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TableofContents    :-./;<(2$0 0 0 0 (<$0 0 0 0 0 Z,TITLEVRY LG, ALL CAPS, BOLD  z88LEVEL 2 HDGAUTO  #, U/C, L/C, MK TXT, BOLD   2A.3  Ԁ  Ԁrk:PDP CLE FORMMARGINS, FONTS, TABS, PAPER      \R3'\E) `CG TimesE X  X      #XP #      #dd6COVER PAGECENTER, VRY LG BOLD TITLE, AUTHOR, ETC   d6 8LEVEL 5 HDGAUTO  #, U/C, MK TXT   2(1)3  Ԁ  p88LEVEL 1 HDGAUTO  #, U/C, MK TXT, BOLD   2I.3  Ԁ  Ԁ88LEVEL 4 HDGAUTO  #, U/C, L/C, MK TXT, UNDERLINE   2a.3  Ԁz+8LEVEL 3 HDGAUTO  #, U/C, MK TXT, UNDERLINE  21.3  Ԁj/:COLUMN STYLEFORMAT NEWSPAPER COLUMN    , f G' j(4$j   NAFTA'sEffectonStateAgenciesandAdministrativeLawl"l"(#J  i  ڈ X ?''  xdEx? (2$ ܣ! j(43    \ &( j(4$j   J  i  [(#7thAnnualAdvancedAdministrativeLawCourse  X ?''  xdEx?($      K% j(4$j  X  1  .    ӀTheConstitutionprovidesthat"[n]oStateshall,withouttheconsentofCongress,layanyImposts  orDutiesonImportsorExports,exceptwhatmaybeabsolutelynecessaryforexecutingits  InspectionLaws."U.S.Constitution,art.I,10.(2$ ܣ! j(43   X  0  . B K% j(4$j  X  2  .    ӀJackson&Davey,InternationalEconomicRelations9(2ded.1986).  K% j(4$j  X  3  .    ӀId.at14546.TheauthorityfortheagreementswastheReciprocalTradeAgreementsActof  1934,48Stat.943. + K% j(4$j  X  4  .    ӀForcomplicatedreasons,GATTwasappliedintheUnitedStatesthroughaProtocolof   ProvisionalApplication,andwasnotexpresslyapprovedbyCongress.Althoughsome   commentatorshavearguedthatGATTwasnotthereforelegallybinding,courtshavenotaccepted o  thatargument.ForadiscussionofGATT'slegalstatusintheUnitedStates,seeJackson,The 7 `  GeneralAgreementonTariffsandTradeinUnitedStatesDomesticLaw,66Mich.L.Rev.249  (  (1967). 7 K% j(4$j  X  5  .    ӀCongressapprovedtheUruguayRoundAgreements,whichincludearevisedGATT,aGeneral W  AgreementonTradeinServices(or"GATS"),andanAgreementonGovernmentProcurement,in H  theUruguayRoundAgreementsAct,P.L.103465,108Stat.4809,101,19U.S.C.3511. 1 K% j(4$j  X  6  .    ӀTherequirementtoreducetariffstotheamountsstatedintheschedules,whichiscontainedin w ArticleIIofGATT,hasbeencalledthe"centralobligation"oftheagreement.Jackson&Davey, ?h InternationalEconomicRelations395(2ded.1986). 0   K% j(4$j  X  7  .    ӀId.at36566.  K% j(4$j  X  8  .    ӀGATT,art.III.  K% j(4$j  X  9  .    ӀAnothernondiscriminationobligation,themostfavorednationobligation,prohibits  discriminationamonggoodsimportedfromdifferentparties.GATT,art.I.  K% j(4$j  X  10  .    Ӏ"TheConstitution,andtheLawsoftheUnitedStateswhichshallbemadeinPursuancethereof,  andallTreatiesmade,orwhichshallbemade,undertheAuthorityoftheUnitedStates,shallbethe  supremeLawoftheLand."U.S.Constitution,art.VI,2.SeeRestatement(Third)oftheForeign g RelationsLawoftheUnitedStates111(a)(1986).AlthoughtheSupremacyClauseonlymentions /X "treaties,"executiveagreementsarealsosuperiortostatelaw.Id.111,commentd;UnitedStates   v.Pink,315U.S.203,62S.Ct.552(1942);UnitedStatesv.Belmont,301U.S.324,57S.Ct.758   (1937).  K% j(4$j  X  11  .    ӀNAFTA,art.105.  K% j(4$j  X  12  .    ӀNAFTAImplementationActStatementofAdministrativeAction4,HouseDoc.103129,vol. $  1(Nov.4,1993)(hereinafter"NAFTAStatementofAdministrativeAction").TheClinton o%! AdministrationprovidedtheNAFTAStatementofAdministrativeActiontoCongressatthesame 7&`" timeitsentCongresstheimplementingbillforNAFTA,inaccordancewith1103oftheOmnibus &(# TradeandCompetitivenessActof1988,P.L.100418.TheNAFTAStatementofAdministrative '# ActiondescribessignificantadministrativeactionsproposedtoimplementNAFTAandexplains ($ howtheimplementingbillandtheproposedadministrativeactionwillchangeoraffectexistinglaw. W)%   K% j(4$j  X  13  .    ӀNAFTA,art.201(1). " K% j(4$j  X  14  .    ӀU.S.Constitution,art.I,10.  K% j(4$j  X  15  .    ӀNAFTA,art.301(1).  K% j(4$j  X  16  .    ӀNAFTA,art.301(2). v 1.   K% j(4$j  X  17  .    ӀNAFTA,art.724.Thedefinitionprovidesinpart:"sanitaryorphytosanitarymeasuremeans  ameasurethataPartyadopts,maintainsorappliesto:    (a)0 ` protectanimalorplantlifeorhealthinitsterritoryfromrisksarisingfromthe /X introduction,establishmentorspreadofapestordisease, ` (#` (#   (b)0 ` protecthumanoranimallifeorhealthinitsterritoryfromrisksarisingfromthe  presenceofanadditive,contaminant,toxinordiseasecausingorganisminafood, O x beverageorfeedstuff, @` (#` (# 0  (c)0` (#(#protecthumanlifeorhealthinitsterritoryfromrisksarisingfromadiseasecausing    organismorpestcarriedbyananimalorplant,oraproductthereof,oro  ` (#` (# 0  (d)0` (#(#preventorlimitotherdamageinitsterritoryarisingfromtheintroduction,  (  establishmentorspreadofapest." - K% j(4$j  X  18  .    ӀNAFTAStatementofAdministrativeAction90.  K% j(4$j  X  19  .    ӀNAFTA,art.712(3).  K% j(4$j  X  20  .    ӀNAFTA,art.715.  K% j(4$j  X  21  .    ӀNAFTA,art.712(6).TheUruguayRoundofnegotiationsalsoattemptedtoelaborateon  GATT'snondiscriminationprincipleinthecontextofsanitaryandphytosanitarymeasures.The  negotiatorsreachedanAgreementontheApplicationofSanitaryandPhytosanitaryMeasures,  whichCongressapprovedintheUruguayRoundAgreementsAct,andwhichenteredintoforce __ togetherwiththerevisedGATTonJanuary1,1995.TheAgreementontheApplicationofSanitary '' andPhytosanitaryMeasuresisverysimilartotheequivalentprovisionsofNAFTA,andraisesmany  ofthesameissuesforstates. + K% j(4$j  X  22  .    ӀNAFTAStatementofAdministrativeAction5. ] K% j(4$j  X  23  .    ӀId.at9.TheAdministrationmadesimilarassuranceswithrespecttotheUruguayRound  AgreementontheApplicationofSanitaryandPhytosanitaryMeasures.SeeUruguayRound  AgreementsActStatementofAdministrativeAction,1994U.S.CodeCong.&Admin.News4040, gg 411112.  K% j(4$j  X  24  .    ӀNAFTA,arts.1202,1203,1204.Again,asappliedtostatesthisrulemeansthatastatemust   giveforeignserviceproviderstreatmentnolessfavorablethanthetreatmentthestategives !! providersfromthatstate,notfromotherstates. - K% j(4$j  X  25  .    ӀSeeNAFTA,arts.1202,1206(1)(a)(i).  K% j(4$j  X  26  .    ӀNAFTA,art.1206(1)(a)(ii).Thegrandfatheringoflocalgovernments'measuresisindefinite. o%o% Art.1206(1)(a)(iii). . K% j(4$j  X  27  .    ӀNAFTAStatementofAdministrativeAction153. J K% j(4$j  X  28  .    ӀNAFTAImplementationAct102(b)(1)(B),19U.S.C.3312(b)(1)(B).  K% j(4$j  X  29  .    ӀNAFTA,art.1206(1)(c). . K% j(4$j  X  30  .    ӀNAFTAStatementofAdministrativeAction153.  K% j(4$j  X  31  .    ӀTheGeneralAgreementonTradeinServices("GATS"),whichwasnegotiatedintheUruguay .. Round,includesobligationswithrespecttotradeinservicesthatarelessfarreachingthanNAFTA, .. atleastfornow.GATSrequireseachpartynottodiscriminatebetweenserviceprovidersfromother // parties,butdoesnotrequireapartytotreatforeignserviceprovidersasfavorablyasittreats _0_0  domesticserviceproviders.Itdoes,however,providethatpartiesmaycommittoextending  "nationaltreatment"toforeignserviceprovidersthrough"Schedules,"subjecttoanyconditionsor  qualificationsitchoosestoimpose.GATS,art.XVII.GATSalsorequiresthepartiestoenterinto g roundsofnegotiations,nolaterthantheyear2000,aimedatdecreasingrestrictionsontradein /X services.GATS,art.XIX.$35;AGMU]c1I.A.1.a.(1)(a)i)a)  K% j(4$j  X  32  .    ӀNAFTA,art.1403.  K% j(4$j  X  33  .    ӀNAFTA,art.1404.  K% j(4$j  X  34  .    ӀNAFTA,arts.1405,1406. $ K% j(4$j  X  35  .    ӀNAFTA,arts.1409,1410;annexVII.  K% j(4$j  X  36  .    ӀNAFTA,art.1409(1).  K% j(4$j  X  37  .    ӀNAFTA,art.1409(1)(a)(ii);annex1409.1.Again,thegrandfatherclauseappliestolocallaws WW indefinitely. 7 K% j(4$j  X  38  .    ӀOpinionoftheTexasAttorneyGeneralNo.JM630(1987). / K% j(4$j  X  39  .    ӀTex.Rev.Civ.Stat.arts.3421001to3421011.  K% j(4$j  X  40  .    Ӏ7T.A.C.3.413.44. > K% j(4$j  X  41  .    ӀTexasBankingAct,H.B.No.1543,Ch.914,1,26(1). ! K% j(4$j  X  42  .    ӀId.1,at9.001. N K% j(4$j  X  43  .    ӀId.ThatrequirementwasalsoincludedinthenowrepealedChapterTen. v K% j(4$j  X  44  .    ӀThelistofthereservedTexasmeasuresisinannexVIItoNAFTA,atpp.VIIU102toVIIU  108.  K% j(4$j  X  45  .    ӀNAFTA,art.1210(1).  K% j(4$j  X  46  .    ӀNAFTA,art.1210(2).  K% j(4$j  X  47  .    ӀNAFTA,art.1210(3).ButifaPartycontinuestoimposesucharequirementwithrespectto !! aparticularsector,theotherParties'onlyrecourseistomaintainanequivalentrequirement.  K% j(4$j  X  48  .    ӀNAFTA,annex1210.5(A)(1).  K% j(4$j  X  49  .    ӀNAFTA,annex1210.5(A)(2).  K% j(4$j  X  50  .    ӀNAFTA,annexVI,p.VIU2.  K% j(4$j  X  51  .    ӀNAFTA,annexVI,p.VIM2.  K% j(4$j  X  52  .    Ӏ49U.S.C.10922(m).ThestatutepreventstheInterstateCommerceCommissionfromissuing ** permitsandcertificatestoMexicancarriersaslongasthePresidentchoosestoextendthe ** moratorium.Thebordercommercialzonesarelimitedtobordermunicipalitiesandsurrounding ++ areas.Dependingonthesizeofthemunicipality,thesurroundingareamayincludeareasupto20 w,w, milesfromthemunicipality.Cameron,Hidalgo,Starr,andWillacycounties,however,aredefined ?-?- asonecommercialzone.49C.F.R.1048.19,1048.101. checkthiscite  % K% j(4$j  X  53  .    ӀRev.Civ.Stat.art.911b,18b. > '1'1 D  K% j(4$j  X  54  .    ӀNAFTA,annexI,atpp.IM68,IU18.  K% j(4$j  X  55  .    ӀNAFTA,art.1003.  K% j(4$j  X  56  .    ӀNAFTA,arts.10081016.  K% j(4$j  X  57  .    ӀNAFTA,art.1024(1),(2).  K% j(4$j  X  58  .    ӀNAFTA,art.1024(3).  K% j(4$j  X  59  .    ӀAlongwiththeotheragreements,CongressapproveditintheUruguayRoundAgreementsAct   101,19U.S.C.3511. 4 K% j(4$j  X  60  .    ӀAgreementonGovernmentProcurement,arts.VIIXIX. - K% j(4$j  X  61  .    ӀAgreementonGovernmentProcurement,annex2.  K% j(4$j  X  62  .    ӀTheUnitedStatesofferedtocovertheseentitiesinthecourseoftheUruguayRound  negotiations.BythetimetheUruguayRoundconcludedonApril15,1994,onlytheEuropean  Union,IsraelandKoreahadundertakensufficientcommitmentsfortheUnitedStatestogive  reciprocalcoverageofitslistedstateandlocalgovernmentalentities.UruguayRoundAgreements ww StatementofAdministrativeAction,1994U.S.CodeCong.&Admin.News4323.  K% j(4$j  X  63  .    ӀTheUnitedStatesalsolimitedcoverageinotherways.Forexample,itexcludedpreferences  orrestrictionsassociatedwithprogramspromotingthedevelopmentofdistressedareas.Agreement  onGovernmentProcurement,NotestoAnnex2.  K% j(4$j  X  64  .    ӀIngeneral,eachPartyisrequiredtotreatotherParties'investorsandtheirinvestmentsnoless  favorablythanittreats:(a)itsowninvestorsandtheirinvestments;and(b)nonParties'investors  andtheirinvestments.NAFTA,arts.1102,1103.Thenondiscriminationprincipleissubjectto  manyexceptions,however.SeeArts.1101(2),1108.  K% j(4$j  X  65  .    ӀNAFTA,art.1106.Performancerequirementsareconditionsthatinvestorsmustmeetto  operateinacountryforexample,requirementstopurchasefromlocalsuppliersortoexporta  certainlevelorpercentageofgoods.  K% j(4$j  X  66  .    ӀNAFTArequiresthePartiestoallowalltransfersrelatingtoinvestmentsofotherParties'  investorstobemade"freelyandwithoutdelay."Article1109(1).Thetypesofprotectedtransfers   include:profits,dividends,interest,capitalgains,andotheramountsderivedfromtheinvestment; !! proceedsfromthesaleofallorpartoftheinvestment;paymentsunderacontractenteredintoby O"O" theinvestororitsinvestment;andpaymentsarisingfromaninvestmentdispute.Id.APartymay ## restrictcurrencymovementthroughnondiscriminatoryandgoodfaithapplicationofitsbankruptcy, ## securities,orcriminallaws,ortosatisfyacourtjudgment.Art.1109(4).  K% j(4$j  X  67  .    ӀNAFTAprohibitsPartiesfromexpropriatinginvestmentsofotherParties'investors,orfrom 7&7& takingmeasurestantamounttonationalizationorexpropriation,unlessthetakingisforapublic && purpose,onanondiscriminatorybasis,andinaccordancewithdueprocessoflaw.Art.1110(1). '' Inaddition,thePartymustpromptlypaycompensationequivalenttothefairmarketvalueofthe (( expropriatedinvestment.Arts.1110(1)(d),(2),(3).Thisrequirementgoesbeyondnon W)W) discrimination.APartycannot,forexample,refusetopaythefullmarketvalueofanexpropriated ** investmentonthegroundthatitisexpropriatingdomesticandforeigninvestmentsequally.  K% j(4$j  X  68  .    ӀNAFTAsetsoutdetailedprovisionsonresolutionofdisputesbetweeninvestorsandParties, w,w, inarticles1115to1138.  K% j(4$j  X  69  .    ӀNAFTA,art.1503(2).  K% j(4$j  X  70  .    ӀNAFTA,art.1102(3).  11   K% j(4$j  X  71  .    ӀNAFTA,art.1108(1)(a)(ii).Thegrandfatherclauselastsindefinitelyforlocallaws.Art.  1108(1)(a)(iii). . K% j(4$j  X  72  .    ӀNAFTAStatementofAdministrativeAction142. J K% j(4$j  X  73  .    ӀNAFTAImplementationAct102(b)(1)(B),19U.S.C.3312(b)(1)(B).  K% j(4$j  X  74  .    ӀNAFTA,art.1108(1)(c). 1 K% j(4$j  X  75  .    ӀNAFTAStatementofAdministrativeAction14243.  K% j(4$j  X  76  .    ӀNAFTA,art.2006.Undercertaincircumstances,thecomplainingPartymayseekresolution o o  ofthedisputethroughtheGATTdisputeresolutionprocedures.Art.2005.  K% j(4$j  X  77  .    ӀNAFTA,art.2001.  K% j(4$j  X  78  .    ӀNAFTA,art.2007.  K% j(4$j  X  79  .    ӀNAFTA,arts.2008,2011,2016.  K% j(4$j  X  80  .    ӀDisputeresolutionundertheUruguayRoundAgreementsissimilar.Italsoprovidesthatif ww consultationsfail,disputesbetweenpartiesmaybereferredtoapanelofindependentexperts.  K% j(4$j  X  81  .    Ӏ19U.S.C.3312(b)(1)(B).  K% j(4$j  X  82  .    ӀNAFTAStatementofAdministrativeAction1112.TheUruguayRoundAgreementsAct __ provideevenclearerassurancesthatstateswillbeabletoparticipateinthedevelopmentoftheU.S. '' positionindisputesconcerningstatemeasureswhichariseundertheUruguayRoundAgreements.  19U.S.C.3512(b)(1).SeealsoUruguayRoundAgreementsActStatementofAdministrative  Action,1994U.S.CodeCong.&Admin.News405054.  K% j(4$j  X  83  .    ӀNAFTA,art.2019. ! K% j(4$j  X  84  .    ӀPanelReportonMeasuresAffectingAlcoholicandMaltBeverages(Canadav.U.S.),GATT  DS23/R(June19,1992);PanelReportonRegulationsontheImport,DistributionandSaleofUHT gg MilkfromQuebec(Canadav.U.S.),USA93180701(June3,1993). x K% j(4$j  X  85  .    ӀInaddition,ofcourse,thefederalgovernmentcouldalwaysoverrulestatelawthrough   legislation. - K% j(4$j  X  86  .    ӀNAFTAStatementofAdministrativeAction12. N K% j(4$j  X  87  .    ӀSeeHenkin,ForeignAffairsandtheConstitution16567(1972). { K% j(4$j  X  88  .    ӀSeeSanitaryDistrictofChicagov.UnitedStates,266U.S.405,42526,45S.Ct.176,178 7&7& (1925).  K% j(4$j  X  89  .    Ӏ19U.S.C.3312(b)(2).TheUruguayRoundAgreementsActalsoincludessuchlanguage. (( 19U.S.C.3512(c). 0 K% j(4$j  X  90  .    ӀNAFTAStatementofAdministrativeAction1213.  K% j(4$j  X  91  .    Ӏ19U.S.C.3312(b)(1)(2). !"# CRicht ParRight-Aligned Paragraph NumbersI.A.1.a.(1)(a)i)a)#a) CRight ParRight-Aligned Paragraph NumbersI.A.1.a.(1)(a)i)a)a)#|B (ܣ$ j(43   dBoxer,,,,,,0!3#37=CIQYag1.a.i.(1)(a)(i)1)a)i)G2s x,2ertyBarɮ U ܣ! j(43   _XX@    @~ ~ =_NAFTA_'SEFFECTONSTATEAGENCIES  @  BANDADMINISTRATIVELAW  @EMANUELO.MENDEZ t  @TTGJOHNH.KNOX p @b b <_Bickerstaff_,Heath&Smiley,_L.L.P._Ԉ l @GAustin,Texas h @77THANNUALADVANCEDADMINISTRATIVELAWCOURSE D @DStateBarofTexas @ @hhFSeptember,1995 < @MJ@  t%#&   @EMANUELO.MENDEZ P @ <_BICKERSTAFF_,HEATH&SMILEY,_L.L.P._Ԉ  @=98San_Jacinto_ԀBlvd.,Suite1800 H @TTAAustin,Texas787014039 H @F(512)4728021  @C(512)3205638(FAX) @ @A BIOGRAPHICAL_INFROMATION_  8    EDUCATION      TheUniversityofTexas(B.A.,withhonors)(J.D.)  (  PROFESSIONALACTIVITIES p    Partner,_Bickerstaff_,Heath&Smiley,_L.L.P._,Austin,Texas    BoardCertifiedAdministrativeLaw h 0  Member,StateBarInternationalLawSection,ProgramChair,TravisCountyBarInternationalLawSectionh(#(# 0  Member,FormerViceChair,StateTaxCommitteeoftheStateBarTaxationSection(#(# 0  FormerMember,BoardofDirectors,TravisCountyDisputeResolutionCenter`(#(# 0  0` (#(#  FormerMember,SteeringCounciloftheNationalConferenceofMinorityPartnersinMajority/Corporate ` LawFirms` (#` (#  LAWRELATEDPUBLICATIONS,ACADEMICAPPOINTMENTSANDHONORS  P"  0  0` (#(#  Speaker,"DoingBusinessinMexico:_Pharr_ԄReynosaInternationalBridgeCaseStudy",TravisCountyBar, $ InternationalLawSection,March1995H%` (#` (# 0  0` (#(#  AuthorandSpeaker,"APracticalGuidetotheExaminationProcess,"TexasSalesandUseTax,National H& BusinessInstitute,Inc.1989,1991,1993,1994'` (#` (# 0  0` (#(#  Speaker,"_NAFTA_ԀandTexas:PresentationtoStateMeetingof_COGs_",TexasAssociationofRegional @( Councils'29thAnnualConference,Sept.1994@)` (#` (# 0  0` (#(#  Speaker,"_NADBANK_ԀandtheBorderEnvironmentalCooperationCommission",_Cuatro_Ԁ_Caminos_ * Conference,May19948+` (#` (# 0  0` (#(#  AuthorandSpeaker,"NorthAmericanFreeTradeAgreement,OverviewoftheFastTrackProcedures", 8, _Bickerstaff_,Heath&Smiley,_L.L.P._'sSixthAnnualLocalGovernmentSeminar,April1993 -` (#` (# 0  0` (#(#  Speaker,"HearingTacticsandTechniques:DiscoveryPrivileges",TexasComptrollerofPublicAccounts,  0. April1990 0!/` (#` (# _FH 9@llE TableofContents   :     8 `  I.INTERNATIONALTRADEAGREEMENTS #|"|"(#.=` ` #1  8 `  II.NAFTA'SEFFECTONSTATELAW #|"|"(#.;` ` #3 H 8 ` 0 ` `  ` A.TradeinGoods#|"|"(#.xx6 #4  8 ` 0 ` `  ` B.GovernmentProcurement#|"|"(#.,,> #6 o 8 ` 0 ` `  ` C.Investment#|"|"(#.D D 2 #7  @ 8 ` 0 ` `  ` D.TradeinServices#|"|"(#.9 #9    8 ` 0 ` ` 0  1.  FinancialServices.#|"|"(#.I  #9 g   8 ` 0 ` ` 0  2.  Licenses.#T"T"(#.?  #11  8  8 ` 0 ` ` 0  3.  Transportation.#T"T"(#.  E  #11    8 `  III.RESOLUTIONOFCHALLENGESTOSTATEMEASURES #T"T"(#.K` ` #12  0  8 ` 0 ` `  ` A.Nafta'sDisputeResolutionProcedures#T"T"(#.M #12   8 ` 0 ` `  ` B.DomesticProceedings#T"T"(#.@@< #13 W  8 `  IV.PRACTICESUGGESTIONS #T"T"(#.4` ` #14      Ox   E    (,(#(#(  @'[=   NAFTA'sEffectonStateAgencies  andAdministrativeLaw=      ` AcommonshorthanddescriptionoftheNorth w AmericanFreeTradeAgreementisthatitwilllowerand H eventuallyeliminatetariffsontradebetweentheUnited  States,Mexico,andCanada.Thatdescriptionisaccu o rateasfarasitgoes,butitisincompleteinseveral  @ respects.Ifthedescriptionwerecompletelyaccurate,   NAFTAwouldnothavemuch,ifany,effectonTexas g   law,sinceTexascannotsettariffsontradeacrossthe  8  RioGrande. J I  1           ` ButNAFTAisnotlimitedtotariffreduction.  0  NAFTAalsoconcernsotherkindsofbarrierstotradein   goods,whichstatesaswellasfederalgovernments W  impose.Moreover,NAFTAisnotlimitedtotradein (  goods.Italsoconcernstradeinservices,government   procurement,andinvestmentareasoftensubjectto Ox  stateregulation.    ` ThewaysinwhichNAFTAaffectsstatelawin Gp theseareasareoftendifficulttounderstand,particularly  forlawyerswhosepracticehasnotincludedinternational  law.NAFTA'seffectsareoftenindirect,ornotimmedi ?h ate.Nevertheless,NAFTAwillcausechangesinTexas  law,andtobepreparedforthosechanges,lawyersmust  haveabasicunderstandingofhowNAFTAworks. 7`  ` Thispaperfirstexplainshowtradeagreements  likeNAFTAhavebeguntoaddressnewareasinways /X thataffectstateandlocalgovernments.Thepaperthen  describesfourareasinwhichNAFTAhasthepotential   tochangestatelaws:discriminationagainstforeign 'P! goods;tradeinservices;governmentprocurement;and " foreigninvestment.Thepaperoutlinesthewaysin w# whichchallengestostatemeasureswouldberesolved. H$ Finally,thepaperconcludeswithsomesuggestionsfor % waysinwhichtheadministrativelawyerinTexasshould o& dealwiththechangesNAFTAmaybring. @' B   2   I  .3  Ԁ  INTERNATIONALTRADEAGREEMENTSB+$  G$Ԁ    8*  ` Mostlawyerswhodonotpracticeintheareaof _!, internationaltradehaveneverhadtolearnaboutinterna "0- tionaltradeagreements.Inparticular,internationaltrade ". agreementshavebeenirrelevanttolawyerswhose W#/ practiceprimarilyinvolvesstatelawandstateagencies. #( 0 Internationaltradeagreementsarechangingrapidly, $ 1 however,andadministrativelawyerscannolonger O%x!2 affordtobeignorantofhowtheywork. % "3  ` Untilrelativelyrecently,internationaltrade G'p#5 agreementsconcernedonlybarrierstotradeingoods.In '$6 particular,theyaddressedtariffstaxeschargedon ($7 goodsastheycrossaborder.Tariffsarethemost ?)h%8 obviouskindofbarriertointernationaltrade.They )&9 discriminateagainstforeigngoodsverysimply,by *&: makingthemmoreexpensivethandomesticgoods. 7+`';  ` TariffratesintheUnitedStateshitahighwater ,(= markaftertheSmootHawleytariffwasimposedinthe /-X)> early1930s,whentheyaveragedoverfiftypercent. L I  2      ׀ -*? Sincethen,theUnitedStateshaspursuedafairlyconsis .*@ tentpolicyofreciprocalreductionoftariffs:Wehave '/P+A agreedtolowerourratesinreturnforothercountries' /+B loweringtheirs. w0,C Ї 2 Atfirst,theUnitedStatespursuedthispolicy C throughbilateralreciprocaltradeagreements,inwhich D theUnitedStatesandanothercountryeachagreedto 'PE reduceitstariffsinspecificamounts.TheUnitedStates F enteredintooverthirtysuchagreementsinthe1930sand wG 1940s. M I  3      ׀ HH  2 Thecountrybycountryapproachhaddraw oJ backs,however,andshortlyafterWorldWarIIthe  @K UnitedStatesdecidedthatamultilateralagreementto  L lowertariffswouldbemoreeffective.Itlednegotiations g M in1947thatresultedintheGeneralAgreementon  8N TariffsandTrade,orGATT,whichenteredintoforceon  O January1,1948. N I  4       _ P  2 GATThasremainedthecenterpieceofinterna  R tionaltradelaweversince.Ithasbeenstrengthened W S severaltimes,mostrecentlyinthe"UruguayRound"in ( T thelate1980sandearly1990s.Therevisedagreements  U thatresultedfromthatroundofnegotiationsweresigned Ox V inApril1994andapprovedbyCongressinDecember  W 1994. O I  5        X  2 Likethebilateralagreementsbeforeit,GATT Z wasprimarilyconcernedatfirstwithreducingtariffson [ internationaltradeingoods.Itincludedhundredsof ?h\ pagesoftariffschedulesthatrequiredcountriesto ] maintaintheirtariffsonspecificgoodsatorbelow ^ specificrates. P I  6      ׀ 7`_  2 AstheresultofGATT,andtheperiodicrenego a tiationsoftariffschedulesthathavetakenplaceunderits /Xb auspices,internationaltariffshavesteadilyfallensince c the1940s.Althoughsomeareasnotablyagriculture d havelaggedbehind,onthewholeGATThasbeen 'Pe remarkablysuccessfulinfulfillingitsgoalofreducing f andeliminatingtariffs. wg  2 Asthebenefitsoffreetradehavebecomemore i andmoreapparent,countrieshavebecomeinterestedin oj broadeninginternationaltradeagreementstoaddress @k newareas,suchastradeinservices,governmentpro l curement,andforeigninvestment.NAFTA,inparticu gm lar,containsdetailedprovisionsoneachoftheseareas.  8n  2 Atthesametime,governmentshaveattempted "0q toaddressbarrierstotradeingoodsthatarelessobvious "r thantariffs.Thesenontariffbarriers,orNTBs,number W#s inthehundreds,ifnotthousands. Q I  7      ׀Somenontariff #( t barriersarefairlystraightforward.Subsidiestodomestic $ u producers,forexample,lowerthedomesticgoods'price O%x!v insteadofraisingthepriceofforeigngoods,astariffsdo. % "w Buttheeffectisoftenthesame. &"x  2 Othernontariffbarriersaremuchmoredifficult '$z toidentify.Forexample,lawsthatpurporttoprotect (${ health,safety,ortheenvironment,orthatsimplyset ?)h%| productstandards,mayhaveadiscriminatoryeffecton )&} foreignimports.AU.S.lawprohibitingcertainadditives *&~ infoodmayhavealegitimatepurposetoprotect 7+`' humanhealth.Butifanothercountrywishestoexport +( foodcontainingtheadditivestotheUnitedStates,the ,( U.S.lawwillhavetheeffectofdiscriminatingagainstits /-X) exports.Ifthecountrybelievesthattheadditivesarenot -* harmful,itmayarguethatthelawisanontariffbarrier .*  designedtodiscriminateagainstitsproducts. '/P+     ` Nontariffbarriershaveproliferatedsince  WorldWarII,inpartbecauseGATT'ssuccessatreduc 'P ingtariffshascausedcountriestolookforlessobvious  waysofdiscriminatingagainstforeigngoods. w  ` GATTaddressedmostnontariffbarriersonly H throughthesocalled"nationaltreatmentobligation." R I  8      ׀  Inprinciple,thisobligationrequirespartiesnotto o discriminatebetweenimportedgoodsandgoodsthatare  @ domesticallyproduced. S I  9      ׀Whilethisobligationiseasyto    state,itisoftendifficultinpracticetobalanceitagainst g   countries'legitimateinterestsinsettingstandardsthat  8  mayhaveadiscriminatorysideeffectagainstforeign    goods. _    ` Asaresult,recenttradenegotiations,including   thosethatresultedintheNAFTA,haveelaboratedonthe W  nondiscriminationprinciple,inordertodistinguish (  betweenacceptableandunacceptable"discrimination."    ` Aslongasinternationaltradeagreements   focusedontariffs,stateshadlittleinterestinthem,since   tariffsareafederalresponsibility.Butstatesoftenenact Gp lawsorissueregulationsthatcouldberegardedasnon  tariffbarriers.Statessetproductstandards,forexample;  theyenactlawsandregulationsforhealthandsafety ?h reasonsthatmayhavetheeffectofrestrictingforeign  goods;andtheymaysubsidizedomesticproducers.   ` Similarly,stateshaveactivelyregulatedthenew  areasinternationaltradeagreementsarebeginningto  explore:tradeinservices,governmentprocurement,and /X foreigninvestment.Foreignserviceproviders,for   example,donotpaytariffsontheirservicestothe ! federalgovernment,asimportersofgoodsdo;theyare 'P" regulated,interalia,throughdomesticlicensinglaws, # whichareoftenimposedbystateagencies. w$  ` NAFTAaddressesallofthesenewareas,and & thereforehasthepotentialtoaffectstatelawsinmany o' ways.NAFTAdoesnotmakechangesintheseareas @( immediately.Thechangesareoftengradual,orde ) ferred,asthenextsectiondescribes.Butthemost g* importantchangehasalreadytakenplace:international  8+ tradeagreementsarenolongerlimitedtotariffs,anarea  , fromwhichstatesarebarred.Theywillincreasingly _!- intrudeonareasstateshaveregulated,requiringchanges "0. instatelawandpractice. "/  ` BecauseofNAFTA'simportancetoTexas,this #( 1 paperfocusesonitspotentialeffectsonTexaslaw.The $ 2 readershouldbearinmind,however,thatin1994the O%x!3 UnitedStatesapprovedarevisedGATT,aswellasa % "4 GeneralAgreementonTradeinServices,multilateral &"5 agreementsthatincludethegreatmajorityofthesignifi G'p#6 canttradingcountriesintheworld.GATT,GATS,and '$7 theotheragreementsthatwerenegotiatedaspartofthe ($8 UruguayRoundraisemanyissuesforstategovernments ?)h%9 similaroridenticaltothoseraisedbyNAFTA.Where )&: appropriate,therefore,thispaperbrieflydescribesthe *&; relevantprovisionsofthoseagreementsaswell. 7+`'< B   2   II  .3  Ԁ  NAFTA'SEFFECTONSTATELAWBNrno t,NԀ   /-X)?  ` Asaninternationalagreement,NAFTAis .*A superiortostatelawundertheSupremacyClauseofthe '/P+B U.S.Constitution. T I  10      ׀CongressapprovedNAFTAand /+C enactedimplementinglegislationintheNAFTAImple w0,D mentationAct,P.L.103182,107Stat.2057,whichis D alsosuperiortostatelaw. E  2 NAFTArequiresthePartiesto"ensurethatall G necessarymeasuresaretakeninordertogiveeffectto wH theprovisionsofthisAgreement,includingtheirobser HI vance,exceptasotherwiseprovidedinthisAgreement, J bystateandprovincialgovernments." U I  11      ׀Onemight oK arguethatthisprovisiononlyrequiresthefederal  @L governmenttopassnecessarylegislationtoapply  M NAFTAtothestates.TheAdministration,however,has g N statedthattheprovision"makesclearthatstategovern  8O mentsmust,asageneralrule,conformtothesame  P obligationsasthoseapplicabletothethreecountries' _ Q federalgovernments,subjecttothesameexceptions." V I  12      ׀  0 R Asapracticalmatter,thefederalgovernmentandthe  S otherNAFTAPartieswillexpectstatestocomplywith W T NAFTAunlesstheagreementspecificallyexceptsthem ( U fromitscoverage.  V  2 Thefollowingsectionsdescribewaysinwhich  X NAFTAmayaffectstatelawsandregulationsinthe  Y followingareas:tradeingoods;governmentprocure GpZ ment;foreigninvestment;andtradeinservices.Before [ describingtheseareas,itisimportanttoemphasizethat \ NAFTA'scoverageisnotlimitedtolaws,eitheratthe ?h] stateornationallevel.NAFTAgenerallyappliesto ^ "measures,"whichinclude"anylaw,regulation,proce _ dure,requirementorpractice." W I  13      ׀Therefore,thefollow 7`` ingdiscussionappliesnotjusttostatelaws,butalsoto a stateregulationsandactionsbystateagencies. b  2 >   2   A  .3  Ԁ  TradeinGoods>5Z   TZԀ   e  2 NAFTAwilleliminatetariffsonallgoods g tradedbetweentheParties,includingtextiles,agricul wh turalgoods,andenergyandpetrochemicalgoods.It Hi eliminatesmanytariffsimmediately.Itremovesothers j gradually,overfive,ten,or,inafewcases,fifteenyears. ok NAFTAalsorestrictstheParties'abilitytoimpose @l quotasonimportsandexports. m  2 Althoughtheserequirementsapplyatthestate  8o level,theydonotimposesignificantnewrestrictionson  p states,whicharebarredbytheU.S.Constitutionfrom _!q assessingdutiesoninternationalcommerce. X I  14       "0r  2 Moreimportantly,fromthestates'pointof W#t view,NAFTAelaboratesontheprincipleofnational #( u treatmentfornontariffbarriers.Asnotedabove, $ v "nationaltreatment"meansthateachPartymaynottreat O%x!w goodsfromotherPartieslessfavorablythanittreats % "x "like"domesticgoods. Y I  15       &"y  2 Thisobligationappliesatthestateaswellasthe '${ nationallevel.NAFTArequiresastatetogivegoods ($| fromtheotherPartiestreatmentnolessfavorablethan ?)h%} themostfavorabletreatmentitgivestoanylikedomes )&~ ticgood,includinggoodsproducedinthatstate. Z I  16      ׀In *& otherwords,ifTexastreatsgoodsfromanotherstate 7+`' worsethanittreatsTexasgoods,itmaynottreatMexi +( cangoodsmerelyaswellasittreatsthegoodsfrom ,( anotherstate.ItmustgivethesametreatmenttoCana /-X) dianandMexicangoodsasitgivestoitsowngoods. -*  2 Somemeasures,suchastaxesthatonlyapplyto '/P+ foreigngoods,wouldobviouslyviolatethenational /+ treatmentprinciple.Lessobviously,manylawsand w0, regulationsthatpurporttoaddresshealth,safety,or  environmentalneedsmayalsodiscriminateagainst  foreigngoods. 'P  ` Previousinternationaltradeagreementshad w givenlittleguidancetocountriesonhowtodistinguish H legitimatefromillegitimatelawsinthisarea.NAFTA  providesmoreguidance,althoughitstillleavesmany o questionsunresolved.Inparticular,itcarvesoutasubset  @ of"sanitaryorphytosanitarymeasures,"whichitdefines    asmeasuresadoptedorappliedtoprotecthuman, g   animal,orplantlifeorhealthfromrisksarisingfrom  8  pestsordiseases,oradditivesorcontaminantsinfood. [ I  17      ׀    Whetherameasuremeetsthisdefinitionisdetermined _   byitsintent;ifitisnotintendedtoprotectagainstoneof  0  therisksenumeratedinthedefinition,itisnotasanitary   orphytosanitarymeasure. \ I  18       W   ` NAFTAprovidesdetailed,complexrequire   mentsforsanitaryandphytosanitarymeasures,which Ox  applytostateaswellasnationalgovernments.In   general,NAFTAprovidesthatsuchmeasuresare   acceptableiftheyarebasedonscientificprinciplesand Gp appropriateriskassessments,anddonot"arbitrarilyor  unjustifiably"discriminateagainstgoodsofanother  Party. ] I  19      ׀Theriskassessmentsmusttakeintoaccount ?h specificfactors,including"relevantscientificevidence,"  "relevantriskassessmenttechniquesandmethodologies  developedbyinternationalorNorthAmericanstandard 7` izingorganizations,""relevantecologicalandother  environmentalconditions,"and"therelativecosteffec  tivenessofalternativeapproachestolimitingrisks." ^ I  20      ׀In /X addition,suchmeasuresmustnotbeadoptedwithaview   to,orwiththeeffectof,creatinga"disguisedrestriction ! ontradebetweentheParties." _ I  21      ׀ 'P"  ` Itisunclearhowtheserequirements,manyof w$ whichrelyonvagueterms,willbeinterpretedinprac H% tice.Forexample,NAFTAappearstocontemplatethat & a"sanitaryorphytosanitarymeasure"basedonrisk o' assessmentandscientificprinciplescouldnevertheless @( bea"disguisedrestrictionontrade"andtherefore ) invalid.NAFTAgivesnoguidanceonhowonewould g* determinewhethersucha"disguisedrestrictionontrade"  8+ exists.  ,  ` Morepragmatically,itseemsdoubtfulthatmost "0. stateagenciesinvolvedinissuingorimplementing "/ sanitaryorphytosanitarymeasuresundertakea"risk W#0 assessment"thatincludesallofthefactorsNAFTA #( 1 requires. $ 2  ` Inaddition,determiningwhethertheserequire % "4 mentshavebeenmetinaparticularcasewilldependon &"5 adeterminationoftheintentoftherelevantgovernment G'p#6 body.Texas,likemanystates,doesnotalwayskeep '$7 detailedrecordsofitslegislativehistory,andkeepseven ($8 fewerrecordsofthehistoryandintentbehindregulations ?)h%9 andotheragencyactions.Determiningtheintentbehind )&: aparticularmeasuremaythereforenotalwaysbe *&; possible. 7+`'<  ` DuringtheNAFTAratificationprocess,states ,(> raisedadditional,moregeneralconcernsaboutthe /-X)? provisionsonsanitaryandphytosanitarymeasures.In -*@ particular,stateswereconcernedthattheNAFTAwould .*A preventstatesfromhavinghigherhealthandsafety '/P+B  standardsthanthosecontainedinfederallaw,andthat /+C NAFTAdisputeresolutionpanelscouldholdstatelaws C tobeinvalid. D   2 TheClintonAdministrationrespondedtothe F firstconcernbymakingclearthatnoprovisionof wG NAFTA"imposesanyobligationonstates,provincesor HH municipalitiestoadoptorconformwithfederalgovern I mentstandardsortorefrainfromsettinghigherlevelsof oJ protectionforhuman,animalorplanthealthorthe  @K environmentthanthoseimposedunderfederallaworto  L refrainfrommodifyingtheirhealthorlaborstandards." ` I  22       g M  2 Withrespecttothesecondconcern,theAdmin  O istrationstatedthat"NAFTAdoesnotautomatically _ P `preempt'orinvalidatestatelawsthatdonotconformto  0 Q NAFTA'srulesevenifaNAFTAdisputesettlement  R panelweretofindastatemeasureinconsistentwiththe W S NAFTA." a I  23       ( T  2 However,asthispaperdescribesbelow,in Ox V SectionIII,ifthefederalgovernmentdecidedthatastate  W measurewereinconsistentwithNAFTA,itcouldtake  X stepstoforcethestatetocomply.Therefore,aNAFTA GpY paneldecisioncouldleadtoachangeinstatelaw,even Z thoughitwouldnot"automatically"doso. [ TradeinServices ]  2 NAFTA'sbasicrulewithrespecttotradein 7`_ servicesisthatnoNAFTAcountrymaydiscriminate ` againstserviceprovidersfromotherNAFTAcountries. b I  24      ׀ a  2 Therequirementnottodiscriminateagainst d serviceprovidersfromotherPartieshasanumberof 'Pe exceptionsatthefederallevel. c I  25       f  2 Morerelevantlyforthepurposesofthispaper, Hh theruleappliestostateandlocalgovernments,withthe i exceptionofexistingstateandlocallaws.Thisgrandfa oj therclauselastsonlyuntilJanuary1,1996forstates. @k Afterthat,statelawswillbesubjecttoNAFTAunless l theUnitedStateshasformallylistedthemas"reserva gm tions"inAnnexItoNAFTA. d I  26        8n  2 ThistwoyearwindowfromthedateNAFTA _!p enteredintoforcewasdesignedtoallowthePartiesto "0q identifynonconformingstatemeasuresanddecide "r whethertocontinuetograndfatherthem. e I  27      ׀TheNAFTA W#s ImplementationActrequiredtheU.S.TradeRepresenta #( t tive(USTR)toestablishaconsultationprocesswith $ u individualstatestoassistthemtoidentifylawsthatmay O%x!v begrandfathered. f I  28      ׀Aspartofthatprocess,USTR % "w requestedstatestoidentifylawsthatmaynotbein &"x conformitywithNAFTA.TheGovernor'sOffice,in G'p#y turn,requestedstateagenciestoidentifysuchlaws '$z withintheirpurviewtotheAttorneyGeneral'sOffice, (${ whichwillreviewthembeforesubmittingalistto ?)h%| USTR.Thatprocessiscontinuing,andTexashasnot )&} yetreleasedalistofthelawsthatitissubmittingto *&~ USTR. 7+`'  2 Thegrandfatherclauseisaratchet;itallows ,( grandfatheredlawstoberenewedandamended,butonly /-X) "totheextentthattheamendmentdoesnotdecreasethe -* conformityofthemeasure"withtheprohibitionagainst .* discrimination. g I  29      ׀Andifastatemakesameasuremore '/P+ consistentwithNAFTA,itcannotreverseitsaction /+ later. h I  30       w0, Ї ` Thenextsectionsdescribespecificareas  involvingtradeinservices:financialservices,profes  sionalservices,andtransportation. i I  31      ׀ 'P   2   1  .3   ` FinancialServices. sЋ H  ` NAFTAincludesspecificrulesforfinancial o services,which,interalia:  @  ` 0 allowaninvestorfromaNAFTA g   countrytoestablishafinancialinstitu  8  tionwithintheterritoryoftheother    NAFTAcountries; k I  32      _      ` 0 prohibitthePartiesfromrestricting   crossbordertradeinfinancialser W  vices; l I  33      ׀and(     ` 0 requirethePartiesnottodiscriminate Ox  againstfinancialinstitutionsfrom   otherNAFTAcountries. m I  34           ` Again,NAFTAincludesexceptionstoeachof  theserequirementsatthenationallevel. n I  35         ` Aswithrespecttootherservices,NAFTA  includesagrandfatherclauseforstatemeasuresaffecting  financialservices. o I  36      ׀Butthegraceperiodfordeciding 7` whethertoformally"reserve"suchmeasuresismuch  shorter:thelawsofsomestates,includingTexas,hadto  havebeenlistedbyJanuary1,1994,thedateof /X АNAFTA'sentryintoforce;andallotherstatelawshadto   havebeenlistedbyJanuary1,1995. p I  37      ׀ !  ` Thewayinwhichfinancialservicesmeasures # havebeengrandfathered,therefore,providesamodelfor w$ themanyothermeasuresthatwillbe"reserved"atthe H% endofthisyear. &  ` TheUnitedStatesreservedsevenfinancial @( servicesmeasuresidentifiedbyTexas.Forexample,it ) listedArticleXVI,16(a)oftheConstitution,which g* forbidsforeigncorporationsfromexercisingbanking  8+ privileges.Thisreservationislesssweepingthanitfirst  , appears,sincetheAttorneyGeneralhasissuedan _!- opinionthatArticleXVI,16(a)doesnotprevent "0. foreignownershipofbanksubsidiaries. q I  38      ׀Butthe "/ reservationprotectsTexasintheeventacourtoverturns W#0 thisinterpretation. #( 1  ` TheUnitedStatesalsoreservedChapterTenof O%x!3 theTexasBankingCode r I  39      ׀andtheaccompanying % "4 regulations. s I  40      ׀ChapterTenregulatedforeignbanksin &"5 Texas,andinparticularprohibitedforeignbanksfrom G'p#6 maintainingmorethanoneofficeinTexasandfrom '$7 locatinganyofficeinacountyoflessthan1.5million ($8 residents. ?)h%9  ` In1995,theLegislaturerepealedChapterTen *&; andreplaceditwithChapterNineoftheTexasBanking 7+`'< Act. t I  41      ׀ThenewChapterNineliberalizessomeofthe +(= provisionsoftheoldChapterTen.Forexample,it ,(> allowsaforeignbanktoestablishanagencyinametro /-X)? politanareawithmorethan500,000people,ratherthan -*@ acountywithmorethan1.5million. u I  42      ׀Butitstilltreats .*A foreignbanksworseinsomerespectsthandomestic '/P+B  banks.Forexample,onlyforeignbankswithequity /+C capitalinexcessof$100millionareallowedtoestablish C anagencyhere. v I  43      ׀ D   2 TheLegislature'sactionraisestwointeresting F issuesregardingtheeffectofreservingastatemeasure wG underNAFTA.First,onemightarguethattherepealof HH thereservedmeasure,andtheenactmentofanentirely I newmeasure,isneitherthe"continuation"orthe oJ А"promptrenewal"ofthereservedmeasure.Sinceonly  @K thecontinuationorpromptrenewalofthemeasureis  L exemptedfromtheapplicationofNAFTA,thenewlaw g M isarguablynotcoveredbytheUnitedStates'reservation.  8N Presumably,theresponsewouldbethatenactmentof  O thistypeofreplacementisinfacta"renewal"and _ P thereforecoveredandprobablythatreadingisin  0 Q accordwiththespiritofthegrandfatherclause.Butitis  R somewhattroublingthatthiscommonpracticeofthe W S Legislaturemightleadtounanticipatedchallengesunder ( T NAFTA.  U  2 Second,theratcheteffectunderNAFTAmeans  W thatregulationspromulgatedunderthenewlegislation  X maynotdiscriminateagainstMexicanbanksbeyond GpY replacementoftheoldlawhighagencyhasauthorityto Z promulgateregs,buthastobecarefulnottobemore [ restrictivethanpreviousstatute.ratcheteffect ?h\ Tex.ProbateCode105A,whichprohibitsforeign ^ banksfrombeingappointedasfiduciaries;and 7`_ Tex.Rev.Civ.Stat.arts.350and489d,whichrequire a licensesforforeignbanks,butnotU.S.banks,before /Xb theymayengageincurrencyexchangeortransmission c services,orsellchecks. w I  44       d  2 Thegrandfatheredmeasuresaretheonlyones f exemptedfromNAFTA'srequirements.Ifotherlaws wg andregulationsdiscriminateagainstforeignfinancial Hh institutions,theywillbesubjecttocomplaintsby i MexicoorCanadathatTexasisnotcomplyingwith oj NAFTA. @k    2   2  .3   2 Licenses. s  8n  2 NAFTAincludesdetailedprovisionsonlicens _!p ingandcertification,whichapplyatthestateandlocal "0q levelsaswellasthenationallevel.NAFTArequiresthe "r Partiestoendeavortoensurethatlicensingandcertifica W#s tionarebasedonobjectivecriteriaanddonotconstitute #( t adisguisedrestrictiononcrossborderprovisionof $ u services. x I  45      ׀NoPartyisrequired,however,torecognize O%x!v licensesorcertificationsobtainedintheterritoryof % "w anotherParty. y I  46       &"x  2 NAFTAincludesadditional,moredetailed '$z requirementsforprofessionalserviceproviders,includ (${ ingattorneysandengineers,includingrequirementsthat: ?)h%| 0 2 02%2%thePartieseliminate,byJanuary1, *&~ 1996,citizenshiporpermanentresi 7+`' dencyrequirementsforlicensingor +( certificationofprofessionalservice ,( providersoftheotherParties; z I  47      /-X)%% 0 2 02%2%eachParty'sauthoritiesactwithina .* reasonabletimeonapplicationsfor '/P+ licensesbyotherParties'nationals; { I  48      /+%%  w0, 0 ` 0 ` ` thePartiesencouragetherelevant  bodiestodevelopmutuallyacceptable  standardsforlicensingandcertifica 'P tionforprofessionalserviceproviders  andtoproviderecommendationson w mutualrecognition; | I  49      H    ` LawyersauthorizedtopracticeinCanadaor o Mexicoarepermittedtopracticeasaforeignlegal  @ consultanti.e.,practiceoradviseonthelawofthe    countryinwhichtheyareauthorizedtopracticeasa g   lawyerinspecifiedstates,includingTexas. } I  50      ׀Mexico,  8  inreturn,allowslawyersfromsuchstatestoprovide    foreignlegalservicesinMexico. ~ I  51       _     2   3  .3   ` Transportation. sL W   ` Currently,federallawpreventsMexican   truckingcompaniesfromdoingbusinessintheUnited Ox  Statesbeyondbordercommercialzones.  I  52      ׀Texaslaw   tracksthefederallawinpart,byprohibitingMexican   truckingcompaniesfromdoingbusinessbeyondthe Gp bordercommercialzones.TexasalsopreventsMexican  truckingcompaniesfromtransportingpropertyfrom  TexastoMexicoandbetweenpointswithincommercial ?h zonesuntilMexicanlawallowsU.S.truckingcompanies  totransportgoodsfromMexicototheUnitedStates.  I  53      ׀  MexicodoesnotnowallowU.S.commercialcarriersto 7` doso.   ` NAFTAwillphaseouttheU.S.andMexican /X restrictions.InDecember1995,U.S.andMexican   truckingcompanieswillbeabletocarrygoodsacross ! thebordertoandfromtheborderstates.InJanuary 'P" 2000,theywillbeabletocarrygoodstoandfromany # pointineachother'scountries.  I  54      ׀ w$  ` NAFTAwillnot,however,allowU.S.and & Mexicantruckingcompaniestocarrygoodsbetween o' pointsintheothercountry. @( >   2   B  .3  Ԁ  GovernmentProcurement>ueith isԀ    8+  ` Chapter10ofNAFTAconcernsgovernment _!- procurement.Ingeneral,Chapter10requireseachParty "0. nottodiscriminateagainstproducersofgoodsand "/ servicesfromtheotherPartiesinmakinggovernment W#0 purchases.  I  55      ׀Toensuretransparencyandfairness,it #( 1 providesdetailedrequirementsforprocurementproce $ 2 dures,includingtheprocedurestobefollowedwith O%x!3 respecttoqualificationofsuppliers,timelimitsfor % "4 tenderinganddelivery,tenderdocumentation,and &"5 awardingcontracts.  I  56      ׀ G'p#6  ` Withspecifiedexceptions,Chapter10applies ($8 tothenationalgovernmentsandtocertainentitiesowned ?)h%9 bythenationalgovernments;itdoesnotnowapplyat )&: thestatelevel.ThePartiesagreed,however,tobegin *&; negotiationsnolaterthan1998withaviewtoextending 7+`'< Chapter10tothestategovernments.  I  57      ׀Eachnational +(= governmentisalsoobligatedtoconsultwithitsstate ,(> governmentsbeforethen,totrytoobtainvoluntaryand /-X)? reciprocalcommitmentstoopentheirprocurement -*@ marketstotheotherNAFTAcountries.  I  58       .*A  ` OneoftheUruguayRoundAgreements,the /+C AgreementonGovernmentProcurement,alsorequires w0,D nondiscriminationinprocurementbygovernmental D entities.  I  59      ׀TheAgreementonGovernmentProcurement E alsoincludesdetailedproceduralrequirementssimilarto 'PF thoseinNAFTA.  I  60       G  2 Theagreement,whichwillenterintoforceon HI January1,1996,allowsthepartiestotheagreementto J designatewhichstateandlocalgovernmentalentities oK willbecovered,justasNAFTAdoes.Butunlike  @L NAFTA,theGovernmentProcurementAgreement  M alreadyincludesacommitmentbytheUnitedStatesthat g N certainstateentitieswillbecovered.  I  61        8O  2 OneofthoseentitiesistheTexasGeneral _ Q ServicesCommission.Therefore,asofJanuary1,the  0 R GeneralServicesCommissionwillbesubjecttothese  S requirementswithrespecttoentitiesfromcountriesthat W T havemadereciprocalcommitments.  I  62      ׀Thereisan ( U importantlimitationonthiscoverage,however:it  V appliestolistedstateandlocalentitiesonlyforpur Ox W chasesofapproximately$500,000andmore,exceptfor  X constructionservices,whichhaveathresholdofapproxi  Y mately$7million.  I  63       GpZ >   2   C  .3  Ԁ  Investment>eith isԀ   ?h]  2 Tradeagreementsdonotnormallyinclude _ provisionsoninvestment.Instead,theUnitedStates 7`` seeksbilateralinvestmenttreaties(BITs)withother a countriestoprotectU.S.investors.NAFTA'sinvestment b provisionsare,ineffect,theequivalentofaBITbetween /Xc thethreeParties. d  2 NAFTArequireseachPartytoaccordinvestors 'Pf fromotherPartiesfiveprotections: g  2 0  nondiscriminatorytreatment;  I  64      Hi%% 0 2 02%2%eliminationofperformancerequire ok ments;  I  65      @l%% 0 2 02%2%freetransferoffunds;  I  66      gn%% 0 2 02%2%protectionagainstuncompensated  p expropriation;  I  67      ׀and_!q%% 0 2 02%2%amechanismtoresolvedisputes.  I  68      "s%% Alloftheseprotectionsareeffectiveagainstthefederal #( u governments,includingentitiesthatexerciseauthority $ v ontheirbehalf(suchasPEMEX,Mexico'sstateoil O%x!w company).  I  69      ׀ % "x  2 Stateandlocalgovernments'obligationsvary, G'p#z however,incertainrespects.Someoftheprovisions '${ applyimmediatelytostategovernments.Forexample, ($| stategovernmentsmaynotinterferewithaforeign ?)h%} investor'stransferoffundsoutofthecountryorexpro )&~ priateaforeigninvestment. *&  2 Theprohibitionsagainstperformancerequire +( mentsanddiscriminationapplytostateandlocalgov ,( ernments,buttheydonotapplytoanyexistingstateor /-X) localmeasure.Whenthenondiscriminationobligation -* doesapply,however,astategovernmentmustprovide .* investorsfromotherNAFTAcountriestreatmentnoless '/P+ favorablethanthemostfavorabletreatmentitgives /+ domesticinvestors.  I  70      ׀Forexample,ifaTexaslawfavors w0, Texasinvestorsoverthoseofotherstates,thelawmust  treatinvestorsfromMexiconolessfavorablythanTexas  investors. 'P  ` Thisgrandfatherclauselaststwoyearsfrom w NAFTA'sentryintoforce,untilJanuary1,1996for H states;afterthat,itwillonlycoverstatemeasureswhich  theUnitedStateshasidentifiedtoMexicoandCanada.  I  71       o  ` Thistwoyearwindowwasdesignedtoallow    thePartiestoidentifynonconformingstatemeasures g   anddecidewhethertocontinuetograndfatherthem.  I  72      ׀  8  TheNAFTAImplementationActrequiredtheU.S.    TradeRepresentative(USTR)toestablishaconsultation _   processwithindividualstatestoassistthemtoidentify  0  lawsthatmaybegrandfathered.  I  73      ׀Aspartofthat   process,USTRrequestedstatestoidentifylawsthatmay W  notbeinconformitywithNAFTA.TheGovernor's (  Office,inturn,requestedstateagenciestoidentifysuch   lawswithintheirpurviewtotheAttorneyGeneral's Ox  Office,whichwillreviewthembeforesubmittingalist   toUSTR.Thatprocessiscontinuing,andTexashasnot   yetreleasedalistofthelawsthatitissubmittingto Gp USTR.   ` Thegrandfatherclauseisaratchet;itallows ?h grandfatheredlawstoberenewedandamended,butonly  "totheextentthattheamendmentdoesnotdecreasethe  conformityofthemeasure"withtheprohibitionsagainst 7` performancerequirementsanddiscrimination.  I  74      ׀Andif  astatemakesameasuremoreconsistentwithNAFTA,  itcannotchangeitsmindlaterandreverseitsaction.  I  75       /X >   2   D  .3  Ԁ  >atio he#Ԁ  B 'P"    2   III  .3  Ԁ  RESOLUTIONOFCHALLENGESTOSTATE # MEASURESBatio heԀ   w$  ` NAFTAcreatesadisputeresolutionmechanism & toresolvechallengestomeasuresthataPartybelieves o' areinconsistentwithNAFTA.Thedisputeresolution @( mechanismcannotinvalidateadomesticlaw,however. ) APartyisnotrequiredtochangeameasureevenifitis g* determinedtobeinconsistentwithNAFTA.Ifitrefuses  8+ tochangethemeasure,however,theotherPartiesmay  , suspendtradebenefits.If,ontheotherhand,theParty _!- decidestochangethemeasure,itwouldhavetotakethe "0. necessarystepsunderitsdomesticlaw. "/  ` Thissectionfirstdescribeshowchallenges #( 1 mightbebroughttostatemeasuresundertheNAFTA $ 2 disputeresolutionprocedures,andthendescribeshow O%x!3 thefederalgovernmentmightseektochangeastate % "4 measurefoundinconsistentwithNAFTA. &"5 >   2   A  .3  Ԁ  Nafta'sDisputeResolutionProcedures>&atio heEԀ   ($8  ` ToinvoketheNAFTAdisputeresolution )&: mechanism,aPartymustfirstseekconsultationswith *&; thePartywhosemeasureitbelievesisinviolationofthe 7+`'< agreement.  I  76      ׀Iftheconsultationsdonotresolvethe +(= issue,aPartymayrequesttheFreeTradeCommission, ,(> abodycomposedofthetradeministersofthethree /-X)?  Parties,  I  77      ׀toassistthePartiesresolvethedispute.  I  78       -*@     2 IftheCommissiondoesnotresolvethedispute, A thecomplainingPartymayrequireittoconvenean 'PB arbitralpanel,composedoffiveindependentexperts,to C reviewthedispute,reportonwhetherthemeasure wD complainedofisinviolationoftheagreement,andmake HE recommendationsonresolutionofthedispute.  I  79      ׀The F panel'sreportincludesrecommendationsonresolutionof oG thedispute.  I  80        @H  2 Thisprocessappliestochallengestostate g J measuresaswellastomeasuresbythefederalgovern  8K ment.Butevenifthemeasurecomplainedofisastate  L measure,thepartiestotheproceedingsarethefederal _ M governments.Becausestateshadfeltshutoutofdispute  0 N resolutionproceedingsundertheGATT,theNAFTA  O ImplementationActrequiredUSTRtoconsultwith W P stateson"issuesrelatingtotheAgreementthatdirectly ( Q relateto,orwillpotentiallyhaveadirectimpacton,the  R States."  I  81      ׀USTRhasdesignatedaNAFTACoordinator Ox S forStateAffairs,whoservesasacoordinationpoint  T betweenUSTRandthestatesonNAFTArelatedmat  U ters,includingdisputesettlementproceedingschalleng GpV ingstatemeasures.USTRwillinvolvestateofficialsto W thegreatestextentpossibleateverystageoftheproceed X ing,includinginvitingthemtoattendpanelhearingsand, ?hY whereappropriate,makepresentationstothepanelon Z thestatemeasureconcerned.  I  82       [  2 Apanelcannotinvalidateameasureorrequire ] aPartytochangeit.Ifameasurefoundinconsistent ^ withNAFTAisnotchanged,however,theotherParties /X_ maysuspendtradebenefits.  I  83       `  2 Althoughchallengestostatemeasuresunder 'Pb internationaltradeagreementshavebeenrare,inrecent c yearsCanadahaschallengedstatemeasuresunderboth wd theGATTandtheCanadaU.S.FreeTradeAgreement, He thepredecessortoNAFTA.  I  84      ׀Astradeagreements f intrudemoreandmoreintoareastraditionallyconsid og eredwithinthepurviewofstates,thenumberand @h frequencyofsuchchallengeswillalmostcertainly i increase. gj >   2   B  .3  Ԁ  DomesticProceedings>atio heԀ   _!m  2 Ifthefederalgovernmentdecidesthatastate "o measureisinconsistentwithNAFTA,eitherbecauseit W#p ispersuadedbyapanelrulingorbecauseithasreached #( q thatconclusionindependently,thefederalgovernment $ r mayseektochangethestatemeasure. O%x!s  2 Thefederalgovernmentwouldfirstattemptto &"u workwiththestatetobringthemeasureintoaccordance G'p#v withNAFTA.Ifthestaterefuses,however,thefederal '$w governmentbelievesithastheauthoritytooverrulestate ($x lawthroughacivilsuit.  I  85      ׀Atthetimeitsubmitted ?)h%y NAFTAtoCongress,theClintonAdministrationstated )&z thatthisoptionwouldbeusedonlyasa"lastresort."  I  86       *&{  2 Thereareveryfewprecedentsforasuitbythe +(} federalgovernmentagainstastatetoforceittocomply ,(~ withaninternationalagreement.Inpractice,thefederal /-X) governmenthasbeenmuchmorelikelytoapplypolitical -* pressuretoastatetobringitintocompliance.  I  87      ׀No .* administrationhaseverbroughtsuchasuitunderGATT '/P+ ortheCanadaU.S.FreeTradeAgreement.A1925 /+ SupremeCourtcase,however,indicatesthatthefederal w0, governmentmayhaveconstitutionalauthoritytosuea  statetocomplywithaninternationalagreement.  I  88      ׀In  addition,theNAFTAImplementationActappearsto 'P haveaddedastatutorybasisforsuchasuit.  I  89      ׀   ` Inasuitagainstastate,thefederalgovernment H wouldnotattempttointroduceintoevidenceany  NAFTApanelreport,butwouldratherseektobasethe o proceedingontheprovisionsoftheNAFTAitself.In  @ otherwords,thefederalgovernmentwouldwantthe    federalcourtreviewingthecasetoconsidertheissuede g   novo,basedonthecourt'sinterpretationofNAFTA.  I  90        8   ` Althoughstatesfacethepossibilityofsuitby _   thefederalgovernmenttodeclareastatemeasure  0  inconsistentwithNAFTA,theydonotfacethatpossibil   ityfromanyothersource.TheNAFTAImplementation W  Actprovidesthatastatelaw,ortheapplicationofastate (  law,maynotbedeclaredinvalidonthegroundthatitis   inconsistentwithNAFTA,exceptinasuitbroughtby Ox  thefederalgovernment.  I  91      ׀Moregenerally,noentity   otherthanthefederalgovernmentmayarguethata   federalorstateactionisinconsistentwithNAFTA,asa Gp defensetoanyactionbroughtunderanyprovisionof  law.   ` Privatepersonsandcompaniesmust,therefore,  complywithstate(andfederal)lawsevenifthelaws  appeartobeinconsistentwithNAFTA.Theymaynot 7` seektochangethelawsthroughthecourts.  B   2   IV  .3  Ԁ  PRACTICESUGGESTIONSB\atio hexԀ   /X  ` Administrativeorotherlawyersprimarily ! concernedwithstatelawmaywanttotakethefollowing 'P" steps,totrytominimizeunpleasantsurprisesresulting # fromNAFTA. w$  ` 2   1  .3   Followthegrandfatheringprocess,and & findoutwhichlawsTexasagenciesprovidetothe o' AttorneyGeneral'sOffice,andwhichTexaslawsthe @( UnitedStatesliststoMexicoandCanadaattheendof ) thisyear. g*  ` 2   2  .3   Beawareofthepossibilityofchal  , lengestostatutesandadministrativeagencyactionsin _!- internationalforums.Ifachallengeoccurs,followas "0. closelyaspossiblethestate'sparticipationinitsdefense. "/  ` 2   3  .3   Bepreparedtoeducatestateagency $ 2 officialsaboutpossibleNAFTAeffectsontheiractions. O%x!3 Inparticular,bepreparedfortheneedinsomecasesfor % "4 theagencytoprovideahistoryfortheadoptionof &"5 agencymeasures. G'p#6  ` 2   4  .3   NAFTAcreatedalonglistofworking ($8 groupsandcommittees,composedofrepresentatives ?)h%9 fromthepublicandprivatesectorsofthethreeParties. )&: Forexample,thereisanAdvisoryCommitteeonPrivate *&; InternationalDisputesonAgriculturalGoods,aCommit 7+`'< teeonSanitaryandPhytosanitaryMeasures,aLand +(= TransportationSubcommittee,aFinancialServices ,(> Committee,andaWorkingGrouponGovernment /-X)? ProcurementandSmallBusiness,tonameafew.These -*@ bodiesfollow,andinmanyrespectsdevelop,NAFTA .*A implementation.FindoutfromtheU.S.TradeRepre '/P+B sentativewhetherthereisaworkinggroupinyour /+C practicearea,andifthereisonekeepupwithit. w0,D Ї 2 2   5  .3    RememberthatNAFTAisnottheonly D internationaltradeagreement:beawarethattheUruguay E RoundAgreements,particularlyGATT,GATS,andthe 'PF GovernmentProcurementAgreement,raisesimilar G issuesforstatelaws. wH  2 2   6  .3    Keepinmindthatinternationaltrade J isarapidlychangingarea,andthattheeffectsofinterna oK tionaltradeagreementsonstatelaws,inparticular,are  @L inmanycasesyettobedetermined.  M