NAFTA Framework: Goods Trade, Origin Rules, and Disputes

Posted on Apr 1, 2025 in Law

NAFTA Development Timeline

  • January 1, 1989: Canada-U.S. Free Trade Agreement (CUSFTA) enters into force.
  • June 10, 1990: Canada, the U.S., and Mexico agree to pursue a free trade agreement.
  • February 5, 1991: NAFTA (CUSFTA-plus, with Mexico joining) negotiations begin.
  • December 17, 1992: NAFTA is signed by leaders from Canada, the U.S., and Mexico.
  • August 1993: Additional side agreements on labor and the environment are negotiated.
  • January 1, 1994: NAFTA enters into force.

Relationship with GATT and Other Agreements

Rules developed in the General Agreement on Tariffs and Trade (GATT, 1948) became the basis for NAFTA and the World Trade Organization (WTO).

Article 103 of NAFTA: Relation to Other Agreements

  1. The Parties affirm their existing rights and obligations with respect to each other under the GATT and other agreements to which such Parties are party.
  2. In the event of any inconsistency between this Agreement (NAFTA) and such other agreements, this Agreement (NAFTA) shall prevail to the extent of the inconsistency, except as otherwise provided in this Agreement.

Trade in Goods Under NAFTA

  • National Treatment (Article 301): Each Party shall accord national treatment to the goods of another Party in accordance with Article III of the GATT.
  • Binding Concession (Article 302): Except as otherwise provided in NAFTA, no Party may increase any existing customs duty, or adopt any customs duty, on an originating good.
  • Most-Favored-Nation (MFN) Rule: Standard MFN principles apply.
  • Area Treatment: Goods originating in a NAFTA country benefit from preferential tariff treatment when imported into another NAFTA country.
  • Rules of Origin (Article 401): These rules govern the assignment of nationality to goods and help determine the origin of goods, distinguishing originating from non-originating goods.

NAFTA Rules of Origin

A good shall originate in the territory of a NAFTA country if it meets one of the following conditions:

  1. The good is wholly obtained or produced entirely in the territory of one or more of the NAFTA countries.
  2. Each of the non-originating materials used in the production of the good undergoes an applicable change in tariff classification as a result of production occurring entirely in the territory of one or more of the NAFTA countries.
  3. The good is produced entirely in the territory of one or more of the NAFTA countries exclusively from originating materials.
  4. The Regional Value Content (RVC) of the good is not less than 60 percent where the transaction value method is used, or is not less than 50 percent where the net cost method is used. Formula: RVC = ((TV – VNM) / TV) * 100 (Article 402 of NAFTA, where TV = Transaction Value, VNM = Value of Non-Originating Materials).

The NAFTA Certificate of Origin (Form B232E) is used to prove the origin of goods.

Harmonized System Basis for Tariffs

  • Based on the International Convention on the Harmonized Commodity Description and Coding System.
  • Developed by the World Customs Organization (WCO).
  • Used as a basis for tariff classification.
  • Comprises headings, subheadings, related numerical codes, Section (21), Chapter (99), and Subheading Notes, and the General Rules for the Interpretation of the Harmonized System.

Technical and Sanitary & Phytosanitary (SPS) Standards

  • Governed by Article 904 of NAFTA.
  • Each NAFTA country can establish its own standards.
  • MFN & National Treatment rules apply.
  • Product standards aim to protect the safety or health of animal or plant life, the environment, or consumers. They should be based on scientific opinion (i.e., objective risk assessment).
  • Standards should not create unnecessary obstacles to trade.

NAFTA Chapter 19: AD/CVD Dispute Settlement

Chapter 19 of NAFTA provides for the review and dispute settlement in Antidumping (AD) and Countervailing Duty (CVD) matters.

  • Each NAFTA country maintains its own AD and CVD laws.
  • Article 1904:
    1. A domestic competent investigating authority of an importing NAFTA country makes a final antidumping or countervailing duty determination.
    2. An involved Party may request a Binational Panel review to determine whether such determination was in accordance with the antidumping or countervailing duty law of the importing Party.