Nafta and Mexican Trucking
The implementation of NAFTA on January 1, 1994 brought the immediate elimination of tariffs on more than one-half of Mexico’s exports to the U. S. and more than one-third of U. S. exports to Mexico. Under the 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. trucking 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 (Griswold 2013). The North American Free Trade Agreement called for allowing Mexican truckers into the U. S. , but the International Brotherhood of Teamsters and Democratic allies in Congress repeatedly used legislation to block access.
A NAFTA sanctioned court ruled in the late 1990s that Mexico could impose punitive tariffs, which it did in 2009, affecting $2. 4 billion in U. S. goods annually (Public Citizen 2013). In 2000, the U. S. chose to slow implementation of the NAFTA provision to allow Mexican truckers in the US. Competition from less expensive trucking companies in Mexico would drive down prices of U. S. trucking companies, argued those in favor of slowing implementation. The U. S. Chamber of Commerce as well as well as Public Citizen, a DC special interest group, has since reported that sanctions on Mexican trucks cost the U.S. up to a million jobs. These studies also supported wage loss, economic inequality, and slowed manufacturing export growth. In response to these arguments, the Bush administration enacted a pilot program in 2007 to allow a limited number of Mexican trucks into the U. S. , provided these trucks meet U. S. safety regulations. The Teamsters, however, said Mexican truckers have less-stringent vision requirements than truckers in the U. S. , which allegedly violates the Pilot Program’s requirement for equivalent trucker safety in the two countries (Public Citizen 2013).
As a result, the Teamsters successfully lobbied congress to cut spending for the program, effectively eradicating the pilot program in 2009. Suspension of the pilot program in 2009 was based on protectionism and prejudice, not legitimate safety concerns. Although the Teamsters union leaders talk about safety, many question their “real agenda. ” Some argue that the Teamsters’ mission is not to promote safer roads, but to protect U. S. truckers from increased competition. The broader agenda of their congressional allies is to thwart full implementation of a successful trade agreement with Mexico, the U.S. ’s third-largest trading partner. In contrast to stereotypes associated with Mexican drivers, 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% of Mexican drivers that were inspected were placed out of service for violations, compared to nearly 7% 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 (Griswold 2013). In 2011, the Obama administration signed an agreement with Mexico, allowing Mexican truckers into the U. S. as long as they meet U. S. clean air emissions standards, submit to U. S. security checks, meet U. S. highway safety standards, and drivers know English, demonstrate understanding of U. S. highway signs and purchase U. S. insurance. Today, Mexican truckers are allowed to bring goods deep into the U. S. Section 2. Country Analysis; Mexico and the U. S. U. S. ECONOMY The U. S. economy, the world’s largest, has a GDP of $15.
1 trillion, a small growth rate of 1. 7 % and a yearly income of $48,387 per capita. The unemployment rate is hovering around 7. 9% while the nation still attempts to recover fully from the 2008 financial crisis and ensuing recession. However, Under Democratic President Barack Obama, the federal system of government, designed to reserve significant powers to the state and local levels, has been strained by the national government’s rapid expansion. Spending at the national level rose to over 25 percent of GDP in 2010, and gross public debt surpassed 100 percent of GDP in 2011 (Heritage 2013).
The United States’ economy is a relatively free market system, with an economic freedom score of 76. However, the nation has lost ground again in the 2013 Index compared with past years. Its score is 0. 3 points lower than last year, with declines in monetary freedom, business freedom, labor freedom, and fiscal freedom. Thus, because some protectionism and barriers have been imposed, the trade-weighted average tariff rate at 1. 8 percent, and additional barriers such as anti-dumping laws and “Buy American” rules add to the cost of trade in the U. S (Heritage 2013).
Due to the proximity of the two nations, the US economy is highly affected by the Mexican economy. Mexico is the third largest exporting country after China and Canada; Mexican exports were valued $174. 4 billion in 2011, which represents an increase of 218% in less than a decade. As a result of NAFTA, Mexico and the US cooperate in the following key areas of interest (among others): protection and enforcement of intellectual property rights (IPR); enhancement of collective energy security, including the safe and efficient exploration and exploitation of resources (Villarreal 2013).U. S. POLITICAL RISKS The US political risks associated with allowing Mexican truckers into the U. S. revolve around the dependence of U. S. elected leaders on the performance of US markets, and the dependence of U. S. markets on imports from, and exports to Mexico. This is because when certain constituencies are being adversely affected by a market’s performance or by a perceived market outcome of a specific government policy, they apply pressure to their elected representatives to ease their economic pain.
The ability for a given constituency to apply significant pressure on its elected representatives varies greatly on the skills and resources held by the individuals that make up the constituency. Some constituencies derive the power to pressure representatives from sheer size and the ability of members of the constituency to vote for representatives who share their opinions on an issue. Other constituencies may derive power to pressure representatives from their ability to expend resources such as money and public relations expertise to influence voters outside their constituency to vote with the constituency on a given issue.
For example, one constituency affected by NAFTA in the U. S. is Floridian tomatoes growers. These growers know that they cannot compete with Mexicans growers because of low labor and land costs in Mexico creating a much lower priced tomato than what can be grown in the U. S. Thus, on numerous occasions throughout the implementation of NAFTA, Florida growers have pressured elements of the U. S. government to limit the ability of Mexican growers to freely sell tomatoes in the U. S.
This has gone as far as Florida growers pressuring the government to initiate two anti-dumping investigations of Mexican tomato growers. Critics of Florida tomato growers speculate that the Tomato Growers are using their large influence in Florida, a U. S. swing state, to encourage numerous government administrations to prevent implementing certain provisions of NAFTA. This culminated in 2012, when Florida growers began pressuring the U. S. Commerce Department to begin its second anti-dumping agreement and eliminate a suspension agreement between the U.S and Mexico that has allowed free trade of tomatoes with a price floor between the U. S. and Mexico. If this suspension agreement were to be eliminated, the Mexican government estimates that hundreds of thousands of jobs could be lost in the Mexican tomato industry, which in 2011 shipped 93% of its exports to the U. S. At the same time, many U. S. business leaders and congressmen supported continuing the suspension agreement, because it helped create lower priced tomatoes for American consumers, and many American jobs were actually related to the distribution of Mexican tomatoes in the U. S.
Therefore the US congress was forced to reestablish trade with Mexico in order to stabilize their economy, and improve the imports and exports that generate capital for the country. In this case the political risk was that U. S. representatives risked losing votes from a major constituency in Florida if they worked to continue free trade of tomatoes. However, because free trade of tomatoes was already active, the U. S. economy on a macro sense benefited from free trade of tomatoes, and thus U. S. representatives felt they would be serving a greater constituency by voting to maintain the suspension agreement between the U. S.and Mexico (McKeague 2012). U. S. LEGAL RESTRICTIONS Throughout the implementation of NAFTA, the US has imposed various restrictions many of the individual markets in order to keep some autonomy over the national economy. Those barriers help the US market to remain stable, to protect consumers, and to be lead in a large part by local U. S. firms, however, free trade or special trade has emerged as a result of NAFTA within some sectors. This has created the opportunity for firms from Mexico and Canada to lead certain industries, which is generally the case for agricultural goods and truck transportation from Mexico (Villarreal 2013).
In the case of Mexican truckers, there was a set of restrictions imposed by the US government and backed with legal standards and bureaucratic obstacles that have lead Mexican firms to exit the market and retained the U. S. domination of trucking in the U. S. However, the reaction was the same from the Mexican side and their series of retaliatory protectionist regulations resulted in a final outcome that was negative for both nations, and especially for US.
Ultimately, the legal restrictions imposed had to be removed for the most part, while some were kept to improve the service in the trucking industry, and free trade resumed between the nations. MEXICAN ECONOMIC SYSTEM Mexico is one of the most important emerging economies in the world and is renewing its efforts to become a leader in the region; it just became a member of the Pacific Alliance. Mexican GDP is $1. 178 trillion, which indicates a major emerging economy with an upper middle-income level (World Bank 2013).
Mexico has agreed on an ambitious and comprehensive National Development Plan, which also guides the structural reform agenda to enhance productivity in order to develop key industries to which the central government has not paid due attention in decades. The Mexican economy recovered from the severe contraction generated by the 2008-2009 global financial crisis as the economy experienced an average annual growth of 4. 3 % between 2010 and 2012. The country is recovering it self by developing all the rural areas that are not sustainable by themselves with a project cost
of 131 million dollars (world bank 2013), in order to at least cover the people basics need and the own city needs and do not depend on the capital budget. However, More recently, weak external demand has led to stagnation in growth and prompted the Ministry of Finance to lower its growth projection for 2013 to 1. 8 %. MEXICAN POLITICAL RISKS The primary political risk faced by Mexico is that the nation relies heavily on the U. S. as a destination for exports, and that the nation’s economic health depends on its ability to produce exports, primarily from the agriculture industry.
This relationship between Mexico and the U. S. is as much convenience as it is geography: the two nations are right next to each other and have complementary populations and resources, which allow the two nations to serve each others needs. Because of this special relationship, there is a political risk in Mexico that the U. S. economy must be thriving for the Mexican economy to thrive. Mexico has not sufficiently diversified its portfolio of countries to which it exports, and therefore is very much dependent on the health of the U. S. economy to purchase goods produce in Mexico.
The reality of this political risk can be seen in the case of tomato growers in Mexico and the U. S. When the U. S. imposed regulations on tomatoes from Mexico, the Mexico government had to risk hurting the U. S. economy (through retaliatory protectionist trade regulations) in order to protect its own constituents, the Mexican tomato growers (Wingfield 2012). MEXICAN LEGAL RESTRICTIONS Mexico has rarely imposed many protectionist trade restrictions over U. S. goods; this is because Mexico has been seen as the primary beneficiary of the NAFTA free trade agreement.
However, after the U. S. imposed new illegal barriers and regulations on Mexican truckers in the U. S. , in direct defiance of the NAFTA agreement, the Mexican government responded with its own series legally valid (because the U. S. had violated NAFTA) tariffs and barriers over numerous US exports to Mexico. This maneuver was both to retaliate for U. S. trade restrictions, and to recoup some lost revenue from new U. S. regulation. However, both countries’ eventual outcomes were inferior to those with free trade; even though barriers and legal restrictions protected