Mexico - Mexico Threatens More Tariffs as NAFTA Trucking Dispute Rumbles On

12 Jul 2011 • by Natalie Aster

BMI believes that a planned cross-border trucking pilot project between the US and Mexico is good news for road freight operators and shippers in both countries. An agreement on the issue is long overdue. We caution, however, that if the latest agreement is not successful, Mexico may increase the US$2.4bn in punitive tariffs it has placed on US goods.

Key Views:

  • US President Barrack Obama's drive to double US exports by 2015 has given his administration the impetus to reach an agreement with the country's southern neighbour.
  • We expect the pilot programme to receive strong backing from US shippers and Mexican trucking companies, as well as the increasing number of US trucking companies with interests in Mexico.
  • The programme will continue to attract vocal criticism from US-based truckers, and it faces some hurdles in Capitol Hill.
  • If the latest agreement is not successful, Mexico may increase the US$2.4bn in punitive tariffs it has placed on US goods.

An official from the Mexican embassy in the US says Mexico 'reserves the right' to broaden and increase punitive tariffs if the Obama administration fails to implement the agreed cross-border trucking programme. 'We reserve the right to re-impose, change, increase or deepen the retaliation list,' Karen Antebi told the Washington International Trade Association June 29. The tariffs were imposed two years ago when the Obama administration suspended a pilot programme allowing 100 Mexican trucks access to the US.

The decision was applauded by US truckers, but prompted a sharp backlash from Mexico City. In response to the suspension, which violated the terms of NAFTA, the Mexican government slapped more than US$2.4bn in tariffs on US products. The initial list included agricultural goods such as pears, cherries, grapes and potatoes, all of which were hit by import tariffs of 20%, and manufactured goods such as shampoo and toothpaste, which had levies of 15% imposed upon them, with products such as pork, oranges and chewing gum later added to the list. Tariffs have not affected rice, corn, beans or wheat, which are the main US agricultural products exported to Mexico and make up much of the average Mexican's diet. US exporters, particularly agricultural shippers, say their business has been held hostage to the dispute.

However, in March Obama announced that the US and Mexico had reached a deal that would allow Mexican trucks cross the US border, potentially ending the long-standing and bitter dispute. 'After nearly 20 years, we finally have found a clear path to resolving the dispute over trucking between our two countries', Obama said after his fifth meeting with Mexican President Felipe Calderon. According to the deal, once a final agreement is reached Mexico will phase out its retaliatory tariffs, initially reducing tariffs by 50%. Mexico will suspend the remainder of the tariffs when the first Mexican carrier is granted operating authority under the program, the White House said. The tariffs will be terminated when the program is 'normalised'. 'This agreement will deliver a program that is safe, secure, efficient and advances the economic interests of both the United States and Mexico', the White House said.

BMI believes that the Obama administration's plan to steer the US economy away from an overreliance on domestic consumption and boost the country's exports means that a final agreement is likely to be reached sooner rather than later. However, not all US interests are eager for this. Although BMI recognises the deal as a positive step, we caution that the agreement is as yet preliminary. Negotiators must deal with 'remaining issues' and the Obama administration must consult with 'interested members of congress'. We believe the deal, while welcomed by shippers and the Mexican government, will face vociferous objections from the US trucking lobby, as well as from elements in congress. US Transport Secretary Ray LaHood met with the Teamsters union's general president, James Hoffa, in January but won no endorsement for a compromise with Mexico. 'He hates this program. But this is the law and it's part of NAFTA and we have to do it', Lahood said.

After two consecutive years of contractions, BMI predicts growth of 4% in Mexican road freight this year. We forecast average year-on-year growth in road freight tonnes/km of 3% during our forecast period. The possibility of a deal on cross-border trucking provides considerable upside risks to our forecasts.

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