NAFTA's Chapter 12 - the Dispute and Lessons

EXECUTIVE SUMMARY NAFTA's chapter 12 was intended to liberalize cross-border long haul transportation services. The agreement has never been fully implemented except for a brief pilot project in 2007. The US government has postponed implementation on the grounds that Mexican trucking carriers pose safety and security hazards. Organized labor and many members of Congress have been strong in opposing the agreement. In response, Mexico has imposed tariffs on US exports to Mexico and the tariffs seem to have had a strong impact on agriculture and other industries in many US states. In March 2011, Mexico and the US announced an outline for resolving the dispute. If successful, the agreement will allow Mexican carriers to operate on US highways and reduce and ultimately remove the tariffs. Keywords: NAFTA, Mexico, Cross-border trucking, Tariffs, Congress. INTRODUCTION - A RECENT AGREEMENT On March 3, 2011, the governments of the United States and Mexico announced a framework for resolving the seventeen-year old dispute that originated when the US postponed implementing the part of NAFTA intended to allow cross-border long haul transportation services by Mexico-Domiciled Motor Carriers (MDMC). The cross-border transportation was part of NAFTA's chapter 12 titled Cross Border Trade in Services, which was agreed to and signed by NAFTA parties in 1994 but never actually implemented except for a brief 18-month pilot project between 2007 and 2009. The full details of this recent agreement have not yet been made public. The Department of Transportation (DOT) and the US Trade Representatives will seek comments from the public before presenting it to Congress for ratification. If a final agreement is reached, and the US allows certified MDMCs on US highways, Mexico would dismantle the trade tariffs it imposed on US exports in 2009. The Dispute Before 1982, Mexican and Canadian motor carriers were allowed to operate in the United States after obtaining authorization from the Interstate Commerce Commission (ICC), which evaluated each carrier on a long list of strict safety and security regulations that equaled or surpassed standards applicable to US carriers. In 1982, Congress passed the Bus Regulatory Reform Act (BRRA) which imposed a moratorium on Mexican and Canadian carriers. Within months, the US lifted the moratorium on Canada, but the moratorium on Mexico stayed. This was not resolved until NAFTA was negotiated and agreed to in 1994, and in January of that year, the President modified the BRRA moratorium and instructed ICC to begin accepting applications from MDMCs to implement NAFTA's Chapter12. However, not long after that the President reversed course and halted the implementation on December 17, 1996, just one day before Mexican trucks were scheduled to travel beyond the 25-mile border zone (Richman, 2009). In 1998, Mexico filed a claim against the United States, claiming that the US refusal to grant authority to Mexican carriers was a breach of NAFTA. On February 6, 2001, the NAFTA arbitration panel issued its final and unanimous finding and ruled in Mexico's favor, concluding that the United States was in breach of its NAFTA obligations. The arbitration panel also authorized Mexico to impose tariffs on US exports to Mexico. The US Department of Transportation (DOT) was intent on implementing the arbitration resolution and compling with NAFTA provisions. To that end, and in May 2001, DOT released the DOT Trucking Regulations which would gradually allow Mexican trucks, certified to comply with US safety standards, to operate beyond the commercial 25-mile zone. Senior DOT administrators testified repeatedly that Mexican carriers had a reliable safety track record and never posed safety risks to the American public. However, bowing to pressure from interest groups, Congress passed the Murray Amendment which brought DOT Regulations and NAFTA implementation to a complete halt. As a result, cargoes from Mexican carriers had to be unloaded in the commercial zone of 25 miles from the border, warehoused if need be, and re-loaded onto US carriers for the rest of the journey. …