North American Free Trade Agreement

Annex 300-A

Trade and Investment in the Automotive Sector

1. Each Party shall accord to all existing producers of vehicles in its territory treatment no less favorable than it accords to any new producer of vehicles in its territory under the measures referred to in this Annex, except that this obligation shall not be construed to apply to any differences in treatment specifically provided for in the Appendices to this Annex.

2. The Parties shall review, no later than December 31, 2003, the status of the North American automotive sector and the effectiveness of the measures referred to in this Annex to determine actions that could be taken to strengthen the integration and global competitiveness of the sector.

3. Appendices 300-A.1, 300-A.2 and 300-A.3 apply to the Parties specified therein respecting trade and investment in the automotive sector.

4. For purposes of this Annex, unless otherwise specified in the Appendices:

existing producer of vehicles means a producer that was producing vehicles in the territory of the relevant Party prior to model year 1992;

new producer of vehicles means a producer that began producing vehicles in the territory of the relevant Party after model year 1991;

used vehicle means a vehicle that:

    (a) has been sold, leased or loaned;

    (b) has been driven for more than

      (i) 1,000 kilometers if the vehicle has a gross weight of less than five metric tons, or

      (ii) 5,000 kilometers if the vehicle has a gross weight of five metric tons or more; or

    (c) was manufactured prior to the current year and at least 90 days have elapsed since the date of manufacture; and

vehicle means an automobile, a truck, a bus or a special purpose motor vehicle, not including a motorcycle.

Appendix 300-A.1: Canada

Existing Measures

1. Canada and the United States may maintain the Agreement Concerning Automotive Products between the Government of Canada and the Government of the United States of America, signed at Johnson City, Texas, January 16, 1965 and entered into force on September 16, 1966, in accordance with Article 1001, and Article 1002(1) and (4) (as they refer to Annex 1002.1, Part One), Article 1005(1) and (3), and Annex 1002.1, Part One (Waivers of Customs Duties) of the Canada - United States Free Trade Agreement, which provisions are hereby incorporated into and made a part of this Agreement for such purpose, except that for purposes of Article 1005(1) of that agreement, Chapter Four (Rules of Origin) of this Agreement shall be applied in the place of Chapter Three of the Canada - United States Free Trade Agreement.

2. Canada may maintain the measures referred to in Article 1002(1) and (4) (as they refer to Annex 1002.1, Parts Two and Three), Article 1002(2) and (3), Article 1003 and Parts Two (Export-Based Waivers of Customs Duties) and Three (Production- Based Waivers of Customs Duties) of Annex 1002.1 of the Canada - United States Free Trade Agreement. Canada shall eliminate those measures in accordance with the terms set out in that agreement.

3. For greater certainty, the differences in treatment pursuant to paragraphs 1 and 2 shall not be considered to be inconsistent with Article 1103 (Investment - Most-Favored- Nation Treatment).

Used Vehicles

4. Canada may adopt or maintain prohibitions or restrictions on imports of used vehicles from the territory of Mexico, except as follows:

    (a) beginning January 1, 2009, Canada may not adopt or maintain a prohibition or restriction on imports from the territory of Mexico of originating used vehicles that are at least 10 years old;

    (b) beginning January 1, 2011, Canada may not adopt or maintain a prohibition or restriction on imports from the territory of Mexico of originating used vehicles that are at least eight years old;

    (c) beginning January 1, 2013, Canada may not adopt or maintain a prohibition or restriction on imports from the territory of Mexico of originating used vehicles that are at least six years old;

    (d) beginning January 1, 2015, Canada may not adopt or maintain a prohibition or restriction on imports from the territory of Mexico of originating used vehicles that are at least four years old;

    (e) beginning January 1, 2017, Canada may not adopt or maintain a prohibition or restriction on imports from the territory of Mexico of originating used vehicles that are at least two years old; and

    (f) beginning January 1, 2019, Canada may not adopt or maintain a prohibition or restriction on imports from the territory of Mexico of originating used vehicles.

5. Paragraph 4 shall not be construed to allow Canada to derogate from its obligations in respect of land transportation services under Chapter Twelve (Cross-Border Trade in Services), including its Schedule to Annex I.

Appendix 300-A.2: Mexico

Auto Decree and Auto Decree Implementing Regulations

1. Until January 1, 2004, Mexico may maintain the provisions of the Decree for Development and Modernization of the Automotive Industry ("Decreto para el Fomento y Modernización de la Industria Automotriz"), December 11, 1989, (the "Auto Decree") and the Resolution that Establishes Rules for the Implementation of the Auto Decree ("Acuerdo que Determina Reglas para la Aplicaci n para el Fomento y Modernización de la Industria Automotriz"), November 30, 1990, (the "Auto Decree Implementing Regulations") that would otherwise be inconsistent with this Agreement, subject to the conditions set out in paragraphs 2 through 18. No later than January 1, 2004, Mexico shall bring any inconsistent provision of the Auto Decree and the Auto Decree Implementing Regulations into conformity with the other provisions of this Agreement.

Autoparts Industry, National Suppliers and Independent Maquiladoras

2. Mexico may not require that an enterprise attain a level of national value added in excess of 20 percent of its total sales as one of the conditions to qualify as a national supplier or enterprise of the autoparts industry.

3. Mexico may require that a national supplier or an enterprise of the autoparts industry, in calculating its national value added solely for purposes of paragraph 2, include customs duties in the value of imports incorporated into the autoparts produced by such supplier or enterprise.

4. Mexico shall grant national supplier status to an independent maquiladora that requests such status and meets the requirements for that status set out in the existing Auto Decree, as modified by paragraphs 2 and 3. Mexico shall continue to grant to all independent maquiladoras that request national supplier status all existing rights and privileges accorded to independent maquiladoras under the existing Decree for the Promotion and Operation of the Maquiladora Export Industry ("Decreto para el Fomento y Operación de la Industria Maquiladora de Exportación"), December 22, 1989 (the "Maquiladora Decree").

National Value Added

5. Mexico shall provide that a manufacturer ("empresa de la industria terminal") calculate its required national value added from suppliers (VANp) as a percentage of:

    (a) the manufacturer's reference value as set out in paragraph 8; or

    (b) the manufacturer's total national value added (VANt),

whichever is greater, except that Mexico shall provide that a manufacturer beginning production of motor vehicles in Mexico after model year 1991 calculate its required national value added from suppliers (VANp) as a percentage of its total national value added (VANt).

6. Mexico may not require that the percentage referred to in paragraph 5 be greater than:

    (a) 34 percent for each of the first five years beginning January 1, 1994;

    (b) 33 percent for 1999;

    (c) 32 percent for 2000;

    (d) 31 percent for 2001;

    (e) 30 percent for 2002; and

    (f) 29 percent for 2003.

7. Notwithstanding paragraph 6, Mexico shall allow a manufacturer that produced motor vehicles in Mexico before model year 1992 to use as its percentage referred to in paragraph 5 the ratio of actual national value added from suppliers (VANp) to total national value added (VANt) that the manufacturer attained in model year 1992, for so long as that ratio is lower than the applicable percentage specified under paragraph 6. In determining such ratio for model year 1992, purchases that the manufacturer made from independent maquiladoras that would have been eligible to receive national supplier status had paragraphs 2, 3 and 4 of this Appendix been in effect at that time, shall be included in the calculation of the manufacturer's national value added from suppliers (VANp), in the same manner as autoparts from any other national supplier or enterprise of the autoparts industry.

8. The annual reference value for a manufacturer ("reference value") shall be:

    (a) for each of the years 1994 through 1997, the base value for the manufacturer, plus no more than 65 percent of the difference between the manufacturer's total sales in Mexico in that year and its base value;

    (b) for each of the years 1998 through 2000, the base value for the manufacturer, plus no more than 60 percent of the difference between the manufacturer's total sales in Mexico in that year and its base value; and

    (c) for each of the years 2001 through 2003, the base value for the manufacturer, plus no more than 50 percent of the difference between the manufacturer's total sales in Mexico in that year and its base value.

9. Mexico shall provide that where a manufacturer's total sales in Mexico in a year are lower than its base value, the reference value for the manufacturer for that year shall be equal to the manufacturer's total sales in Mexico for the year.

10. In the event an abnormal production disruption affects a manufacturer's production capability, Mexico shall allow the manufacturer to seek a reduction in its reference value before the Intersecretariat Automotive Industry Commission, established under Chapter V of the Auto Decree. If the Commission finds that the production capability of the manufacturer has been impaired by such an abnormal production disruption, the Commission shall reduce the manufacturer's reference value in an amount commensurate to the event.

11. If, on the request of a manufacturer, the Intersecretariat Automotive Industry Commission finds that the production capability of the manufacturer has been significantly disrupted as a result of a major retooling or plant conversion in the facilities of the manufacturer, the Commission shall reduce the manufacturer's reference value for that year in an amount commensurate with the disruption, provided that any reduction in that manufacturer's required national value added from suppliers (VANp) that may result from the Commission's determination to reduce the manufacturer's reference value shall be fully made up by the manufacturer over the 24 months after the date on which the retooling or plant conversion is completed.

Trade Balance

12. Mexico may not require a manufacturer to include in the calculation of its trade balance (S) a percentage of the value of direct and indirect imports of autoparts that the manufacturer incorporated into that manufacturer's production in Mexico for sale in Mexico (VTVd) in the corresponding year, greater than the following:

    (a) 80 percent for 1994;

    (b) 77.2 percent for 1995;

    (c) 74.4 percent for 1996;

    (d) 71.6 percent for 1997;

    (e) 68.9 percent for 1998;

    (f) 66.1 percent for 1999;

    (g) 63.3 percent for 2000;

    (h) 60.5 percent for 2001;

    (i) 57.7 percent for 2002; and

    (j) 55.0 percent for 2003.

13. Mexico shall provide that, for purposes of determining a manufacturer's total national value added (VANt), paragraph 12 shall not apply to the calculation of the manufacturer's trade balance (S).

14. Mexico shall allow a manufacturer with a surplus in its extended trade balance to divide its extended trade balance by the applicable percentages in paragraph 12 to determine the total value of new motor vehicles that it may import.

15. Mexico shall provide that a manufacturer's adjustment factor (Y), included in the calculation of such manufacturer's extended trade balance, shall be equal to:

    (a) for a manufacturer that produced motor vehicles prior to model year 1992

      (i) the greater of the manufacturer's reference value or the manufacturer's total national value added (VANt), minus

      (ii) the manufacturer's actual national value added from suppliers (VANp) divided by the appropriate percentage specified under paragraph 6 or 7 as appropriate;

    (b) for all other manufacturers

      (i) the manufacturer's total national value added (VANt), minus

      (ii) the manufacturer's actual national value added from suppliers (VANp) divided by the appropriate percentage specified under paragraph 6,

except that the adjustment factor (Y) shall be zero if the amount resulting from subtracting (ii) from (i), under (a) or (b), is negative.

16. In determining the annual amount that a manufacturer may apply to its extended trade balance from unused surpluses earned prior to model year 1991, Mexico shall in any year allow the manufacturer to elect:

    (a) to use the procedures of the existing Auto Decree Implementing Regulations; or

    (b) to apply up to the Mexican peso equivalent of US$150 million, adjusted annually for cumulative inflation, from the date of entry into force of this Agreement, based on the implicit price deflator for U.S. Gross Domestic Product (GDP) or any successor index published by the Council of Economic Advisers in its "Economic Indicators" (hereinafter "U.S. GDP price deflator"). To adjust the US$150 million ceiling for cumulative inflation up to a certain month of a year following 1994, the $150 million shall be multiplied by the ratio of

      (i) the U.S. GDP price deflator current as of the month of that year, to

      (ii) the U.S. GDP price deflator current as of the date of entry into force of this Agreement,

provided that the price deflators under subparagraphs (i) and (ii) have the same base year.

The resulting adjusted amount shall be rounded to the nearest million dollars.

17. Mexico shall eliminate any restriction that limits the number of motor vehicles that a manufacturer may import into Mexico in relation to the total number of motor vehicles that such manufacturer sells in Mexico.

18. For greater certainty, the differences in treatment required under paragraphs 5, 7 and 15 shall not be considered to be inconsistent with Article 1103 (Investment - Most - Favored - Nation Treatment).

Other Restrictions

19. For the first 10 years after the date of entry into force of this Agreement, Mexico may maintain prohibitions or restrictions on the importation of new automotive products provided for in existing items 8407.34.02 (gasoline engines larger than 1000 cm³ but smaller than or equal to 2000cm³. except for motorcycles), and 8407.34.99 (gasoline engines larger than 2000cm³, except for motorcycles) and 8703.10.99 (other special vehicles) in the Tariff Schedule of the General Import Duty Act ("Tarifa de la Ley del Impuesto General de Importación"), except that Mexico may not prohibit or restrict the importation of automotive products provided for in item 8407.34.02 (gasoline engines larger than 1000 cm³ but smaller than or equal to 2000cm³. except for motorcycles), 8407.34.99 (gasoline engines larger than 2000 cm³, except for motorcycles), or 8703.10.99 (other special vehicles) by manufacturers that comply with the Auto Decree and the Auto Decree Implementing Regulations, as modified by this Appendix.

Autotransportation Decree and Autotransportation Implementing Regulations

20. Mexico shall eliminate the Mexican Decree for Development and Modernization of the Autotransportation Vehicle Manufacturing Industry, ("Decreto para el Fomento y Modernización de la Industria Manufacturera de Vehículos de Autotransporte"), December 1989, and the Resolution that Establishes Rules for the Implementation of the Autotransportation Decree ("Acuerdo que Establece Reglas de Aplicación del Decreto para el Fomento y Modernización de la Industria Manufacturera de Vehículos de Autotransporte"), November 1990. Mexico may adopt or maintain any measure respecting autotransportation vehicles, autotransportation parts or manufacturers of autotransportation vehicles provided that the measure is not inconsistent with this Agreement.

Importation of Autotransportation Vehicles

21. Mexico may adopt or maintain a prohibition or restriction on the importation of autotransportation vehicles of another Party until January 1, 1999, except with respect to the importation of autotransportation vehicles pursuant to paragraphs 22 and 23.

22. For each of the years 1994 through 1998, Mexico shall allow any manufacturer of autotransportation vehicles to import, for each type of autotransportation vehicle, a quantity of originating autotransportation vehicles equal to at least 50 percent of the number of vehicles of such type that the manufacturer produced in Mexico in that year.

23. For each of the years 1994 through 1998, Mexico shall allow persons other than manufacturers of autotransportation vehicles to import, in a quantity to be allocated among such persons, originating autotransportation vehicles of each type as follows:

    (a) for each of the years 1994 and 1995, no less than 15 percent of the total number of vehicles of each type of autotransportation vehicle produced in Mexico;

    (b) for 1996, no less than 20 percent of the total number of vehicles of each type of autotransportation vehicle produced in Mexico; and

    (c) for each of the years 1997 and 1998, no less than 30 percent of the total number of vehicles of each type of autotransportation vehicle produced in Mexico.

Mexico shall allocate such quantity through a non-discriminatory auction.

Used Vehicles

24. Mexico may adopt or maintain prohibitions or restrictions on imports of used vehicles from the territory of another Party, except as follows:

    (a) beginning January 1, 2009, Mexico may not adopt or maintain a prohibition or restriction on imports from the territories of Canada or the United States of originating used vehicles that are at least 10 years old;

    (b) beginning January 1, 2011, Mexico may not adopt or maintain a prohibition or restriction on imports from the territories of Canada or the United States of originating used vehicles that are at least eight years old;

    (c) beginning January 1, 2013, Mexico may not adopt or maintain a prohibition or restriction on imports from the territories of Canada or the United States of originating used vehicles that are at least six years old;

    (d) beginning January 1, 2015, Mexico may not adopt or maintain a prohibition or restriction on imports from the territories of Canada or the United States of originating used vehicles that are at least four years old;

    (e) beginning January 1, 2017, Mexico may not adopt or maintain a prohibition or restriction on imports from the territories of Canada or the United States of originating used vehicles that are at least two years old; and

    (f) beginning January 1, 2019, Mexico may not adopt or maintain a prohibition or restriction on imports from the territories of Canada or the United States of originating used vehicles.

25. (a) Paragraph 24 shall not apply to the importation on a temporary basis of a used vehicle provided for in item 8705.20.01 (mobile drilling derricks), 8705.20.99 (other mobile drilling derricks) or 8705.90.01 (street sweepers) of the Tariff Schedule of the General Import Duty Act. Such importation shall be subject to the conditions set out in Section 4(b) of Annex 301.3 for such time as Mexico may adopt or maintain a prohibition or restriction on the importation of the vehicle under paragraph 24.

(b) Paragraph 24 shall not be construed to allow Mexico to derogate from its obligations in respect of land transportation services under Chapter Twelve (Cross- Border Trade in Services), including its Schedule to Annex I.

Import Licensing Measures

26. Mexico may adopt or maintain import licensing measures to the extent necessary to administer restrictions pursuant to:

    (a) the Auto Decree and the Auto Decree Implementing Regulations, as modified by this Appendix, on the importation of motor vehicles;

    (b) paragraph 19 of this Appendix on the importation of new automotive products provided for in item 8407.34.02 (gasoline engines larger than 1000cm3, but smaller than or equal to 2000 cm³, except for motorcycles) or 8703.10.99 (other special vehicles) in the Tariff Schedule of the General Import Duty Act;

    (c) paragraphs 22 and 23 of this Appendix on the importation of autotransportation vehicles; and

    (d) paragraph 24 (a) through (f) of this Appendix on the importation of used vehicles that are motor vehicles or autotransportation vehicles or of other used vehicles provided for in existing items 8702.90.01 (trolley buses), 8705.10.01 (mobile cranes), 8705.20.99 (other mobile drilling derricks), 8705.90.01 (street sweepers) or 8705.90.99 (other special purpose vehicles, nes) in the Tariff Schedule of the General Import Duty Act;

provided that such measures shall not have trade restrictive effects on the importation of such goods additional to those due to restrictions imposed in accordance with this Appendix, and that a license shall be granted to any person that fulfills Mexico's legal requirements for the importation of the goods.

Continue on to Annex 302.2: Mexico - Definitions