Nafta And Mexican Trucking Case Analysis Essay
Andrew Brickfield
David Kiersnowski
Nicolas Gallardo Vasquez
Case Analysis
Fundamentals of International Business
12 November 2013
NAFTA and Mexican Trucking
Section 1. The Problem; NAFTA and Mexican Trucking
The implementation of NAFTA on January 1, 1994 brought the immediate elimination of tariffs on more than one-half of Mexico 's exports to the U.S. and more than one-third of U.S. exports to Mexico. Under the agreement, the United States and Mexico were to allow trucks from each country to deliver goods to destinations inside the other country, provided the trucks and their drivers met all safety regulations mandated by the host government.
According to Annex I of the agreement, licensed and qualified Mexican trucks were …show more content…
to be allowed to make deliveries in U.S. border states by 1995, a year after the agreement went into effect, and throughout the U.S. by 2000. U.S. trucking firms were to be granted the same access to Mexico. But under pressure from the Teamsters Union, President Clinton unilaterally suspended implementation of the provisions in 1995, citing safety concerns (Griswold 2013).
The North American Free Trade Agreement called for allowing Mexican truckers into the U.S., but the International Brotherhood of Teamsters and Democratic allies in Congress repeatedly used legislation to block access. A NAFTA sanctioned court ruled in the late 1990s that Mexico could impose punitive tariffs, which it did in 2009, affecting $2.4 billion in U.S. goods annually (Public Citizen 2013).
In 2000, the U.S. chose to slow implementation of the NAFTA provision to allow Mexican truckers in the US. Competition from less expensive trucking companies in Mexico would drive down prices of U.S. trucking companies, argued those in favor of slowing implementation. The U.S. Chamber of Commerce as well as well as Public Citizen, a DC special interest group, has since reported that sanctions on Mexican trucks cost the U.S. up to a million jobs. These studies also supported wage loss, economic inequality, and slowed manufacturing export growth. In response to these arguments, the Bush administration enacted a pilot program in 2007 to allow a limited number of Mexican trucks into the U.S., provided these trucks meet U.S. safety regulations. The Teamsters, however, said Mexican truckers have less-stringent vision requirements than truckers in the U.S., which allegedly violates the Pilot Program’s requirement for equivalent trucker safety in the two countries (Public Citizen 2013). As a result, the Teamsters successfully lobbied congress to cut spending for the program, effectively eradicating the pilot program in 2009.
Suspension of the pilot program in 2009 was based on protectionism and prejudice, not legitimate safety concerns. Although the Teamsters union leaders talk about safety, many question their “real agenda.” Some argue that the Teamsters’ mission is not to promote safer roads, but to protect U.S. truckers from increased competition. The broader agenda of their congressional allies is to thwart full implementation of a successful trade agreement with Mexico, the U.S.’s third-largest trading partner. In contrast to stereotypes associated with Mexican drivers, experience from the pilot program has demonstrated that Mexican trucks and their drivers are fully capable of complying with all U.S. safety requirements. An August 2009 report from the Department of Transportation’s Inspector General found that only 1.2% of Mexican drivers that were inspected were placed out of service for violations, compared to nearly 7% of U.S. drivers who were inspected. The “out of service” rate for Mexican trucks was slightly lower than the rate for U.S. trucks, even though Mexican trucks were inspected six times more often than the U.S. trucks (Griswold 2013).
In 2011, the Obama administration signed an agreement with Mexico, allowing Mexican truckers into the U.S. as long as they meet U.S. clean air emissions standards, submit to U.S. security checks, meet U.S. highway safety standards, and drivers know English, demonstrate understanding of U.S. highway signs and purchase U.S. insurance. Today, Mexican truckers are allowed to bring goods deep into the U.S.
Section 2. Country Analysis; Mexico and the U.S.
U.S. ECONOMY
The U.S.
economy, the world’s largest, has a GDP of $15.1 trillion, a small growth rate of 1.7 % and a yearly income of $48,387 per capita. The unemployment rate is hovering around 7.9% while the nation still attempts to recover fully from the 2008 financial crisis and ensuing recession. However, Under Democratic President Barack Obama, the federal system of government, designed to reserve significant powers to the state and local levels, has been strained by the national government’s rapid expansion. Spending at the national level rose to over 25 percent of GDP in 2010, and gross public debt surpassed 100 percent of GDP in 2011 (Heritage …show more content…
2013).
The United States’ economy is a relatively free market system, with an economic freedom score of 76. However, the nation has lost ground again in the 2013 Index compared with past years. Its score is 0.3 points lower than last year, with declines in monetary freedom, business freedom, labor freedom, and fiscal freedom. Thus, because some protectionism and barriers have been imposed, the trade-weighted average tariff rate at 1.8 percent, and additional barriers such as anti-dumping laws and “Buy American” rules add to the cost of trade in the U.S (Heritage 2013).
Due to the proximity of the two nations, the US economy is highly affected by the Mexican economy. Mexico is the third largest exporting country after China and Canada; Mexican exports were valued $174.4 billion in 2011, which represents an increase of 218% in less than a decade. As a result of NAFTA, Mexico and the US cooperate in the following key areas of interest (among others): protection and enforcement of intellectual property rights (IPR); enhancement of collective energy security, including the safe and efficient exploration and exploitation of resources (Villarreal 2013).
U.S. POLITICAL RISKS
The US political risks associated with allowing Mexican truckers into the U.S. revolve around the dependence of U.S. elected leaders on the performance of US markets, and the dependence of U.S. markets on imports from, and exports to Mexico. This is because when certain constituencies are being adversely affected by a market’s performance or by a perceived market outcome of a specific government policy, they apply pressure to their elected representatives to ease their economic pain. The ability for a given constituency to apply significant pressure on its elected representatives varies greatly on the skills and resources held by the individuals that make up the constituency.
Some constituencies derive the power to pressure representatives from sheer size and the ability of members of the constituency to vote for representatives who share their opinions on an issue.
Other constituencies may derive power to pressure representatives from their ability to expend resources such as money and public relations expertise to influence voters outside their constituency to vote with the constituency on a given issue. For example, one constituency affected by NAFTA in the U.S. is Floridian tomatoes growers. These growers know that they cannot compete with Mexicans growers because of low labor and land costs in Mexico creating a much lower priced tomato than what can be grown in the U.S. Thus, on numerous occasions throughout the implementation of NAFTA, Florida growers have pressured elements of the U.S. government to limit the ability of Mexican growers to freely sell tomatoes in the U.S. This has gone as far as Florida growers pressuring the government to initiate two anti-dumping investigations of Mexican tomato growers. Critics of Florida tomato growers speculate that the Tomato Growers are using their large influence in Florida, a U.S. swing state, to encourage numerous government administrations to prevent implementing certain provisions of
NAFTA.
This culminated in 2012, when Florida growers began pressuring the U.S. Commerce Department to begin its second anti-dumping agreement and eliminate a suspension agreement between the U.S and Mexico that has allowed free trade of tomatoes with a price floor between the U.S. and Mexico. If this suspension agreement were to be eliminated, the Mexican government estimates that hundreds of thousands of jobs could be lost in the Mexican tomato industry, which in 2011 shipped 93% of its exports to the U.S. At the same time, many U.S. business leaders and congressmen supported continuing the suspension agreement, because it helped create lower priced tomatoes for American consumers, and many American jobs were actually related to the distribution of Mexican tomatoes in the U.S. Therefore the US congress was forced to reestablish trade with Mexico in order to stabilize their economy, and improve the imports and exports that generate capital for the country. In this case the political risk was that U.S. representatives risked losing votes from a major constituency in Florida if they worked to continue free trade of tomatoes. However, because free trade of tomatoes was already active, the U.S. economy on a macro sense benefited from free trade of tomatoes, and thus U.S. representatives felt they would be serving a greater constituency by voting to maintain the suspension agreement between the U.S. and Mexico (McKeague 2012).
U.S. LEGAL RESTRICTIONS
Throughout the implementation of NAFTA, the US has imposed various restrictions many of the individual markets in order to keep some autonomy over the national economy. Those barriers help the US market to remain stable, to protect consumers, and to be lead in a large part by local U.S. firms, however, free trade or special trade has emerged as a result of NAFTA within some sectors. This has created the opportunity for firms from Mexico and Canada to lead certain industries, which is generally the case for agricultural goods and truck transportation from Mexico (Villarreal 2013).
In the case of Mexican truckers, there was a set of restrictions imposed by the US government and backed with legal standards and bureaucratic obstacles that have lead Mexican firms to exit the market and retained the U.S. domination of trucking in the U.S. However, the reaction was the same from the Mexican side and their series of retaliatory protectionist regulations resulted in a final outcome that was negative for both nations, and especially for US. Ultimately, the legal restrictions imposed had to be removed for the most part, while some were kept to improve the service in the trucking industry, and free trade resumed between the nations.
MEXICAN ECONOMIC SYSTEM
Mexico is one of the most important emerging economies in the world and is renewing its efforts to become a leader in the region; it just became a member of the Pacific Alliance. Mexican GDP is $1.178 trillion, which indicates a major emerging economy with an upper middle-income level (World Bank 2013). Mexico has agreed on an ambitious and comprehensive National Development Plan, which also guides the structural reform agenda to enhance productivity in order to develop key industries to which the central government has not paid due attention in decades.
The Mexican economy recovered from the severe contraction generated by the 2008-2009 global financial crisis as the economy experienced an average annual growth of 4.3 % between 2010 and 2012. The country is recovering it self by developing all the rural areas that are not sustainable by themselves with a project cost of 131 million dollars (world bank 2013), in order to at least cover the people basics need and the own city needs and do not depend on the capital budget. However, More recently, weak external demand has led to stagnation in growth and prompted the Ministry of Finance to lower its growth projection for 2013 to 1.8 %.
MEXICAN POLITICAL RISKS
The primary political risk faced by Mexico is that the nation relies heavily on the U.S. as a destination for exports, and that the nation’s economic health depends on its ability to produce exports, primarily from the agriculture industry. This relationship between Mexico and the U.S. is as much convenience as it is geography: the two nations are right next to each other and have complementary populations and resources, which allow the two nations to serve each others needs. Because of this special relationship, there is a political risk in Mexico that the U.S. economy must be thriving for the Mexican economy to thrive. Mexico has not sufficiently diversified its portfolio of countries to which it exports, and therefore is very much dependent on the health of the U.S. economy to purchase goods produce in Mexico.
The reality of this political risk can be seen in the case of tomato growers in Mexico and the U.S. When the U.S. imposed regulations on tomatoes from Mexico, the Mexico government had to risk hurting the U.S. economy (through retaliatory protectionist trade regulations) in order to protect its own constituents, the Mexican tomato growers (Wingfield 2012).
MEXICAN LEGAL RESTRICTIONS Mexico has rarely imposed many protectionist trade restrictions over U.S. goods; this is because Mexico has been seen as the primary beneficiary of the NAFTA free trade agreement. However, after the U.S. imposed new illegal barriers and regulations on Mexican truckers in the U.S., in direct defiance of the NAFTA agreement, the Mexican government responded with its own series legally valid (because the U.S. had violated NAFTA) tariffs and barriers over numerous US exports to Mexico. This maneuver was both to retaliate for U.S. trade restrictions, and to recoup some lost revenue from new U.S. regulation. However, both countries’ eventual outcomes were inferior to those with free trade; even though barriers and legal restrictions protected both economies, each economy was negatively affected because the capacity of production was not exploited to the maximum (Agren 2013).
Section 3. Situation/Industry/Environment Analysis
TRUCKING PROVISIONS IN NAFTA; WHO BENEFITS? There are numerous beneficiaries from the provision of NAFTA that allows Mexican truckers into the U.S. The primary beneficiaries are the international logistics companies who will no longer have to waste time and resources changing trucks when crossing the U.S.-Mexico border. The requirement that logistics and shipping companies transfer goods from Mexican trucks to U.S. trucks wastes time, money, and human resources and results in an inefficient economy. As a result of this, allowing Mexican trucks into the U.S. will ultimately lead to the benefit of consumers; they will see reduced shipping costs, from more efficient transport policies, reflected in lower priced consumer goods (Richmond, 2009). On the other hand, those that will not benefit from the trucking component of NAFTA are existing U.S. truckers, represented by the Teamsters Union, and even Mexican truckers represented by the Camara Nacional del Autotransporte de Carga
(CANACAR) union. These individuals will be forced to compete with more truckers. This may result in truckers being forced to lower their own transportation prices as a result of new competition.
THE TEAMSTERS The Teamsters have fought vigorously for more than a decade against the implementation of the provision of NAFTA allowing Mexican truckers on U.S. highways. This union, founded in 1903, is one of the largest labor unions in the U.S. They have 1.4 million members and enjoy significant political influence in the United States government. Their arguments against allowing Mexican truckers in the U.S. have ranged from highway safety concerns, to highway traffic concerns, to national security concerns. They have successfully derailed the implementation of the trucking provision of NAFTA on multiple occasions. They are able to do this because of their ability to find allies in both parties, and especially when arguing that safety standards in Mexico do not match those in the U.S. As a result the U.S. congress has repeatedly passed measures to eliminate Mexican truckers in the U.S. Congress has passed new regulations making it difficult for Mexican truckers to enter the U.S., and even eliminated a pilot program allowing a small group of Mexican truckers to enter the U.S. (which found that Mexican truckers were in fact safer than U.S. truckers). Interestingly, Mexican trucking unions have voiced similar concerns in their opposition to this component of NAFTA. (Richmond 2009). THE OBAMA ADMINISTRATION RESPONSE As outlined previously in this paper, the Mexican response to the U.S. government’s repeated failed efforts to make good on all NAFTA provisions was to place restrictive tariffs on $2.3 billion of American goods in 2009. After two years of the U.S. economy suffering as a result of these tariffs, the Obama administration brokered a deal to allow Mexican trucks into the U.S. and eliminate these tariffs. The basis for this deal revolved around the need for the U.S. government to enact adequate safety standards for Mexican trucks, while allowing these trucks to enter the country easily and at a low cost. The Obama administration felt compelled to enact this deal because of pressure caused by the Mexican tariffs. Business groups pressured the Obama administration to honor the NAFTA agreement, and work to make shipping between Mexico and the U.S. less expensive. Constituents such as the Teamsters continued to pressure Obama against making this deal, and even convinced a delegation of congressmen to work to cut funding to the agencies that would implement the Obama administrations solution. The solution allows trucks from Mexico to enter the U.S. for three years following implementation in 2011. (Applebaum 2011)
Section 4. Updates and Current Situation Despite a deal being brokered between the U.S. and Mexico to allow Mexican trucks into the U.S., by May 2012 only 33 Mexican trucks had crossed the U.S. border since it was opened in October 2011. Under the current program only three firms have been given permission to send trucks from Mexico into the U.S. after a rigorous vetting program. Only thee different trucks and three different drivers are responsible for the 33 crossings reported in May 2012. The U.S. and Mexican governments are actively working to process more applicant in hopes that more trucks will cross the border so that the U.S. government can collect more data proving the safety of Mexican truckers, and eventually leading to a permanent program allowing Mexican truckers into the U.S. Currently, the largest Mexican trucking firms are not participating in the border-crossing program because of high U.S. insurance costs and uncertainty over the future of the border. Conversely, there have been more that 2,000 border crossings from American trucks into Mexico, since the border was opened. (Plungis and Martin, 2012)
Section 5. Conclusion The major conclusion garnered from this case is the power of individual constituencies and industries to influence international government policy. The Teamsters Union blocked implementation of an international agreement for more than a decade, despite the fact that consumers across the continent will benefit from its implementation. Furthermore, even after implementation, U.S. trucking firms have benefited more than Mexican firms because of easier ability to enter Mexico. Similarly, Mexican firms cite uncertainty as a major cause of not entering the U.S., if the U.S. government were not so aligned with the desires of the Teamsters and their allies, the economy may run more efficiently for the greater continent.
Works Cited
Applebaum, Binyamin. "U.S. and Mexico Sign Trucking Deal." The New York Times 6
July 2011: B1. Print.
Agren, D. (2013, may 2). U.s., mexico to talk trade barriers during obama visit.
Retrieved from http://www.usatoday.com/story/news/world/2013/05/01/mexicoobama-economy/2126239/ Griswold, Daniel. "The Pilot Program on NAFTA Long-Haul Trucking Provisions."Cato
Institute. N.p., 4th May 2011. Web. 5 Nov. 2013.
Heritage Foundation. "United States: 2013 Index of Economic Fredom." Economy:
Population, GDP, Unemployment, Inflation, Spending. N.p., 2013. Web. 12 Nov. 2013. .
McKeague, K. (2012, SEPTEMBER 13). The politics of tomatoes: U.s. risks trade dispute with mexico. Retrieved from http://www.americasquarterly.org/the-politics-of-tomatoes-united-states-risks-trade-dispute-with-mexico
“NAFTA’s Broken Promises 1994-2013: Outcomes of the North American Free Trade
Agreement” Public Citizen. 2013
Plungis, Jeff, and Eric Martin. "Mexican Truckers Avoiding Border After Presidential
Deal." Bloomberg Businessweek 24 May 2012: n. pag. Print.
Richman, Erica. The NAFTA Trucking Provisions and the Teamsters: Why They
Need Each Other, 29 Nw. J. Int 'l L. & Bus. 555 (2009).
Villarreal, A. (2013, 2). Us and mexico trade. Retrieved from http://www.fas.org/sgp/crs/row/RL32934.pdf Wingfield, W. (2012, September 27). U.s. to end mexican tomato pact, raising risk of trade war. Retrieved from http://www.bloomberg.com/news/2012-09-27/u-s-ends-mexican-tomato-price-accord-raising-risk-of-trade-war.html
World Bank. "Mexico - Economy Overiew." World Bank. N.p., 2013. Web. 12 Nov.
2013. .
David Kiersnowski
Nicolas Gallardo Vasquez
Case Analysis
Fundamentals of International Business
12 November 2013
NAFTA and Mexican Trucking
Section 1. The Problem; NAFTA and Mexican Trucking
The implementation of NAFTA on January 1, 1994 brought the immediate elimination of tariffs on more than one-half of Mexico 's exports to the U.S. and more than one-third of U.S. exports to Mexico. Under the agreement, the United States and Mexico were to allow trucks from each country to deliver goods to destinations inside the other country, provided the trucks and their drivers met all safety regulations mandated by the host government.
According to Annex I of the agreement, licensed and qualified Mexican trucks were …show more content…
to be allowed to make deliveries in U.S. border states by 1995, a year after the agreement went into effect, and throughout the U.S. by 2000. U.S. trucking firms were to be granted the same access to Mexico. But under pressure from the Teamsters Union, President Clinton unilaterally suspended implementation of the provisions in 1995, citing safety concerns (Griswold 2013).
The North American Free Trade Agreement called for allowing Mexican truckers into the U.S., but the International Brotherhood of Teamsters and Democratic allies in Congress repeatedly used legislation to block access. A NAFTA sanctioned court ruled in the late 1990s that Mexico could impose punitive tariffs, which it did in 2009, affecting $2.4 billion in U.S. goods annually (Public Citizen 2013).
In 2000, the U.S. chose to slow implementation of the NAFTA provision to allow Mexican truckers in the US. Competition from less expensive trucking companies in Mexico would drive down prices of U.S. trucking companies, argued those in favor of slowing implementation. The U.S. Chamber of Commerce as well as well as Public Citizen, a DC special interest group, has since reported that sanctions on Mexican trucks cost the U.S. up to a million jobs. These studies also supported wage loss, economic inequality, and slowed manufacturing export growth. In response to these arguments, the Bush administration enacted a pilot program in 2007 to allow a limited number of Mexican trucks into the U.S., provided these trucks meet U.S. safety regulations. The Teamsters, however, said Mexican truckers have less-stringent vision requirements than truckers in the U.S., which allegedly violates the Pilot Program’s requirement for equivalent trucker safety in the two countries (Public Citizen 2013). As a result, the Teamsters successfully lobbied congress to cut spending for the program, effectively eradicating the pilot program in 2009.
Suspension of the pilot program in 2009 was based on protectionism and prejudice, not legitimate safety concerns. Although the Teamsters union leaders talk about safety, many question their “real agenda.” Some argue that the Teamsters’ mission is not to promote safer roads, but to protect U.S. truckers from increased competition. The broader agenda of their congressional allies is to thwart full implementation of a successful trade agreement with Mexico, the U.S.’s third-largest trading partner. In contrast to stereotypes associated with Mexican drivers, experience from the pilot program has demonstrated that Mexican trucks and their drivers are fully capable of complying with all U.S. safety requirements. An August 2009 report from the Department of Transportation’s Inspector General found that only 1.2% of Mexican drivers that were inspected were placed out of service for violations, compared to nearly 7% of U.S. drivers who were inspected. The “out of service” rate for Mexican trucks was slightly lower than the rate for U.S. trucks, even though Mexican trucks were inspected six times more often than the U.S. trucks (Griswold 2013).
In 2011, the Obama administration signed an agreement with Mexico, allowing Mexican truckers into the U.S. as long as they meet U.S. clean air emissions standards, submit to U.S. security checks, meet U.S. highway safety standards, and drivers know English, demonstrate understanding of U.S. highway signs and purchase U.S. insurance. Today, Mexican truckers are allowed to bring goods deep into the U.S.
Section 2. Country Analysis; Mexico and the U.S.
U.S. ECONOMY
The U.S.
economy, the world’s largest, has a GDP of $15.1 trillion, a small growth rate of 1.7 % and a yearly income of $48,387 per capita. The unemployment rate is hovering around 7.9% while the nation still attempts to recover fully from the 2008 financial crisis and ensuing recession. However, Under Democratic President Barack Obama, the federal system of government, designed to reserve significant powers to the state and local levels, has been strained by the national government’s rapid expansion. Spending at the national level rose to over 25 percent of GDP in 2010, and gross public debt surpassed 100 percent of GDP in 2011 (Heritage …show more content…
2013).
The United States’ economy is a relatively free market system, with an economic freedom score of 76. However, the nation has lost ground again in the 2013 Index compared with past years. Its score is 0.3 points lower than last year, with declines in monetary freedom, business freedom, labor freedom, and fiscal freedom. Thus, because some protectionism and barriers have been imposed, the trade-weighted average tariff rate at 1.8 percent, and additional barriers such as anti-dumping laws and “Buy American” rules add to the cost of trade in the U.S (Heritage 2013).
Due to the proximity of the two nations, the US economy is highly affected by the Mexican economy. Mexico is the third largest exporting country after China and Canada; Mexican exports were valued $174.4 billion in 2011, which represents an increase of 218% in less than a decade. As a result of NAFTA, Mexico and the US cooperate in the following key areas of interest (among others): protection and enforcement of intellectual property rights (IPR); enhancement of collective energy security, including the safe and efficient exploration and exploitation of resources (Villarreal 2013).
U.S. POLITICAL RISKS
The US political risks associated with allowing Mexican truckers into the U.S. revolve around the dependence of U.S. elected leaders on the performance of US markets, and the dependence of U.S. markets on imports from, and exports to Mexico. This is because when certain constituencies are being adversely affected by a market’s performance or by a perceived market outcome of a specific government policy, they apply pressure to their elected representatives to ease their economic pain. The ability for a given constituency to apply significant pressure on its elected representatives varies greatly on the skills and resources held by the individuals that make up the constituency.
Some constituencies derive the power to pressure representatives from sheer size and the ability of members of the constituency to vote for representatives who share their opinions on an issue.
Other constituencies may derive power to pressure representatives from their ability to expend resources such as money and public relations expertise to influence voters outside their constituency to vote with the constituency on a given issue. For example, one constituency affected by NAFTA in the U.S. is Floridian tomatoes growers. These growers know that they cannot compete with Mexicans growers because of low labor and land costs in Mexico creating a much lower priced tomato than what can be grown in the U.S. Thus, on numerous occasions throughout the implementation of NAFTA, Florida growers have pressured elements of the U.S. government to limit the ability of Mexican growers to freely sell tomatoes in the U.S. This has gone as far as Florida growers pressuring the government to initiate two anti-dumping investigations of Mexican tomato growers. Critics of Florida tomato growers speculate that the Tomato Growers are using their large influence in Florida, a U.S. swing state, to encourage numerous government administrations to prevent implementing certain provisions of
NAFTA.
This culminated in 2012, when Florida growers began pressuring the U.S. Commerce Department to begin its second anti-dumping agreement and eliminate a suspension agreement between the U.S and Mexico that has allowed free trade of tomatoes with a price floor between the U.S. and Mexico. If this suspension agreement were to be eliminated, the Mexican government estimates that hundreds of thousands of jobs could be lost in the Mexican tomato industry, which in 2011 shipped 93% of its exports to the U.S. At the same time, many U.S. business leaders and congressmen supported continuing the suspension agreement, because it helped create lower priced tomatoes for American consumers, and many American jobs were actually related to the distribution of Mexican tomatoes in the U.S. Therefore the US congress was forced to reestablish trade with Mexico in order to stabilize their economy, and improve the imports and exports that generate capital for the country. In this case the political risk was that U.S. representatives risked losing votes from a major constituency in Florida if they worked to continue free trade of tomatoes. However, because free trade of tomatoes was already active, the U.S. economy on a macro sense benefited from free trade of tomatoes, and thus U.S. representatives felt they would be serving a greater constituency by voting to maintain the suspension agreement between the U.S. and Mexico (McKeague 2012).
U.S. LEGAL RESTRICTIONS
Throughout the implementation of NAFTA, the US has imposed various restrictions many of the individual markets in order to keep some autonomy over the national economy. Those barriers help the US market to remain stable, to protect consumers, and to be lead in a large part by local U.S. firms, however, free trade or special trade has emerged as a result of NAFTA within some sectors. This has created the opportunity for firms from Mexico and Canada to lead certain industries, which is generally the case for agricultural goods and truck transportation from Mexico (Villarreal 2013).
In the case of Mexican truckers, there was a set of restrictions imposed by the US government and backed with legal standards and bureaucratic obstacles that have lead Mexican firms to exit the market and retained the U.S. domination of trucking in the U.S. However, the reaction was the same from the Mexican side and their series of retaliatory protectionist regulations resulted in a final outcome that was negative for both nations, and especially for US. Ultimately, the legal restrictions imposed had to be removed for the most part, while some were kept to improve the service in the trucking industry, and free trade resumed between the nations.
MEXICAN ECONOMIC SYSTEM
Mexico is one of the most important emerging economies in the world and is renewing its efforts to become a leader in the region; it just became a member of the Pacific Alliance. Mexican GDP is $1.178 trillion, which indicates a major emerging economy with an upper middle-income level (World Bank 2013). Mexico has agreed on an ambitious and comprehensive National Development Plan, which also guides the structural reform agenda to enhance productivity in order to develop key industries to which the central government has not paid due attention in decades.
The Mexican economy recovered from the severe contraction generated by the 2008-2009 global financial crisis as the economy experienced an average annual growth of 4.3 % between 2010 and 2012. The country is recovering it self by developing all the rural areas that are not sustainable by themselves with a project cost of 131 million dollars (world bank 2013), in order to at least cover the people basics need and the own city needs and do not depend on the capital budget. However, More recently, weak external demand has led to stagnation in growth and prompted the Ministry of Finance to lower its growth projection for 2013 to 1.8 %.
MEXICAN POLITICAL RISKS
The primary political risk faced by Mexico is that the nation relies heavily on the U.S. as a destination for exports, and that the nation’s economic health depends on its ability to produce exports, primarily from the agriculture industry. This relationship between Mexico and the U.S. is as much convenience as it is geography: the two nations are right next to each other and have complementary populations and resources, which allow the two nations to serve each others needs. Because of this special relationship, there is a political risk in Mexico that the U.S. economy must be thriving for the Mexican economy to thrive. Mexico has not sufficiently diversified its portfolio of countries to which it exports, and therefore is very much dependent on the health of the U.S. economy to purchase goods produce in Mexico.
The reality of this political risk can be seen in the case of tomato growers in Mexico and the U.S. When the U.S. imposed regulations on tomatoes from Mexico, the Mexico government had to risk hurting the U.S. economy (through retaliatory protectionist trade regulations) in order to protect its own constituents, the Mexican tomato growers (Wingfield 2012).
MEXICAN LEGAL RESTRICTIONS Mexico has rarely imposed many protectionist trade restrictions over U.S. goods; this is because Mexico has been seen as the primary beneficiary of the NAFTA free trade agreement. However, after the U.S. imposed new illegal barriers and regulations on Mexican truckers in the U.S., in direct defiance of the NAFTA agreement, the Mexican government responded with its own series legally valid (because the U.S. had violated NAFTA) tariffs and barriers over numerous US exports to Mexico. This maneuver was both to retaliate for U.S. trade restrictions, and to recoup some lost revenue from new U.S. regulation. However, both countries’ eventual outcomes were inferior to those with free trade; even though barriers and legal restrictions protected both economies, each economy was negatively affected because the capacity of production was not exploited to the maximum (Agren 2013).
Section 3. Situation/Industry/Environment Analysis
TRUCKING PROVISIONS IN NAFTA; WHO BENEFITS? There are numerous beneficiaries from the provision of NAFTA that allows Mexican truckers into the U.S. The primary beneficiaries are the international logistics companies who will no longer have to waste time and resources changing trucks when crossing the U.S.-Mexico border. The requirement that logistics and shipping companies transfer goods from Mexican trucks to U.S. trucks wastes time, money, and human resources and results in an inefficient economy. As a result of this, allowing Mexican trucks into the U.S. will ultimately lead to the benefit of consumers; they will see reduced shipping costs, from more efficient transport policies, reflected in lower priced consumer goods (Richmond, 2009). On the other hand, those that will not benefit from the trucking component of NAFTA are existing U.S. truckers, represented by the Teamsters Union, and even Mexican truckers represented by the Camara Nacional del Autotransporte de Carga
(CANACAR) union. These individuals will be forced to compete with more truckers. This may result in truckers being forced to lower their own transportation prices as a result of new competition.
THE TEAMSTERS The Teamsters have fought vigorously for more than a decade against the implementation of the provision of NAFTA allowing Mexican truckers on U.S. highways. This union, founded in 1903, is one of the largest labor unions in the U.S. They have 1.4 million members and enjoy significant political influence in the United States government. Their arguments against allowing Mexican truckers in the U.S. have ranged from highway safety concerns, to highway traffic concerns, to national security concerns. They have successfully derailed the implementation of the trucking provision of NAFTA on multiple occasions. They are able to do this because of their ability to find allies in both parties, and especially when arguing that safety standards in Mexico do not match those in the U.S. As a result the U.S. congress has repeatedly passed measures to eliminate Mexican truckers in the U.S. Congress has passed new regulations making it difficult for Mexican truckers to enter the U.S., and even eliminated a pilot program allowing a small group of Mexican truckers to enter the U.S. (which found that Mexican truckers were in fact safer than U.S. truckers). Interestingly, Mexican trucking unions have voiced similar concerns in their opposition to this component of NAFTA. (Richmond 2009). THE OBAMA ADMINISTRATION RESPONSE As outlined previously in this paper, the Mexican response to the U.S. government’s repeated failed efforts to make good on all NAFTA provisions was to place restrictive tariffs on $2.3 billion of American goods in 2009. After two years of the U.S. economy suffering as a result of these tariffs, the Obama administration brokered a deal to allow Mexican trucks into the U.S. and eliminate these tariffs. The basis for this deal revolved around the need for the U.S. government to enact adequate safety standards for Mexican trucks, while allowing these trucks to enter the country easily and at a low cost. The Obama administration felt compelled to enact this deal because of pressure caused by the Mexican tariffs. Business groups pressured the Obama administration to honor the NAFTA agreement, and work to make shipping between Mexico and the U.S. less expensive. Constituents such as the Teamsters continued to pressure Obama against making this deal, and even convinced a delegation of congressmen to work to cut funding to the agencies that would implement the Obama administrations solution. The solution allows trucks from Mexico to enter the U.S. for three years following implementation in 2011. (Applebaum 2011)
Section 4. Updates and Current Situation Despite a deal being brokered between the U.S. and Mexico to allow Mexican trucks into the U.S., by May 2012 only 33 Mexican trucks had crossed the U.S. border since it was opened in October 2011. Under the current program only three firms have been given permission to send trucks from Mexico into the U.S. after a rigorous vetting program. Only thee different trucks and three different drivers are responsible for the 33 crossings reported in May 2012. The U.S. and Mexican governments are actively working to process more applicant in hopes that more trucks will cross the border so that the U.S. government can collect more data proving the safety of Mexican truckers, and eventually leading to a permanent program allowing Mexican truckers into the U.S. Currently, the largest Mexican trucking firms are not participating in the border-crossing program because of high U.S. insurance costs and uncertainty over the future of the border. Conversely, there have been more that 2,000 border crossings from American trucks into Mexico, since the border was opened. (Plungis and Martin, 2012)
Section 5. Conclusion The major conclusion garnered from this case is the power of individual constituencies and industries to influence international government policy. The Teamsters Union blocked implementation of an international agreement for more than a decade, despite the fact that consumers across the continent will benefit from its implementation. Furthermore, even after implementation, U.S. trucking firms have benefited more than Mexican firms because of easier ability to enter Mexico. Similarly, Mexican firms cite uncertainty as a major cause of not entering the U.S., if the U.S. government were not so aligned with the desires of the Teamsters and their allies, the economy may run more efficiently for the greater continent.
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