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CHAPTER THREE - National Treatment and Market Access for Goods

What is Chapter Three of the NAFTA and what does it do?

Who benefits from Chapter Three of the NAFTA?

How can Chapter Three of the NAFTA help my company?

Can the U.S. Government help me if I have a problem?

How can I get more information?

What is Chapter Three of the NAFTA and what does it do?

Chapter Three of the North American Free Trade Agreement (NAFTA), entitled "National Treatment and Market Access for Goods", requires each of the three NAFTA countries to accord non-discriminatory, "national" treatment to goods of the other two. ("National" treatment means that a government will treat imported products no less favorably than domestic ones.) Chapter Three also provides for the progressive elimination of all customs duties on goods of North American origin traded among the NAFTA countries (U.S.-Canadian tariffs have already been eliminated), and requires the removal of certain non-tariff barriers that restrict or distort trade.

Canada, Mexico and the United States are the Parties to the NAFTA.

The NAFTA entered into force on January 1, 1994 and is scheduled to be fully implemented by 2008. It has no expiration date.

Who benefits from Chapter Three of the NAFTA?

Any U.S. company that exports or is interested in exporting "NAFTA originating goods" (goods of North American origin, as defined in Chapter Four of the NAFTA) to Canada or Mexico can benefit from the increased market access provided by Chapter Three.

How can Chapter Three of the NAFTA help my company?

The following is a summary of the key provisions of Chapter Three and what they mean for U.S. exporters:

Trade Provisions

Tariff Elimination. Chapter Three provides for the phased elimination of all tariffs on NAFTA originating goods that are traded among the three NAFTA countries. Tariffs on U.S.-Mexican trade have already been eliminated on many products, and will be eliminated on all industrial goods by January 1, 2003. Tariffs on some agricultural goods will remain until January 1, 2008. U.S.-Canadian tariffs have already been eliminated entirely as of January 1, 1998, under the previously-negotiated Canada-U.S. Free Trade Agreement.

The NAFTA also provides for accelerated tariff reductions. Upon request by a NAFTA Party, and if there is agreement by the NAFTA Party applying the tariff, a tariff can be reduced immediately on qualifying goods.

To determine the tariff elimination schedule for a particular product, U.S. exporters must first know the product's Harmonized System (HS) number. (The Harmonized System classifies products for customs purposes.) If you do not know your product's HS number, you can look for it in the U.S. Census Bureau's Schedule B Export Codes. You can also purchase the listing of HS codes in book form (Government Printing Office 202-512-1800) or on CD Rom (Bureau of Census, Customer Service 301-457-1084). If you are unable to classify a product using the above methods, you can call the Census Bureau's Foreign Trade Division at (301) 763-5210 or the Commerce Department's Trade Information Center at 1-800-USA-TRADE.

Drawback and Duty Deferral Programs. Article 303 of Chapter Three restricts the ability of NAFTA countries to provide export incentives in the form of waivers, refunds or reductions of import duties in connection with exports to other NAFTA countries. Duty waivers and reductions are features of foreign trade zones, bonded warehouses and maquiladora programs. The NAFTA restrictions on these duty-based export incentives went into effect on trade between the U.S. and Canada on January 1, 1996, and will go into effect on U.S.-Mexican trade on January 1, 2001. U.S. firms benefit from this provision in that Canadian and Mexican producers will no longer have duty-free access to imports from non-NAFTA countries which are used in exports to the United States.

Duty Waivers. Article 304 limits the extent to which a NAFTA country may waive otherwise applicable duties when the waiver is conditioned on fulfilling a performance requirement (for example, a requirement that the importer purchase or use locally-produced inputs for its manufacturing operations, or limit its imports to an amount related to the volume or value of the local products that it exports).

Temporary Admission of Goods. Article 305 requires each government to grant duty-free admission of the following goods, regardless of origin, when imported from another NAFTA country:

professional equipment ("tools of the trade") necessary for carrying out business or professional activities;

equipment for the press or for sound or television broadcasting, and cinematographic equipment;

goods intended for sports purposes;

goods intended for display or demonstration; and

commercial samples and advertising film.

Goods Shipped for Repair or Alteration. Article 307 provides that a NAFTA country may not impose customs duties on most goods imported temporarily from another NAFTA country for purposes of repair or alteration, regardless of their origin, or impose customs duties on a good when it is re-imported after having been repaired or altered in another NAFTA country.

Non-tariff Measures. Article 309 states that a NAFTA country may not prohibit or restrict imports from, or exports to, another NAFTA country. It then spells out certain limited exceptions to this general rule, including exceptions allowed under Article XI of the GATT (for example, certain import restrictions on agricultural products). If a NAFTA country restricts exports to, or imports from, a non-NAFTA country (for example, U.S. restrictions on trade with Cuba or Iraq), it can restrict imports from another NAFTA country of such goods, and it can apply restrictions on its exports to a NAFTA country to prevent their re-export to the non-NAFTA country. Article 314 of Chapter Three limits the ability of NAFTA countries to maintain duties, taxes or other charges on exports to other NAFTA countries.

Customs Processing Fees. Article 310 prohibits the imposition of certain customs processing fees on NAFTA originating goods, including requiring Mexico to eliminate its customs processing fee (derechos de tr?mite or DTA) for originating goods by June 30, 1999. Similar Canadian fees were phased out under the Canada-U.S. Free Trade Agreement (CFTA).

Country of Origin Marking. Article 311 sets out rules with respect to country of origin marking of goods which specify how and when NAFTA Parties can require country of origin markings.

Wine and Distilled Spirits. Article 312 prohibits requirements that imported distilled spirits must be blended with domestic distiled spirits. Article 313 requires the three countries to accord distinctive product status to certain specified distilled spirits, including bourbon whiskey and Tennessee whiskey.

Third Country Dumping. In Article 317, the NAFTA countries affirm the importance of cooperation with respect to anti-dumping investigations undertaken on behalf of third countries. The Article also provides that when a NAFTA country requests another NAFTA country to take an anti-dumping action on its behalf, the two countries should hold consultations within 30 days, and the country receiving the request should give the request full consideration.

Automotive Sector. NAFTA's automotive provisions, set out in Annex 300-A, eliminate all Mexican barriers to imports of automobiles, trucks and components from the U.S. and Canada over a ten-year period. All barriers have already been eliminated in U.S.-Canadian automotive trade. On January 1, 2002, Mexico accelerated tariff reductions to zero, one year ahead of schedule, for all remaining motor vehicle HTS Codes.

The Mexican government has also decided to allow Mexican residents to import NAFTA built used pickup trucks, provided they are at least 10 years old, in exchange for a fee of $200 plus applicable customs duties (average 2.2 percent). However, Mexico's ban on imports of other used vehicles (except within the "border zone," which permits used vehicles between 4 and 15 years old) less than 30 years old remains in force until 2009. At that time a 10-year phased reduction will be implemented.

Textiles. In Annex 300-B to Chapter Three, the NAFTA countries agreed to eliminate customs duties on originating textile and apparel goods in accordance with a schedule set out in Appendix 2.1 to the Annex. During the transition period for the duty elimination (until December 31, 203), NAFTA countries may take emergency protective action if an originating textile or apparel good is being imported in such increased quantities and under such conditions as to cause, or threaten to cause, serious damage to a domestic industry producing like products.

Can the U.S. Government help me if I have a problem?

Yes. If your company is experiencing difficulties exporting under Chapter Three of the NAFTA, contact the Office of Trade Agreements Negotiations and Compliance's hotline at the U.S. Department of Commerce. Experienced international trade specialists can help you understand your rights under this Chapter of the NAFTA, and U.S. Government officials can, if appropriate, work with Canadian or Mexican authorities to help you resolve your exporting problem.

The U.S. Government can also, in certain circumstances, use the consultation and dispute settlement procedures of the NAFTA to resolve problems encountered by U.S. exporters. Article 316 of Chapter Three establishes a Committee on Trade in Goods, which meets at least once a year (more frequently if a party so requests) and addresses issues relating to trade in goods covered by Chapter Three. If a government cannot resolve a problem at that level, it can invoke the dispute settlement procedures in Chapter Twenty of the NAFTA. The Free Trade Commission established under Chapter Twenty may create bilateral or trilateral panels of private sector trade experts to hear disputes involving the interpretation or application of the NAFTA

How can I get more information?

The complete text of Chapter Three of the NAFTA on National Treatment and Market Access for Goods is available from the Office of Trade Agreements Negotiations and Compliance's web site.

If you have questions about Chapter Three or how to use it, you can e-mail the Office of Trade Agreements Negotiations and Compliance (TANC), which will forward your message to the Commerce Department's Designated Monitoring Officer for this Chapter of the NAFTA. You can also contact the Designated Monitoring Officer at the following address:

Designated Monitoring Officer -

NAFTA Chapter Three (Market Access)

Office of North America

U.S. Department of Commerce

14th Street & Constitution Avenue, N.W.

Washington, D.C. 20230

Phone: (202) 482 - 0507

Fax: (202) 482 - 5865

You can obtain additional detailed information on NAFTA drawback and duty deferral programs, duty waivers, temporary admission of goods and country of origin marking by visiting the U.S. Customs and Border Protection web site or the trilateral NAFTA customs web site (offsite link).