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Mexican Trucking: On the Road to Trade Liberalization

By Howard Shatz, research fellow, Public Policy Institute of California
This opinion article appeared in the San Diego Union Tribune on December 18, 2002

In late November, the Bush administration agreed to honor America's obligations under the North American Free Trade Agreement to open U.S. roads to Mexican truckers beyond the narrow border zone to which they were previously restricted.

The opening was originally to occur in 2000 but was delayed due to concerns about safety and the environment. In response to a case brought by the Mexican government, a NAFTA panel ruled two years ago that the United States was violating its commitments under the treaty. Although controversial, our government's decision to abide by this ruling represents important progress for U.S.-Mexican relations, as well as a gesture of respect for our international commitments at a time when the United States is being roundly accused of going it alone.

The policy change actually includes two components. First, Mexican companies will be able to transport passengers in cross-border scheduled bus service. No longer will Mexicans coming to the United States have to change carriers at the border. Second, Mexican companies will be able to transport goods from Mexico to the United States. In neither case will buses or trucks be allowed to run services between two U.S. cities - the policy applies only to routes running between Mexico and the United States.

At this point, the United States has received more than 130 applications from Mexican companies, some of which should be approved within the next few weeks. Mexico has consistently stated that U.S. companies will have the reciprocal right to drive into Mexico, though few have shown any interest.

This policy is not without strings. Mexican buses and trucks will be subject to the same U.S. safety regulations, insurance requirements and vehicle standards as any bus or truck owned by an American company. In fact, Congress last year approved numerous new safety measures for Mexican trucks, including more border inspectors, new licensing requirements and safety procedures for Mexican drivers.

These measures were supported by the International Brotherhood of Teamsters, the truck-drivers' union. Earlier this year, however, a coalition of Teamsters and others groups sued to block the trucks on environmental grounds. That suit is still pending, and an emergency stay was requested last week to continue barring Mexican trucks and buses.

If and when the court action is resolved, what will these changes mean? Besides new license plates on the road as Mexican trucks drive from San Ysidro all the way to Los Angeles, or San Francisco, or out-of-state points north and east, the new rules could mean lower shipping costs for Mexican goods, and for U.S. goods making the return journey, and lower cost and more convenient trans-border travel for Mexicans visiting their friends and relatives in California.

Inevitably, though, there also will be more competition for the California bus or truck companies who now drive these routes. And it remains to be seen what the environmental effects might be.

Thus, it is important to look at how the policy balances out among competing interests. First, advocates of free trade and globalization will be heartened because the move opens up a type of trade between the United States and Mexico, specifically, services trade. Mexican companies driving into the United States are exporting a service to the United States, while U.S. companies driving into Mexico are exporting a service to Mexico.

Moreover, the measure could pay off in other sectors. Transport costs represent far higher barriers to goods trade than do tariffs, so anything that lowers transport costs will facilitate trade generally.

Second, the move should be encouraging for those who see free trade as a way of boosting the economic advancement of poor countries. Many experts have decried the lack of opening by rich countries to the services trade of developing countries, especially those services that use less-skilled labor, which poor countries have in abundance. While the rich countries block services trade by poor countries, they insist that poor countries open up trade in those services in which the rich countries specialize, such as finance and insurance.

But what about the U.S. interests that will be immediately affected - American drivers and American bus and truck companies? Some will be hurt. How many depends on how many Mexican companies choose to take advantage of the policy change. In fact, insofar as the lower transport costs spur more trade, companies that compete directly with the newly imported goods will feel more competition.

The motivation for freer trade has always had an implicit bargain - some groups will get hurt, but society overall will be better off; some jobs will disappear, but new jobs will be created. Indeed, complex trade agreements - NAFTA is more than 1,000 pages - always embody detailed trade-offs that attempt to balance these competing interests.

Overall, the Mexican trucking action is a significant change. It has the potential to create opportunities for Mexico and for the entire range of industries in which the United States and Mexico trade. At this uncertain time, even small efforts that help to promote a healthy, stable economy on our southern border are in all our interests.

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