At a joint press conference in March with Mexican President Felipe Calderon, U.S. President Barack Obama announced that “After nearly 20 years, we finally have found a clear path to resolving the dispute over trucking between our two countries”. This statement brings to an end the escalating North American Free Trade Agreement (NAFTA) dispute over the opening of U.S. highways to Mexican long-haul trucks that prompted Mexico to impose more than $2 billion in retaliatory tariffs on U.S. exporters.
An agreement in principle was reached to initiate a reciprocal, phased-in program to allow Mexican and U.S. carriers to engage in cross-border, long-haul trucking operations under the original NAFTA provisions. For its part the Mexican Government has agreed to reduce the tariffs by 50 percent upon the signing of the final agreement and then eliminate the remaining 50 percent when the first Mexican carrier is granted operating authority.
NAFTA, which took effect in 1994, required the U.S. to allow Mexican trucks access to all border-state roads starting in 1995, and to drive anywhere in the country by January 2000. The terms of the Treaty have never been fully implemented as Mexican trucks have had access only to the initial border states. When the U.S. southern borders were not opened in 2001 as the Treaty called for (Canadian trucks have not experienced similar restrictions since the implementation of NAFTA), Mexico took its case to the Arbitration Panel.
In early 2001 the Panel ruled in Mexico’s favor, finding the U.S. in breach of NAFTA. This opened the doors to Mexico’s legal imposition of tariffs on U.S. exports. After several false starts and a short lived pilot program, in 2009 Mexico announced that it was exercising it rights to impose retaliatory tariffs. The tariffs affect approximately 90 U.S. export commodities at an estimated annual cost of $2.4 billion.
Mexico is the third largest trading partner with the U.S., behind Canada and China. Mexico is the second largest U.S. export market. The tariffs have hurt many sectors in the U.S., particularly the agricultural sector. On a volume basis Mexico is the largest U.S. pork export market and exports fell 11 percent since 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 and Mexico accounts for about a fourth of U.S. exports.
On the U.S. side there has been support, as well as very vocal opposition to the plan to open the borders to Mexican long-haul trucks. The arguments against the plan are based largely on old and false information regarding safety, as well as unfounded claims of possible economic damage to the U.S. trucking industry. While the arguments in favor recognize the documented safety improvements made in the transportation industry and the important economic ties between Mexico and the U.S.
On April 13th the U.S. Department of Transportation’s Federal Motor Carrier Safety Administration (FMCSA) released the proposed provisions of the program for a 30-day comment period as required by U.S. law. The provisions are available for viewing at http://www. fmcsa.dot.gov/rules-regulations/administration/ rulemakings/notices/NAFTALong- Haul-Trucking-Provisions.pdf. Once the program has been approved, a three-year three stage pilot program will be implemented. The operating authority granted will authorize Mexican carriers to transport international cargo in the U.S. They may not transport purely domestic cargo (cabotage), but may transport international cargo from point to point and pick up return international cargo.
Pre-operations procedures include an application process, a vetting process, and a safety audit. Entry into the pilot program will require the completion of an application demonstrating interest in participating in the long-haul program (forms are available on the FMCSA website http://www.fmcsa.dot.gov/rulesregulations/ topics/nafta/nafta.htm). A security screening will be conducted by the U.S. Department of Homeland Security (DHS). Reasons for not passing the security audit include providing false or incomplete information; drivers convicted of any criminal offense or with pending criminal charges or outstanding warrants; violation of any customs, immigration or agriculture regulations or laws; the carrier or driver is the subject of an ongoing investigation by any Federal, State or local law enforcement agency; the motor carrier or driver is inadmissible to the United States under immigration regulations or is subject to National Security Entry Exit Registration System or other special registration programs. Finally, the Pre-Authorization Safety Audit (PASA) is an FMCSA review of the carrier’s safety management systems including written procedures and records to determine that the basic safety management controls necessary to ensure safe operations are in place.
Regulations Recognized as Equal to U.S.
Mexican Commercial Driver’s Licenses (CDL) – Mexico requires that all new commercial drivers undergo training prior to testing and requires additional retraining each time the license is renewed.
Mexican medical fitness for duty requirements – Mexican physical qualification regulations are more prescriptive, detailed, and stricter than those in the United States.
Controlled substances testing –Conducted by personnel from Mexico Transport and Communications Ministry (SCT) using U.S. standards and processed in U.S. laboratory
Carriers are required to comply with all applicable Federal and State laws and regulations including, but not limited to, vehicle size and weight, environmental, tax, and vehicle registration requirements. Carriers and drivers must be familiar with applicable driving regulations and local ordinances including speed limits, truck route restrictions, parking, and noise restrictions. Drivers must be able to read and speak the English language well enough to understand U.S. highway traffic signs and signals in the English language, to respond to official inquiries, and to make entries on reports and records required by FMCSA.
Each vehicle will be equipped with an electronic monitoring device such as a global positioning system and/ or electronic on board recording (EOBR) device provided by the FMCSA. In the Stage 1 a Mexican carrier that has completed the application process and the DHS screening will be issued provisional operating authority, requiring vehicles and drivers to be inspected each time they enter the United States for at least three months. The three month period could be extended if at least three inspections have not been carried out (due to a low frequency of border crossings). FMCSA will also be carrying out an evaluation of the carrier during this time. For each vehicle there are a number of certifications that a carrier must get and maintain including:
A certificate of insurance or surety bond underwritten by a U.S. insurance or surety bond company
Emission Control Label demonstrating that the vehicle conforms to the U.S. Environmental Protection Agency (EPA) regulations applicable in 1998 or later
Certification that the vehicle meets the U.S. Federal Motor Vehicle Safety Standard (FMVSS) – a certi- fication label affixed by the original vehicle manufacturer at the time the vehicle was built or proof that the vehicle is model year 1996 or newer and is equipped with all the safety equipment and features required by the FMVSSs in effect on the date of manufacture.
Once in the pilot program carriers are required to comply with all applicable Federal and State laws and regulations including, but not limited to, vehicle size and weight, environmental, tax, and vehicle registration requirements. Carriers and drivers must be familiar with applicable driving regulations and local ordinances including speed limits, truck route restrictions, parking, and noise restrictions. Drivers must be able to read and speak the English language well enough to understand U.S. highway traffic signs and signals in the English language, to respond to official inquiries, and to make entries on reports and records required by FMCSA. An English Language Pro- ficiency assessment of each participating driver will be conducted orally, in English, and will include a test on a driver’s knowledge of U.S. traffic signs. Each vehicle will be equipped with an electronic monitoring device such as a global positioning system and/or electronic on board recording (EOBR) device provided by the FMCSA.
Following successful completion of Stage 1 and a satisfactory FMCSA report, carriers will move on to Stage 2. A carrier’s vehicles would be inspected at a rate comparable to other Mexicodomiciled motor carriers that cross the United States-Mexico border now. Safety data will continue to be monitored and the carrier would continue to operate under the provisional operating authority for 18 months. Within 18 months of being issued provisional operating authority, FMCSA would conduct a compliance review on the motor carrier. Carriers that participated in the earlier pilot program will receive credit towards fulfilling the 18 month requirement.
If the carrier receives a satisfactory safety rating, has no pending enforcement or safety improvement actions, it is eligible to convert to standard permanent authority, similar to U.S.-domiciled carriers. FMCSA intends this to be an administrative process that would occur once the pilot program ends. Failure to receive a satisfactory safety review will result in suspension of operating authority.
Since the inception of NAFTA trade between Mexico and the U.S. has quadrupled. Mexico’s Economy Minister estimates that 70 percent of U.S.-Mexico two-way trade moves by truck. Currently every truck move requires at least three vehicles – a long-haul truck to move the cargo from Mexico or the U.S. to the border zone, a short-haul drayage truck to carry the goods across the border, and a third long-haul truck to deliver the cargo to its final destination. This process introduces economic inefficiencies – total move takes more time, probability of errors or problems rises with each additional touch, and more complication supply chains are more difficult to manage.
The safety arguments are largely unfounded. The NAFTA agreement requires Mexican trucks to meet every safety standard that is imposed on U.S. trucks. In fact, under the first pilot program, Mexican trucks actually proved to have a better safety record than U.S. trucks. Cross-border Mexican trucks are inspected far more often than domestic U.S. trucks are”.Out-of-service” rates show that Mexican trucks operating in the United States are now safer than they were a decade ago.
The safety of the trucks is no longer a real factor, but studies have shown that truck drivers are better indicators of a carrier’s safety record. Again the data indicates that Mexican drivers have a comparable safety record to U.S. truckers. Furthermore, an unsafe carrier or driver would quickly be pushed out of the market for competitive reasons, just as they would in the U.S. A shipper is not likely to risk loss of the cargo or damage to it or risk a missed delivery because the trucker was put out of service at a roadside safety inspection. Mexican truckers will have to be as safe and reliable as their U.S. counterparts.
It is unlikely that the new program will be followed by a surge of Mexican carriers operating in the U.S. The experience from the first pilot demonstrated limited interest in long-haul operating authority. Some of the barriers to rapid growth include higher insurance and capital costs, long customs processing delays, and a lack of a network of contact to insure prearranged back hauls. In the long run drayage companies will probably lose some business to long-haul carriers and the number of long-haul carriers will increase. It is time to implement the NAFTA provision to open the borders to the free flow of trucks between Mexico and the U.S. to continue to improve trade between the two nations.
Rosalyn Wilson has over 30 years of experience in the transportation field. She has extensive experience in research and writing; data collection and analysis. Much of her experience has been in the transportation and logistics industry. Rosalyn is the author of the Annual State of Logistics Report® and the co-author of Securing Global Transportation Networks. Rosalyn is the president of a small transportation consulting firm since 1996. She joined Delcan Corporation as a Senior Business Analyst.