ANNEX 300-A

Trade and Investment in the Automotive Industry Sector

1. Except as provided in this Annex, each Party shall apply

this Agreement to automotive goods of another Party and to

enterprises of the automotive industry sector in its territory.

2. Except as provided in this Annex, each Party shall promptly

accord to existing producers of vehicles in its territory

treatment no less favorable than that it accords, in like

circumstances, to a new producer of vehicles in its territory

regarding measures covered by this Annex.

3. The Parties shall review, no later than December 31, 2003,

the status of the North American automotive industry sector and

the effectiveness of the measures contained in this Annex to

determine actions that could be taken to strengthen the

integration and global competitiveness of the industry.

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Appendix A: Canada

Existing Measures

1. Canada and the United States may maintain the Agreement

Concerning Automotive Products between the Government of Canada

and the Government of the United States of America which entered

into force on September 16, 1966, in accordance with Article

1001, Article 1002(1) and (4) (as they refer to Annex 1002.1,

Part One), Article 1005(1) and (3), and Annex 1002.1, Part One

(Waivers of Customs Duties) of Canada - United States Free Trade

Agreement.

2. Canada may maintain the measures referred to in Article

1002(1) and (4) (as they refer to Annex 1002.1, Parts Two and

Three), Article 1002(2) and (3), Article 1003, and Annex 1002.1,

Parts Two (Export-Based Waivers of Customs Duties) and Three

(Production-Based Waivers of Customs Duties) of the Canada -

United States Free Trade Agreement. Canada shall eliminate those

measures in accordance with the terms set out in that agreement.

Used Vehicles

3. Canada may adopt or maintain prohibitions and restrictions

on imports of used vehicles from the territory of Mexico, except

as follows:

(a) after January 1, 2009, Canada may not adopt or maintain

prohibitions or restrictions on imports from the

territory of Mexico of originating used vehicles that

are at least 10 years old;

(b) after January 1, 2011, Canada may not adopt or maintain

prohibitions or restrictions on imports from the

territory of Mexico of originating used vehicles that

are at least eight years old;

(c) after January 1, 2013, Canada may not adopt or maintain

prohibitions or restrictions on imports from the

territory of Mexico of originating used vehicles that

are at least six years old;

(d) after January 1, 2015, Canada may not adopt or maintain

prohibitions or restrictions on imports from the

territory of Mexico of originating used vehicles that

are at least four years old;

(e) after January 1, 2017, Canada may not adopt or maintain

prohibitions or restrictions on imports from the

territory of Mexico of originating used vehicles that

are at least two years old; and

(f) after January 1, 2019, Canada may not adopt or maintain

prohibitions or restrictions on imports from the

territory of Mexico of originating used vehicles

regardless of age.

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Appendix B: Mexico

Auto Decree and Auto Decree Implementing Regulations

1. Subject to this Appendix, Mexico may maintain, until January

1, 2004, the Decree for Development and Modernization of the

Automotive Industry ("Decreto para el Fomento y Modernización de

la Industria Automotriz") (December 11, 1989) (the "Auto Decree")

and the Resolution that Establishes Rules for the Implementation

of the Auto Decree ("Acuerdo que Determina Reglas para la

Aplicación para el Fomento y Modernización de la Industria

Automotriz") (November 30, 1990) (the "Auto Decree Implementing

Regulations"). Mexico may adopt or maintain any measure

respecting automotive goods or manufacturers of automotive goods

in its territory provided that such measure is not inconsistent

with this Agreement.

Autoparts Industry, National Suppliers and Independent

Maquiladoras

2. Mexico may not require that an enterprise attain a level of

national value added in excess of 20 percent of its total sales

as one of the conditions to qualify as a national supplier or

enterprise of the autoparts industry.

2a. For purposes of paragraph 2, "national value added" means

the total value of sales of such enterprises (excluding those for

the aftermarket) minus the value of its total imports, direct and

indirect, excluding those imports incorporated in aftermarket

parts and components, as modified by paragraph 3.

3. Mexico may require that a national supplier or an enterprise

of the autoparts industry, in calculating its national value

added solely for the purposes of paragraph 2, include customs

duties in the value of imports incorporated into the parts and

components produced by such enterprises.

4. Mexico shall grant national supplier status to an

independent maquiladora that requests such status and meets the

requirements for that status set out in the existing Auto Decree.

Mexico shall continue to grant to all independent maquiladoras

that request national supplier status all existing rights and

privileges accorded to independent maquiladoras under the

existing Decree for the Promotion and Operation of the

Maquiladora Export Industry ("Decreto para el Fomento y Operación

de la Industria Maquiladora de Exportación") (December 22, 1989)

(the "Maquiladora Decree").

4a. For purposes of paragraph 4, "independent maquiladora" means

an enterprise registered as an export maquiladora enterprise

under the Maquiladora Decree which has no common majority

shareholder with any manufacturer, and for which no manufacturer

is directly or indirectly a majority shareholder.

National Value Added

5. Mexico may provide that a manufacturer ("empresa de la

industria terminal") calculate its required national value added

from suppliers (VANp) as a percentage of:

(a) a manufacturer's reference value as defined in

paragraph 8; or

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

whichever is greater.

6. Mexico shall not require that the percentage referred to in

paragraph 5 be greater than:

(a) 34 percent for each of the first five years beginning

January 1, 1994;

(b) 33 percent for 1999;

(c) 32 percent for 2000;

(d) 31 percent for 2001;

(e) 30 percent for 2002; and

(f) 29 percent for 2003.

7. Notwithstanding paragraph 6, Mexico shall allow a

manufacturer that produced vehicles in Mexico before model year

1992 to use as its percentage referred to in paragraph 5 the

ratio of actual national value added from suppliers (VANp) to

total national value added (VANt) that such manufacturer attained

in model year 1992, for so long as that ratio is lower than the

applicable percentage specified under paragraph 6. In

determining such ratio for 1992, purchases that such manufacturer

made from independent maquiladoras that would have been eligible

to receive national supplier status had paragraphs 2, 3 and 4 of

this Appendix been in effect at that time, shall be included in

the calculation of the manufacturer's national value added from

suppliers (VANp), in the same manner as parts and components from

any other national supplier or enterprise of the autoparts

industry.

8. "The annual reference value for a manufacturer" ("reference

value") shall be:

(a) for each of the years 1994 through 1997, the base value

for the manufacturer, plus no more than 65 percent of

the difference between the manufacturer's total sales

in Mexico in that year and its base value;

(b) for each of the years 1998 through 2000, the base value

for the manufacturer, plus no more than 60 percent of

the difference between the manufacturer's total sales

in Mexico in that year and its base value; and

(c) for each of the years 2001 through 2003, the base value

for the manufacturer, plus no more than 50 percent of

the difference between the manufacturer's total sales

in Mexico in that year and its base value.

9. Mexico shall provide that where a manufacturer's total sales

in Mexico in a year are lower than its base value, the reference

value for such manufacturer for that year shall be equal to the

manufacturer's total value of sales in Mexico for the year.

9a. For purposes of paragraphs 8 and 9:

(a) "base value" means the average annual value of the

manufacturer's production in Mexico for sale in Mexico

(VTVd) in model years 1991 and 1992, adjusted for

inflation, using the Mexican producer price index for

automotive goods published by the Bank of Mexico

("Banco de Mexico"); and

(b) "manufacturer's total sales in Mexico in that year"

means the invoice value of sales by a manufacturer of

vehicles it produced in Mexico for sale in Mexico plus

the invoice value of its sales of imported vehicles.

10. In the event an abnormal production disruption affects a

manufacturer's production capability, Mexico shall allow such

manufacturer to seek a reduction in its reference value before

the Intersecretariat Automotive Industry Commission, established

under Chapter V of the Auto Decree. If the Commission finds that

the production capability of the manufacturer has been impaired

by such an abnormal production disruption, the Commission shall

reduce the manufacturer's reference value in an amount

commensurate to such event.

10a. For purposes of paragraph 10, "abnormal production

disruption" means a disruption in a manufacturer's production

capability resulting from a natural disaster, fire, explosion or

other unforeseen event beyond the manufacturer's control.

11. If, upon the request of a manufacturer, the Intersecretariat

Automotive Industry Commission finds that the production

capability of such manufacturer has been significantly disrupted

as a result of a major retooling or plant conversion in the

facilities of the manufacturer, the Commission shall reduce the

reference value for the manufacturer for that year in an amount

commensurate with the disruption, provided that such reduction in

that manufacturer's required national value added from suppliers

(VANp) that may result from the Commission's determination to

lower the manufacturer's reference value shall be fully made up

by the manufacturer over the following two model years.

11a. For purposes of paragraph 11, "significant disruption"

means a sizable impairment in the manufacturer's production

capability that lasts at least six months but no longer than 12

months.

Trade Balance

12. Mexico shall not require a manufacturer to include in the

calculation of its trade balance (S) a percentage of the value of

direct and indirect imports of parts and components that such

manufacturer incorporated into vehicles it has produced in Mexico

for sale in Mexico (VTVd) in the corresponding year, greater than

the following:

(a) 80 percent for 1994;

(b) 77.2 percent for 1995;

(c) 74.4 percent for 1996;

(d) 71.6 percent for 1997;

(e) 68.9 percent for 1998;

(f) 66.1 percent for 1999;

(g) 63.3 percent for 2000;

(h) 60.5 percent for 2001;

(i) 57.7 percent for 2002; and

(j) 55.0 percent for 2003.

13. For purposes of determining a manufacturer's total national

value added (VANt), paragraph 12 shall not apply to the

calculation of its trade balance (S).

14. Mexico shall permit a manufacturer with a surplus in its

extended trade balance to divide its extended trade balance by

the applicable percentages in paragraph 12 to determine the value

of new vehicles that it may import.

15. Mexico shall provide that in the calculation of a

manufacturer's adjustment factor (Y) in its extended trade

balance:

(a) a manufacturer's total national value added (VANt) be

replaced by that manufacturer's reference value in any

year in which the manufacturer's total national value

added (VANt) is lower than its reference value; and

(b) the applicable percentage under paragraphs 6 or 7, as

appropriate, be used.

16. In determining the annual amount that a manufacturer may

apply to its extended trade balance from surpluses earned prior

to model year 1991, Mexico shall in any given year allow such

manufacturer to elect:

(a) to use the procedures of the existing Auto Decree

Implementing Regulation; or

(b) to apply up to $US 150 million, adjusted for inflation

in accordance with the U.S. GDP Price Deflator or its

equivalent in Mexican pesos,

until such surpluses have been exhausted.

Other Restrictions in the Auto Decree

17. Mexico shall eliminate the restriction set out in the

existing Auto Decree that limits the number of vehicles that a

manufacturer may import into Mexico in relation to the total

number of vehicles that such manufacturer sells in Mexico.

Autotransportation Decree and Autotransportation

Implementing Regulations

18. Mexico shall eliminate the Mexican Decree for Development

and Modernization of the Autotransportation Vehicle Manufacturing

Industry (December 1989) ("Decreto para el Fomento y

Modernización de la Industria Manufacturera de Vehiculos de

Autotransporte") (the "Autotransportation Decree") and the

Resolution that Establishes Rules for the Implementation of the

Autotransportation Decree (November 1990) ("Acuerdo que Establece

Reglas de Aplicacion del Decreto para el Fomento y Modernización

de la Industria Manufacturera de Vehículos de Autotransporte")

(the "Autotransportation Decree Implementing Regulations").

Mexico may adopt or maintain any measure respecting

autotransportation vehicles or manufacturers of

autotransportation vehicles in its territory provided that such

measure is not inconsistent with this Agreement.

Importation of Autotransportation Vehicles

19. Except as provided in paragraphs 20 and 21, Mexico may adopt

or maintain a prohibition or restriction on the importation of

autotransportation vehicles of another Party until January 1,

1999.

20. For each of the years 1994 through 1998, Mexico shall allow

any manufacturer of autotransportation vehicles to import, for

each type of autotransportation vehicle, a quantity of

originating autotransportation vehicles equal to at least 50

percent of the number of vehicles of such type that such

manufacturer produced in Mexico in that year.

20a. For purposes of paragraph 20, "manufacturer of

autotransportation vehicles" means an enterprise, established in

Mexico, that produces autotransportation vehicles, is registered

with the Ministry of Trade and Industrial Development

("Secretaría de Comercia y Fomento Industrial"), and whose sales

in Mexico incorporate at least 40 percent national value added,

where national value added is the result of subtracting from the

total sales (excluding imports of autotransportation vehicles) of

an autotransportation manufacturer the invoice value of its

direct and indirect imports of parts and components.

21. For each of the years 1994 through 1998, Mexico shall allow

persons other than manufacturers of autotransportation vehicles

to import, in a quantity to be allocated among them, originating

autotransportation vehicles of each type as follows:

(a) for each of the years 1994 and 1995, no less than 15

percent of the total number of vehicles of each type of

autotransportation vehicle produced in Mexico;

(b) for 1996, no less than 20 percent of the total number

of vehicles of each type of autotransportation vehicle

produced in Mexico; and

(c) for each of the years 1997 and 1998, no less than 30

percent of the total number of vehicles of each type of

autotransportation vehicle produced in Mexico.

Mexico shall allocate such quantity through a non-discriminatory

auction.

Used Vehicles

22. Mexico may adopt or maintain prohibitions and restrictions

on imports of used vehicles from the territory of another Party,

except as follows:

(a) after January 1, 2009, Mexico may not adopt or maintain

prohibitions or restrictions on imports from the

territories of Canada or United States of originating

used vehicles that are at least ten years old;

(b) after January 1, 2011, Mexico may not adopt or maintain

prohibitions or restrictions on imports from the

territories of Canada or United States of originating

used vehicles that are at least eight years old;

(c) after January 1, 2013, Mexico may not adopt or maintain

prohibitions or restrictions on imports from the

territories of Canada or United States of originating

used vehicles that are at least six years old;

(d) after January 1, 2015, Mexico may not adopt or maintain

prohibitions or restrictions on imports from the

territories of Canada or United States of originating

used vehicles that are at least four years old;

(e) after January 1, 2017, Mexico may not adopt or maintain

prohibitions or restrictions on imports from the

territories of Canada or United States of originating

used vehicles that are at least two years old; and

(f) after January 1, 2019, Mexico may not adopt or maintain

prohibitions or restrictions on imports from the

territories of Canada or United States of originating

used vehicles, regardless of age.

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Appendix B: Definitions

Note: (The following terms shall be defined as provided in

the Auto Decree and Auto Decree Implementing Regulations,

incorporating those specific modifications required by this

Appendix.

For purposes of transparency, set out below for each term

are the corresponding Spanish term, citations to the relevant

provisions of the Auto Decree and Auto Decree Implementing

Regulations and, where appropriate, the paragraph of this

Appendix that modifies the definition in the Auto Decree or Auto

Decree Implementing Regulations. English translations of these

definitions, amplified for clarity where appropriate, and

incorporating modifications required by this Appendix, will be

set out here at a later date.)

adjustment factor (Y) means "factor de ajuste Y" as defined in

rule 18 of the Auto Decree Implementing Regulations and as

modified by paragraph 15 of this Appendix;

enterprise of the autoparts industry means "empresa de la

industria de autopartes" as set out in Article 2, paragraph V of

the Auto Decree, as modified by paragraph 2 of this Appendix;

extended trade balance means "balanza comercial ampliada"

referred to in rule 28 of the Auto Decree implementing

Regulations, and is equal to the numerator (S+W+.3I+Sft+T-Y) of

formula (1) in rule 8, of the Auto Decree Implementing

Regulations;

manufacturer means an "empresa de la industria terminal" as

defined in Article 2, paragraph IV of the Auto Decree that

produces any of the following classes of vehicles:

(a) passenger car: a vehicle for the transportation of up

to 10 people or a compact car of popular use, provided

for in subheadings (to be specified) of the Harmonized

System;

(b) commercial truck: a vehicle with or without a chassis,

for the transportation of cargo or over 10 people, with

a GVW of up to 2,727 kgs., provided for in heading (to

be specified) of the Harmonized System;

(c) light duty truck: a vehicle with a chassis, for the

transportation of cargo or over 10 people, with a GVW

of over 2,727 but less than 7,272 kgs., provided for in

headings (to be specified); or

(d) medium duty truck: a vehicle with a chassis for the

transportation of cargo or over ten people, with a GVW

of over 7,272 kgs. but less than 8,864 kgs., provided

for in headings (to be specified) of the Harmonized

System;

manufacturer's production in Mexico for sale in Mexico (VTVd)

means "valor total de las ventas que realicen las empresas de la

industria terminal al mercado domestico, excluyendo vehiculos

importados" as set out in rule 18 of the Auto Decree Implementing

Regulations;

manufacturer's total national value added (VANt) means "valor

agregado nacional de la empresa de la industria terminal" as

defined in rule 18 of the Auto Decree Implementing Regulations;

national supplier means a "proveedor nacional" as defined by

article 2 paragraph VII of the Auto Decree, as modified by

paragraph 2 of this Appendix;

national value added from suppliers (VANp) means "valor agregado

nacional de proveedores", as provided in rule 18 of the Auto

Decree Implementing Regulations;

parts and components means "partes y componentes automotrices" as

defined in article 2, paragraph X of the Auto Decree;

trade balance (S) means "saldo en balanza comercial de la empresa

de la industria terminal", as defined in rule 9 of the Auto

Decree Implementing Regulation, as modified by paragraphs 12 and

13 of this Appendix;

autotransportation vehicles means a vehicle included in any of

the following types:

(a) heavy duty truck: a vehicle with a chassis for the

transport of goods or more than ten people with a GVW

over 8,864 kgs., provided for in headings (to be

specified) of the Harmonized System;

(b) truck tractor: a vehicle with 2 or 3 axles for

transporting goods by hauling trailers, semi-trailers

or containing integrated equipment, provided for in

subheading (to be specified) of the Harmonized System;

(c) integral bus: a vehicle without a chassis but with an

integral body used to transport more than 10 people,

provided for in heading (to be specified) of the

Harmonized System; and

(d) specialty vehicles: special purpose motor vehicles or

vehicles modified for the handicapped provided for in

heading (to be specified) of the Harmonized System, (as

provided for in Article 2 of the Autotransportation

Decree).

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Appendix C: United States

Corporate Average Fuel Economy

1. As provided in paragraph 2, for purposes of the Energy

Policy and Conservation Act (October 1975), as amended ("the CAFE

Act"), the United States shall consider an automobile to be

domestically manufactured in any model year if at least 75

percent of the cost to the manufacturer of such automobile is

attributable to value added in Canada, Mexico or the United

States, unless the assembly of such automobile is completed in

Canada or Mexico and such automobile is not imported into the

United States prior to the expiration of the 30 days following

the end of such model year.

2. The United States shall implement the obligation set out in

paragraph 1 for all automobiles of a manufacturer sold in the

United States, wherever produced and irrespective of car line or

truck line, beginning with the next model year after January 1,

2004, except as provided in the following schedule:

(a) with respect to a manufacturer that initiated the

manufacture of automobiles in Mexico before model year

1992, the enterprise that provides certification under

the CAFE Act may make a one-time election at any time

between January 1, 1997 and January 1, 2004, to have

paragraph 1 applied beginning with the next model year

after such election;

(b) with respect to a manufacturer initiating the

manufacture of automobiles in Mexico after model year

1991, paragraph 1 shall apply beginning with the next

model year after either January 1, 1994 or the date

that such manufacturer initiates manufacturing

automobiles in Mexico, whichever is later;

(c) with respect to any other manufacturer of automobiles

in the territory of a Party, the enterprise that

provides certification under the CAFE Act may make a

one-time election at any time between January 1, 1997

and January 1, 2004, to have paragraph 1 applied

beginning with the next model year after such election.

If such a manufacturer initiates manufacturing

automobiles in Mexico, it shall be subject to

subparagraph (b) on the date it initiates such

manufacturing; and

(d) with respect to all manufacturers of automobiles not

manufacturing automobiles in the territory of a Party,

paragraph 1 shall apply beginning with the next model

year after January 1, 1994.

3. The United States shall make any future changes pertaining

to the definition of domestic production in the CAFE Act or its

implementing regulations equally applicable to value added in any

of the Parties.

4. Nothing in this Appendix shall require the United States to

make any changes in its fuel economy requirements for

automobiles.

5. For purposes of this Appendix, "automobile" means a motor

vehicle that complies with the definition in the CAFE Act and its

implementing regulations.

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Appendix D: General Definitions

existing producer of vehicles means a producer that was producing

in the territory of the relevant Party prior to model year 1992;

and

automotive goods means all types of motor vehicles, and parts and

components intended for use in motor vehicles.

Note: (Additional terms may be added where appropriate)