Failure to resolve this issue has resulted in a highly inefficient 20 mile-wide commercial zone on both sides of the border where short-haul trucks link U.S. and Mexican long-haul trucks. Over 80 percent of the goods traded between the U.S. and Mexico moves by trucks with extra cost estimated by the U.S. Department of Transportation at $200-400 million per year. After repeated attempts to resolve the issues, in February 2007 the two countries agreed to a pilot program allowing 100 trucking companies based in each country to make deliveries in the other country. Only 26 Mexican trucking companies participated in the U.S. program and ten U.S. companies participated in Mexico. During the 2008 presidential campaign then Senator Obama displayed hostility toward NAFTA and the House and Senate easily approved an appropriations bill provision to deny funding for the pilot program. While the Mexican trucks in the pilot program will no longer be allowed to operate in the U.S., Mexico will continue to allow the U.S. trucks in Mexico.
Mexican trucks were allowed to operate in the U.S. prior to 1982 when President Reagan barred new companies because Mexico did not allow the same opportunities for U.S. trucking firms. About 800 Mexican trucks were allowed to continue to operate in the U.S. Mexico-based trucks are regulated by the U.S. Department of Transportation, Federal Motor Carrier Safety Administration and detailed safety records are maintained. The President and CEO of the U.S. Chamber of Commerce, Tom Donohue, said recently, “Every Mexican truck entering the U.S. must meet every U.S. safety requirement, so these are some of the most inspected trucks anywhere in the world. Since the pilot project was launched, their safety record has been outstanding.”
Efforts to thwart the NAFTA trucking provisions began in Congress shortly after NAFTA was implemented in 1994. In 1998 Mexico filed a case against the U.S. under Chapter 20 of NAFTA and in 2001 a five-member panel, chaired by a Briton with two U.S. members, ruled against the U.S. Findings under Chapter 20 are only advisory, but they do put political pressure on the U.S. The panel ruled that the U.S. cannot assume that all Mexican trucks and drivers are unsafe and must accept qualified applications on a case-by-case basis. The U.S. has the right to regulate Mexican trucks and drivers to meet or exceed regulations on U.S.-based trucks and drivers. After the NAFTA ruling Congress created 22 safety regulations that Mexican trucks must pass before they can travel beyond the border commercial zone, including insurance with a U.S.-licensed company and the ability of drivers to understand questions and directions in English. Those regulations were fought by environmental and labor groups until the U.S. Supreme Court unanimously ruled against them in 2004.
The Mexican truck case is the highest profile of the few cases brought under Chapter 20 of NAFTA. Resolving high profile cases under any trade agreement can prove difficult as shown by the Brazilian WTO cotton case against the U.S. and the U.S. WTO case on hormones in meat against the EU. Effort to stop Mexican trucks not only threatens NAFTA; it leaves uncertainty about long-term transportation links for the three countries. Creating a safe and integrated transportation system would benefit producers and consumers in all three countries and improve competitiveness with the rest of the world.
In retaliation for ending the pilot trucking program the Mexican government has proposed tariffs on $2.4 billion worth of 36 agricultural and 53 industrial products imported from 40 states. Most tariffs will be 10-20 percent, but fresh grapes will have a 45 percent tariff. The Mexican government has avoided necessities for consumers and items that affect key industries. The published list includes soft drinks, Christmas trees, selected fruits and vegetables, wine and hygiene items. The tariffs are designed to equal the trade lost by banning Mexican trucks.
This case fails the usual economic arguments in favor of protectionism. Some Mexican trucking companies would quickly respond to the opportunities to transport products from Mexico to the U.S., but they are not likely to make much of an impact on the U.S. market. While Mexican drivers work for lower wages, the companies will not have the established routes and support services that U.S. companies have developed over the years. The campaign against Mexican trucks in the U.S. appears to be driven by the general principle that consumers in the U.S. should be denied the right to decide whether to buy products partially or totally produced in a country that is the second largest buyer of products from the U.S.
President Obama has said the Administration will work on a new plan that will meet the legitimate concerns of the Congress and meet the country’s obligations under NAFTA. Those words are similar to what he said after the House and Senate voted for the buy American language in the stimulus bill. Secretary of State Clinton will be in Mexico next week and President Obama will meet with Mexican President Calderon in Mexico in mid-April. Based on the actions over the last decade by those opposed to allowing Mexican trucks into the U.S., there does not appear to be some middle ground where the Administration can choose to stand.
If President Obama does not take a clear stand in support of our trade commitments, U.S. producers and consumers who benefit from trade will continue to be losers. The President’s position at the G-20 meeting in early April will also be further weakened as leaders of other countries become increasingly convinced that the U.S. will slide further toward protectionism. President Obama needs to make a principled stand on this issue or he risks continued challenges on trade protectionism at home and abroad.