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Mexico Eyes New Tariffs
Monday, 15 March 2010 00:00
Ongoing Dispute Threatens Fresh Retaliation

The Mexican government is preparing to change the list of U.S. products that will be subjected to higher tariffs in retaliation for the continued lockout of that nation’s truck fleets, sources told Transport Topics last week.

A source with knowledge of the situation told TT March 9 that Mexico is “considering a second list” of products to hit with tariffs if the United States continues to keep its border closed to Mexican trucks.

The Mexican Embassy in Washington said in a statement March 9 that the government “will continue to exercise all legal means available to achieve full compliance by the United States with its commitments” under the North American Free Trade Agreement.

The current punitive tariffs, enacted last March, already are having an effect on U.S. businesses and trucking. For example, the 20% tax on frozen processed potatoes cut U.S. exports of french fries to Mexico by 50%.

A new list “has already been put together,” the source said, without revealing what was on it. He added that the Mexican government “wants to see how the administration and Congress move forward, or not, in the coming weeks,” before making a decision on a new round of tariffs. The source asked not to be identified because he was not authorized to speak on the record.

The Obama administration has recently indicated that it is prepared to move forward on a solution, but Mexico has “seen this movie many times before” and “wants to see movement” before dropping the tariffs, the source said.

“They’ve been waiting and were patient with the transition [from the Bush administration] and the [Obama] administration’s willingness to move forward,” the source said. He added that anything shy of a mutually acceptable conclusion that opens the border “will not make it.”

“This doesn’t get resolved by simply reinstituting or expanding the pilot program,” said an official representing a trade group affected by the tariffs. “That is highly unlikely to meet with the Mexican government’s acceptance. The Obama administration has really walked itself into a corner.” This source also asked not to be identified.

The Bush administration had attempted to open the border with a multiyear pilot program, but opposition in Congress and the election of President Obama combined to end the program in early 2009, pushing Mexico to impose the tariffs.

The move to a new group of products to levy tariffs upon was not a surprise to shippers or trucking industry officials.

“The rumors are pretty rampant that [Mexican officials] are going to do what is known as a ‘carousel,’ or to switch up the products,” said Doug Goudie, director of international trade policy at the National Association of Manufacturers, told TT.

“I think everyone is worried that ‘Oh, we dodged a bullet this time, but next time it may be us,’ ” he said. “And the thing is that after a year, the folks that have been hit by these tariffs, a lot of them, have lost their market share, they’ve lost sales and it may be impossible for them to get back into that market after these tariffs. And then you just go on and essentially set fire to a new part of the forest” by switching the goods affected.

The trade group official said he has been hearing that “some relief may be coming soon. . . . That doesn’t fix the problem, and who’s to say that some of the other products that we represent may find their way onto the list.”

Martin Rojas, vice president of security and operations for American Trucking Associations, said, “The list is sort of a moving target, so they can move it to other products, to other goods, as they see fit.”

With the carousel plan, the total tariffs would still add up to roughly $2.4 billion—the total annual judgment the country won under a 2001 decision by a NAFTA arbitration panel that found the United States violated the treaty by not allowing trucks from Mexico to deliver in the United States.

“They have every right to do this; they won a dispute settlement and this is what happens when you are not compliant with your international obligations,” Goudie said.

U.S. officials said they were committed to resolving the dispute.

U.S. Trade Representative Ron Kirk said last week at the National Press Club that the United States “would like to” restart cross-border trucking with Mexico.

“We were most pleased that the language . . . that wiped out the funding [of the original pilot project by Congress] was not included” in the 2010 appropriations law, he said. He added that the Obama administration hoped to “work with Congress as well as with partners in Mexico” to reach a deal.

In a statement, the U.S. Department of Transportation said it was “committed to upholding our international obligations.”

Rod Nofziger, director of governmental affairs for the Owner-Operator Independent Drivers Association, said the United States should be challenging the current tariffs, rather than looking for a way to open the border.

Nofziger said OOIDA opposes the border opening because “NAFTA was supposed to be a reciprocal agreement . . . and Mexico is not exactly a place where American truckers are keen on operating,” citing increased drug-related violence and other issues.

In addition, he questioned whether Mexican fleets could live up to U.S. safety standards.

“It’s awfully hard for our folks to swallow competing with entities that effectively have no regulatory regime south of the border,” Nofziger said.

Goudie said he “didn’t buy the safety angle,” noting that the now-defunct U.S. DOT pilot program showed that Mexican carriers were capable of meeting U.S. standards.

Transport Topics, 3/15/2010