101. The arguments of the Parties and Canada were summarized in the Introduction. Now follows an in-depth description of the contentions of Mexico, the United States and Canada, as presented to the Panel in this proceeding.

A. Mexico's Contentions

102. Mexico provided an extensive discussion of the facts surrounding the dispute, including an overview of U.S. law on authorizations to provide motor carrier cargo and passenger services, a summary of NAFTA provisions relating to the cross-border trucking dispute,⁷⁷ and an account of the alleged reversal of U.S. willingness to comply with its NAFTA obligations.⁷⁸ Mexico's primary contentions are as follows:
     
     

     The United States agreed to phase out its moratorium on cross-border trucking and bus services, and on investment in enterprises established in the United States, that provide such services. This was to be accomplished through a combination of two sets of provisions: (i) the obligation to accord national treatment and most-favored-nation treatment to service providers and investors of another Party, and (ii) the elimination of reservations from the national treatment and most-favored-nation treatment obligation for trucking and bus services, and investment in providers of those services in accordance with the schedules set out in the reservations.⁷⁹ 
     

103. Mexico asserts that Mexico's burden under Rule 33 of the Model Rules of Procedure for Chapter Twenty - of establishing that the United States measure is inconsistent with provisions of the Agreement - is met by a showing that "the U.S. Government has refused to process applications for Mexican motor carriers without proper justification."⁸⁰ 
     
     
104. Mexico argues that the United States, under Rule 34 of the Model Rules, given that it is asserting the applicability of an exception under NAFTA, has the burden of establishing that the exception applies. 
     
     
105. Mexico asserts that this Panel must interpret NAFTA in accordance with the requirements of Article 102(2), which provides that "The Parties shall interpret and apply the provisions of this Agreement in the light of its objectives set out in paragraph 1 and in accordance with applicable rules of international law."⁸¹ This means, in essence, the Article 102(1) objectives of eliminating "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; and increase substantially investment opportunities in the territories of the Parties, among others."⁸²
     
     
106. Mexico cites with approval Tariffs Applied by Canada to Certain United States Origin Agricultural Products (CDA-95-2008-01), which states, inter alia, that "Any interpretation adopted by the Panel must, therefore, promote rather than inhibit NAFTA's objectives."⁸³ 
     
     
107. Mexico also notes the applicability of the Vienna Convention on the Law of Treaties, in particular the Article 31 requirement that "A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in light of its object and purpose." This is the "starting point of an interpretation of NAFTA."⁸⁴ Mexico further urges that the Panel observe the "principle of effectiveness" in which any "interpretation must give meaning and effect to all the terms of the treaty."⁸⁵
     
     
108. Under Article 105 of NAFTA, "The Parties shall ensure that all necessary measures are taken in order to give effect to the provisions of this Agreement." Although the United States claims that it has not yet made all the necessary preparations for opening the border, which is contradicted by Transportation Secretary Peña's remarks delivered on December 4, 1995, Mexico asserts that failure to prepare is not an excuse. "Otherwise, the Parties would be free to circumvent virtually any provision of NAFTA on that basis, contrary to the principle of effectiveness."⁸⁶
     
     
109. Mexico asserts that no NAFTA provision entitles a party to impose its own laws and regulations on the other. This would be an unacceptable interference in the sovereignty of another state, and certainly not something to which any party to NAFTA has committed.⁸⁷ Therefore, Mexico is under no obligation under NAFTA to enforce U.S. standards, despite cooperation between the United States and Mexico to make the regulatory systems compatible "from day one."⁸⁸
     
     
110. However, according to Mexico, the United States has made adoption of an identical system of motor carrier regulation a condition of NAFTA implementation, even though NAFTA contemplates that harmonization would not be a condition.⁸⁹ 
     
     
111. Mexico asserts that the U.S. obligations under NAFTA were undertaken while the Mexican and U.S. governments were fully aware that their respective standards for motor carrier obligations were not identical. 
     
     
112. Mexico states that implementation of the market access commitments for truck and bus services was not made contingent upon completion of the standards-compatibility work program. While a work program was adopted with the aim of making standards related measures compatible,  implementation of the market access commitments for land transportation services was not made contingent upon completion of the standards-compatibility work program. . . . Rather, the governments contemplated that motor carriers would have to comply fully with the standards of the country in which they were providing service. In other words, there was a clear expectation that a Mexican motor carrier applying for operating authority in the United States would have to demonstrate that it could comply with all requirements imposed on U.S. motor carriers [while transiting the United States].⁹⁰ 
     
     
113. Given this situation, "there is no valid justification for the refusal to allow cross-border service on the basis that Mexico has not adopted a domestic motor carrier safety regulation system compatible to that of the United States."⁹¹
     
     
114. In its post-hearing submission, Mexico emphasized that "no official study was ever undertaken to provide support for the U.S. measures, and no steps were taken under U.S. domestic legal procedures to adopt a safety-based regulation for Mexican carriers."⁹² 
     
     
115. Mexico contends that the U.S. government, through its actions and laws, has demonstrated that it does not believe that Mexican carriers, Mexican trucks or Mexican drivers are inherently unsafe or otherwise unsuitable to operate within U.S. territory. Rather, in 1995, the United States singled out one category of authorizations - those for the international cross-border service specifically authorized by NAFTA -and refused to implement it as a gesture of support to certain domestic political interests.⁹³ 
     
     
116. Mexico, in discussing the state of drayage operations near the border, contends that while the United States does not regulate border zone carriers in the same way as interior carriers, the United States is perfectly free to do so but has chosen not to. The fact that the United States is satisfied with the safety compliance of Mexican carriers is confirmed, according to Mexico, by the fact that the United States has made no effort to regulate the transfer of Mexican trailers to U.S. tractors.⁹⁴  Moreover, "even if the U.S. government actually were motivated by concerns over safety and security, it has not proceeded in the appropriate manner."⁹⁵ 
     
     
117. Mexico believes that the U.S. "flagging" action, which determines "that Mexican motor carriers, as a class, are too dangerous to allow in the United States" is not only factually incorrect, but the "flagging" action is a denial of national treatment. U.S. carriers, unlike Mexican carriers, "are entitled under U.S. law to both (i) consideration on their individual merits and (ii) a full opportunity to contest the denial of operating authority. Both of these rights have been denied to Mexican carriers in violation of the NAFTA."⁹⁶
     
     
118. Mexico notes the ICC's decision on November 30, 1995, not to impose on Mexican applicants requirements that are substantially different from those imposed on other motor carrier obligations. According to Mexico, the ICC acted in light of the NAFTA national treatment requirements, despite pressure not to do so from the Teamsters' Union, basing its conclusion in part on the "absence of evidence that Mexican applicants are more likely than domestic carriers to ignore or misapprehend the detailed verifications on the application form or to submit untruthful certifications. . ."⁹⁷
     
     
119. Mexico also asserts denial of most-favored-nation treatment as required under NAFTA Article 1203, in that "The U.S. Government accords national treatment to Canadian motor carriers, with none of the restrictions imposed on Mexican carriers." The U.S. basis for such differential treatment - that Canadian domestic regulation of motor carriers is "compatible" with that of the United States under an April 1994 mutual recognition agreement - is disingenuous. Actually, the United States accorded national treatment to Canada as early as 1960, long before the 1994 Memorandum of Understanding.⁹⁸ 
     
     
120. In discussing the phrase "in like circumstances," Mexico indicates its disagreement with the United States over the scope of the term. According to Mexico, the U.S. Counter-Submission suggests that the term "in like circumstances" somehow should be interpreted as creating a blanket exemption from the obligation of national treatment when a Party asserts it is protecting health and safety. Mexico believes, however, that the negotiating history of NAFTA does not support this interpretation.⁹⁹ 
     
     
121. Mexican carriers are seeking to provide long-haul truck service - the exact same type of service provided by U.S. and Canadian carriers. Especially given the negotiating history of NAFTA, which shows that the Parties agreed that the term "service providers . . . in like circumstances" was intended to have the same meaning as "like services and service providers," there can be no question that individual Mexican carriers are "in like circumstances" with U.S. and Canadian carriers.
     
     
122. According to Mexico, the source of the "in like circumstances" language was the United States-Canada Free Trade Agreement ("FTA"), Article 1402.¹⁰⁰ This language, according to Mexico, "did not authorize a Party to withhold national treatment on the grounds of protecting health and safety." Rather, "the term 'in like circumstances' was intended to serve a function analogous to the role of the term 'like product' in matters involving trade in goods - that is, to ensure that comparisons are made of the regulation of reasonably similar services and companies" ¹⁰¹ 
     
     
123. If the fact that Mexican carriers are domiciled in Mexico required some adjustments in the application process or the oversight system, Mexico believes that the United States could have made those adjustments. "In other words, even if Mexican carriers were somehow not exactly 'like' U.S. and Canadian carriers, it was within the power of the United States to impose requirements that would make them 'like.' The United States did not adopt any such requirements, but instead arbitrarily refused to allow Mexican carriers from doing business in the United States (and even then, only in circumstances where they might compete directly with U.S. carriers)."¹⁰²
     
     
124. Mexico supports this interpretation by noting that if the simple fact that a service provider is from a particular country was sufficient to constitute "unlike circumstances" with domestic companies, NAFTA national treatment obligation would have no meaning.¹⁰³ 
     
     
125. Mexico further argues that national and most-favored-nation ("MFN") treatment may not be made conditional "on adoption by another Party of laws and regulations that the first Party deems desirable." The United States, in this respect, has failed to demonstrate "why Mexican regulation of service providers in Mexico - the vast majority of whom will never enter the United States - should be considered relevant to its treatment of the small number of Mexican carriers seeking authorization to provide service within U.S. territory." Nor has the United States offered any explanation as to how these NAFTA obligations could be considered "conditional on the adoption of identical or equivalent regulatory systems."¹⁰⁴ 
     
     
126. Mexico, apparently anticipating possible reliance by the United States on Chapter Nine (which did not occur), argued that should the Panel conclude that the U.S. moratorium is in fact  a [safety] measure, based on a special safety standard for Mexican carriers, or to enforce that safety standard, it would have to conclude that the U.S. actions were a violation of NAFTA, . . . [as] the U.S. Government did not comply with the procedural requirements of NAFTA Chapter Nine; it did not conduct an assessment of risk of any kind to support its purported safety standard as required by NAFTA Article 907, and it never published the standard or solicited public comments in compliance with Article 909.¹⁰⁵ 
     
     
127. According to Mexico, the United States has "prohibited Mexican applicants from completing the approval procedures through its refusal to process any applications." U.S. conduct has effectively precluded Mexican carriers from Aany possibility of compliance with standards-related measures."¹⁰⁶  Also, "the purported standard is subjective and arbitrary . . . and therefore violates NAFTA Article 904."¹⁰⁷ According to Mexico, under Chapter Nine (standards-related measures), a complete ban on Mexican carriers is a violation of Article 904(3) and is not otherwise permitted by NAFTA, because it fails to give Mexican carriers an opportunity to comply with U.S. standards.¹⁰⁸
     
     
128. Nor, Mexico asserts, is the exception provided in Article 904(2), which permits each Party, "in pursuing its legitimate objectives of safety or the protection of human, animal or plant life or health, the environment or consumers," to "establish the level of protection that it considers appropriate" relevant here. U.S. government actions were not in fact taken Ain pursuit of 'legitimate objectives of safety.' The United States has failed to establish a 'level of protection' but instead has simply prohibited Mexican motor carriers from engaging in operations that might lead to competition with domestic motor carriers."¹⁰⁹
     
     
129. Mexico charges that "the United States has been applying a different standard than the one it applies to U.S. and Canadian applicants," in that "U.S. and Canadian applicants are permitted to self-certify compliance, are considered individually on their own merits, and are given the right to appeal the denial of their applications. In contrast, all Mexican applicants have been labeled as unreliable and unsuitable, pursuant to an unknown evaluation methodology that has never been formally adopted."¹¹⁰ This is a violation of Article 904(2) (governing the establishing of levels of protection) and Article 907 (requiring a risk assessment) that was put in place to avoid "arbitrary or unjustifiable distinctions between similar goods and services."¹¹¹ 
     
     
130. Consequently, Mexico concludes that Aeven if the United States could be deemed to be applying a safety standard, that standard was not adopted in accordance with the procedural requirements of NAFTA Chapter Nine. Consequently, enforcement of that standard directly violates the NAFTA."¹¹² 
     
     
131. Mexico believes that the United States cannot use Article 2101 as justification for its inaction. With regard to the general exceptions, Mexico observes that Article 2101(2) provides in pertinent part:
     
     

     Provided that such measures are not applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail or a disguised restriction on trade between the Parties, nothing in . . . Chapter Twelve (Cross-Border Trade in Services) . . . shall be construed to prevent the adoption or enforcement by a Party of measures necessary to secure compliance with laws or regulations that are not inconsistent with the provisions of this Agreement, including those relating to health and safety and consumer protection. 
     

132. Mexico notes that Article 2101(2) permits NAFTA-inconsistent measures only "if the laws or regulations with which compliance is being secured are themselves not inconsistent with the Agreement."¹¹³
     
     
133. Mexico also asserts that the scope of Article 2101(2) should be interpreted in light of long-standing GATT (General Agreement on Tariffs and Trade) practice, analogous to the GATT Article XX(d) general exceptions. In addition to the requirement that the "laws or regulations" not be inconsistent with the agreement, the measures must be "necessary to secure compliance" and not be applied in a manner that would result in unjustifiable discrimination or a disguised restriction on international trade.¹¹⁴ 
     
     
134. Article 2101(2) could not be relevant unless the Party generally allows the cross-border service, but seeks to adopt or enforce other measures that may be inconsistent with NAFTA, in order to secure compliance with the principal law or regulation. In other words, Article 2101(2) only covers measures designed to prevent actions that would be illegal under the principal law or regulation. The refusal to process applications by Mexican persons cannot be justified under Article 2101 because the U.S. government is not acting to secure compliance with any law or regulation. In addition, the U.S. measure is an arbitrary and unjustifiable discrimination against persons from Mexico and a disguised restriction on trade.¹¹⁵ 
     
     
135. Mexico notes that there has been no agreement between the United States and Mexico to negotiate an amendment to NAFTA that would authorize U.S. delays in implementing the cross-border trucking provisions. Participation by Mexico in unsuccessful settlement discussions constitutes no waiver of Mexico's rights under NAFTA.¹¹⁶ 
     
     
136. Mexico further asserts that NAFTA language "provided that such [exceptional] measures are not applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail or a disguised restriction on trade between the Parties" and are "necessary to secure compliance with laws or regulations that are not inconsistent with the provisions of this Agreement" is indicative of the Parties' intent "that NAFTA Article 2101(2) be interpreted in the same manner as GATT Article XX(d)."¹¹⁷ Under these circumstances, "GATT and WTO jurisprudence on the interpretation of GATT Article XX(d) should be considered highly probative of the meaning of NAFTA Article 2101(2) including Canada - Certain Measures Concerning Periodicals,¹¹⁸ U.S. - Standards for Reformulated and Conventional Gasoline¹¹⁹ and U.S. - Import Prohibition on Certain Shrimp and Shrimp Products."¹²⁰ 
     
     
137. Mexico notes that the United States invoked the "necessary" language in Reformulated Gasoline and United States - Section 337 of the Tariff Act of 1930¹²¹ in contesting Canada in Periodicals, although the Panel in Periodicals did not reach the issue in its decision.¹²² After reviewing the Panel and Appellate Body decisions in Reformulated Gasoline, Mexico notes:
     
     [thus, the Appellate Body] held that the requirement that a Party adopt measures reasonably available to it that were the least inconsistent with the GATT derived from the obligation in the introductory clause to Article XX that GATT-inconsistent measures not constitute unjustifiable discrimination or a disguised restriction on trade. It also found that the failure of a government to adequately pursue the possibility of inter-governmental cooperative arrangements for enforcement was conclusive evidence that the government had not adopted measures reasonably available to it that were the least inconsistent with the GATT.¹²³ 
     
     
138. Finally, citing Shrimp, Mexico notes that the Appellate Body "held that the 'rigidity and inflexibility' of the U.S. measure, in requiring that foreign countries adopt a regulatory program 'essentially the same' as that of the United States, constituted arbitrary discrimination within the meaning of Article XX's introductory clause." ¹²⁴ 
     
     
139. In terms of the instant case, Mexico argues that Reformulated Gasoline and Periodicals demonstrate that the U.S. moratorium must secure compliance with another law or regulation that is NAFTA-consistent; the moratorium must be necessary to secure compliance; and the moratorium must not be applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail or a disguised restriction on trade.¹²⁵
     
     
140. According to Mexico, the U.S. moratorium does not meet these criteria.¹²⁶ 
     
     
141. Mexico notes that the relevant provisions of Annex I deal with existing non-conforming measures and their liberalization. Indeed, consistent with the objectives of NAFTA, liberalization, whether contained in the Phase-Out or Description element, is the fundamental aspect of the reservations, and it takes precedence over every other element, including the measure itself. "The Phase-Out elements of the U.S. reservations for motor carrier services do not contemplate any other type of exceptions. They took effect on the dates specified therein, and on those dates created binding obligations."¹²⁷ 
     
     
142. Mexico contends that no exception in NAFTA applies to the U.S. inaction. Articles 1206 (services) and 1108 (investment) provide for specific reservations, including Articles 1102 and 1202 (national treatment) and Articles 1103 and 1203 (most-favored-nation treatment), as limited by the introductory note to Annex I.
     
     
143. Mexico does not believe that the Panel should "reach the issue of whether the United States has committed a non-violation nullification or impairment of benefits Mexico reasonably expected to accrue from NAFTA, because Mexico has already identified several direct violations." Should the Panel nevertheless do so, "Mexico believes that aspects of the Procurement case decision are useful in evaluating how the pertinent terms of NAFTA should be interpreted in this case." Korea - Measures Affecting Government Procurement is relevant because it confirms the application of the principle of pacta sunt servanda in Article 26 of the Vienna Convention on the Law of Treaties to "the interpretation of the WTO agreements and to the process of treaty formation under the WTO."¹²⁸ Notably, Procurement, "by highlighting the requirement of good faith performance of treaties, helps to illustrate a fundamental problem with the U.S. position in this dispute." Mexico believes that the United States regrets that it made concessions on cross-border truck service.¹²⁹ 
     
     
144. Mexico, observing the unconditional nature of Annex I, notes that in the Land Standards Committee under NAFTA, Athe Parties did not expect to make their standards compatible until after the date by which the United States was to begin allowing additional cross-border truck service. . . . NAFTA does not contemplate that Mexico would have to adopt domestic regulations identical or equivalent to those of the United States before its motor carriers would be allowed to provide cross-border service."¹³⁰
      
     
145. The combination of Annex I, the Land Standards Committee's understanding, Chapter Nine, Article 2101 and the apparent U.S. belief "that it was obligated to allow additional Mexican carriers to provide cross-border service as of December 1995," lead Mexico to conclude that:
     
     

     the "ordinary meaning" of NAFTA, as understood not only by Mexico but also by the United States, was that Mexican-owned carriers would be accorded national and most-favored-nation treatment in their ability to obtain operating authority to provide cross-border truck service in the border states as of three years after the date of signature of NAFTA, and throughout the United States as of six years after the entry into force of NAFTA. This meant that Mexican-owned carriers would be allowed to apply pursuant to the same or equivalent procedures, and be evaluated based on the same criteria, as those applied to U.S. and Canadian carriers, absent a reasonable modification adopted in accordance with an applicable NAFTA exception.¹³¹ 
     

146. Mexico contends that the United States has breached its Annex I and national treatment obligations to permit investment in the U.S. motor carrier industry, precluding Mexican nationals from establishing an enterprise or investing in existing U.S. enterprises that are currently operating in international commerce. Mexico believes this is also a denial of MFN treatment, because there is no such restriction on Canadian persons' ability to invest in U.S. motor carriers.¹³² Despite the requirement to phase out the existing U.S. restrictions, the U.S. Government has not yet eliminated the requirement that an applicant seeking to acquire an existing U.S. trucking company certify that it is not domiciled in Mexico or controlled by a person of Mexico.¹³³ 
     
     
147. Mexico notes that "the United States expressly acknowledged that the ban on Mexican investment was not based on concerns about safety" but, rather, quoting the U.S. agent, "arose from the moratorium, it's part of the moratorium that is still in place."¹³⁴ Thus, although the United States argued in its written submissions that Mexico must identify a specific Mexican national who is interested in investing, at the hearing it stated that even if Mexico could identify a potential investor, this would not be sufficient for the United States to concede a NAFTA violation. The United States declined to provide an explanation for this position. Under these circumstances, Mexico submits that the U.S. violation of Articles 1102 and 1103 has been clearly established.¹³⁵ 
     
     
148. Mexico notes that U.S. law continues to require an applicant for new motor carrier authority in the United States to certify that it is not a Mexican national or controlled by Mexican nationals, submitting a statement to that effect. The same applies to transfers of existing operating authority. "Under these circumstances, it would be unreasonable to expect that Mexican carriers would attempt to seek approval to establish a U.S. carrier or to acquire an existing U.S. carrier."¹³⁶ Mexico asserts that under well-established GATT and WTO principles, 
     

     where a measure is inconsistent with a Party's obligations, it is unnecessary to demonstrate that the measure has had an impact on trade. . . . Where there have been direct violations of NAFTA, as in this case, there is no requirement for the Panel to make a finding that benefits have been nullified or impaired; it is sufficient to find that the U.S. measures are inconsistent with NAFTA.¹³⁷ 
     

149. One of Mexico's core arguments is that, notwithstanding U.S. assertions that postponement of implementation of the truck services provisions was based on safety concerns, the real U.S. motivation was political considerations rather than safety. In support of this contention, Mexico cites pre-December 18, 1995 statements by Transportation Secretary Peña and various state government officials as to U.S. readiness for implementation. Mexico also cites, with disapproval, press accounts of Teamsters' Union influence on the U.S. Government decision to postpone implementation initially, and on political considerations that have led to further postponements. ¹³⁸ 
     
     
150. Mexico again argues that the U.S. motivation is relevant, at least to issues arising under Article 904, but agrees that it is not relevant under provisions such as 2101(2), as Aa measure can fail to meet NAFTA's requirements even when a government in good faith intended that safety be the primary purpose of the measure."¹³⁹ 
     
     
151. Mexico argues that the U.S. ban on issuing operating authority to additional Mexican carriers to provide long-haul service within the United States is not a safety measure, but rather an Aeconomic embargo"¹⁴⁰ 
     
     
152. As part of NAFTA, the United States agreed to lift the moratorium so that additional Mexican carriers could provide cross-border long-haul truck service. "But . . . [n]o steps have ever been taken under U.S. domestic law to convert the economic embargo into another type of regulation. . . . In fact, the Department of Transportation never rescinded the regulations it had finalized in late 1995 that would have allowed Mexican carriers to apply for authority under the same procedures and standards applicable to U.S. and Canadian carriers. Thus, under U.S. domestic law, the continuing moratorium on allowing Mexican carriers to apply for operating authority officially remains an economic embargo."¹⁴¹