From: [l w b] at [cs.utexas.edu] (Lance W. Bledsoe) Newsgroups: alt.conspiracy,alt.activism,alt.fan.rush-limbaugh,talk.politics.misc Subject: NAFTA Synopsis (2/3) Date: 9 Sep 1993 11:10:58 -0500 (continued) NAFTA country will ensure that a designated inquiry point provides information regarding such measures. Control, Inspection and Approval Procedures The NAFTA also establishes rules governing procedures for ensuring the fulfillment of SPS measures. These rules allow for the continued operation of domestic control, inspection and approval procedures, including national systems for approving the use of additives or for establishing tolerances for contaminants in foods, beverages or feedstuffs, subject to such disciplines as national treatment, timeliness and procedural "transparency". Technical Assistance The three countries will facilitate the provision of technical assistance concerning SPS measures either directly or through appropriate international or North American standardizing organizations. Committee on Sanitary and Phytosanitary Measures A Committee on Sanitary and Phytosanitary Measures will facilitate the enhancement of food safety and sanitary conditions in the free trade area, promote the harmonization and equivalence of SPS measures and facilitate technical cooperation and consultations, including consultations regarding disputes involving SPS measures. TECHNICAL STANDARDS This section applies to standards-related measures, namely standards, governmental technical regulations and the procedures used to determine that these standards and regulations are met. It recognizes the crucial role of these measures in promoting safety and protecting human, animal and plant life and health, the environment and consumers. The three countries have agreed not to use standards-related measures as unnecessary obstacles to trade, and will cooperate and work towards the enhancement and compatibility of these measures in the free trade area. Basic Rights and Obligations The NAFTA affirms that each country maintains the right to adopt, apply and enforce standards-related measures, to choose the level of protection it wishes to achieve through such measures and to conduct assessments of risk to ensure that those levels are achieved. In addition, the NAFTA affirms each country's rights and obligations under the GATT Agreement on Technical Barriers to Trade and other international agreements, including environmental and conservation agreements. The NAFTA also sets out certain disciplines on the use of standards-related measures, with a view to facilitating trade between the NAFTA partners. For example, each country must ensure that its standards-related measures provide both national treatment and most-favored-nation treatment. That is, they must ensure that goods or specified services from the other two countries are treated no less favorably than like goods or services of national origin, and like goods or services from non-NAFTA countries. International Standards Each NAFTA country will use international standards as a basis for its standards-related measures if those standards are an effective and appropriate means to fulfill the country's objectives. However, each country retains the right to adopt, apply and enforce standards-related measures that result in a higher level of protection than would be achieved by measures based on international standards. Compatibility The NAFTA countries will work jointly to enhance safety, health and environmental and consumer protection. They will also seek to make their standards-related measures more compatible, taking into account international standard-setting activities, so as to facilitate trade and to reduce the additional costs that arise from having to meet different requirements in each country. Conformity Assessment Conformity assessment procedures are used to determine that the requirements set out in technical regulations or standards are fulfilled. The Agreement sets out a detailed list of rules governing these procedures to ensure that they do not create unnecessary obstacles to trade between the NAFTA countries. Procedural "Transparency" The NAFTA requires public notice in most cases prior to the adoption or modification of standards-related measures that may affect trade in North America. The notice must identify the goods or services to be covered and the objectives of and the reasons for the measure. Other NAFTA countries and anyone interested in a particular standards-related measure will be allowed to comment on it. Each NAFTA country will ensure that designated inquiry points are able to respond to questions and provide information regarding standards-related measures to other NAFTA countries and any interested person. Technical Cooperation Each country will, on request, provide to another NAFTA country technical advice, information and assistance on mutually agreed terms and conditions to enhance their standards-related measures. The Agreement encourages cooperation between the standardizing bodies of the NAFTA countries. Committee on Standards-Related Measures A Committee on Standards-Related Measures will monitor the implementation and administration of this section of the Agreement, facilitate the attainment of compatibility, enhance cooperation on developing, applying and enforcing standards-related measures and facilitate consultations regarding disputes in this area. Subcommittees and working groups will be created to deal with specific topics of interest. The Agreement provides that these subcommittees and working groups may invite the participation of scientists and representatives of interested non-governmental organizations from the three countries. EMERGENCY ACTION This section of the Agreement establishes rules and procedures under which a NAFTA country may take "safeguard" actions to provide temporary relief to industries adversely affected by surges in imports. A transitional bilateral safeguard mechanism applies to emergency actions taken against import surges that result from tariff reductions under the NAFTA. A global safeguard applies to import surges from all countries. The Agreement's procedures governing safeguard actions provide that relief may be imposed for only a limited period of time and require that the NAFTA country taking the action must compensate the NAFTA country against whose good the action is taken. If the countries are not able to agree on the appropriate compensation, the exporting country may take trade measures of equivalent effect to compensate for the trade effect of the safeguard. Bilateral Safeguard During the transition period, if increases in imports from another NAFTA country cause or threaten to cause serious injury to a domestic industry, a NAFTA country may take a safeguard action that temporarily suspends the agreed duty elimination or re-establishes the pre-NAFTA rate of duty. The injury must result from the elimination of duties under the NAFTA. Such a safeguard action may be taken only once, and for a maximum period of three years. In the case of certain extremely sensitive goods, a country may extend the safeguard action for a fourth year. Bilateral safeguard actions may be taken after the transition period only with the consent of the country whose good would be affected by such action. Global Safeguard The Agreement provides that where a NAFTA partner undertakes a safeguard action on a global or multilateral basis (in accordance with Article XIX of the GATT, which permits both tariff and quota-based safeguard measures), each NAFTA partner must be excluded from the action unless its exports: - account for a substantial share of total imports of the good in question; and - contribute importantly to the serious injury or the threat of injury. The Agreement stipulates that a NAFTA country normally will not be considered to account for a substantial share of imports if it does not fall among the top five suppliers of the good. For a NAFTA country's goods to be deemed not to contribute importantly to injury, the rate of growth of imports of the goods entering from that country must be appreciably lower than that of total imports of those goods. Even if a NAFTA country is initially excluded from a safeguard action, the country taking the action has the right subsequently to include it in the action if a surge in imports from that country undermines the effectiveness of the action. Procedural Requirements This section also provides detailed procedures to guide the administration of safeguard measures, including: - entrusting injury determinations to a specified administrative authority; and - requirements for the form and content of petitions, the conduct of investigations, including public hearings to allow all interested parties an opportunity to present views, and notification and publication of investigations and decisions. REVIEW OF ANTIDUMPING AND COUNTERVAILING DUTY MATTERS The NAFTA establishes a mechanism for independent binational panels to review final antidumping (AD) and countervailing duty (CVD) determinations by administrative authorities in each country. Each country will make those changes to its law necessary to ensure effective panel review. This section also sets out procedures for panel review of future amendments to each country's antidumping and countervailing duty laws. In addition, it establishes an "extraordinary challenge" procedure to deal with allegations that certain actions may have affected a panel's decision and the panel review process. Finally, the NAFTA creates a safeguard mechanism designed to remedy instances in which application of a country's domestic law undermines the functioning of the panel process. Panel Process Binational panels will substitute for domestic judicial review in cases in which either the importing or exporting country seeks panel review of a determination based on a request by a person entitled to judicial review of that determination under the domestic law of the importing country. Each panel will comprise five qualified individuals from the countries involved, drawn from a roster maintained by the three countries. Each country involved will select two panelists, with the fifth selected by agreement of those countries or, in the absence of agreement, by the agreement of the four designated panelists or by lot. A panel must apply the domestic law of the importing country in reviewing a determination. The three countries will develop rules of procedure for panels. The panel will either uphold the determination or remand it to the administrative authority for action not inconsistent with the panel's decision. Panel decisions will be binding. Retention of AD and CVD Laws The NAFTA explicitly preserves the right of each country to retain its AD and CVD laws. Each country may amend its AD and CVD laws after the NAFTA takes effect. Any such amendment, to the extent it applies to imports from another NAFTA country, may be subject to panel review for inconsistency with the object and purpose of the Agreement, the GATT or the relevant GATT codes. If a panel finds such an inconsistency, and consultations fail to resolve the matter, the country that requested the review may take comparable legislative or administrative action or terminate the Agreement. Extraordinary Challenge Procedure The NAFTA also provides for an extraordinary challenge procedure and establishes certain grounds for invoking this procedure. Following a panel decision, either of the countries involved may request the establishment of a three-person extraordinary challenge committee, comprising judges or former judges from those countries. If it determines that one of the grounds for the extraordinary challenge has been met, it will vacate the original panel decision. In such event, a new panel will be established. Special Committee to Safeguard the Panel Process This section provides a safeguard mechanism to ensure that the panel process functions as intended. A NAFTA country may request a "special committee" to determine if the application of another country's domestic law has: - prevented the establishment of a panel; - prevented a panel from rendering a final decision; - prevented the implementation of a panel's decision or denied it binding force and effect; or - failed to provide opportunity for judicial review of the basis for the disputed administrative determination by an independent court applying the standards set out in the country's domestic law. If a special committee makes an affirmative finding on any of these grounds, the countries involved will attempt to resolve the matter in the light of the special committee's finding. If they are unable to do so, the complaining country may suspend the binational panel system with respect to the other country or may suspend other benefits under the Agreement. If the complaining country suspends the panel system, the country complained against may take reciprocal action. Unless the countries involved resolve the matter, or unless the country complained against demonstrates to the special committee that it has taken the necessary corrective action, any suspension of benefits may remain in effect. GOVERNMENT PROCUREMENT The Agreement opens a significant portion of the government procurement market in each NAFTA country on a nondiscriminatory basis to suppliers from the other NAFTA countries for goods, services and construction services. Coverage The NAFTA covers procurements by specified federal government departments and agencies and federal government enterprises in each NAFTA country. The NAFTA applies to procurements by federal government departments and agencies of: - over US$50,000 for goods and services; and - over US$6.5 million for construction services. For federal government enterprises, the NAFTA applies to procurements of: - over US$250,000 for goods and services; and - over US$8 million for construction services. For procurements covered by the Canada-U.S. FTA, the dollar thresholds of that Agreement will continue to apply. Mexico will phase in its coverage over a transition period. This section does not apply to the procurement of arms, ammunition, weapons and other national security procurements. Each country reserves the right to favor national suppliers for procurements specified in the Agreement. Procedural Obligations In addition to requiring national and most-favored NAFTA country treatment, the Agreement imposes procedural disciplines on covered procurements that: - promote transparency and predictability by providing rules for technical specifications, qualifications of suppliers, setting of time limits and other aspects of the procurement process; - prohibit offset practices and other discriminatory buynational requirements; and - require each country to establish a bid protest system that allows suppliers to challenge procedures or awards. Technical Cooperation The three countries will exchange information regarding their procurement systems to assist suppliers in each country to take advantage of the opportunities created by this section. A Committee on Small Business will assist NAFTA small businesses to identify procurement opportunities in NAFTA countries. Future Negotiations Recognizing that improvements to NAFTA's procurement section are desirable, the three countries will endeavor to extend the coverage of this section to state and provincial governments that, after consultations, voluntarily accept its commitments. CROSS-BORDER TRADE IN SERVICES The NAFTA expands on initiatives in the Canada-U.S. FTA and the Uruguay Round of multilateral trade negotiations to create internationally-agreed disciplines on government regulation of trade in services. The cross-border trade in services provisions establish a set of basic rules and obligations to facilitate trade in services between the three countries. National Treatment The Agreement extends to services the basic obligation of national treatment, which has long been applied to goods through the GATT and other trade agreements. Under NAFTA's national treatment rule, each NAFTA country must treat service providers of the other NAFTA countries no less favorably than it treats its own service providers in like circumstances. With respect to measures of a state or province, national treatment means treatment no less favorable than the most favorable treatment that the state or province accords to the service providers of the country of which it forms a part. Most-Favored-Nation Treatment The Agreement also applies another basic GATT obligation to services: that of most-favored-nation treatment. This rule requires each NAFTA country to treat service providers of the other NAFTA countries no less favorably than it treats service providers of any other country in like circumstances. Local Presence Under the Agreement, a NAFTA country may not require a service provider of another NAFTA country to establish or maintain a residence, representative office, branch or any other form of enterprise in its territory as a condition for the provision of a service. Reservations Each NAFTA country will be able to keep certain current laws and other measures that do not comply with the rules and obligations described above. Such federal, state and provincial measures will be listed in the Agreement. Each NAFTA country will have up to two years to complete the list of state and provincial measures of this kind. All such measures currently in force at the municipal and other local government level may be retained. Each NAFTA country may renew or amend its non-conforming measures provided that the renewal or amendment does not make a measure more inconsistent with the rules and obligations described above. Non-Discriminatory Quantitative Restrictions Each country will also list its existing non-discriminatory measures that limit the number of service providers or the operations of service providers in a particular sector. Any other NAFTA country will be able to request consultations on such measures with a view to negotiating their liberalization or removal. Licensing and Certification The NAFTA provisions related to professional licensing and certification are designed to avoid unnecessary barriers to trade. Specifically, each country must seek to ensure that its licensing and certification requirements and procedures are based on objective and transparent criteria such as professional competence, are no more burdensome than is necessary to ensure the quality of the service and are not in themselves a restriction on the provision of the service. This section also provides a mechanism for the mutual recognition of licenses and certifications, but does not require a NAFTA country automatically to recognize the credentials of service providers of another country. In particular, the three countries will undertake a work program with a view to liberalizing the licensing of foreign legal consultants and the temporary licensing of engineers. Commencing two years after implementation of the Agreement, a NAFTA country will remove any citizenship or permanent residency requirement for the licensing and certification of professional service providers in its territory. Any failure to comply with this obligation will entitle the other NAFTA countries to maintain or reinstate equivalent requirements in the same service sector. Denial of Benefits A NAFTA country may deny the benefits of this section to a specific firm if the services involved are provided through an enterprise of another NAFTA country that is owned or controlled by persons of a non-NAFTA country and the enterprise has no substantive business activities in the free trade area. In addition, for transportation services, a NAFTA country may deny benefits to a firm if these services are provided with equipment that is not registered by any of the NAFTA countries. Exclusions The services section does not apply to a number of matters dealt with in other parts of the Agreement, including government procurement, subsidies, financial services and energy-related services. The rules described above also will not affect most air services, basic telecommunications, social services provided by the government of any NAFTA country, the maritime industry except for certain services between Canada and Mexico and sectors currently reserved by the Mexican Constitution to the Mexican State and Mexican nationals. Each NAFTA country maintains the right to take action necessary to enforce measures of general application that are consistent with the Agreement, such as regarding deceptive practices. LAND TRANSPORTATION The NAFTA provides a timetable for the removal of barriers to the provision of land transportation services between the NAFTA countries and for the establishment of compatible land transport technical and safety standards. It provides for the phase out of restrictions on cross-border land transportation services among the three countries in order to create equal opportunities in the North American international land transportation market. The provisions are designed to ensure that the land transportation services industries of the three countries will have a full opportunity to enhance their competitiveness without being placed at a disadvantage during the transition to liberalized trade. Liberalization of Restrictions Bus and Trucking Services: When the NAFTA goes into effect, the United States will amend its moratorium on grants of truck and bus operating authority by allowing full access for Mexican charter and tour bus operators to its cross-border market. Mexico will grant equivalent rights to U.S. and Canadian charter and tour bus operators. Canadian truck and bus companies are not subject to the U.S. moratorium. Canada will continue to permit U.S. and Mexican truck and bus operators to obtain operating authority in Canada on a national treatment basis. Three years after signature of the Agreement, Mexico will allow U.S. and Canadian truck operators to make cross-border deliveries to, and pick up cargo in, Mexican border states, and the United States will allow Mexican truck operators to perform the same services in U.S. border states. At the same time, Mexico will allow 49 percent Canadian and U.S. investment in bus companies and in truck companies providing international cargo services (including point-to-point distribution of such cargo within Mexico). The United States and Canada will permit Mexican truck companies to distribute international cargo as well. The United States will maintain its moratorium on grants of operating authority for truck carriage of domestic cargo and for domestic passenger service, continuing to allow Mexicans to hold a non-controlling interest in U.S. companies. Three years after the Agreement goes into effect, the United States will allow bus firms from Mexico to begin scheduled crossborder bus service to and from any part of the United States. At the same time, Mexico will provide the same treatment to bus firms from Canada and the United States. Six years after the Agreement goes into effect, the United States will provide cross-border access to its entire territory to trucking firms from Mexico. Mexico will provide the same treatment to trucking firms from Canada and the United States. Seven years after the Agreement goes into effect, Mexico will allow 51 percent Canadian and U.S. investment in Mexican bus companies and in Mexican truck companies providing international cargo services. At the same time, the United States will lift its moratorium on domestic operating authority for Mexican bus companies. Ten years after the Agreement goes into effect, Mexico will permit 100 percent investment in truck and bus companies in Mexico. No NAFTA country will be required to remove restrictions on truck carriage of domestic cargo. Rail Services: Under the Agreement and consistent with a Mexican reservation taken pursuant to its Constitution, Canadian and U.S. railroads will continue to be free to market their services in Mexico, operate unit trains with their own locomotives, construct and own terminals and finance rail infrastructure. Mexico will continue to enjoy full access to the Canadian and U.S. railroad systems. The Agreement does not affect each NAFTA country's immigration law requirements for crews to change at or near their borders. Port Services: The Agreement also liberalizes land-side aspects of marine transport. Mexico will immediately allow 100 percent Canadian and U.S. investment in, and operation of, port facilities such as cranes, piers, terminals and stevedoring companies for enterprises that handle their own cargo. For enterprises handling other companies' cargo, 100 percent Canadian and U.S. ownership will be allowed after screening by the Mexican Foreign Investment Commission. Canada and the United States will continue to permit full Mexican participation in these activities. Technical and Safety Standards Consistent with their commitment to enhance safety, health and environmental and consumer protection, the NAFTA partners will endeavor to make compatible, over a period of six years, their standards-related measures with respect to motor carrier and rail operations, including: - vehicles, including equipment such as tires and brakes, weights and dimensions, maintenance and repair and certain aspects of emission levels; - non-medical testing and licensing of truck drivers; - medical standards for truck drivers; - locomotives and other rail equipment and operating personnel standards relevant to cross-border operations; - standards relating to the transportation of dangerous goods; and - road signs and supervision of motor carrier safety compliance. Access to Information Each NAFTA country will designate contact points to provide information regarding land transportation matters such as those related to operating authorizations and safety requirements. Review Process Beginning five years after the Agreement goes into effect, a committee of government officials will consider the effectiveness of liberalization in the land transportation sector, including any specific problems or unanticipated effects liberalization might have on each country's motor carrier industry. No later than seven years after the Agreement goes into effect, consultations will also address possible further liberalization. The results of these consultations will be forwarded to the NAFTA Trade Commission for appropriate action. TELECOMMUNICATIONS NAFTA provides that public telecommunications transport networks ("public networks") and services are to be available on reasonable and non-discriminatory terms and conditions for firms or individuals who use those networks for the conduct of their business. These uses include the provision of enhanced or value-added telecommunications services and intracorporate communications. However, the operation and provision of public networks and services have not been made subject to the NAFTA. Access to and Use of Public Networks The three countries will ensure that reasonable conditions of access and use include the ability to: - lease private lines; - attach terminal or other equipment to public networks; - interconnect private circuits to public networks; - perform switching, signalling and processing functions; and - use operating protocols of the user's choice. Moreover, conditions on access and use may be imposed only if necessary to safeguard the public service responsibilities of network operators or to protect the technical integrity of public networks. Provided that these criteria are met, such conditions on access and use may include restrictions on resale or shared use of public telecommunications transport services, requirements to use specified technical interfaces with public networks or services and restrictions on the interconnection of private circuits to provide public networks or services. Rates for public telecommunications transport services must reflect economic costs, and private leased circuits must be available on a flat-rate pricing basis. However, NAFTA does not prohibit cross-subsidization between public telecommunications transport services. In addition, firms or individuals may use public networks and services to move information within a country and across NAFTA borders. The provisions in this section do not apply to measures affecting the distribution of radio or television programming by broadcast stations or cable systems, which will have continued access to and use of public networks and services. Exclusions and Limitations The three countries are not required to authorize a person of another NAFTA country to provide or operate telecommunications transport networks or services and may prohibit operators of private networks from providing public networks and services. Enhanced Telecommunications The NAFTA provides that each country will ensure that its licensing or other authorization procedures for the provision of enhanced or value-added telecommunications services are transparent, non-discriminatory and applied expeditiously. Enhanced providers of the three countries will not be subject to obligations that are normally imposed on providers of public networks and services, such as providing services to the public generally or cost-justifying their rates. Standards-Related Measures The NAFTA limits the types of standards-related measures that may be imposed on the attachment of telecommunications equipment to public networks. Such measures must be necessary to prevent technical damage to, and interference with, public networks and services, to prevent billing equipment malfunctions and to ensure user safety and access. In addition, any technically qualified entity will be permitted to test equipment to be attached to public networks. This section also establishes procedures in each country to permit the acceptance of equipment test results conducted in the other NAFTA countries. Monopoly Provision of Services The NAFTA recognizes that a country may maintain or designate a monopoly provider of public networks or services. Each country will ensure that any such monopoly does not abuse its monopoly position by engaging in anti-competitive conduct outside its monopoly that adversely affects a person of another NAFTA country. Provision of Information Information affecting access to and use of public networks and services must be made publicly available, including: - tariffs and other terms and conditions of service; - specification of network and service technical interfaces; - information on standardizing organizations; - conditions for the attachment of terminal or other equipment; and - notification, permit, registration or licensing requirements. Technical Cooperation The NAFTA countries will cooperate in the exchange of technical information and in the development of government-to-government training programs. Recognizing the importance to global telecommunications of international standards, they will also promote such standards through the work of the International Telecommunications Union, the International Organization for Standardization and other relevant international organizations. INVESTMENT The NAFTA removes significant investment barriers, ensures basic protections for NAFTA investors and provides a mechanism for the settlement of disputes between such investors and a NAFTA country. Coverage This section covers investments in one country by NAFTA investors from another NAFTA country. NAFTA investors include all enterprises with substantial business activities in a NAFTA country. Investment covers all forms of ownership and interests in a business enterprise, tangible and intangible property and contractual investment interests. Non-Discriminatory and Minimum Standards of Treatment Each country will treat NAFTA investors and their investments no less favorably than its own investors -- national treatment -- and investors of other countries -- most-favored-nation treatment. With respect to measures of a state, provincial or local government, national treatment is defined to mean treatment no less favorable than the most favorable treatment accorded to investors of the country of which it forms a part. In addition, each country must provide investments of NAFTA investors treatment in accordance with international law, including fair and equitable treatment and full protection and security. Performance Requirements No NAFTA country may impose specified "performance requirements" in connection with any investments in its territory, namely specified export levels, minimum domestic content, preferences for domestic sourcing, trade balancing, technology transfer or product mandating. However, these disciplines do not apply to any NAFTA country's government procurement, export promotion or foreign aid activities. Transfers NAFTA investors will be able to convert local currency into foreign currency at the prevailing market rate of exchange for earnings, proceeds of a sale, loan repayments or other transactions associated with an investment. Each NAFTA country will ensure that such foreign currency may be freely transferred. Expropriation No NAFTA country may directly or indirectly expropriate investments of NAFTA investors except for a public purpose, on a non-discriminatory basis and in accordance with principles of due process of law. Compensation to the investor must be paid without delay at the fair market value of the expropriated investment, plus any applicable interest. Dispute Settlement This section sets out a detailed mechanism for the resolution of investment disputes involving a breach of the NAFTA investment rules by the host country. A NAFTA investor, at its option, may seek either monetary damages through binding investor-state arbitration or the remedies that are available in the host country's domestic courts. Country-Specific Commitments and Exceptions The NAFTA includes explicit country-specific liberalization commitments and exceptions to the national treatment, MFN and performance requirement rules. In the case of Mexico, these exceptions take into account constitutional requirements reserving certain activities to the Mexican State. Each country will specify exceptions for state and provincial measures within two years. Exceptions may not be made more restrictive and, if liberalized, may not subsequently be made more restrictive. However, a few sectors, such as basic telecommunications, social services and maritime services, are not subject to this constraint. Canada may review acquisitions as provided in the Canada-U.S. FTA. Mexico may review acquisitions with an initial threshold of $25 million phased up to $150 million in the tenth year after the Agreement goes into effect. Threshold levels will be indexed. Exceptions The investment provisions do not apply to government procurement and subsidies. Other provisions of the Agreement address exceptions related to national security and to Canada's cultural industries. Investment and the Environment The NAFTA provides that no country should lower its environmental standards to attract an investment and that the countries will consult on the observance of this provision. The Agreement also specifies that a country may take action consistent with the NAFTA's investment provisions to protect its environment. COMPETITION POLICY, MONOPOLIES AND STATE ENTERPRISES The NAFTA includes provisions on anticompetitive government and private business practices, in recognition that disciplines in this area will help fulfill the objectives of the Agreement. Competition Policy Each NAFTA country will adopt or maintain measures against anticompetitive business practices and will cooperate on issues of competition law enforcement and other competition issues. Monopolies and State Enterprises State Enterprises: The Agreement requires any enterprise owned or controlled by a federal, provincial or state government to act in a manner consistent with that country's NAFTA obligations when exercising regulatory, administrative or other governmental authority, such as the granting of licenses. Monopolies: The NAFTA imposes certain additional disciplines on current and future federal government-owned monopolies and on any privately-owned monopoly that a NAFTA country may designate in the future. When buying or selling a monopoly good or service, the monopoly must follow commercial considerations, consistent with the terms of its government mandate, and must not discriminate against goods or businesses of the other NAFTA countries. NAFTA provides that each country must ensure that such monopolies do not use their monopoly positions to engage in anticompetitive practices in non-monopoly markets in that country's territory. Trade and Competition Committee A trilateral committee will consider issues concerning the relationship between competition laws and policies and trade in the free trade area. FINANCIAL SERVICES The NAFTA establishes a comprehensive principles-based approach to disciplining government measures regulating financial services. This section covers measures affecting the provision of financial services by financial institutions in the banking, insurance and securities sectors as well as other financial services. The section also sets out certain countryspecific liberalization commitments, transition periods for compliance with the agreed principles and certain reservations listed by each country. Principles Commercial Presence and Cross-Border Services: Under the Agreement, financial service providers of a NAFTA country may establish in any other NAFTA country banking, insurance and securities operations as well as other types of financial services. Each country must permit its residents to purchase financial services in the territory of another NAFTA country. In addition, a country may not impose new restrictions on the cross-border provision of financial services in a sector, unless the country has exempted that sector from this obligation. Non-Discriminatory Treatment: Each country will provide both national treatment, including treatment respecting competitive opportunities, and most-favored-nation treatment to other NAFTA financial service providers operating in its territory. Under the Agreement, any measure that does not disadvantage financial service providers of another NAFTA country in their ability to provide financial services, by comparison to domestic providers, is deemed to provide equality of competitive opportunity. Procedural "Transparency": In processing applications for entry into its financial services markets, each country will: - inform interested persons of its requirements for completing applications; - provide information on the status of an application on request; - make an administrative determination on a completed application within 120 days, where possible; - publish measures of general application no later than their effective date and, where practicable, allow interested persons the opportunity to comment on proposed measures; and - establish one or more inquiry points to answer questions about its financial services measures. Prudential and Balance of Payments Measures: The NAFTA ensures that each country retains the right to take reasonable prudential measures notwithstanding any other provision of the Agreement. It also provides that a country may take measures for balance-of-payment purposes under limited circumstances. Consultations The Agreement provides specific procedures for NAFTA countries to consult on financial services matters. Country-Specific Commitments Canada: Under the Canada-U.S. FTA, U.S. firms and individuals are exempt from the non-resident provisions of Canada's "10/25" rules. Under the NAFTA, Canada will extend this exemption to Mexican firms and individuals who will thus be exempt from Canada's prohibition against non-residents collectively acquiring more than 25 percent of the shares of a federally-regulated Canadian financial institution. Mexican banks will also not be subject to the combined 12 percent asset ceiling that applies to non-NAFTA banks, nor will they be required to seek the approval of the Minister of Finance as a condition of opening multiple branches in Canada. Mexico: Mexico will permit financial firms organized under the laws of another NAFTA country to establish financial institutions in Mexico, subject to certain market share limits that will apply during a transition period ending by the year 2000. Thereafter, temporary safeguard provisions may be applicable in the banking and securities sectors. Banking and Securities: During the transition period, Mexico will gradually increase the aggregate market share limit in banking from eight percent to 15 percent. For securities firms, the limit will increase from 10 percent to 20 percent over the same period. Mexico will apply individual market share caps of 1.5 percent for banks and four percent for securities dealers during the transition period. After the transition period, bank acquisitions will remain subject to reasonable prudential considerations and a four percent market share limit on the resulting institution. Insurance: Under the NAFTA, Canadian and U.S. insurers may gain access to the Mexican market in two ways. First, firms that form joint ventures with Mexican insurers may increase their foreign equity participation in such ventures in steps from 30 percent in 1994 to 51 percent by 1998, and to 100 percent by the year 2000. These firms will not be subject to aggregate or individual market share limits. Second, foreign insurers may establish subsidiaries, subject to aggregate limits of six percent of market share, gradually increasing to 12 percent in 1999, and subject to individual market share caps of 1.5 percent. These limits will be eliminated on January 1, 2000. Canadian and U.S. firms that currently have an ownership interest in Mexican insurers may increase their equity participation to 100 percent by January 1, 1996. Intermediary and auxiliary insurance services companies will be permitted to establish subsidiaries with no ownership or market share limits when the Agreement goes into effect. Finance Companies: Mexico will permit Canadian and U.S. finance companies, on terms no less favorable than those accorded to Mexican institutions, to establish separate subsidiaries in Mexico to provide consumer lending, commercial lending, mortgage lending or credit card services. However, during the transition period, the aggregate assets of such subsidiaries may not exceed three percent of the sum of the aggregate assets of all banks in Mexico plus the aggregate assets of all types of limited-scope financial institutions in Mexico. Lending by affiliates of automotive companies with respect to the vehicles such companies produce will not be subject to, or taken into account in, the three percent limit. Other Firms: NAFTA factoring and leasing companies will be subject to transition limits on aggregate market share in Mexico of the same duration and magnitude as those applying to securities firms, except that they will not be subject to individual market share limits. NAFTA warehousing and bonding companies, foreign exchange houses and mutual fund management companies will be permitted to establish subsidiaries with no ownership or market share limits when the Agreement goes into effect. United States: The United States will permit any Mexican financial group that has lawfully acquired a Mexican bank with operations in the United States to continue to operate a securities firm in the United States for five years after the acquisition. The acquisition must occur before the NAFTA goes into effect and the bank and securities firm involved must have been operating in the U.S. market on January 1, 1992 and June 30, 1992, respectively. The securities firm may not expand the scope of its activities or acquire other securities firms in the United States, and will be subject to nondiscriminatory restrictions on transactions between it and its affiliates. Other than these provisions, nothing in this commitment will affect the U.S. banking operations of a Mexican financial group. Canada-United States: Financial services commitments of Canada and the United States to each other under the CanadaU.S. FTA will be incorporated into the NAFTA. INTELLECTUAL PROPERTY Building on the work done in the GATT and various international intellectual property treaties, NAFTA establishes a high level of obligations respecting intellectual property. Each country will provide adequate and effective protection of intellectual property rights on the basis of national treatment and will provide effective enforcement of these rights against infringement, both internally and at the border. The Agreement sets out specific commitments regarding the protection of: - copyrights, including sound recordings; - patents; - trademarks; - plant breeders' rights; - industrial designs; - trade secrets; - integrated circuits (semiconductor chips); and - geographical indications. Copyright For copyright, the Agreement's obligations include requirements to: - protect computer programs as literary works and databases as compilations; - provide rental rights for computer programs and sound recordings; and - provide a term of protection of at least 50 years for sound recordings. Patents The NAFTA provides protection for inventions by requiring each country to: - provide product and process patents for virtually all types of inventions, including pharmaceuticals and agricultural chemicals; - eliminate any special regimes for particular product categories, any special provisions for acquisition of patent rights and any discrimination in the availability and enjoyment of patent rights made available locally and abroad; and - provide patent owners the opportunity to obtain product patent protection for pharmaceutical and agricultural chemical inventions for which product patents were previously unavailable. -- "Thoughtcrime was not a thing that could be concealed forever. You might dodge sucessfully for a while, even for years, but sooner or later they were bound to get you." -- George Orwell, Nineteen Eighty-Four