Mexican Truck Ban Sparks Trade War

March 18, 2009
Mexico to raise tariff on US goods in dispute over NAFTA requirements to allow Mexican trucks into the US.

The dispute over allowing Mexican trucks to enter the US and proceed beyond the immediate border area to make deliveries and pick up freight has gotten so tangled in US politics that it resembles the plot of a TV soap opera. The North American Free Trade Agreement (NAFTA) calls for the US and Mexico to allow each others' trucks roll into the interior without cabotage rights, but US groups, including the International Brotherhood of Teamsters (IBT) sought to block Mexican trucks as unsafe. Now that the trucks have been halted, Mexico has responded with higher tariffs on US export goods bound for Mexico.

As the new cast member in this over-acted drama, the Obama Administration was greeted with trade sanctions in the form of increased tariffs on 90 US products exported to Mexico. The White House has let it be known the new president wants to work with Congress to restore the controversial program that allowed Mexican trucks to begin making deliveries beyond the border commercial zone. That program was started in 2007 when then Transportation Secretary Mary Peters announced a one-year pilot project to allow 100 Mexican carriers to provide door-to-door delivery service from Mexico into the US.

The US had avoided complying with provisions of the transportation chapter of the NAFTA for 12 years, causing Mexico's leadership to bring the issue before the World Trade Organization during that time. Efforts to comply were met with opposition on the grounds of safety, security, negative impact on air quality and job losses for US truckers. Despite the wrangling, the Bush Administration supported the move to comply with the NAFTA provisions.

The US Congress had different ideas and tried tying a ban to an appropriations bill for the Iraq military action. Those provisions would have put a halt to the US Dept. of Transportation's pilot project. President George W. Bush vetoed the bill and, in a separate statement, objected to the provisions that would continue the Mexican truck ban.

Congress attempted to cut off funding for the DOT pilot program, but Secretary Peters found a loophole and boldly continued the project saying the congressional action had not excluded funding for existing projects and since the pilot was already underway, she continued it. However, the 111th Congress has finally passed legislation that is unequivocal about the ban, sparking an immediate reaction by Mexico in the form of increased tariffs.

While the pilot program allowing Mexican trucks into the US was in operation, the US DOT estimates only about three Mexican trucks per day have traveled beyond the commercial zone to make deliveries.

"We consider this action by the United States to be mistaken, protectionist and clearly in violation of NAFTA," Gerardo Ruiz, economic minister for Mexico, told reporters in Mexico City.

According to IHS Global Insight, the sanctions threaten negative effects both for US exporters and for Mexican consumers; hence the likely decision to avoid tariffs on more sensitive US exports such as corn and wheat. “It remains to be seen how the United States responds—sufficiently emollient language could prompt the Mexican authorities to back down,” said an IHS Global Insight analysis.

US Secretary of State Hillary Clinton is scheduled to visit Mexico. “Both Clinton and Obama have been cool on NAFTA in the past, even though Clinton's husband, former president Bill Clinton, was its champion,” says IHS Global Insight. Since taking office, says the report, President Obama has warned repeatedly against protectionism in the midst of the economic crisis. While the new administration has stated a desire to move ahead with bilateral free trade deals it has also been criticized for the “Buy American” provisions in the fiscal stimulus package. “Its position on free trade thus remains somewhat ambiguous; the current spat with Mexico should give a clearer picture of where it really stands,” concludes IHS Global Insight. Meanwhile, Mexican trucks will be limited to the border commercial zone where loads will have to be transferred to US motor carriers for final delivery.

Similar restrictions do not exist for Canadian motor carriers who have long had the ability to complete deliveries and pick up outbound export loads in the US interior. No foreign carriers have cabotage rights to haul domestic loads between US origins and destinations.