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The General Agreement on Tariffs and Trade of 1947 was part of the Bretton Woods complex of international economic institutions established to reconstitute the international economy following the Second World War. The GATT 1947 embodied several foundational principles of international trade relations. The most important of these was the unconditional most favored nation (MFN) principle embodied in Article I. The MFN rule obligated each GATT member to extend any tariff (or related) concession granted to one GATT member to all other GATT members.
The MFN rule should have the effect of accelerating the process of trade
barrier elimination since it requires a wide dispersion of concessions among
GATT members.  However, there was a core
political motive for adoption of an unconditional MFN rule. In the pre-War
environment, trade concessions were widely used as an instrument of diplomacy.
Political alliances were created and maintained through economic preferences.
Since diplomatic decisions were often made for reasons apart from improving
world prosperity, an economic system in which trade concessions were used as
political instruments would be unlikely to generate a global welfare-optimizing
result. The MFN principle is intended to de-politicize the trading system so as
to reduce the chances of breakdown into a system of diplomacy-based alliances.
The net effect should be to distribute the benefits of trade widely. The MFN
principle was the key "multilateralism" provision in the GATT 1947.
When the GATT 1947 was drafted, it was recognized that some form of accommodation would be necessary for customs unions and free trade areas. The concept of a European economic union was already under consideration, and the political and economic advantages of creating a pan-European market were apparent. The GATT incorporated in Article XXIV a mechanism for relieving the members of customs unions and free trade areas from the obligation to extend the preferential treatment granted within the CU or FTA to non-members.  The central criterion used by Article XXIV to determine whether a CU or FTA should be allowed to maintain its preferential character is whether its members have agreed to eliminate substantially all tariffs and other restrictive regulations of commerce on trade between its members.  This criterion was intended as a mechanism for limiting the number of CU/FTAs since it precluded GATT members from using Article XXIV as a cover for eliminating tariffs on a limited number of goods. The "substantially all" criterion demanded a seriousness of purpose.
The Article XXIV mechanism for evaluating CU/FTAs under the GATT is much criticized. The main ground of critique is that it does not subject CU/FTAs to meaningful review even in respect to its own defined criteria since the outcome of the review process is controlled by members of the CU/FTA.  Customary practice of the GATT was that decisions on matters such as Article XXIV review were made by consensus, and the members of the CU/FTA under review had the right to block a decision that might have required them to effect a change to their implementation plan. Just as agricultural trade barriers have been a weak point in GATT-WTO liberalization efforts on the whole, so agriculture has been a weak spot in the regional integration process. A number of important regional groups have made liberalization commitments in the agriculture area which might be problematic under a rigorous application of the requirement that such groups eliminate substantially all tariffs and other restrictive measures of commerce.
The WTO Agreement adds an Understanding that clarifies elements of the GATT 1994 Article XXIV review, but none that affects the right of members to control the outcome of the mandatory review process.  The Understanding makes clear that a non-member of a CU/FTA may bring a dispute settlement action in respect to the application of Article XXIV, and this clarification may lead to increased attention to the CU/FTA phenomenon from the WTO dispute settlement organs. 
The Uruguay Round brought trade in services within the purview of the WTO, and the General Agreement on Trade in Services (GATS) establishes an additional mechanism for review of regional services arrangements (RSAs). GATS Article V permits members of RSAs to eliminate barriers on trade in services as among themselves without extending these concessions to non-members, provided that such RSAs involve substantial "sectoral" coverage, involve the elimination of substantially all discrimination in covered sectors, and do not raise barriers to non-members within covered sectors.  The inclusion of a provision requiring that the benefits of an RSA be extended to businesses with commercial presence within the RSA significantly ameliorates the potential discriminatory impact of these arrangements on non-Party national service providers. 
The NAFTA clearly meets the criteria prescribed by the WTO Agreement for a free trade area (under GATT Article XXIV) and a regional services arrangement (under GATS Article V). By any reasonable measure, the NAFTA eliminates substantially all tariffs and other restrictive regulations of commerce on trade between Canada, Mexico and the United States, and eliminates substantially all barriers on trade in services in a substantial number of sectors. 
The number of CU/FTAs among WTO members is proliferating rapidly, and this trend has raised serious concern among WTO members and in the WTO Secretariat.  It is widely acknowledged, however, that if the subject of this proliferation is to be concretely addressed, then reform of the existing review mechanisms is required. The existing review mechanisms are not designed or applied to significantly inhibit regionalization of the world trading system. A working group has been established to consider this situation. This group has yet to reach any conclusions. Since many WTO Members are party to one or more regional integration arrangements, perhaps it is not surprising that WTO Members as a body have not aggressively pursued additional methods to exercise control over these arrangements.
Customs unions and free trade areas such as the EU and NAFTA are derogations from a purely multilateral trading system. They are systems of preference, and they are political alliances. The founders of the GATT 1947 were concerned with preventing the international trading system from breaking down into a system of preferential political and economic alliances. The proliferation of regional integration arrangements appears to carry with it a heightened risk that the multilateral trading system will break down into a world economic system characterized by a series of regional alliances with inter-linkages of varying types.
The NAFTA does not possess international legal personality, and is not a
member of the WTO. As a general matter, CU/FTAs are regulated by the WTO
through the participation of their nation-state members.
 Members of CU/FTAs are obligated to
assure that these arrangements are implemented in a manner which is
WTO-consistent. The Understanding on Article XXIV provides that CU/FTA members
are responsible for measures of regional bodies taken within their territory,
thereby appearing to apportion
responsibility for operation of CU/FTAs on a territorial basis.
The European Community has international legal personality and is a member of the WTO. The member states of the EC also are members of the WTO. If the EC votes in the WTO, it does so on behalf of all its member states which are members of the WTO.  If a member state votes individually, then each member state votes, and there is no separate vote for the EC. This mixed situation of the EC in the WTO creates a complex internal governance situation for the EC, and a complex legal situation for WTO members outside the EC which seek to determine responsibility for EC and member state compliance with the WTO Agreement. 
The juridical relationship between the NAFTA and WTO Agreement is of
considerable interest from the standpoints of policy and technical analysis of
legal norms. As a matter of policy, a decision by NAFTA negotiators whether to
accord legal priority to the NAFTA or WTO would appear to involve a choice
whether to accord a greater degree of attention and concern to more narrow
regional economic and political interests, or to broader multilateral
interests. In light of the importance that trade policy makers have ascribed to
the potential for conflict between the regional and multilateral integration
models, NAFTA negotiators might have been expected to make a clear choice in
this hierarchy of interests. Evidence from the text of the NAFTA and from the
early NAFTA dispute settlement panel reports suggests that no such overarching
policy determination was made or that, if it was made, the determination was
implemented in an uncertain manner.
The fact that the NAFTA negotiations took place in the midst of the GATT Uruguay Round negotiations may at least in part be responsible for the unsettled state of affairs. Yet each set of international trade negotiations is a process that rarely occurs in isolation from other such processes. The uncertainty surrounding the relationship between the NAFTA and WTO Agreement may reflect the dynamic political tensions faced by the NAFTA negotiators, tensions which continue to influence the formation and implementation of policy in the NAFTA Parties.  On one side, the NAFTA was and is portrayed by its proponents as a means of accelerating integration on the North American continent in a way which is consistent with the political and social interests of a variety of disparate groups, including the business community, labor unions and environmentalists. The NAFTA is politically justified by its attention to interests which are more difficult to address at the WTO multilateral level. If the results of NAFTA negotiations are placed beneath WTO Agreement norms, then in theory this attention to regionally-specific interests might be jeopardized by the superiority of more generalized WTO norms. There are, therefore, political and social motivations for advocating priority for the NAFTA.
On the other side, NAFTA negotiators were and remain well aware of concerns among GATT-WTO Members about efforts by particular countries and regions to gain advantages by extending regional preferences. NAFTA negotiators would be hesitant to make a clear statement of regional legal preference that might galvanize opposition to the agreement, or that might jeopardize future multilateral negotiations. NAFTA negotiators may well have maintained a preference for multilateralism among themselves, yet nevertheless have been reluctant to clearly express such preference in the NAFTA because this might be found objectionable by interest groups within the region whose support was required to assure successful conclusion of the agreement.
Though the NAFTA-WTO hierarchy of norms is uncertain, and while such uncertainty is bound to lead to or exacerbate future NAFTA disputes,  the political and social forces which impelled the initial state of ambiguity have not dissipated. While interests in political stability and economic efficiency might be enhanced through the clarification of this matter by the NAFTA Parties through the adoption of a clarifying amendment or an inter-governmental understanding, the Parties may be in no more favorable position to agree on such a clarification in the year 2000 than they were in 1993. 
The legal relationship between the NAFTA and the WTO Agreement is
determined by examining the text of the treaties, the context in which the
treaties were made, and the rules of international law that govern the
relationship between treaties concerning the same or similar subject matter.
 Both the NAFTA and WTO Agreement are
written agreements between states governed by international law, and therefore
are "treaties" within the definition prescribed by the Vienna Convention on the
Law of Treaties (VCLT). 
The VCLT provides that when states are parties to treaties governing the same subject matter, the latter in time treaty takes precedence over the earlier in time.  The NAFTA entered into force on January 1, 1994 and the WTO Agreement entered into force on January 1, 1995. The NAFTA Parties are each original Members of the WTO. Though this temporal sequence might suggest that the WTO Agreement prevails over the NAFTA, there are a number of factors involving the express text of the NAFTA and the context in which the two agreements were made that raise doubts about this general proposition.
The NAFTA text incorporates a general principle regarding its relationship to other international agreements. It also incorporates a number of specific provisions concerning its relationship to other international agreements.
The NAFTA provides:
Article 103: Relation to Other Agreements
1. The Parties affirm their existing rights and obligations with respect to each other under the General Agreement on Tariffs and Trade and other agreements to which such Parties are party.
2. In the event of any inconsistency between this Agreement and such other agreements, this Agreement shall prevail to the extent of the inconsistency, except as otherwise provided by this Agreement.
Article 104, NAFTA, provides an exception from the general rule of
Article 103(2). Obligations in certain environment and conservation agreements
(such as the Basel Convention on Transboundary Movement of Hazardous Waste) as
listed in Article 104, NAFTA, expressly prevail over NAFTA rules in the event
Article 301(1), NAFTA, as example, is a specific NAFTA rule that defines a relationship with the GATT-WTO Agreement. It states:
Article 301: National Treatment
1. Each Party shall accord national treatment to the goods of another Party in accordance with Article III of the General Agreement on Tariffs and Trade (GATT), including its interpretative notes, and to this end Article III of the GATT and its interpretative notes, or any equivalent provision of a successor agreement to which all Parties are party, are incorporated into and made part of this Agreement.
There are various other provisions of the NAFTA which are directed to
defining relations with the GATT. 
The express text of Article 103(1), NAFTA, affirms existing obligations among NAFTA Parties under the GATT and provides that the NAFTA prevails over the GATT to the extent of any inconsistencies. Article 103(2) does not expressly provide that the NAFTA prevails over any later in time agreements. By way of contrast, for example, Article 301(1), NAFTA, expressly refers to a "successor agreement" to the GATT. If NAFTA negotiators had intended that the NAFTA would in general take priority over the agreements resulting from the Uruguay Round negotiations (i.e. the WTO Agreement and related agreements), they might have referred to such "successor agreement(s)" in Article 103, NAFTA.
Consider, however, that reference to "successor agreement(s)" to the GATT may have a broader meaning than reference to the GATT standing alone. The GATT 1994 is incorporated as a Multilateral Trade Agreement binding on all WTO Members in the WTO Agreement. The GATT 1994 is identical to the GATT 1947 which was an agreement existing among the NAFTA Parties when the NAFTA was concluded. The WTO Agreement specifically incorporates the acquis of interpretations and understandings with respect to the GATT 1947 into its legal framework, and signals an intention that there be a continuity between the GATT 1947 and GATT 1994. The GATT 1994, as incorporated into the WTO Agreement, is effectively an agreement to which the NAFTA Parties were party when they entered into the NAFTA. This provides a basis for concluding that the NAFTA continues to prevail over the GATT 1994 within the meaning of NAFTA Article 103.
However, this conclusion may be undercut by specific language in the WTO Agreement which states that the GATT 1947 and GATT 1994 are "legally distinct."  If the GATT 1994 is a new agreement only considered to have entered into force on January 1, 1995 (as part of the WTO Agreement), then it would not fall under the express priority rule of NAFTA Article 103 with respect to existing agreements. Yet the reason why the WTO Agreement creates a legal distinction between the GATT 1947 and GATT 1994 was not to create a break in continuity between the rights and obligations of the parties to the two agreements. The legal distinction was provided for with the specific intention of facilitating the institutional transition between the GATT and the WTO by allowing some members of the old GATT to delay their entry into the WTO by remaining members of the former institution, at least for a transition period.  Outside of facilitating this transition, the negotiators clearly signaled an intention not to break continuity between the GATT 1947 and GATT 1994.
Whether the "General Agreement on Tariffs and Trade" referred to in the NAFTA Article 103 rule of priority is limited to the GATT 1947, or whether it encompasses also the GATT 1994, is not susceptible to a categorical answer. If the NAFTA Article 103 reference to the GATT is understood to encompass the GATT 1994, the resulting priority rule is inelegant because the WTO Agreement incorporates significantly more than the GATT 1994, including the new area agreements of the GATS and TRIPS, and a number of supplemental agreements in areas such as technical standards and agriculture. The NAFTA might take priority over the GATT 1994 and a limited number of supplemental agreements, and yet not take priority over other WTO Agreements.  The full panoply of WTO Agreements might constitute the "successor agreement(s)" to the GATT referred to elsewhere in the NAFTA.
The use of the term "successor agreement(s)" to the GATT in contexts outside the Article 103 rules of priority does not neatly resolve the uncertainty. Consider Article 301(1) of the NAFTA as illustration. In that article the Parties incorporate GATT Article III and its interpretative notes. This express incorporation encompasses the comparable provision of a GATT "successor agreement". Yet if the negotiators of the NAFTA thought that the results of the Uruguay Round would take priority over the NAFTA by way of Article 103, the reference to a GATT successor agreement in Article 301(1) would be superfluous. The new GATT or WTO article would by operation of international law take priority over the old NAFTA and/or GATT rule. We might conclude that the reference to "successor agreement" was included in NAFTA Article 301(1) because its drafters assumed that the NAFTA would otherwise take priority over the GATT resulting from the Uruguay Round. Article 301(1) of the NAFTA may have been drafted to add clarity to a particular part of the NAFTA, but it does not resolve ambiguity surrounding the meaning of Article 103, NAFTA.
The first two cases decided under the NAFTA general dispute settlement procedure, considered infra, reflect the uncertainty surrounding the issue of NAFTA-GATT-WTO priority.
Determining as a matter of international law which obligation should
prevail in relations between states is different from determining what
authority should decide a dispute between these states. It is possible for a
dispute settlement authority to be limited in regards to which rules it may
apply in a dispute by the terms of its charter. Ultimately, states are bound in
their relations by the superior norms to which they have agreed, even if they
have not conferred on a particular dispute settlement body the authority to
make a determination concerning their rights and obligations. The question
whether NAFTA or WTO rules will take priority in a particular case involving
Canada, Mexico and the United States is distinct from the question which
dispute settlement authority will decide the case.
The NAFTA Chapter 20 dispute settlement rules generally permit a complaining Party to elect either NAFTA or GATT-WTO dispute settlement in cases arising under both agreements. An exception is made in respect to claims involving environmental, SPS and technical standards matters, as to which the responding Party may demand that the matter be settled by a NAFTA panel.  NAFTA Chapter 20 provides that once a dispute settlement procedure is initiated in either the NAFTA or GATT forum, and subject to the right of a responding Party to demand NAFTA dispute settlement on environment-related claims, "the forum selected shall be used to the exclusion of the other."  The default terms of reference for a NAFTA panel are:
To examine, in the light of the relevant provisions of the Agreement, the matter referred to the Commission (as set out in the request for a Commission meeting) and to make findings, determinations and recommendations as provided in Article 2016(2).
The report of a panel is adopted by a majority of panelists. Panels are not empowered to issue orders to the Parties. The determinations of the panels are instead referred to the Parties for implementation. Article 2018 of the NAFTA provides:
1. On receipt of the final report of the panel, the disputing Parties shall agree on the resolution of the dispute, which normally shall conform with the determinations and recommendations of the panel, and shall notify their Sections of the Secretariat of any agreed resolution of any dispute.
2. Wherever possible, the resolution shall be non-implementation or removal of a measure not conforming with the Agreement or causing nullification or impairment ... or, failing such a resolution, compensation.
Failure by the Party in default to implement an adequate solution
entitles the aggrieved Party to withdraw concessions.
Just as there is ambiguity surrounding the question whether NAFTA or WTO rules prevail in the event of inconsistency, so there is ambiguity surrounding the question whether NAFTA panels may apply the law of the WTO in cases before them. On one hand, since the NAFTA expressly contemplates that claims arising under both agreements may be brought under NAFTA Chapter 20, it can be argued that the NAFTA implicitly allows the panelists to consider the law of the WTO. The NAFTA accepts that cases involving the Parties may involve overlapping rules and overlapping jurisdiction. If NAFTA panels are precluded from examining both sets of rules, then it cannot completely adjudicate a claim, and the Parties might be required to pursue a second proceeding in the WTO before a case is resolved. Since the NAFTA demands that the first selected forum be used to the exclusion of the other, it is clear that such dispute settlement procedures should -- at the least -- take place in sequence.
On the other hand, Article 2004, NAFTA, expressly provides that the Chapter 20 procedures shall apply with respect to interpretation or application of "this Agreement". Similarly, the NAFTA default terms of reference for panels refer to determinations under "this Agreement". On the basis of this language which identifies a specific legal instrument, it might be argued that only NAFTA rules may be applied in a proceeding, at least as to matters in which the Parties do not agree on alternative terms of reference incorporating WTO rules. 
If the Parties accept that a case arises under both the NAFTA and WTO, and yet a NAFTA panel may not consider and apply WTO rules, a Party found in default which considers that WTO issues were not adequately addressed may argue that it should not resolve the claim (by withdrawing offending measures, etc.) until its WTO claim is considered at the WTO. Though the NAFTA provisions on implementation may authorize the NAFTA complainant to withdraw concessions based on the NAFTA panel determination, a conflicting WTO result could authorize an off-setting suspension of concessions.
The first NAFTA claim decided under the Chapter 20 procedure involved an
alleged conflict between WTO and NAFTA obligations. Prior to entry into force
of the NAFTA, Canada maintained certain agricultural quotas. The NAFTA
authorized Canada to maintain those quotas (by reference to an earlier
provision in the Canada-United States Free Trade Agreeement) (CUSFTA). The WTO
Agreement on Agriculture required Canada to eliminate its agricultural quotas,
which Canada (as other WTO Members) was entitled to accomplish by
tariffication.  Tariffs would replace
quotas. However, the NAFTA provides that its Parties may not raise tariffs
(including on agricultural products), and when Canada imposed new tariffs on
agricultural products from the United States, the United States objected and
filed a NAFTA complaint.
Canada argued that it was required by the WTO Agreement to tarifficate its quotas, and that in any case it was allowed to tarifficate its quotas under the NAFTA because it expressly "retained" certain rights to restrain agricultural imports negotiated under the GATT. The United States argued that the WTO Agreement did not obligate tariffication of quotas, it only authorized tariffication. Canada might have eliminated its quotas without imposing tariffs that violated the NAFTA, and without violating the WTO Agreement. The United States further argued that the rights that Canada retained under the GATT were limited to those that had been exercised when the NAFTA entered into force, and that Canada could not thereafter adopt new measures that were inconsistent with the NAFTA. The NAFTA panel had to decide whether Canada's retention of rights under the GATT included the authority to take new action under an old GATT rule.
The panel observed that the NAFTA uses a variety of terms and formulations to address relations between the GATT and WTO, as well as with the CUSFTA. The panel said:
The interpretation of these agreements is complicated by a number of factors. The NAFTA incorporates obligations from other agreements including both the [CUS]FTA and the GATT. The terminology used in the drafting of the various provisions, both within and across these agreements, is not marked by uniformity or consistency. As discussed more fully below, words like "existing", "retain" or "successor agreements", appear in some contexts yet do not appear in others where their presence may have been thought apposite. As a result, the Panel has been faced not only with the task of determining meaning from the presence of certain words, but also with the more difficult task of divining meaning from the absence of particular words." 
The panel ultimately determined that the term "retain" as used in the
CUSFTA, and incorporated by reference in the NAFTA, does not import a temporal
limitation on the exercise of rights by Canada. A right that is "retained" may
be exercised in the future. Canada's retained rights under the GATT (and
agreements negotiated under the GATT) were not limited to those that had been
expressly exercised prior to the NAFTA, but could include rights exercised in
the future. Because Canada retained rights to impose agricultural restrictions
under the GATT, Canada could tarifficate its agricultural quotas in spite of
the NAFTA's prohibition of new tariffs. 
The panel notes at several points that the NAFTA uses the term "successor agreement" to the GATT when it intends to make clear that Uruguay Round results are to be included in relation to the NAFTA, but the panel also observes that the NAFTA's terminology is sufficiently inconsistent that general guidelines for interpretation are difficult to extract. There is no sweeping conclusion to be drawn from the Canadian Agricultural Tariffs panel report in regard to whether the NAFTA generally takes precedence over the GATT 1994. The panel effectively confirms that this matter will require further sorting out in the context of specific cases.
The second case to come before a NAFTA Chapter 20 dispute settlement
panel directly raised the question whether NAFTA panels are authorized to
adjudicate claims arising under both the NAFTA and WTO-GATT. In the Broom Corn
Brooms case,  Mexico objected to the
manner in which the United States had imposed safeguard measures against
imports of Mexican brooms. Mexico argued that the United States action failed
to apply the appropriate injury test under the GATT Article XIX safeguards
provision, which provision contains language equivalent to the language of the
NAFTA Chapter 8 safeguards text. Since Article 802(1) of the NAFTA provides
that "Each Party retains its rights and obligations under Article XIX of the
GATT or any safeguard agreement pursuant thereto ..", Mexico considered that it
was entitled to rely on GATT language and dispute settlement precedent under
which the U.S. safeguard action was allegedly taken upon an overly narrow
definition of injury to domestic industry.
The panel did not decide whether it was authorized to adjudicate GATT legal claims. It found that the United States had failed to comply with certain procedural rules that are common to the NAFTA and GATT, and that Mexico's claim could be addressed at the present stage by application of the NAFTA alone.  However, the panel summarized the legal arguments of the United States and Mexico on this issue in a concise manner.
27. The United States argued that the Panel did not have jurisdiction to adjudicate legal claims based on the obligations of GATT Article XIX and the WTO Agreement on Safeguards. The United States took the position that both the Panel's terms of reference and the general provisions of Chapter Twenty under which the Panel was created limited the Panel's competence to legal claims based on NAFTA obligations. The United States thus argued that the Panel could not consider GATT obligations unless they had somehow been adopted by incorporation into the NAFTA agreement. In the view of the United States, the provisions of NAFTA Article 802, the NAFTA provision reserving to member governments the right to employ global safeguards authorized by GATT Article XIX and the WTO Agreement on Safeguards, did not incorporate the legal obligations of those GATT/WTO provisions into the NAFTA agreement .... The United States took the position that ... it was the intention of the parties that claims based upon the GATT/WTO safeguards provisions themselves would have to be pursued through the GATT/WTO dispute settlement mechanism.
28. Mexico noted that NAFTA Article 2005(1) generally gives parties the right to initiate dispute settlement either in GATT or in NAFTA whenever a dispute involves a matter "arising under both this Agreement and the General Agreement on Tariffs and Trade ." In Mexico's view ... the present dispute does "arise" under both NAFTA and GATT/WTO within the meaning of Article 2005(1), and therefore can be brought in either a NAFTA or a GATT/WTO forum. Furthermore, since NAFTA Article 2005(6) provides that once a NAFTA or GATT forum is selected that forum "shall be used to the exclusion of the other," a NAFTA forum selected under Article 2005(1) necessarily has jurisdiction to dispose of all overlapping GATT issues involved in that dispute.
The text of the NAFTA, including the dispute settlement chapter, allows
for reasoned argument on each side of the issue. The United States relies on
portions of NAFTA Chapter 20 referring to "this Agreement" and its standard
terms of reference, as well as differences in how references to the GATT are
styled in the NAFTA text. The United States accepts that its position would
demand that Mexico pursue claims in both the NAFTA and WTO to vindicate rights
(or assert defenses) that differ under the two agreements. The Mexican
government relies on the fact that the NAFTA Parties have authorized claims
arising under both agreements to be brought in the NAFTA (or WTO) as evidence
that the Parties must have intended that the panels charged with deciding cases
could apply both sets of rules, particularly in light of language that makes
the selected forum the exclusive one. 
It would be difficult on the basis of the NAFTA text to conclude whether the Parties intended WTO-GATT rules to be considered by NAFTA panels only in those cases in which the NAFTA appeared to directly incorporate WTO-GATT rules. On a policy level, the U.S. position demands careful forum shopping on the part of a prospective claimant. It would lead to delays in the resolution of disputes as NAFTA Parties assert rights to pursue back-to-back claims. It would appear to encourage political friction as Parties refuse to reach adjudicated settlement of disputes pending lengthy procedures in two fora.
There is no reason to believe that NAFTA panelists are any less qualified than WTO panelists to determine the right of Parties under the WTO Agreement. If, however, WTO dispute settlement is precluded once the NAFTA panel procedure is initiated, this may result in reduced access by NAFTA Parties to more comprehensive evaluation of claims as may be provided by the more extensive WTO Dispute Settlement Understanding (DSU) (in particular, Appellate Body review). Allowing NAFTA panels to adjudicate GATT-WTO legal claims would perforce raise the possibility of a unique NAFTA jurisprudence on WTO law.
Legal specialists are used to dealing with different court interpretations of the same rules, and this prospect does not appear to raise immediate concerns. However, assuming that over the long term a body of regional WTO law that differed from authoritative WTO DSU law developed and that this appeared to be causing difficulties, ways to address this problem could be devised. The development of a procedure by which NAFTA or other regional panel decisions could be subject to WTO Appellate Body review might ultimately emerge, though this is not to discount potential political obstacles to this result.
At a more modest level, there seems no reason based on the text of the NAFTA or as a matter of policy why Parties to a NAFTA dispute should not be allowed to decide on terms of reference in particular cases authorizing panels to determine GATT-WTO legal issues. The WTO DSU itself accepts that WTO Members may agree to resolve claims through arbitration, albeit "within the WTO" and subject to WTO rules on surveillance and suspension of concessions with respect to awards. The WTO Agreement contemplates that a body of arbitral jurisprudence outside the formal Appellate Body/DSB system may develop.
Two fundamental issues involving the juridical interface between the NAFTA and WTO have been examined. The first is which agreement - the NAFTA or WTO - takes priority as among the NAFTA Parties. There remains no categorical answer to this question. The NAFTA text was drafted prior to conclusion of the GATT Uruguay Round. Negotiators sought to address the prospects of a future agreement in different ways, and perhaps without adopting an overarching view on the matter. As a consequence, unless and until the NAFTA Parties decide to clarify this question by agreeing to a definitive interpretation, the matter will be resolved through the accumulation of a body of decision by government officials and dispute settlement panels.
The second issue is whether NAFTA dispute settlement panels may adjudicate WTO Agreement-based claims. Again, the NAFTA text does not provide a clear answer. There are good policy reasons to allow panels to consider WTO rules, but it may be necessary for the Parties to agree to such consideration in prescribing their terms of reference. If NAFTA panels cannot consider WTO claims, there is likely to be delay and political controversy in the resolution of disputes.
The WTO Agreement does not directly address the issue of its
relationship with other international agreements as does the NAFTA, although it
does address the inter-relationship of its own component agreements, and the
status of its predecessor agreements. The WTO Agreement provides that it is
binding on all WTO Members,  and it
provides that each Member "shall ensure the conformity of its laws, regulations
and administrative procedures with its obligations as provided in the annexed
Agreements." The absence of a clearly defined relationship between the WTO
Agreement and other international agreements has been a source of concern and
controversy, particularly in relation to environmental agreements and measures,
and the WTO Committee on Trade and Environment has had this issue under
consideration for a number of years. GATT
dispute settlement panels, and more recently the WTO Appellate Body, have
rendered several decisions in which the issue of the relationship between the
WTO Agreement and other international agreements is considered.
Until very recently, GATT-WTO panels have shown considerable hesitancy in considering legal rules from outside the GATT- WTO, although the possibility has not been excluded. In adjudication of claims under the TRIPS Agreement, the WTO DSB will necessarily consider legal claims outside the narrow confines of the WTO Agreement since the TRIPS Agreement incorporates by reference terms, inter alia , from the Paris and Berne Conventions.  However, because terms of these agreements are incorporated by reference in the TRIPS Agreement, such consideration may not necessarily provide a foundation for adjudicating rights under non-incorporated agreements, for example, regional agreements.
A potentially far reaching development in GATT-WTO jurisprudence is evidenced in the recent Shrimp-Turtles decision of the WTO Appellate Body. In the Shrimp-Turtles case the WTO Appellate Body extensively consulted agreements and context outside the WTO Agreement as an aid in interpretation of key provisions of the GATT 1994.  Although the Shrimp-Turtles decision does not directly involve the application of treaty norms outside the WTO Agreement to resolve a WTO dispute, the Appellate Body's extensive consultation of non-WTO sources of law in aid of interpretation suggests a willingness on the part of the Appellate Body to put an end to the view of the GATT-WTO as a self-contained legal regime.
If the Appellate Body is prepared to construe GATT 1994 norms in the context of multilateral environmental agreements, then it may also be prepared to construe the WTO rights and obligations of WTO Members in the context of their regional treaty commitments. For example, assume that NAFTA Parties agreed to require compliance with certain health and safety -related labor standards in the production of goods. One NAFTA Party then prohibited the import of goods produced in another NAFTA Party in breach of this obligation. If the NAFTA Party whose imports were blocked sought relief under the WTO DSU because of an alleged breach of GATT Article XI (prohibition of quotas), the Appellate Body might consider whether the express agreement by the NAFTA Parties to enforce labor standards by trade measures might - as between those specific Parties - provide a justification under GATT Article XX(b) for the protection of human health, even if it would not otherwise justify a multilateral exception to Article XI applicable to other WTO Members.
The prospective problem that arises regarding application of non-WTO norms among parties to specialized agreements is that the WTO would develop separate bodies of jurisprudence applicable to limited numbers of its Members. Conceptually, this may not appear a significant problem to the lawyer trained to deal with court decisions limited in application among the parties to specific disputes. However, the "single undertaking" characteristic of the Uruguay Round result was a major achievement for the new WTO that eliminated the balkanized legal system that prevailed following the Tokyo Round. WTO Members (and the Appellate Body) may be reluctant to introduce a system of jurisprudence that might appear to create different tiers of obligation.  This reluctance might be overcome by careful attention to compartmentalizing specialized rules, but it is important to call attention to the issues involved.
There appears to be a trend in WTO jurisprudence toward willingness to apply agreements outside the WTO Agreement to disputes among Members, and this willingness might extend to the application of regional integration agreements. There are prospective problems raised by the development of specialized jurisprudence within the WTO legal system which deserve careful study.
There is no provision of the WTO DSU that specifically contemplates the adjudication of legal claims outside the WTO agreements. Just as the NAFTA default terms of reference refer to consideration of the NAFTA, the default WTO DSU terms of reference for panels refer to examination of WTO agreements.  Though there is little precedent under which a WTO panel might adjudicate a NAFTA claim as between the NAFTA Parties, the WTO text does not appear to preclude such adjudication. There are policy arguments which might favor such action. As with respect to the NAFTA, there is a basic issue of adjudicatory and political economy. If the NAFTA Parties have claims arising under both the NAFTA and WTO Agreement, there may be no point in requiring two adjudications. WTO panelists and the Appellate Body would certainly be competent to review NAFTA rules. A more expeditious resolution of a dispute seems likely to mitigate political conflict. In those cases in which the NAFTA Parties to a WTO dispute agree on terms of reference which authorize the WTO DSB to consider NAFTA rules, there would appear to be constructive reasons to allow this.
The legal relationship between CU/FTAs and the GATT-WTO has been
explored at some length by the European Court of Justice. The ECJ has
consistently given priority to the EC Treaty over the GATT and WTO Agreement.
The ECJ has made two fundamental determinations regarding the relationship
between the EC Treaty and the GATT-WTO Agreement. The first was that the GATT
1947 is not directly effective in the law of the member states since the
"spirit, the general scheme and the terms" of the Agreement do not import such
effect.  The Council of the European
Communities, in a recital to its decision authorizing the ratification of the
WTO Agreement, expressed its support for carrying this view over to the new WTO
Agreement.  The legal effect of the
Council's declaration is not yet known. The ECJ's view on the direct effect of
the GATT 1947 is qualified to some extent by a decision that direct application
is possible if the Council has acted to incorporate a GATT obligation into EU
The second fundamental determination made by the ECJ was that the GATT 1947 does not bind the EC in its relations with its member states.  In Germany v. Council , Germany invoked the GATT 1947 to challenge the lawfulness of the EC banana regulations. It argued that the EC's adherence to the GATT precluded the Council from adopting and applying regulations which were GATT-illegal, and that Germany had the right to rely on these GATT obligations in a dispute with the Council. The Court of Justice said that Germany was bound by Community legislation - even if it had cast its vote against that legislation - and that the Council had the inherent power to act in a GATT-inconsistent manner if it chose to do so. 
Should NAFTA rules as a general policy matter have priority over WTO
rules in the event of inconsistency? There are good arguments on both sides.
Priority of WTO rules would appear to encourage multilateralism. Priority of
NAFTA rules might result in more rapid progress in addressing social issues
within the context of regional integration, and the resulting rules might
provide a constructive model for the multilateral system.
The present approach which is largely based on application of a "last in time" rule has manifest drawbacks. The NAFTA and WTO Agreement are each likely to be subject to continuing amendment, and this could lead to a rather confused situation about which rule governs in particular circumstances. Some clarification of general principles among the NAFTA Parties would help to avoid misunderstanding and mitigate future disputes. However, in light of the various political and social pressures affecting the Parties, the present ad hoc approach may be the rule for some time.
The first two NAFTA Chapter 20 panel
decisions are discussed infra at .
The NAFTA includes a separate dispute settlement mechanism in respect to antidumping and countervailing duty (AD/CVD)-related complaints (Chapter 19, NAFTA). The NAFTA contains no rules regarding the substance of the AD/CVD laws of the Parties, requiring only that each Party act in domestic AD/CVD actions in compliance with its own laws. In the AD/CVD dispute settlement system, arbitral panels constituted on a case-by-case basis make decisions as to whether a country Party has complied with its own AD/CVD laws in a particular action. The decisions of AD/CVD panels are directly binding on the country Parties. There are approximately 30 completed or active Chapter 19 panels reviewing AD/CVD decisions of Canadian, Mexican and U.S. administrative authorities. NAFTA Secretariat, www.nafta-sec-alena.org, August 13, 1998.
The NAFTA also permits investors of Parties to pursue third party arbitration against a host government in the International Centre for the Settlement of Investment Disputes (ICSID) or under UNCITRAL rules. NAFTA, arts. 1115, et seq . See Law and Policy, at 102. The NAFTA obligates the Parties to make adequate provision for the enforcement of resulting arbitral awards. Several proceedings based on NAFTA investment rules have been initiated in the ICSID by U.S. nationals against the government of Mexico, and claims both by U.S. nationals against the government of Canada and by Canadian nationals against the government of the United States have been initiated or threatened.
The Parties may each elect to limit applicable tariffs to the single highest tariff payable in any NAFTA Party (so as to avoid double tariffing).
A counter-argument can be made that trade barrier reductions will be faster under bilateral or minilateral negotiating strategies since governments may be more willing to grant concessions to a limited number of countries for particularized reasons. This counter-argument in part provides the theoretical basis for the customs union/free trade area exception to the MFN principle.
For details on Article XXIV, see Law and Policy, Chapter 3.
The additional main criteria are that the members of a CU do not "on the whole" establish external tariffs higher than those in place in each member prior to the formation of the CU, and that the members of an FTA do not individually raise their external tariffs.
See, e.g. Frieder Roessler, The Relationship Between Regional Integration Agreements and the Multilateral Trade Order , in REGIONAL INTEGRATION AND THE GLOBAL TRADING SYSTEM 311, 323 (Kym Andersen & Richard Blackhurst eds., 1993).
Understanding on the Interpretation of Article XXIV of the General Agreement on Tariffs and Trade 1994.
These amendments include a presumption that a reasonable time for implementing the reduction of tariff and related barriers is ten years (para. 3), and a mechanism for calculation of "on the whole" tariff rates of customs unions (para. 2).
Understanding on Article XXIV, para. 12.
GATS, art. V:1. For details on GATS Art. V, see Law and Policy, Chapter 3.
GATS, art. V:4.
The commitments of the Parties in the areas of goods and services are reviewed for their GATT Article XXIV and GATS Article V compatibility in Law and Policy, Chapters 4 and 5.
See Renato Ruggiero (WTO Director General), Regional Initiatives, Global Impact: Cooperation and the Multilateral System , Nov. 7, 1997, speech to the 3 rd Conference of the Transatlantic Business Dialogue, Rome (www.wto.org, visited July 5, 1998).
WTO membership is not limited to nation-states, but may include autonomous customs territories. WTO Agreement, art. XII.
Understanding on Article XXIV, at paras. 13 & 14.
Alternative bases for attributing responsibility to CU/FTA members, such as joint liability for measures taken pursuant to mandatory provisions of a CU/FTA agreement, are a conceptual possibility.
Stefan Riesenfeld has pointed out that difficulties will arise if the EC admits new member states which are not also members of the WTO. So far this has not happened. See Stefan A. Riesenfeld, The Changing Face of Globalism , in PUBLIC POLICY AND GLOBAL TECHNOLOGICAL INTEGRATION 67 (F.M. Abbott & D.J. Gerber eds., 1997).
The European Court of Justice has acknowledged some of the difficulties inherent in "mixed" EU/member state treaties in its advisory opinion on EC-member state adherence to the WTO Agreement. See Re The Uruguay Round Treaties (Opinion 1/94) , Court of Justice of the European Communities,  1 CMLR 205, 15 Nov. 1994.
See generally, Foundation-Building, supra note .
The Canada-United States Free Trade Agreement (CUSFTA) which entered into force in 1989 was reviewed by a GATT Article XXIV Working Party. The Working Party did not make any recommendations in respect to the CUSFTA, but rather limited itself to preparing a summary of members' observations. A concern expressed by a number of members of the Working Party was that the CUSFTA was given legal priority over the GATT in trade relations between Canada and the United States. No Article XXIV working party prior to the CUSFTA review had made any recommendation -- affirmative or negative -- with respect to a CU/FTA. Subsequent to the CUSFTA review, a working party recommended approval without condition of the free trade area between the Czech and Slovak Republics. See Law and Policy, at 41-42.
Interestingly enough, the first two cases brought before NAFTA Chapter 20 dispute settlement panels have involve questions of defining the NAFTA-WTO legal relationship. The first - the Canadian Agricultural products case (Canada/US) - is largely devoted to resolving a NAFTA/WTO relational issue. The second case - Broom Corn Brooms (Mexico/US) - saw a NAFTA/WTO relational issue extensively argued, but the panel found it unnecessary to resolve the issue in its disposition of the case.
In a 1995 book, this author identified some aspects of this legal relationship, and suggested that it might be some time before definitive pronouncements could be made, saying:
Because of the number of contextual factors involved in defining this relationship, it may be some years before an authoritative definition of the relationship emerges, whether through action taken by the NAFTA Parties to expressly establish the relationship, or through an accumulation of dispute settlement panel opinions that may establish a common law of interpretation.
Law and Policy, at 107.
On the relationship among treaty norms , see generally , PARLIAMENTARY PARTICIPATION IN THE MAKING AND OPERATION OF TREATIES: A COMPARATIVE STUDY (S.A. Riesenfeld & F.M. Abbott eds., 1992)
Although the United States has not ratified the VCLT, it accepts that the VCLT substantially reflects customary international law applicable to treaty relations. Canada and Mexico are parties to the VCLT.
VCLT, art. 30(3). The parties to successive treaties may elect to vary this general rule by agreement.
Article 710, NAFTA, sets forth a rule displacing Article 301, NAFTA, and its incorporation of Article III of the GATT (as just stated above), in regard to NAFTA sanitary and phytosanitary measures. NAFTA sanitary and phytosanitary rules are not governed by Article III (or XX(b)) of the GATT, notwithstanding the terms of Article 301(1) of the NAFTA.
The NAFTA refers to GATT successor agreement(s) in a number of provisions, including in the dispute settlement chapter, which is examined infra.
WTO Agreement, art. XVI:1.
Id., art. II:4.
When the Uruguay Round was concluded, it was not clear that all former GATT Contracting Parties would choose to join the new WTO. At least for a transition period, it was contemplated that some states might remain parties to the GATT 1947, and that relations between them, and relations between them and Members of the new WTO would need to be defined. It was foreseen that for an interim period two legally distinct agreements might be needed. See First Report of the Committee on International Trade Law , International Law Association, 66th Conf. (Buenos Aires, Aug.1994) (E.U. Petersmann and F.M. Abbott, Rapporteurs). As it happens, they were not. All GATT Contracting Parties became original Members of the WTO.
The subject matter of these new area agreements is generally outside the scope of the GATT 1947 and does not appear to fall within the GATT continuum. There may be a gray area surrounding certain of the WTO agreements that supplement the GATT 1994, since these supplemental agreements in some cases embody GATT 1947 practices and in others largely embody Tokyo Round Agreement rules.
Art. 2005(1), NAFTA, refers to cases arising under the GATT or "any successor agreement".
Art. 2005(3) & (4), id.
Art. 2005(6), id.
Such difficulties might be avoided if the Parties are able to agree on terms of reference which authorize a NAFTA panel to consider both agreements, though this might indeed lead to difficulties in the WTO if a NAFTA Party suspended concessions based solely on a NAFTA panel determination. Difficult questions also are raised when considering whether the WTO Dispute Settlement Body (DSB) may consider NAFTA rules in the context of claims also arising under the WTO Agreement. The WTO Dispute Settlement Understanding (DSU) does not make reference to agreements outside the WTO Agreement, and a WTO panel may be presented with a claim in which conflicting NAFTA and WTO rules might yield different results. This is considered infra.
Final Report of the Panel in the Matter of Tariffs Applied by Canada to Certain U.S.-Origin Agricultural Products, 1997 BDIEL AD Lexis 24, at 123 [hereinafter Canada Panel Report].
The Agreement on Agriculture requires WTO Members to reduce tarrificated quotas over time. Regarding the WTO Agriculture Agreement, see generally , UNDERSTANDING TECHNICAL BARRIERS TO AGRICULTURAL TRADE (David Orden and Donna Roberts eds., 1997).
The United States also argued that the rights Canada retained only extended to the imposition of quotas, so that Canada might not in any case impose new "tariff-rate quotas".
Canada Panel Report, at para. 123.
Canada was not, however, determined to be obligated to tarifficate by the WTO Agreement.
The panel expressly refers to Article 104 of the CUSFTA, which is the predecessor to Article 103 of the NAFTA. Article 104, CUSFTA, provides:
Affirmation and Precedence
1. The Parties affirm their existing rights and obligations with respect to each other, as they exist at the time of entry into force of this Agreement, under bilateral and multilateral agreements to which both are party.
2. In the event of any inconsistency between the provisions of this Agreement and such other agreements, the provisions of this Agreement shall prevail to the extent of the inconsistency, except as otherwise provided in this Agreement.
The panel observes:
"Existing" was used in [CUS]FTA Article 104 , which constitutes a general affirmation of rights and obligations under bilateral and multilateral agreements to which both states are parties. The use of the term "existing" would have made it clear [in regard to the provision invoked by Canada in this case] that the "rights and obligations" referred to were only those in existence at the time the agreement entered into force. Canada Panel Report, para. 136.
This statement by the panel is not particularly revealing in respect to
Article 103, NAFTA, because of differences in the construction of the two
provisions. Article 104, CUSFTA includes an additional phrase in paragraph 1.
It specifically refers to other agreements "as they exist at the time of entry
into force of this Agreement", which precludes a forward looking interpretation
of the relational provision of the CUSFTA. One may indeed ask whether the
elimination of such language in NAFTA Article 103 indicates an intention to
remove this temporal limitation, and thus to refer in Article 103(2) to the
GATT as it existed at the time of entry into force of the NAFTA, and as it
exists in the future.
In the Matter of the U.S. Safeguard Action taken on Broom Corn Brooms from Mexico (USA-97-2008-01) before the panel established under Chapter Twenty of the North American Free Trade Agreement, Final Panel Report, Jan. 30, 1998, www.nafta-sec-alena.org.
Id. at para. 50.
The panel also said: "The United States contrasted the language of NAFTA Article 802 ('Each party retains its rights and obligations under Article XIX of GATT . . .') with the direct language of incorporation employed in NAFTA Articles 301(1) and 309(1) ('Article [III and XI] of the GATT and its interpretative notes . . . are incorporated into and made part of this Agreement.')" (id. at para. 27).
The panel also noted that Mexico included in "its contentions with regard to the ITC's definition of "domestic industry" [that this] raised an issue of U.S. compliance with the additional conditions stated in NAFTA Article 802 and the definition of "domestic industry" in Article 805 that pertains to those conditions, as well as U.S. compliance with the process requirements stated in Article 803 and Annex 803.3"(id. at para. 28).
Article 2005(6), NAFTA, does not expressly address whether a second claim may be pursued in the alternate forum after the first claim has been adjudicated. The United States appears to accept that this must be the case.
WTO DSU, art. 25, referencing also arts. 21 & 22 with respect to awards.
WTO Agreement, Article II:2.
See Abbott reports to the Yearbook on International Environmental Law, infra .
In the Tuna II GATT panel decision, the panel accepted that GATT members might be subject to rules of international agreements outside the GATT, which agreements might provide the basis for GATT Article XX exception from compliance with otherwise applicable GATT rules. However, the panel did not find such agreements to be pertinent to the case under consideration. United States - Restrictions on Imports of Tuna (Tuna II), Report of the Panel, 33 I.L.M. 842 (1994). In the January 1994 GATT Banana decision, the panel rejected a claim by the European Community that certain action could be justified because the Lomé Agreement constituted a free trade agreement which provided an Article XXIV waiver. In doing so, the panel construed the terms of the Lomé Agreement. However, this determination was limited to whether an agreement constituted a measure justifying an exception from otherwise applicable GATT rules, and so might be viewed more in the context of a determination of GATT law than a determination of Lomé Agreement law. General Agreement on Tariffs and Trade: Dispute Settlement Panel Report on the European Economic Community - Import Regime for Bananas, January 18, 1994, (Not Adopted), 34 I.L.M. 177 (1995).
Frederick M. Abbott, WTO Dispute Settlement and the Agreement on Trade-Related Aspects of Intellectual Property Rights , in INTERNATIONAL TRADE LAW AND THE GATT/WTO DISPUTE SETTLEMENT SYSTEM 415 (E.-U. Petersmann ed., 1997).
United States - Import Prohibition of Certain Shrimp and Shrimp Products, AB-1998-4, WT/DS58/AB/R, 12 October 1998 (98-3899). For example, the Appellate Body referred to a number of environment-related treaties, such as the Convention on Biological Diversity, for aid in interpreting the meaning of arbitrary discrimination in the adoption of measures relating to the conservation of exhaustible natural resources under GATT Article XX(g), at para. 173. The Appellate Body also considered the Rio Declaration on Environment and Development, referred to in a WTO Ministerial Decision on trade and environment, to illustrate international support for a multilateral approach to adoption of environmental measures within the WTO. Id.
Concern has been expressed by some judges of the International Court of Justice regarding the jurisprudentially divisive potential of the Chambers procedure in which disputing parties effectively select the panel of judges. See dissenting opinion of Judge Shahabuddeen in Case Concerning the Land, Sea and Maritime Frontier Dispute (El Sal. V. Hond.) , ICJ, 1990, Order Regarding Application for Permission to Intervene, 1990 I.C.J. 3.
WTO DSU, art. 7:1.
International Fruit Company N.V. v. Produktschap voor Groenten en Fruit (No. 3), Case 21-24/72, Court of Justice of the European Communities, Dec. 12, 1972.
Council Decision of 22 December 1994 concerning the conclusion on behalf of the European Community, as regards matters within its competence, of the agreements reached in the Uruguay Round multilateral negotiations (1986-1994), 94/800/EC, 1994 OJ L 336, pub. date Dec. 23, 1994.
Fédération de l'industrie de l'huilerie de la CEE (Fediol) v. Commission, 1989 E.C.R. 1781, 2 C.M.L.R. 489 (1991).
Germany v. Council (Bananas -- Common organization of the market -- Import regime), Case C-280/93, Judgment of the Court, 5 Oct. 1994.
For a critical perspective on the Court's decision, Ernst-Ulirch Petersmann, .
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