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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

  1. The Panel notes that the FTA language provides a more detailed and specific limitation on any Party's right to depart from its national treatment obligations than is found in the shorter text of Article 1202. However, the Panel observes that similar national treatment obligations have been interpreted, in the GATT Section 337 case, to permit the imposition of some requirements concerning imports that are different from those imposed on domestic products;288 identical treatment is not necessarily required with regard to treatment of intellectual property violations relative to imported goods compared to domestically produced goods. Yet, the Panel in Section 337 also recognized that formally identical requirements for imports may in fact provide less favorable treatment in specific circumstances.289 

  2. The Panel next examined the applicable legal provisions of NAFTA to determine, with respect to the provisions governing cross-border truck transportation services from Mexico into the United States, what constitutes the service providers of Mexico, on the one hand, and the service providers of the United States providing trucking services in the United States, on the other. Article 1213 defines a service provider of a Party to be a person of a Party that seeks to provide or provides a service. Article 201 defines a person of a Party to be a national or an enterprise of a Party, and defines an enterprise of a Party to be an entity constituted or organized under applicable law. Given these definitions, the Panel considered the undisputed facts in the record that the essential service in question involves the commercial transportation of goods from Mexico to points in the United States by service providers of Mexico.

  3. This essential service presently includes: (1) trucking services in which a tractor and trailer provide service from a point in Mexico to a point in the United States and (2) trucking services in which a trailer from Mexico is transferred from a Mexican tractor to a U.S. tractor in a Border Commercial Zone from which the service continues to a point in the United States. Additionally, the relevant trucking services also include the transit of Mexican trucks from Mexico through the United States to Canada. Those who provide or seek to provide such services are the relevant "service providers." The service providers of the United States are U.S. owned or domiciled trucking firms. The treatment of these U.S. domestic trucking service providers by U.S. regulatory authorities is the basis of comparison with the treatment by the United States of Mexican trucking service providers seeking operating authority in the United States, in determining whether the United States is providing national treatment.

  4. It is not disputed that the United States prohibits consideration of applications from most Mexican service providers to supply truck transportation services from Mexico to points in the United States outside the border commercial zone.290 Yet, the obligation of NAFTA Article 1202 is to provide no less favorable treatment to service providers of Mexico. It appears from uncontested facts that the United States is not doing so. The United States has permitted roughly 150 Mexican-domiciled carriers who claim U.S. majority ownership, five Mexican-domiciled, Mexican owned carriers grand-fathered under U.S. law, and one Mexican-domiciled, Mexican owned carrier transiting the United States to reach Canada, to operate freely in the United States despite alleged deficiencies in the Mexican truck regulatory system.291 Similarly, until 1999, four years after restrictions on cross-border trucking were to be lifted under Annex I, the United States permitted U.S. motor carriers to lease Mexican trucks and drivers for operations in the United States.292 Certain Mexican drayage carriers are permitted to provide services only within the narrow border commercial zones, and are wholly prohibited from providing service to other points in the United States. These carriers are subjected to differential treatment, for commercial reasons and because of U.S. safety concerns.293 

  5. However, in all other circumstances comprising Mexican trucking service providers - presumably hundreds or even thousands of firms - those Mexican service providers have been denied access to the U.S. border states since December 17, 1995, despite the requirements of Annex I and Articles 1202 and 1203.

  6. Thus, the provision of no less favorable treatment to these very limited Mexican service providers fails to satisfy the obligation to provide no less favorable treatment to other trucking service providers of Mexico, who remain subject to the moratorium. The U.S. blanket refusal to review requests for operating authority from other Mexican trucking firms, because of safety concerns, is inconsistent with these prior exceptions to the moratorium, as well as with U.S. treatment of U.S. domestic trucking service providers. 

  7. Therefore, absent other justification, the moratorium imposed by the United States on the processing of applications since December 17, 1995, would constitute a de jure violation of the national treatment obligation in Article 1202. However, the United States asserts justification under the terms "like circumstances," and the proposed interpretation to include differential treatment for legitimate regulatory objectives related to safety.

  8. The Panel has noted that the phrase "like circumstances" may properly include differential treatment under the conditions specified in the FTA Article 1402, as discussed earlier. However, the Panel is also aware of Chapter One, Article 102. Article 102(2) of NAFTA clearly states 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." The first of NAFTA's listed objectives is to "eliminate barriers to trade in, and facilitate the cross-border movement of, goods and services between the territories of the Parties."294 These objectives are elaborated more specifically through the principles and rules in NAFTA, including national treatment. Further, the provisions of the Agreement are required to be interpreted in light of the objectives and applicable rules of international law. Given these requirements, and the use of the same term in the FTA, the Panel is of the view that the proper interpretation of Article 1202 requires that differential treatment should be no greater than necessary for legitimate regulatory reasons such as safety, and that such different treatment be equivalent to the treatment accorded to domestic service providers. With regard to objectives, it seems unlikely to the Panel that the "in like circumstances" language in Articles 1202 and 1203 could be expected to permit maintenance of a very significant barrier to NAFTA trade, namely a prohibition on cross-border trucking services. 


  9. Similarly, the Panel is mindful that a broad interpretation of the "in like circumstances" language could render Articles 1202 and 1203 meaningless. If, for example, the regulatory systems in two NAFTA countries must be substantially identical before national treatment is granted, relatively few service industry providers could ultimately qualify. Accordingly, the Panel concludes that the U.S. position that the "in like circumstances" language permits continuation of the moratorium on accepting applications for operating authority in the United States from Mexican owned and domiciled carriers is an overly-broad reading of that clause.

  10. The United States also suggests that Article 2101 allows the United States to refuse to accept applications from Mexican trucking service providers because of safety concerns. The Panel's view that the "in like circumstances" language, as an exception, should be interpreted narrowly, applies equally to Article 2101. Here, the GATT/WTO history, liberally cited by the Parties, and the FTA language, noted earlier, are both instructive. Although there is no explicit language in Chapter Twelve that sets out limitations on the scope of the "in like circumstances" language, the general exception in Article 2101:2 invoked by the United States closely tracks the GATT Article XX language, and is similar to the FTA proviso limiting exceptions to national treatment to situations where "the difference in treatment is no greater than necessary for ... health and safety or consumer protection reasons." 295

  11. Thus, 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 [international] trade between the Parties, nothing in . . . Chapter Twelve (Cross-Border Trade in Services) . . . shall be construed to prevent the adoption of 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.

  12. Under Article 2101, therefore, safety measures adopted by a PartyCsuch as the moratorium on accepting applications for U.S. operating authority from Mexican trucking service providersCmay be justified only to the extent they are "necessary to secure compliance" with laws or regulations that are otherwise consistent with NAFTA. Here again, the GATT/WTO jurisprudence proves helpful in determining what "necessary" means.

  13. The "necessary to secure compliance" language in GATT Article XX has been interpreted strictly in numerous GATT/WTO decisions, including United States - Section 337 of the Tariff Act of 1930,296 Canada - Certain Measures Concerning Periodicals,297 United States - Standards for Reformulated and Conventional Gasoline,298 and United States - Import Prohibition on Certain Shrimp and Shrimp Products.299 Mexico notes that the United States invoked the "necessary" language in Reformulated Gasoline and Section 337 in contesting Canada in Periodicals, even though the Panel in Periodicals did not reach that issue.300 Mexico thus suggests that the United States is among those nations supporting a narrow interpretation of the exceptions.

  14. In Periodicals, Canada had contended that its import ban on certain periodicals was justified under the GATT Article XX(d) "chapeau" (heading) as a measure "necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement." Canada had argued that this restriction was an important aspect of a government policy that sought to ensure that magazines with editorial content prepared for the Canadian market would be rewarded with an increase in their revenues from advertising. A parallel component of the policy was a tax deduction for advertising directed at the Canadian market, which would be defeated if periodicals could be imported. The WTO Panel rejected this interpretation and found for the United States. The Panel determined that the Canadian measure was not a measure that sought compliance with another law, and thus was not justified by GATT Article XX(d). 301 

  15. In Reformulated Gasoline, the WTO's Appellate Body determined that the chapeau of Article XX, prohibiting GATT-inconsistent measures from being unjustifiable discrimination or a disguised restriction on trade, required that a Party adopt measures reasonably available to it that were the least inconsistent with the GATT. Instead of imposing less favorable regulatory structures on foreign refiners exporting gasoline to the United States, the United States might have pursued cooperative agreements with the governments of Venezuela and Brazil. 302 

  16. This suggests, by analogy, that the United States did not, in the actions it took prior to December 17, 1995, make a sufficient effort to find a less trade-restrictive measure than continuation of the moratorium to address its safety concerns.

  17. In Shrimp, the WTO Appellate Body rejected the rigid standard through which U.S. officials determined whether certain other countries would be certified as having sea turtle protective fishing methods, effectively granting or refusing other countries' right to export shrimp to the United States. According to the Appellate Body, "it is not acceptable in international relations, for one WTO Member to use an economic embargo to require other Members to adopt essentially the same comprehensive regulatory program, to achieve a certain policy goal, as in force within that Member's territory, without taking into consideration different conditions which may occur in the territories of those other Members."303 The Appellate Body also rejected the idea that one member could attempt to dictate another member's regulatory policies by refusing access to the dictating member's market, where that access was otherwise required under the GATT. In the instant case, Mexico objects to the U.S. moratorium and legal position as implying that only adoption by Mexico of a truck regulatory regime fully compatible with that of the United States would require the United States to lift the moratorium.304 

  18. Here also, there is no evidence in the record that the United States considered more acceptable, less trade restrictive, alternatives, except to the extent that it does so for specific Mexican service providers exempted from the moratorium.

  19. The Panel is generally in agreement with Mexico that, consistent with the GATT/WTO history and the text of Article 2101, in order for the U.S. moratorium on processing of Mexican applications for operating authority to be NAFTA-legal, any moratorium must secure compliance with some other law or regulation that does not discriminate; be necessary to secure compliance; and must not be arbitrary or unjustifiable discrimination or a disguised restriction on trade.305 

  20. Also, if under the GATT/WTO jurisprudence a Party is "bound to use, among the measures reasonably available to it, that which entails the least degree of inconsistency with other . . . provisions," in this NAFTA case, the United States has failed to demonstrate that there are no alternative means of achieving U.S. safety goals that are more consistent with NAFTA requirements than the moratorium. In fact, the application and use of exceptions would appear to demonstrate the existence of less-restrictive alternatives. 306 

  21. The provisions of Chapter Nine are relevant to this proceeding largely because Chapter Nine was addressed by Mexico and Canada. The United States did not rely on Chapter Nine as a defense.307 Nor, the Panel notes, do any of the Parties question the right of Parties to NAFTA in pursuing "legitimate objectives of safety" or the protection of human life or health to establish levels of protection that they consider appropriate.308 This right is established in Part Three - Technical Barriers to Trade, of which Chapter Nine is a part. Chapter Nine is explicitly made applicable to services, and includes specific obligations concerning a Land Transportation Standards Committee. Thus, under Article 904, the United States has the right to set a level of protection relating to safety concerns, through the adoption of standards-related measures, notwithstanding any other provision of this Chapter, and provided only that this is done consistently with Article 907.2, which establishes a permissive (i.e., not mandatory) assessment of risk, and encourages Parties to avoid arbitrary or unjustifiable distinctions between similar goods or services, in the level of protection a Party considers. 

  22. However, it is important to stress that actions taken by a Party under Article 904 must be "in accordance with this Agreement," including the national treatment provisions of Article 1202 and the most-favored-nation requirements of Article 1203. 309

  23. With regard to Annex I, the Panel finds unpersuasive various arguments as to the difficulties and possible safety concerns which the United States raises as obstacles to implementation of its Annex I obligations to permit cross-border trucking into the U.S. border states as of December 17, 1995.310 First, Annex I does not incorporate any exceptions or conditions, other than the phase-out date.311 Second, under Article 105, "The Parties shall ensure that all necessary measures are taken in order to give effect to the provisions of this Agreement." The fact that the United States may not have available, for budgetary or other reasons, "safety investigators" to travel to Mexico, is not an excuse to fail to comply with U.S. obligations under the Agreement, particularly given the fact that Mexican regulatory conditions were well-known to the United States at least since September 1992, when NAFTA negotiations were completed.

  24. It also is clear from the record before the Panel that the United States was well aware during NAFTA negotiations that the Mexican truck regulatory system was deficient in many respects in the U.S. view, and that many changes would be required to improve it significantly. The United States and Mexico have undertaken a cooperative program aimed at improving Mexico's truck and driver regulatory system. While the United States contends that insufficient progress has been made to lift the moratorium,312 the U.S. obligations under Annex I are not conditioned on a certain level of progress by Mexico in improving Mexico's truck safety regulatory system.  

  25. It is unclear when, if ever, the United States will be satisfied that the Mexican regulatory system is adequate to lift the moratorium with respect to all Mexican providers of trucking services.313 In December 1995, it was evident that many officials, including the Secretary of Transportation, were convinced that the necessary controls were in place, because regulations had been announced and other steps taken for the anticipated lifting of the moratorium in 1995, even though the United States ultimately did not lift the moratorium.314 For whatever reasons, a contrary decision was taken. In this regard, the Panel believes it unlikely, in view of U.S. obligations under Articles 1202, 1203 and Annex I, that all Mexican providers of trucking services not subject to an exception to the moratorium can properly be subject to a blanket U.S. determination not to process applications.   

  26. With regard to most-favored-nation treatment under Article 1203, essentially the same considerations are relevant as with national treatment under Article 1202, discussed in detail above. If the "in like circumstances" language means that the foreign regulatory system must be equivalent or identical to the U.S. system, and the United States has concluded that the Canadian system meets this criterion,315 the United States would be justified in discriminating in favor of Canadian trucking firms. However, if "in like circumstances" does not permit this treatment, Article 1203 is violated as well as Article 1202, since U.S. and Canadian carriers are treated in the same manner (individually) while Mexican carriers are treated differently. This is true with regard to any possible departures from most-favored-nation treatment based on other provisions of NAFTA, such as Article 2101, again as discussed earlier.,  

  27. Finally, the Panel concludes that language in the Preamble of NAFTA, which states that the Parties "resolve to . . . preserve their flexibility to safeguard the public welfare" cannot be relied upon by the United States as an independent basis for failing to comply with its obligations under the various provisions found in the NAFTA text and Annex I. Under Article 31 of the Vienna Convention, as mentioned earlier, the preamble is part of the "context" to be considered in interpreting the treaty. However, there is no suggestion in NAFTA that the preambular language was intended to override the textual obligations. Rather, the language used in the Preamble - "resolve" rather than "agree to," "shall," or "must" - indicate that the Preamble is aspirational and horatory. The Panel also notes that in the Preamble, the Parties have also "resolved to . . . create an expanded and secure market for the goods and services produced in their territories. . ." which is consistent with the obligations placed upon the United States by Articles 1202 and 1203, and under Annex I. 

  28. Based on these considerations, and noting the previously discussed objectives of NAFTA in facilitating increased trade in services, the Panel is of the view that the U.S. refusal to consider applications is not consistent with the obligation to provide national treatment. Thus, the continuation of the moratorium beyond December 18, 1995, was a violation of the national treatment and most-favored-nation provisions of Articles 1202 and 1203, respectively, in that there is no legally sufficient basis for interpreting "in like circumstances" as permitting a blanket moratorium on all Mexican trucking firms. Nor is the departure from national treatment and most-favored-nation treatment under these Articles justified under Article 2101. 

VII. Investment

  1. The issue before this Panel with regard to investment is to determine whether the failure by the U.S. government to take appropriate regulatory actions to eliminate the moratorium on Mexican investments in companies providing international transportation by land constitutes a breach of Articles 1102, 1103 and 1104 of NAFTA, which provide:


    Article 1102: National Treatment

    1. Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.

    2. Each Party shall accord to investments of investors of another Party treatment no less favorable than that it accords, in like circumstances, to investments of its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments. . . .

    Article 1103: Most-Favored-Nation Treatment

    1. Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to investors of any other Party or of a non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.

    2. Each Party shall accord to investments of investors of another Party treatment no less favorable than that it accords, in like circumstances, to investments of investors of any other Party or of a non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.

    Article 1104: Standard of Treatment 


    Each Party shall accord to investors of another Party and to investments of investors of another Party the better of the treatment required by Articles 1102 and 1103.

  2. The U.S. reservations with respect to existing measures from obligations imposed by Articles 1102 (national treatment in investment, services and related matters) and 1103 (most-favored-nation treatment in investment, services and related matters) are contained in Annex I, which in the case of investments establishes that: "The moratorium has the effect of being an investment restriction because enterprises of the United States providing bus or truck services that are owned or controlled by persons of Mexico may not obtain ICC operating authority." The phase-out element of the reservation states that: 

      A person of Mexico will be permitted to establish an enterprise in the United States to provide:

    1. three years after the date of signature of this Agreement [December 18, 1995], truck services for the transportation of international cargo between points in the United States; and 

    2. seven years after the date of entry into force of this Agreement [January 1, 2001], bus services between points in the United States.

    The moratorium will remain in place on grants of authority for the provision of truck services by persons of Mexico between points in the United States for the transportation of goods other than international cargo.

1. Positions of the Parties
  1. Mexico argued that, in implementing the moratorium, the United States has distinguished between carriers based on the nationality of their ownership or control, denying Mexican owned carriers national treatment (compared to U.S.-owned carriers) and most-favored-nation treatment (as Canadian carriers are subject to no such restrictions). U.S. law and regulations, as applied by the United States, authorize motor carriers and motor private carriers domiciled in Mexico, but owned or controlled by persons of the United States (or persons of Canada), to be granted operating authority to provide interstate transportation of property.316 The above regulatory framework remains in place nearly five years after the phase-out date provided in Annex I.317 

  2. The United States argued that Mexico has failed to establish a prima facie violation of Chapter Eleven investment obligations. The United States contends that it was the United States, not Mexico, that sought the removal of investment restrictions during NAFTA negotiations. U.S. trucking firms had, and continue to have, the capital necessary to engage in cross-border investments. By contrast, Mexican firms have expressed concern regarding competition from the better capitalized U.S. firms. The United States claims that Mexico does not even allege that there is any interest on behalf of Mexican nationals to invest in U.S. trucking firms.318 

  3. The United States also argued that Mexico has not shown that any Mexican national meets the definition of "investor" in Chapter Eleven and thus Mexico has failed to establish a prima facie case of violation by the United States of its Chapter Eleven investment obligations. Since Mexico has not alleged the existence of any Mexican national or enterprise that seeks to make, is making or has made an investment in a U.S. trucking firm, as defined by Article 1139, Mexico has not met its burden of proof. 319 

  4. However, the United States has not denied the existence of a continuing regulatory framework that permits the Department of Transportation to refuse to process applications from Mexican motor carriers. Nor has the United States denied the contention that it has failed to modify its truck regulatory framework so as to permit Mexican nationals to establish enterprises to engage in point-to-point truck transportation of international cargo within the United States, which NAFTA required to be implemented by December 18, 1995. Morever, United States has conceded that:

    operating restrictions imposed formerly by the ICC and now by the USDOT in effect disallow new grants of operating authority to U.S. carriers owned or controlled by Mexican carriers. In order for the United States to obtain investment rights in Mexico, the United States agreed to take a comparable step by committing to modify the moratorium to permit Mexican nationals to own or control companies established in the United States to transport international cargo between points in the United States.320 
    Nor has the United States argued that different circumstances exist which would justify differential treatment in connection with investments by Mexican investors in U.S. domiciled companies.
2. The Panel's Analysis
  1. The Panel notes that under the Model Rules, Rules 33 and 34: "A Party asserting that a measure of another Party is inconsistent with the provisions of the Agreement shall have the burden of establishing such inconsistency," and "A Party asserting that a measure is subject to an exception under the Agreement shall have the burden of establishing that the exception applies."321 Mexico must establish that the actions (and inactions) of the United States are inconsistent with the schedule for implementation of NAFTA. The U.S. Government bears the burden of proving that its actions and inactions in connection with Chapter Eleven are authorized by an exception to NAFTA..  

  2. Here, Mexico has asserted and the United States has conceded that U.S. laws and regulations authorize the Department of Transportation to deny a newly created U.S.-domiciled carrier with Mexican investment the opportunity to obtain operating authority. Current U.S. regulatory policy also prohibits the acquisition of an existing U.S. carrier that already had operating authority, because of the requirement for the applicant to certify that the applicant is not a Mexican national, nor owned or controlled by Mexican nationals. Under these circumstances, an application filed by a Mexican carrier would be futile.

  3. The United States has made no significant effort to defend its position on investment on the merits. At the Oral Hearing, the representative of the United States stated the U.S. position as follows:

    On safety, the base defense goes to the services. We have a separate statement and position on the investments. What we said on investment is Mexico brought this case, [therefore] it's up to Mexico to prove its point.

    This is not a safety case with that. The situation, I think, is quite forthright and clear enough. The investment restriction arose from the moratorium, it's part of the moratorium that is still in place.

    When the safety issues are resolved, we would modify the moratorium to handle the investment issues. In our view, the investments has been a side show. . . .

    Mexican firms generally don't have capital investment in the United States. They haven't been pressing the United States on that. The services case is the core of this, and when the services case is resolved, the investment case will be resolved. What we said, is [that] our brief simply says Mexico has to prove its violation. 322 

    In essence, the United States has effectively conceded that the safety concerns, which are the claimed basis of the U.S. refusal to implement its cross-border service obligations, are not applicable to investment.

  4. When a Panelist asked, "But what you're saying is, that until a Mexican company requests the opportunity, say, to buy a U.S. carrier and is denied that opportunity, . . . there's no case, even if you have a rule that says if they apply they are going to be turned down?," the representative of the United States responded, "That's almost it. It's a little more subtle than that." 323 

  5. Long-established doctrine under the GATT and WTO holds that where a measure is inconsistent with a Party's obligations, it is unnecessary to demonstrate that the measure has had an impact on trade. For example, GATT Article III (requiring national treatment of goods) is interpreted to protect expectations regarding competitive opportunities between imported and domestic products and is applicable even if there have been no imports.324 Moreover, it is well-established that parties may challenge measures mandating action inconsistent with the GATT regardless of whether the measures have actually taken effect.325 

  6. Furthermore, Article 2004 of NAFTA allows the Parties to initiate the dispute settlement procedures with "respect to the avoidance or settlement of all disputes between the Parties regarding the interpretation or application of [the treaty], or wherever a Party considers that an actual or proposed measure of another Party is or would be inconsistent with the obligations of [the treaty]." The Panel is not faced with a case brought in the context of NAFTA Annex 2004, which authorizes a Party to have recourse to the dispute settlement procedure where it considers that benefits one Party could reasonably have expected to accrue to it have been nullified or impaired by a measure that is not inconsistent with NAFTA.326 

  7. The Panel finds that Mexico has met the requirement of Rule 33 of the Model Rules by establishing a prima facie case of inconsistency with NAFTA. The deprivation of the right to obtain operating authority to U.S. companies owned or controlled by Mexican nationals and the prohibition on allowing Mexican investors to acquire U.S. companies that already have operating authority, on its face, violates the straight-forward provisions of NAFTA Articles 1102 and 1103.

  8. Because the United States expressly prohibits the above mentioned investment, this Panel finds such prohibitions as inconsistent with NAFTA, even if Mexico cannot identify a particular Mexican national or nationals that have been rejected. A blanket refusal to permit a person of Mexico to establish an enterprise in the United States to provide truck services for the transportation of international cargo between points in the United States is, on its face, less favorable than the treatment accorded to U.S. truck service providers in like circumstances, and is contrary to Article 1102. 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.

  9. The applicability of Chapter Nine of NAFTA to this proceeding has been discussed in the Services section, supra. It is sufficient to note here that Chapter Nine does not apply to measures affecting investment,327 and there is no provision of Chapter Nine that could be read as either incorporating or overriding the national treatment obligation for investment. Similarly, the general exceptions contained in Article 2101(2) apply only to trade in goods (Part Two), technical barriers to trade (Part Three), cross-border trade in services (Chapter Twelve) and telecommunications (Chapter Thirteen), and thus cannot affect the U.S. obligations under Chapter Eleven. 

  10. Accordingly, the Panel determines that in connection with investments by Mexican nationals in U.S. companies established to provide trucking services for the transportation of international cargo between points in the United States, no circumstances exist that would justify differential treatment from U.S. (or Canadian) investors and investments under NAFTA's Chapter Eleven national treatment and most-favored-nation obligations.


VIII. FINDINGS, DETERMINATIONS AND RECOMMENDATIONS


  1. Findings and Determinations

    1. On the basis of the analysis set out above, the Panel unanimously determines that the U.S. blanket refusal to review and consider for approval any Mexican-owned carrier applications for authority to provide cross-border trucking services was and remains a breach of the U.S. obligations under Annex I (reservations for existing measures and liberalization commitments), Article 1202 (national treatment for cross-border services), and Article 1203 (most-favored-nation treatment for cross-border services) of NAFTA. An exception to these obligations is not authorized by the "in like circumstances" language in Articles 1202 and 1203, or by the exceptions set out in Chapter Nine or under Article 2101. 

    2. The Panel unanimously determines that the inadequacies of the Mexican regulatory system provide an insufficient legal basis for the United States to maintain a moratorium on the consideration of applications for U.S. operating authority from Mexican-owned and/or domiciled trucking service providers. 

    3. The Panel further unanimously determines that the United States was and remains in breach of its obligations under Annex I (reservations for existing measures and liberalization commitments), Article 1102 (national treatment), and Article 1103 (most-favored-nation treatment) to permit Mexican nationals to invest in enterprises in the United States that provide transportation of international cargo within the United States.

    4. It is important to note what the Panel is not determining. It is not making a determination that the Parties to NAFTA may not set the level of protection that they consider appropriate in pursuit of legitimate regulatory objectives. It is not disagreeing that the safety of trucking services is a legitimate regulatory objective. Nor is the Panel imposing a limitation on the application of safety standards properly established and applied pursuant to the applicable obligations of the Parties under NAFTA. Furthermore, since the issue before the Panel concerns the so-called "blanket" ban, the Panel expresses neither approval nor disapproval of past determinations by appropriate regulatory authorities relating to the safety of any individual truck operators, drivers or vehicles, as to which the Panel did not receive any submissions or evidence.

  2. Recommendations

    1. The Panel recommends that the United States take appropriate steps to bring its practices with respect to cross-border trucking services and investment into compliance with its obligations under the applicable provisions of NAFTA.

    2. The Panel notes that compliance by the United States with its NAFTA obligations would not necessarily require providing favorable consideration to all or to any specific number of applications from Mexican-owned trucking firms, when it is evident that a particular applicant or applicants may be unable to comply with U.S. trucking regulations when operating in the United States. Nor does it require that all Mexican-domiciled firms currently providing trucking services in the United States be allowed to continue to do so, if and when they fail to comply with U.S. safety regulations. The United States may not be required to treat applications from Mexican trucking firms in exactly the same manner as applications from U.S. or Canadian firms, as long as they are reviewed on a case by case basis. U.S. authorities are responsible for the safe operation of trucks within U.S. territory, whether ownership is U.S., Canadian or Mexican.

    3. Similarly, it may not be unreasonable for a NAFTA Party to conclude that to ensure compliance with its own local standards by service providers from another NAFTA country, it may be necessary to implement different procedures with respect to such service providers. Thus, to the extent that the inspection and licensing requirements for Mexican trucks and drivers wishing to operate in the United States may not be "like" those in place in the United States, different methods of ensuring compliance with the U.S. regulatory regime may be justifiable. However, if in order to satisfy its own legitimate safety concerns the United States decides, exceptionally, to impose requirements on Mexican carriers that differ from those imposed on U.S. or Canadian carriers, then any such decision must (a) be made in good faith with respect to a legitimate safety concern and (b) implement differing requirements that fully conform with all relevant NAFTA provisions.

    4. These considerations are inapplicable with regard to the U.S. refusal to permit Mexican nationals to invest in enterprises in the United States that provide transportation of international cargo within the United States, since both Mexico and the United States have agreed that such investment does not raise issues of safety.

Signed in the original by:


_______________________________
J. Martin Hunter, Chair


_______________________________
  Luis Miguel Diaz


_______________________________
David A. Gantz C.


_______________________________
  Michael Hathaway


_______________________________
Alejandro Ogarrio


Dated:


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288 U.S. - Section 337 of the Tariff Act of 1930, L/6439 - 36S/345 (Nov. 7, 1989) (Panel Report), para. 5.31.
289 Id., para. 5.11.
290 MIS at 1-4; USCS at 20.
291 MRS at 1-5. The United States argues that those apparent exceptions to USDOT policy are permitted because they are based on non-safety related reasons and because USDOT lacks the legal authority to halt them. USSS at 20-22. However, there is no evidence in the record suggesting that the President made any effort to obtain legislation to halt these long standing-practices, with the exception of closing the loophole which permitted U.S. trucking firms to lease Mexican trucks and drivers for service in the United States.
292 This so-called "loophole" was closed by Section 219 of the Motor Carrier Safety Improvement Act of 1999. Mexico argues that this was for anti-competitive reasons. MRS at 4-5. The United States contends it was for safety reasons. USSS at 23-24. However, for whatever reason, the practice was used until very recently, and the United States has not provided the Panel with any evidence of specific safety problems arising out of the practice.
293 The United States has argued that the safety record of Mexican drayage haulers is seriously deficient compared to U.S. trucks operating nationwide. USCS at 19-24. Mexico has admitted that the drayage haulers have used equipment in relatively poor condition. MIS at 21. However, Mexico argues that a comparison between Mexican drayage haulers and U.S. long-haul trucking firm safety records is misleading because the short distance drayage haulers do not have a self-interest in maintaining the quality of equipment that they would have if engaged in long-haul freight operations. MRS at 6. Neither argument is overly persuasive, nor directly pertinent to the Panel's analysis of the law.
294 NAFTA, Art. 102(1)(a).
295 USCFTA, Art. 1403.3(a).
296 [GATT] Panel Report adopted Nov. 7, 1989, BISD/345.
297 [WTO] Panel Report adopted Mar. 14, 1957, WT/DS31/R.
298 [WTO] Panel Report adopted May 20, 1996, WT/DS2/R.
299 [WTO] Panel Report adopted Oct. 12, 1998, WT/DS58/AB/R.
300 MPHS at 15-16.
301 Periodicals, paras. 5.8-5.11. The Panel did not comment on other U.S. arguments regarding Article XX(d) and the Appellate Body did not address these issues. Appellate Body Report, Jun. 30, 2000, WT/DS31/AB/R.
302 Reformulated Gasoline, Part IV, at 24-28.
303 Shrimp, para. 164, emphasis in original.
304 MIS at 74-75.
305 MPHS at 23; see Section 337, para. 6.31.
306 MPHS at 25, quoting Section 337, para. 5.26.
307 Comments of the United States on the Initial Report of the Panel, Dec. 19, 2000, at 4. 
308 MIS at 81-82; USCS at 39-40.
309 NAFTA, Art. 904(3)(a) & (b). The Panel observes that Article 904.4 also contains a limitation that no Party may prepare, adopt, maintain or apply any standards-related measure with the effect of creating an unnecessary obstacle to trade. This obligation should be considered in conjunction with Article 906.4, which contains a requirement that where an exporting country maintains a technical regulation, and the exporting country, in cooperation with the importing Party, demonstrates to the satisfaction of the importing Party that its technical regulation adequately fulfils the importing Party's legitimate objectives, the importing Party must treat such a technical regulation as equivalent. 
310 USCS at 42-46.
311 See discussion of Annex I, supra.
312 USCS at 25-28.
313 USSS at 17.
314 MIS at 33-40; USCS at 19-20.
315 USCS at 19.
316 MIS at 81. 49 U.S.C. § 10922 (m)(2)(b)(iv) and (v) provided that: "if the person to be issued the certificate of registration during the moratorium is a foreign motor carrier (or a foreign motor private carrier) domiciled in the foreign country or political subdivision and owned or controlled by persons of the United States, such certificate may only authorize such carrier to provide interstate transportation of property (including exempt items) by motor vehicle."
317 MIS at 3.
318 USCS at 55.
319 USCS at 55-56.
320 USCS at 7-8. United States regulations, specifically 49 C.F.R. § 1182.2(a)(10), state that with regard to the purchase or acquisition of control over an existing motor carrier, the Department of Transportation regulations require, as part of the application for approval of the transaction: "a statement indicating whether any party acquiring any operating rights through the transaction is either domiciled in Mexico or owned or controlled by persons of that country." With regard to a transfer of existing operating authority, 49 C.F.R.§ 365.405(b)(1)(ix) requires an applicant for transfer approval to provide: "certification by the transferee that it is not domiciled in Mexico nor owned or controlled by persons of that country."
321 MIS at 69, emphasis added.
322 TR at 193-194, emphasis supplied.
323 TR at 194.
324 For example, a GATT Working Party Report on Brazilian Internal Taxes noted: "[the majority of the members of the Working Party] took the view that the provisions of the first sentence of Article III, paragraph 2, were equally applicable, whether imports from other contracting parties were substantial, small or non-existent." See WORLD TRADE ORGANIZATION, ANALYTICAL INDEX: GUIDE TO GATT LAW AND PRACTICE 128 (6th ed. 1995). See also Japan - Taxes on Alcoholic Beverages, AB-1996-2 (Appellate Body) (4 Oct. 1996) at Section F.
"[T]he purpose of Article III [which requires national treatment of goods] "is to ensure that internal measures 'not be applied to imported or domestic products so as to afford protection to domestic production'.'' Toward this end, Article III obliges Members . . . to provide equality of competitive conditions for imported products in relation to domestic products. . . . [I]t is irrelevant that "the trade effects" of the tax differential between imported and domestic products, as reflected in the volumes of imports, are insignificant or even non-existent; Article III protects expectations not of any particular trade volume but rather of the equal competitive relationship between imported and domestic products."
325 See, e.g., United States - Taxes on Petroleum and Certain Imported Substances, in which the Panel stated: "The general prohibition of quantitative restrictions under Article XI . . . and the national treatment obligation of Article III . . . have essentially the same rationale, namely to protect expectations of the contracting parties as to the competitive relationship between their products and those of the other contracting parties. Both Articles are not only to protect current trade but also to create the predictability needed to plan future trade. That objective could not be attained if contracting parties could not challenge existing legislation mandating actions at variance with the General Agreement until the administrative acts implementing it had actually been applied to their trade." 34S/136 (adopted June 17, 1987), at 160, para. 5.5.5, reprinted in Analytical Index at 133.
326 Annex 2004, emphasis added. Annex 2004 was intended to mirror the GATT practice of allowing claims for "non-violation nullification or impairment" of benefits.
327 NAFTA, Article 901. - Limited scope of Chapter Nine to measures affecting trade in goods and certain services. NAFTA, Article 915 limits the scope of the service coverage to land transportation and telecommunications services.