With tariffs falling worldwide under the World Trade Organization, as the European Union gains strength by jumping to 25 members this year, and as Asia makes big economic gains, NAFTA was in serious need of updating.

Meeting in San Antonio, Texas, U.S. Trade Representative Robert Zoellick, Mexican Commerce Secretary Fernando Canales Clariond, and Canadian Minister of International Trade James Peterson agreed to far-reaching revisions in NAFTA’s rules of origin.

The rule simplification, set to go into effect on Jan. 1, is expected to affect $20 billion of trade annually.

It is the biggest set of changes in NAFTA’s decade of existence, coming after another $15 billion in tariff-reducing steps went into effect between the United States and Canada last year, with Mexico added in July.

Significantly, the NAFTA trade ministers signaled their intentions to continue slashing North American tariffs, eventually reaching zero-tariff levels for $200 billion in trade yearly, a move that should help North America remain competitive.

In San Antonio, the trade ministers announced that the definition of “origin” would change for merchandise trade in foods, consumer and industrial goods.

Examples of products include spices, food additives, mixed seasoning, satellite decoders, electrical machinery, stereo loudspeakers, microwave ovens, fans and product components.

Toys are the biggest product area included in the new definitions.

To use spices as an example, the original NAFTA rules of origin, which went into effect in 2001, added tariffs to raw materials, like raw spice agricultural ingredients, that entered North America for cooking, processing, refining and packaging for sale worldwide.

Under the new rules, “origin” is conferred to the processing of raw materials and components, like raw spice agricultural products.

That reduces the duties levied as materials enter North America and leave for international sales, reducing the prices and making products more competitive in the global marketplace.

The tariff changes for food, consumer and industrial goods can be enacted by executive order in the United States and Canada.

For Mexico, approval is necessary from the Mexican Senate.

The NAFTA Commission, as the three trade ministers are called collectively when they meet yearly, is building toward a broad expansion of this rule change for Jan. 1, 2006.

Next year, the commission hopes to extend the new definition of origin to chemicals, pharmaceuticals, plastics, rubber, motor vehicles (and their parts), footwear and copper, plus “any items for which all of our countries have a common most-favored-nation duty rate of zero,” according to a NAFTA Commission’s joint statement.

The trade ministers added they welcome suggestions and information from producers for other product categories that should be added to the 2006 list.

The rules of origin were written in 1992 and initially were meant to protect North American suppliers of raw materials and components from non-North American competition after their effective date of 2001.

But large increases in foreign direct investment in North America, plus falling tariffs worldwide because of the successful completion of the Uruguay Round of world trade talks in 1994, which created the WTO, actually made the rules of origin counterproductive as 2001 approached.

Cross-border trucking issue nearly resolved Another huge NAFTA change is looming.

In June, the U.S. Supreme Court reversed an appellate court ruling that had stalled U.S.-Mexico cross-border trucking since early 2003 on the grounds that the U.S. Department of Transportation had not conducted an environmental assessment of Mexican long-haul trucks delivering freight to the U.S. interior.

Presently, U.S. and Mexican carriers must stop at the U.S.-Mexico border zone where the freight changes carriers, a costly process that requires the transfer of containers across border crossings and bridges by poorly maintained short-haul trucks.

Actually, NAFTA’s cross-border trucking provision had been delayed since December 1995, when truck deliveries were supposed to begin within U.S. and Mexican border-states, and 2000, when deliveries by U.S. and Mexican carriers could begin continent-wide.

But the Clinton administration, followed by Congress, blocked cross-border trucking, citing safety concerns over Mexican trucks.

As of July, the U.S. Department of Transportation had not announced a date when it would authorize the first Mexican carriers to make deliveries into the United States. Officials said only that it would occur after a traditional 50-day waiting period after the June decision by the U.S. Supreme Court.

Meanwhile, Mexico had not moved yet to issue reciprocal rules that would allow U.S. carriers to make one truck-one driver deliveries in Mexico’s interior. Mexico’s Canales, however, said during the NAFTA Commission meeting in July that his country is ready to reciprocate.

He also did not specify a date, but the rules likely will be issued soon after U.S. authorities open the U.S.-Mexico border to Mexican trucks to avoid the possibility of the United States filing a non-compliance charge against Mexico.

NAFTA advocates for years have said a more efficient border will further integrate U.S. and Mexican industrial operations at lower costs, making North America more competitive overall.

Citing the new rules of origin, the NAFTA commission said in San Antonio their actions prove NAFTA is an agreement that can be flexible to meet changing circumstance in world trade.

North American trade volume reached $623 billion in 2003, more than double the pre-NAFTA level.

Every 30 minutes, U.S. ambassador Zoellick said, $35 million of NAFTA trade occurs and $10 million in foreign direct investment reaches the continent.