Bridges Weekly Trade News Digest • Volume 13 • Number 11 • 25th March 2009

Mexico Slaps Tariffs on US Goods in Trucking Spat; Obama Vows Swift Response

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Mexico has imposed retaliatory tariffs on US$ 2.4 billion worth of US exports in response to Washington’s recent termination of a pilot programme that allowed Mexican long-haul trucks to cross into US territory. The tariffs took effect 19 March, just one day after Mexico City announced the measures.

“We believe the United States is wrong in this action as it is protectionist and clearly violates NAFTA. To protect their carriers, the US has decided to influence competition and competitiveness of our countries and the region, impacting many other sectors,” said the Mexican Secretary of Economy, Gerardo Ruiz Mateos.

The retaliatory actions were prompted by a measure in the omnibus spending bill, signed into law by US President Barack Obama signed on 11 March, that terminates funding for a pilot programme intended to gradually open the US market to Mexican trucks.

According to the terms of the North American Free Trade Agreement, which took effect in 1994, the US was to give full access to Mexican trucks by 2000. Washington failed to meet that commitment and Mexico brought a challenge to a NAFTA arbitration panel in 2001. The panel backed the Mexican complaint, and thus the country won the right, as laid out in NAFTA Article 2019, to suspend “benefits of equivalent effect until such time as [the parties concerned] have reached agreement on a resolution of the dispute.”

Mexico says that the US’ refusal to honour its NAFTA commitments has a strong impact on its exports, since nearly 70 percent of Mexican goods that go to the US, Mexico’s largest trading partner, are transported by road. Mexican officials say that the retaliatory tariffs are intended to inflict losses roughly equal to the US$ 500 million in losses they claim to have suffered thanks to Washington’s refusal to allow Mexican trucks on its territory. Those losses were calculated according to a formula that took into account the value of trade that Mexican trucks would transport, the distance of travel, as well as the expected market shares that Mexico would capture in the US if its trucks had full access, Mexican officials said.

Washington has claimed that it maintains the restrictions because it wants to keep unsafe vehicles off US highways. But others say that the measure is simply intended to protect US truckers, noting that the pilot programme, which was launched by the Bush administration, had demonstrated that Mexican trucks perform just as well as their US counterparts on safety tests.

“This isn’t about the safety of American roads. This is protectionism,” said Mexican Ambassador to the US Arturo Sarukhan.

Sarukhan is not alone in taking that view. In an editorial titled “Bad Example,” The Washington Post reprimanded the Obama administration earlier this week for terminating the pilot programme, saying that “almost everyone was happy with the deal” except for US truckers, “for whom economic turf rather than safety has always been paramount.”

The US farm lobby also spoke out against Congress’ nixing of the programme. Bob Stallman, president of the American Farm Bureau Federation, urged President Obama “to find a resolution that will honour our obligations under NAFTA, eliminating any cause for Mexico to halt US trade.”

“This action by Congress has come at a cost to US agriculture and our exports to one of our top markets,” Stallman said in a letter dated 23 March. “The retaliation will affect hundreds of millions of dollars worth of fruit, vegetable, nut, juice, wine, processed foods and oilcake exports to Mexico.”

Targeted products include agricultural goods such as onions, pears, frozen potatoes, Christmas trees and almonds, as well as manufactured items like carpets, home appliances, cordless phones, sunglasses and jewelry. Roughly half of the products have been slapped with tariffs of between 10 percent and 20 per cent, while some, like fresh grapes, are now being taxed at a 45-percent rate. The retaliation is expected to affect 40 US states, primarily Texas, California, Michigan, Washington and Oregon.

But the list of goods slated for retaliation steers clear of agricultural products like corn, beans, rice, wheat and meat, of which the US is a substantial supplier. However, Beatriz Leycegui Gardoqui, Mexico’s Undersecretary for the Economy, warned that retaliation would be extended to other goods if the Obama administration persists in violating its NAFTA obligations.

Obama Promises Quick Response

For its part, the Obama administration has made clear that it intends to address the matter quickly. White House spokesman Robert Gibbs told reporters that Obama considers resolving the dispute with Mexico “an important priority.” Although no “specific timetable” has been set for pushing through new legislation to bring the US into compliance with its NAFTA commitments, it “would be one of the most important things” on the President’s agenda, Gibbs said.

But an official from the Department of Transportation, which is taking the lead on developing a new programme, told Reuters on Tuesday that Transportation Secretary Ray LaHood “wants to get something pulled together before the president goes to Mexico.” Obama is scheduled to meet with his Mexican counterpart, Felipe Calderón, on 16 and 17 April.

Indeed, officials from the Department of Transportation, the office of the US Trade Representative, and the State Department have already begun to craft a new trucking programme, media sources reported. LaHood has already met with Republican Senator Kit Bond, who advocated compliance to NAFTA as well as Democratic Senator Byron Dorgan, a harsh critic of the pilot trucking programme.

The officials certainly have an incentive to act quickly.

“The moment the United States takes up the agreed commitments again, we will eliminate the sanctions we have applied,” Economy Secretary Ruiz told reporters in Mexico City on Tuesday.

Ambassador Sarukhan was somewhat more cautious.

“We will wait to see what the proposal looks like,” Sarukhan said. “But we are certainly willing to continue working cooperatively to find a solution that ensures the United States complies with its NAFTA obligations.”

ICTSD reporting; translated and adapted from Puentes Quincenal, Volume 6, Number 5; “US eyes new Mexico truck plan before Obama trip” REUTERS, 24 March 2009.

One response to “Mexico Slaps Tariffs on US Goods in Trucking Spat; Obama Vows Swift Response”

James H. Murphy 25th March 2009 at 22:19
Comparing the list of things we export to Mexico it looks like the tariffs are designed to apply political pressure rather than provoke a trade war. Christmas trees in March? Get real! Mexico has a week hand here. They export more to us than we export to them. A real trade war could do real harm to Mexico whereas bearing some short term pain would give the United States long term benefits. Free trade (NAFTA here) is all about divide and conquer for our trading partners. They must separate those who benefit from those who lose. To date the free trade winners have been well organized the losers have been disorganized. The problem for free traders is that the losers are now pushing back. Long term they will win because they have the votes whereas the winners must rely on campaign cash.