when exported to Canada. These goods are also not eligible for the developing country General Preferential Tariff (GPT) rate, for which Mexico is eligible, as there is insufficient Mexican content. These goods now enter Canada under the Most Favoured Nation status (MFN) rate. Under NAFTA, the base rate for these goods will either be the MFN rate or the higher of the GPT or the FTA rates. The base rate is the rate which provides the starting point for calculating the reductions called for by the Agreement.

Under Article 304, the Parties are precluded from adopting any new performance-based customs duty waiver or duty remission programs. These are duty waivers or remissions that are conditional on specific requirements relating to production or export performance being fulfilled. Non-performance based waivers and remissions are not affected by NAFTA. Existing performance-based duty waiver or remission programs in Canada and the US are to be eliminated by January 1, 1998. Production-based automotive duty remissions are to be eliminated by January 1, 1996. Existing duty waiver programs in Mexico will be eliminated by January 1, 2001.

Article 304 also provides that if duty waivers granted to a particular firm, even if not subject to performance requirements, have an adverse impact on the commercial interests of another Party, or a firm from that Party, the government granting the waiver must either cease to grant the waiver or make it available to all importers.

Article 305 requires each government to grant temporary, duty free admission of the following goods, regardless of origin, when imported from another Party, in order to facilitate business people crossing borders to carry out their work:
  • professional equipment necessary for carrying out the business activity, trade or professions of a business person who qualifies for temporary entry pursuant to chapter sixteen (temporary entry for business persons);
  • equipment for the print or broadcasting media including cinematographic equipment;
  • goods imported for sports purposes and goods intended for display or demonstration;
  • and commercial samples and advertising films.

Article 305 also allows the Parties to place certain conditions on such admissions, including a bonding requirement on non-originating goods and a requirement that the goods not be sold or leased while in the territory of the country granting the temporary admission. Article 305 also limits the types of routing restrictions that a NAFTA government may place on the vehicles or containers used in international traffic that enter its territory temporarily.

Article 306 provides for duty free entry of commercial samples of negligible value and for printed advertising material, regardless of their origin, that are imported from another NAFTA country.

Article 307 & annex 307.1 provide for the tariff treatment of goods, regardless of their origin, that are subject to repairs and alterations. Goods repaired under warranty in the United States or Canada remain duty-free in accordance with the FTA. Under NAFTA, this treatment is extended to Mexico.

Annex 307.3 commits the United States to provide written clarification of current US customs and coast guard practices that constitute and differentiate between the repair and rebuilding of vessels, and to begin a process of defining the terms "repairs" and "rebuilding" under US maritime law.

Article 308 requires each Party to reduce its MFN rate of duty on certain automatic data processing goods and parts in accordance with Table 308.1.1 of annex 308.1, to the lowest rate agreed by any Party in the Uruguay Round of GATT negotiations, or to such reduced rates as the Parties may agree. Under annex 308.1, the Parties will phase-in, in five equal annual stages commencing January 1, 1999, a common external tariff for the automatic data processing goods and their parts listed in table 308.1.1.

With the exception of the measures listed in annex 301.3, only those import or export restrictions in accordance with Article XI of the GATT may be adopted or maintained by any Party. Under Article 309 the Parties also agree that both export and import price requirements are prohibited. Except as provided in annex 301.3, no Party may adopt or maintain any prohibition or restriction on the importation of any good of another Party, except in accordance with Article XI of the GATT, including its interpretative notes, and to this end Article XI of the GATT.

Under Article 310, the three countries are prohibited from imposing new customs user fees similar to the US merchandising processing fee or the Mexican customs processing fee ("derechos de tramite aduanero"). Canada does not impose customs processing fees. Mexico will eliminate by June 30, 1999 its customs processing fee on North American goods. The United States will eliminate its current merchandise processing fee on goods originating in Mexico by the same date.

Annex 311 specifies requirements respecting the country of-origin marking of goods. It sets out disciplines which prevent a government from using marking requirements as a disguised trade barrier. For example, Parties may not require country-of-origin marking if the cost of marking is prohibitive or substantial in relation to its customs value. Annex 311 is also designed to ensure that Parties accept any reasonable method of marking of a good of another Party. For example, such reasonable methods include the use of stickers, labels, tags or paint which ensures that the marking is conspicuous, legible and sufficiently permanent. Annex 311 also requires that, by January 1, 1994, Canada, Mexico and the United States establish marking rules to determine in which of the NAFTA countries a good is primarily produced.

Under Article 313, the Parties agree to recognize Canadian Whiskey as a distinctive product of Canada, Tequila and Mezcal as a distinctive product of Mexico, Bourbon Whiskey and Tennessee Whiskey as a distinctive product of the United States, and to prohibit the sale of products under these names unless they meet the requirements of their country of origin.

Article 314 imposes a prohibition on export taxes, subject to a Mexican exception for basic foods set out in annex 314.

Under the GATT, export restrictions may be imposed in situations of short supply, for the conservation of a natural resource where domestic production or consumption is also constrained, or in conjunction with domestic price stabilization programs. Article 315 is the obligation requiring that export restrictions for such purposes cannot reduce the proportion of the good made available for export on commercial terms to the other Party relative to the total supply of the good when compared to the proportion exported over an appropriate representative period prior to the imposition of the restriction. Any such restriction must not disrupt the normal channels of supply or mix of products or impose a higher price on exports than for comparable domestic sales. This Article does not apply to Mexico (annex 315).

Article 316 establishes the Committee on Trade in Goods which provides a forum for the Parties to discuss any matter arising under this chapter. The Parties shall convene at least annually a meeting of officials responsible for customs immigration, inspection of food and agricultural products border inspection facilities and regulation of transportation to address issues related to the movement of goods through the Parties' ports of entry.

Chapter 11, Section A: Investment

The NAFTA definition of investment includes minority interests, portfolio investment, and real property as well as majority-owned or controlled investments from the NAFTA counties. In addition, NAFTA coverage extends to investments made by any company incorporated in a NAFTA country, regardless of country of origin. Land, rail and specialty air transportation services, which were excluded from the FTA, are covered by the NAFTA.

Article 1101 states that section A covers measures by a Party (i.e., any level of government) that affect: investors of another Party; investments of investors of another Party; and for purposes of the provisions on performance requirements and environmental measures, all investments. The section does not apply to any measure to the extent it is covered by chapter fourteen relating to financial services.

Article 1101 affirms the right of a Party to perform functions (such as law enforcement) and to provide services (such as social welfare and health). The Article also affirms the right of Mexico to perform exclusively the economic activities set out in Annex III, which lists those sectors reserved to the state in the Mexican Constitution. To the extent that Mexico permits foreign investment in these sectors (e.g., in the form of a service contract or joint production arrangement), the protections of the investment chapter apply to that investment. Additional exceptions to particular obligations are set out in separate Articles.

Article 1102 sets out the basic obligation of national treatment for investors and their investments with respect to establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition. National treatment means that a Party will treat investors of the other Parties and their investments as favourably as it treats its own investors and their investments, in like circumstances. This last phrase stablishes the basis for comparison between domestic and NAFTA investors and investments. National treatment by state, provincial, and local governments is defined as the best treatment provided by that government to any investor or investment. The Article explains that national treatment prohibits the imposition of requirements that a minimum level of equity be held by nationals as well as forced divestiture on the basis of nationality. In effect, the national treatment obligation provides investors the right to establish an investment on as favourable terms as domestic investors and as favourable treatment as domestic investors after establishment.

Article 1103 requires that a Party may not treat an investor or investment from a non-NAFTA country more favourably than an investor or investment from a NAFTA country (i.e., Canada must treat US and Mexican investors and investments as favourably as it treats, for example, European or Japanese investors or investments).

Article 1105, which provides for treatment in accordance with international law, is intended to assure a minimum standard of treatment of investments of NAFTA investors. National treatment provides a relative standard of treatment while this Article provides for a minimum absolute standard of treatment, based on long-standing principles of customary international law. In the case of losses suffered as a result of armed conflict or civil strife, each Party shall provide compensation on a non-discriminatory basis. However, the last paragraph of the Article provides a limited exception for existing subsidy programs which are not provided on a national treatment basis.

Article 1106 prohibits the imposition and enforcement of a number of specified performance requirements, in connection with the "establishment, acquisition, expansion, management, conduct or operation" of investments such as export requirements and domestic content. Prohibitions do not apply to subsidies that are conditioned on requirements to locate production, provide a service, train or employ workers, construct or expand facilities, or perform research and development. It does not restrict the use of certain measures (such as environmental regulation) which require domestic content or a preference for domestic goods or services, provided that such measures are not arbitrary and do not constitute a disguised restriction on international trade or investment. Permitted measures include those necessary to protect human, animal or plant life or health.

Under Article 1109, each Party is required to permit the transfer of funds related to investments (such as profits, loan payments, liquidations) to be made freely and without delay. The Article also prohibits forced repatriation of funds (i.e., by the home government). Certain exceptions are permitted to enforce laws of general application related to, for example, bankruptcy and trading in securities. (A limited exception for balance of payments difficulties is set out in Article 2104).

Under Article 1110, no Party may expropriate investments of investors of another Party, except for a public purpose, on a non-discriminatory basis, in accordance with due process of law, and on payment of compensation. Compensation must be equivalent to fair market value, plus interest at a commercially reasonable rate. If compensation is not paid in a G-7 currency, the Article requires that any exchange rate fluctuation between the expropriation date and the payment date must be incorporated into the amount of compensation paid. The Article does not apply to compulsory licences and the issuance, revocation, and creation of intellectual property rights, to the extent these are consistent with chapter seventeen (intellectual property).

Under Article 1113, a Party may deny the benefits of this chapter in the case that investors of a non-Party control the investment and the denying Party does not maintain diplomatic relations with the non-Party or the denying Party has prohibited transactions with enterprises of the non-Party which could be circumvented if the NAFTA applied. A Party may also deny benefits in the case of "sham" investments (i.e., where there are no substantial business activities in a NAFTA country).

Chapter Thirteen: Telecommunications

The thrust of chapter thirteen is to ensure that access to basic telecommunications services in the three countries will be made available to individuals and firms from other NAFTA countries on reasonable and non-discriminatory terms and conditions. The obligations on access to and use of public telecommunications networks apply primarily to intra-corporate use and to the provision of enhanced telecommunication services, as well as other kinds of specialized business applications. The chapter establishes obligations which define reasonable conditions of access and use of the public networks. These include: the ability to lease private lines; pricing related to costs; the ability to operate private leased networks for intra-corporate communications; and the right to attach terminal devices to the network. Restrictions on access will need to be justified as necessary to safeguard the public service responsibilities of the network operator or to protect the technical integrity of the network. In addition, there is an obligation to prevent anti-competitive conduct by monopolies operating outside their area of exclusive jurisdiction. The Parties also have agreed to develop a work plan for the harmonization of terminal equipment standards.

Article 1301 establishes that the chapter applies to:
  • measures relating to access and use of public telecommunications networks or services by individuals and firms from NAFTA countries;
  • measures that affect the supply of enhanced or value added services such as electronic mail or computer services; and
  • standards affecting the attachment of terminal equipment to the network.

Article 1303 requires transparency, non-discrimination and expetitiousness in the licensing or notification procedures for suppliers of enhanced services and limits the information required under such procedures to financial solvency and ability to comply with domestic standards and technical regulations. Moreover, it confirms that providers of enhanced services shall not be subject to common carrier obligations, such as providing services to the public generally or cost justifying their rates, nor shall they be required to interconnect with any particular network.

Article 1304 establishes a common approach to standards making related to the attachment of terminal or other equipment to the public networks including electromagnetic interference; billing equipment malfunctions; and ensure user safety and access.

Article 1305 requires that where a Party maintains or designates a monopoly provider of telecommunications services, that Party shall ensure that the monopoly does not abuse its position by engaging in anti-competitive conduct in those areas where it competes, such as in the provision of enhanced services or other telecommunications-related goods or services. Measures to prevent such anti-competitive conduct may include accounting requirements, structural separation information disclosure requirements and equal access to the monopoly's network and services.

Chapter Seventeen: Intellectual Property

NAFTA constitutes a landmark because it is the first treaty that combines an extensive set of IP obligations with an effective procedure for dispute settlement. Under Article 1701(1), Canada, the US and Mexico pledge to provide adequate and effective protection and enforcement of IPRs, while ensuring enforcement measures do not themselves become barriers to legitimate trade.

The chapter has four distinct parts. Articles 1701- 1704 contain general provisions on existing IP conventions, national treatment and anti-competitive practices. Articles 1705 - 1713 outline obligations regarding IP standards in the areas of copyright, sound recording, satellite signals, trademarks, patents, integrated circuits, trade secrets, geographical indications and industrial designs. Articles 1714- 1718 create disciplines with regard to the enforcement of IPRs, domestically and at the border.

Article 1703 embodies a national treatment obligation. It means that a Party must accord treatment no less favourable than that which it accords to its nationals for the protection and enforcement of all IPRs defined as copyright and related rights, trademark rights, patent rights, rights in layout designs of integrated circuits, trade secret rights, plant breeders' rights, rights in geographical indications and industrial design rights.

Full copyright protection is required for all types of computer programs by Article 1705(1)(a) and for compilations of data by Article 1705(1)(b). Article 1705(2)(d) requires each Party to provide the right to authorize or prohibit the commercial rental of the original or a copy of a computer program. Article 1705(1) requires protection for works covered by the 1971 Berne Convention, e.g., novels, plays, poems, encyclopedias, anthologies, treatises, maps, monographs, paintings, drawings, works of sculpture and architecture, computer programs, musical compositions, photographs, films and other audiovisual works. For authors and their successors in interest, Article 1705(2) requires the right to prevent the importation of unauthorized (i.e., pirated) copies and the right to authorize or prohibit the work's communication to the public and first public distribution. Article 1705(3) requires each Party to provide for the free contractual transfer of economic rights.

Articles 1706(1)(a)- 1706(2) together require each Party to give record producers the right to authorize or prohibit the reproduction of their sound recordings for at least 50 years. Article 1706(1)(b) requires that the record producer receive the right to prevent the importation of unauthorized (i.e. pirated) copies.

Article 1707 aims at protecting television programming content transmitted via encrypted satellite signals. NAFTA requires criminal and civil offenses for the unauthorized use of encrypted program-carrying satellite signals as well as for the illicit manufacturing, importing and distributing of unauthorized decoding devices.

Article 1708 embodies comprehensive trademark obligations.

Article 1710 requires protection for the distinct pattern of a specific semiconductor design.

Article 1711(1) - (3) requires each country to provide the legal means to prevent the unauthorized disclosure, acquisition or use of trade secrets in a manner contrary to honest commercial practices such as breach of contract, breach of confidence and inducement to breach.

Article 1711(5) - (6) demands protection for the information that companies have to give to the government to get marketing approval for new pharmaceutical or agricultural chemical products.

Article 1713 requires protection for independently created industrial design that are new or original and recognizes the owner's exclusive right to their commercial use. Article 1713(5) requires industrial designs to be protected for at least ten years.
1. "EC/NAFTA: NORTH AMERICANS MATCH EUROPEANS WITH NEW FREE TRADE AREA", European Report Europe Information Service, No. 1791, 09/02/1991.
2. Organization of American States. Headquarters: 17th St. & Constitution Ave., NW, Washington, DC
3. John Smithin, "Money and national sovereignty in the global economy " Eastern Economic Journal, 01/01/1999, p. 49-61.