Mexico and U.S. Move Closer to Agreement on Cross-Border Trucking

Sources:
Bloomberg.com: Mexico: US 'Really Put Out' by Retaliatory Tariffs
Bloomberg.com: Pig Farmers May Top Truckers' Gains on Mexico Border Rule
Eluniversal.com.mx: EU da nueva opción en tema transporte
NYTimes.com: U.S.-Mexico Trucker Dispute Takes a Step Forward

When the North American Free Trade Agreement (NAFTA) came into force on January 1, 1994, the parties failed to resolve a contentious provision allowing the free flow of truckers across borders. Without such an arrangement, Mexican truckers were not allowed to take their shipments all the way from Mexico to their final destinations in either the United States or Canada. As of today, Mexican truckers are still not allowed to do this, but Mexican President Felipe Claderón announced recently that President Obama has drafted a new proposal to resolve the long-standing dispute.

The current shipping system is highly inefficient. Mexican truckers are only allowed within 25 miles of the U.S.-Mexico border, at which point they must detach their load so that an American trucker can take it the rest of the way. Mexico hopes that allowing Mexican truckers to enter the U.S. will increase efficiency and decrease the cost of trans-border shipments. The lower transportation costs would make Mexican goods cheaper and therefore more competitive in the U.S. and Canadian markets. Ultimately, Mexico believes this will increase its exports while creating quality jobs for Mexicans.

Despite the obvious benefits for Mexico, the U.S. has consistently balked at any proposals to solve the problem. It complains that Mexican trucks and drivers do not meet U.S. safety and environmental standards, but most observers say that politics are the cause of the delay. The Teamsters truckers union in the United States, one of the largest and strongest supporters of the Democratic Party, has vehemently (and so far successfully) opposed any greater access into the U.S. for Mexican truckers by raising not only the safety and environmental concerns raised by politicians, but also the concern that American trucking jobs will be lost to the cheaper Mexican truck drivers. The Union has even claimed that the cross-border trade in drugs and the flow of illegal immigrants will increase if the provision is put in place, even though it does nothing to reduce border security standards.

The dispute has flared up at various times since the mid-1990s, including when Mexico sought arbitration under NAFTA’s dispute settlement procedures (read the decision here). Though the panel determined that the U.S. was in breach of NAFTA for having a blanket ban on applications for licenses from Mexican-owned trucking firms, the decision caused little, if any, change.

In 2007 the U.S. started a pilot program allowing a small number of Mexican truckers to enter the country with the hope that it would eventually become a permanent solution. Only 157 Mexican truckers participated in the pilot program before a Democrat-led Congress terminated it in 2009 by voting not to include funding in the annual budget. Mexico responded 6 days later by placing retaliatory tariffs on nearly 100 U.S. products coming from 40 different states. The tariffs are estimated to cost U.S. exporters $2 billion per year. President Calderón says that the tariffs will remain until the U.S. allows Mexican long-haul truckers to enter the U.S.

These tariffs have caught the attention of U.S. lawmakers. Congressmen from Texas have been clamoring for a resolution to the dispute to stop the damaging effects of the tariffs on Texan exports. This argument is surely more persuasive today than ever after President Obama announced a goal of doubling U.S. exports by 2014 in his State of the Union Address; a goal that will be difficult to meet as long as significant trade barriers exist between the U.S. and one of its largest trading partners. Nevertheless, President Obama still must confront the Teamsters Union and its claim that American truckers will lose jobs if they are forced to compete for positions with cheaper Mexican drivers—an equally strong argument when the national unemployment rate hovers just under 10%.

Even if Mexican truckers were allowed to ship across the U.S., many Mexicans are doubtful there would be any immediate impact on trade because it is hard for Mexicans to obtain diesel fuel and trucks that meet U.S. standards. President Obama’s proposal also includes a provision requiring that Mexican truckers learn English and meet U.S. licensing requirements, neither of which can happen overnight. Ultimately, this new proposal is merely a new beginning to a lengthy negotiations and implementation process. NAFTA’s ultimate goal of completely free trade in North America is still years away from accomplishment.

Discussion:
1) For which country is this issue more important? Why?
2) How might an agreement on this highly contentious issue improve U.S.-Mexico relations, specifically in terms of NAFTA compliance? How might a failure to agree on this issue negatively impact those relations?
3) The U.S. has delayed resolution of this issue from the beginning of NAFTA. Why then did it even agree to include the provision in the trade agreement in the first place?
4) How might gains in U.S. exports make up for any potential job losses to the Teamsters?
5) If the two countries are still unable to come to an agreement, what more should Mexico do to push its agenda, considering it already used retaliatory tariffs?