Mexico Retaliates With Tariffs After U.S. Halts Border Program

This story appears in the March 23 print edition of Transport Topics.

Just days after Congress and the Obama administration shut down the controversial cross-border trucking pilot program with Mexico, government officials there struck back last week, imposing new tariffs on about 90 U.S. products valued at about $2.4 billion.

Mexico’s economy minister, Gerardo Ruiz Mateos, said the tariffs would begin on March 19 and were enacted in direct response to the ending of the Department of Transportation pilot program al-lowing some Mexican carriers to deliver freight beyond border commercial zones.

Ruiz Mateos said the United States has failed to live up to its longstanding obligation under the 1993 North American Free Trade Agreement to open the border to Mexican carriers.

“We consider this action by the United States to be wrong, protectionist and clearly in violation of the treaty,” Ruiz Mateos told Bloomberg News.

Last year, Camara Nacional del Autotransporte de Carga, Mexico’s principal trucking group, said it would seek damages through arbitration for more than $2 billion a year it said its members have lost since the United States has blocked cross-border trucking.

President Bill Clinton signed NAFTA in 1993, but in 1994, under pressure from the Teamsters union, agreed to block deliveries by trucks from Mexico. In 2001, after a NAFTA arbitration panel found the United States was violating its treaty obligations, President George W. Bush said he would allow Mexican truck deliveries, but DOT didn’t launch its pilot program until September 2007.

While it was not clear whether Mexico’s retaliatory action, which raises the cost of dozens of U.S. agricultural and industrial exports by 10% to 45%, would seriously harm motor carriers, officials with several trucking associations did not welcome the increased tariffs.

The products listed by Mexico for tariff increases ranged from wines, onions, potatoes, pears, cherries, almonds, soybeans, Christmas trees and sunflower seeds to dog and cat food, toothpaste, mineral water, toilet paper, locks, coffee pots, wireless telephones, pencils and felt-tip pens.

“Anytime you put a tariff on a significant amount of goods, especially in Texas, we’re very concerned about how that might impact trucking,” said John Esparza, president of the Texas Motor Transportation Association.

Clayton Boyce, a spokesman for American Trucking Associations, said the tariffs were not a surprise, but that it’s too soon to tell what effect they could have on trucking.

The tariffs were “designed . . . to minimize the impact on Mexican consumers,” Jeffrey Schott, senior fellow at the Peterson Institute for International Economics, told Transport Topics. “Obviously, it is designed to at least provoke a reaction among U.S. politicians.”

The action is clearly intended to stimulate discussions during upcoming visits to Mexico by Secretary of State Hillary Clinton and President Obama, Schott said.

IHS Global Insight analysts Marion Barbel and James Auger called the action a “powerful diplomatic statement.” They said the decision “forces the U.S. administration to seriously consider its position on NAFTA and wider commitments to free trade. President Barack Obama has previously advocated a renegotiation of NAFTA, but to date it seems pragmatism and other more pressing concerns have shifted this off his agenda.”

Obama recently “tasked” the DOT, U.S. trade representative and State Department to work with Congress and Mexican officials to work out a new trucking project that would “meet the legitimate concerns of Congress and our NAFTA commitments,” an administration spokesman said.

The DOT truck demonstration program ended this month when Congress approved 2009 spending legislation that blocked the project, which had allowed Mexican trucks to deliver to U.S. destinations (3-16, click here for previous story).

Many in Congress opposed the pilot project, raising complaints about the safety of Mexican trucks and the driving records of Mexican truckers.

But ATA’s Boyce said ending DOT’s program was a mistake “based on inaccurate claims of safety problems with Mexican trucks.

“The carriers in the program were safe and every Mexican truck was inspected every time it crossed the border,” Boyce said.

Some of the items on the products listed for tariffs were Christmas trees and pears, two significant exports from Oregon, the home state of Democratic Rep. Peter DeFazio, a leading opponent of Mexican truck deliveries.

“We’re the largest exporter of Christmas trees in the world,” DeFazio told TT. “There are a number of other products that are produced here in Oregon — wine, pears, cherries, strawberries, apricots — that are widely exported.”

“It’s a plain and simple attempt at intimidation, and also an attempt at protectionism,” DeFazio said.

An audit by the DOT’s inspector general suggested that Mexican trucks and drivers in the program were as safe as or safer than their U.S. counterparts.

There were no reported crashes among the Mexican carriers participating in the pilot project, and vehicle and driver out-of-service rates were actually lower among Mexican carriers than overall U.S. carrier rates.

But the participation rate was very low, the audit said. DOT expected up to 100 Mexican carriers to participate, but only 29 signed up in the first year — and two later dropped out.