TED Case Studies

NAFTA: Big Trucks, Big Questions

I. Identification

1. The Issue

This case study will examines the ongoing dispute between Mexico and the United states regarding international trucking provisions outlined in the North American Free Trade Agreement (NAFTA). Under NAFTA, Mexican and US truckers were to be driving in one another's states in open commerce by the summer of 1996, but the US imposed a block on Mexican trucks in December of 1995, saying they were unsafe. Since then, the usually acquiescent Mexican government has protested what it suggests are "protectionist policies" in Washington DC. The poor state of many old Mexican trucks also leads some to fear environmental consequences such as air pollution, and the spillage of hazardous cargo. The relevant issues, then, include the safety of Mexican trucks and the levels of pollution they cause. Issues such as NAFTA's effects on competitive advantage underly the problem at a more fundamental level.

2. Description

Overview

In the following presentation, this analysis will introduce the elements involved in the dispute between Mexico and the United States of America regarding trucking regulations under the North American Free Trade Agreement. Relevent links are included to guide the reader to other sources of interest pertaining to this issue. Near the end, data concerning legal issues, geographic area, trade measures involved, specific economic impact, and environmental consequences are included to augment the Trade and Environment (TED) database.

Under the terms of NAFTA, the border between the United States and Mexico was to be opened to US, Canadian, and Mexican trucking on December 17, 1995. However, as reported in The Washington Post on December 19, 1995, "The administration was bowing to pressure from US border state politicians, the Teamsters union and highway safety advocates, who contend Mexican trucks are too rickety, carry too much hazardous cargo and not enough insurance--and thus shouldn't be allowed to expand their rights to travel in the United States under the schedule specified by NAFTA." 1

Currently, negotiations are under way to improve the "motor carrier safety regimes" by US Transportation Secretary Federico Pena. Until a satisfactory agreement can be reached between US and Mexican officials, truckers on both sides of the border are limited to a 20 mile "commercial zone." Before NAFTA, Mexico and the US prohibited trucking and bus transportation service providers access to each other's countries, except for limited access to the entire US territory.

Part of the disagreement stems from US fears of pollution from from Mexican trucks which release a high degree of emissions and carry hazardous cargo.

The Dispute

The NAFTA agreement came into effect shortly after the December 1994 Mexican currency devaluation and pursuant Peso crisis. At a time when the United States agreed to lower tariff barriers to allow the goods necessary for a development program to pass into Mexico at a price they could afford, few Mexicans had the means to purchase those items. Reluctantly, the United States agreed to bail them out with a $20 billion emergency bail-out, mostly for US investors. To the surprise of many, however, it was successful. The Mexican government continues to surpass its debt repayment schedule, although Mexico still lacks the capital to import goods, and reap the benefits expected under NAFTA.

Now, as the Mexicans are working toward a better standard of living, they face many new obstacles. An online Latino news service reports an example of a dispute over a proposed US quota system for Mexican-grown tomatoes which was demanded by Florida tomato growers. (go to article) Nancy Nusser, the author of the article in question writes, "In response to pressure from Florida tomoto growers, the Clinton administration recently proposed changing the way Mexican tomato imports to the United States are counted so that they are tallied every week instead of every month. The change could activate a tariff on Mexican tomatos, stipulated under NAFTA, of seven cents per 25-pound crate....The price of Mexican tomatoes has dropped dramatically because of the devaluation of the peso by more than 50 percent, and the Florida industry is suffering."2

Stories such as this make one contemplate the definition of free-trade. Currency fluxuations will have a destabilizing effect within any trade regime, yet the growing economic interdependence throughout the world virtually demands regional trade zones. Additionally, domestic pressures to can be profoundly inhibiting as witnessed by the Florida tomato lobby.

A New York Times reporter, Sam Dillon, poignantly describes a second major obstacle to the free flow of goods across the US-Mexico border. He writes, "The battered Mexican tractor-trailer seemed to groan under its burden of coiled steel as it coasted onto the scales at a truck inspection yard just north of the International Bridge over the Rio Grande...In the next half hour, [a Texas Public Safety inspector] found that not only were the Mexican truck's tires bald and a few lights were out, but also one of the trailer's support beams was cracked." 3(go to article) Clearly, this truck is unsafe, and those concerned about highway safety quake at the thought of setting more monster semi-trailers loose on the America's interstates. The Teamsters Union in particular use the safety issue to oppose the coming influx of non- union truck drivers. They would rather see trucking contracted to "American workers with American safety standards and American wages." The Teamsters will surely prove to be a very powerful lobby against the free-flow of Mexican trucking inside the United States.

According to the American Trucking Association, some new American trucking safety standards include the following:

This leads one to consider the standardization of regulations from Candada to Mexico. The standards, especially on weight, vary greatly among these three countries. Canada's weight limits are higher than in the US, and Mexico's are much higher. This may have a negative impact on the railway industry as well, because allowing heavier trucks to operate in the US would provide another competitive advantage to motor carriers. Adherence to any regulation requires licensing, another conflictual point in the trucking debate. US Transportation Secretarty Federico Pena said in a press release that "there has been coordination between all three countries. For many...months we've worked, together, to adopt the common inspection standard that goes into effect on the 18th [of January 1995]; we've trained our inspectors...and we've agreed to compatible standards for commercial drivers' licenses." 4

Thoughts on NAFTA and the Drug Trade

The rising level of cross-border traffic with the implementation of NAFTA has produced some negative consequences. The US Customs Service is physically unable to check all the cargo that passes from Mexico to the United States, and illegal material does find its way into the US. Increased manpower is costly and time consuming to combat illegal shipments, but technology may be able to help.

A major issue in restricting licensing to Mexican trucking companies involves the shift in narcotics trafficking from the Carribean and Florida, to the Mexico-US border. The US Drug Enforcement Agency (DEA) now estimates that approximately 75 percent of all cocaine in distribution enters US territory through Mexico. The numbers are likely similar for heroin, as 60 percent of all heroin now originates in Colombia as opposed to Myanmar (and is trafficked north through Mexico). Mexico is also one of the largest producers of methamphetimine and marijuana--both major problems in the United States. Structural inspection of Mexican vehicles is difficult enough. Now, customs officials face the dilemma of a massive increase in the amount of cargo hauled across the border, of which only so much can be inspected. To some, NAFTA is an open door policy for bulk drug shipments.

One new technology on the horizon that may provide a rapid cargo search capability to keep pace with the large flow of cross-border traffic. The Pulsed Fast Neutron Analysis (PFNA) device can accurately and quickly detect the presence of hazardous substances, explosives, drugs, chemicals, and the like in sealed containers and vehicles. Rand Fishbein, president of Fishbein Associates Inc. and former professional staff member of the Senate defense appropriations subcommittee, describes the technology in a Washington Times article: "PFNA performs this remarkable feat by remotely scanning the contents of a fully-loaded sea container or truck and identifying each item by its elemental composition (oxygen, carbon, nitrogen, etc.). These measurements are then compared against a library of signatures contained in a computer that in minutes provides an accurate profile of the material being scanned. Every scan made by the computer enriches its massive database, effectively making the machine smarter every time it is used." 5 The United States is currently testing this technology at an undisclosed border crossing, primarily to combat the inflow of drugs.

Again, many claim this inflow is due to relaxed trading controls stipulated under NAFTA. In fact, Fisbein continues, "PFNA first came to the attention of Congress in 1991 when the drug enforcement community recognized an urgent requirement for a nonintrusive means of efficiently and effectively identifying the presence of illicit drugs being smuggled into the United States by sea and overland by truck. Even today, the 'President's National Drug Control Strategy: 1996' highlights the development of nonintrusive inspection technology as among its highest priorities." 6 Perhaps this technology will someday be a solution to some of the many divisive issues in this dispute.

Conclusions

The "pure" economics involved in free-trade may dictate how nations ought to treat each other in order to maximize a healthy, growing global economy under the post-Bretton Woods economic order (e.g.: encouraging nations to pursue a balance of payments equilibrium despite the negative domestice side effects, such as inflation/deflation, unemployment, currency devaluation, etc.). However, economists do not win elections-- politicians do. And much more often than not, a politician will protect his or her domestic economy in the short-term, even if that leads to less than wonderful long-term consequences. (Once more, note the Mexican Peso crisis and the US bail-out. Perhaps if we could have maintained a more equitable current accounts balance with Mexico, their Peso would not have crashed, and we would not have had to bail them out at all.)

There will probably always be issues which people use as trade barriers--safety, pollution, smuggling--to mask the underlying fear of losing one's job to someone on "the other side of the fence." While those issues do often have great merit in and of themselves, it is critical to address the fundamental issues of nations' domestic economies and how they, in turn, affect the international economic order. Eventually, international trade between the US, Canada, and Mexico may be as simple as inter-state trade within the US is today.

3. Related Cases

4. Draft Author: Mark C. DeMier, Fall 1996

II. Legal Clusters

5. Discourse and Status: Disagree, Inprogress

6. Forum and Scope: NAFTA and Bilateral

7. Decision Breadth: 3

8. Legal Standing: Treaty

III. Geographic Clusters

9. Geographic Locations

10. Sub-National Factors: No

11. Type of Habitat: Dry

IV. Trade Clusters

12. Type of Measure: Licensing,

13. Direct v. Indirect Impacts: Direct

14. Relation of Trade Measure to Environmental Impact

15. Trade Product Identification: Transport

16. Economic Data

US-Mexico Trade Balance

US Trade Balance with Mexico US Imports From Mexico US Exports to Mexico Net Gains in US Jobs
Before NAFTA $1.7 Billion $40 Billion $41.6 Billion 2.8 Million
After NAFTA -$15.4 Billion $61.7 Billion $46.3 Billion 2.2 Million

Source: US News & World Report, 28 October 1996, pp. 46-49.

17. Impact of Trade Restriction: Medium

18. Industry Sector: South

19. Exporters and Importers: USA and Mexico

V. Environment Clusters

20. Environmental Problem Type: Pollution--Air

21. Name, Type, and Diversity of Species

The adverse effects on the environment are extremely broad, and therefore difficult to quantify in one case-study. One could indeed examine numerous, specific environmental problems (including pollution, habitat loss, endangered species, etc.) in separate case-studies under the general umbrella of "problems associated with the US-Mexico border region dispute under NAFTA." For instance,President Clinton's 1993 study entitled The NAFTA: Expanding US Exports, Jobs, and Growth--Report on Environmental Issues, states that "The implementation of NAFTA will have both positive and negative effects on wildlife, endangered species, and their habitats. These impacts will vary across the 2,000-mile border. For example, increased cooperation, technical assistance, and funding to remedy transboundary water quality problems may cause positive improvements for fisheries downstream, but could produce local negative effects on threatened and endangered species habitat if water treatment plants are constructed in riparian floodplain habitat." 7 The particular relationship between these various types of problems and the trucking dispute under NAFTA may not be abundantly clear; however, as trade in North America liberalizes, the environmental impact of development will have positive and negative implicatons.

The same study illustrates some projected effects on wildlife and endangered species.

Wildlife and Endangered Species

Long -Term Effects Without NAFTA

(5-10 Years)

Short-Term Effects of NAFTA

(1-5 Years)

Long-Term Effects of NAFTA

(5-10 Years)

Migratory Birds

--

-

+

Wildlife Habitats and Biodiversity

---

--

+

National Wildlife Refuges

--

-

+

Endangered and Threatened Species

---

--

+

Wildlife Trade

---

--

+

Fisheries

--

-

+

Key to Level of Effects

As the table indicates, the long-term consequences are assumed to be beneficial. The short-terms adversities, however, need to be dealt with in a constructive manner in order to reach the potential benefits. That, also, is where the most difficulty may lay.

  • Name: Numerous
  • Type: Endangered Species
  • Diversity: Vast
  • 22. Resource Impact and Effect: Low and Scarce

    23. Urgency and Lifetime: Low and 100's of Years

    24. Substitutes: Alternative Energy

    VI. Other Factors

    25. Culture: Yes

    26. Trans-Boundary Issues: Yes

    27. Rights: No

    28. Relevant Literature

    Related WEB Sites


    1. Blustein, Paul, "Mexico Agrees to Delay Trucking in Border States," The Washington Post, December 19, 1995, p. A29. BACK

    2. Nusser, Nancy, "Mexico Gripes About NAFTA," Cox News Service, 12 January 1996. (http://www.latino.com/biz/naft0112.html) BACK

    3. Dillon, Sam, "Safety Crackdown Restricts Cross-Border Truckers," New York Times News Service, 18 December 1995. (http://www.latino.com/biz/naf21218.html) BACK

    4. Pena, Federico, "US D.O.T. Press Release" 15 December 1995. (http://www.dot.gov) BACK

    5. Fishbein, Rand, "New Weapon in the War on Terrorism," The Washington Times, 9 July 1996, p. A15. BACK

    6. Office of National Drug Control Policy, "National Drug Control Strategy: 1996," (Washington DC: Government Printing Office, 1996). BACK

    7. Executive Office of the President, "The NAFTA: Expanding US Exports, Jobs, and Growth--Report on Environmental Issues," (Washington DC: Government Printing Office, 1993). BACK


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