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OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE

Trade Representative, Office of United States

NOTICE: NOTICES

ACTION: Harmonized Tariff Schedule:

DOCUMENT ACTION: Notification of an opportunity to submit proposals to consider tariff harmonization and/or liberalization of the rules of origin under the North American Free Trade Agreement.

SUBJECT CATEGORY: Harmonization of Most Favored Nation Tariff Rates for the United States, Canada, and Mexico; Liberalization of the Rules of Origin Applicable Under Provisions of the North American Free Trade Agreement

DATES: Public comments are due at USTR by noon, Friday, February 6, 2004.

DOCUMENT SUMMARY: Section 202(q)(2) of the North American Free Trade Agreement Implementation Act (``the Act'') (19 USC 3331(b)) authorizes the President to proclaim modifications to the NAFTA rules of origin set forth in the Harmonized Tariff Schedule of the United States (HTS), subject to the consultation and layover provisions of section 103 of the Act. This notice is intended to inform the public of the opportunity to submit proposals to request the liberalization of the rules of origin under the NAFTA. In addition, this notice seeks proposals to request the harmonization of the mostfavorednation (MFN) tariff rates of the United States, Canada, and Mexico.

SUMMARY: Harmonization of most-favored-nation tariff rates and liberalization of rules of origin under North American Free Trade Agreement,

SUPPLEMENTAL INFORMATION

On October 7, 2003, the Free Trade Commission (``FTC'' or ``the Commission''), the body responsible for the implementation of the NAFTA, agreed to pursue further
liberalization of the NAFTA rules of origin. The Commission also agreed to commence a study of the MFN tariffs of each of the Parties. (In the case of the United States these are the general or normal trade relations (NTR) rates referenced in general note 3(a)(ii) of the HTS.) The study is to determine whether harmonizing these tariffs could further promote North American trade by reducing exportrelated transaction costs. Each of the Parties to the NAFTA agreed to initiate consultations with its respective domestic industries to determine which products could be covered by this exercise.

Rules of Origin

The NAFTA and the Act provide for preferential tariff and trade treatment of goods of U.S., Canadian, and Mexican origin. Goods qualify for preferential treatment when imported into the United States if they meet the requirements of the general NAFTA rules of origin set out in section 202 of the Act (19 U.S.C. 3332) and the specific rules incorporated into the HTS. The NAFTA provides that the NAFTA Parties can agree to amend the NAFTA's origin rules. Section 202(q)(2) of the Act authorizes the President to proclaim modifications to the NAFTA rules of origin set forth in the HTS, subject to the consultation and layover provisions of section 103 of the Act.

Since the NAFTA entered into force, the Parties have modified many of the rules of origin. Modifications were made in order to conform the rule of origin to tariff classification changes, to make them less restrictive, and to make them less burdensome to administer. Tariff Harmonization

Beginning in 1994, the Parties have undertaken four separate tariff acceleration exercises, speeding the elimination of tariffs on several hundred line items, covering billions of dollars in trade. With virtually all tariffs between
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the countries now eliminated, the Parties are considering harmonizing their MFN tariffs. Under NAFTA Article 308, the three countries did harmonize at zero tariff rates for computers/computer parts, local area network equipment and semiconductors.

Tariff harmonization could eliminate the need for preferential rule of origin requirements. Currently, NAFTA rules of origin are designed to ensure that tariff free treatment applies to all goods that originate or are substantially modified in North America while enabling NAFTA Parties to apply their own tariff rates to products of third country origin. Harmonizing MFN tariff rates at zero could eliminate the need for preferential rules of origin since the origin determination would be made when a good first enters the NAFTA area, making it unnecessary to have additional origin requirements for intra NAFTA trade.

Additional Information

No decisions have been made to pursue rule of origin changes or harmonization of MFN tariffs, or the scope or degree of such changes. A decision to do so will consider several factors including (1) The expected reduction in transaction and manufacturing costs in North America and increase in trade that could result from either action; (2) the feasibility of devising, implementing and monitoring new rules of origin or harmonized MFN tariffs; (3) the level and breadth of interest in such an exercise by manufacturers, processors, traders and consumers in North America.

The following factors are also being considered as part of a possible framework for such an initiative:
(1) Harmonization would occur as countries with the higher MFN duties reduce such duties to the level of the lowest current duty rate applied by a NAFTA country, or move to a rate lower than any currently applied.
(2) Harmonization at a zero rate of duty is the most attractive option, and is the only option that could eliminate the need for preferential rules of origin.
(3) As was the case for products covered under Article 308, harmonization of an entire sector or broad range of goods would provide more benefits and be easier to implement and enforce.
(4) The NAFTA governments expect to proceed on the basis of consensus; that is, proposed rule of origin changes or tariff harmonization would be broadly supported by interested parties within each country.

Requirements for Comments/Proposals

A. Governments encourage submissions that enjoy broad support. Submitters should indicate if they have discussed their proposals with representatives of the affected sector in the other NAFTA countries and, if so, the result of such discussions. if representatives of an affected sector in one of the other NAFTA countries supports the proposal and the similar organization in the third NAFTA country does not support the proposal, such information should be included. Governments encourage interested parties to explore submitting proposals from organizations in all three countries.

B. Scope and Coverage of Proposals. Governments encourage interested parties to review the broadest appropriate range of items and to submit proposals that reflect a consensus reached after such a broadbased review. A single proposal can thus include requests covering multiple tariff headings. Proposals should cover entire 8 digit tariff subheadings, and may also be submitted at the 6, 4, or 2 digit level where the intent is to cover all subsidiary duties.

Requirements for Submissions: In order to facilitate the prompt processing of submissions, the Office of the United States Trade Representative strongly urges and prefers electronic (email) submissions to nafta2004@ustr.gov in response to this notice. Documents should be submitted as WordPerfect, Microsoft Word, or text (.TXT) files. In the event that an email submission is impossible, submissions should be made by facsimile. Supporting documentation submitted in the form of spreadsheets is acceptable in Quattro Pro or Excel format. For any document containing business confidential information submitted electronically, the file name of the business confidential version should begin with the characters ``BC'' and the file name of the public version should begin with the characters ``P.'' The P or BC should be followed by the name of the submitter. Persons who make submissions by email should not provide separate cover letters; information that might appear in a cover letter should be included in the submission itself. Similarly, to the extent possible, any attachments to the submission should be included in the same file as the submission itself, and not as separate files. Written comments will be placed in a file open to public inspection pursuant to 15 CFR 2003.5, except confidential business information exempt from public inspection in accordance with 15 CFR 2003.6. Confidential business information submitted in accordance with 15 CFR 2003.6 must be clearly marked ``BUSINESS CONFIDENTIAL'' at the top of each page, including any cover letter or cover page, and must be accompanied by a nonconfidential summary of the confidential information. All public documents and nonconfidential summaries shall be available for public inspection in the USTR Reading Room. The USTR Reading Room is open to the public, by appointment only, from 10 a.m. to 12 noon and 1 p.m. to 4 p.m., Monday through Friday. An appointment to review the file may be made by calling (202) 3956186. Appointments must be scheduled at least 48 hours in advance.
Regina K. Vargo,
Assistant United States Trade Representative for the Americas.

FOR FURTHER INFORMATION CONTACT Kent Shigetomi, Director, Mexico and NAFTA Affairs, Office of Western Hemisphere Affairs, Office of the United States Trade Representative, Room 523, 600 17th Street, NW., Washington, DC 20508; telephone: (202) 3953412; fax: (202) 3959675. Email to nafta2004@ustr.gov.