BACKGROUND:
The
suspension of the cross-border pilot trucking program by Congress in 2009 has
been a breach of our international commitments, an embarrassment to our nation,
and a barrier to two-way U.S. trade with the people of Mexico. The time is long
overdue to correct this injustice and economic distortion by fully implementing
the trucking provisions of NAFTA.
Under
the 1994 agreement, the United States and Mexico were to allow trucks from each
country to deliver goods to destinations inside the other country, provided the
trucks and their drivers met all safety regulations mandated by the host
government. According to Annex I of the agreement, licensed and qualified
Mexican trucks were to be allowed to make deliveries in U.S. border states by
1995, a year after the agreement went into effect, and throughout the U.S. by
2000. U.S. truck firms were to be granted the same access to Mexico. But
under pressure from the Teamsters union, President Clinton unilaterally suspended
implementation of the provisions in 1995, citing safety concerns.
CASE PROBLEM:
The failure of Congress to allow implementation of the NAFTA trucking provisions has proven costly to the United States in three important ways.
First, U.S. failure to comply has deprived our economy of the efficiencies of moving goods across our mutual border at lower cost. With the ban in place, trucks approaching the border are required to unload their cargo into warehouses in so-called commercial zones within 25 miles of the border, only to have that cargo reloaded onto short-haul vehicles and then onto domestic trucks for final delivery. This inefficient system causes delays, increased pollution and added costs at busy border crossings such as Calexico East; San Ysidro; Nogales, Ariz.; and Laredo, Texas. Because more than 70 percent of U.S. trade with Mexico travels by truck, the ban on cross-border trucking imposes an additional $200 million to $400 million in transportation costs each year, according to the U.S. Department of Transportation.
Second, failure to comply has exposed U.S. exporters to perfectly legal sanctions imposed by the Mexican government. Under the provisions of NAFTA, and after waiting patiently for more than a decade, the Mexican government imposed sanctions in 2009 on more than $2.4 billion in U.S. exports affect 100 products, from Washington apples to Iowa pork. The sanctions would be lifted in two stages as the U.S. government implements the proposed program to comply with Annex I.
Third, failure to comply has compromised the U.S. government’s reputation as a good citizen of the global trading system. Simply put, the U.S. government has failed to keep its word to our Mexican neighbors. Our government has been in flagrant violation of a major trade agreement for more than 15 years. This breach of trust has undermined the U.S. government’s standing to challenge other governments, from Mexico to China to the European Union, who may also be in violation of various trade agreements. The Obama administration’s promise to more vigorously “enforce” our rights in the World Trade Organization and other agreements will lack credibility as long as the U.S. government fails to comply with such clear commitments as the trucking provisions of NAFTA.
THEORIES:
President George W. Bush, to his credit, tried to fulfill the U.S. obligation under NAFTA. His administration launched a pilot program in 2007, which allowed a limited number of Mexican trucking companies to deliver goods to U.S. destinations beyond the 25-mile commercial zone along the U.S.-Mexican border. Citing unsubstantiated safety concerns, and in the face of ongoing union pressure, a bipartisan majority in Congress voted to cut off funding for the program in 2009.
The Obama administration has sought to reinstate the program under the “concept document” released in January 2011. The document and the attending regulations would go a significant way toward implementing the original NAFTA obligations and should be adopted as soon as possible.
Suspension of the pilot program in 2009 was based on protectionism and prejudice, not legitimate safety concerns. Although Teamsters union leaders talk about safety, their real agenda is not to promote safer roads but to protect themselves from increased competition. The broader agenda of their congressional allies is to thwart full implementation of a successful trade agreement with Mexico, our third-largest trading partner. The real objection they have to Mexican trucks making deliveries to U.S. cities is not that they are unsafe but that those trucks are driven by Mexicans. In the eyes of too many members of Congress, “driving while Mexican” remains an unacceptable public hazard.
In contrast to those stereotypes, experience from the pilot program has demonstrated that Mexican trucks and their drivers are fully capable of complying with all U.S. safety requirements. An August 2009 report from the Department of Transportation’s Inspector General found that only 1.2 percent of Mexican drivers that were inspected were placed out of service for violations, compared to nearly 7 percent of U.S. drivers who were inspected. The “out of service” rate for Mexican trucks was slightly lower than the rate for U.S. trucks, even though Mexican trucks were inspected six times more often than the U.S. trucks.
CONCLUSION:
Whether
or not the United States should fulfill its NAFTA commitment and allow Mexican
cargo trucks to travel throughout the United States is a controversial issue.
On one hand, free traders have favored an open transportation policy on the
grounds that it will lead to greater economic efficiency and benefits to
consumers in the form of lower prices. They also note that the world opinion of
the United States has deteriorated as the U.S. has maintained its refusal to
grant access to Mexican cargo trucks. However, the Teamsters and other unions
have officially opposed an open transportation policy on the grounds of truck
safety, although job preservation for their members appears to be an important
part of their motivation.
Indeed,
strong political forces have served as a barrier to an open trucking policy.
During his campaign for the presidency, Barack Obama maintained that an open
transportation policy should not be applied to Mexican drivers and that the
United States should renegotiate NAFTA. Since Obama became president, he has
slowly moved in the direction of granting access to Mexican truckers, as seen
in his March, 2011 announcement of a trucking deal with Mexico. Nevertheless, a
skeptical Congress has dragged its feet on forming free trade and
transportation deals not only with Mexico, but with other countries such as
South Korea and Colombia. At the writing of this paper, it remains to be seen
if President Obama can convince Congress to ratify his trucking deal with Mexico.
What
will be the effects for commercial trucking under the Obama-Calderon deal? It
is likely that the opening of the Mexico-U.S. border will be based on
gradualism, and therefore the effects will be modest. That is, there will not
be an immediate surge of U.S. long-haul trucks into Mexico during the first
several years after enactment, nor a surge of Mexican long-haul trucks into the
United States. Why is this so?
Mexican
cargo trucks operating in the United States will continue to encounter several
disadvantages. Increased border delays since the September 11 terrorist attack
against the United States have added to the time that Mexican trucks and
drivers are not operating, resulting in increased costs that burden long-haul
cargo companies and discourage them from making commitments to trade with the
United States. Moreover, Mexican trucks will be handicapped by relatively high
costs of insurance, an English language requirement that restricts the number
of Mexican trucks that can operate legally in the United States, and relatively
higher interest rates due to less access to financial resources than their
American competitors.
Another
disadvantage to Mexican trucking companies operating in the United States is
that the profitability of trucking declines with an increase in the distance
that empty trailers are hauled. For a Mexican trucking company, lower wages of
Mexican drivers increase its competitiveness. However, this advantage can be
significantly offset by the lack of a revenue-earning backhaul, since it is
illegal for a Mexican truck to pick up and make a domestic U.S. delivery on the
way back to Mexico. Therefore, it is likely that only the U.S.-Mexico border
states will initially serve as the major zone of competition; that is, only a
few Mexican trucking firms that develop business relationships with American
customers will be able to benefit from backhaul loads from deep in the United
States to Mexico.
The
likelihood of substantial numbers of U.S. trucking companies’ immediately
providing cargo service deep into Mexico also appears to be low. Once an
American truck and driver enter Mexico, they encounter a labor cost
disadvantage relative to their Mexican competitors. Also, many U.S. drivers do
not speak fluent Spanish, and they may also believe that Mexico is becoming an
increasingly dangerous place to operate, in view of the violence of Mexican
drug cartels. These factors will continue to discourage long-haul U.S. cargo
truckers from traveling very far into Mexico. Most of the access will likely be
near the border, where Mexican trucking firms will face increasing competition
from American companies serving the industrial parks’ (maquiladora) trade.
Over
the longer run, the ability of Mexican truck companies to extend their range
into the United States, or U.S. trucking companies to penetrate Mexico, will
become less dependent on government rules applied to commercial activities and
more dependent on the economics of global trucking. The major determinant of
the growth of border truck crossings has been the growth in trade between the
two countries, which determines the amount of freight that must be transported
across the border. It is unlikely that the Obama-Calderon plan to open
transportation networks will, by itself, result in a substantial increase in
the amount of cargo transported across the border.
The
economic relationship with Mexico is strategic to the United States because of
the implications it has for bilateral trade, economic conditions in both
countries, economic competitiveness, and border security. President Calderon
and President Obama have reaffirmed their shared values and the need for
increased cooperation in North America to promote economic growth and
competitiveness. If the United States is to deepen economic integration with
Mexico, it is necessary that the long-standing trucking dispute between these
countries be put to an end.
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