The 1994 passage of the North American Free Trade Agreement (NAFTA) was a major commitment to bolstering the interconnectedness between the United States and Mexico. Since implementation, the two countries have continued to realize increased economic growth and efficiency gains from integrated production. In 2012, Mexico was the second largest goods export destination for the U.S. and the third largest goods import destination. Despite this distinction, the United States has failed to fully implement NAFTA due to limitations on cross border trucking for Mexico-domiciled trucks.
In 2009 Congress cut funding for the pilot Border Trucking Demonstration Project which began in 2007 and temporarily allowed Mexican trucks expanded access to the U.S. roadways. This termination was in violation to the market opening tenets of NAFTA. The U.S. required cargos to be offloaded within 25 miles of the border within designated commercial zones. Products were then reloaded onto American trucks and routed to final destinations, causing delays in arrival due to the time required to make transfers. With more than seventy percent of U.S. trade with Mexico arriving by truck, the U.S. Department of Transportation determined that the ban on cross-border trucking imposes an additional $200 million to $400 million in transportation costs each year.
When the U.S. suspended highway access to Mexican trucks, the Mexican government imposed tariffs ranging from ten to forty five percent of value on 89 agricultural and industrial products the U.S. exports to Mexico. These costs are passed on to the consumer in higher prices of Mexican imports, demonstrating how protectionist tendencies are harmful to the citizens they are purported to benefit.
Perhaps the most damaging effect of noncompliance is the tarnishing of the reputation amongst other trading partners. Trade agreements can only be successful if both parties are willing to abide by the agreed upon rules stipulated in formal agreements. Fortunately the new pilot program, Pilot Program on NAFTA Trucking Provisions, which began in October 2011 is a step in the right direction for repairing the U.S. image and boosting the U.S. and Mexican economies. After the first Mexican truck entered the U.S., Mexico suspended the increased tariffs, representing a cost-savings of $2 billion annually.
The argument against Mexican trucks entering the United States has been and continues to be a political one, with fierce opposition from the Teamsters union and negative public opinion of losing American jobs due to competition with Mexico. However, forty percent of inputs included in Mexican imports are from the United States and therefore produce revenue for American companies due to joint production. Additional concerns have included the safety of Mexican trucks in comparison to those of the U.S., and have proven to be unfounded. Mexican trucks are in fact subject to more frequent inspection and have been found to be in compliance with U.S. safety regulations. Safety concerns should be assuaged by the strict guidelines for pilot program entry which include alcohol screening, operating condition of vehicles, and driver proficiency in English. These regulations are coupled with continuous monitoring of drivers via GPS trackers installed in each vehicle.
The pilot program can be used to demonstrate the ability for the U.S. and Mexican governments to come to agreement on safety standards and tout the economic advantages of truly free trade for both countries. The North American Free Trade Agreement includes the United States, Canada, and Mexico, and Canadian trucks have never been limited in their ability to enter the U.S. The pilot program is helping Mexico achieve the equality it deserves. Additionally successful implementation of the pilot program could lead to elimination of the restrictions on foreign investment in trucking companies across borders and represent the potential for even greater efficiency gains.