T0 x (1+ i) = T1
T0= threshold value at base period
i= accumulated U.S. inflation rate for the ith two year-period
T1= new threshold value.

2. Mexico and Canada shall calculate and convert the value of the thresholds set out in Article 1001(1)(c) into their national currencies using the conversion formula set out in paragraph 3 or 4, as appropriate. Mexico and Canada shall notify each other and the United States of the value, in their respective currencies, of the newly calculated thresholds no later than one month before the respective thresholds take effect.

3. Canada shall base its calculation on the official conversion rates of the Bank of Canada. From January 1, 1994 through December 31, 1995, the conversion rate shall be the average of the weekly values of the Canadian dollar in terms of the U.S. dollar over the period October 1, 1992 through September 30, 1993. For each subsequent two-year period beginning January 1, 1996, its conversion rate shall be the average of the weekly values of the Canadian dollar in terms of the U.S. dollar over the two-year period ending September 30 of the year preceding the beginning of each two-year period.

4. Mexico shall use the conversion rate of the Bank of Mexico ("Banco de México"). Its conversion rate shall be the existing value of the Mexican peso in terms of the U.S. dollar as of December 1 and June 1 of each year, or the first working day thereafter. The conversion rate as of December 1 shall apply from January 1 to June 30 of the following year, and as of June 1 shall apply from July 1 to December 31 of that year.

2. The calendar years to which paragraph 1 applies and the percentages for those calendar years are as follows:

1994		1995		1996		1997		1998
50%		45%		45%		40%		40%
1999		2000		2001		2002		2003 and thereafter
35%		35%		30%		30%		0%

3. The value of procurement contracts that are financed by loans from regional and multilateral financial institutions shall not be included in the calculation of the total value of procurement contracts under paragraphs 1 and 2. Procurement contracts that are financed by such loans shall also not be subject to any restrictions set out in this Chapter.

4. Mexico shall ensure that the total value of procurement contracts under any single FSC class (or other classification system agreed by Parties) that are set aside by Pemex or CFE under paragraphs 1 and 2 for any year does not exceed 10 percent of the total value of the procurement contracts that may be set aside by Pemex or CFE for that year.

5. Mexico shall ensure that, after December 31, 1998, Pemex and CFE each shall make all reasonable efforts to ensure that the total value of procurement contracts under any single FSC class (or other classification system agreed by the Parties) that are set aside by Pemex or CFE under paragraphs 1 and 2 for any year does not exceed 50 percent of the total value of all Pemex and CFE procurement contracts under that FSC class (or other classification system agreed by the Parties) for that year.

Pharmaceuticals

6. Until January 1, 2002, this Chapter shall not apply to the procurement by the Secretaría de Salud, IMSS, ISSSTE, Secretaría Defensa Nacional and the Secretaría de Marina of drugs that are not currently patented in Mexico or whose Mexican patents have expired. Nothing in this paragraph shall prejudice rights under Chapter Seventeen (Intellectual Property).

Time Limits for Tendering and Delivery

7. Mexico shall use its best efforts to comply with the 40- day time limit requirements of Article 1012, and in any event shall fully comply with that obligation no later than January 1, 1995.

Provision of Information

8. The Parties recognize that Mexico may be required to undertake extensive retraining of personnel, introduce new data maintenance and reporting systems and make major adjustments to the procurement systems of certain entities in order to comply with Article 1019. The Parties also recognize that Mexico may encounter difficulties in making the transition to procurement systems that facilitate full compliance with this Chapter.

9. The Parties shall consult on an annual basis for the first five years after the date of entry into force of this Agreement to review transitional problems and to develop mutually agreed solutions. Such solutions may include, when appropriate, temporary adjustment to the obligations of Mexico under this Chapter, such as those related to reporting requirements.

10. Canada and the United States shall cooperate with Mexico to provide technical assistance, as appropriate and mutually agreed pursuant to Article 1020, to aid Mexico's transition.

11. Nothing in paragraphs 8 through 10 shall be construed to excuse compliance with the obligations of this Chapter.

Note: The General Notes for Mexico set out in Annex 1001.2b apply to this Annex.

2. This Chapter does not apply to the procurement of transportation services that form a part of, or are incidental to, a procurement contract.

3. Pursuant to Article 1018, national security exemptions include oil purchases related to any strategic reserve requirements.

4. National security exceptions include procurements made in support of safeguarding nuclear materials or technology.

5. The most-favored-nation obligation of Article 1003 does not apply to procurements covered by Annex 1001.2c.

Schedule of Mexico

1. This Chapter does not apply to procurements made:

(a) with a view to commercial resale by government-owned retail stores;

(b) pursuant to loans from regional or multilateral financial institutions to the extent that different procedures are imposed by such institutions (except for national content requirements); or

(c) by one entity from another entity of Mexico.

2. This Chapter does not apply to the procurement of transportation services that form a part of, or are incidental to, a procurement contract.

3. Notwithstanding any other provision in this Chapter, Mexico may set aside procurement contracts from the obligations of this Chapter, subject to the following:

(a) the total value of the contracts set aside that may be allocated by all entities, except Pemex and CFE, may not exceed the Mexican peso equivalent of
(i) US$1.0 billion, in each year until December 31, 2002, and

(ii) US$1.2 billion, in each year beginning January 1, 2003;

(b) no contract may be set aside under this paragraph by Pemex or CFE prior to January 1, 2003;

(c) the total value of the contracts set aside by Pemex and CFE under this paragraph may not exceed the Mexican peso equivalent of US$300 million, in each year beginning January 1, 2003;

(d) the total value of contracts under any single FSC class (or other classification system agreed by the Parties) that may be set aside under this paragraph in any year shall not exceed 10 percent of the total value of contracts that may be set aside under this paragraph for that year; and

(e) no entity subject to subparagraph (a) may set aside contracts in any year of a value of more than 20 percent of the total value of contracts that may be set aside for that year.

4. Beginning one year after the date of entry into force of this Agreement, the dollar values referred to in paragraph 3 shall be 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 Advisors in "Economic Indicators".

The dollar values adjusted for cumulative inflation up to January of each year following 1994 shall be equal to the original dollar values multiplied by the ratio of:

(a) the implicit U.S. GDP price deflator or any successor index published by the Council of Economic Advisors in "Economic Indicators", current as of January of that year, to

(b) the implicit U.S. GDP price deflator or any successor index published by the Council of Economic Advisors in "Economic Indicators", current as of the date of entry into force of this Agreement,

provided that the price deflators under paragraphs (a) and (b) have the same base year.

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

5. National security exceptions include procurements made in support of safeguarding nuclear materials or technology.

6. Notwithstanding any other provision of this Chapter, an entity may impose a local content requirement of no more than:

(a) 40 percent, for labor-intensive turnkey or major integrated projects; or

(b) 25 percent, for capital-intensive turnkey or major integrated projects.

For purposes of this paragraph, a turnkey or major integrated project means, in general, a construction, supply or installation project undertaken by a person pursuant to a right granted by an entity with respect to which:

(c) the prime contractor is vested with the authority to select the general contractors or subcontractors;

(d) neither the Government of Mexico nor its entities fund the project;

(e) the person bears the risks associated with non- performance; and

(f) the facility will be operated by an entity or through a procurement contract of that entity.

7. Notwithstanding the thresholds set out in Article 1001(1)(c), Article 1003 shall apply to any procurement from locally-established suppliers of oil and gas field supplies or equipment by Pemex at any project site where it performs works.

8. In the event that Mexico exceeds in any given year the total value of the contracts it may set aside for that year in accordance with paragraph 3 or the reserved procurement under Annex 1001.2a(1)(2) or (4), Mexico shall consult with the other Parties with a view to agreement on compensation in the form of additional procurement opportunities during the following year. The consultations shall be without prejudice to the rights of any Party under Chapter Twenty (Institutional Arrangements and Dispute Settlement Procedures).

9. Notwithstanding Annex 1001.2a(6), Mexico may not set aside from the obligations of this Chapter procurement contracts by its entities of biologicals and drugs patented in Mexico.

10. Nothing in this Chapter shall be construed to require Pemex to enter into risk-sharing contracts.

Schedule of the United States

1. This Chapter does not apply to set asides on behalf of small and minority businesses.

2. This Chapter does not apply to the procurement of transportation services that form a part of, or are incidental to, a procurement contract.

3. The most-favored-nation obligation of Article 1003 does not apply to procurements covered by Annex 1001.2c.

2. Precedential judicial decisions:

(a) Dominion Law Reports;

(b) Supreme Court Reports;

(c) Federal Court Reports; and

(d) National Reporter.

3. Administrative rulings and procedures:

(a) Government Business Opportunities; and

(b) Canada Gazette.

Schedule of Mexico

1. Official Gazette of the Federation ("Diario Oficial de la Federación")

2. Judicial Weekly of the Federation ("Semanario Judicial de la Federación") (for precedential judicial decisions only).

3. Mexico shall endeavor to establish a specialized publication for administrative rulings of general application and any procedure, including standard contract clauses regarding procurements. When established, the publication shall substitute for those set out in paragraphs 1 and 2 for this purpose.

Schedule of United States

1. Laws and regulations:

(a) U.S. Statutes at Large

(b) U.S. Code of Federal Regulations.

2. Precedential decisions:

(a) U.S. Reports (U.S. Supreme Court);

(b) Federal Reporter (Circuit Court of Appeals);

(c) Federal Supplement Reporter (District Courts);

(d) Claims Court Reporter (Claims Court);

(e) Boards of Contract Appeals (unofficial publication by Commerce Clearing House); and

(f) Comptroller General of the United States (Those not officially published as decisions of the Comptroller General are published unofficially by Federal Publications, Inc.).

3. All U.S. laws, regulations, judicial decisions, administrative rulings and procedures regarding government procurement covered by this Chapter are codified in the Defense Federal Acquisition Regulation Supplement (DFARS) and the Federal Acquisition Regulation (FAR), both of which are published as a part of the U.S. Code of Federal Regulations (CFR). The DFARS and the FAR are published in title 48 of CFR.