Question

What key provision of NAFTA restricts Japan from assembling autos in Mexico and avoiding U.S. or Canadian tariffs and quotas, unless the auto had a specific percentage of Mexican (i.e., North American) content?

Answer 1

NAFTA's provision, known as the rule of origin, required a specific percentage of an auto’s content to be manufactured in North America, allowing it to avoid tariffs and quotas in the NAFTA region.

Step-by-step explanation:

The key provision of the North American Free Trade Agreement (NAFTA) that restricts non-North American countries, like Japan, from assembling autos in Mexico to avoid U.S. or Canadian tariffs and quotas is known as the rule of origin. This rule required that a specific percentage of an automobile's content must be manufactured in North America to qualify for the agreement's benefits, which primarily include exemption from tariffs and quotas when being exported to other NAFTA countries. In this way, NAFTA aimed to ensure that the benefits of the treaty were exclusive to the member states and to encourage the production and integration of the North American automotive industry.