Monday, June 11, 2018

Mexico's Tariff Frenzy vs. US Trucking Policies

With apologies to Eddie Kendricks, what we have is the US telling Mexico, "(Don't) Keep on Truckin'" and the latter being very unhappy about it. The roots of this conflict lie in blatant protectionism. I am not especially bright, but my understanding of NAFTA is that it is a free trade agreement. In theory at least, these agreements encourage the free movement of goods, capital and labor. For the longest time, however, the United States has disallowed Mexican truckers from transporting goods into the US on specious grounds. Where should we begin? It all goes back to the start of NAFTA when then-President Bill Clinton--the guy who signed NAFTA--bowed to pressure from organized labor which supported him in his election bid, the Teamsters:
The problem dates back to 1995, when Bill Clinton issued an executive order — in violation of Nafta, which he had signed into law — to stop Mexican long-haul trucks from crossing the border. Mr. Clinton was responding to pressure from Teamsters, who didn’t want any new competition. He cited safety concerns — things like substandard drivers and vehicles — which to this day have never been supported by evidence...

Earlier this year, the DOT analyzed the safety record of Mexican carriers in the U.S. from 2003-2006. It looked at the rate in which trucks received an “out-of-service” designation by DOT inspectors targeting companies with the worst records. The out-of-service rate for U.S. trucks was 23.5%, compared to a rate for trucks from Mexico of 21.29%. Mexican short-haul trucks operating in the border zone also had a better record than the U.S. trucks, with an out-of-service rate of 22.5%.
In 2001, NAFTA's dispute settlement body found the US in violation of its commitments by limiting Mexican trucking in no uncertain terms, paving the way for sanctions if the US did not comply. Towards the end of the Bush administration, there was some improvement in fixing this offending policy:
These statistics ought to be enough to end the debate. But with Teamster pull still strong in Congress, the Bush administration this year offered to introduce a pilot program to allow a limited number of new trucking companies to begin doing business in the U.S. under close DOT scrutiny. The program kicked off on Sept. 6, and there are now seven Mexican companies operating 44 vehicles in the U.S. and four U.S. companies operating 41 vehicles in Mexico. You’d think that those with safety worries would be glad to see such a vigilant approach to the problem. But just after the program started, both the House and the Senate voted to strip its funding in the 2008 budget.

It’s not clear whether this budget cut will be sustained. But the effort makes it obvious that Congress is no honest broker. As John Hill, administrator of the Federal Motor Carrier Safety Administration, told me last week: “Every time we move closer to implementing the provisions of Nafta, Congress adds a new provision. It’s hard to hit a moving target.”
As usual, ersatz "safety" fears are driving this protectionist rule since Mexican truckers have been found to be more cautious than their gringo counterparts. Now, let's fast-forward to the present time. In the US Congress' $410B Supplemental FY 2009 Omnibus bill, AKA "Porkulus II", funding for the Bush-era pilot program was stripped:
The bill bars the use of funds to establish a cross-border motor carrier demonstration program to allow Mexico-domiciled motor carriers who meet safety standards to operate beyond the roughly 25-mile commercial zones along the international border between the United States and Mexico.
An understandably offended Mexico has hit back--which they are entitled to--against this provision:
The Mexican government said that it would slap tariffs on 90 US industrial and agricultural products, in a trade dispute that underscored the difficulties facing President Barack Obama as he tries to assure business and global allies that he favours free trade...

Mexico said the tariffs were in retaliation for the cancellation of a pilot program allowing Mexican trucks to transport cargo throughout the U.S. Mexican trucks on US highways have for years been primarily opposed by unions, despite long-standing agreements by the two countries to eventually allow their passage. Legislation killing the pilot program was included in a $US410 billion spending bill Mr. Obama signed last week.

The White House responded to the tariff threat with assurances that Mr Obama would work with Congress to create a new cross-border trucking program...The Mexican government wouldn't say exactly which products would be hit with tariffs but that the total value of the products was $US2.4 billion in 2007 and originated in 40 states. A detailed list was expected to be published this week...

The back-and-forth between the US and its third largest trading partner dramatised the pressure on Mr Obama as he prepared for an April meeting of G-20 leaders in London. Mr Obama ran for office as a trade sceptic, and urged the North American Free Trade Agreement, known as NAFTA, be renegotiated to better protect the interests of U.S. workers...

The International Brotherhood of Teamsters hailed the end of the road for the trucking program, and issued a sharp rebuke of Mexico's retaliatory action on Monday. "The right response from Mexico would be to make sure its drivers and trucks are safe enough to use our highways without endangering our drivers," said Teamsters president James Hoffa said.

The pilot program at the centre of the trade dispute involved 29 Mexican carriers and 100 trucks, far less than the 100 carriers and 500 to 1,000 trucks initially projected by the Transportation Department.
An agricultural economist previously figured that Mexican retaliation would hit the US hard where it hurt:
Based on a draft retaliation list obtained in Mexico from a reliable and confidential source, economist Dermot Hayes of Iowa State University has analyzed the potential impact of Mexican retaliation on the U.S. economy. Hayes found that up to 40,909 U.S. jobs in seventeen states could be lost as a result of the failure of the United States to honor its commitments on trucking.
I'll be honest here and say that this is not only protectionist but also downright racist. As Daniel Griswold notes:
Although the Teamsters talk about safety, their real agenda is not to promote safer roads but to protect themselves from increased competition. The real 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 congressional leaders, “driving while Mexican” remains an unacceptable public hazard.
It is a shame that Mexican truckers are forced to drop off their goods at warehouses along the border for US truckers to carry onwards (many Teamsters, no doubt), adding an estimated $400M a year to the cost of Mexican exports. This Obama guy may be new, but he sure has a way of offending everyone else with his isolationist leanings: Canadians and Europeans ("buy American"); Chinese ("China Currency Coalition"); Indians (not giving bailout funds to those hiring foreign workers); and now the Mexicans. I say this for all to hear as I usually do for protectionist nonsense: Mr. Obama, let my people go. Our Mexican friends ought to be able to ply their trade on the highways and byways of America--as is their right.

10/18 UPDATE: The deed is done.

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