A Trade Agreement That Creates Favorable Trade Terms

NAFTA provides for the phasing out of all tariffs on North American products through four staging categories defined as A to D. Customs duties on category A products, which are the fastest, were completely abolished on 1 January 1994. According to the U.S. International Trade Commission, this represents 31% of U.S. products exported to Mexico (based on goods traded in 1990). Customs duties on Category B products were lifted in five equal annual stages from 1 January 1994. This represents 17.4% of exports to Mexico. Customs duties on Category C products are gradually withdrawn in 10 equal annual stages, i.e. 31.8%. Tariffs on Category C+ products will be eliminated in 15 equal annual steps, or 1.4% of U.S.

exports to Mexico. And tariffs on Category D products will continue to be exempt from tariffs. This represents 17.9% of U.S. exports to Mexico. Since 1947, eight rounds of multilateral trade negotiations have taken place under the auspices of GATT. The objective of each round was to reduce or eliminate tariffs and, in some cases, non-tariff barriers between Contracting Parties. In September 1986, trade ministers met in Punta del Este, Uruguay, to launch a new and final round of trade negotiations aimed at strengthening GATT and broadening its scope. This aspect has added something other than the Kennedy and Tokyo-GATT rounds that were previously negotiated and focused mainly on tariff reductions. After seven long years, a pioneering GATT agreement has been concluded. It should be noted that as regards the authorisation of origin criteria, there is a difference in treatment between intermediate consumption of origin within and outside a free trade agreement. Normally, inputs from one part of the FTA are considered to be products originating in the other party when they are included in the manufacturing process of that other party. Sometimes the production costs incurred by one party are also considered to be those of another party.

Preferential rules of origin generally provide for such a difference in treatment in the determination of cumulation or accumulation. Such a clause also explains the above-mentioned effects of a free trade agreement on the creation and reorientation of trade, given that a party to a free trade agreement has an incentive to use inputs originating in another party in order for its products to be eligible for originating status. [22] Over the years, Mexico has not always seen the privatization of enterprises to the extent expected. For example, in the past, many state-owned enterprises were sold only to domestic investors, so sometimes more qualified and more powerful foreign investors in cash could not even offer. Many analysts believe that this policy has limited competition and has not always pushed new owners to become as efficient as they could have been under more competitive and open market conditions. . . .