Brooms manufactured from broomcorn became specifically subject to an increase in US import tariffs in 1996. In response to the US action, chief exporter of broomcorn brooms Mexico requested dispute settlement from an arbitration tribunal of NAFTA, which eventually decided in Mexico's favor. It was one of only three cases to be decided under the provisions of Chapter 20 of NAFTA.
The Broom Corn Brooms Dispute
"IN THE MATTER OF THE U.S. SAFEGUARD ACTION TAKEN ON BROOM CORN BROOMS FROM MEXICO" was a case brought before the NAFTA Free Trade Commission by the Mexican government, citing the US as respondent.
Factual background
Pre-NAFTA tariffs
In 1965 the US charged the following tariffs on broomcorn brooms to countries with most-favored-nation (MFN) status: 121,478 dozen at 8% ad valorem, and additional brooms at 32 cents each (for brooms under 96 cents in value) or 32% ad valorem (for those worth 96 cents and over).
NAFTA tariff obligations
From 1 January 1994, following the signing of NAFTA, US tariffs on broomcorn brooms were set at the following rate: all brooms worth less than 96 cents were duty-free, the first 100,000 dozen worth 96 cents or more were duty-free, and imports in excess of this figure were to be subject to a duty of 22.4% ad valorem from 1994 to 1999, a duty of 16% from 2000 to 2004, and duty-free after 2004.
U.S. Safeguards proceedings
In March 1996 the US Cornbrooms Task Force, an industry interest group, submitted two petitions to the US International Trade Court (ITC) – one under the Trade Act of 1974 and one under NAFTA – to allege serious injury as a result of rapidly increasing imports of broomcorn brooms from Mexico under the new duty-free provisions. In July 1996 the ITC ruled that there was material harm to the cornbrooms manufacturers and they were entitled to relief in both petitions. In August 1996 the ITC sent its report to the US President. On 28 November 1996, following the recommendations laid out in the ITC report, President Clinton issued Proclamation 6961, imposing a three-year tariff increase on certain broomcorn imports.
The dispute process
Meeting of the Free Trade Commission
On 11 December 1996, at the request of Mexico and in keeping with Article 2006(4) of NAFTA, the NAFTA Free Trade Commission (FTC) convened to negotiate an agreement between Mexico and the US. On 12 December 1996, Mexico complicated negotiations by imposing retaliatory tariffs amounting to an estimated $1.4 million cost to the US economy. After the requisite 30 days of negotiation had elapsed and no agreement had been reached, Mexico asked on 14 January 1997, that an arbitration tribunal be organized under the rules set out in Article 2008.
Convening of the tribunal
NAFTA arbitration tribunals under Chapter 20 were convened when negotiations failed to resolve an ongoing dispute. Such a tribunal consisted of five members drawn from a list of "30 individuals who are willing and able to serve as panelists" maintained by each member nation. Potential panelists were "appointed by consensus for terms of three years, and may be reappointed." Article 2009 provided that these panelists:
have expertise or experience in law, international trade, other matters covered by this Agreement or the resolution of disputes arising under international trade agreements, and shall be chosen strictly on the basis of objectivity, reliability and sound judgment; be independent of, and not be affiliated with or take instructions from, any Party; and comply with a code of conduct to be established by the Commission
In accordance with these guidelines, five arbiters were selected:
Chief: Paul O’Connor
Arbiters: Raymundo Enriquez, Dionisio Kaye, John H. Barton, Robert E. Hudec
Submission of arguments
Rather than sending litigants to argue their cases before the tribunal, parties to a NAFTA arbitration submitted written arguments for review. For both parties the arguments hinged on two significant points:
Did the tribunal have legitimate jurisdiction in this case? The legal definition of the term 'like product' as established in GATT and WTO provisions and incorporated in Article 308.3 of NAFTA.