Chapter 1 - Description of the NAFTA

Objectives

The objectives of this Agreement, as elaborated more specifically through its principles and rules, including national treatment, most-favored-nation treatment and transparency, are to:

• eliminate barriers to trade in, and facilitate the cross-border movement of, goods and services between the territories of the Parties;
• promote conditions of fair competition in the free trade area;
• increase substantially investment opportunities in the territories of the Parties;
• provide adequate and effective protection and enforcement of intellectual property rights in each Party's territory;
• create effective procedures for the implementation and application of this Agreement, for its joint administration and for the resolution of disputes;
• establish a framework for further trilateral, regional and multilateral cooperation to expand and enhance the benefits of this Agreement.

Tariff Phaseout

The NAFTA eliminates tariffs on most goods originating in Canada, Mexico and the United States over a maximum transition period of fifteen years. The schedule to eliminate tariffs already established in the Canada-United States Free Trade Agreement will continue as planned so that all Canada-United States trade is duty-free in 1998. For most Mexico-United States and Canada-Mexico trade, the NAFTA will either eliminate existing customs duties immediately or phase them out in five to ten years. On a few sensitive items, the Agreement will phase out tariffs over fifteen years. NAFTA-member countries have agreed to a faster phaseout of tariffs on certain goods.

During the transition period, rates of duty will vary depending upon in which NAFTA country the goods were produced. That is, the NAFTA may grant a Canadian good entering the United States a different NAFTA rate than the same Mexican good entering the United States. For most goods imported into Canada, there will be three NAFTA rates; the rate depends on whether the goods are of U.S. origin, Mexican origin or produced jointly with U.S. and Mexican inputs. To know which rate of duty applies, traders must first establish that the goods meet the NAFTA rules of origin and then use the tariff rules found in Annex 302.2 of the NAFTA.

Generally, tariffs will only be eliminated on goods that "originate" as defined in Article 401 of the NAFTA. That is, transshipping goods made in, say Guatemala, through Mexico will not entitle them to preferential NAFTA duty rates. The NAFTA does provide for reduced duties on some goods of Canada, Mexico, and the United States that do not originate but that meet specified conditions. For example, limited quantities of goods that are non-originating may be eligible for preferential NAFTA treatment under special tariff-rate quotas.

The NAFTA creates a free trade area, not a common market. Customs administrations will still exist and goods entering Canada, Mexico or the United States must still comply with each country's laws and regulations. The NAFTA does not allow for the unchecked movement of goods among Canada, Mexico and the United States.