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NORTH AMERICAN FREE TRADE AGREEMENT ARBITRAL PANEL
ESTABLISHED PURSUANT TO CHAPTER TWENTY



IN THE MATTER OF 
CROSS-BORDER TRUCKING SERVICES
(Secretariat File No. USA-MEX-98-2008-01)

Continuation


B.
The United States' Contentions 
  1. According to the United States:

    [t]he Mexican safety regime lacks core components, such as comprehensive truck equipment standards and fully functioning roadside inspection or on-site review systems. In light of these important differences in circumstances, and given the experience to-date with the safety compliance record of Mexican trucks operating in the U.S. border zone, the United States decision to delay processing Mexican carriers' applications for operating authority until further progress is made on cooperative safety efforts is both prudent and consistent with U.S. obligations under the NAFTA.142 

  2. Thus, the United States is not obligated to grant Mexican trucking firms operating authority when there are not yet adequate regulatory measures in place in Mexico to ensure U.S. highway safety.143 The United States asserts "that NAFTA contains no such requirement. To the contrary, under NAFTA's national treatment and most-favored-nation obligations, a NAFTA Party may treat service providers differently in order to address a legitimate regulatory objective."144

  3. According to the United States, Mexican carrier safety cannot be assured on a case by case basis: "A carrier-by-carrier approach, however, cannot effectively ensure safety compliance by Mexican motor carriers operating in the United States. Rather, as the United States has explained, highway safety can only be assured through a comprehensive, integrated safety regime. It is for this reason that the United States is working with Mexican officials to develop comparable motor carrier safety systems."145 Nor can the United States, as a practical matter, inspect every truck as it crosses the border.146 


  4. The United States notes the deficiencies of the Mexican oversight system:
    The Government of Mexico cannot identify its carriers and drivers so that unsafe conduct can be properly assigned and reviewed. While we understand that the Government of Mexico is engaged in an extensive effort to register all of its motor carriers and place them in a database that would facilitate the assignment of safety data, that database does not contain any safety data. Therefore, Mexico cannot track the safety fitness of its carriers and drivers. . . . Without such carrier safety performance history, the United States cannot conduct a meaningful safety fitness review of Mexican carriers at the application stage.147 


  5. The United States also contends that it would be futile to try to perform inspections of Mexican carriers in Mexico because "Mexican carriers are not required to keep the types of records that are typically reviewed in these inspections." Even if an effort were made, it "could not be corroborated until the Government of Mexico develops and implements information systems to collect and make available that information."148 Nor has there been any U.S. verification experience in Mexico: "The United States has never performed a compliance review or any other type of carrier or truck inspection in Mexico or issued any 'qualification or approval' to a Mexican carrier based on a visit to a carrier's offices."149 


  6. The United States also disagrees with Mexico's reliance on Article 105. According to the United States,"the intent of Article 105 is simply to clarify that each NAFTA Party is responsible for ensuring that its state and provincial governments are in compliance with NAFTA obligations." Moreover, "Nothing in Article 105 suggests that measures entailing cooperation between NAFTA Parties are somehow forbidden or excluded."150 

  7. The United States (and Canadian) truck safety programs are the key to providing like circumstances in which trucks operate: they "provide a high degree of assurance that U.S. and Canadian trucks operating on U.S. highways each day meet minimum safety standards." The principal elements of the U.S. truck safety program include:

    a comprehensive system of rigorous vehicle and operator safety standards; enforcement through road side inspections and on-site compliance reviews; strict record-keeping rules; electronic databases that promptly provide inspectors in the field with safety-related data on drivers and motor carriers; and a substantial commitment of enforcement resources and personnel.151 
  8. According to the United States,"Adequate assurances of safety also require that Mexico, as Canada has done, adopt safety controls within its own borders. The United States has been engaged in extensive cooperative efforts with Mexico to assist in the development of the Mexican safety system. Although Mexico has made substantial progress, work remains undone." Under these factual circumstances, "NAFTA's national treatment and most-favored-nation obligations do not, as Mexico argues, require the United States to treat Mexican trucking firms in the same manner as U.S. and Canadian firms."152 

  9. In particular, NAFTA does not obligate:

    the United States to license the operation of Mexican trucking firms in circumstances in which: (1) serious concerns persist regarding their overall safety record; (2) Mexico is still developing first-line regulatory and enforcement measures needed to address trucking safety standards; and (3) essential bilateral cooperative arrangements are not fully in place.153 

  10. Moreover, the United States contends that under Rule 33 of the Chapter Twenty Rules of Procedure, the burden of proving violations of Article 1202 and 1203, is on Mexico, Aincluding the burden of proving relevant regulatory circumstances and demonstrating that those circumstances are 'like'."154 

  11. The United States suggests that:

    to prove that a particular measure adopted or maintained by another NAFTA Party is inconsistent with Articles 1202 and 1203, the complaining Party must demonstrate each of the material elements of those [a]rticles. Those include showing: 1) the existence of one or more measures adopted or maintained by a Party; 2) that the measure(s) relate to cross-border trade in services; 3) the treatment accorded by the measure(s); 4) the extent to which that treatment may favor domestic, or certain foreign, service providers over the providers of the complaining Party; 5) the relevant "circumstances" under which that treatment is accorded; and 6) whether those circumstances are "like".'155 
  12. Mexico is faulted for failing to address all of these elements:

    Most importantly, it has failed to describe the "circumstances" under which the United States is treating Mexican Firms for safety purposes. Moreover, Mexico has also neglected to demonstrate that those circumstances are "like" the circumstances that pertain to the regulation of U.S. and Canadian trucking companies.156 
  13. The inclusion of the qualifying "like circumstances" language "permits NAFTA Parties to accord differential, and even less favorable, treatment where appropriate to meet legitimate regulatory objectives."157 The United States quotes with approval from Mexico's opening submission, "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.'"158 However, the United States differs with Mexico on the fundamental issue of whether "Mexican carriers are 'like' U.S. and Canadian carriers for purposes of applying NAFTA's national treatment and MFN provisions."159 

  14. The United States reviews the use of the term "like circumstances" in U.S. bilateral investment treaties, arguing that NAFTA language is derived from them, even though the BIT language is "in like situations."160 Here and in the FTA, national treatment does not mean that a particular measure must in every case accord exactly the same treatment to U.S. and Canadian Service providers. Under paragraph three of FTA Article 1402, covered service providers from the two countries may be treated differently to the extent necessary for prudential, fiduciary, health and safety, or consumer protection reasons, as long as the treatment is equivalent in effect to that accorded to domestic service providers and the party adopting the measure provides advance notice to the other in conformity with Article 1803." 161 

  15. According to the United States, NAFTA negotiating history confirms this earlier approach to the "in like circumstances" language, adopting Ain like circumstances" on the understanding that it had similar meaning to "like services and services providers," as preferred originally by Canada and Mexico.162 

  16. Further support for the U.S. position is found in the U.S. Statement of Administration Action, which provides in pertinent part that "Foreign service providers can be treated differently if circumstances warrant. For example, a state may impose special requirements on Canadian and Mexican service providers if necessary to protect consumers to the same degree as they are protected in respect of local firms."163  Similarly, the Canadian Statement of Implementation provides that "a Party may impose different legal requirements on other NAFTA service providers to ensure that domestic consumers are protected to the same degree as they are in respect of domestic firms."164 Thus, "the 'like circumstances' language of Articles 1202 and 1203 makes clear that the United States may make and apply legitimate regulatory distinctions for purposes of ensuring the safety of U.S. roadways."165

  17. The United States also contends that "The regulatory environment in which U.S., Canadian, and Mexican trucking firms operate is a critical 'circumstance' relevant to U.S. treatment of those firms because it helps to establish industry safety practices in the three countries. As elaborated in the Statement of Facts [of the U.S. submission], Mexican carriers in fact operate within a less stringent regulatory regime than that in place in either Canada or the United States."166 The problem areas include driver hours of service: "U.S. and Canadian safety rules strictly limit drivers' hours of service. Mexican truck drivers are only governed by the more general rules of Mexican labor laws, with no safety regulation directly applicable to the time a driver may spend behind the wheel."167 

  18. Also, "U.S. and Canadian safety regulations require drivers to keep logbooks, the only practicable way to enforce hours of service regulations. Other than for hazardous materials, Mexico has no logbook requirements."168 Moreover, "U.S. and Canadian safety regulations include exhaustive equipment regulations address to truck safety. Mexico, however, lacks specific regulations governing the condition and maintenance of CMV safety equipment."169 Other problematic aspects of Mexico's motor carrier regulatory system relate to inspections by the motor carrier itself and government safety inspections.170 

  19. The United States observes that "[a]nother circumstance relevant to the treatment of U.S., Canadian, and Mexican trucking firms is the ability of U.S. transportation safety authorities to enforce U.S. safety regulations with respect to those carriers."171 While the "maintenance of government databases of accident and safety records, with respect to both firms and drivers, is an important element of safety regulation in the United States (and Canada) . . . the United States has no access to similar data for Mexican firms or drivers."172 Moreover, "U.S. highway safety regulators rely in part on their ability to conduct on-site audits and inspections of U.S. firms and, where appropriate, to impose civil or criminal penalties." However, "U.S. regulators have no right to conduct inspections or audits in Mexico, only limited and recent experience with Mexico on joint inspections (by contrast with a long track record with Canada), and limited ability to impose and collect civil or criminal penalties with respect to Mexican firms that might ignore U.S. safety regulations."173 

  20. A further major U.S. concern regarding "treatment of U.S., Canadian, and Mexican carriers is available evidence regarding the comparative safety records of firms operating in the United States. . . . Mexican trucks operating in the United States have a significantly higher incidence of being placed out of service for safety problems uncovered in random inspections. In particular, the available data show that the out-of-service rate for Mexican carriers is over 50 percent higher than the rate for U.S. carriers."174

  21. In contrast to Mexico's system, the United States notes that "Canada's truck safety rules and regulations are highly compatible with those of the United States."175 Thus, "when Canadian-based commercial trucks cross into the United States, federal and state transportation authorities can have a high level of confidence that those trucks comply with U.S. standards and requirements at least to the same degree as U.S.-based trucks. That confidence level is bolstered by a fully functioning, computerized bilateral data exchange program."176 Under these circumstances, "when Mexican trucks cross into the United States, there is no assurance that, based on the regulatory regime in place in Mexico, those trucks already meet U.S. highway safety standards."177 

  22. Given all of these considerations, the AUnited States has . . . concluded that the 'circumstances' relevant to the treatment of Mexican-based trucking firms for safety purposes are not 'like' those applicable to the treatment of Canadian and U.S. carriers."178 Accordingly, "the United States may apply more favorable treatment to U.S. and Canadian trucking firms than to their Mexican counterparts without running afoul of Chapter Twelve's national treatment or most-favored-nation rules."179

  23. The United States further notes that Mexico has presented no data on truck safety enforcement in Mexico, and states that although "Mexico does allege that 'it was within the power of the United States to impose requirements' that make Mexican carriers 'like' U.S. and Canadian carriers," Mexico has failed to explain "what those requirements might be nor how such requirements would be practicable or effective."180 According to the United States, Athis absence of contrary evidence reinforces that the United States, in delaying the processing of Mexican applications until truck safety can be ensured, is acting reasonably, appropriately, and consistently with its NAFTA obligations."181 

  24. With regard to the question of whether high out-of-service rates for Mexican drayage trucks in the border zone are relevant to long-haul experience, the United States contends that "In terms of safety, the service provided by drayage trucks is no different from that provided by long-haul trucks - they haul goods on the same roads, through the same cities and towns through which long-haul trucks operate."182 In any event, Mexico has not demonstrated that their long-haul trucks are safer. Issuance by the United States of long-haul authority to Mexican trucks "would not, standing alone, prevent a defective drayage truck from operating in the United States beyond the border commercial zone."183 

  25. The United States explains certain carriers are permitted to "transit" U.S. territory from Mexico to Canada because 

    the Congress has not granted the U.S. Department of Transportation ("DOT" or "Department") the authority to require such transit carriers to seek operating authority. Therefore, transit operations are unaffected by the moratorium on the issuance of operating authority to Mexican motor carriers for operations outside the commercial zone. All firms operating in the United States, however, regardless of whether they are subject to such registration requirements, are subject to DOT's safety jurisdiction.184 
    U.S.-owned, Mexican-domiciled carriers and "grandfathered" carriers are unaffected by the statutory moratorium and thus are also permitted to transport goods from Mexico to the United States beyond the border zone.185 

  26. However, the United States does not believe that the exemption of these groups from the moratorium "demonstrates that the United States does not have authentic safety concerns about Mexican carriers."186 AThe number of carriers entitled to these exemptions represents only a small fraction -about two percent - of Mexican firms engaged in cross-border operations. Specifically, 8,400 Mexican firms have authority to operate in the commercial zones, while a total of only 168 Mexican carriers are entitled to the above-discussed exemptions."187 

  27. Mexican motor carriers operating in the border commercial zones are required to obtain special certificates of registration. These carriers are fully subject to all U.S. safety regulations. They must also have trip insurance, must carry evidence of the insurance in their trucks, and must have U.S. registered agents.188 The United States denies that the use of trip insurance instead of continuous insurance reflects any lack of concern over differences in the safety of U.S. and Mexican carriers operating in the commercial zones. Rather, "[a]n insurer's potential liability arising from trip insurance is just the same as that arising from continuous insurance, and in both cases the insurer has the same incentives to reduce its potential liability."189 

  28. The United States also explains its alleged lack of concern with trailers: "In practice, however, the safety of Mexican trailer components has not been a major issue, because eighty to ninety percent of the trailers used in cross-border trade are in fact U.S.-owned."190 

  29. With regard to national treatment and most-favored-nation obligations, according to the United States,
    the relevant issue is whether the U.S. actions are consistent with its Chapter Twelve national treatment and MFN obligations in light of the different circumstances applicable to U.S. and Canadian trucking firms, on the one hand, and Mexican trucking firms on the other . . . it is acting reasonably and appropriately by delaying the processing of Mexican firms' applications for operating authority while U.S. and Mexican transportation officials work cooperatively to establish adequate safety enforcement tools to ensure that the grant of additional operating authority to Mexican firms does not undermine highway safety. Applying NAFTA's national treatment and MFN obligations to this set of facts turns on a close analysis of highway safety issues, not abstract arguments regarding "conditionality"191 
  30. According to the United States, Mexico has failed to meet its burden of proof regarding denial of investment benefits, "because Mexico had not shown that any Mexican national meets the definition of 'investor' in Chapter Eleven."192 In this respect, the United States disagrees with Mexican reliance on WTO doctrines under which a complaining Party does not have to show trade impact. Moreover, the United States believes under WTO principles "complaining parties bear the burden of proving an alleged violation by a WTO Member of its WTO obligations."193 

  31. The United States, which emphasizes that it has not raised Chapter Nine as a defense,194 also expresses its disagreement with Mexico's relating of the "in like circumstances" language to Chapter Nine. A NAFTA Party, according to the United States, does not need any NAFTA provision to serve as a "vehicle for" (which, presumably, Mexico means "to authorize") any particular governmental regulation. In applying governmental regulations, NAFTA only comes into play when a particular NAFTA obligation is relevant to the regulation at issue. Chapter Nine imposes certain obligations (such as MFN and national treatment obligations) with respect to standards-related measures, but Chapter Nine is not "the vehicle for application" of standards.

  32. According to the United States, if Mexico's argument is predicated on the theory that only NAFTA Chapter Nine could "permit" differential treatment between domestic and foreign service providers, the argument is both circular and inconsistent with the plain text of the agreement.

  33. Also, the United States contends that the Parties could not, as Mexico suggests, have intended Chapter Nine to serve as the exclusive "vehicle" for applying standards-related measures because the scope of Chapter Nine is limited to goods and only two services sectors: telecommunications and land transportation services. Chapter Nine does not apply to measures affecting any other services nor to measures affecting investment. Mexico's interpretation would lead to the untenable result that the Parties neglected to provide any "vehicle" for the application of standards-related measures applicable to most services covered by NAFTA and to all investments covered by NAFTA.195 

  34. The United States contends that its position is confirmed by Article 2101, one of the general exceptions, which provides:
    that 'nothing in . . . Chapter Twelve (Cross-Border Trade in Services) . . . shall be construed to prevent the adoption or enforcement by any 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.196 

  35. Similarly, in the Preamble to NAFTA, the Parties explicitly state their resolve under NAFTA to "preserve their flexibility to safeguard the public welfare."197 "These provisions illustrate that NAFTA Parties contemplated that their regulatory authorities would retain their ability to make regulatory distinctions with regard to cross-border services trade necessary to protect human health and safety in their territories."198 

  36. The United States also contests Mexico's assertion that a government may not "condition[] . . . market access of its goods and services on the exporting country's adoption of the rules and laws of the importing country.199 " The United States disclaims the applicability of the unadopted GATT Panel report in Tuna,200 and argues that the controlling case is the Appellate Body Report in United States - Import Prohibition of Certain Shrimp and Shrimp Products. It appears to the United States, however, that conditioning access to a Member's domestic market on whether exporting Members comply with, or adopt, a policy or policies unilaterally prescribed by the importing Member may, to some degree, be a common aspect of measures falling within the scope of one or another of the exceptions (a) to (j) of Article XX of GATT 1994.201 

  37. The United States concludes, "Mexico has no support for its proposition that some general principle of international law prohibits the United States from taking account of the exporting Party's regulatory regime."202 

  38. The United States also asserts that Mexico has made no case for nullification or impairment under NAFTA Annex 2004, noting some similarity to the Korean Procurement case in the WTO.203 According to the United States, Mexico has the burden of showing nullification or impairment and has made no such argument. Also, the United States declares that under NAFTA, a nullification or impairment claim may not be made if it 

    would be subject to an Article 2101 exception. As the United States has shown, differential treatment for Mexican carriers is warranted by safety concerns, and is thus consistent with the U.S. obligations under the national treatment and MFN provisions of Chapter Twelve. For the very same reasons, (and in the event that the Panel had needed to examine this issue in response to a nullification or impairment claim), the U.S. measure would fall squarely within the scope of Article 2101(2).204 
  39. The United States asserts that the "subjective" motivation for the alleged U.S. violations - as argued by Mexico - should not be the basis for the Panel's analysis. WTO Appellate Body decisions support the position of the United States that the pertinent issue here is whether safety concerns warrant the differential treatment provided to Mexican carriers, and not - as Mexico claims - the subjective motivations of U.S. decision-makers in December 1995.205 

  40. The United States cites to Japan - Alcoholic Beverages,206 where the Appellate Body determined that "This is not an issue of intent" and determined "an examination in any case of whether dissimilar taxation has been applied so as to afford protection requires a comprehensive and objective analysis of the structure and application of the measure in question on domestic as compared to imported products."207 

  41. Also, in Chile - Alcoholic Beverages,208 the Appellate Body noted that  The subjective intentions inhabiting the minds of individual legislators or regulators do not bear upon the inquiry, if only because they are not accessible to treaty interpreters. It does not follow, however, that the statutory purposes or objectives - that is, the purpose or objectives of a Member's legislature and government as a whole - to the extent that they are given objective expression in the statute itself, are not pertinent.209 

  42. Consequently, the Panel in this case should "likewise examine U.S. compliance with national treatment obligations based on a fact-specific analysis of the U.S. measure and all of the relevant circumstances, and not - as the Appellate Body wrote - on the 'subjective intentions inhabiting the minds of individual . . . regulators.'"210 


C.
Canada's Contentions
  1. Canada, exercising its right to participate in the Panel proceeding under Article 2013, avoids comment on the specific facts of the case.211 

  2. Canada contends that the key issue in interpreting the requirements of Article 1202 (national treatment for cross-border services) is "a comparison between a service provider providing services cross-border, and a service provider providing services locally." Under those circumstances, Canada submits:
    A blanket refusal to permit a person of Mexico to obtain operating authority to provide cross-border truck services . . . would, on its face, be less favorable than the treatment accorded to United States truck service providers in like circumstances.212

    Canada takes a similar position with respect to Article 1102 (national treatment for investment).213 

  3. Canada also challenges the U.S. refusal to allow Mexican investors to invest in the U.S. trucking market. Canada contends that under Article 1102:
    Unless there is a difference in circumstances between a Mexican investor seeking a license in the United States and a United States investor seeking a similar license, the Mexican investor is entitled to like treatment. [Therefore, m]aintaining a regulation that requires the licensing authority to deny a license to a Mexican investor because the investor is Mexican accords less favorable treatment to a Mexican investor than to a like [United States] investor.214 

  4. Anticipating that the United States would rely on Chapter Nine (standards), Canada argues that Article 904(2), which permits a Party to "establish the levels of protection that it considers appropriate" applies only to the other provisions of Chapter Nine. These limits cannot be applied to any of the other chapters, such as Chapter Eleven.

  5. With regard to Chapter Twelve, Canada contends that despite the requirement in Article 904(3) that each Party in regard to standards related measures accord national treatment in accordance with Article 1202, this requirement permits a Party only to establish a legitimate level of protection. It does not "excuse a discriminatory measure purporting to achieve the appropriate level of protection." .215 

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Continue here with V. The United States' request for a Scientific Review Board



142 USPHS at 2-3.
143 USCS at 2. 
144 USCS at 2. 
145 USPHS at 3. 
146 USPHS at 4. 
147 USPHS at 5. 
148 USPHS at 6.
149 USPHS at 7. Although the United States asserts that it has never been able to perform compliance reviews in Mexico, Mexico disputes this fact. In its initial submission, Mexico observed that in 1997, USDOT officials, accompanied by Mexican officials, did indeed make visits to several Mexican motor carriers. According to Mexico, these U.S. officials were satisfied with the conditions they found during these inspections. MIS at 44-45. 
150 USSS at 19-20.
151 USCS at 2. 
152 USCS at 2-3.
153 USCS at 35.
154 USCS at 42. 
155 USCS at 39.
156 USCS at 39.
157 USCS at 39.
158 MRS at 13. 
159 USSS at 6.
160 USSS at 6-7.
161 USSS at 9-10, citation omitted.
162 USSS at 11-12.
163 USCS at 40-41, emphasis supplied by U.S.
164 USCS at 41.
165 USCS at 42.
166 USCS at 43.
167 USCS at 43.
168 USCS at 44.
169 USCS at 44.
170 USCS at 44.
171 USCS at 45.
172 USCS at 45.
173 USCS at 45.
174 USCS at 45-46.
175 USCS at 47.
176 USCS at 47-48.
177 USCS at 48.
178 USCS at 49.
179 USCS at 49.
180 USSS at 3-4.

181

USSS at 4.
182 USPHS at 7.
183 USPHS at 8.
184 USSS at 20-21.
185 USSS at 21-22, citations omitted.
186 USSS at 22.
187 USSS at 22.
188 USSS at 24.
189 USSS at 24-25.
190 USSS at 25-26.
191 USSS at 17.
192 USSS at 26.
193 USSS at 26-27, quotation and citation omitted
194 Comments of the United States on the Initial Report of the Panel, December 19, 2000, at 2.
195 USSS at 14-16, citations omitted.
196 NAFTA Article 2101(2).
197 USCS at 40.
198 USCS at 40.
199 USPHS at 17, quoting Mexico.
200 United States - Prohibition of Imports of Tuna and Tuna Products from Canada (Report of the Panel adopted on Feb. 22, 1982, L/5198-29S/91 [hereinafter Tuna].
201 USPHS at 17-18.
202 USPHS at 18.
203 USPHS at 10-11.
204 USPHS at 13.
205 USPHS at 14-17.
206 Japan - Taxes on Alcoholic Beverages, Panel Report adopted Oct. 4, 1996, WT/DS8/AB/R.
207 Id. at 28-29, as cited in USPHS at 16.
208 Chile- Taxes on Alcoholic Beverages, Panel Report adopted Dec. 13, 1999, WT/DS87/AB/R.
209 Id. at para. 62, as cited in USPHS at 16, emphasis in original.
210 USPHS at 17.
211 CS at 2.
212 CS at 3.
213 CS at 3.
214 TR at 133.
215 CS at 4.