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CHAPTER 14
NORTH AMERICAN FREE TRADE LAW
CASES IN THIS CHAPTER
In the Matter of Cross Border Trucking
Metalclad Corporation v. The United Mexican States
Samsonite Corp. v. United States
TEACHING SUMMARY
NAFTA is a tri-lateral agreement among the United States, Canada, and Mexico. In part, it
resembles an element of the European Union, i.e., a free trade area where goods of the
member countries can flow freely and without tariffs among them, with certain dispute resolution
mechanisms. NAFTA, however, is not nearly as all-encompassing as the EU, but it is also not as
old. Under NAFTA, only certain goods move without tariffs, though others are being phased in.
The signatories are also still negotiating requirements to allow individual firms, such as trucking
companies, particularly those from Mexico, to cross borders.
1. What were the panel’s holdings with respect to the various restrictions on the free
operation of the Mexican trucking industry in the United States?
2. As noted in the comment to this case, was the opposition to the operation of Mexican
trucking companies in the United States based primarily on safety or economic
considerations?
3. Does the example of the trucking dispute prove that despite NAFTA’s free trade
provisions, there are some areas where trade will never be free or without restrictions?
Why or why not?
Answer: This question calls for student opinion.
Chapter 14: North American Free Trade Law
Metalclad Corporation v. The United Mexican States
1. What was the panel’s decision with respect to the restrictions placed on Metalclad’s
operations by Guadalcazar?
2. The Metalclad decision and similar cases have been criticized as placing the rights of
foreign investors ahead of the rights of local communities with respect to fundamental
concerns such as environmental protection. Is this criticism valid? How would you
resolve the fundamental conflict between protection of local community interests and
investor’s rights? Should the community pay for actions that interfere with the
expectations of foreign investors? Why or why not?
Answer: This question calls for student opinion.
Samsonite Corp. v. United States
1. What was the court’s holding with respect to the application of Section 9802 to
Samsonite’s steel strips?
2. Samsonite contended that the bending process in Mexico was less significant than the
process upheld as mere assembly in the General Instruments Corp. case. Do you
agree? Was the court correct in this regard, or is the purported difference one without
substance?
Answer: This question calls for student opinion.
8. Answer: This question provides an excellent opportunity for students to debate
the role of ethics, law, and culture when working abroad. The key in the discussion is the
MANAGERIAL IMPLICATIONS
1. Answer: Students should focus on the effect of the change from category
6307.90 to 9404.90 and what the item actually is that DownPillow seeks to import. Although the
category change will have some effect later, once the shell is filled, when the shells cross the
2. Answer: Companies should always be looking to optimize profits. When the cost
of European materials rose, DownPillow owed its shareholders a fiduciary duty to continue to
return a dividend to the shareholders. The decision to purchase materials from China,
Supplemental Case : General Motors Corporation v. United States , 976 F.2d 716 (Fed.Cir.
1992). In General Motors, the Court of Appeals reversed the Court of International Trade and
held that automotive topcoat painting operations performed on sheet metal component parts
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom
use.
Chapter 14: North American Free Trade Law
shipped to foreign countries for assembly into automobiles were not “operations incidental to
assembly” within the meaning of Section 807 (now 9802). As the opinion described:
The Ramos Arizpe assembly process is described as consisting of five operation groups: body
shop, paint shop, chassis line, trim shop, and final process. In the first group, body shop, major
component subassemblies are fitted together and spot welded to create the body of the
automobile. In the second group, paint shop, the body is cleaned and sprayed with a protective
zinc phosphate compound, submerged in an electro deposition primer tank, baked, sanded,
treated with a sealant, and then baked again. This is followed by an application of surface primer.
At this point, topcoat (finish) paint is applied and the body is oven cured. Finally the body is
waxed and sent along to the trim shop.
In the trim shop, certain internal components are installed and water testing is performed. Next,
in chassis, while the radiator, grille, and gas tank are attached to the body, the engine,
transmission, and frame are independently sub-assembled on a separate conveyor. The body
and frame are then joined, and the bumpers, radiator, and tires are installed. The last operation is
final process wherein manual detail work, sundry inspections, wheel alignment, and final drive
tests are performed. The finished vehicle is then reshipped to the United States for sale. Upon the
re-entry of the vehicles at issue here into the United States, GM sought a tariff allowance for the
value of the sheet metal components manufactured in the United States, in accordance with item
807.00, TSUS . . . (which provides for an allowance for “operations incidental to the assembly
process such as cleaning, lubricating, and painting”).
GM urged that the issue could be resolved by relying on the plain language of the statute
and that item 807.00 expressly enumerates painting as an acceptable operation incidental to
assembly. The court, however, disagreed. It, instead, found that the statute's reference to
“painting” was simply an exemplar of an operation that is potentially “incidental to the assembly
process,” not a definitive statement that all painting operations, no matter how extensive, are
allowed under item 807.00(c).
To determine whether a minor operation is incidental to the assembly process, one
should consider: (1) whether [i] the cost of the operation relative to the cost of the affected
components and [ii] the time required by the operation relative to the time required for assembly
of the whole article were such that the operation may be considered “minor”; (2) whether the
operations in question were necessary to the assembly process; and (3) whether the operations
were so related to assembly that they were logically performed during assembly. As applied
here, the court concluded that the capital investment in machinery and equipment in the paint
shop is more than five times that in the body shop where significant assembly operations are
performed, demonstrating that the paint shop operations are not within the scope of item
807.00(c).
ETHICAL CONSIDERATIONS
This question calls for student opinion. Students may apply several different ethical theories in
reaching their conclusions. For example, a moral relativist might contend that the maquila
industry is appropriate given Mexico’s status as a developing economy and the level of skill of a
significant portion of its workforce. However, a moral relativist could also argue that, although
perhaps appropriate at the present time, the maquila industry is not a viable long-term strategy
for economic prosperity.
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom
use.
Chapter 14: North American Free Trade Law
Utilizing a utilitarian point of view, students may conclude that the maquila industry is ethical
given that it results in the greatest overall good for the community by providing economic growth
for Mexico and jobs for Mexican workers. However, a utilitarian approach may also conclude
that the maquila industry will not result in the greatest overall good for the greatest number in
the long term, especially with respect to environmental protection and labor rights.
By contrast, divine command theory may find the maquila industry objectionable to the extent
that it encourages the exploitation or mistreatment of labor contrary to human dignity.
Maquiladoras may also be subject to condemnation pursuant to the categorical imperative as no
one would wish for the practices within the industry to become universal laws with respect to the
treatment of laborers engaged in manufacturing. The industry is subject to further condemnation
to the extent that it treats workers as a means to an end. Finally, the lack of fairness and
equality in the maquila industry may subject it to criticism pursuant to contractarianism.
Exploitation of labor, to the extent it occurs in the industry, may also be deemed to violate the
duties and responsibilities placed upon employers with respect to low skilled workforces in
developing economies.
