Each day nearly $2.5 billion of goods are traded among the three NAFTA countries with U.S. exports to Mexico and Canada almost $400 billion in 2009; the number one and two U.S. export markets. Mexico’s Economy Minister estimates that 70 percent of U.S.-Mexico two-way trade moves by truck. The Mexican government allows U.S. trucks to operate in Mexico and Canadian carriers have been operating in the U.S. since 1982. U.S. agricultural exports to Canada and Mexico in fiscal year 2010 were $30.5 billion, 28.1 percent of total agricultural exports. Most of the $13.9 billion of agricultural goods exported to Mexico and the $13.0 billion in agricultural imports from Mexico are affected because industry analysts estimate 95 percent of that trade moves by truck.
The dispute goes back to the beginning of implementation of NAFTA on January 2, 1994. The U.S. and Mexico agreed to permit access to border states by December 1995 and all states by January 2000. In December 1995, President Clinton postponed implementation of the trucking provisions and limited Mexican trucks to designated commercial zones within 20 miles of the border. A NAFTA arbitration panel ruled in 2001 that the U.S had breached its NAFTA obligations. The Bush Administration announced it would meet those obligations, but it was September 2007 before a temporary pilot program was implemented for one year. It was given a two year extension before Congress eliminated funding in March of 2009.
Secretary of Transportation Ray LaHood on January 6th issued a concept document on a Phased U.S.-Mexico Cross-Border Long Haul Trucking Proposal as a basis for negotiations with the Mexican government on the number of carriers and trucks and how to manage the program to ensure adequate oversight. The safety audit would be similar to the earlier pilot program, including a traffic law test for each driver conducted in English. Vehicles and drivers would be inspected at the border with follow-up reviews of companies to ensure continued safe operations.
The Mexican Trade Minister has announced the government will no longer rotate the $2.4 billion worth of products, known as a "carousel program", for tariffs imposed in March of 2009 in response to the ending of the pilot program. Tariffs will remain for the 99 products currently on the list, but would be removed as the trucking issues are resolved. The current 99 products include pork. Mexico is the largest U.S. pork export market on a volume basis and exports are down 11 percent since August when the tariff was imposed. Mexico is also the largest market for U.S. milk products, and exports for cheeses covered by the tariffs are down 66 percent. U.S. fresh and processed apples were added to the tariff product list last August; Mexico accounts for about a fourth of U.S. exports.
All of this activity is hopeful for a resolution of the dispute, but much is left to be done. U.S. Trade Representative Ron Kirk has said that the program could be “up and running” in four to six months. Mexico's Communications and Transportation Secretariat has already submitted questions to the U.S. on the substance of the Transportation Department’s plan. USTR Kirk said the U.S. would like to start negotiations within a week. Then the U.S. Department of Transportation will decide if an agreement can be achieved. Once an agreement is achieved, Congress will have to pass appropriate legislation. With opposition from the Teamsters union and others, many challenges could disrupt the process.
The real question in all of this is why after seventeen years of NAFTA is the U.S. political process still struggling with access to the U.S. for Mexican trucks? Canadian trucks have been in the U.S. for almost 30 years without major problems. Many opposition groups have used safety of the Mexican trucks and drivers as the key issue. That is an appropriate concern, but one that can be dealt with through enforcement of the safety regulations in the concepts document released by the Transportation Department, many of which were in the earlier pilot project. Enforcing laws is not easy, but preregistration and checking trucks and drivers at the border are clearly doable.
The problem is that passing laws, like creating NAFTA, is far easier than getting all of the details right on implementation. Both supporters and critics of free trade agreements have noted the problem, but the immediate costs of ignoring problems have not been large enough to force Democratic and Republican Administrations to act. The long-term costs have gotten larger as the lack of integrated transportation reduces the benefits of NAFTA. While sellers of U.S. products paying higher tariffs are right to complain, the Mexican government has done the U.S. a favor by forcing resolution of an issue that should have been dealt with 15 years ago.
As noted earlier, government officials at the NAFTA Commission meeting have recognized that failures on regulatory integration are costly to businesses and consumers in all three countries. They committed to: bilateral mutual recognition agreements for test results from laboratories or testing facilities, updating the NAFTA rules of origin, working closely with the North American Commission for Environmental Cooperation, cooperating with the North American Commission for Labor Cooperation (CLC) to improve the functioning of the labor side agreement, and to greater market access for small and medium-sized enterprises. All of these issues and more could prevent gaining further economic benefits under NAFTA.
Implementing free trade agreements is a continuous process. The original terms of the agreement need to be met and regulations need to be undated to respond to changing markets as trading relationships develop further.