JJonathan Fried¹

I would like to review with you the NAFTA (Free Trade Agreement between Mexico, United States and Canada) to try to provide you with some details about it. In the course of reviewing the substantive rules of the NAFTA, I would like to pay particular attention to the dispute settlement provisions. After all, in many ways, it is the lawyers that try to preserve their own profession and their own future employment by ensuring that effective procedures for the resolution of disputes were included as a key component of the NAFTA agreement. I think the simplest way to understand the NAFTA is to divide the Agreement into its mayor components and I would like to do that with you.

The table of contents of the NAFTA provides for 8 mayor divisions. I would like to divide them into 6 for you. First, the NAFTA addresses all issues related to access to markets for trade in goods; second, and maybe one of NAFTAs most significant achievements, is a section that deals with standards, with tecnical regulations -the so-called "non tariff barriers"-. Third, the NAFTA deals with the Government Procurement. Fourth, the NAFTA contains comprehensive codes for conducting business, services, investement and intellectual property, as well as the temporary movement of business people (all different aspects of conducting business in a free trade area). Fifth, as you would find in every trade agreement, multilateral, regional or bilateral, the NAFTA contains several reservations, exceptions and anexes which must be considered to gain a full understanding of the Agreement. Finally, the NAFTA contains a constellation of provisions relating to dispute settlement.

Part I: "trade in goods and market access". The basic principles of NAFTA regarding trade in goods are exactly the same as those which governed trade in goods with the GATT, namely, a prohibition of cuantitative restrictions and other import barriers, as you would find in article XI of the GATT, and the principle of national treatment for trade in goods once the foreign goods have entered the domestic market. The NAFTA says that these two basic principles, (GATT article XI and GATT article III) apply to all goods in all sectors unless there are more special rules later in the Agreement.

There are four sectors in North America that have special rules: the automotive sector which is so important to the United States, Canada and Mexico has special rules; the energy sector which is constitutionaly protected in Mexico and which for Canada and United States should form a basis for a more continental marketing of energy products contains special rules; third is agriculture and agricultural products and, finally, the textile and apparel sector has special rules as well.

Regarding the first and most visible barrier to free trade, tariffs for trade in goods, the NAFTA has a simple principle: all tariffs on all goods, traded between the three countries, shall be reduced to zero within a specified timeframe. For some products, that took place inmediately on January 1, 1994. Another group of products is having its tariff reduction in stages across five years. A third group of more sensitive products, across 10 years. As between the United States and Mexico, certain very sensitive products across 12 or 15 years, and as between Canada and Mexico certain agricultural products will have their tariffs reduced, but cuotas restricting the access of such products would be retained.

It is worth pausing here to note the exceptions and reservations that each of the countries placed against these general principles. An anex to the market access chapter, which is anex 301.3, contains a list of country-specific exceptions to the priciple of national treatment and to the prohibition against import restrictions. For Canada and for the United States these reservations are no more than, and no different than, the same reservations that each of our two countries had when we joined the GATT in 1947. Mexico"s reservations to the GATT, when it joined in 1986, were much more extensive and in the view of Canada and the United States were inconsistent with the principles of a free trade area.

As a result, this annex, for Mexico contains a much more restrictive list of exceptions that Mexico has retained in a GATT context. Of course, the general exceptions found in the General Agreement, are also available in the NAFTA. For example: one need not respect a national treatment or the prohibition against import restrictions if there are sound reasons of public health, public safety, public morals or, if there are national security concerns or legitimate taxation measures for the general welfare is imposed, even if they have discriminatory effects. The NAFTA, consistent with free trade, allows any of the three Governments to use these exceptions within specified circumstances.

How does the NAFTA insure that these rules are properly administer and applied? There is no international bureaucracy in NAFTA, there is no body that resembles the Commission of the European Communities or the European Union; there is no body resembling SIECA. Instead, NAFTA relies on the functionaries of each of the three Governments meeting together to ensure that the rules, as they have been written, remain the same rules as they should be applied.

The NAFTA creates several working groups and committees of an intergovernmental nature on a standing or permanent basis. For example: to administer the tariff, the only goods that benefit from the lower preferential tariff are goods that contains sufficient input from the three countries, the so-called "rules of origin" and the NAFTA creates a Rules of Origin Committee to monitor on a continuing basis, whether the goods that are supposed to gain the preference, continue to gain the preference and whether, in fact, the custom authorities of the three countries are applying the rules on an objective basis. These groups of officials, the rules of origin group and a customs subgroup, meet at least 4 times a year to check whether respective custom authorities and tariff officials are applying the rules.

In addition, and this is a theme to which I will return throughout my talks, the NAFTA tries to put into the hands of the private sector itself, the right to insure that the rules are being applied. For example: building a car, the components may come from different countries, the manufacturer should add up all these materials to see if there is sufficient North American content to qualify as a North American good. Custom officials are charged with the responsability of auditing or assessing what the company tells them in order to make a ruling on whether this goods should receive the preference. If a company believes that the authority has made an erroneous determination: one avenue is to complain to your Government and becomes a Government to Government dispute settlement. The NAFTA says that companies themselves should, and must have, the right to make an appeal for review at a senior level in the administration as well as judicial review by way of appeals to the courts, by way of oversight, so domestic administrative agencies and domestic courts and tribunals becomes agents for enforcing the international rules of the treaty and the enforcement can be requested by the private party, in my example, as well as by the Governments themselves.

The second component of the NAFTA: "the universe of rules that address standards and tecnical regulations". The NAFTA addresses two mayor categories of standards: the first category is specific to the agricultural field and is called "sanitary and phytosanitary measures". The second set of standards concern industrial regulations, consumer safety, performance standards, testing procedures, approval procedures and labeling requirements. The NAFTA deals with these two categories in two different ways: for sanitary and phytosanitry measures the negotiators of the NAFTA concluded that the GATT principles of national treatment and import restrictions being prohibited at the border, do not quite suit this area of government regulation. For example: if in Canada a certain disease is not known for our agricultural products, because we are in a northern climate, but other diseases of a tropical nature may affect products coming from Mexico. We may require regulations in Canada for the safety of our population that will apply only at the frontier, only at the border. Tecnically speaking, such regulations would be a violation of the GATT prohibition against such restrictions, but our veterinarians and our scientists from all three countries say, that the form of inspection and regulation is valied if conducted on a scientific basis.

The NAFTA contains a comprehensive "stand alone code" of rules regarding how Governments may develope and apply their regulations concerning sanitary and phytosanitary measures. The principles are straight forward, there are really two: first of all, any Government may impose these kinds of regulations even if they otherwise be restriction on trade, if they are based on sound scientific principles; for example, if they flow from an internationaly agreed regulation, such as from the Food And Agriculture Organization in Rome and suddenly that the regulations may be imposed only to the extent necessary to address the possible harm. Any more stringent regulation which unfairly or arbitrarily interfers with trade would be prohibited and this represents a carefull balance between the need for each country to protect its population and its consumers on the one hand versus the tendency on the part of some agricultural ministries in particular, in the United States to use these regulations as an excuse to prohibit what would otherwise be legitimate trade.

Regarding industrial standards, the second category, the principles are more closely tied to the national treatment principle of the GATT. If for example regarding an electrical product, the Government imposes certain regulations regarding the electrical instalation and potection against shock and so on, the negotiators of the NAFTA concluded that there really should be no difference between the requirements for domestic products and requirements for foreign products. So, the chapter that addresses these tecnical barriers to trade, basically says that the same principles of national treatment that apply for general regulations, should apply to these kinds of tecnical regulations.

The third component of NAFTA: "government procurement". Since 1979, the GATT has had a Government Procurement Code as a separate agreement under the auspices of the international organization; only 16 countries are members of this code. The Code basically says: for government purchases large enough to be of international interest above a certain value, for those government Ministries and agencies that you are willing to put on the table, other countries that join the code have the right to insure that all of their companies may bid on those contracts on an equal basis. In other words, for large contracts for the entities that are named under the code by each country, a company that wishes to supply goods for that contract from a foreign country, cannot be discriminated against solely because his goods are foreign or because he is a foreign-owned company. Up until the 1970s, there had been a very widespread tendency on the part of many Governments to say: "oh yes, the price may be the same but we would give a 5% premium or a 10% preference to goods coming from domestic sources," because Governments spending is often viewed as a way of promoting the national industry.

The NAFTA takes things a giant step further: as the GATT deals only with contracts for goods, the NAFTA covers contracts for services and for construction as well. In fact, this effort by NAFTA was picked up by the rest of the world in the GATT negotiations in the Uruguay Round that had just concluded, the new General Procurement Agreement of the World Trade Organization will also cover services and construction as well as goods. Once again, just like trade in goods, the NAFTA says: "even though it is an international treaty and even though the obligations undertaken under this Agreement are made by one Government to the other two Governments, we believe that the private sector itself must have the right to vindicate its opportunities under the Agreement;" so, in the porcurement part in the Agreement, the NAFTA contains a very detailed code of domestic procedures that must be implemented under domestic law in order to insure that biding and tenders and awards of contracts are conducted under a transparent and non dicriminatory manner. Once again, as in the customs area, the NAFTA provides that that private company that wants to compete, if it is not satisfied on the Government awarding the contract has respected the rules of the Agreement, must have rights under domestic law for administrative review up to a more senior level and judicial oversight, judicial review or appeal as to whether that Government is, in fact, applying its procurement and spending its money for the covered contracts in a non discriminatory fashion.

A fourth component of the Agreement is the one that I call "the conduct of business" or "doing bussiness". This component has various subcomponents: cross border trade in services, foreign investment, intellectual property and the temporary movement of business people. Tha NAFTA draws a clear distinction between cross border trade in services and the making on foreign investment. Tha NAFTA defines the cross border trade in services as being the provision of a service from one country to another territory or to a person of another territory. An arquitect, for example, might stay in his office in Toronto and send his blueprints or designs to clients or costumers in Mexico City or the United States. He is providing arquitectural services across the border or he might sell his design to an american or mexican in his office in Toronto. Under the NAFTA that is also considered an international service transaction. If that arquitect, instead, opens another office in New York or in Mexico City, he has made an investment and the way that his offices are regulated would be covered by the investment chapter rather than by the service chapter. The easiest way to understand this distinction, I think is that the NAFTA would basically say any mayor commitment of capital into another territory would constitute and investment. Any other transactions would considered to be a cross border trade in services.

The NAFTA builds on the free trade agreement between Canada and the United States in terms of how it regulates services and investment. What is interesting is that the NAFTA really simply extrapolates the same GATT principles for trade in goods, national treatment and no restrictions at the border to the services and investment field. If any of our three countries wants to regulate arquitects, and the way aquitectural services are provided, the NAFTA says "do not discriminate arquitects solely on the basis of their citizenship. Do not discriminate against the potential investor who wants to build a factory solely on the basis of nationality or citizenship." The NAFTA does allow distinctions that are based on sound meritorious principles. For example, if you require your arquitects to obtain a license or pass an examination in order to have a professional certificate, there is nothing in the NAFTA that says you must grant a free passage to foreign arquitects. They might also be required to pass the same exam.

As with trade in goods, this general principles regarding services and investment, have more specific rules in certain sectors and the two sectors that are so specialized in terms of their regulation that they required different rules are: telecommunications and financial services. The telecommunications field draws a distinction between basic telephone services which is really providing a simple telephone line to carry on conversation on the one hand, from what is called "enhanced telecommunication services" on the other hand, where a telephone line is used to push computer data or other information rather than simple voice communication. Tha NAFTA leaves telephones in the basic telephone service, local service and long distance services alone and they fall outside of the Agreement. The NAFTA does adress enhanced telecommunications services, the data services, the information services and the computer services.

The NAFTA has a basic principle that says that all three countries regulate their telephone system and who may use the telephone lines. Tha NAFTA simply says: in making those regulations, the foreign data provider and the foreign information provider, any enhanced telecommunications provider should have the same access to the telephone network, public telecommunications transportation network as any domestic enhanced communications provided. It is really simply a more specific elaboration of the more general national treatment rule.

The financial services universe covers banks, trust companies, factoring companies, insurance companies, anyone engaged in any financial service. All three countries in NAFTA obviously have concern about the integrity of their financial system, certain matters of liquidity, or requiring banks to have a certain amount of money as a reserve against their deposits and loans. For this reason, it would be inapropiate to simply say foreign banks are just like domestic banks because all of their reserves are held abroad outside the country. So the NAFTA permits each country to have regulations of a prudential nature in order to preserve the integrity of the financial system, in order to protect the interest of depositors and participants in the financial system. On the other hand, it does say that subject to this prudential requirements, foreign financial service providers should have equal competitive opportunities in all aspects of doing business.

Just like the goods sector, these two chapters of NAFTA: the Services and Investment chapters, also allow for reservations, exceptions and derogations and, in fact, a good deal of the length of this Agreement is due to the fact that each one of the three countries had taken reservations against certain obligations. For example, the United States entered reservations saying "we do not undertake any obligations in respect of maritime services". The famous Jones Act of the United States restricts the seabound shipment of goods to U.S. carriers.

Canada has taken certain reservations in regard to transportation. Mexico, in regard of banking and financial services has said: "those are all wounderfull principles but we may require 20 or 25 years as a transition to ensure that our local banks would be large enough and competitive enough to compete, so we phase in those restrictions."

A third component on doing business in addition to services and investment is competition. It was particularly important to Canada and the United States, as we witnessed and welcomed the privatization of many state enterprices in Mexico, to ensure that Government monopolies that were restrictive and anticompetitive were not simply replaced by private monopolies exercicing the same abusing dominant position in the marketplace. As a result, the NAFTA contains a chapter on competition law, or antitrust law as it is known in the United States; it requires each party to the NAFTA to have an effective competition law. Mexico completely revised its competition law in 1993, and created a new independant commission for the investigation and prosecution of monopolistic or anticompetitive behavior. They had just published their first annual report and described over 70 investigations, some of which had let to settlements, some of which did not lead to any prosecution and some which had been prosecuted. I simply mention this because for future accessions to NAFTA, the three countries will expect any other country joining the NAFTA to also have effective regulation of domestic competition as part of the package or the price of admission to the NAFTA.

Intellectual property or industrial property includes a number of different legal concepts. For literary and artistic works we talk about copyright; for inventive processes we talk about patents, and for commercial identification, we talk about trade marks. Coca Cola is a trade mark that belongs to a specific company. The NAFTA requires,that in respect of each of this forms of intellectual property, each country have a comprehensive code of protection of these rights on a national treatment basis, so that if you guarantee to your own authors of books that no one can copy their books for 50 years, you must provide the same protection to authors of the other two countries. The same is true for patents and trade marks.

The NAFTA goes further than those basic principles which are already reflected in several international treaties and conventions under the auspices of the World Intellectual Property Organization in two respects: first, the NAFTA recognizes a couple of new forms of intellectual property. For example semiconductor chips, those little tiny wafers that contains a tremendous amounts of information and form the foundation for everyone of the computers that we use today, obviously has a great deal of intellectual investment put into what goes on in that little chip. Well, Is that a book? Is it like writing a book? Not quite. Is it like an industrial design? a piece of equipment?. Well, it is not quite that either. So the NAFTA says, however you do it, whether you do it by way of copyright, by way of patent, or by way of some other new means, make sure that your domestic legal system protects semiconductor chips. This is an interest to all of three countries because it is a very expensive technology, the Japanese have had an advantage in promoting that technology. We believe that by ensuring them, we provide full protection for the investment that would be made, it would be easier to attract new business in semiconductor chips to North America and back from Asia.

The second area were NAFTA goes further than the international agreement so far in intellectual property again, is my repetitive theme: domestic procedures for administration and enforcement. About half of the entire chapter on intellectual property says: "for civil and criminal procedures under domestic law that must be instituted and available so that private businesses themselves can enforce the rights that the treaty has granted them, rather than having to complain to a Government and allowing it to become a Government to Government dispute."

Now, having said this three times, for goods, for procurement and for intellectual property, why should we all agree to have so many private rights? Is this an intrution on sovereignty to tell each legal system the kinds of laws and procedures that they must have. The response for both , Canada and Mexico, is that it is much better to ensure that these rights are enforced domestically, rather than the United States elevating the matter to an international level and using unilateral remedies such as the famous section 301 or other trade remedies which we consider ilegal, as a means to enforce treaty rights under the agreement. We rather ensure through our own domestic system, that the laws and rules of NAFTA are being applied in an objetive fashion rather than allowing the unilateral authority of another party to NAFTA to be applied instead. Certainly none of our governments have enough of the budjet to take each and every small dispute that may arise and the sign in official to arguing with the United States or Mexico about the subject. The more disputes that are settled on a non political objective basis through the domestic system, the fewer international disputes will result.

The fifth component of NAFTA: the exceptions, reservations and anexes. The main message here is: you will not understand what the NAFTA does and does not do, unless you read the anexes and the reservations and the exceptions. The general principle in the front of the agreement might lead you to believe that there is complete and imediate free trade. The anexes and the reservations will point out the areas where that is not yet true. I already talked about anex 301 which lists all the reservations to free trade in goods. The second major set of reservations is in the procurement field, which contains both a positive list of all of the Government entities from all of the three countries and state enterprices that are committed to conducting their procurement on a free trade basis, but there is a second list of certain goods and certain categories which are excluded. For example, and maybe not surprisingly, a number of purchases by the U.S. Department of Defense are considered to be special and not subject to free trade. For Mexico procurements by PEMEX, the National Petroleum Company have only 50% covered by the Agreement and the other set aside for domestic development purpose. In the investment, services and fincancial services field, there are a series of 7 anexes: Anex 1 deals with specific measures already in place that each country says they wish to preserve. But it is limited to those specific measures. No country may make their measure more restrictive than it was stood on January 1, 1994 and if it amends its measure to be slightly more liberal or more opened to free trade, that new level of openness becomes locked inn.

Annex 2 sets out much broader reservations and they are not limited to specific measures. They carry out entire sectors or areas of regulation from any of the obligations and in these areas each country reserves the right to become more restrictive. For example: for Canada, measures to promote the well being of our native people or aboriginal programs, are exempt form the Agreement. If we do not take this reservation, favoring our native people would be a preference that contradicts national treatment. We need to, at least, reserve the right to continue to apply those preferences. Secondly, a part of the social fabric of Canada, our system of public health and education is protected from the free trade disciplines. We do not want American private ensurers to compete with Government-run system of health care and we had made that clear in the Agreement.

For the United States, maritime services had been carved out and they reserve the right to become more restrictive. The Mexican energy sector in large measure is exempt because under the Mexican Constitution their oil and natural gas and uranium are considered to be the patrimony of the people and cannot be sold or alienated to foreign interests, so Mexico needes to make clear that foreigners do not have an equal right to invest and so on.

Annex 3 is a more general reiteration of that Constitutional restriction on Mexico"s part and simply records in a separate fashion that it is constitutionaly based.

Annexes 4, 5 and 6, are, possibly, less significant. Anex 4 has to do with exceptions to most favored nation treatment, and I did not talk much about most favored nation treatment. For services and for investment, Mexico and Canada in particular wanted to ensure that the United States did not "divide and conquered", to use an expression, that it did not say "we will extract this much from you and will give you this much in return" and then go off and negotiate something better with somebody else. We negotiated in order to gain certain preference and access as good as anybody else into the United States market. For services and investment the NAFTA says: if you make a better deal with someone else, you shall give it to us too and we, of course, do the same in return.

Annex 4 simply says there are some kinds of agreements that we do not mean to apply in a most favored nation basis. The entire area of civil aviation, for example, the conduct of passanger traffic, is still based on the Chicago Convention of 1944 which contemplates bilateral air agreements on a reciprocal basis. If we give a certain preference to LACSA or another carrier into the Canadian market, that is because we have gained certain access to the Costa Rican market. That should not translate into benefits for MEXICANA. Fishery is another example, where for historical reasons and for conservation reasons, it has become necessary to allocate quotas among foreign fishermen, and again it would be impossible under the Law of the Sea Convention to administer fisheries on a most favored nation basis.

Annex 5 addresses cuantitative restrictions on service providers and investment providers. This first came in the GATT when the United States attacked Korea for the way it regulated the insurance business. Korea said: "we have no restrictions against foreign insurance companies. We do not discriminate on the basis of nationality, We welcome foreigners equally like Koreans, but because we want to ensure that there is not too much competition in the insurance field (because everyone will go bankrupt, and policy holders will suffer), we will only allow 7 insurance companies in the entire country. And purely by accident, all seven that are already there, happened to be Korean. It sounds non discriminatory on paper because there is nothing that says that Canadian, Americans, Mexicans or foreigners cannot do business, but the practical effect of the new miracle limit is to keep foreigners out. The NAFTA basically says: "non discriminatory cuantitative restrictions shall not get worse and in order to encourage you to get better, publish where those restrictions are in Anex 5."

Annex 6 is simply connected to Anex 5 and that is where any of three NAFTA members negotiates a further liberalization to eliminate these cuantitative restrictions. If there is an agreed schedule to phase out these restrictions, they are to be listed in that Annex.

Annex 7 deals with financial services reservations and I already talked about that, particularly regarding a long phase in period for Mexico to open up its financial services market.

I already mentioned that there are a series of general exceptions which are all contained in Chapter 21 of the NAFTA, allowing you to ignore your obligations if you are legitimately acting for public health and safety reasons based on Article XX of the GATT; for national security reasons based on Article XXI of the GATT, for balance of payments reasons if you get into problems of foreign exchange as long as you are acting in accordance with the International Monetary Found requirements for such measures, they may be exempt, and taxation measures, to the same extent as on the GATT. Those are the major general exceptions.

Finally, the energy, because of the Mexican Constitutional restrictions, may be understood as the overall exception that is manifested in several places in the Agreement. The only other exceptions to the general principles that I should mentioned is that Canada and the United States had already negotiated a bilateral free trade that came into force on January 1, 1989. As between our two countries, tariffs had already come down, in some areas we were able to go further than we were trilateraly with Mexico. The NAFTA provides that anyhting that is done under the FTA, will continue to be done even if it is a slight preference over Mexico. After the end of these various transition periods for reducing or for phasing in liberalization of banking, all three countries would be on an equal footing in any event. But during this transition, Canada and the United States, are permited to continue to give each other a preference in accordance with their earlier Agreement. The earlier

Agreement for that purpose is basically brought into and incorporated into the NAFTA.

Well, that is what I want to say about the rules. Let us talk now about dispute settlement and how the rules are administered at the intergovernmental level. Dispute settlement, I think, is best understood as resting on 4 pilars: the first and the most important, the NAFTA contains comprehensive procedures from Government to Government dispute settlement. These procedures build on the Canada-US Free Trade Agreement, they reflect the same three stages under international law that Governments will normaly be expected to go through in resolving their differences. First, if you have the dispute, you should sit down and talk to each other: direct consultation between the three governments concerned. The NAFTA provides fairly strict time limits on those consultations: 30 days. It is, of course, a very serious matter when a Government invokes formal consultations to begin with. It means the matter had become so serious that it had engage the attention of senior officials of the Trade Ministry. If those consultations fail to reach a compromise or a solution, the matter goes to a second stage wich is the Free Trade Commission. Remember I said there is no such thing as an independient commission. It is simply the three Ministers of International Trade acting in a formal and colective manner.

The NAFTA tells the three Ministers that if it has become so serious as to reach the cabinet level, they must sit down together and seek through every available means: mediation, conciliation, experts, fact finding and so on, to try and settle the dispute without having to go to a more adversarial or litigious procedure. Nevertheless, like the GATT, there is a third stage which is "panel procedings" and they resemble panel procedures conducted in the GATT. The second stage also, at the instance of any party, is a 30 days limit, but if the two countries or the three countries feel that they are making progress, and nobody wants to go to the next stage, they can continue to talk indefinitely. Let me say a word about the pannel procedures.

In the GATT, if you go to a GATT pannel, as Costa Rica with others has recently done against the European Community, with the asistance of the Secretary General of the GATT, a third country panel is put together. The panelists, there are three in the GATT, may not be from any of the countries involved in the dispute. The panelists are most often trade experts who are drawn from the Diplomatic Missions in Geneva, or experts in GATT matters. In the NAFTA we adopted different regime for two reasons: one, we believe that familiarity with North American and Western Hemisphere trade and legal cultures is important. Secondly, when matters reach this stage among friendly countries, they are probably so serious and so political, that it is important that it be seen to be with the involvement of citizens of our countries. The NAFTA achieves this in a very unique fashion. The NAFTA includes a so called "roster", or a list of eligible panelists. This list is prepared by consensus of all three countries and that means only the most enminent and most objective and most expert persons would be acceptable to all three. Someone who is known as favoring the United States would never be acceptable to Mexico and Canada, and viceversa. So we start with an "enminent list". Second, to ensure objectivity, instead of each country choosing its own citizens, we have instituted a process known as "reverse selection" which means, for example, if Canada is upset with a Mexican measure and we have not settled the dispute through consultation or through a meeting of the three Trade Ministers and we go to a panel, Canada must choose from this list, two Mexican citizens. Mexico must choose from this list two Canadian citizens and then literaly we flip a coin to decide who chooses the chair. If Canada wins the coin tost, it may not choose a Canadian, it must choose an American, Mexican or a fourth-country national.

This achieves several things: first it still ensures for Governments who are concerned with politics that there is someone you can point to in the panel to say " there are Canadians there." Second, it tells the panelists not to just vote for the home side but to act more judicial, more objectively. Third, it ensures that there is neutrality and objectivity in the process. The same system applies even when the three countries are involved in the dispute. If Canada and Mexico are both upset about a United States measure, and both have the same problem, and we again cannot settle it through consultation, then Mexico and Canada together would choose the two Americans or we each choose one, the United States must choose one Canadian and one Mexican. If Canada and Mexico together win the coin tost, we still would be free to choose an American if we would want to. We could not choose a Canadian or a Mexican, so we probably choose a fourth-country national, to ensure objectivity. Once again, each country has a representative on the pannel. Once again, however, because they have been selected in reverse, the message to them is to act objectively, and not just on behalf of their own country. And onve again we have the possibility to choose a truly neutral fourth-country chair.

This panel has a very strict time table, it is around 9 months, to hear arguments, to recieve written briefs, to deliberate on the matter and to produce a report. This is much faster than a normal GATT pannel has taken in the past, although the GATT has tried to improved these procedures to make them more expeditiuos and to be completed within a year as well. This report, which is delivered to the Governments, is in effect, binding as a matter of international law. Now, what does that mean? It does not mean that it has takes effect automatically in the domestic legal system. A NAFTA panel, just like a GATT pannel, cannot nullify or render inoperative any domestic laws, they still stand within each of our domestic systems. On the other hand, like every other rule of international law, the Government should either comply with the report be removing the offending measure or offer some compensation or satisfaction to the other Government possibly by way of another tariff concession. If it does niether of the two, it may face what the GATT and the NAFTA calls "retaliation", what would be called in public international law "retortion", which is a proportional response or penalty imposed by the other country. The NAFTA authorizes this specificaly, even if it means raising tariffs which will otherwise be ilegal because tariffs are to be brought to zero. It is legitimate measure if it is done in response to a panel report.

Other aspects of NAFTA dispute settlements which are unique and which are improvements in the international system are: first, the NAFTA allows these expert panels to turn to environmental experts, (we call them "scientific review boards") to obtain more scientific information on trade disputes that involve conservation or similar environmental measures. The second improvement, in respone by earlier practice by United States, the NAFTA provides that when a country retaliates such as through section 301 or otherwise, we can obtain a panel in order to determine whether the retaliation itself was excessive and beyond the proportional response that the Agreement requires.

These second pilar of dispute settlement is simply called Chapter 19. It is a unique system for binational panels to review by way of, in effect, an appeal, the domestic imposition of antidumping and countervaling duties under domestic law. To understand this system, requires to look back to the original goals of Canada in the FTA and of Canada and Mexico in the NAFTA.

We, like many other countries, had found that the United States and its companies have used antidumping and countervaling duties as a means of harassment, as a means of keeping out foreign products even when we are trading on a competitive and fair basis. We believe that some aspects of the American Law favor the domestic producers over the importers. We have, for many years, sought to address those concerns in a GATT context and we believe that the World Trade Organization would make a significant step towards restraining the ability of the United States to abuse these laws. We tried to make similar achievements in the FTA and in the NAFTA, we were unable to achieve complete success. That means putting a check on potential abuse by the United States while we still allow the domestic agency to apply its own wall instead of just allowing the appeal to go to domestic court which will automatically validate what the domestic agency was doing. As a compromise, we were able to agree with the U.S. to creat international panels, binational panels to act in the place of domestic court.

Why is this unique? Because we have an international tribunal, panelists from both countries who would ask to administer the domestic law of one of the countries, something that only a judge would ordinarily do. We have asked an international tribunal to do so. They are limited on whether the domestic agency has made its findings on subsidization or injury in accordance with their own law because there are no treaty standards in the NAFTA, they are in the GATT. Nothing precludes the countries from also challenging the measures before GATT procedures, but in the mean time, we have this binational panels.

Over 54 cases had been launched using this procedure. The majority of the decisions had been unanimous and the last had been acted upon the domestic agencies without complain. Two or three sectors have been so sensitive and politicaly charged that they dried on for some time. Canadian sells of pork and lumber into the U.S. have both raised sufficient concern that we had repeated prodecures.

When Mexico joined the NAFTA, this system which had already existed for 5 years, was carried forward and expanded. Eventhough it is under a trilateral agreement, it is still administered under the NAFTA. In order to make this system work in Mexico, a fundamental reform of Mexican Trade Law was necessary. Judges needed record of what the domestic agencies were doing. SECOFI, the Mexican Ministry of Trade, did things in private. Certain limits were placed on the ability of Mexican foreigners to use the "amparo" remedy. The NAFTA have several pages of amendments to the Mexican trade law that were required in order to guarantee that both importers and domestic agencies had a chance to submit documentation and to have an oral hearing presented. It requires the Ministry to render a decision in writting with reasons so as to create a record that might go before these judges. Certain limits were placed on the ability of Mexican foreigners to use the "amparo" remedy, because the binational review process is meant to be a replacement for the domestic judge. Not in regard to fundamental constitutionality, but in regard to the ilegality of acting in excess of authority. In effect, the NAFTA says" no amparo action may be brought while a panel procedure is on going," othewise you would have two procedures in two separate forum.

The third pilar on dispute settlement is "mixed or investor-state arbitration." This procedure is already in existence under the convention known as "ICSID," the International Center for the Settlement of Disputes. These procedures provide, in effect, that when an investor has a relationship with a host Government and the Government does not leave up to its promises, the investor can directly go to an international arbitration using the procedures of "ICSID" or United Nations (UNCITRAL) in order to vindicate his rights against the Government. In NAFTA, these procedures were used to enforce contractual rights. The difference is that the investor is not enforcing a right under a contract, he has the right to challenge whether the Government is leaving up to NAFTA. The Law governing this arbitration is the law of the treaty itself. Thus, the investor can have an arbitral tribunal rule on whether the Government is respecting national treatment and most favored nation treatment. When the arbitral tribunal issues a judgement, as is the case under ICSID, that award is binding and enforceable.

The fourth pilar is really one of dispute prevention rather than dispute settlement. One may call this pilar using GATT terminology "transparency". This transparency is reflected in several more specific obligations: first, Governments, as a general matter, are required to make information available to the private sector on any aspects of regulation covered by the Agreement. NAFTA requires Governments to establish "inquiry points" for procurement, standards and tecnical regulations and so on. The NAFTA says if you are going to publish a new law, you really should publish it in advanced to allow the sectors that must be affected by the regulation, to become familiar with it so they can adjust and be ready when it come into force. Prepublication provides catching small mistakes before they become big mistakes.