North American trade pact near

Electronic News, July 27, 1992 by Jack Robertson

WASHINGTON -- The North American Free Trade Agreement (NAFTA), in its final negotiating stage last week, would allow duty-free shipment of computers among the U.S., Canada and Mexico if motherboards are assembled in any of the three countries, according to sources at the talks.

Negotiators, however, reportedly dropped the disputed earlier proposal to require computers with flat panel displays to use North American-made screens to qualify for duty-free shipment among the three nations.

The treaty does require any next-generation high definition television (HDTV) sets with direct-view flat panel screens to have the screens assembled in one of the three countries for duty-free treatment, sources said. Direct-view HDTV screens, in contrast with more-imminent projection active matrix liquid crystal display (LCD) systems, are unlikely to be ready for the market for some time, so such an NAFTA mandate may not have any immediate impact.

The draft also is said to require that computers and TV sets use North American-assembled cathode ray tubes (CRTs) to qualify for tariff exemptions. Unlike flat panel screens with very limited North American production, CRTs are still widely made on the continent, and could benefit from such NAFTA terms.

The benefit of duty-free shipment of various computers and video systems is mixed, depending on the type of product, sources agreed. The U.S. and Canada already have an existing free trade pact largely allowing duty-free computer shipments between the two countries. Even on computer parts imported from Mexico into the U.S. and Canada, the two nations have only a 3.9 percent tariff, although in the razor-thin margins of the low-end PC market even that additional cost can make a bite off profits.

Computers and computer parts shipments into Mexico currently face a much higher 10 to 15 percent average tariff there. Even the present NAFTA draft does not offer quick relief since Mexico would not be obligated for at least five years to start phasing in duty-free shipments. The proposed treaty would allow immediate duty-free computer shipments into Mexico if the units had North American-assembled motherboards.

A final NAFTA draft--ostensibly dropping the flat panel made-in-North America mandate for computers--would face greater acceptance from industry. The original proposal re-ignited a bitter debate between U.S. flat panel makers and the computer industry that originally flared in an anti-dumping case against Japanese display makers. Computer firms charged that their U.S. flat panel adversaries were trying to use NAFTA as another attempt to force U.S. customers to buy their displays.

Even so, the NAFTA pact is a lengthy, complex document covering sweeping facets of trade among the three countries. Ray Shaw, director of international trade for Arthur Anderson, said the "rules of origin" defining specifically what products might qualify for duty-free coverage are extremely complicated. "Companies would be well advised to pay close attention to the fine print and cross-references," he said.