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NAFTA
NAFTA CONFERENCE SLATED
08/01
The U.S. Department of Transportation
will hold a North American Free Trade Agreement conference in San
Antonio, Texas, on October 21-24, 2001. The event will include U.S.,
Canadian and Mexican government officials from regulatory agencies that
affect cross- border transport operations. Panel sessions will provide
information about each agency's requirements for motor carrier
operations under NAFTA.
For further information about the
conference, access DOT's web site at http//www.dot.gov/NAFTA, or contact
Eddie Carazo at (202) 366-2892.
CUSTOMS UPDATE: WILL NAFTA TIFFS EVER
END?
6/01
Published in the Journal of Commerce on June 12, 2001
Click
here for a printable version of this article
Like a serial novel, the controversy surrounding NAFTA and trading
between the U.S., Canada and Mexico continues unabated.
For example, NAFTA Article 303 was
designed to induce manufacturing operations to return to North America.
The method to accomplish this goal: luring suppliers to the region to
make their products, thereby allowing manufacturers to use regionally
made parts and components in making their finished goods. The benefit
would be the end product becomes NAFTA-eligible, thereby enjoying duty
free treatment. The final stage of implementation occurred in Mexico at
the first of this year.
The Americans insisted on the inclusion
of Article 303 in NAFTA out of concern that unless there was actual
manufacturing taking place, non-NAFTA suppliers would use Mexico or
Canada as a platform for gaining duty-free access to the U.S. market.
Put bluntly by some of the negotiators at the time, the concern was
Mexico, in particular, would be nothing more than a
"screwdriver" operation, meaning the Americans insisted on
rules of origin which rewarded manufacturing rather than assembly.
In reality, few suppliers relocated,
although some of the largest corporations continue to insist they do so
to this day. Until the NAFTA drawback provisions took effect on January
1, 2001, this was not much of an issue relative to Mexican production.
However, now that goods imported into Mexico, which are intended for the
U.S. and Canadian market, are subject to duty payment (with refund
coming, if at all, through the application of the complicated and record
intensive NAFTA drawback provisions), some Mexican products are becoming
more expensive than those produced elsewhere. [Unlike Canada where the
relevant duty rates have all dropped to zero, the duty phaseout
continues in Mexico.]
While American labor unions might be
elated at such a turn of events, the situation is problematic,
especially for the many American companies which have invested heavily
in Mexico. Simply put, Mexican produced goods are now subject to the
limitations of the NAFTA drawback program while foreign made goods are
not.
Another source of the problems Article
303 is causing is the lack of raw materials in North America. In the
case of shortages, it is commonplace for the regional-made raw materials
to be put into production in the U.S. while the foreign sourced raw
materials end up in Mexico. The average duty rate into the U.S. is now
somewhere around 3% whereas the average Mexican duty rate is
considerably higher. Whether made in the U.S. or Mexico, often times the
finished good ends up in the U.S. market with a resulting increase in
consumer cost.
This increased cost may be attributed to
the higher Mexican duty rate, but generally that is not the only cause.
Another element is the high cost of transportation when the company
decides to redirect the originating raw materials to Mexico to reduce
duty liabilities while moving the foreign raw materials to the U.S. for
production purposes.
As a general rule, the non-NAFTA inputs
used in Mexico are not available in North America either due to lack of
production, insufficient capacity or noncompetitive pricing, quality or
delivery times. These factors cause production costs to rise, an
increase which is enhanced by the administrative burdens imposed to
qualify for NAFTA and especially its drawback benefits. The net result
is the beginnings of change. A few North American-based manufacturers
are starting to look at relocating offshore in order to be quality and
price competitive. The importance of this phenomenon is in the overall
approach of the negotiations taking place regarding likely trade
agreements between the U.S. and Chile, Singapore and the Free Trade Area
of the Americas.
In a recent Federal Register publication,
the U.S. Trade Representative announced he wanted input regarding the
potential U.S.-Chile Trade Agreement and, in particular, sought comments
about the NAFTA rules of origin. It seems clear, the existing NAFTA
rules of origin will serve as a model for future trade agreements. The
key question for all of us then is, should they? If so, should they be
changed? If so, how? Traders are encouraged to make their views known.
If you are having trouble qualifying for NAFTA because you cannot obtain
sufficient regional inputs, let the U.S. Trade Representative know.
Elsewhere, the issue of opening the
borders to Mexican trucks, on the other hand, has proven more difficult.
A recent proposal by the Administration was to grant full access in
early 2002. Feeling the U.S. is not moving quickly enough, Mexico has
threatened to impose punitive sanctions. In other words, the Mexicans
are threatening to impose 100% duty rates on selected American products.
At the same time, a resolution has been introduced in the House of
Representatives calling for delays in allowing Mexican trucks to operate
in the U.S. until the Administration certifies to Congress that there
are no dangers to the health, safety and welfare of Americans. A
companion bill is expected to be introduced in the Senate shortly.
The House Bill lists a number of
conditions, such as that sufficient permanent inspection facilities be
built at all commercial border crossings, sufficient staffing to conduct
meaningful inspections, sufficient staffing at all hours of operation,
plus assurances that the Mexicans have in place and working an adequate
safety rating process, domestic roadside safety programs, adequate drug
and alcohol testing programs, hours of service regulations and
accessible safety databases.
At the same time, the California Truckers
Association (CTA) is said to be prepared to challenge opening the
borders to Mexican operators focusing on environmental regulations,
especially fuel standards. The Teamsters Union is reported to be working
closely with the CTA in seeking a way to bring to out evidence that
Mexico is violating its version of the Clean Air Act, coupled with the
claimed lack of U.S. preparedness to inspect arriving vehicles for fuel
standards compliance. [CTA has generally been supportive of NAFTA but
states its concern in this context to be the California environment.]
The CTA/Teamster complaint is expected to be filed with the North
American Commission for Environmental Cooperation whose process carries
with it no enforcement tools, only a final report with findings which
the various governments are free to implement in any way they choose.
Another trouble spot in Mexican-American
relations is the recent dumping complaint filed by a group of California
table grape growers against Mexico and Chile. The basis of the complaint
is that table grapes grown in the two countries and imported between
April 1 and June 30 are being sold to the U.S. market at less than
production costs. The complaint recently cleared its first hurdle when
the International Trade Commission found petitioners represented a
sufficient portion of U.S. domestic industry to be allowed to proceed, a
finding made despite active opposition from several sectors within
domestic industry.
Also causing concern, particularly with
the Canadians, is the Byrd Amendment which was passed in the last
session of Congress and requires Customs to refund the dumping duties
collected to the domestic industry found to have been harmed. The
Canadians have already indicated their displeasure (a concern which has
been heightened by the softwood lumber case) and are threatening to file
a complaint through the dispute resolution mechanism in NAFTA. Their
argument, and that of the Europeans and Japanese who threaten a similar
complaint before the World Trade Organization, is that refunds of
dumping duties to domestic industry are not in accord with either the
standards of NAFTA and/or the WTO. A particular concern is whether the
net result will be to generate a lot of litigation, much of which is
feared to be unfounded, simply because of the potential dollars at
stake. Given the nature and complexity attendant to dumping cases, their
resolution takes a long time, they are costly to defend (and prosecute)
and, even in the face of a finding that dumping is not warranted, many
companies end up going out of business. For proof of this result, one
need look no further than the unsuccessful dumping case a few years ago
which involved sweaters made in Hong Kong.
To comply with the Byrd Amendment,
Customs must enact regulations which are still being worked on. The
monies must be refunded no later than December 2001. It is unclear
whether Customs has completed those regulations or whether Treasury is
holding them up. In either case, they must still be published in the
Federal Register for public comment.
Against this backdrop, it appears we are
seeing that the lower the duty rates, the more room there is for
disputes between trading partners in other areas. Canada remains the
U.S.'s largest trading partner. Mexico has leapfrogged over Japan to be
our second largest trading partner. Again, American importers and
exporters are cautioned to keep a close eye on events in Washington.
There are daily changes and being out of the loop can prove to be
devastating.
CUSTOMS UPDATE: NEW NAFTA TRUCKING
RULES
5/01
Published in the Journal of Commerce on May 24, 2001
Click
here for a printable version of this article
On May 3, after the Bush Administration's
agreed to implement Nafta's trucking provisions, the Federal Motor
Carrier Safety Administration (FMCSA), a division of the U.S. Dept. of
Transportation (DOT), published regulations laying out the new
environment in which all Mexican trucks will operate in the U.S., making
them subject to the same safety regulations as U.S. operators.
The new rules will help determine the
readiness of Mexican truckers to meet the U.S. requirements. The
announcement included proposed new rules which implement safety
oversight programs while allowing Mexican applicants to operate either
in the border area (as was allowed pre-Nafta) or beyond.
Mexican truckers wishing to operate
throughout the U.S. will use the new Form OP1 to register. The purpose
of this new form (and the Form OP2 for those truckers continuing to
limit their operations to the border area) is to provide FMCSA and DOT
with information about the applicant's operations, domicile, Mexican
registration, and the system currently in place by which driver
qualification, hours of service, drug and alcohol testing, vehicle
safety and conditions, accident monitoring and hazardous materials
transportation are documented.
Arbitration of disputes is required for
household goods applicants so their willingness to offer it as the means
to settle claims and losses must be affirmed. Compliance with U.S. Dept.
of Labor and other regulations must also be affirmed through these new
forms.
The proposed regulations list the forms
which must accompany the OP1, such as proof of payment of federal
highway taxes. There is also a $300 filing fee. Even those few Mexican
truckers currently authorized to transport goods beyond the border
region will be required to file the new application form and pay the
filing fee, but have a year to do so. They remain subject to a safety
audit within 18 months of approval. Those truckers continuing to operate
within the border zone must also file the new Form OP2 and comply with
its requirements, including proof of financial responsibility.
Part of the new procedure is a Safety
Monitoring System and Compliance Initiative. It includes training
workshops by FMCSA that provide written materials to aid Mexican
operators in becoming conversant with the applicable U.S. laws and
regulations. One result of the intensified roadside inspections will be
to generate data identifying those carriers with serious safety problems
warranting immediate attention and then to focus on those problem
carriers, if any.
Mexican truckers will be required to
comply with the Federal Motor Carrier Safety Regulations, Motor Vehicle
Safety Standards and Hazardous Materials Regulations. Within 18 months,
the operations of every Mexican trucker will be audited for the purpose
of determining a carrier's compliance with the relevant safety
standards. The audits may be conducted either at the trucker's business
facility (in Mexico) or at designated locations, e.g., U.S.side border
area sites. Mexican truckers can also expect roadside inspections at
which they will be required to provide any records needed to adequately
evaluate safety compliance. Failure to comply with reasonable requests
for safety documentation can lead to revocation of any certificate to
operate in the U.S. (called the Certificate of Registration).
All Mexican truckers currently authorized
to transport cargo in the U.S. will retain their certification until the
safety audit is completed, presuming they file the new forms.
Continuance of certification is tied to the results of the audit. If the
audit is not completed within 18 months (a likely result given limited
staffing and the number of companies to audit), operations will be
allowed to continue until a safety audit is completed. If a carrier is
suspended because of failing an audit, the trucker will be given an
opportunity to cure any deficiencies, and failing that will have its
certification revoked.
The safety audits will also identity
truckers conducting unsafe operations or whose systems lack basic
management controls to ensure protection of public safety. Records
subject to review include driver medical qualifications, driver hours of
service, drug and alcohol testing and vehicle inspection, maintenance
and repair records.
If Mexican operators are found to have
committed certain violations, expedited action will result. If operators
employ drivers who do not possess or operate without a valid Mexican or
U.S. commercial driver's license and/or test positive for or refuse to
submit to requested alcohol or drug testing; operate vehicles taken out
of service for violations of the Commercial Vehicle Safety Alliance
North American Standard Out-of-Service Criteria without making required
repairs; fail to carry appropriate insurance; or have an out-of-service
rate of 50% or more based upon three (3) inspections within a
consecutive 90 day period, those operators will be subject to an
expedited safety review or could be issued a deficiency letter
identifying the violations and directing an immediate response to FMSCA
demonstrating corrective action. Failure to respond could lead to
suspension of certification. If a response remains outstanding,
revocation of certification follows.
Given the tremendous volume of trucks
crossing north into the U.S., there is understandable concern regarding
safety and so the obvious question is, how many Mexican trucks can
realistically be inspected? The FMCSA clearly hopes that the proposed
system will satisfactorily answer that question.
Another key issue is the apparent lack of
inspectors and inspection facilities in the border states. As part of
its implementation plan, the Bush Administration announced approximately
$88 million in additional federal funds to aid the four states bordering
Mexico in their efforts. California announced its readiness in 1994,
having built two multimillion dollar facilities, one within a half mile
of the Otay Mesa crossing south of San Diego, and the other near the new
border crossing station in Calexico. But given its immense volume of
Mexican trade, it was surprising to learn that Texas is not ready to
handle the increased inspections. A bill, which would have required the
state to build eight inspection facilities, has since died, but debate
over where to locate the facilities continues. Texas has yet to make any
decisions, and New Mexico and Arizona are equally lagging in their
preparations.
Also weighing in was New Mexico's senior
senator, Pete Domenici, on May 15 introduced a bill the Southwest Border
Port of Entry Infrastructure Improvement Act authorizing expenditures of
at least $585 million over the next five years to greatly improve ports
of entry on the Southwest border. The bill is cosponsored by Sen. Kay
Bailey Hutchison of Texas.
While the negotiations between the U.S.
and Mexico continue, publicly Mexico has said it wants immediate
implementation while the U.S. has counseled a phased-in approach. The
safety issue has lit fires anew with the release by DOT of 2000 service
figures that showed U.S. trucks were removed from service 25% of the
time, with that figure having risen to 36% for Mexican trucks.
Keep in mind that many trucks operating
at the border are often short haul or shuttle vehicles which neither
side would use for access outside the border zone, i.e., for longer
hauls. Nonetheless, such high out-of-service rates are intolerable,
whether by U.S. or Mexican owned trucks.
NAFTA TRIBUNAL ACCEPTS THIRD PARTY
BRIEF
01/01
In what some see as a surprise, a NAFTA environmental panel has ruled it
will accept amicus briefs. The case is noteworthy for that reason but
also because of the substantive issue it seeks to raise. Methanex
Corporation, a Canadian company, seeks recovery for claimed lost profits
as the result of the State of California banning MTBE. The State's
decision was based upon environmental problems allegedly caused by the
MTBE additive, a suspected carcinogen.
NAFTA DECISION APPEALED
11/99
The United Steelworkers of America
recently filed an appeal seeking to again overturn NAFTA. The
union claimed that NAFTA was not legally enacted by claiming it is a
treaty which required 2/3 Senate approval. It was approved as a
trade agreement by a majority in both Houses of Congress. The
trial court found the agreement was properly ratified. It is
expected to take many months before the appellate court hears the case
or reaches a decision.
NAFTA FOUND CONSTITUTIONAL
9/99
Attracting yet more attention, this time in
Alabama, NAFTA was recently found to be constitutionally enacted despite the
objections of the Made in USA Foundation and the United Steelworkers of America
who argued NAFTA was really a treaty and so required a 2/3 majority vote in the
Senate, which, of course, did not happen. The judge decided the treaty clause
was not the only way to enact an international trade agreement. One other method
was by relying on the President's responsibility to regulate foreign affairs.
Another is Congress' power under the foreign commerce clause. An appeal is
expected by the plaintiffs.
ONCE MORE TO THE SUPREME COURT
9/99
In the current session, the U.S. Supreme Court has
twice dealt with trade related cases. One decision had to do with the harbor
maintenance tax which was found to be unconstitutional as a tax on exports. The
second involved Haggar and its Mexican jeans assembly operation which found
Customs was due quite a bit of deference when it made its classification
decision based upon properly enacted regulations. Now Bestfoods has appealed a
decision which found its Skippy peanut butter did not meet the NAFTA marking
rules and so had to be labeled Made in Canada. Bestfoods has argued twice before
lower courts that the NAFTA marking rules fail to meet the existing substantial
transformation test and, therefore, are not validly enacted. It has lost twice
and now hopes to convince the high court.
CUSTOMS
REBUKED OVER NAFTA RULES
Reminding Customs that the NAFTA marking rules add to, and do not
replace, the principals and rules already in the law, in CPC International, Inc.
vs. U.S. (July 8, 1996), Slip Op. 96-106, the Court of International Trade
overruled Customs regarding the manner in which it interpreted the NAFTA marking
rules. The court reminded Customs that in making a determination about marking,
the existing rules regarding substantial transformation (producing a new and
different article of commerce) cannot be ignored when the importer claims that
he is the ultimate purchaser of the intermediate product. This decision is
significant because it reminds Customs once again that existing laws on the
books cannot be ignored.
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